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Socio-economic Policies: Service-Disabled Veteran-Owned Small Businesses

Posted on August 25, 2020 Socio-economic Policies

The federal government’s goal is to award at least three percent of all federal contracting dollars to service-disabled veteran-owned small businesses (SDVOSB) each year. As such, SDVOSB companies may enjoy “full and open competition after the exclusion of sources” as provided in FAR 6.206 and not have to endure “full and open competition” as is normally mandated for government competitions.

To qualify for the service-disabled veteran-owned small business program, a business must:

  1. Be a small business, as determined by the Small Business Association. In short, small business qualification almost always relies on the number of employees and a business’s average annual receipts.
  2. Be at least 51% owned and controlled by one or more service-disabled veterans. In the case of a corporation, at least 51% of the aggregate of all stock outstanding and at least 51% of each class of voting stock outstanding must be unconditionally owned by one or more service-disabled veterans. In the case of a publicly owned business, not less than 51 percent of the stock (not including any stock owned by an ESOP) must be unconditionally owned by one or more veterans. *Ownership must be direct. A business owned principally by another business entity that is in turn owned and controlled by one or more service-disabled veterans does not meet this requirement.
  3. Have one or more service-disabled veterans manage day-to-day operations and also make long-term decisions.
  4. Eligible veterans must have a service-connected disability.

Eligibility requirements for the SDVOSB program are discussed in detail in 13 C.F.R § 125.12-125.16.

Requirements for control of an SDVOSB

The management and daily business operations of SDVOSB must be controlled by one or more service-disabled veterans (or in the case of a veteran with permanent and severe disability, the spouse or permanent caregiver of such veteran). Control by one or more service-disabled veterans means that both the long-term decision making and the day-to-day management and administration of the business operations must be conducted by one or more service-disabled veterans (or in the case of a veteran with permanent and severe disability, the spouse or permanent caregiver of such veteran).

A service-disabled veteran (or in the case of a service-disabled veteran with permanent and severe disability, the spouse or permanent caregiver of such veteran) must hold the highest officer position in the SDVOSB (usually President or Chief Executive Officer) and must have managerial experience of the extent and complexity needed to run the concern. The service-disabled veteran manager (or in the case of a veteran with permanent and severe disability, the spouse or permanent caregiver of such veteran) need not have the technical expertise or possess the required license to be found to control the concern if the service-disabled veteran can demonstrate that he or she has ultimate managerial and supervisory control over those who possess the required licenses or technical expertise.

In the case of a partnership, one or more service-disabled veterans (or in the case of a veteran with permanent and severe disability, the spouse or permanent caregiver of such veteran) must serve as general partners, with control over all partnership decisions. In the case of a limited liability company, one or more service-disabled veterans (or in the case of a veteran with permanent or severe disability, the spouse or permanent caregiver of such veteran) must serve as managing members, with control over all decisions of the limited liability company.

Federally Mandated Opportunities for SDVOSBs

With certain agencies, such as the Department of Veterans Affairs, bidding competitions may be limited to veteran-owned firms. 38 U.S.C. § 8127(d):

A contracting officer of the Department shall award contracts on the basis of competition restricted to small business concerns owned and controlled by veterans if the contracting officer has a reasonable expectation that two or more small business concerns owned and controlled by veterans will submit offers and that the award can be made at a fair and reasonable price that offers best value to the United States.

This statutory language was held “mandatory” and applied to all of the VA’s contracting determinations even in the event that the VA was ordering off the Federal Supply Schedule Program (FSS). Kingdomware Technologies, Inc. v. United States, 136 S. Ct. 1969 (2016).  This preserves contracting opportunities for veteran and SDVOSBs and shows the value of SDVOSB designation. Of note, the VA has its own set of requirements for qualification as a SDVOSB, which can be found here.