[Federal Register Volume 73, Number 97 (Monday, May 19, 2008)]
[Rules and Regulations]
[Pages 29023-29032]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-10489]



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Part V





Department of Veterans Affairs





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38 CFR Part 74



VA Veteran-Owned Small Business Verification Guidelines; Interim Final 
Rule

Federal Register / Vol. 73, No. 97 / Monday, May 19, 2008 / Rules and 
Regulations

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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: Interim final rule with request for comments.

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SUMMARY: This interim final rule implements 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. According to this interim 
final rule, a contracting officer in the Department of Veterans Affairs 
may restrict competition for a requirement to a service-disabled 
veteran-owned small business (SDVOSB) or to a veteran-owned small 
business (VOSB) if that business is listed as ``verified'' in the 
VetBiz.gov Vendor Information Pages (VIP) database. The interim final 
rule defines the eligibility requirements for businesses to obtain 
``verified'' status, explains examination procedures, and establishes 
records retention and review processes.

DATES: Effective Date: May 19, 2008. Comments must be received on or 
before July 18, 2008.

ADDRESSES: Written comments may be submitted through http://www.Regulations.gov; by mail or hand-delivery to the Director, 
Regulations Management (00REG), Department of Veterans Affairs, 810 
Vermont Ave., NW., Room 1068, Washington, DC 20420; or by fax to (202) 
273-9026. Comments should indicate that they are submitted in response 
to ``RIN 2900-AM78-VA Veteran-Owned Small Business Verification 
Guidelines.'' Copies of comments received will be available for public 
inspection in the Office of Regulation Policy and Management, Room 
1063B, between the hours of 8 a.m. and 4:30 p.m., Monday through Friday 
(except holidays). Please call (202) 461-4902 for an appointment. (This 
is not a toll-free number.) In addition, during the comment period, 
comments may be viewed online in through the Federal Docket Management 
System at http://www.Regulations.gov.

FOR FURTHER INFORMATION CONTACT: Gail Wegner, Center for Veterans 
Enterprise (00VE), Department of Veterans Affairs, 810 Vermont Ave., 
NW., Washington, DC, 20420, phone (866) 584-2344.

SUPPLEMENTARY INFORMATION: It is the mission of the Department of 
Veterans Affairs (VA) to serve veterans, and buying from veteran-owned 
small businesses (VOSBs) and service-disabled veteran-owned small 
businesses (SDVOSBs) directly supports VA's mission. Supporting the 
service-disabled veterans who own their own businesses contributes 
significantly toward restoring their capability and the quality of 
their lives and contributes toward smoothing their transition from 
active duty to civilian life. Such purchases from service-disabled 
veteran-owned businesses support the socioeconomic well-being of the 
Nation and support VA's Strategic Goals. It is public policy, as 
expressed in 15 U.S.C. 637 and 644, that small businesses owned by 
veterans and service-disabled veterans, among others, shall have the 
maximum practicable opportunity to participate in the performance of 
contracts let by any Federal agency.
    On December 22, 2006, President Bush signed Pub. L. 109-461, 
Veterans Benefits, Health Care, and Information Technology Act of 2006. 
Title V--Housing and Small Business Matters, contains provisions that 
enable VA to create a unique procurement program among Federal 
agencies. This program permits VA contracting officers to conduct 
acquisition actions limited to SDVOSBs or VOSBs in the Department's 
requirements when such businesses appear as ``verified'' in the 
VetBiz.gov VIP database. In addition, prime contractors of the 
Department are required to use verified SDVOSBs and VOSBs to obtain 
credit in their subcontract plan achievement reports submitted to the 
Department.
    On October 20, 2004, President Bush issued Executive Order 13360, 
which directs the heads of agencies to significantly increase 
opportunities for service-disabled veteran businesses in Federal prime 
contracting and subcontracting actions. To achieve that objective, 
agencies shall more effectively implement section 15(g) of the Small 
Business Act (15 U.S.C. 644(g)) through various efforts, including the 
development of a strategic plan to implement the policy set forth in 
the Executive Order. The Executive Order also directs the Center for 
Veterans Enterprise (CVE) to assist agencies in verifying the accuracy 
of contractor databases.
    This rulemaking establishes regulations that implement Pub. L. 109-
461. Much of the content of these regulations simply reflects the 
language of the authorizing law, as well as Pub. L. 106-50, the 
Veterans Entrepreneurship and Small Business Development Act of 1999, 
and comparable regulations governing similar programs administered by 
the Small Business Administration (SBA) (see generally chapter 1 of 13 
CFR).
    This rulemaking requires VOSBs, including SDVOSBs, to register in 
the VetBiz.gov Vendor Information Pages database, available at http://www.VetBiz.gov, in order to be eligible to participate in set-asides 
for SDVOSBs and VOSBs issued by VA contracting officers, pursuant to 
section 502 of Pub. L. 109-461. In completing registration, businesses 
must provide information establishing that the business is owned and 
controlled by eligible parties, according to the criteria defined in 
section 502 of Pub. L. 109-461. The Department of Veterans Affairs will 
examine the information provided by the owners and approve or 
disapprove applications for ``verified'' status.
    A verification examination is an investigation by VA's CVE 
officials which verifies the accuracy of any statement or information 
provided as part of the VetBiz VIP Verification application process. 
Thus, examiners may verify that the concern currently meets the 
program's eligibility requirements, and that it met such requirements 
at the time of its application or its most recent size recertification.
    Examiners may conduct the review, or parts of the review, by phone, 
by electronic message exchange or in person at one or all of the 
concern's offices. Representatives from the Department will determine 
the location of the examination. Examiners may review any information 
related to the concern's eligibility requirements including, but not 
limited to, documentation related to the legal structure, ownership and 
control of the concern. As a minimum, examiners shall review all 
documents supporting VA Form 0877. These include: Financial statements; 
Federal personal and business tax returns; personal history statements; 
and a Transcript of Tax Form, obtained by submitting an IRS Form 4506. 
Two-three years of transcripts are preferred. Other documents, which 
may be reviewed when necessary based on the application of these 
regulations to a particular application include: Articles of 
Incorporation/Organization; corporate By-Laws or Operating Agreements; 
Organizational, Annual and Board/Member meeting records; stock ledgers 
and certificates; State-issued Certificates of Good Standing; contract, 
lease and loan agreements; payroll records; bank account signature 
cards; and licenses.

[[Page 29025]]

    Upon receipt of specific and credible information alleging that a 
participant no longer meets eligibility requirements, CVE will review 
the concern's eligibility and will decide to withdraw the firm's 
verified status or continue its verified status.

Administrative Procedure Act

    Pursuant to 5 U.S.C. 553(b)(3)(B) and (d)(3), we find that there is 
good cause to dispense with advance public notice and opportunity to 
comment on this rule and with publication not less than 30 days before 
the rule's effective date.
    Public Law 109-461 requires VA to complete examination before June 
19, 2008 of all businesses registered in VIP on the date the law was 
enacted. After that date, such businesses will be ineligible to 
participate in Public Law 109-461 opportunities until such time as they 
complete verification. This will require VA to verify up to 13,380 
businesses, if all businesses desire to participate in VA's unique 
procurement opportunities for SDVOSBs and VOSBs. The majority of 
businesses that have registered in the VIP database have affirmed their 
interest in selling to VA. In addition, with unique procurement tools 
available, it is imperative that businesses be formally examined for 
eligibility to participate in VA contracts in order to protect the 
integrity of the database. Advance solicitation of comments for this 
rule would be impracticable and contrary to the public interest, as it 
would delay the initiation of the examination procedures by a minimum 
of 3 to 6 months. Any such delay would be extremely detrimental to 
SDVOSBs and VOSBs. It is likely that contracting personnel would not 
offer acquisition as a sole source or set-aside for VOSBs due to 
uncertainty that the businesses are actually owned and controlled by 
veterans, disabled veterans or their eligible surviving spouses. 
Currently, there is no mechanism other than U.S. Small Business 
Administration (SBA)'s regulations to validate Veteran-Owned Small 
Businesses and Service-Disabled Veteran-Owned Small Businesses (VOSBs/
SDVOSBs) status through protests and appeals. There appear to be 
business concerns that are representing themselves as VOSBs/SDVOSBs to 
contracting officers. Under Public Law 109-461, VA contracting officers 
may now award sole source and set-aside contracts to business concerns 
that represent themselves as VOSBs/SDVOSBs. VA has good cause to 
publish this rule as an interim final rule in light of the urgent need 
to implement procedures to assure that a business concern is a VOSB/
SDVOSB. This will be accomplished through verification of ownership and 
control.
    Moreover, immediate implementation of these rules will, at a 
minimum, permit VA to begin reviewing the basic information necessary 
to the verification process. This information will be necessary even 
if, as a result of comments received after this rulemaking, VA needs to 
revise any of the rules set forth herein.
    In addition, many of these rules simply codify statutory language 
or instruction, adding mere descriptions of procedural or practice with 
no interpretation or substantive revision. To that extent, these rules 
are not subject to the notice requirement of 5 U.S.C. 553(b)(3)(A). For 
example, the definition of ``service-disabled veteran-owned small 
business concern'' simply reflects the definition set forth in section 
103 of Public Law 106-50.
    Finally, VA also believes, based upon its contacts with interested 
members of the public, that there is strong interest in implementation 
of this rule. VA is aware of many acquisition opportunities and 
business concerns that will be assisted by the adoption of this rule. 
In order to implement the legislation and benefit these veterans as 
quickly as possible, it is critical that we begin our verification 
process immediately.

Regulatory Flexibility Act

    The Secretary hereby certifies that this interim 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.
    This interim final rule would generally be small business neutral. 
Any negative impact on small businesses that are not owned by veterans 
would be off-set with an equal benefit to small businesses that are 
owned by veterans. The overall impact of the interim final rule will be 
of benefit to small businesses owned by veterans or service-disabled 
veterans. On this basis, the Secretary certifies that the adoption of 
this interim rule would not have a significant economic impact on a 
substantial number of small entities as they are defined in the RFA. 
Therefore, under 5 U.S.C. 605(b), this amendment 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 the private sector.

Paperwork Reduction Act

    This interim 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 interim 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.

List of Subjects in 38 CFR Part 74

    Administrative practice and procedures, Privacy, Reporting and

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recordkeeping requirements, Small business, Veteran, Veteran-owned 
small business, Verification.

    Approved: February 1, 2008.
Gordon H. Mansfield,
Deputy Secretary of Veterans Affairs.

0
For the reasons set forth in the preamble, the Department of Veterans 
Affairs is amending 38 CFR chapter I by adding part 74 to read as 
follows:

PART 74--VETERANS SMALL BUSINESS REGULATIONS

General Guidelines

Sec.
74.1 What definitions are important for VetBiz Vendor Information 
Pages (VIP) verification?
74.2 What are the eligibility requirements a concern must meet for 
VetBiz VIP Verification?
74.3 Who does Center for Veterans Enterprise (CVE) consider to own a 
veteran-owned small business?
74.4 Who does CVE consider to control a veteran-owned small 
business?
74.5 How does CVE determine affiliation?

Application Guidelines

74.10 Where must an application be filed?
74.11 How does CVE process applications for VetBiz VIP Verification?
74.12 What must a concern submit to apply for VetBiz VIP 
Verification?
74.13 Can an applicant ask CVE to reconsider its initial decision to 
deny an application?
74.14 Can an applicant reapply for admission to the VetBiz VIP 
Verification program?
74.15 What length of time may a business participate in VetBiz VIP 
Verification?

Oversight Guidelines

74.20 What is a verification examination and what will CVE examine?
74.21 What are the ways a business may exit VetBiz VIP Verification 
status?
74.22 What are the procedures for cancellations?

Records Management

74.25 What types of personally identifiable information will VA 
collect?
74.26 What types of business information will VA collect?
74.27 How will VA store information?
74.28 Who may examine records?
74.29 When will VA dispose of records?

    Authority: 38 U.S.C. 501, 513, and as noted in specific 
sections.

General Guidelines


Sec.  74.1  What definitions are important for VetBiz Vendor 
Information Pages (VIP) verification?

    For the purposes of part 74, the following definitions apply.
    Center for Veterans Enterprise (CVE) is an office within the U.S. 
Department of Veterans Affairs (VA) and is a subdivision of VA's Office 
of Small and Disadvantaged Business Utilization. The CVE helps veterans 
interested in forming or expanding their own small businesses. It also 
helps VA contracting offices identify veteran-owned small businesses 
and works with the Small Business Administration's Veterans Business 
Development Officers and Small Business Development Centers nationwide 
regarding veterans' business financing, management, and technical 
assistance needs.
    Days are calendar days. In computing any period of time described 
in Part 74, the day from which the period begins to run is not counted, 
and when the last day of the period is a Saturday, Sunday, or Federal 
holiday, the period extends to the next day that is not a Saturday, 
Sunday, or Federal holiday. Similarly, in circumstances where CVE is 
closed for all or part of the last day, the period extends to the next 
day on which the agency is open.
    Day-to-day management means supervising the executive team, 
formulating sound policies and setting strategic direction.
    Day-to-day operations mean the marketing, production, sales, and 
administrative functions of the firm.
    Eligible individual means a veteran, service-disabled veteran or 
surviving spouse, as defined in this section.
    Immediate family member means father, mother, husband, wife, son, 
daughter, brother, sister, grandfather, grandmother, grandson, 
granddaughter, father-in-law, and mother-in-law.
    Joint venture is an association of two or more small business 
concerns to engage in and carry out a single, specific business venture 
for joint profit, for which purpose they combine their efforts, 
property, money, skill, or knowledge, but not on a continuing or 
permanent basis for conducting business generally. For VA contracts, a 
joint venture must be in the form of a separate legal entity.
    Negative control includes, but is not limited to, instances where a 
minority shareholder has the ability, under the concern's chapter, by-
laws, or shareholder's agreement, to prevent a quorum or otherwise 
block action by the board of directors or shareholders.
    Non-veteran means any individual who does not claim veteran status, 
or upon whose status an applicant or participant does not rely in 
qualifying for VetBiz Vendor Information Pages (VIP) Verification 
Program participation.
    Office of Small and Disadvantaged Business Utilization is the 
office within the Department of Veterans Affairs that establishes and 
monitors small business program goals at the prime and subcontract 
levels and which functions as the ombudsman for veterans and service-
disabled veterans seeking procurement opportunities with the 
Department.
    Participant means a veteran-owned small business concern that has 
verified status in the VetBiz Vendor Information Pages database.
    Primary industry classification means the six-digit North American 
Industry Classification System (NAICS) code designation which best 
describes the primary business activity of the participant. The NAICS 
code designations are described in the North American Industry 
Classification System (NAICS) Manual published by the U.S. Office of 
Management and Budget.
    Principal place of business means the business location where the 
individuals who manage the concern's day-to-day operations spend most 
working hours and where top management's current business records are 
kept. If the office from which management is directed and where the 
current business records are kept are in different locations, CVE will 
determine the principal place of business for program purposes.
    Same or similar line of business means business activities within 
the same three-digit ``Major Group'' of the NAICS Manual as the primary 
industry classification of the applicant or participant. The phrase 
``same business area'' is synonymous with this definition.
    Service-disabled veteran is a veteran who possesses either a 
disability rating letter issued by the Department of Veterans Affairs, 
establishing a service-connected rating between 0 and 100 percent, or a 
disability determination from the Department of Defense.
    Service-disabled veteran-owned small business concern is a business 
not less than 51 percent of which is owned by one or more service-
disabled veterans, or in the case of any publicly owned business, not 
less than 51 percent of the stock of which is owned by one or more 
service-disabled veterans; the management and daily business operations 
of which are controlled by one or more service-disabled veterans, or in 
the case of a veteran with a permanent and severe disability, a spouse 
or permanent caregiver of such veteran. In addition, some businesses 
may be owned and operated by an eligible surviving spouse. Reservists 
or members of the National Guard disabled from a disease or injury 
incurred or aggravated in the line of duty or while in training status 
also qualify.
    Small business concern is--

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    (1) A small business entity organized for profit, with a place of 
business located in the United States, and which operates primarily 
within the United States or which makes a significant contribution to 
the U.S. economy through payment of taxes or use of American products, 
materials or labor. For purposes of this program, a small business 
concern must meet Federal size standards.
    (2) A business concern may be in the legal form of an individual 
proprietorship, partnership, limited liability company, corporation, 
joint venture, association, trust or cooperative.
    Surviving spouse is any individual identified as such by VA's 
Veterans Benefits Administration and listed in its database of veterans 
and family members. To be eligible for VetBiz VIP Verification, the 
following conditions must apply:
    (1) If the death of the veteran causes the small business concern 
to be less than 51 percent owned by one or more veterans, the surviving 
spouse of such veteran who acquires ownership rights in such small 
business shall, for the period described in paragraph (2) of this 
definition, be treated as if the surviving spouse were that veteran for 
the purpose of maintaining the status of the small business concern as 
a service-disabled veteran-owned small business.
    (2) The period referred to in paragraph (1) of this definition is 
the period beginning on the date on which the veteran dies and ending 
on the earliest of the following dates:
    (i) The date on which the surviving spouse remarries;
    (ii) The date on which the surviving spouse relinquishes an 
ownership interest in the small business concern;
    (iii) The date that is 10 years after the date of the veteran's 
death; or
    (iv) The date on which the business concern is no longer small 
under Federal small business size standards,
    (3) The veteran must have had a 100 percent service-connected 
disability.
    Note to definition of surviving spouse: For program eligibility 
purposes, the surviving spouse has the same rights and entitlements of 
the service-disabled veteran who transferred ownership upon his or her 
death.
    Unconditional ownership means ownership that is not subject to 
conditions precedent, conditions subsequent, executory agreements, 
voting trusts, restrictions on or assignments of voting rights, or 
other arrangements causing or potentially causing ownership benefits to 
go to another (other than after death or incapacity). The pledge or 
encumbrance of stock or other ownership interest as collateral, 
including seller-financed transactions, does not affect the 
unconditional nature of ownership if the terms follow normal commercial 
practices and the owner retains control absent violations of the terms.
    VA is the U.S. Department of Veterans Affairs.
    Vendor Information Pages (VIP) is a database of businesses eligible 
to participate in VA's Veteran-owned Small Business Program. The online 
database may be accessed at no charge via the Internet at http://www.VetBiz.gov.
    Verification eligibility period is a 12-month period that begins on 
the date the Center for Veterans Enterprise issues the approval letter 
establishing verified status. The participant must submit a new 
application each year to continue eligibility.
    VetBiz.gov (VetBiz) is a Web portal VA maintains at http://www.VetBiz.gov. It hosts the Vendor Information Pages database.
    Veteran is a person who served on active duty with the U.S. Army, 
Air Force, Navy, Marine Corps or Coast Guard, for any length of time 
and at any place and who was discharged or released under conditions 
other than dishonorable. Reservists or members of the National Guard 
called to Federal active duty or disabled from a disease or injury 
incurred or aggravated in the line of duty or while in training status 
also qualify as a veteran.
    Veteran-owned small business concern (VOSB) is a small business 
concern that is not less than 51 percent owned by one or more veterans, 
or in the case of any publicly owned business, not less than 51 percent 
of the stock of which is owned by one or more veterans; the management 
and daily business operations of which are controlled by one or more 
veterans and qualifies as ``small'' for Federal business size standard 
purposes. All service-disabled veteran-owned small business concerns 
(SDVOSBs) are also, by definition, veteran-owned small business 
concerns. When used in these guidelines, the term ``VOSB'' includes 
SDVOSBs.
    Veterans Affairs Acquisition Regulation (VAAR) is the set of rules 
that specifically govern requirements exclusive to the U.S. Department 
of Veterans Affairs (VA) prime and subcontracting actions. The VAAR is 
chapter 8 of title 48, Code of Federal Regulations, and supplements the 
Federal Acquisition Regulation (FAR), which contains guidance 
applicable to most Federal agencies.


Sec.  74.2  What are the eligibility requirements a concern must meet 
for VetBiz VIP Verification?

    (a) Ownership and control. A small business concern must be 
unconditionally owned and controlled by one or more eligible veterans, 
service-disabled veterans or surviving spouses, have completed the 
online Vendor Information Pages database forms at http://www.VetBiz.gov, and has been examined by VA's Center for Veterans 
Enterprise. Such businesses appear in the VIP database as ``verified.''
    (b) Good character. Veterans, service-disabled veterans and 
surviving spouses with ownership interests in VetBiz verified 
businesses must have good character. Debarred or suspended concerns or 
concerns owned or controlled by debarred or suspended persons are 
ineligible for VetBiz VIP Verification.
    (c) False Statements. If, during the processing of an application, 
CVE determines that an applicant has knowingly submitted false 
information, regardless of whether correct information would cause CVE 
to deny the application, and regardless of whether correct information 
was given to CVE in accompanying documents, CVE will deny the 
application. If, after verifying the Participant's eligibility, CVE 
discovers that false information has been knowingly submitted by a 
firm, CVE will remove the ``verified'' status from the VIP database and 
notify the business by phone and mail. Whenever CVE determines that the 
applicant submitted false information, the matter will be referred to 
the Office of Inspector General for review. In addition, the CVE will 
request that debarment proceedings be initiated by the Department.
    (d) Federal financial obligations. Neither a firm nor any of its 
eligible individuals that fails to pay significant financial 
obligations owed to the Federal Government, including unresolved tax 
liens and defaults on Federal loans or other Federally assisted 
financing, is eligible for VetBiz VIP Verification.


Sec.  74.3  Who does Center for Veteran's Enterprise (CVE) consider to 
own a veteran-owned small business?

    An applicant or participant must be at least 51 percent 
unconditionally and directly owned by one or more veterans or service-
disabled veterans.
    (a) Ownership must be direct. Ownership by one or more veterans or 
service-disabled veterans must be direct ownership. An applicant or 
participant owned principally by another business entity or by a trust 
(including employee

[[Page 29028]]

stock ownership trusts) that is in turn owned by one or more veterans 
or service-disabled veterans does not meet this requirement. However, 
ownership by a trust, such as a living trust, may be treated as the 
functional equivalent of ownership by a veteran or service-disabled 
veteran where the trust is revocable, and the veteran or service-
disabled veteran is the grantor, a trustee, and the sole current 
beneficiary of the trust.
    (b) Ownership must be unconditional. Ownership by one or more 
veterans or service-disabled veterans must be unconditional ownership. 
Ownership must not be subject to conditions precedent, conditions 
subsequent, executory agreements, voting trusts, restrictions on 
assignments of voting rights, or other arrangements causing or 
potentially causing ownership benefits to go to another (other than 
after death or incapacity). The pledge or encumbrance of stock or other 
ownership interest as collateral, including seller-financed 
transactions, does not affect the unconditional nature of ownership if 
the terms follow normal commercial practices and the owner retains 
control absent violations of the terms. In particular, CVE will 
evaluate ownership according to the following criteria for specific 
types of small business concerns.
    (1) Ownership of a partnership. In the case of a concern that is a 
partnership, at least 51 percent of every class of partnership interest 
must be unconditionally owned by one or more veterans or service-
disabled veterans. The ownership must be reflected in the concern's 
partnership agreement.
    (2) Ownership of a limited liability company. In the case of a 
concern that is a limited liability company, at least 51 percent of 
each class of member interest must be unconditionally owned by one or 
more veterans or service-disabled veterans.
    (3) Ownership of a corporation. In the case of a concern that is a 
corporation, at least 51 percent of each class of voting stock 
outstanding and 51 percent of the aggregate of all stock outstanding 
must be unconditionally owned by one or more veterans or service-
disabled veterans.
    (c) Stock options' effect on ownership. In determining 
unconditional ownership, CVE will disregard any unexercised stock 
options or similar agreements held by veterans or service-disabled 
veterans. However, any unexercised stock options or similar agreements 
(including rights to convert non-voting stock or debentures into voting 
stock) held by non-veterans will be treated as exercised, except for 
any ownership interests that are held by investment companies licensed 
under part 107 of title 13, Code of Federal Regulations.
    (d) Profits and distributions. One or more veterans or service-
disabled veterans must be entitled to receive:
    (1) At least 51 percent of the annual distribution of profits paid 
on the stock of a corporate applicant concern;
    (2) 100 percent of the value of each share of stock owned by them 
in the event that the stock is sold; and
    (3) 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.
    (e) Change of ownership. (1) A participant may remain eligible 
after a change in its ownership or business structure, so long as one 
or more veterans or service-disabled veterans own and control it after 
the change and the participant files a new application identifying the 
new veteran owners or their new business interest.
    (2) Any participant that is performing contracts and desires to 
substitute one veteran owner for another shall submit a proposed 
novation agreement and supporting documentation in accordance with FAR 
Subpart 42.12 to the contracting officer prior to the substitution or 
change of ownership for approval.
    (3) Where the transfer results from the death or incapacity due to 
a serious, long-term illness or injury of an eligible principal, prior 
approval is not required, but the concern must file a new application 
with the contracting officer and CVE within 60 days of the change. 
Existing contracts may be performed to the end of the instant term. 
However, no options may be exercised.
    (4) Continued eligibility of the participant with new ownership and 
the award of any new contracts require that CVE verify all eligibility 
requirements are met by the concern and the new owners.
    (f) Community property laws given effect. In determining ownership 
interests when an owner resides in any of the community property States 
or territories of the United States, CVE considers applicable State 
community property laws. If only one spouse claims veteran status, that 
spouse's ownership interest will be considered unconditionally held 
only to the extent it is vested by the community property laws.


Sec.  74.4  Who does CVE consider to control a veteran-owned small 
business?

    (a) Control means both the day-to-day management and long-term 
decision-making authority for the VOSB. Many persons share control of a 
concern, including each of those occupying the following positions: 
officer, director, general partner, managing partner, managing member 
and manager. In addition, key employees who possess expertise or 
responsibilities related to the concern's primary economic activity may 
share significant control of the concern. CVE will consider the control 
potential of such key employees on a case-by-case basis.
    (b) Control is not the same as ownership, although both may reside 
in the same person. CVE regards control as including both the strategic 
policy setting exercised by boards of directors and the day-to-day 
management and administration of business operations. An applicant or 
participant's management and daily business operations must be 
conducted by one or more veterans or service-disabled veterans. 
Individuals managing the concern must have managerial experience of the 
extent and complexity needed to run the concern. A veteran need not 
have the technical expertise or possess a required license to be found 
to control an applicant or participant if he or she can demonstrate 
that he or she has ultimate managerial and supervisory control over 
those who possess the required licenses or technical expertise. 
However, where a critical license is held by a non-veteran having an 
equity interest in the applicant or participant firm, the non-veteran 
may be found to control the firm.
    (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.
    (2) An eligible full-time manager must hold the highest officer 
position (usually President or Chief Executive Officer) in the 
applicant or participant.
    (3) One or more veterans or service-disabled veterans who manage 
the applicant or participant must devote full-time to the business 
during the normal working hours of firms in the same or similar line of 
business. Work in a wholly-owned subsidiary of the applicant or 
participant may be considered to meet the requirement of full-time 
devotion. This applies only to a subsidiary owned by the VOSB itself, 
and not to firms in which the veteran has a mere ownership interest.
    (4) Except as provided in paragraph (d)(1) of this section, a 
veteran owner's unexercised right to cause a change in the management 
of the applicant

[[Page 29029]]

concern does not in itself constitute veteran control, regardless of 
how quickly or easily the right could be exercised.
    (d) In the case of a partnership, one or more veterans or service-
disabled veterans must serve as general partners, with control over all 
partnership decisions. A partnership in which no veteran is a general 
partner will be ineligible for participation.
    (e) In the case of a limited liability company, one or more 
veterans or service-disabled veterans must serve as management members, 
with control over all decisions of the limited liability company.
    (f) One or more veterans or service-disabled veterans must control 
the board of directors of a corporate applicant or participant.
    (1) CVE will deem veterans or service-disabled veterans to control 
the board of directors where:
    (i) A single veteran owns 100 percent of all voting stock of an 
applicant or participant concern;
    (ii) A single veteran owns at least 51 percent of all voting stock 
of an applicant or participant, the individual is on the board of 
directors and no super majority voting requirements exist for 
shareholders to approve corporation actions. Where supermajority voting 
requirements are provided for in the concern's articles of 
incorporation, its by-laws, or by State law, the veteran must own at 
least the percent of the voting stock needed to overcome any such 
supermajority voting requirements; or
    (iii) No single veteran owns 51 percent of all voting stock but 
multiple veterans in combination do own at least 51 percent of all 
voting stock, each such veteran is on the board of directors, no 
supermajority voting requirements exist, and the veteran shareholders 
can demonstrate that they have made enforceable arrangements to permit 
one of them to vote the stock of all as a block without a shareholder 
meeting. Where the concern has supermajority voting requirements, the 
veteran shareholders must own at least that percentage of voting stock 
needed to overcome any such supermajority ownership requirements.
    (2) Where an applicant or participant does not meet the 
requirements set forth in paragraph (d)(1) of this section, the 
veteran(s) upon whom eligibility is based must control the board of 
directors through actual numbers of voting directors or, where 
permitted by state law, through weighted voting (e.g., in a concern 
having a two-person board of directors where one individual on the 
board is a veteran and one is not, the veteran vote must be weighted--
worth more than one vote--in order for the concern to be eligible for 
VetBiz VIP Verification). Where a concern seeks to comply with this 
paragraph:
    (i) Provisions for the establishment of a quorum cannot permit non-
veteran directors to control the board of directors, directly or 
indirectly;
    (ii) Any executive committee of the board of directors must be 
controlled by veteran directors unless the executive committee can only 
make recommendations to and cannot independently exercise the authority 
of the board of directors.
    (3) Non-voting, advisory, or honorary directors may be appointed 
without affecting veterans' or service-disabled veterans' control of 
the board of directors.
    (4) Arrangements regarding the structure and voting rights of the 
board of directors must comply with applicable state law.
    (g) Non-veterans may be involved in the management of an applicant 
or participant, and may be stockholders, partners, limited liability 
members, officers, or directors of the applicant or participant. With 
the exception of a spouse or personal caregiver who represents a 
severely disabled veteran owner, no such non-veteran or immediate 
family member may:
    (1) Exercise actual control or have the power to control the 
applicant or participant;
    (2) Be a former employer or a principal of a former employer of any 
affiliated business of the applicant or participant, unless it is 
determined by the CVE that the relationship between the former employer 
or principal and the eligible individual or applicant concern does not 
give the former employer actual control or the potential to control the 
applicant or participant and such relationship is in the best interests 
of the participant firm; or
    (3) Receive compensation from the applicant or participant in any 
form as directors, officers or employees, including dividends, that 
exceeds the compensation to be received by the highest officer (usually 
chief executive officer or president). The highest ranking officer may 
elect to take a lower salary than a non-veteran only upon demonstrating 
that it helps the applicant or participant.
    (h) Non-veterans who transfer majority stock ownership or control 
of the firm to an immediate family member within 2 years prior to the 
application and remain involved in the firm as a stockholder, officer, 
director, or key employee of the firm are presumed to control the firm. 
The presumption may be rebutted by showing that the transferee has 
independent management experience necessary to control the operation of 
the firm, and indeed is participating in the management of the firm.
    (i) Non-veterans or entities may be found to control or have the 
power to control in any of the following circumstances, which are 
illustrative only and not all inclusive:
    (1) Non-veterans control the board of directors of the applicant or 
participant, either directly through majority voting membership, or 
indirectly, where the by-laws allow non-veterans effectively to prevent 
a quorum or block actions proposed by the veterans or service-disabled 
veterans.
    (2) A non-veteran or entity, having an equity interest in the 
applicant or participant, provides critical financial or bonding 
support or a critical license to the applicant or participant which 
directly or indirectly allows the non-veteran significantly to 
influence business decisions of the participant, unless an exception is 
authorized by the Office of Small and Disadvantaged Business 
Utilization.
    (3) A non-veteran or entity controls the applicant or participant 
or an individual veteran owner through loan arrangements. Providing a 
loan guaranty on commercially reasonable terms does not, by itself, 
give a non-veteran or entity the power to control a firm.
    (4) Business relationships exist with non-veterans or entities 
which cause such dependence that the applicant or participant cannot 
exercise independent business judgment without great economic risk.


Sec.  74.5  How does CVE determine affiliation?

    The Center for Veterans Enterprise applies the affiliation rules 
established by the Small Business Administration in 13 CFR 121.

Application Guidelines


Sec.  74.10  Where must an application be filed?

    An application for VetBiz VIP Verification status must be 
electronically filed in the Vendor Information Pages database located 
in the Center for Veterans Enterprise's Web portal, http://www.VetBiz.gov. Guidelines and forms are located on the Web portal. 
Upon receipt of the applicant's electronic submission, an 
acknowledgment message will be dispatched to the concern, containing 
estimated processing time and other information. Address information 
for the CVE is also contained on the Web portal. Correspondence may be

[[Page 29030]]

dispatched to: Director, Center for Veterans Enterprise (00VE), U.S. 
Department of Veterans Affairs, 810 Vermont Avenue, NW., Washington, DC 
20420.
    (The Office of Management and Budget has approved the information 
collection provisions in this section under control number 2900-0675.)


Sec.  74.11  How does CVE process applications for VetBiz VIP 
Verification?

    (a) The Director, Center for Veterans Enterprise, is authorized to 
approve or deny applications for VetBiz VIP Verification. The CVE will 
receive, review and evaluate all VetBiz VIP Verification applications. 
CVE will advise each applicant within 30 days after the receipt of an 
application whether the application is complete and suitable for 
evaluation and, if not, what additional information or clarification is 
required to complete the application. CVE will process an application 
for VetBiz VIP Verification status within 60 days of receipt of a 
complete application package. Incomplete application packages will not 
be processed.
    (b) CVE, in its sole discretion, may request clarification of 
information contained in the application at any time in the eligibility 
determination process. CVE will take into account any clarifications 
made by an applicant in response to a request for such by CVE.
    (c) An applicant's eligibility will be based on circumstances 
existing on the date of application, except where clarification is made 
pursuant to paragraph (b) of this section or as provided in paragraph 
(d) of this section.
    (d) Changed circumstances for an applicant occurring subsequent to 
its application and which adversely affect eligibility will be 
considered and may constitute grounds for denial of the application. 
The applicant must inform CVE of any changed circumstances that could 
adversely affect its eligibility for the program (i.e., ownership or 
control changes) during its application review. Failure to inform CVE 
of any such changed circumstances constitutes good cause for which CVE 
may withdraw verified status for the participant if non-compliance is 
discovered after a participant has been verified.
    (e) The decision of the Director, CVE, to approve or deny an 
application will be in writing. A decision to deny verification status 
will state the specific reasons for denial, and will inform the 
applicant of any appeal rights.
    (f) If the Director, CVE, approves the application, the date of the 
approval letter is the date of participant verification for purposes of 
determining the participant's verification eligibility term.
    (The Office of Management and Budget has approved the information 
collection provisions in this section under control number 2900-0675.)


Sec.  74.12  What must a concern submit to apply for VetBiz VIP 
Verification?

    Each VetBiz VIP Verification applicant must submit the electronic 
forms and attachments CVE requires. All electronic forms are available 
on the VetBiz.gov Vendor Information Pages database Web pages. At the 
time the applicant dispatches the electronic forms, the applicant must 
also retain on file at the principal place of business a completed copy 
of the electronic forms supplemented by manual records that will be 
used in verification examinations. These forms and attachments will 
include, but not be limited to, financial statements, Federal personal 
and business tax returns, payroll records and personal history 
statements. An applicant must also retain in the application file IRS 
Form 4506, Request for Copy or Transcript of Tax Form. These materials 
shall be filed together to maximize efficiency of verification 
examination visits. Together with the electronic documents, these 
manual records will provide the CVE verification examiner with 
sufficient information to establish the management, control and 
operating status of the business on the date of submission.
    (The Office of Management and Budget has approved the information 
collection provisions in this section under control number 2900-0675.)


Sec.  74.13  Can an applicant ask CVE to reconsider its initial 
decision to deny an application?

    (a) An applicant may request that the Director, CVE, reconsider his 
or her decision to deny an application by filing a request for 
reconsideration with CVE within 30 days of receipt of CVE's denial 
decision. ``Filing'' means a document is received by CVE by 5:30 p.m., 
eastern time, on that day. Documents may be filed by hand delivery, 
mail, commercial carrier, or facsimile transmission. Hand delivery and 
other means of delivery may not be practicable during certain periods 
due, for example, to security concerns or equipment failures. The 
filing party bears the risk that the delivery method chosen will not 
result in timely receipt at CVE.
    (b) The Director, CVE, will issue a written decision within 30 days 
of receipt of the applicant's request. The Director, CVE, may either 
approve the application, deny it on the same grounds as the original 
decision, or deny it on other grounds. If denied, the Director, CVE, 
will explain why the applicant is not eligible for the VetBiz VIP 
Verification and give specific reasons for the denial.
    (c) If the Director, CVE denies the application solely on issues 
not raised in the initial denial, the applicant may ask for 
reconsideration as if it were an initial denial.
    (d) If CVE determines that a concern may not qualify as small, they 
may directly deny an application for VetBiz VIP Verification or may 
request a formal size determination from the U.S. Small Business 
Administration (SBA). A concern whose application is denied because it 
is other than a small business concern by CVE may request a formal size 
determination from the SBA Associate Administrator, Office of 
Government Contracting (ATTN: Director, Office of Size Standards), 409 
3rd Street, SW., Washington, DC 20416. A favorable determination by SBA 
will enable the firm to immediately submit a new VetBiz VIP 
Verification.
    (e) A denial decision that is based on the failure to meet any 
veteran or service-disabled veteran eligibility criteria is not subject 
to a request for reconsideration and is the final decision of CVE.
    (f) Except as provided in paragraph (c) of this section, the 
decision on the request for reconsideration shall be final.


Sec.  74.14  Can an applicant reapply for admission to the VetBiz VIP 
Verification program?

    A concern which has been denied eligibility for VetBiz VIP 
Verification program on the basis of ineligibility of veteran, service-
disabled veteran or surviving spouse status may submit a new 
application for admission to the program as soon as eligibility status 
is finalized. In cases in which the denial stemmed from ownership, 
control or size factors, the applicant may file as soon as identified 
issues have been corrected. Once an application and its appeal have 
been denied, the applicant will be required to wait for a period of 6 
months before a new application will be considered.


Sec.  74.15  What length of time may a business participate in VetBiz 
VIP Verification?

    (a) A participant receives an eligibility term of 1 year from the 
date of CVE's approval letter establishing verified status. The 
participant must maintain its eligibility during its tenure and must 
inform CVE of any changes that would

[[Page 29031]]

adversely affect its eligibility. The eligibility term may be shortened 
by cancellation by CVE or voluntary withdrawal by the participant 
(i.e., no longer eligible as a small business concern), as provided for 
in this subpart.
    (b) When at least 50 percent of the assets of a concern are the 
same as those of an affiliated business, the concern will not be 
eligible for verification.
    (c) CVE may initiate a verification examination whenever it 
receives credible information calling into the question a participant's 
eligibility as a VOSB. Upon its completion of the examination, CVE will 
issue a written decision regarding the continued eligibility status of 
the questioned participant.
    (d) If CVE finds that the participant does not qualify as a VOSB, 
CVE will immediately remove the ``verified'' status of the firm from 
the VetBiz Vendor Information Pages database. CVE will call and mail 
the participant with specifics that led to the cancellation action. The 
participant may file a request for reconsideration of CVE's decision in 
accordance with Sec.  74.13.
    (e) If CVE finds that the participant continues to qualify as a 
VOSB, the program term remains in effect.

Oversight Guidelines


Sec.  74.20  What is a verification examination and what will CVE 
examine?

    (a) General. A verification examination is an investigation by CVE 
officials, which verifies the accuracy of any statement or information 
provided as part of the VetBiz VIP Verification application process. 
Thus, examiners may verify that the concern currently meets the 
eligibility requirements, and that it met such requirements at the time 
of its application or its most recent size recertification. An 
examination may be conducted on a random basis, or upon receipt of 
specific and credible information alleging that a participant no longer 
meets eligibility requirements.
    (b) Scope of examination. CVE may conduct the examination, or parts 
of the program examination, at one or all of the participant's offices. 
CVE will determine the location of the examination. Examiners may 
review any information related to the concern's eligibility 
requirements including, but not limited to, documentation related to 
the legal structure, ownership and control of the concern. As a 
minimum, examiners shall review all documents supporting the 
application, as described in Sec.  74.12. These include: financial 
statements; Federal personal and business tax returns; personal history 
statements; and Request for Copy or Transcript of Tax Form (IRS Form 
4506) for up to 3 years. Other documents, which may be reviewed include 
(if applicable): Articles of Incorporation/Organization; corporate by-
laws or operating agreements; organizational, annual and board/member 
meeting records; stock ledgers and certificates; State-issued 
Certificates of Good Standing; contract, lease and loan agreements; 
payroll records; bank account signature cards; and licenses.


Sec.  74.21  What are the ways a business may exit VetBiz VIP 
Verification status?

    A participant may:
    (a) Voluntarily cancel its status by submitting a written request 
to CVE requesting that the ``verified'' status button be removed from 
the Vendor Information Pages database; or
    (b) Delete its record entirely from the Vendor Information Pages 
database; or
    (c) CVE may cancel the ``verified'' status button for good cause 
upon formal notice to the participant. Examples of good cause include, 
but are not limited to, the following:
    (1) Submission of false information in the participant's VetBiz VIP 
Verification application.
    (2) Failure by the participant to maintain its eligibility for 
program participation.
    (3) Failure by the participant for any reason, including the death 
of an individual upon whom eligibility was based, to maintain 
ownership, management, and control by veterans, service-disabled 
veterans or surviving spouses.
    (4) Failure by the concern to disclose to CVE the extent to which 
non-veteran persons or firms participate in the management of the 
participant.
    (5) Debarment, suspension, voluntary exclusion, or ineligibility of 
the participant or its owners.
    (6) A pattern of failure to make required submissions or responses 
to CVE in a timely manner, including a failure to make available 
financial statements, requested tax returns, reports, information 
requested by CVE or VA's Office of Inspector General, or other 
requested information or data within 30 days of the date of request.
    (7) Cessation of the participant's business operations.
    (8) Failure by the concern to pay or repay significant financial 
obligations owed to the Federal Government.
    (9) Failure by the concern to obtain and keep current any and all 
required permits, licenses, and charters, including suspension or 
revocation of any professional license required to operate the 
business.
    (10) Failure by the concern to provide an updated application (VA 
Form 0877) within 60 days of any change in ownership.
    (d) The examples of good cause listed in paragraph (c) of this 
section are intended to be illustrative only. Other grounds for 
canceling a participant's verified status include any other cause of so 
serious or compelling a nature that it affects the present 
responsibility of the participant.


Sec.  74.22  What are the procedures for cancellation?

    (a) General. When CVE believes that a participant's verified status 
should be cancelled prior to the expiration of its eligibility term, 
CVE will notify the participant in writing. The Notice of Proposed 
Cancellation Letter will set forth the specific facts and reasons for 
CVE's findings, and will notify the participant that it has 30 days 
from the date it receives the letter to submit a written response to 
CVE explaining why the proposed ground(s) should not justify 
cancellation.
    (b) Recommendation and decision. Following the 30-day response 
period, the Director, CVE, will consider any information submitted by 
the participant. Upon determining that cancellation is not warranted, 
the Director, CVE, will notify the participant in writing. If 
cancellation appears warranted, the Director, CVE, will make a decision 
whether to cancel the participant's verified status.
    (c) Notice requirements. Upon deciding that cancellation is 
warranted, the Director, CVE, will issue a Notice of Verified Status 
Cancellation. The Notice will set forth the specific facts and reasons 
for the decision, and will advise the concern that it may re-apply 
after it has met all eligibility criteria.
    (d) Effect of verified status cancellation. After the effective 
date of cancellation, a participant is no longer eligible to appear as 
``verified'' in the VetBiz VIP database. However, such concern is 
obligated to perform previously awarded contracts to the completion of 
their existing term of performance.

Records Management


Sec.  74.25  What types of personally identifiable information will VA 
collect?

    In order to establish owner eligibility, the Department will 
collect individual names and Social Security numbers for veterans, 
service-disabled veterans and surviving spouses who represent 
themselves as having ownership and control interests in a specific 
business seeking to obtain verified status.

[[Page 29032]]

Sec.  74.26  What types of business information will VA collect?

    VA will examine a variety of business records. See Sec.  74.12, 
``What is a verification examination and what will CVE examine?''


Sec.  74.27  How will VA store information?

    VA intends to store records provided to complete the VetBiz Vendor 
Information Pages registration fully electronically on the Department's 
secure servers. CVE personnel will compare information provided 
concerning owners who have veteran status, service-disabled veteran 
status or surviving spouse status against electronic records maintained 
by the Department's Veterans Benefits Administration. Records collected 
during examination visits will be scanned onto portable media and fully 
secured in the Center for Veterans Enterprise, located in Washington, 
DC.


Sec.  74.28  Who may examine records?

    Personnel from the Department of Veterans Affairs, Center for 
Veterans Enterprise and its agents, including personnel from the Small 
Business Administration, may examine records to ascertain the ownership 
and control of the applicant or participant.


Sec.  74.29  When will VA dispose of records?

    The records, including those pertaining to businesses not 
determined to be eligible for the program, will be kept intact and in 
good condition for seven years following a program examination or the 
date of the last Notice of Verified Status Approval letter. Longer 
retention will not be required unless a written request is received 
from the Government Accountability Office not later than 30 days prior 
to the end of the retention period.

(Authority: 38 U.S.C. 8127(f)).


[FR Doc. E8-10489 Filed 5-16-08; 8:45 am]
BILLING CODE 8320-01-P