[Federal Register Volume 76, Number 12 (Wednesday, January 19, 2011)]
[Rules and Regulations]
[Pages 3017-3023]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-983]
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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: Final rule.
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SUMMARY: This document affirms as final, with changes, a final rule
with request for comments that implemented 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. This final rule rescinds the
requirement that eligible owners work full-time in the business for
which they have applied for acceptance in the Verification Program and
that limits participants to a single business. It formally changes the
time period for issuance of reconsideration decisions from 30 to 60
days and changes the distribution of profits for limited liability
companies and employee stock ownership plans.
DATES: Effective Date: This final rule is effective February 18, 2011.
FOR FURTHER INFORMATION CONTACT: Ms. Gail Wegner, Deputy Director,
Center for Veterans Enterprise (00VE), Department of Veterans Affairs,
810 Vermont Ave., NW., Washington, DC 20420, phone (202) 303-3260
x5239.
SUPPLEMENTARY INFORMATION: In a final rule with request for comments
published in the Federal Register on February 8, 2010, (75 FR 6098), we
revised 38 CFR part 74 setting forth a mechanism for verifying
ownership and control of veteran-owned small businesses (VOSBs),
including service-disabled veteran-owned small businesses (SDVOSBs). We
solicited comments on the following new interim final requirements:
Requiring eligible owners work full-time in the business for which they
have applied for acceptance in the VOSB or SDVOSB Verification Program,
changing the time period for issuance of reconsideration decisions from
30 to 60 days, and changing the distribution of profits for limited
liability companies and employee stock ownership plans. We provided a
30-day comment period which ended on March 10, 2010. We received more
than 100 comments on the interim final requirements. The issues raised
in the comments are discussed below. Based upon the rationale set forth
in this document, we are rescinding the interim final provisions that
require owners to work full-time in the business for which they have
applied for acceptance in the Verification Program and which limit
participants to a single business. We are also formally changing the
time period for issuance of reconsideration decisions from 30 to 60
days and changing the distribution of profits for limited liability
companies (LLC) and
[[Page 3018]]
employee stock ownership plans (ESOP).
Comments were solicited on the following aspects of the rule:
Section 74.3(d), Profits and Distributions
We received several comments on the additional requirement that an
eligible individual's ability to share in the profits of a concern
should be commensurate with the extent of his/her ownership interest in
that concern and on the revised requirement for the evaluation of
profits and distributions to determine ownership interest in ESOPs and
LLCs. We are making a minor clarifying edit in Sec. 74.3(d)(1) to
change the word ``concern'' to ``or participant'' resulting in
``applicant or participant'' to be consistent with prior terminology in
Sec. 74.3.
1. Numerous commenters suggested adding text to state that the VOSB
venture of any VOSB joint venture must receive 51 percent of the
profits of the joint venture. We agree with this suggestion and have
modified the rule accordingly. This change aligns VA's rule with the
provisions of 13 CFR part 125 which governs, in part, the profit
requirements of joint ventures in the government-wide SDVOSB program.
The subparagraphs have been renumbered and this text, ``[a]t least 51
percent of the net profits earned by a joint venture in which the
applicant or participant is the lead concern,'' is added to Sec.
74.3(d)(2).
2. Numerous commenters strongly recommended deleting 38 CFR
74.3(d)(4) stating that the subsection was ``badly drafted'' and
``meaningless.'' We disagree and no changes will be made based on these
comments. This text reads ``[a]n eligible individual's ability to share
in the profits of the concern should be commensurate with the extent of
his/her ownership interest in that concern.'' VA maintains that real
evidence of ownership is demonstrated where the owner has the right to
receive a share of profits equivalent to his/her ownership interest in
the concern; otherwise, that ownership interest lacks materiality. For
example, if an owner had a 51 percent ownership interest but was only
entitled to 1 percent of the profits, the owner's ownership interest is
rendered meaningless. However, in the renumbered text, this language
appears in Sec. 74.3(d)(5).
3. One commenter opposed the text that ``[a]n eligible individual's
ability to share in the profits of the concern should be commensurate
with the extent of his/her ownership interest in that concern,'' saying
it is not envisioned by the law and the requirement that the owner be
the highest compensated creates an unfair management burden in
recruiting the best talent. We will not make any changes based upon
this comment. The commenter's concerns are unfounded because this text
deals solely with the issue of ownership of the concern and the rule
already allows for exceptions to the requirement that the owner be the
highest compensated employee. Currently, Sec. 74.4(g)(3) establishes
that ``[t]he highest ranking officer may elect to take a lower salary
than a non-veteran only upon demonstrating that it helps the applicant
or participant.'' Therefore, if taking a lower salary is necessary for
maintaining competitiveness, the owner can do so without risking
verified status.
4. One commenter replied ``[t]his is a welcome change for veteran-
owned ESOP's. However, the language appears to exclude 100 percent
veteran-owned ESOP's; i.e., there must be some quantity of
`outstanding' non-ESOP stock that is owned by veterans. What if
veterans owned only their portion of the ESOP stock? Could the business
qualify as VOSB or SDVOSB in that event?'' We will not make any changes
based upon this comment because Sec. 74.3(a) addresses this matter. If
100 percent of the stock is veteran-owned in an ESOP, then there is no
issue, as the business is still owned by a veteran.
Section 74.4(c)(1), Single Business; Full-Time Control
VA received several comments concerning the single business and
full-time control requirements. A few commenters opposed the
requirement to have a single business participating in the program at
one time, with the exception of joint-ventures. Commenters also opposed
the requirement for the eligible owner to work full-time in the
business. We agree and have reinstated the text of the Interim Final
Rule published in the Federal Register on May 19, 2008 (73 FR 29024),
that ``[a]n 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'' with the addition of a
requirement for an owner to submit a written statement demonstrating
that outside employment activities will not have a significant impact
on the owner's ability to manage and control the applicant concern. We
include an exception for applications from joint-ventures from this
written statement requirement because joint ventures as defined by 38
CFR 74.1 are business entities created for single, specific business
ventures for joint profit and not created for conducting business on a
permanent basis. Accordingly, the regulation permits a veteran to
maintain its primary business operation for general business and still
create a joint venture for a specific project without losing its
veteran-owned small business status. Therefore, in these circumstances,
VA acknowledges that the veteran owner can have its regular business
operation and a joint venture without affecting its ability to manage
both at the same time. To maintain the requirement that owners must
work full-time in the business ignores some factors that greatly affect
today's business climate and put an unnecessary burden on certain
business owners who need to spread their time between several different
projects or occupations. The additional requirement of a written
statement demonstrating that the outside employment activities will not
have a significant impact on the owner's ability to manage and control
the applicant concern will allow VA to ensure that the business seeking
verification is still truly under the control of the veteran owner. In
addition, VA has deleted the definition of ``full-time'' from Sec.
74.1.
Single Business Requirement Related Comments
1. Numerous commenters opposed the text that ``an eligible owner
may only have one business participating in the Verification Program at
one time'' because they interpreted it as limiting joint ventures. One
commenter explained that such arrangements are ``necessary due to the
tight economy, procurement changes and lower government spending.''
Several commenters supported a clarification for the regulation to
state that eligible owners of businesses enrolled in the Verification
Program may also have additional joint venture agreements that
participate in the program. We will not make any changes based upon
these comments because the current rule already permits joint ventures
in addition to a participant's primary business.
2. Numerous commenters opposed participation by a single business
as more stringent than and inconsistent with other Federal small
business programs. An additional commenter noted that the text limiting
eligible owners to only one business in the Verification Program
``appears to run contrary to White House policy statements in support
of small business'' and ``would stifle job creation and economic
development.'' We agree that
[[Page 3019]]
restriction of only one business participant may have the unintended
effect suggested by the commenters. Accordingly, the rule has been
modified to allow more than one VOSB participant so long as the veteran
can demonstrate the requisite requirements of ownership and control.
3. Numerous commenters expressed that limiting eligibility to a
single business is harmful to start-up businesses. We agree with the
commenters. The rule has been modified to return to the original text
that ``[a]n 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.'' This will allow owners
of start up businesses to maintain previous businesses while the new
venture solidifies itself in the business world.
4. Numerous commenters noted that for tax and other considerations
establishing multiple businesses is beneficial. Other commenters noted
that many businesses set up separate entities to manage liability by
spreading risk among other businesses. The commenters requested the
rule be changed to reflect this. We agree with the commenters'
suggestions, and the rule has been modified to return to the original
text that ``[a]n 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.'' This will
allow owners to maintain multiple businesses in the database and
eliminate any unnecessary burdens on these owners with regard to taxes,
liability and other similar considerations.
5. Numerous commenters observed that the text limiting participants
in the Verification Program to one business has no foundation in law
and that there is no compelling reason to limit participation to a
single concern. The rule has been modified to return to the original
text that ``[a]n 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.'' The original
text does not include the limitation to one business participant. Our
concern in proposing to limit participants to one business in the
Verification Program was for the integrity of the program as it was
viewed as difficult for an owner to comply with the control
requirements of Sec. 74.4 if the veteran had multiple businesses.
However, we realize that this restriction would have unintended effects
and may be harmful to start-up businesses where the veteran may need to
control an ongoing concern while creating and growing a start-up
concern.
6. Numerous commenters noted that single business participation
restricts business growth and limits participation in global markets.
We agree with these commenters. The rule has been modified to return to
the original text that ``[a]n 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.'' This eliminates the single business restriction and allows
more flexibility for the owners to continue to grow their business and
participate in the global marketplace.
7. Several commenters expressed that the single business
restriction is discriminatory in that it is based on the belief that a
veteran lacks the capability and intelligence to manage more than one
business at a time. We disagree with this comment as the proposed rule
was not based on this belief. Due to other comments, however, the rule
has been modified to return to the original text that ``[a]n 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.'' This addresses the concern of the commenter
by allowing for veteran owners to maintain more than one business in
the Verification Program. Our intention was not to criticize the
management capabilities of veterans. In processing verification
applications, we have observed that it has been difficult for an
applicant to demonstrate how it can control, as addressed in Sec.
74.4, two or more businesses at the same time. However, we find that it
was unfair, not discriminatory, to preclude every applicant from
attempting to demonstrate that it can control more than one business.
8. One commenter suggested that the text be revised to require that
``an eligible owner have no more than two businesses in the program at
one time and must work full-time in the businesses.'' This comment is
not accepted as, based upon the majority of comments received, the rule
has been revised to eliminate the single business requirement and
return to the original text that ``[a]n 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.''
9. One commenter expressed no opposition to the single business
requirement, stating a belief that there is widespread abuse in the
set-aside program. This commenter suggested that the wording is not
specific to oversight agency responsibilities for enforcement. We
disagree with this comment. VA has the responsibility for verifying the
applicants in accordance with this rule. The rule will require that
applicants submitting more than one business for verification must
submit a written statement demonstrating that the outside employment
activities will not have a significant impact on the owner's ability to
manage and control the applicant concern. This will assist VA in
ensuring that applicants fully comply with the control requirements of
Sec. 74.4 and avoid abuse and fraud in the set-aside program
referenced by the commenter.
10. One commenter proposed that all veteran-owned businesses be
eligible for the VOSB Verification Program. We disagree with this
comment as the statute which governs the verification process is
specific to the Department of Veterans Affairs and to veteran-owned
small businesses, not all veteran-owned business, which would include
large veteran-owned businesses not covered by the statute.
11. One commenter offered alternative language, ``With the
exception of joint-venture agreements, an eligible owner may have only
one business participating in the Veterans First Contracting Program at
one time and must work full-time in the business as defined in 38 CFR
Part 74.1.'' We disagree with this comment, as it could be misconstrued
to restrict an owner from performing work under more than one set-aside
award at a single time. In addition, the single business requirement
has been deleted and VA has returned to the original text that ``[a]n
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.''
12. Several commenters suggested that the rule be revised to
acknowledge that owners may operate from multiple locations using
electronic tools to
[[Page 3020]]
effectively control remote operations and other businesses. We agree
with this comment. The single business and full-time requirements were
overly restrictive as they failed to take into account the ability of
certain veteran owners in certain situations using modern, electronic
tools, to effectively run one or multiple businesses without dedicating
the amount of time prescribed by the full-time requirement. The rule
has been revised to eliminate the single business and full-time
requirements and return to the original text that ``[a]n 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.''
13. One commenter stated that certain professions require teaming,
expressing the opinion that the rule prohibits such arrangements. We
disagree with this comment. The current rule already permits joint
ventures in addition to a participant's primary business.
14. One commenter noted that some state programs use the
Verification Program and that limiting joint-ventures would be harmful
to owners in those programs. We disagree with this comment, as Sec.
74.4(c)(1) permits participants to enter into joint-venture agreements.
15. A few commenters opposed the single business requirement but
suggested that additional businesses must be in different business
lines (industries). We do not agree with this comment. The single
business requirement has been removed and the original text that ``[a]n
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'' has been restored. The
single business requirement placed an unfair burden on veteran owners
by restricting them to just one business. VA will consider the merits
of each application on an individual basis without regard for the
industry in which a veteran's other business may be.
16. One commenter opposed the single business requirement but
suggested that additional businesses ``must be in the same or closely
related industries.'' Another commenter suggested that multiple
businesses in the same or similar industry should be considered a
single entity, and cited the SBA 8(a) program as precedent. That
program does not allow an owner to have more than one business in the
same or similar industry. We disagree with this comment. The single
business requirement placed an unfair burden on veteran owners by
restricting them to just one business. Similarly, it would be an undue
burden to limit these owners to just one industry. VA will consider the
merits of each application, on an individual basis, without regard for
the industry in which a veteran's other business is involved. The
single business requirement has been removed and the original text that
``[a]n 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'' has been added back
into Sec. 74.4(c)(1) to allow applicants to potentially have more than
a single business in the Verification Program.
17. Some commenters opposed the single business requirement saying
that ``[t]here is nothing illegal about owning more than one company''
and ``many successful owners have more than one business at a time.''
We agree with these commenters. The requirement put an unnecessary
burden on veteran small business owners by restricting them to just one
business. The rule has been modified to eliminate the single business
requirement and returned to the original text that ``[a]n 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.''
18. Some commenters expressed the opinion that the single business
requirement would stifle entrepreneurship at a time when we need to
create jobs and the concept is ``contrary to the American spirit and
established precedent that owners sometimes need to start multiple
businesses before one is successful.'' We agree with these commenters.
The single business requirement was removed because it was determined
that it created an unnecessary burden on veteran-owned small
businesses. The rule has been modified to eliminate the single business
requirement and return to the original text that ``[a]n 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.''
19. One commenter noted that the restriction is contrary to
mentorship of new businesses and suggested that established owners join
start-ups to offer support, funding and other assistance to the new
owner(s). We agree with this comment. The single business requirement
placed an undue burden on veteran owners by limiting their ability to
participate in other businesses for purposes such as mentoring.
Therefore, the rule has been modified to eliminate the single business
requirement and return to the original text that ``[a]n 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.''
20. Several commenters stated that if a veteran owns a small
business and then organizes a joint venture, the veteran violates the
second business rule. We disagree with these comments. The regulation
provides that business owners can still form joint-ventures without
violating the rule. In addition, the single business requirement has
been removed. Therefore, no further change is necessary to address
these commenters' concerns.
21. Several commenters noted that there should be no restrictions
on the number of businesses a veteran can own as the drafted regulation
does nothing to ensure the viability of VOSBs or SDVOSBs or curtail
fraudulent VOSBs or SDVOSBs. We agree with these comments. The single
business requirement put an undue burden on veteran business owners and
did not serve to eliminate potential fraud within the program.
Therefore, the requirement was removed and the section of regulation
was restored to the original text that ``[a]n 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.''
22. A few commenters questioned what will happen to business owners
who already have 2 or more VOSBs or SDVOSBs approved. They asked
whether those businesses would be grandfathered into existing
ownership. The single business requirement has been removed, and
therefore, the concerns expressed by these commenters have been
rendered moot.
Full-Time Control Comments
23. Numerous commenters suggested returning to the original text
that ``[a]n
[[Page 3021]]
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.'' We agree with the
commenters' suggestions. The full-time requirement placed an undue
burden on veteran owners. We believe that a veteran owner can still
maintain control and ownership of a business without meeting the full-
time requirement. Therefore, the requirement has been removed and the
rule has been modified to return to that original text.
24. One commenter stated that the text assigns no value to the
concepts of chain of command or span of control. We agree with the
commenter. The full-time requirement did not take into account the fact
that some business owners are forced to delegate in order to keep up
with other commitments and burdens. The rule has been modified to
return to the original text that ``[a]n 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'' in order to alleviate the commenter's concerns.
25. One respondent suggested that the rule acknowledge that new
owners work multiple jobs to support their families and thus should
recognize that full-time requirement is restrictive. The respondent
suggested replacement text to read ``an eligible owner may only have
one business participating in the Verification Program at one time and
must devote sufficient time to the business to maintain control as
defined in Sec. 74.1.'' We agree with this comment, but it has been
rendered moot as the rule has been revised to eliminate the full-time
requirement and return to the original text that ``[a]n 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.''
26. One commenter noted that IRS regulations precluded limited
liability company members from being employees in their firm, and
therefore, VA would have no way of verifying their working hours. This
problem has been alleviated because the full-time requirement has been
removed and the rule has been restored to its original text that ``[a]n
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.''
27. One commenter stated that the full-time requirement does not
take into account other work shifts performed by a veteran and
recommended rewording to ``[f]ull-time means working no less than 40
hours per week involved in the Day to Day management and/or Operations
of the Business.'' Several other commenters noted that small business
owners do not have normal business hours and recommended the term
``normal business hours for the industry.'' The recommended rewording
will not be necessary as the full-time requirement, as well as the
stated definition of ``full-time'' has been removed and the rule has
been restored to its original text that ``[a]n 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.''
28. One commenter offered that he ``strongly support(s) the
government's efforts to ensure: (1) That veteran-owned small businesses
are actually owned by veterans, and; (2) that the veteran owner must be
actively involved in day-to-day operation of the firm.'' By removing
the full-time requirement, but adding the additional requirement of a
written statement demonstrating that the outside employment activities
will not have a significant impact on the owner's ability to manage and
control the applicant concern, VA will be able to ensure that the
business seeking verification is still truly under the control of the
veteran owner.
29. Several commenters noted that the full-time requirement is
discriminatory because it hinders organizations who do not operate
between 9 a.m. and 5 p.m. Commenters also stated that the full-time
requirement hinders a veteran's ability to attend to medical needs such
as post traumatic stress disorder sessions. We agree with this comment.
The full-time requirement has been removed and the rule has been
restored to its original text that ``[a]n 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.'' This should alleviate any unnecessary burdens placed on
veteran owners by the full-time requirement.
30. One commenter stated that the provision would preclude home-
based businesses and prevent active duty service members from starting
their business prior to leaving for active military service. We agree
with this comment. The full-time requirement placed an undue burden on
veteran small business owners. By removing the requirement and
restoring the rule to its original text that ``[a]n 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,'' the concerns of the commenter have been
addressed.
31. One commenter noted that VA failed to consider the impact of
the full-time rule in the context of multiple business entities. The
commenter pointed out that many veterans buy stock or shares as
investments in other veteran-owned businesses thereby making them
owners in those entities. The regulation seems to prohibit such stock
ownership in more than one verified business. The commenter also noted
that the full-time requirement is contrary to the intent of 38 U.S.C.
8127(l) which defines small business concern owned and controlled by
veterans as ``not less than 51 percent of which is owned by one or more
veterans'' and ``the management and daily business operations of which
are controlled by one or more veterans.'' The commenter noted that
Congress' intent was that control of an eligible VOSB be shared with
two or more veterans each contributing part of the time and effort
necessary to manage and operate the business. We agree with these
comments. The full-time requirement, coupled with the single business
requirement placed an undue burden on veteran business owners who may
have part ownership in several legitimate VOSBs or SDVOSBs. By removing
the requirements and restoring the rule to its original text that
``[a]n 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,'' these concerns have
been addressed.
32. One commenter suggested that the regulation be amended to state
``that when full-time work is not required due to lack of government
business, then the owner/manager is not required to participate in the
business full-time.'' The full-time requirement has been removed and
the rule restored to its
[[Page 3022]]
original text that ``[a]n 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.''
Therefore, the suggested amendment is unnecessary.
Section 74.13(b), Can an applicant ask CVE to reconsider its initial
decision to deny an application?
VA sought comments on the merits of establishing a 60-day period
for the Director, Center for Veterans Enterprise to issue a written
decision on a request for reconsideration. We did not receive any
comments within the scope of the request. Therefore, we have made no
change to this rule.
A number of additional comments were received which were beyond the
scope of the request for comments, and, therefore, we will not make any
changes based on those comments.
Regulatory Flexibility Act
This final rule would generally be small business neutral as it
applies only to applying for verified status in the VetBiz.gov Vendor
Information Pages (VIP) database. The overall impact of the final rule
will be of benefit to small businesses owned by veterans or service-
disabled veterans. VA estimates the cost to an individual business to
be less than $100.00 for 70-75 percent of the businesses seeking
verification, and the average cost to the entire population of veterans
seeking to become verified is less than $325.00 on average. A related
rule describes the effect that verified businesses will have in the
Department's acquisition regulation. This impact is discussed in the
proposed rule modifying the VA Acquisition Regulation which was
published in the Federal Register at 73 FR 49141 on August 20, 2008. On
this basis, the Secretary hereby certifies that the adoption of this
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. Therefore, under 5 U.S.C. 605(b),
this regulation 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 on the private sector.
Paperwork Reduction Act
This 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 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.
Catalog of Federal Domestic Assistance
This final rule affects the verification guidelines of veteran-
owned small businesses, for which there is no Catalog of Federal
Domestic Assistance program number.
Signing Authority
The Secretary of Veterans Affairs, or designee, approved this
document and authorized the undersigned to sign and submit the document
to the Office of the Federal Register for publication electronically as
an official document of the Department of Veterans Affairs. John R.
Gingrich, Chief of Staff, Department of Veterans Affairs, approved this
document on November 16, 2010, for publication.
List of Subjects in 38 CFR Part 74
Administrative practice and procedures, Privacy, Reporting and
recordkeeping requirements, Small business, Veteran, Veteran-owned
small business, Verification.
Dated: January 13, 2011.
Robert C. McFetridge,
Director, Regulations Policy and Management.
Accordingly, VA amends 38 CFR part 74 as follows:
PART 74--VETERANS SMALL BUSINESS REGULATIONS
0
1. The authority citation for part 74 continues to read as follows:
Authority: 38 U.S.C. 501, 513, unless otherwise noted.
Sec. 74.1 [Amended]
0
2. Amend Sec. 74.1 by removing the definition of ``Full-time''.
0
3. Amend Sec. 74.3 by revising paragraphs (d)(1), (2), (3) and (4) and
by adding paragraph (d)(5) to read as follows:
Sec. 74.3 Who does the Center for Veterans Enterprise (CVE) consider
to own a Veteran-owned small business?
* * * * *
(d) * * *
(1) At least 51 percent of the annual distribution of profits paid
to the owners of a corporate, partnership, or LLC applicant or
participant;
(2) At least 51 percent of the net profits earned by a joint
venture in which the applicant or participant is the lead concern;
(3) 100 percent of the value of each share of stock owned by them
in the event that the stock is sold; and
(4) 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, partnership, or LLC.
(5) An eligible individual's ability to share in the profits of the
concern
[[Page 3023]]
should be commensurate with the extent of his/her ownership interest in
that concern.
* * * * *
0
4. Amend Sec. 74.4 by revising paragraph (c)(1) to read as follows:
Sec. 74.4 Who does CVE consider to control a veteran-owned small
business?
* * * * *
(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. An owner
engaged in employment or management outside the applicant concern must
submit a written statement supplemental to the application which
demonstrates that such activities will not have a significant impact on
the owner's ability to manage and control the applicant concern.
Applications from joint-ventures are exempt from the requirement to
submit a supplemental written statement.
* * * * *
[FR Doc. 2011-983 Filed 1-18-11; 8:45 am]
BILLING CODE 8320-01-P