The Small Business Administration (SBA) and the Department of Veterans Affairs (VA) finalized new regulations, effective October 1, 2018, that govern eligibility to obtain contracts that are set aside for veteran-owned small business and service-disabled veteran-owned small business (collectively, “(SD)VOSB”). The regulatory changes are intended to improve coordination between the VA’s “Vets First” program, which covers (SD)VOSB set-asides issued by the VA, and the SBA’s program, which covers (SD)VOSB set-asides issued by all other government agencies.

In order to qualify as a (SD)VOSB, both programs require that a business be unconditionally owned and controlled by one or more veterans or service-disabled veterans. However, the VA and the SBA had different definitions of unconditional ownership. The diverging definitions were not only confusing, they created erratic and unfair consequences for contractors who met only one of the two definitions. In one notable case, a SDVOSB was deemed ineligible by the VA, despite meeting the VA’s definition, because the VA has a rule that automatically excludes any contractor who is deemed ineligible by the SBA. 38 C.F.R. 74.2(e).

The primary feature of the new regulations is a unified definition of ownership and control. Going forward, the SBA will be solely responsible for defining ownership and control, and for adjudicating any challenges to a (SD)VOSB’s status that are based upon issues of ownership and control. The VA will continue to verify that contractors meet the definition of (SD)VOSB for purposes of the Vets First program, but it will use the SBA’s definition of ownership and control when doing so. The full text of the SBA’s new regulations can be viewed here, and the VA’s new regulations are available here.

Given such fundamental changes to the (SD)VOSB scheme, it is advisable that (SD)VOSBs become familiar with the nuances of the new regulations. At a minimum, all (SD)VOSBs should ensure that they meet the new definition of ownership and control.