[Federal Register Volume 82, Number 132 (Wednesday, July 12, 2017)]
[Rules and Regulations]
[Pages 32137-32139]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-14600]



38 CFR Part 74

RIN 2900-AP93

VA Veteran-Owned Small Business Verification Guidelines

AGENCY: Department of Veterans Affairs.

ACTION: 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 (VOSBs), including service-disabled 
veteran-owned small businesses (SDVOSBs) in order for these firms to 
participate in VA acquisitions set-aside for SDVOSB/VOSBs. This rule 
contains a minor revision to require re-verification of SDVOSB/VOSB 
status once 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.

DATES: Effective Date: July 12, 2017.

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: On February 21, 2017, VA published in the 
Federal Register (82 FR 11154) an interim final rule to revise VA's 
rules regarding the length of the eligibility period for inclusion in 
the Vendor Information Pages database. Interested persons were invited 
to submit written comments on or before April 24, 2017. VA received 
numerous comments from members of the public.
    In a final rule published in the Federal Register on February 8, 
2010, (75 FR 6098), VA established 38 Code of Federal Regulations (CFR) 
part 74, which set forth a mechanism for verifying ownership and 
control of VOSBs and SDVOSBs. At that time, VA anticipated that annual 
examinations were necessary to ensure the integrity of the Verification 
Program and was deemed consistent with the annual Federal size and 
status recertification requirement in the Central Contractor Registry. 
In June of 2012, the eligibility period was extended to two years.
    VA has determined that a biennial examination is not necessary to 
adequately maintain the integrity of the

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program and proposed a three 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, VA reviews the 
following documents in accordance with 38 CFR 74.12: 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, biennial re-verification 
examinations have become an unnecessary administrative burden on both 
participants and VA.
    Moreover, VA is confident that the integrity of the verification 
program will not be compromised by establishing a three year 
eligibility period. This is evidenced by fiscal year 2016 data from 
VA's Center for Verification and Evaluation (CVE), which administers 
the verification program, which shows that from a total of 1,109 
reverification applications, only 11 were denied. Therefore, only 0.9 
percent of firms submitting re-verification applications were found to 
be ineligible after two years. Furthermore, other aspects of the 
verification program ensure that establishing a three year eligibility 
period will not undermine the integrity of the verification program. 
For example, 38 CFR 74.15(a) mandates that the participant, once 
verified, must maintain its eligibility during its tenure. Moreover, if 
ownership or control changes occur, the participant must inform VA's 
CVE of any changes that would adversely affect its eligibility. 
Additionally, in accordance with 38 CFR 74.20(a), VA has the right to 
conduct random, unannounced site examinations of participants or 
conduct a further examination upon receipt of specific and credible 
information that a participant is no longer eligible. Lastly, status 
protests provide VA contracting officers and SDVOSB/VOSBs alike an 
opportunity, where appropriate, to challenge the SDVOSB/VOSB status of 
a verified firm in connection with SDVOSB/VOSB set-aside acquisitions.
    Additionally, establishment of a longer, three 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 three years with SBA. With regard to SBA's Section 
8(a) Business Development program, SBA authorizes a program term of up 
to nine years in 13 CFR 124.2.
    Furthermore, VA's determination that an eligibility period of three 
years is reasonable given the mandatory nature of VA's SDVOSB/VOSB set-
aside authority. In accordance with 38 United States Code (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 VOSBs, 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 three year eligibility 
period prior to re-examination is appropriate to balance the burden on 
SDVOSB/VOSBs and to protect the integrity of the program.
    VA received comments requesting clarification as to whether 
currently verified SDVOSBs/VOSBs would be automatically extended. All 
firms that were verified and in the VIP database automatically had 
their eligibility term extended by one year.
    Numerous commenters expressed support for the extension of the 
eligibility period, asserting that it allows veterans more time to 
focus on the success of their businesses, and reduces their 
administrative burden of gathering and submitting the required 
documentation. One such commenter supported the extension, but 
suggested that firms should be required to submit a certified statement 
stating that the firm's ownership stake has not changed, and based on 
the original certifying criteria that they are still eligible for their 
status at the two year mark. The comment continues to suggest that any 
firm unable to provide the statement would be required to re-verify at 
that time. However, VA's risk analysis on the extension has shown that 
risk of extending the period from two to three years is very low, and 
that requiring firms to submit a statement at the two year mark is an 
unnecessary administrative burden on both the firm and the government. 
Therefore, we will not make any changes to the rule based on this 
    Another commenter asserted that VA should have issued this change 
as a proposed rule rather than an interim final rule because the 
determination of good cause that exempts this rule from the notice and 
comment procedures is incorrect; the notice and comment is not 
impracticable, unnecessary, or contrary to public interest. VA has 
determined that relieving the administrative burden on both program 
participants and verifying officials, and eliminating delays in 
verification caused by repetitive biennial reviews, is in the best 
interest of the public. Therefore, we will not make any changes to the 
rule based on this comment.
    VA appreciates the comments submitted in response to the interim 
final rule. This final rule adopts the interim final rule as a final 
rule without change.

Regulatory Flexibility Act

    The Regulatory Flexibility Act, 5 U.S.C. 601-612, applies to this 
final rule. This 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 benefits small businesses owned by veterans or 
service-disabled veterans because it reduces the administrative burden 
associated with maintaining verified status by extending the period for 
re-verification from two years to three years. VA has estimated the 
cost to an individual business to be insignificant. Increasing the 
verification period will decrease the frequency of any costs associated 
with document submission. On this basis, the Secretary certifies that 
the adoption of this 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

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Review) defines a ``significant regulatory action,'' which requires 
review by the Office of Management and Budget, 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.

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 final rule has no such effect on 
state, local, and tribal governments, or on the private sector.

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 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 July 5, 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.

    Dated: July 7, 2017.
Michael Shores,
Director, Regulation Policy & Management, Office of the Secretary, 
Department of Veterans Affairs.


    Accordingly, the interim rule amending 38 CFR part 74 which was 
published at 82 FR 11154 on February 21, 2017, is adopted as final 
without change.

[FR Doc. 2017-14600 Filed 7-11-17; 8:45 am]