[Federal Register Volume 82, Number 33 (Tuesday, February 21, 2017)]
[Rules and Regulations]
[Pages 11154-11155]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-03331]



38 CFR Part 74

RIN 2900-AP93

VA Veteran-Owned Small Business Verification Guidelines

AGENCY: Department of Veterans Affairs.

ACTION: Interim final rule.


SUMMARY: This document implements a portion of the Veterans Benefits, 
Health Care, and Information Technology Act of 2006, which requires the 
Department of Veterans Affairs (VA) to verify ownership and control of 
veteran-owned small businesses (VOSB), including service-disabled 
veteran-owned small businesses (SDVOSB) in order for these firms to 
participate in VA acquisitions set-aside for SDVOSB/VOSBs. This interim 
final rule contains a minor revision to require re-verification of 
SDVOSB/VOSB status only every three years rather than biennially. The 
purpose of this change is to reduce the administrative burden on 
SDVOSB/VOSBs regarding participation in VA acquisitions set asides for 
these types of firms.

    Effective Date: February 21, 2017.
    Comment Date: Comments must be received on or before April 24, 

ADDRESSES: Written comments may be submitted by: Mail or hand-delivery 
to Director, Regulations Management (00REG1), Department of Veterans 
Affairs, 810 Vermont Ave. NW., Room 1068, Washington, DC 20420; fax to 
(202) 273-9026; or email through http://www.Regulations.gov. Comments 
should indicate that they are submitted in response to ``RIN 2900-
AP93--VA Veteran-Owned Small Business Verification Guidelines.'' All 
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) 273-9515 for an appointment.

FOR FURTHER INFORMATION CONTACT: Thomas McGrath, Director, Center for 
Verification and Evaluation (00VE), Department of Veterans Affairs, 810 
Vermont Ave. NW., Washington DC 20420, phone (202) 461-4300.

SUPPLEMENTARY INFORMATION: In a final rule published in the Federal 
Register on February 8, 2010, (73 FR 6098), VA established new 38 CFR 
part 74 setting forth a mechanism for verifying ownership and control 
of VOSBs, including SDVOSBs. At that time, with respect to 38 CFR 
74.15, VA anticipated that annual examinations were necessary to ensure 
the integrity of the Verification Program. This was deemed consistent 
with the annual Federal size and status recertification requirement in 
the Central Contractor Registry. In June 2012, the period was extended 
to two years. Subsequently, VA has determined that a three-year 
eligibility period is warranted.
    In administering this program since February 2010, VA has concluded 
that an annual examination is not necessary to adequately maintain the 
integrity of the program and proposes a 3-year eligibility period. This 
change is appropriate because VA conducts a robust examination of 
personal and company documentation to verify ownership and control by 
Veterans of applicant businesses. In addition to verifying individual 
owners' service-disabled veteran status or veteran status, in 
accordance with 38 CFR 74.20(b), VA reviews an applicant's financial 
statements; Federal personal and business tax returns; personal history 
statements; 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. Given the 
depth of this review, annual or biennial re-verification examinations 
have become an unnecessary administrative burden on both applicants/
participants and VA.
    Given this extensive initial examination, VA is confident that the 
integrity of the verification program will not be compromised by 
establishing a 3-year eligibility period. This is borne out by fiscal 
year 2016 data that shows that out of 1,109 reverification 
applications, only ten were denied. Therefore, only 0.9 percent of 
firms submitting reverification applications were found to be 
ineligible after two years. Other integrity aspects of the program 
remain adequate to oversee a 3-year eligibility period. Once verified, 
38 CFR 74.15(a) mandates that the participant must maintain its 
eligibility during its tenure and, if ownership or control changes 
occur, must inform VA's Center for Verification and Evaluation (CVE) of 
any changes that would adversely affect its eligibility. Moreover, in 
accordance with 38 CFR part 74.20(a), VA has the right to conduct 
random, unannounced site examinations of participants or to conduct a 
further examination upon receipt of specific and credible information 
that a participant is no longer eligible. Lastly, in the course of 
specific SDVOSB/VOSB set-aside acquisitions, VA contracting officers 
and also competing SDVOSB/VOSBs have the right to raise a SDVOSB/VOSB 
status protest to VA's Office of Small and Disadvantaged Business 
Utilization (OSDBU) if either has a reasonable basis upon which to 
challenge the SDVOSB/VOSB status of a verified firm.
    Establishment of a longer, 3-year eligibility period is consistent 
with other Federal set-aside programs. With respect to the Historically 
Underutilized Business Zone (HUBZone) small business certification 
program, U.S. Small Business Administration (SBA) regulations at 13 CFR 
126.500 require that any qualified HUBZone small business concern 
seeking to remain on the HUBZone approved list must recertify every 3 
years with SBA. With regard to SBA's Section 8(a) Business Development 
program, SBA authorizes a program term of up to 9 years in 13 CFR 
124.2. For VA's SDVOSB/VOSB verification program, VA has now determined 
that a program term of 3 years is reasonable given the mandatory nature 
of VA's SDVOSB/VOSB set-aside authority in contrast to the 
discretionary nature of the HUBZone and Section 8(a) set-aside 
programs. In accordance with 38 U.S.C. 8127 and VA Acquisition 
Regulation, 48 CFR part 819, VA is required to set aside any open 
market procurement for SDVOSBs and then VOSBs, first and second 
respectively, if two or more such concerns are reasonably anticipated 
to submit offers at fair and reasonable pricing. Given the large volume 
of appropriated funds subject to these set-aside requirements, a 3-year 
eligibility period prior to re-examination is deemed reasonable to 
adequately balance the burden on SDVOSB/VOSBs and to protect the 
integrity of the program.

Administrative Procedure Act

    The Secretary of Veterans Affairs finds good cause to issue this 
interim final rule prior to notice and comment procedures. The interim 
rule makes a minor modification to extend the eligibility period for 
SDVOSB/VOSBs after VA's initial robust verification examination and 
approval from 2 years to 3 years. The rule will reduce the

[[Page 11155]]

administrative burden on SDVOSB/VOSB participants by extending the re-
verification submissions. The integrity of the program remains 
protected by the initial robust and detailed verification examination, 
the regulatory requirement of participants to report changes to 
ownership and control during their eligibility period, VA's authority 
to conduct random site examinations and to re-examine eligibility upon 
receipt of any reasonably credible information affecting SDVOSB/VOSB 
verified status, and, for individual acquisitions, the status protest 
process, where VA contracting officers or competing vendors can 
challenge the SDVOSB/VOSB status of offerors if a reasonable basis can 
be asserted to be decided by VA OSDBU on SDVOSB/VOSB set-aside 
    For these reasons, the Secretary of Veterans Affairs is issuing 
this as an interim final rule. In view of the detrimental effects of 
continuing an unnecessary administrative burden on program participants 
and verifying officials, and to avoid delays in verification caused by 
repetitive biennial reviews, the Secretary finds it is impracticable, 
unnecessary, and contrary to public interest to delay the effective 
date of this regulation for the purpose of soliciting advance public 
comment. The Secretary of Veterans Affairs will consider and address 
comments that are received within 60 days of the date this interim 
final rule is published in the Federal Register.
    For these same reasons, and because this interim final rule 
relieves a restriction, the Secretary finds that this rule will be 
effective on the date of publication.

Regulatory Flexibility Act

    The Regulatory Flexibility Act, 5 U.S.C. 601-612, applies to this 
final rule. This interim final rule is generally neutral in its effect 
on small businesses because it relates only to small businesses 
applying for verified status in VA's SDVOSB/VOSB verified database. The 
overall impact of the rule will benefit small businesses owned by 
veterans or service-disabled veterans because it will reduce their 
administrative burden associated with maintaining verified status by 
extending the need for re-verification by VA from 2 years to 3 years. 
VA has estimated the cost to an individual business to be null. 
Increasing the verification period will decrease the frequency of any 
costs. On this basis, the Secretary certifies that the adoption of this 
interim final rule would 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. Therefore, under 5 U.S.C. 
605(b), this regulation is exempt from the initial and final regulatory 
flexibility analysis requirements of sections 603 and 604.

Executive Orders 12866 and 13563

    Executive Orders 12866 and 13563 direct agencies to assess the 
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 effects, and other advantages; distributive impacts; 
and equity). Executive Order 13563 (Improving Regulation and Regulatory 
Review) emphasizes the importance of quantifying both costs and 
benefits, reducing costs, harmonizing rules, and promoting flexibility. 
Executive Order 12866 (Regulatory Planning and Review) defines a 
``significant regulatory action,'' which requires review by the Office 
of Management and Budget (OMB), 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 
this Executive Order.''
    The economic, interagency, budgetary, legal, and policy 
implications of this regulatory action have been examined and it has 
been determined not to be a significant regulatory action under 
Executive Order 12866.
    VA has already established the SDVOSB/VOSB verification program in 
regulation at 38 CFR part 74, and the minor change in this interim 
final rule will modify the term of eligibility after initial 
verification from 2 years to 3 years before re-verification would be 

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 interim final rule would have no 
such effect on State, local, and tribal governments, or on the private 

Paperwork Reduction Act

    This document contains no provisions constituting a collection of 
information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-

Catalog of Federal Domestic Assistance

    This interim final rule affects the verification guidelines of 
veteran-owned small businesses, for which there is no Catalog of 
Federal Domestic Assistance program number.

Signing Authority

    The Secretary of Veterans Affairs, or designee, approved this 
document and authorized the undersigned to sign and submit the document 
to the Office of the Federal Register for publication electronically as 
an official document of the Department of Veterans Affairs. Gina S. 
Farrisee, Deputy Chief of Staff, Department of Veterans Affairs, 
approved this document on February 15, 2017 for publication.

List of Subjects in 38 CFR Part 74

    Administrative practice and procedures, Privacy, Reporting and 
recordkeeping requirements, Small business, Veteran, Veteran-owned 
small business, Verification.

    Approved: February 15, 2017.
Jeffrey Martin,
Office Program Manager, Office of Regulation Policy & Management, 
Office of the Secretary, Department of Veterans Affairs.

    For the reasons set out in the preamble, VA amends 38 CFR part 74 
as follows:


1. The authority citation for part 74 continues to read as follows:

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

Sec.  74.15   [Amended]

2. Section 74.15(a) is amended by removing ``2 years'' and adding, in 
its place, ``3 years''.

[FR Doc. 2017-03331 Filed 2-17-17; 8:45 am]