The SBA’s SDVOSB program is largely driven by decisions of the Veteran Administration (or Department of Defense). As a general rule of thumb, a small business owner needs either the VA or DoD to verify his or her service-disabled status in order to move forward with certifying as a SDVOSB and bidding on set-aside work.
But that VA approval is not bulletproof . . .
A recent SBA appeal rejected the SDVOSB status of G&C Fab-Con – a New Jersey-based construction contractor. G&C’s majority owner was approved by the VA as both a service-disabled veteran and the company’s unconditional owner. Based in part on that approval, G&C was selected as the winner of three VA procurements for construction projects at national cemeteries, each of which was set aside for a SDVOSB with less than $33.5 million average annual receipts.
So if G&C was an approved SDVOSB, why did the SBA decide that it is not eligible to perform the contracts? In a word: Affiliation.
The SBA found that G&C was affiliated with several other companies based on common ownership and common management among key principals. These overlapping relationships resulted in the affiliated companies having “critical influence or the ability to exercise substantive control” over G&C’s operations, according to the decision.
While findings of affiliation are nothing new – the key takeaway here is the SBA’s view on the authority of the VA. In short, while the VA determines the eligibility of SDVOSBs – the SBA still retains ultimate decision making authority over questions of size and affiliation.
Regardless of the particular program or contract at issue, small business owners should always be vigilant on the issue of affiliation. If you are not up to speed on the SBA’s description of what constitutes affiliation, your small business is already in danger of losing its size status!