[Federal Register: May 19, 2008 (Volume 73, Number 97)]
[Rules and Regulations]
[Page 29023-29032]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr19my08-8]
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Part V
Department of Veterans Affairs
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38 CFR Part 74
VA Veteran-Owned Small Business Verification Guidelines; Interim Final
Rule
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DEPARTMENT OF VETERANS AFFAIRS
38 CFR Part 74
RIN 2900-AM78
VA Veteran-Owned Small Business Verification Guidelines
AGENCY: Department of Veterans Affairs.
ACTION: Interim final rule with request for comments.
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SUMMARY: This interim final rule implements portions of the Veterans
Benefits, Health Care, and Information Technology Act of 2006. This law
requires the Department of Veterans Affairs (VA) to verify ownership
and control of veteran-owned small businesses, including service-
disabled veteran-owned small businesses. According to this interim
final rule, a contracting officer in the Department of Veterans Affairs
may restrict competition for a requirement to a service-disabled
veteran-owned small business (SDVOSB) or to a veteran-owned small
business (VOSB) if that business is listed as ``verified'' in the
VetBiz.gov Vendor Information Pages (VIP) database. The interim final
rule defines the eligibility requirements for businesses to obtain
``verified'' status, explains examination procedures, and establishes
records retention and review processes.
DATES: Effective Date: May 19, 2008. Comments must be received on or
before July 18, 2008.
ADDRESSES: Written comments may be submitted through http://
www.Regulations.gov; by mail or hand-delivery to the Director,
Regulations Management (00REG), Department of Veterans Affairs, 810
Vermont Ave., NW., Room 1068, Washington, DC 20420; or by fax to (202)
273-9026. Comments should indicate that they are submitted in response
to ``RIN 2900-AM78-VA Veteran-Owned Small Business Verification
Guidelines.'' Copies of comments received will be available for public
inspection in the Office of Regulation Policy and Management, Room
1063B, between the hours of 8 a.m. and 4:30 p.m., Monday through Friday
(except holidays). Please call (202) 461-4902 for an appointment. (This
is not a toll-free number.) In addition, during the comment period,
comments may be viewed online in through the Federal Docket Management
System at http://www.Regulations.gov.
FOR FURTHER INFORMATION CONTACT: Gail Wegner, Center for Veterans
Enterprise (00VE), Department of Veterans Affairs, 810 Vermont Ave.,
NW., Washington, DC, 20420, phone (866) 584-2344.
SUPPLEMENTARY INFORMATION: It is the mission of the Department of
Veterans Affairs (VA) to serve veterans, and buying from veteran-owned
small businesses (VOSBs) and service-disabled veteran-owned small
businesses (SDVOSBs) directly supports VA's mission. Supporting the
service-disabled veterans who own their own businesses contributes
significantly toward restoring their capability and the quality of
their lives and contributes toward smoothing their transition from
active duty to civilian life. Such purchases from service-disabled
veteran-owned businesses support the socioeconomic well-being of the
Nation and support VA's Strategic Goals. It is public policy, as
expressed in 15 U.S.C. 637 and 644, that small businesses owned by
veterans and service-disabled veterans, among others, shall have the
maximum practicable opportunity to participate in the performance of
contracts let by any Federal agency.
On December 22, 2006, President Bush signed Pub. L. 109-461,
Veterans Benefits, Health Care, and Information Technology Act of 2006.
Title V--Housing and Small Business Matters, contains provisions that
enable VA to create a unique procurement program among Federal
agencies. This program permits VA contracting officers to conduct
acquisition actions limited to SDVOSBs or VOSBs in the Department's
requirements when such businesses appear as ``verified'' in the
VetBiz.gov VIP database. In addition, prime contractors of the
Department are required to use verified SDVOSBs and VOSBs to obtain
credit in their subcontract plan achievement reports submitted to the
Department.
On October 20, 2004, President Bush issued Executive Order 13360,
which directs the heads of agencies to significantly increase
opportunities for service-disabled veteran businesses in Federal prime
contracting and subcontracting actions. To achieve that objective,
agencies shall more effectively implement section 15(g) of the Small
Business Act (15 U.S.C. 644(g)) through various efforts, including the
development of a strategic plan to implement the policy set forth in
the Executive Order. The Executive Order also directs the Center for
Veterans Enterprise (CVE) to assist agencies in verifying the accuracy
of contractor databases.
This rulemaking establishes regulations that implement Pub. L. 109-
461. Much of the content of these regulations simply reflects the
language of the authorizing law, as well as Pub. L. 106-50, the
Veterans Entrepreneurship and Small Business Development Act of 1999,
and comparable regulations governing similar programs administered by
the Small Business Administration (SBA) (see generally chapter 1 of 13
CFR).
This rulemaking requires VOSBs, including SDVOSBs, to register in
the VetBiz.gov Vendor Information Pages database, available at http://
www.VetBiz.gov, in order to be eligible to participate in set-asides
for SDVOSBs and VOSBs issued by VA contracting officers, pursuant to
section 502 of Pub. L. 109-461. In completing registration, businesses
must provide information establishing that the business is owned and
controlled by eligible parties, according to the criteria defined in
section 502 of Pub. L. 109-461. The Department of Veterans Affairs will
examine the information provided by the owners and approve or
disapprove applications for ``verified'' status.
A verification examination is an investigation by VA's CVE
officials which verifies the accuracy of any statement or information
provided as part of the VetBiz VIP Verification application process.
Thus, examiners may verify that the concern currently meets the
program's eligibility requirements, and that it met such requirements
at the time of its application or its most recent size recertification.
Examiners may conduct the review, or parts of the review, by phone,
by electronic message exchange or in person at one or all of the
concern's offices. Representatives from the Department will determine
the location of the examination. Examiners may review any information
related to the concern's eligibility requirements including, but not
limited to, documentation related to the legal structure, ownership and
control of the concern. As a minimum, examiners shall review all
documents supporting VA Form 0877. These include: Financial statements;
Federal personal and business tax returns; personal history statements;
and a Transcript of Tax Form, obtained by submitting an IRS Form 4506.
Two-three years of transcripts are preferred. Other documents, which
may be reviewed when necessary based on the application of these
regulations to a particular application include: Articles of
Incorporation/Organization; corporate By-Laws or Operating Agreements;
Organizational, Annual and Board/Member meeting records; stock ledgers
and certificates; State-issued Certificates of Good Standing; contract,
lease and loan agreements; payroll records; bank account signature
cards; and licenses.
[[Page 29025]]
Upon receipt of specific and credible information alleging that a
participant no longer meets eligibility requirements, CVE will review
the concern's eligibility and will decide to withdraw the firm's
verified status or continue its verified status.
Administrative Procedure Act
Pursuant to 5 U.S.C. 553(b)(3)(B) and (d)(3), we find that there is
good cause to dispense with advance public notice and opportunity to
comment on this rule and with publication not less than 30 days before
the rule's effective date.
Public Law 109-461 requires VA to complete examination before June
19, 2008 of all businesses registered in VIP on the date the law was
enacted. After that date, such businesses will be ineligible to
participate in Public Law 109-461 opportunities until such time as they
complete verification. This will require VA to verify up to 13,380
businesses, if all businesses desire to participate in VA's unique
procurement opportunities for SDVOSBs and VOSBs. The majority of
businesses that have registered in the VIP database have affirmed their
interest in selling to VA. In addition, with unique procurement tools
available, it is imperative that businesses be formally examined for
eligibility to participate in VA contracts in order to protect the
integrity of the database. Advance solicitation of comments for this
rule would be impracticable and contrary to the public interest, as it
would delay the initiation of the examination procedures by a minimum
of 3 to 6 months. Any such delay would be extremely detrimental to
SDVOSBs and VOSBs. It is likely that contracting personnel would not
offer acquisition as a sole source or set-aside for VOSBs due to
uncertainty that the businesses are actually owned and controlled by
veterans, disabled veterans or their eligible surviving spouses.
Currently, there is no mechanism other than U.S. Small Business
Administration (SBA)'s regulations to validate Veteran-Owned Small
Businesses and Service-Disabled Veteran-Owned Small Businesses (VOSBs/
SDVOSBs) status through protests and appeals. There appear to be
business concerns that are representing themselves as VOSBs/SDVOSBs to
contracting officers. Under Public Law 109-461, VA contracting officers
may now award sole source and set-aside contracts to business concerns
that represent themselves as VOSBs/SDVOSBs. VA has good cause to
publish this rule as an interim final rule in light of the urgent need
to implement procedures to assure that a business concern is a VOSB/
SDVOSB. This will be accomplished through verification of ownership and
control.
Moreover, immediate implementation of these rules will, at a
minimum, permit VA to begin reviewing the basic information necessary
to the verification process. This information will be necessary even
if, as a result of comments received after this rulemaking, VA needs to
revise any of the rules set forth herein.
In addition, many of these rules simply codify statutory language
or instruction, adding mere descriptions of procedural or practice with
no interpretation or substantive revision. To that extent, these rules
are not subject to the notice requirement of 5 U.S.C. 553(b)(3)(A). For
example, the definition of ``service-disabled veteran-owned small
business concern'' simply reflects the definition set forth in section
103 of Public Law 106-50.
Finally, VA also believes, based upon its contacts with interested
members of the public, that there is strong interest in implementation
of this rule. VA is aware of many acquisition opportunities and
business concerns that will be assisted by the adoption of this rule.
In order to implement the legislation and benefit these veterans as
quickly as possible, it is critical that we begin our verification
process immediately.
Regulatory Flexibility Act
The Secretary hereby certifies that this interim final rule will
not have a significant economic impact on a substantial number of small
entities as they are defined in the Regulatory Flexibility Act, 5
U.S.C. 601-612.
This interim final rule would generally be small business neutral.
Any negative impact on small businesses that are not owned by veterans
would be off-set with an equal benefit to small businesses that are
owned by veterans. The overall impact of the interim final rule will be
of benefit to small businesses owned by veterans or service-disabled
veterans. On this basis, the Secretary certifies that the adoption of
this interim rule would not have a significant economic impact on a
substantial number of small entities as they are defined in the RFA.
Therefore, under 5 U.S.C. 605(b), this amendment is exempt from the
initial and final regulatory flexibility analysis requirements of
sections 603 and 604.
Executive Order 12866
Executive Order 12866 directs agencies to assess all costs and
benefits of available regulatory alternatives and, when regulation is
necessary, to select regulatory approaches that maximize net benefits
(including potential economic, environmental, public health and safety,
and other advantages; distributive impacts; and equity). The Executive
Order classifies a ``significant regulatory action,'' requiring review
by the Office of Management and Budget (OMB) unless OMB waives such
review, as any regulatory action that is likely to result in a rule
that may: (1) Have an annual effect on the economy of $100 million or
more or adversely affect in a material way the economy, a sector of the
economy, productivity, competition, jobs, the environment, public
health or safety, or State, local, or tribal governments or
communities; (2) create a serious inconsistency or otherwise interfere
with an action taken or planned by another agency; (3) materially alter
the budgetary impact of entitlements, grants, user fees, or loan
programs or the rights and obligations of recipients thereof; or (4)
raise novel legal or policy issues arising out of legal mandates, the
President's priorities, or the principles set forth in the Executive
Order.
The economic, interagency, budgetary, legal, and policy
implications of this rule have been examined and it has been determined
to be a significant regulatory action under the Executive Order.
Unfunded Mandates
The Unfunded Mandates Reform Act of 1995 requires, at 2 U.S.C.
1532, that agencies prepare an assessment of anticipated costs and
benefits before issuing any rule that may result in the expenditure by
State, local, and tribal governments, in the aggregate, or by the
private sector, of $100 million or more (adjusted annually for
inflation) in any given year. This rule would have no such effect on
State, local, and tribal governments, or the private sector.
Paperwork Reduction Act
This interim final rule contains provisions that constitute
collections of information under the Paperwork Reduction Act (44 U.S.C.
3501-3521). OMB has approved these collections and has assigned control
number 2900-0675. VA displays this control number under the applicable
sections of the regulations in this interim final rule. OMB assigns
control numbers to collections of information it approves. VA may not
conduct or sponsor, and a person is not required to respond to, a
collection of information unless it displays a currently valid OMB
control number.
List of Subjects in 38 CFR Part 74
Administrative practice and procedures, Privacy, Reporting and
[[Page 29026]]
recordkeeping requirements, Small business, Veteran, Veteran-owned
small business, Verification.
Approved: February 1, 2008.
Gordon H. Mansfield,
Deputy Secretary of Veterans Affairs.
0
For the reasons set forth in the preamble, the Department of Veterans
Affairs is amending 38 CFR chapter I by adding part 74 to read as
follows:
PART 74--VETERANS SMALL BUSINESS REGULATIONS
General Guidelines
Sec.
74.1 What definitions are important for VetBiz Vendor Information
Pages (VIP) verification?
74.2 What are the eligibility requirements a concern must meet for
VetBiz VIP Verification?
74.3 Who does Center for Veterans Enterprise (CVE) consider to own a
veteran-owned small business?
74.4 Who does CVE consider to control a veteran-owned small
business?
74.5 How does CVE determine affiliation?
Application Guidelines
74.10 Where must an application be filed?
74.11 How does CVE process applications for VetBiz VIP Verification?
74.12 What must a concern submit to apply for VetBiz VIP
Verification?
74.13 Can an applicant ask CVE to reconsider its initial decision to
deny an application?
74.14 Can an applicant reapply for admission to the VetBiz VIP
Verification program?
74.15 What length of time may a business participate in VetBiz VIP
Verification?
Oversight Guidelines
74.20 What is a verification examination and what will CVE examine?
74.21 What are the ways a business may exit VetBiz VIP Verification
status?
74.22 What are the procedures for cancellations?
Records Management
74.25 What types of personally identifiable information will VA
collect?
74.26 What types of business information will VA collect?
74.27 How will VA store information?
74.28 Who may examine records?
74.29 When will VA dispose of records?
Authority: 38 U.S.C. 501, 513, and as noted in specific
sections.
General Guidelines
Sec. 74.1 What definitions are important for VetBiz Vendor
Information Pages (VIP) verification?
For the purposes of part 74, the following definitions apply.
Center for Veterans Enterprise (CVE) is an office within the U.S.
Department of Veterans Affairs (VA) and is a subdivision of VA's Office
of Small and Disadvantaged Business Utilization. The CVE helps veterans
interested in forming or expanding their own small businesses. It also
helps VA contracting offices identify veteran-owned small businesses
and works with the Small Business Administration's Veterans Business
Development Officers and Small Business Development Centers nationwide
regarding veterans' business financing, management, and technical
assistance needs.
Days are calendar days. In computing any period of time described
in Part 74, the day from which the period begins to run is not counted,
and when the last day of the period is a Saturday, Sunday, or Federal
holiday, the period extends to the next day that is not a Saturday,
Sunday, or Federal holiday. Similarly, in circumstances where CVE is
closed for all or part of the last day, the period extends to the next
day on which the agency is open.
Day-to-day management means supervising the executive team,
formulating sound policies and setting strategic direction.
Day-to-day operations mean the marketing, production, sales, and
administrative functions of the firm.
Eligible individual means a veteran, service-disabled veteran or
surviving spouse, as defined in this section.
Immediate family member means father, mother, husband, wife, son,
daughter, brother, sister, grandfather, grandmother, grandson,
granddaughter, father-in-law, and mother-in-law.
Joint venture is an association of two or more small business
concerns to engage in and carry out a single, specific business venture
for joint profit, for which purpose they combine their efforts,
property, money, skill, or knowledge, but not on a continuing or
permanent basis for conducting business generally. For VA contracts, a
joint venture must be in the form of a separate legal entity.
Negative control includes, but is not limited to, instances where a
minority shareholder has the ability, under the concern's chapter, by-
laws, or shareholder's agreement, to prevent a quorum or otherwise
block action by the board of directors or shareholders.
Non-veteran means any individual who does not claim veteran status,
or upon whose status an applicant or participant does not rely in
qualifying for VetBiz Vendor Information Pages (VIP) Verification
Program participation.
Office of Small and Disadvantaged Business Utilization is the
office within the Department of Veterans Affairs that establishes and
monitors small business program goals at the prime and subcontract
levels and which functions as the ombudsman for veterans and service-
disabled veterans seeking procurement opportunities with the
Department.
Participant means a veteran-owned small business concern that has
verified status in the VetBiz Vendor Information Pages database.
Primary industry classification means the six-digit North American
Industry Classification System (NAICS) code designation which best
describes the primary business activity of the participant. The NAICS
code designations are described in the North American Industry
Classification System (NAICS) Manual published by the U.S. Office of
Management and Budget.
Principal place of business means the business location where the
individuals who manage the concern's day-to-day operations spend most
working hours and where top management's current business records are
kept. If the office from which management is directed and where the
current business records are kept are in different locations, CVE will
determine the principal place of business for program purposes.
Same or similar line of business means business activities within
the same three-digit ``Major Group'' of the NAICS Manual as the primary
industry classification of the applicant or participant. The phrase
``same business area'' is synonymous with this definition.
Service-disabled veteran is a veteran who possesses either a
disability rating letter issued by the Department of Veterans Affairs,
establishing a service-connected rating between 0 and 100 percent, or a
disability determination from the Department of Defense.
Service-disabled veteran-owned small business concern is a business
not less than 51 percent of which is owned by one or more service-
disabled veterans, or in the case of any publicly owned business, not
less than 51 percent of the stock of which is owned by one or more
service-disabled veterans; the management and daily business operations
of which are controlled by one or more service-disabled veterans, or in
the case of a veteran with a permanent and severe disability, a spouse
or permanent caregiver of such veteran. In addition, some businesses
may be owned and operated by an eligible surviving spouse. Reservists
or members of the National Guard disabled from a disease or injury
incurred or aggravated in the line of duty or while in training status
also qualify.
Small business concern is--
[[Page 29027]]
(1) A small business entity organized for profit, with a place of
business located in the United States, and which operates primarily
within the United States or which makes a significant contribution to
the U.S. economy through payment of taxes or use of American products,
materials or labor. For purposes of this program, a small business
concern must meet Federal size standards.
(2) A business concern may be in the legal form of an individual
proprietorship, partnership, limited liability company, corporation,
joint venture, association, trust or cooperative.
Surviving spouse is any individual identified as such by VA's
Veterans Benefits Administration and listed in its database of veterans
and family members. To be eligible for VetBiz VIP Verification, the
following conditions must apply:
(1) If the death of the veteran causes the small business concern
to be less than 51 percent owned by one or more veterans, the surviving
spouse of such veteran who acquires ownership rights in such small
business shall, for the period described in paragraph (2) of this
definition, be treated as if the surviving spouse were that veteran for
the purpose of maintaining the status of the small business concern as
a service-disabled veteran-owned small business.
(2) The period referred to in paragraph (1) of this definition is
the period beginning on the date on which the veteran dies and ending
on the earliest of the following dates:
(i) The date on which the surviving spouse remarries;
(ii) The date on which the surviving spouse relinquishes an
ownership interest in the small business concern;
(iii) The date that is 10 years after the date of the veteran's
death; or
(iv) The date on which the business concern is no longer small
under Federal small business size standards,
(3) The veteran must have had a 100 percent service-connected
disability.
Note to definition of surviving spouse: For program eligibility
purposes, the surviving spouse has the same rights and entitlements of
the service-disabled veteran who transferred ownership upon his or her
death.
Unconditional ownership means ownership that is not subject to
conditions precedent, conditions subsequent, executory agreements,
voting trusts, restrictions on or assignments of voting rights, or
other arrangements causing or potentially causing ownership benefits to
go to another (other than after death or incapacity). The pledge or
encumbrance of stock or other ownership interest as collateral,
including seller-financed transactions, does not affect the
unconditional nature of ownership if the terms follow normal commercial
practices and the owner retains control absent violations of the terms.
VA is the U.S. Department of Veterans Affairs.
Vendor Information Pages (VIP) is a database of businesses eligible
to participate in VA's Veteran-owned Small Business Program. The online
database may be accessed at no charge via the Internet at http://
www.VetBiz.gov.
Verification eligibility period is a 12-month period that begins on
the date the Center for Veterans Enterprise issues the approval letter
establishing verified status. The participant must submit a new
application each year to continue eligibility.
VetBiz.gov (VetBiz) is a Web portal VA maintains at http://
www.VetBiz.gov. It hosts the Vendor Information Pages database.
Veteran is a person who served on active duty with the U.S. Army,
Air Force, Navy, Marine Corps or Coast Guard, for any length of time
and at any place and who was discharged or released under conditions
other than dishonorable. Reservists or members of the National Guard
called to Federal active duty or disabled from a disease or injury
incurred or aggravated in the line of duty or while in training status
also qualify as a veteran.
Veteran-owned small business concern (VOSB) is a small business
concern that is not less than 51 percent owned by one or more veterans,
or in the case of any publicly owned business, not less than 51 percent
of the stock of which is owned by one or more veterans; the management
and daily business operations of which are controlled by one or more
veterans and qualifies as ``small'' for Federal business size standard
purposes. All service-disabled veteran-owned small business concerns
(SDVOSBs) are also, by definition, veteran-owned small business
concerns. When used in these guidelines, the term ``VOSB'' includes
SDVOSBs.
Veterans Affairs Acquisition Regulation (VAAR) is the set of rules
that specifically govern requirements exclusive to the U.S. Department
of Veterans Affairs (VA) prime and subcontracting actions. The VAAR is
chapter 8 of title 48, Code of Federal Regulations, and supplements the
Federal Acquisition Regulation (FAR), which contains guidance
applicable to most Federal agencies.
Sec. 74.2 What are the eligibility requirements a concern must meet
for VetBiz VIP Verification?
(a) Ownership and control. A small business concern must be
unconditionally owned and controlled by one or more eligible veterans,
service-disabled veterans or surviving spouses, have completed the
online Vendor Information Pages database forms at http://
www.VetBiz.gov, and has been examined by VA's Center for Veterans
Enterprise. Such businesses appear in the VIP database as ``verified.''
(b) Good character. Veterans, service-disabled veterans and
surviving spouses with ownership interests in VetBiz verified
businesses must have good character. Debarred or suspended concerns or
concerns owned or controlled by debarred or suspended persons are
ineligible for VetBiz VIP Verification.
(c) False Statements. If, during the processing of an application,
CVE determines that an applicant has knowingly submitted false
information, regardless of whether correct information would cause CVE
to deny the application, and regardless of whether correct information
was given to CVE in accompanying documents, CVE will deny the
application. If, after verifying the Participant's eligibility, CVE
discovers that false information has been knowingly submitted by a
firm, CVE will remove the ``verified'' status from the VIP database and
notify the business by phone and mail. Whenever CVE determines that the
applicant submitted false information, the matter will be referred to
the Office of Inspector General for review. In addition, the CVE will
request that debarment proceedings be initiated by the Department.
(d) Federal financial obligations. Neither a firm nor any of its
eligible individuals that fails to pay significant financial
obligations owed to the Federal Government, including unresolved tax
liens and defaults on Federal loans or other Federally assisted
financing, is eligible for VetBiz VIP Verification.
Sec. 74.3 Who does Center for Veteran's Enterprise (CVE) consider to
own a veteran-owned small business?
An applicant or participant must be at least 51 percent
unconditionally and directly owned by one or more veterans or service-
disabled veterans.
(a) Ownership must be direct. Ownership by one or more veterans or
service-disabled veterans must be direct ownership. An applicant or
participant owned principally by another business entity or by a trust
(including employee
[[Page 29028]]
stock ownership trusts) that is in turn owned by one or more veterans
or service-disabled veterans does not meet this requirement. However,
ownership by a trust, such as a living trust, may be treated as the
functional equivalent of ownership by a veteran or service-disabled
veteran where the trust is revocable, and the veteran or service-
disabled veteran is the grantor, a trustee, and the sole current
beneficiary of the trust.
(b) Ownership must be unconditional. Ownership by one or more
veterans or service-disabled veterans must be unconditional ownership.
Ownership must not be subject to conditions precedent, conditions
subsequent, executory agreements, voting trusts, restrictions on
assignments of voting rights, or other arrangements causing or
potentially causing ownership benefits to go to another (other than
after death or incapacity). The pledge or encumbrance of stock or other
ownership interest as collateral, including seller-financed
transactions, does not affect the unconditional nature of ownership if
the terms follow normal commercial practices and the owner retains
control absent violations of the terms. In particular, CVE will
evaluate ownership according to the following criteria for specific
types of small business concerns.
(1) Ownership of a partnership. In the case of a concern that is a
partnership, at least 51 percent of every class of partnership interest
must be unconditionally owned by one or more veterans or service-
disabled veterans. The ownership must be reflected in the concern's
partnership agreement.
(2) Ownership of a limited liability company. In the case of a
concern that is a limited liability company, at least 51 percent of
each class of member interest must be unconditionally owned by one or
more veterans or service-disabled veterans.
(3) Ownership of a corporation. In the case of a concern that is a
corporation, at least 51 percent of each class of voting stock
outstanding and 51 percent of the aggregate of all stock outstanding
must be unconditionally owned by one or more veterans or service-
disabled veterans.
(c) Stock options' effect on ownership. In determining
unconditional ownership, CVE will disregard any unexercised stock
options or similar agreements held by veterans or service-disabled
veterans. However, any unexercised stock options or similar agreements
(including rights to convert non-voting stock or debentures into voting
stock) held by non-veterans will be treated as exercised, except for
any ownership interests that are held by investment companies licensed
under part 107 of title 13, Code of Federal Regulations.
(d) Profits and distributions. One or more veterans or service-
disabled veterans must be entitled to receive:
(1) At least 51 percent of the annual distribution of profits paid
on the stock of a corporate applicant concern;
(2) 100 percent of the value of each share of stock owned by them
in the event that the stock is sold; and
(3) At least 51 percent of the retained earnings of the concern and
100 percent of the unencumbered value of each share of stock owned in
the event of dissolution of the corporation.
(e) Change of ownership. (1) A participant may remain eligible
after a change in its ownership or business structure, so long as one
or more veterans or service-disabled veterans own and control it after
the change and the participant files a new application identifying the
new veteran owners or their new business interest.
(2) Any participant that is performing contracts and desires to
substitute one veteran owner for another shall submit a proposed
novation agreement and supporting documentation in accordance with FAR
Subpart 42.12 to the contracting officer prior to the substitution or
change of ownership for approval.
(3) Where the transfer results from the death or incapacity due to
a serious, long-term illness or injury of an eligible principal, prior
approval is not required, but the concern must file a new application
with the contracting officer and CVE within 60 days of the change.
Existing contracts may be performed to the end of the instant term.
However, no options may be exercised.
(4) Continued eligibility of the participant with new ownership and
the award of any new contracts require that CVE verify all eligibility
requirements are met by the concern and the new owners.
(f) Community property laws given effect. In determining ownership
interests when an owner resides in any of the community property States
or territories of the United States, CVE considers applicable State
community property laws. If only one spouse claims veteran status, that
spouse's ownership interest will be considered unconditionally held
only to the extent it is vested by the community property laws.
Sec. 74.4 Who does CVE consider to control a veteran-owned small
business?
(a) Control means both the day-to-day management and long-term
decision-making authority for the VOSB. Many persons share control of a
concern, including each of those occupying the following positions:
officer, director, general partner, managing partner, managing member
and manager. In addition, key employees who possess expertise or
responsibilities related to the concern's primary economic activity may
share significant control of the concern. CVE will consider the control
potential of such key employees on a case-by-case basis.
(b) Control is not the same as ownership, although both may reside
in the same person. CVE regards control as including both the strategic
policy setting exercised by boards of directors and the day-to-day
management and administration of business operations. An applicant or
participant's management and daily business operations must be
conducted by one or more veterans or service-disabled veterans.
Individuals managing the concern must have managerial experience of the
extent and complexity needed to run the concern. A veteran need not
have the technical expertise or possess a required license to be found
to control an applicant or participant if he or she can demonstrate
that he or she has ultimate managerial and supervisory control over
those who possess the required licenses or technical expertise.
However, where a critical license is held by a non-veteran having an
equity interest in the applicant or participant firm, the non-veteran
may be found to control the firm.
(c)(1) An applicant or participant must be controlled by one or
more veterans or service-disabled veterans who possess requisite
management capabilities. Owners need not work full-time but must show
sustained and significant time invested in the business.
(2) An eligible full-time manager must hold the highest officer
position (usually President or Chief Executive Officer) in the
applicant or participant.
(3) One or more veterans or service-disabled veterans who manage
the applicant or participant must devote full-time to the business
during the normal working hours of firms in the same or similar line of
business. Work in a wholly-owned subsidiary of the applicant or
participant may be considered to meet the requirement of full-time
devotion. This applies only to a subsidiary owned by the VOSB itself,
and not to firms in which the veteran has a mere ownership interest.
(4) Except as provided in paragraph (d)(1) of this section, a
veteran owner's unexercised right to cause a change in the management
of the applicant
[[Page 29029]]
concern does not in itself constitute veteran control, regardless of
how quickly or easily the right could be exercised.
(d) In the case of a partnership, one or more veterans or service-
disabled veterans must serve as general partners, with control over all
partnership decisions. A partnership in which no veteran is a general
partner will be ineligible for participation.
(e) In the case of a limited liability company, one or more
veterans or service-disabled veterans must serve as management members,
with control over all decisions of the limited liability company.
(f) One or more veterans or service-disabled veterans must control
the board of directors of a corporate applicant or participant.
(1) CVE will deem veterans or service-disabled veterans to control
the board of directors where:
(i) A single veteran owns 100 percent of all voting stock of an
applicant or participant concern;
(ii) A single veteran owns at least 51 percent of all voting stock
of an applicant or participant, the individual is on the board of
directors and no super majority voting requirements exist for
shareholders to approve corporation actions. Where supermajority voting
requirements are provided for in the concern's articles of
incorporation, its by-laws, or by State law, the veteran must own at
least the percent of the voting stock needed to overcome any such
supermajority voting requirements; or
(iii) No single veteran owns 51 percent of all voting stock but
multiple veterans in combination do own at least 51 percent of all
voting stock, each such veteran is on the board of directors, no
supermajority voting requirements exist, and the veteran shareholders
can demonstrate that they have made enforceable arrangements to permit
one of them to vote the stock of all as a block without a shareholder
meeting. Where the concern has supermajority voting requirements, the
veteran shareholders must own at least that percentage of voting stock
needed to overcome any such supermajority ownership requirements.
(2) Where an applicant or participant does not meet the
requirements set forth in paragraph (d)(1) of this section, the
veteran(s) upon whom eligibility is based must control the board of
directors through actual numbers of voting directors or, where
permitted by state law, through weighted voting (e.g., in a concern
having a two-person board of directors where one individual on the
board is a veteran and one is not, the veteran vote must be weighted--
worth more than one vote--in order for the concern to be eligible for
VetBiz VIP Verification). Where a concern seeks to comply with this
paragraph:
(i) Provisions for the establishment of a quorum cannot permit non-
veteran directors to control the board of directors, directly or
indirectly;
(ii) Any executive committee of the board of directors must be
controlled by veteran directors unless the executive committee can only
make recommendations to and cannot independently exercise the authority
of the board of directors.
(3) Non-voting, advisory, or honorary directors may be appointed
without affecting veterans' or service-disabled veterans' control of
the board of directors.
(4) Arrangements regarding the structure and voting rights of the
board of directors must comply with applicable state law.
(g) Non-veterans may be involved in the management of an applicant
or participant, and may be stockholders, partners, limited liability
members, officers, or directors of the applicant or participant. With
the exception of a spouse or personal caregiver who represents a
severely disabled veteran owner, no such non-veteran or immediate
family member may:
(1) Exercise actual control or have the power to control the
applicant or participant;
(2) Be a former employer or a principal of a former employer of any
affiliated business of the applicant or participant, unless it is
determined by the CVE that the relationship between the former employer
or principal and the eligible individual or applicant concern does not
give the former employer actual control or the potential to control the
applicant or participant and such relationship is in the best interests
of the participant firm; or
(3) Receive compensation from the applicant or participant in any
form as directors, officers or employees, including dividends, that
exceeds the compensation to be received by the highest officer (usually
chief executive officer or president). The highest ranking officer may
elect to take a lower salary than a non-veteran only upon demonstrating
that it helps the applicant or participant.
(h) Non-veterans who transfer majority stock ownership or control
of the firm to an immediate family member within 2 years prior to the
application and remain involved in the firm as a stockholder, officer,
director, or key employee of the firm are presumed to control the firm.
The presumption may be rebutted by showing that the transferee has
independent management experience necessary to control the operation of
the firm, and indeed is participating in the management of the firm.
(i) Non-veterans or entities may be found to control or have the
power to control in any of the following circumstances, which are
illustrative only and not all inclusive:
(1) Non-veterans control the board of directors of the applicant or
participant, either directly through majority voting membership, or
indirectly, where the by-laws allow non-veterans effectively to prevent
a quorum or block actions proposed by the veterans or service-disabled
veterans.
(2) A non-veteran or entity, having an equity interest in the
applicant or participant, provides critical financial or bonding
support or a critical license to the applicant or participant which
directly or indirectly allows the non-veteran significantly to
influence business decisions of the participant, unless an exception is
authorized by the Office of Small and Disadvantaged Business
Utilization.
(3) A non-veteran or entity controls the applicant or participant
or an individual veteran owner through loan arrangements. Providing a
loan guaranty on commercially reasonable terms does not, by itself,
give a non-veteran or entity the power to control a firm.
(4) Business relationships exist with non-veterans or entities
which cause such dependence that the applicant or participant cannot
exercise independent business judgment without great economic risk.
Sec. 74.5 How does CVE determine affiliation?
The Center for Veterans Enterprise applies the affiliation rules
established by the Small Business Administration in 13 CFR 121.
Application Guidelines
Sec. 74.10 Where must an application be filed?
An application for VetBiz VIP Verification status must be
electronically filed in the Vendor Information Pages database located
in the Center for Veterans Enterprise's Web portal, http://
www.VetBiz.gov. Guidelines and forms are located on the Web portal.
Upon receipt of the applicant's electronic submission, an
acknowledgment message will be dispatched to the concern, containing
estimated processing time and other information. Address information
for the CVE is also contained on the Web portal. Correspondence may be
[[Page 29030]]
dispatched to: Director, Center for Veterans Enterprise (00VE), U.S.
Department of Veterans Affairs, 810 Vermont Avenue, NW., Washington, DC
20420.
(The Office of Management and Budget has approved the information
collection provisions in this section under control number 2900-0675.)
Sec. 74.11 How does CVE process applications for VetBiz VIP
Verification?
(a) The Director, Center for Veterans Enterprise, is authorized to
approve or deny applications for VetBiz VIP Verification. The CVE will
receive, review and evaluate all VetBiz VIP Verification applications.
CVE will advise each applicant within 30 days after the receipt of an
application whether the application is complete and suitable for
evaluation and, if not, what additional information or clarification is
required to complete the application. CVE will process an application
for VetBiz VIP Verification status within 60 days of receipt of a
complete application package. Incomplete application packages will not
be processed.
(b) CVE, in its sole discretion, may request clarification of
information contained in the application at any time in the eligibility
determination process. CVE will take into account any clarifications
made by an applicant in response to a request for such by CVE.
(c) An applicant's eligibility will be based on circumstances
existing on the date of application, except where clarification is made
pursuant to paragraph (b) of this section or as provided in paragraph
(d) of this section.
(d) Changed circumstances for an applicant occurring subsequent to
its application and which adversely affect eligibility will be
considered and may constitute grounds for denial of the application.
The applicant must inform CVE of any changed circumstances that could
adversely affect its eligibility for the program (i.e., ownership or
control changes) during its application review. Failure to inform CVE
of any such changed circumstances constitutes good cause for which CVE
may withdraw verified status for the participant if non-compliance is
discovered after a participant has been verified.
(e) The decision of the Director, CVE, to approve or deny an
application will be in writing. A decision to deny verification status
will state the specific reasons for denial, and will inform the
applicant of any appeal rights.
(f) If the Director, CVE, approves the application, the date of the
approval letter is the date of participant verification for purposes of
determining the participant's verification eligibility term.
(The Office of Management and Budget has approved the information
collection provisions in this section under control number 2900-0675.)
Sec. 74.12 What must a concern submit to apply for VetBiz VIP
Verification?
Each VetBiz VIP Verification applicant must submit the electronic
forms and attachments CVE requires. All electronic forms are available
on the VetBiz.gov Vendor Information Pages database Web pages. At the
time the applicant dispatches the electronic forms, the applicant must
also retain on file at the principal place of business a completed copy
of the electronic forms supplemented by manual records that will be
used in verification examinations. These forms and attachments will
include, but not be limited to, financial statements, Federal personal
and business tax returns, payroll records and personal history
statements. An applicant must also retain in the application file IRS
Form 4506, Request for Copy or Transcript of Tax Form. These materials
shall be filed together to maximize efficiency of verification
examination visits. Together with the electronic documents, these
manual records will provide the CVE verification examiner with
sufficient information to establish the management, control and
operating status of the business on the date of submission.
(The Office of Management and Budget has approved the information
collection provisions in this section under control number 2900-0675.)
Sec. 74.13 Can an applicant ask CVE to reconsider its initial
decision to deny an application?
(a) An applicant may request that the Director, CVE, reconsider his
or her decision to deny an application by filing a request for
reconsideration with CVE within 30 days of receipt of CVE's denial
decision. ``Filing'' means a document is received by CVE by 5:30 p.m.,
eastern time, on that day. Documents may be filed by hand delivery,
mail, commercial carrier, or facsimile transmission. Hand delivery and
other means of delivery may not be practicable during certain periods
due, for example, to security concerns or equipment failures. The
filing party bears the risk that the delivery method chosen will not
result in timely receipt at CVE.
(b) The Director, CVE, will issue a written decision within 30 days
of receipt of the applicant's request. The Director, CVE, may either
approve the application, deny it on the same grounds as the original
decision, or deny it on other grounds. If denied, the Director, CVE,
will explain why the applicant is not eligible for the VetBiz VIP
Verification and give specific reasons for the denial.
(c) If the Director, CVE denies the application solely on issues
not raised in the initial denial, the applicant may ask for
reconsideration as if it were an initial denial.
(d) If CVE determines that a concern may not qualify as small, they
may directly deny an application for VetBiz VIP Verification or may
request a formal size determination from the U.S. Small Business
Administration (SBA). A concern whose application is denied because it
is other than a small business concern by CVE may request a formal size
determination from the SBA Associate Administrator, Office of
Government Contracting (ATTN: Director, Office of Size Standards), 409
3rd Street, SW., Washington, DC 20416. A favorable determination by SBA
will enable the firm to immediately submit a new VetBiz VIP
Verification.
(e) A denial decision that is based on the failure to meet any
veteran or service-disabled veteran eligibility criteria is not subject
to a request for reconsideration and is the final decision of CVE.
(f) Except as provided in paragraph (c) of this section, the
decision on the request for reconsideration shall be final.
Sec. 74.14 Can an applicant reapply for admission to the VetBiz VIP
Verification program?
A concern which has been denied eligibility for VetBiz VIP
Verification program on the basis of ineligibility of veteran, service-
disabled veteran or surviving spouse status may submit a new
application for admission to the program as soon as eligibility status
is finalized. In cases in which the denial stemmed from ownership,
control or size factors, the applicant may file as soon as identified
issues have been corrected. Once an application and its appeal have
been denied, the applicant will be required to wait for a period of 6
months before a new application will be considered.
Sec. 74.15 What length of time may a business participate in VetBiz
VIP Verification?
(a) A participant receives an eligibility term of 1 year from the
date of CVE's approval letter establishing verified status. The
participant must maintain its eligibility during its tenure and must
inform CVE of any changes that would
[[Page 29031]]
adversely affect its eligibility. The eligibility term may be shortened
by cancellation by CVE or voluntary withdrawal by the participant
(i.e., no longer eligible as a small business concern), as provided for
in this subpart.
(b) When at least 50 percent of the assets of a concern are the
same as those of an affiliated business, the concern will not be
eligible for verification.
(c) CVE may initiate a verification examination whenever it
receives credible information calling into the question a participant's
eligibility as a VOSB. Upon its completion of the examination, CVE will
issue a written decision regarding the continued eligibility status of
the questioned participant.
(d) If CVE finds that the participant does not qualify as a VOSB,
CVE will immediately remove the ``verified'' status of the firm from
the VetBiz Vendor Information Pages database. CVE will call and mail
the participant with specifics that led to the cancellation action. The
participant may file a request for reconsideration of CVE's decision in
accordance with Sec. 74.13.
(e) If CVE finds that the participant continues to qualify as a
VOSB, the program term remains in effect.
Oversight Guidelines
Sec. 74.20 What is a verification examination and what will CVE
examine?
(a) General. A verification examination is an investigation by CVE
officials, which verifies the accuracy of any statement or information
provided as part of the VetBiz VIP Verification application process.
Thus, examiners may verify that the concern currently meets the
eligibility requirements, and that it met such requirements at the time
of its application or its most recent size recertification. An
examination may be conducted on a random basis, or upon receipt of
specific and credible information alleging that a participant no longer
meets eligibility requirements.
(b) Scope of examination. CVE may conduct the examination, or parts
of the program examination, at one or all of the participant's offices.
CVE will determine the location of the examination. Examiners may
review any information related to the concern's eligibility
requirements including, but not limited to, documentation related to
the legal structure, ownership and control of the concern. As a
minimum, examiners shall review all documents supporting the
application, as described in Sec. 74.12. These include: financial
statements; Federal personal and business tax returns; personal history
statements; and Request for Copy or Transcript of Tax Form (IRS Form
4506) for up to 3 years. Other documents, which may be reviewed include
(if applicable): Articles of Incorporation/Organization; corporate by-
laws or operating agreements; organizational, annual and board/member
meeting records; stock ledgers and certificates; State-issued
Certificates of Good Standing; contract, lease and loan agreements;
payroll records; bank account signature cards; and licenses.
Sec. 74.21 What are the ways a business may exit VetBiz VIP
Verification status?
A participant may:
(a) Voluntarily cancel its status by submitting a written request
to CVE requesting that the ``verified'' status button be removed from
the Vendor Information Pages database; or
(b) Delete its record entirely from the Vendor Information Pages
database; or
(c) CVE may cancel the ``verified'' status button for good cause
upon formal notice to the participant. Examples of good cause include,
but are not limited to, the following:
(1) Submission of false information in the participant's VetBiz VIP
Verification application.
(2) Failure by the participant to maintain its eligibility for
program participation.
(3) Failure by the participant for any reason, including the death
of an individual upon whom eligibility was based, to maintain
ownership, management, and control by veterans, service-disabled
veterans or surviving spouses.
(4) Failure by the concern to disclose to CVE the extent to which
non-veteran persons or firms participate in the management of the
participant.
(5) Debarment, suspension, voluntary exclusion, or ineligibility of
the participant or its owners.
(6) A pattern of failure to make required submissions or responses
to CVE in a timely manner, including a failure to make available
financial statements, requested tax returns, reports, information
requested by CVE or VA's Office of Inspector General, or other
requested information or data within 30 days of the date of request.
(7) Cessation of the participant's business operations.
(8) Failure by the concern to pay or repay significant financial
obligations owed to the Federal Government.
(9) Failure by the concern to obtain and keep current any and all
required permits, licenses, and charters, including suspension or
revocation of any professional license required to operate the
business.
(10) Failure by the concern to provide an updated application (VA
Form 0877) within 60 days of any change in ownership.
(d) The examples of good cause listed in paragraph (c) of this
section are intended to be illustrative only. Other grounds for
canceling a participant's verified status include any other cause of so
serious or compelling a nature that it affects the present
responsibility of the participant.
Sec. 74.22 What are the procedures for cancellation?
(a) General. When CVE believes that a participant's verified status
should be cancelled prior to the expiration of its eligibility term,
CVE will notify the participant in writing. The Notice of Proposed
Cancellation Letter will set forth the specific facts and reasons for
CVE's findings, and will notify the participant that it has 30 days
from the date it receives the letter to submit a written response to
CVE explaining why the proposed ground(s) should not justify
cancellation.
(b) Recommendation and decision. Following the 30-day response
period, the Director, CVE, will consider any information submitted by
the participant. Upon determining that cancellation is not warranted,
the Director, CVE, will notify the participant in writing. If
cancellation appears warranted, the Director, CVE, will make a decision
whether to cancel the participant's verified status.
(c) Notice requirements. Upon deciding that cancellation is
warranted, the Director, CVE, will issue a Notice of Verified Status
Cancellation. The Notice will set forth the specific facts and reasons
for the decision, and will advise the concern that it may re-apply
after it has met all eligibility criteria.
(d) Effect of verified status cancellation. After the effective
date of cancellation, a participant is no longer eligible to appear as
``verified'' in the VetBiz VIP database. However, such concern is
obligated to perform previously awarded contracts to the completion of
their existing term of performance.
Records Management
Sec. 74.25 What types of personally identifiable information will VA
collect?
In order to establish owner eligibility, the Department will
collect individual names and Social Security numbers for veterans,
service-disabled veterans and surviving spouses who represent
themselves as having ownership and control interests in a specific
business seeking to obtain verified status.
[[Page 29032]]
Sec. 74.26 What types of business information will VA collect?
VA will examine a variety of business records. See Sec. 74.12,
``What is a verification examination and what will CVE examine?''
Sec. 74.27 How will VA store information?
VA intends to store records provided to complete the VetBiz Vendor
Information Pages registration fully electronically on the Department's
secure servers. CVE personnel will compare information provided
concerning owners who have veteran status, service-disabled veteran
status or surviving spouse status against electronic records maintained
by the Department's Veterans Benefits Administration. Records collected
during examination visits will be scanned onto portable media and fully
secured in the Center for Veterans Enterprise, located in Washington,
DC.
Sec. 74.28 Who may examine records?
Personnel from the Department of Veterans Affairs, Center for
Veterans Enterprise and its agents, including personnel from the Small
Business Administration, may examine records to ascertain the ownership
and control of the applicant or participant.
Sec. 74.29 When will VA dispose of records?
The records, including those pertaining to businesses not
determined to be eligible for the program, will be kept intact and in
good condition for seven years following a program examination or the
date of the last Notice of Verified Status Approval letter. Longer
retention will not be required unless a written request is received
from the Government Accountability Office not later than 30 days prior
to the end of the retention period.
(Authority: 38 U.S.C. 8127(f)).
[FR Doc. E8-10489 Filed 5-16-08; 8:45 am]
BILLING CODE 8320-01-P