SDVOSB Control Under Fire: What VSBC-423-P and ELK Solutions Reveal About Government Contract Fraud and False Claims Act Risk

SDVOSB Control Under Fire: What VSBC-423-P and ELK Solutions

SDVOSB Control Under Fire: What VSBC-423-P and ELK SolutionsFor service-disabled veteran-owned small businesses (SDVOSBs), holding a federal contract is a privilege—but it comes with heavy scrutiny. What happens when your SDVOSB status is challenged not just in a bid protest, but during a False Claims Act investigation or even a criminal indictment for SDVOSB fraud? That’s not a hypothetical. It’s happening with growing frequency.

In SBA No. VSBC-423-P (2025), the Small Business Administration’s Office of Hearings and Appeals (OHA) once again reinforced a central requirement under 13 C.F.R. § 128.203: qualifying veterans must actually control their companies—not just on paper, but in real, documentable practice. This case, involving ELK Solutions, Inc., has significant implications not only for SDVOSB bid protest defense, but also for small business owners facing white-collar criminal investigations tied to government contracts.

If you are a defense contractor, construction firm, IT service provider, or other small business with SDVOSB status—and especially if you’re under federal investigation or seeking legal defense for procurement fraud allegations—this case has direct application.

Let’s unpack this:

  • The legal backbone of SDVOSB control under SBA rules
  • How VSBC-423-P and ELK Solutions clarify enforcement standards
  • When control issues escalate into civil or criminal False Claims Act liability
  • Why your SDVOSB lawyer must be both protest-ready and white-collar defense capable
  • How to defend your business during an SBA protest, OIG audit, or DOJ SDVOSB fraud investigation

Whether you’re proactively managing compliance or responding to a subpoena, this guidance will help you understand the legal landscape and avoid the pitfalls that lead from protest to prosecution.

SDVOSB Control: More Than Just a Title

What SBA Requires — And What SDVOSB Fraud Investigators Look For

The SDVOSB program doesn’t just reward ownership—it demands control. Under 13 C.F.R. § 128.203, a service-disabled veteran must control both long-term decision-making and day-to-day management.

But what does “control” really mean in an era where DOJ prosecutors and SBA investigators are pursuing SDVOSB fraud cases under the False Claims Act (FCA)?

The Full-Time Devotion Standard

A pivotal rule from 13 C.F.R. § 128.203(i)(2) states:

“When a qualifying veteran claiming to control a business concern devotes fewer hours to the business than its normal hours of operation, SBA will assume that the qualifying veteran does not control the business concern, unless the concern demonstrates that the qualifying veteran has ultimate managerial and supervisory control over both the long-term decision making and day-to-day management of the business.”

Translation? Suppose you’re a veteran business owner who also works another job, or isn’t on-site during normal business hours. In that case, the government will assume you don’t control the company unless you prove otherwise. In False Claims Act cases involving SDVOSB fraud, this becomes Exhibit A.

13 CFR § 128.203 Who does SBA consider to control a VOSB or SDVOSB?

(a) General. To be an eligible VOSB, the concern’s management and daily business operations must be controlled by one or more veterans. To be an eligible SDVOSB, the management and daily business operations of the concern must be controlled by one or more service-disabled veterans (or in the case of a veteran with permanent and severe disability, the spouse or permanent caregiver of such veteran). Control by one or more qualifying veterans means that one or more qualifying veterans control both the long-term decision-making and the day-to-day operations of the Applicant or Participant.

(b) Managerial position and experience. A qualifying veteran must hold the highest officer position in the corporation (usually President or Chief Executive Officer) and must have managerial experience of the extent and complexity needed to control the corporation. The qualifying veteran need not have the technical expertise or possess the required license to be found to control of the concern if the qualifying veteran can demonstrate that he or she has ultimate managerial and supervisory control over those who possess the required licenses or technical expertise.

SDVOSB Control and Limitation on outside employment.

(1) A qualifying veteran generally must devote full time to the business concern during its normal hours of operations. The qualifying veteran who holds the highest officer position of the business concern may not engage in outside employment that prevents the qualifying veteran from devoting the time and attention to the concern necessary to control its management and daily business operations.

(2) Where a qualifying veteran claiming to control a business concern devotes fewer hours to the business than its normal hours of operation, SBA will assume that the qualifying veteran does not control the business concern, unless the concern demonstrates that the qualifying veteran has ultimate managerial and supervisory control over both the long-term decision making and day-to-day management of the business.

What Happened in SBA No. VSBC-423-P (2025)

In VSBC-423-P, OHA reviewed a protest filed against ELK Solutions, Inc., an SDVOSB awardee. The challenger argued ELK’s qualifying veterans were not actually in control because they worked for a related subcontractor. The protest alleged that ELK’s SDV principals didn’t devote full-time hours and were entangled with a non-veteran company.

OHA’s Findings

OHA acknowledged the outside employment but found that ELK rebutted the presumption of non-control. The veterans held majority voting rights, made strategic decisions, and had supervisory authority over all operations. Their operating agreement and time allocations proved they retained ultimate control—even if their workday hours were unconventional.

This decision emphasized that SBA focuses on substance over form. Titles mean little if the actual evidence suggests another individual or entity calls the shots.

Why This Case Matters for Procurement Fraud and False Claims Act SDVOSB Fraud Investigations

In SDVOSB-related False Claims Act investigations, federal prosecutors often allege that:

  • The veteran “front” did not control the company
  • A non-veteran or larger firm actually ran operations
  • The SDVOSB certification was false from the start, leading to fraudulent awards

The VSBC-423-P case illustrates the kind of documentation and operational control that can rebut these allegations. If your firm can’t demonstrate similar control, you may be vulnerable not just to protest loss, but FCA penalties or criminal indictment for SDVOSB fraud.

When SDVOSB Protests Escalate into False Claims Act Cases

Let’s be clear: SBA status protests are administrative. But if the protest reveals deeper control issues—or appears to confirm that SDVOSB certification was a sham—it can escalate quickly into civil or criminal proceedings.

Civil FCA Liability (31 U.S.C. § 3729)

The False Claims Act imposes treble damages and civil penalties for knowingly submitting false claims under 31 U.S.C. § 3729. If a company misrepresents its SDVOSB status to win contracts, every invoice submitted under that contract could be deemed a false claim.

Criminal FCA Liability (18 U.S.C. § 287)

If prosecutors believe the misrepresentation was intentional or reckless, criminal charges may follow. Under 18 U.S.C. § 287, the DOJ can pursue prison time and fines of $250,000+ for individuals, and up to $500,000 for organizations—per count.

A pattern of control violations—like using a veteran as a figurehead while a non-veteran operates the business—may constitute wire fraud, conspiracy, or major fraud against the United States.

SBA Investigations and OIG Referrals

SBA protests can generate referrals to the Office of Inspector General (OIG), which investigates fraud, waste, and abuse. These investigators often partner with DOJ prosecutors to build white-collar criminal cases involving:

  • Sham SDVOSBs
  • Affiliation and pass-through violations
  • Bribery or kickbacks in federal procurement

When You Need a White-Collar SDVOSB Fraud Defense Lawyer

If your company is under investigation or you receive a subpoena, don’t rely on a “certification consultant” or general business attorney. You need a legal team that understands:

  • SDVOSB regulations and SBA OHA case law
  • False Claims Act defense (civil and criminal)
  • Federal SDVOSB fraud and procurement fraud statutes
  • Suspension/debarment defense
  • Bid protest and appeal strategy

Conclusion: Protests Are Only the Beginning

SBA No. VSBC-423-P is a wake-up call: the control standard isn’t just about passing a checklist during certification. It’s about your actual structure, your real operations, and your daily decision-making. And when things go wrong, the consequences extend far beyond losing a contract.

If you’re an SDVOSB under scrutiny—or you want to ensure you can withstand it—you need a legal team with firepower. At Watson & Associates, we defend small businesses in bid protests, SBA investigations, False Claims Act litigation, and federal criminal cases. We don’t just file paperwork. We protect your company’s future.

Facing an SDVOSB protest, OIG audit, or DOJ subpoena?

Schedule a confidential consultation with our SDVOSB fraud attorneys and government contract fraud defense lawyers today. Call 1.866.601.5518 and speak to Theodore Watson