SBA’s service-disabled veteran-owned small business regulations require the service-disabled veteran owner to control the business. Whether the veteran does so can be a fact-intensive question, and one consideration will be whether the veteran has any outside employment that jeopardizes her ability to manage the SDVOSB during its regular business hours.

In a recent SDVOSB status protest decision, SBA’s Office of Hearings and Appeals determined that the service-disabled veteran owner’s outside employment—and his failure to substantively respond to questions on the topic—indicated a lack of control.

SBA’s decision came in Hamhed, LLC, SBA No. CVE-180-P (Mar. 4, 2021), a SDVOSB status protest challenging the eligibility of YUFS, Inc. under a VA contract for food service workers at the Montana VA Health Care System. Hamhed argued (among other things) that, as a new business in the technology and management solutions industry with only one employee, YUFS was ineligible to perform this work. In addition, Hamhed was contacted by a party other than YUFS (and presumably associated with YUFS’s subcontractor) to staff the project. From these facts, Hamhed argued that YUFS was not actually controlled by a service-disabled veteran.

Reviewing the case file, the OHA observed that YUFS’s service-disabled veteran owner was currently employed by the U.S. Army, and worked in that position Monday through Thursday, during normal working hours. The owner told CVE during its eligibility review that the owner worked for YUFS during off-hours and on weekends.

SBA’s SDVOSB regulations presume that a veteran does not control the business if she is not able to work for the firm during normal working hours. What’s more, FAR 3.601 generally prohibits the award of contracts to businesses owned or controlled by government employees. The OHA requested more information about YUFS’s owner’s employment with the Army, to determine if either of these provisions were violated.

YUFS did not substantively respond to the OHA’s request. Instead, it stated that the procuring agency should defend its award decision—wrongly conflating a bid protest to the CVE status protest at hand.

In any event, the OHA sustained the protest. Because YUFS’s owner had outside employment during normal business hours, and because YUFS did not substantively respond to the OHA’s request for more information, the OHA presumed that YUFS’s owner did not control the company. 

The OHA concluded that YUFS was not an eligible SDVOSB. SBA’s regulations required YUFS’s award to be cancelled and for the VA’s Center for Verification and Evaluation to remove it from the list of verified SDVOSB concerns.

Hamhed is an important decision, as it helps illustrate some important SDVOSB considerations:

  • A service-disabled veteran owner must control the business, and any outside employment could jeopardize that control;
  • Even if a concern is verified as an SDVOSB by the VA’s CVE, its eligibility for an award might still be successfully protested; and
  • If your status is challenged, you must demonstrate that your business meets the eligibility requirements, and failure to respond to the OHA’s inquiries can lead to an inference against you.

If you have any questions about SDVOSB eligibility or protests, please give me a call.

SBA OHA: Veteran’s Outside Work Indicates No Control was last modified: April 6th, 2021 by Matthew Schoonover

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