On September 24, 2018, the U.S. Department of Veterans Affairs (VA) issued a final rule that alters its regulations governing the Veteran-Owned Small Business Verification Program. The final rule, “VA Veteran-Owned Small Business (VOSB) Verification Guidelines,” will go into effect on October 1, 2018. This new rule brings much awaited clarity and uniformity to the regulations governing the VA’s ownership and control requirements for VOSBs and Service-Disabled Veteran-Owned Small Businesses (SDVOSBs).
Details of the VA VOSB Verification Guidelines
The rule places exclusive authority to implement VOSB verification regulations in the Small Business Administration (SBA), and goes so far as to seek the removal of all references to “ownership” or “control” from VA regulations. Additionally, the rule provides clarification on certain portions of the VA verification process, and outlines the circumstances that will allow a company to qualify as a VOSB or SDVOSB under a surviving spouse or active employee stock ownership plan (ESOP).
The final rule also reconciles the differences between the VA and SBA regulations with respect to VOSB and SDVOSB joint ventures (JVs). The VA regulations previously required JVs pursuing VA set-asides to distribute profits among the JV partners commensurate with the members’ ownership interests regardless of the percentage of work performed. This meant that a VOSB/SDVOSB could perform the minimum percentage of work (40%) and still receive 51% of the profits because the VA regulations require a VOSB/SDVOSB to be a majority owner. Now the VA regulations are consistent with the SBA’s and require distribution of profits commensurate with the percentage of work performed.
This new rule is part of a joint effort by the VA and SBA to implement the National Defense Authorization Act for Fiscal Year 2017 (FY17 NDAA), Public Law 114-840, so as to eliminate divergent interpretations of the “ownership” and “control” requirements for veteran ownership verification found within the SBA and VA’s respective regulations. Previously, the SBA and VA had concurrent jurisdiction over VOSB ownership and control determinations, leading to the confusing and disparate application of their competing regulatory requirements. This continued until the FY17 NDAA designated the SBA as the exclusive authority for issuing regulations governing VOSB ownership and control requirements. The FY17 NDAA is incorporated into the VA’s new rule by specific reference to the SBA’s regulations.
Although the VA will no longer be responsible for implementing regulations clarifying ownership and control for purposes of VOSB/SDVOSB verification, the VA will retain the authority and responsibility to ensure that every VA VOSB/SDVOSB applicant complies with SBA ownership and control requirements prior to any granting of VA verified status or including the applicant in the Vendor Information Pages (VIP). The online VIP application and list of VA verified contractors can be found at https://www.va.gov/osdbu.
Should you have any questions about the VA VOSB Verification Guidelines, please contact one of the authors of this blog post.