The Service-Disabled Veteran-Owned Small Business (SDVOSB) designation offers companies improved prime and subcontracting opportunities. Certain contracts are set aside for SDVOSB’s. The Small Business Association (SBA) initially determines the eligibility of any business applying for SDVOSB status.
A Service-Disabled Veteran is a person who served in the active military, naval, or air service, who was discharged or released under conditions other than dishonorable, and whose disability was incurred or aggravated in the line of duty. To be an eligible DVOSB “the management and daily business operations of the company must be controlled by one or more service-disabled veterans.” Control means the service-disabled veteran “controls both the long-term decision-making and the day-to-day operations.” If the company in question is a limited liability company (LLC), “one or more qualifying veterans must serve as managing members, with control over all decisions of the limited liability company.”
Case Study: Amenity Waste Solution
Amenity Waste Solution LLC’s, recent denial, and subsequent appeal, of SDVOSB status is illustrative of the program’s rigid requirements to qualify. SBA No. VSBC-309, 2023 (S.B.A.), 2023 WL 6613453. Amenity is an Alabama-based LLC. At formation, Karis Gilbert was the sole member. Ms. Gilbert is a qualifying service-disabled veteran. The company’s formation documents state that a chairman of the board “shall be the chief executive officer of the Company . . . [and] shall be responsible for the general and active management of the business of the Company.”
Although Ms. Gilbert served as Amenity’s sole member and director, she also named Micah Gholston, a non-veteran, as director and chairman of the board. Amenity Waste’s SDVOSB application was examined by the SBA’s Director of the Veteran Small Business Certification Program. The minutes from Amenity board meetings reflected that Both Mr. Gholston and Ms. Gilbert served as chairman. As such the SBA concluded that it could not determine a “Qualifying Veteran holds the highest officer position as required by 13 CFR § 128.203(b).
Further, the company’s operating agreement stated that it could be amended only “by written consent of the Board and the Members.” The board was composed of two individuals, only one a qualifying veteran, therefore the SBA concluded that it could not determine whether a “Qualifying Veteran is able to amend the Company Agreement unilaterally.” For these reasons, Amenity did not qualify as an SDVOSB.
Amenity appealed this decision to the SBA Office of Hearings and Appeals. Under SBA regulations, an appellant bears the burden of proof to demonstrate its eligibility. The appellant may not submit new evidence beyond the case file, absent a showing of good cause. Further, the appellant must show that the SBA committed an error of fact or law in denying the application for certification. This is a high burden to clear. On appeal, the Office of Hearings and Appeals examined the record and determined that the operating agreement and board meeting minutes which identify a non-veteran as chairperson precluded a finding that a qualifying veteran has control over the business. Further, the Office of Hearings and Appeals held that Amenity failed to establish any errors of law or fact in the prior decision.
Key Takeaways
- The Service-Disabled Veteran-Owned Small Business designation provides increased contracting opportunities to qualifying businesses.
- To qualify a business must be controlled, operated, and managed by a veteran disabled in the line of service.
- The Small Business Administration determines whether a business qualifies.
- A company’s formation documents, including the assignment of duties between officers and directors, will be examined to determine whether a qualifying veteran controls the company.
- If your company’s SDVOSB application is denied, to prevail on appeal you must demonstrate an error of law or fact, and the record is limited to what was initially presented to the SBA.
- If you believe your company may qualify for SDVOSB contact an attorney to ensure your application is likely to be successful.
For more information on these programs, visit the General Counsel, P.C. website. You can also send an email to intake@gcpc.com