Editorial · January 16, 2014
Service-Disabled Veteran-Owned Business: What It Means
A service-disabled veteran-owned business is a small company that one or more veterans with service-connected disabilities own and control. The veterans must own at least 51 percent of it. Federal contracting rules call it a service-disabled veteran-owned small business, or SDVOSB. Federal law says there must be a yearly government-wide goal for these firms. The goal must be at least 3 percent of the value of federal prime contracts and subcontracts. The Small Business Administration (SBA) runs the government-wide program. In that program, a firm states its own status when it bids. The Department of Veterans Affairs (VA) works differently. It requires verification before a firm can compete for a VA contract set aside for veteran-owned firms.
What the label requires
The Federal Acquisition Regulation (FAR) defines the term. An SDVOSB is a small business with two features. First, one or more service-disabled veterans own at least 51 percent of it. For a publicly owned business, they own at least 51 percent of its stock. Second, one or more service-disabled veterans control its management and daily business operations. A service-disabled veteran may have a permanent and severe disability. In that case, the veteran's spouse or permanent caregiver may be the one in control.
A service-disabled veteran is a veteran who has a service-connected disability. By law, a veteran is a person who served in the active military, naval, or air service. The person must have been discharged or released under conditions other than dishonorable. A disability is service-connected if it started in the line of duty during that service. It also counts if it got worse that way.
SBA's program page adds details. VA or the Department of Defense must have determined the disability. The ownership must be direct. A firm owned mainly by another company does not qualify. That is true even if service-disabled veterans own and control that company. A service-disabled veteran must hold the highest officer position. The firm must also be small under the industry code assigned to the procurement.
The 3 percent goal
The goal comes from Public Law 106-50, the Veterans Entrepreneurship and Small Business Development Act of 1999. The Act became law on August 17, 1999. It amended the Small Business Act. It established a government-wide goal for these firms. The goal is "not less than 3 percent of the total value of all prime contract and subcontract awards for each fiscal year."
By law, each agency also sets goals jointly with SBA. Those goals cover prime contracts and subcontracts separately. SBA's fiscal year 2012 government-wide scorecard shows these firms reached 3.03 percent on prime contracts, about $12.3 billion. That is up from 2.65 percent the year before. On subcontracts they fell to 1.80 percent.
Setting a contract aside is a separate step from the goal. A set-aside limits the competition to these firms. The Veterans Benefits Act of 2003 (Public Law 108-183) lets a contracting officer take that step. The FAR says the officer must reasonably expect offers from two or more of these firms. The officer must also reasonably expect an award at a fair market price.
How self-claiming works
In the government-wide program, a firm claims the status itself. The FAR says a firm that offers as an SDVOSB must represent to the contracting officer that it is one. Another FAR section calls this a "self-representation."
GAO is the Government Accountability Office. In August 2012, it reported that SBA "does not verify firms' eligibility status, nor does it require that they submit supporting documentation." GAO also investigated 10 cases in 2009. In them, firms that were not eligible had claimed the status themselves. They got about $100 million in SDVOSB contracts. The 2012 report adds that GAO did not project the extent of fraud and abuse in the program.
A claim can be challenged once a firm is the apparent winner. For a set-aside, any interested party may protest. For a sole-source award, where the agency negotiates with only one firm, SBA or the contracting officer may protest. Every protest must be in writing and state all specific grounds. SBA then decides the firm's status.
How VA verification differs
VA works under its own law. The Veterans Benefits, Health Care, and Information Technology Act of 2006 gave VA special authority. It covers set-aside and sole-source contracts with SDVOSBs and other veteran-owned small businesses. For what VA calls open market procurements, its buying order puts SDVOSBs first.
VA keeps a database of veteran-owned businesses. VA can award a contract under that special authority only if the firm and its veteran owner are listed there. VA may not list a firm until it has verified that veterans own and control the firm. That rule dates from a 2010 change to the law. The person who owns and controls the firm may say that person is a veteran with a service-connected disability. If so, VA must verify that too. Verified firms are listed in VA's searchable VetBiz database.
To get verified, a firm submits documents. VA says it may conduct a site visit to clarify them. VA calls verification "not a simple process." A VA help page, reviewed or updated August 4, 2013, says: "In 2012, to date, approximately 58 percent of applications have been denied." It ties a significant number of denials to misunderstanding VA's rule, 38 CFR Part 74.
Verification lasts two years. VA offers a simplified renewal. A business that VA finds misstated its status on purpose must be barred from contracting with VA for at least five years.
What to check before you claim or hire
- If you own the firm, compare your ownership and control papers with the FAR and SBA lists. Do this before you claim the label.
- If you want VA set-aside work, plan on verification, and read 38 CFR Part 74 first.
- If you hire or team with one of these firms, ask how its status was established. For VA set-aside work, look for it listed as verified in VetBiz. A claim can be wrong.