New Verification Rules for VA Set-Aside Program Pose Potential Issues

Jill Aitoro of the Washington Business Journal has just reported on August 19, 2011, that the Veterans Administration is requiring all small businesses that wish to participate in VA contracts set aside for veterans to fill out a fairly lengthy verification form showing that they are in fact owned and controlled by veterans, service-disabled veterans or eligible surviving spouses.

This process, Aitoro points out, was set up pursuant to the Veterans Benefits Act, signed into law Oct. 13, 2010. This new law requires the VA to set up an online database that lists businesses that are actually eligible for these programs, based on their formal submissions to the agency. The idea is to weed out fraud – participation by people who don’t actually qualify.

As the VA has written in an official document that was sent to those who have participated in the veteran-owned small business program in the past: “The Verification Act now requires [veteran-owned small businesses] to submit supporting documentation before a verification decision can be made. In order to protect Veterans, VA supports the legal requirement that sole source and set-aside contracts meant for Veterans and service-disabled Veterans go only to firms legitimately owned and controlled by Veterans or service-disabled Veterans.”

Aitoro asked a good question in her article: Because the VA is now the only agency that verifies the status of veteran-owned small businesses, what’s to stop the fraudsters from competing for and winning set-aside contract offered by other agencies?

And it’s not just veteran-owned businesses: The level of scrutiny has been raised in all government contract set-aside and other preference programs. The Small Business Administration and the Department of Justice have indicated that they will be ramping up review, audit and enforcement efforts across the board. Some of these efforts will be intended to root out abuse of these programs; others will attempt to determine how changed regulations affect companies that have been in each of these programs, and whether the companies in fact remain eligible.

While the thousands of individuals and companies across America that legitimately qualify as women-owned, minority-owned, and falling in other preferred categories certainly applaud attempts to ensure that the programs benefit those for whom they truly are intended, any review and enforcement also poses potential issues for the innocent many, as well as the guilty few. Companies (self-certified and certified) will be well-advised to review the regulations in their programs, and ensure that their companies continue to satisfy eligibility criteria. They also should reflect on how planned expansion or changes in operations “fit” within the overall regulatory schemes that apply to them.

For example, changes to the 8(a) Business Development Program earlier this year impose new limits on continuing eligibility based on the disadvantaged owner’s total assets, including in the calculations (for the first time) the value of the disadvantaged owner’s personal residence and his/her ownership share in the certified business. A disadvantaged owner will be presumed to be aware of this change, and should take steps to determine how to protect revenues and, if possible, prevent termination from the Program if his/her total assets will soon put him/her over the threshold.

As a law firm that qualifies as a small disadvantaged business, an economically disadvantaged woman-owned small business (EDWOSB), a business qualifying under 8(a), and in other ways, we are ready to assist anyone who wishes to obtain or maintain legitimate preference status for the VA, the SBA, and other agencies.

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