Government Contracts Monitor

Short Take - VA Increases SDVOSB/VOSB Program Eligibility to Three (vs. Two) Years Before Requiring Reverification

February 20, 2017

One of the biggest complaints about the Department of Veterans Affairs (VA)’s programs for Veteran-Owned Small Businesses (VOSB) and Service-Disabled Veteran-Owned Small Businesses (SDVOSBs) has been that program eligibility, granted on the basis of an exhaustive process, was valid for only one, and subsequently two, years, before having to be reestablished through an intensive reverification process. This short program eligibility period raised questions as to the value of the program, and discouraged some companies from applying for or continuing in the program. VA finally is addressing this issue. VA has issued a new Interim Final Rule increasing program eligibility to three years, effective February 21, 2017. This longer three-year eligibility will go far to balance the program participation benefits and eligibility verification burdens, while still protecting program integrity.

In 2010, when VA first established the present program for verifying ownership and control of VOSBs, including SDVOSBs, found at 38 C.F.R. Part 74, VA required annual examinations to ensure the integrity of the Verification Program. In 2012 the eligibility period was extended to two years. VA has now determined that a three-year eligibility period prior to re-examination is “reasonable,” and “adequately balance[s] the burden on SDVOSB/VOSBs and … protect[ing] the integrity of the program.”

In support of this determination, VA cites the “robust examination of personal and company documents” during the initial program eligibility determination. VA states that “[g]iven the depth of this review, annual or biennial re-verification examinations have become an unnecessary administrative burden on both applicants/participants and VA.” VA notes that in Fiscal Year 2016 (FY16) only 10 (or 0.9%) of 1,109 reverification applications were denied.

VA states that “other integrity aspects of the program” remain adequate to protect program integrity, including (1) the mandate in 38 C.F.R. § 74.15(a) that participants maintain their eligibility and report any changes adversely affecting eligibility, (2) VA’s right, under 38 C.F.R. § 74.20(a), to conduct random, unannounced, site examinations or conduct further examinations upon receipt of specific, credible, information that a participant is no longer eligible, and (3) the right of contracting officers and competitors, in the context of specific SDVOSB/VOSB set-aside acquisitions, to raise a SDVOSB/VOSB size protest challenging a verified firm’s status. VA further notes that a longer, 3-year eligibility period is consistent with SBA’s HUBZone Program, and is shorter than the nine-year term of SBA’s 8(a) Business Development Program.

VA concludes that a three-year eligibility period prior to re-examination strikes a reasonable balance, given (1) the mandatory nature of VA’s SDVOSB/VOSB set-aside authority so long as there are at least two or more such concerns reasonably anticipated to submit offers at fair and reasonable prices (see Kingdomware Technologies, Inc. v. U.S., 136 S. Ct. 1969 (2016)), and (2) the large volume of appropriated funds subject to these set-aside requirements.

This longer three-year program eligibility term will reduce the burdens on program applicants and participants, and encourage greater program participation. While the Interim Final Rule is effective immediately, VA is inviting comments on or before April 24, 2017, and will consider and address all submitted comments in formulating a Final Rule. We encourage all interested SDVOSBs and VOSBs to support permanent adoption of this longer three-year program eligibility term.