A recent Small Business Administration Office of Hearings and Appeals (SBA OHA) decision illustrates that VetBiz verification does not give you a free pass in size protests. In fact, if you shouldn’t have been verified for one reason or another, and a size protest is sustained, you might find yourself out of a contract and also un-verified.
In Size Appeals of G&C Fab-Con, LLC, SBA No. SIZ-5649 (2015), G&C Fab Con, LLC (G&C) was the successful offeror for three VA Requests for Proposals for construction projects at national cemeteries, all of which were SDVOSB set-asides. After the award was announced, multiple disappointed bidders protested G&C’s status to the SBA Area Office.
Although G&C was 51% owned by a service-disabled veteran, three non-veterans owned the remaining 49% and also managed other companies. The SBA Area Office found G&C affiliated with these other companies under the “common management” rule, meaning that the non-veterans were managers of both G&C and the non-veteran companies (which gave them the ability to substantively control G&C). Since affiliated companies will be lumped together for size purposes, and because their aggregate revenues exceeded the applicable size standard, G&C was “other than small” and therefore ineligible for the award.
G&C filed a size appeal with OHA. Among its arguments, G&C contended that the Area Office’s holding was inconsistent with the findings of the CVE. G&C noted that, under the VA’s regulations, a company cannot be verified as a SDVOSB unless the CVE finds that service-disabled veterans “unconditionally control” the company. Because the CVE had verified G&C as a SDVOSB, the verification meant that the veteran controlled the company–necessarily meaning that the non-veterans did not exercise control.
The SBA OHA rejected this argument. “VA reviews eligibility for VA’s programs, not questions of size or affiliation,” it wrote. “Accordingly, VA’s determinations have no bearing on the Area Office’s analysis.”
While technically this is true, I think there’s an important qualifier that should be made. In assessing eligibility, the VA (CVE) also looks at whether a veteran truly controls his business, or whether circumstances exist that might compromise his ability to make independent business decisions (such as reliance on another company for equipment, employees, contracts, etc).
Accordingly, when G&C went through the verification process, even though the CVE wasn’t looking at size issues, it would have looked into common management (affiliation) concerns to make sure no non-veteran asserted undue influence over it. The CVE apparently found no issue with the non-veterans holding officer positions in G&C, likely because these officer positions were lower-ranking positions than that of the veteran and did not afford them control over company decisions. (Such a finding would be in keeping with its regulations).
Not only that, but these non-veterans only owned 49% of the company’s ownership interest, and voting provisions may have provided that company actions required a 51% vote. (This is standard; not providing that generally results in a verification denial from the CVE). This would effectively have put the veteran in charge of making every decision. At least on paper.
One thing is for certain here. VetBiz verification does not give you a free pass in size protests. Not only that, but given the results of this size protest, G&C’s verified status may be in jeopardy.
Access the full decision here.
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