On July 6, the SBA issued a proposed rule that would implement Section 862 of the National Defense Authorization Act for Fiscal Year 2021 establishing a government-wide certification process for Veteran Owned Small Businesses (VOSBs) and Service Disabled Veteran Owned Small Businesses (SDVOSBs).

Currently, the Veterans Affairs Administration (VA) certification process only applies to VOSBs and SDVOSBs planning to contract with the VA itself. Through the Center for Verification and Evaluation (CVE), VOSBs and SDVOSBs are verified that they qualify for those designations. In turn, they receive mandatory preference for all VA contracts whenever at least two businesses are expected to bid and can do the work at a “fair and reasonable” price. Conversely, companies competing for VOSBs and SDVOSB set-asides and sole-source contracts outside the VA self-certify that they meet the relevant requirements. The proposed regulation would transfer control of the process from the VA to the Small Business Administration (SBA).

The proposed rule would replace the CVE process with a government-wide certification process requiring VOSBs and SDVOSBs to apply for certification with the SBA and seek renewal every three years. Veteran-owned businesses certified by the VA prior to the implementation of the new system will be granted reciprocity through their three-year eligibility period. Similarly, those veteran-owned businesses previously certified under SBA’s Women-Owned Small Business and 8(a) programs will enjoy accelerated reviews.

The new certification process is designed to reduce “ambiguity and uncertainty for contracting officers” and reduce the compliance burden, making it easier to set aside contracting opportunities for VOSBs and SDVOSBs in the future.

It is also believed the change was driven by a rash of improperly self-certified SDVOSBs. A February 2020 report from the U.S. Department of Defense’s (DOD) Office of Inspector General (OIG) found 16 of the 29 self-certified SDVOSBs did not meet the requirements. Those 16 companies were awarded a combined 27 set-aside contracts totaling $827.8 million. In its report, the OIG said, “without controls in place, DOD contracting activities will continue to award SDVOSB contracts to ineligible contractors.”

In any case, the new certification process will increase the compliance obligations for those firms who want to compete on VOSB and SDVOSB set-asides and sole-source contracts in the future. It should also level the playing field for those who appropriately certify their statuses and bring about more overall opportunities.

Formal comments on the proposed rule will be accepted until August 5 and the transition is scheduled for January 1, 2023.