SBA Issues Direct Final Rule Eliminating Self-Certification for Service-Disabled Veteran-Owned Small Businesses

By Randi N. Thompson of Smith Currie Oles LLP

Originally published December 17, 2024

On August 5, 2024, the Small Business Administration’s (SBA) direct final rule (Rule) regarding self-certification for Service-Disabled Veteran-Owned Small Businesses (SDVOSBs) took effect. The Rule was issued on June 6, 2024, which proposed eliminating SDVOSBs’ ability to self-certify for federal government contracts or subcontracts that count toward agency or subcontracting goals.

The effect of the Rule is that SDVOSBs and Veteran-Owned Small Businesses (VOSBs) are no longer permitted to self-certify their size status to qualify for federal contracting opportunities. As a result, an SDVOSB that has self-certified its size status will not be eligible to compete for SDVOSB set-aside awards, and self-certified SDVOSBs will no longer count toward agency small business contracting goals or a prime contractor’s small business subcontracting goals. Certification through the Veteran Small Business Certification (VetCert) program must now go through the SBA. SDVOSBs that do not file an application for certification with SBA by December 22, 2024, or are not certified by SBA’s VetCert program and do not file an application by the deadline, will not be eligible to self-certify for federal government contracts or subcontracts after December 22, 2024.

BACKGROUND

The SDVOSB and VOSB programs provide qualifying companies the ability to compete for certain sole source and set-aside contracts in all federal contracting, but specifically at the Department of Veterans Affairs under the VA’s Vets First Program. Under the Vets First Program, the VA sets aside at least 7% of its contracts each year for certified VOSBs and SDVOSBs. Across the federal government, at least 3% of all federal contracting dollars each year are set aside specifically for certified SDVOSBs.

On January 1, 2023, the Department of Veterans Affairs transferred its SDVOSB and VOSB programs to SBA. Previously, firms that did not seek SDVOSB set-aside or sole source contracts but met the VetCert Program eligibility requirements could self-certify their SDVOSB status, receive prime contract or subcontract awards that were not SDVOSB set-aside or sole source contracts, and could be counted toward an agency’s SDVOSB small business goals or a prime contractor’s subcontracting goal for SDVOSB awards. Self-certification allowed federal agencies to receive credit for awards to self-certified SDVOSBs, despite the likelihood that SBA had not yet reviewed whether the companies in question were valid SDVOSBs. Under the previous system, the burden of SDVOSB compliance for goaling purposes was placed upon the awarding contracting officer. By eliminating contractors’ ability to self-certify, the new Rule transfers that burden to SBA.

SBA’S DIRECT FINAL RULE

On June 6, 2024, the SBA issued its Rule, which amended 13 C.F.R. § 125.3(a) to require SDVOSB certification for subcontracting assistance. Section 864 of the National Defense Authorization Act (NDAA) for Fiscal Year 2024 (Pub. L. 118-31) (December 22, 2023) amends the SDVOSB requirements so that each prime contract award and subcontract award counted for the purpose of meeting the goals for participation by SDVOSBs in procurement contracts for federal agencies or federal prime contractors shall be entered into with firms certified by VetCert under section 36 of the Small Business Act (15 U.S.C. § 657f). To implement the statutory language of section 864 of the NDAA, SBA’s Rule also amends parts 125 and 128 of SBA’s regulations to eliminate self-certification in the VetCert program for SDVOSBs. Rather than simply meeting the VetCert Program eligibility requirements and self-certifying one’s business, companies interested in SDVOSB certification must be certified by the SBA through the VetCert Program, pursuant to 13 C.F.R. § 128.401(a).

The Rule’s implementation of Section 864 of the National Defense Authorization Act for Fiscal Year 2024 amends the SDVOSB requirements so that:

• Effective October 1, 2024, each prime contract award and subcontract award counted for the purposes of meeting goals for participation by SDVOSBs in procurement contracts for federal agencies or federal prime contractors shall be entered into with firms certified by VetCert under Section 36 of the Small Business Act (15 U.S.C. § 657f).
• A firm that filed an application for SDVOSB certification with SBA by December 22, 2024 may continue to self-certify for federal contracts and subcontracts until SBA makes a final decision.
• SDVOSBs that do not file an application for certification with SBA by December 22, 2024, or are not certified by SBA’s VetCert program and do not file an application by the deadline, will not be eligible to self-certify for federal contracts or subcontracts after December 22, 2024.

THE RULE’S IMPACT ON THE SDVOSB/VOSB COMMUNITY

The Rule shifts the burden of SDVOSB compliance from the awarding contracting officer to the SBA, predicting that this shift of responsibility may result in minor cost savings to the contracting agencies and will likely provide a benefit to the SDVOSB community by reducing the ambiguity and uncertainty for contracting officers in meeting small business contracting targets.

Of the few public comments received on the Rule, several commenters noted the confusion surrounding the timeline requirements, given that SDVOSB firms are required to certify by October 1, 2024, but may self-certify if the firm applies for certification by December 22, 2024. The answer to this concern, however, is that while October 1, 2024 is the effective date, SBA is providing a grace period until December 22, 2024.

CONCLUSION

Despite confusion around timing, the application process itself, and SBA’s ability to timely process applications, SBA views this Rule as non-controversial administrative action, limited to implementing the provisions of NDAA 2024 eliminating self-certification for SDVOSBs. Of course, with any change comes a transition period and learning curve. The hope is that, by transferring the burden to SBA, ambiguity and uncertainty for contracting officers in the process to meet small business contracting targets will be reduced. In turn, SBA anticipates this will directly benefit the SDVOSB/VOSB community by ensuring all SDVOSB/VOSB firms go through the appropriate process of certification in the process of federal contract goaling and subcontracting.

Randi N. Thompson is an Associate with Smith Currie Oles LLP. She represents owners, contractors, subcontractors, and public agencies on a wide range of construction litigation matters and government contracting disputes. Thompson can be reached at rnthompson@smithcurrie.com or 404.582.8118.