SBA OHA Reverses Course And Finds Company Met SDVOSB Requirements

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In an unusual turn of events, the SBA Office of Hearings and Appeals (OHA) recently reversed course and granted a Petition for Reconsideration in a case involving a challenge to the Service-Disabled Veteran-Owned Small Business (SDVOSB) status of a company. (CVE Protest of Blue Cord Development Group, LLC, SBA No. CVE-188-P (2021)) After initially determining that the company was not controlled by service-disabled veterans because the relevant manager lacked the necessary control and experience, OHA granted the Petition for Reconsideration and overturned that determination.

In its initial decision on the case (CVE Protest of Blue Cord Development Group, LLC, SBA No. CVE-179-P (2021)), OHA addressed the protest filed by Blue Cord Development Group, LLC regarding the SDVOSB status of Purple Heart Heroes, LLC. OHA determined that Purple Heart was not controlled by a service-disabled veteran because (1) the applicable manager (Zachariah Gore) did not have the managerial experience of the extent and complexity needed to run the concern, (2) Purple Heart was dependent upon employees and financing from a non-service-disabled veteran entity which precluded Mr. Gore from exercising independent business judgment in managing the entity, and (3) Mr. Gore was not located within a reasonable commuting distance of Purple Heart’s headquarters or job locations to enable him to adequately supervise its operations.

The contract at issue was for a 20-year lease of commercial space for a community-based outpatient clinic for the Department of Veterans Affairs. OHA based its determination that Mr. Gore lacked the necessary managerial experience on the fact that he had no prior managerial experience in running a major real estate concern. OHA rejected the argument that Mr. Gore could have acquired the necessary experience by serving as the president of Purple Heart for a period of time. OHA also found that Purple Heart was dependent on the employees of a non-service-disabled veteran firm to perform important managerial duties and was dependent on financing received from an entity owned by that same firm. Purple Heart requested reconsideration of the decision.

OHA may grant a Petition for Reconsideration “upon a clear showing of an error of fact or law material to the decision.” 13 C.F.R. 134.227(c). On reconsideration, OHA first addressed Purple Heart’s contention that OHA had ignored aspects of Mr. Gore’s experience in determining that he lacked the managerial experience needed to run the concern. Although OHA found that the information presented regarding Mr. Gore’s prior experience was vague and unclear, OHA held that the experience he had gained working for Purple Heart prior to the time it submitted its offer and the time of the filing of the status protest was sufficient to conclude that he had the requisite managerial experience to run Purple Heart.

OHA also reversed its prior conclusion that Mr. Gore did not have the ability to exercise independent decision making because of Purple Heart’s relationship with non-service-disabled veteran entity. In reversing course on this point, OHA took a close look at Purple Heart’s Operating Agreement and relied on the fact that the Operating Agreement placed no restrictions on Mr. Gore’s control. OHA discounted the fact that the non-service-disabled veteran entity had the ability to influence Mr. Gore’s decision-making and instead focused Mr. Gore’s ultimate authority to administer and manage the long-term and daily operation of Purple Heart. The legal documentation governing Purple Heart made clear that all final decision-making rests with Mr. Gore.

OHA next found that it had erred in finding that Mr. Gore’s commute from his home to the company’s headquarters was unreasonable. OHA held that it had improperly failed to allow Purple Heart to rebut the presumption of lack of control due to the lack of proximity to the company’s headquarters. It then found that the Petition for Reconsideration contained sufficient evidence to show that the headquarters were, in fact, located within a reasonable distance from Mr. Gore’s residence.

OHA’s decision on Purple Heart’s Petition for Reconsideration demonstrates how critical it is for SDVOSB concerns to have organizational documents that clearly establish the authority of its service-disabled veteran managers to exercise the requisite degree of control. In addition, the case emphasizes that a service-disabled veteran can obtain the necessary experience to run the SDVOSB concern by working for that entity itself.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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