[Federal Register Volume 82, Number 169 (Friday, September 1, 2017)]
[Proposed Rules]
[Pages 41579-41580]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-18543]



38 CFR Part 74

RIN 2900-AO63

VA Veteran-Owned Small Business Verification Guidelines

AGENCY: Department of Veterans Affairs.

ACTION: Withdrawal of proposed rule.


SUMMARY: The Department of Veterans Affairs (VA) published a rule in 
the Federal Register on November 6, 2015, 80 FR 68795 that proposed 
amending its regulations governing the VA's Veteran-Owned Small 
Business (VOSB) Verification Program. The Verification Program has been 
the subject of reports from both the Government Accountability Office 
and VA's Office of Inspector General stating that despite VA's 
Verification Program, fraud still exists in the Veterans First 
Contracting Program. Some stakeholder feedback has been that the 
current regulation is too open to interpretation and is unnecessarily 
more rigorous than similar certification programs run by the United 
State Small Business Administration (SBA).
    The proposed rule sought to clarify the eligibility requirements 
for businesses to obtain ``verified'' status, added and revised 
definitions, reordered requirements, redefined the definition of 
``control,'' and provided explanatory information on VA's examination 
and review processes and procedures. The proposed rule additionally 
sought to implement new changes to community property restrictions, 
unconditional ownership, and day-to-day requirements and full-time 
requirements. An exception for majority, supermajority, unanimous, and 
other voting provisions for extraordinary business decisions were also 
    Comments to the proposed rule were to be provided to the Office of 
Small and Disadvantaged Business Utilization on or before January 5, 
2016. Due to the nature of the adverse comments received, VA has 
determined not to pursue implementation of the rule as originally 
proposed. Accordingly, this document withdraws the proposed rule.

DATES: The proposed rule published on November 6, 2015, 80 FR 68795 is 
withdrawn as of September 1, 2017.

FOR FURTHER INFORMATION CONTACT: Tom Leney, Executive Director, Office 
of Small and Disadvantaged Business Utilization, Department of Veterans 
Affairs, 810 Vermont Ave. NW., Washington, DC 20420; (202) 462-4300. 
(This is not a toll-free number.)

SUPPLEMENTARY INFORMATION: In the proposed rule published in the 
Federal Register on November 6, 2015, 80 FR 68795, VA sought to amend 
38 CFR part 74 to find an appropriate balance between preventing fraud 
in the Veterans First Contracting Program and providing a process that 
would make it easier for more VOSBs to become verified.
    VA received 203 comments from 96 commenters. 134 of these comments 
were adverse to the proposed rule and VA's verification program in 
general. Of the 134 adverse comments, several were

[[Page 41580]]

material comments which VA has accepted.
    SBA, Office of Advocacy, objected to the proposed rule on various 
grounds including that it fails to provide an adequate basis in its 
Regulatory Flexibility Act (RFA) certification concerning the proposed 
rule's impact on small business entities. VA's RFA language provided 
that ``VA estimates the cost to an individual business to be less than 
$100.00 for 70-75 percent of the businesses seeking verification, and 
the average cost to the entire population of veterans seeking to become 
verified is less than $325.00 on average.'' In its comment, SBA stated 
that ``[o]ne of the most important provisions with the RFA requires 
that the promulgating agency give the public some idea of the number of 
small entities that any proposed rule will impact. VA's proposed 
certification does not provide any indication of the number of small 
businesses that may be impacted by the proposed change.'' After 
considering this comment, VA procured a survey to better demonstrate 
that the proposed rule would not have a significant economic impact on 
a substantial number of small business entities.
    SBA also objected to the proposed rule to the extent that it failed 
to provide statutory or other legal authority following each cited 
substantive provision. SBA, in its comment, stated that the proposed 
rule does not comply with 38 U.S.C. 501 in that the proposed rule does 
not ``contain citations to the particular section or sections of 
statutory law or other legal authority upon which such issuance is 
based.'' After considering the SBA's comment, VA seeks to withdraw the 
proposed rule and to republish at a later date to ensure that each 
substantive revision is followed immediately by supporting statutory or 
other legal authority.
    Fourteen comments spoke to potential violations of due process 
through the immediate removal of a company without allowing the company 
an opportunity to refute the allegations, such as owners accused of 
criminal offenses. The proposed amendment to 38 CFR 74.2(b) provides 
that ``[i]ndividuals having an ownership or control interest in VetBiz 
verified businesses must have good character. Concerns owned or 
controlled by a person(s) who is formally accused of a crime involving 
business integrity are ineligible for VetBiz VIP Verification. If, 
after verifying a participant's eligibility the person(s) controlling 
the participant is found to lack good character, CVE will remove the 
participant from the VIP database immediately . . .'' One commenter, 
SBA, commented that ``Section 74.2(b) of the proposed regulation would 
seem to deny an applicant due process of law . . . [and] . . . would 
seem to indicate that if an applicant is formally accused of an 
offense, that person is not eligible for Vet Biz Verification.'' 
Another commenter stated ``I would . . . question if being `formally 
accused' and not actually proven guilty of any crime, is proper.'' 
After considering these and other similar comments, VA seeks to remove 
the portion of the proposed rule prescribing the immediate removal of 
companies, under certain circumstances, prior to allowing such affected 
company a chance to refute the allegations.
    Six comments were lodged complaining that the increase of the 
waiting period following a denial of verification from 6 months to 12 
months does not (i) benefit the Veteran, (ii) is unnecessarily long, 
and (iii) punitive in nature. One commenter stated that ``extending the 
waiting period from six to 12 months does not allow sufficient time for 
ineligible concerns to address significant issues'' any more than the 
current rule does. The current rule requires a minimum wait of six 
months--if issues require more time to address, the eligible veteran 
can make that determination and simply wait 12 months--or 16 months--to 
reapply. Second, the extended wait time will not incentivize applicants 
to avail themselves of CVE resources. In fact, lengthening the wait 
period will result in lost momentum and is described in the preamble as 
a form of punishment for veterans that do not use CVE resources. VA 
should not take this approach. Finally, the program will be no more 
efficient in the long run with a 12 month waiting period. Applications 
from concerns that are denied or cancelled will not decrease, they will 
only be filed in 12 months rather than in six.'' After considering 
these and other similar comments, VA seeks to withdraw the portion of 
the proposed rule that increases the waiting period from 6 to 12 
months, following a denial of verification.
    VA understands that in order to proceed forward without withdrawing 
the proposed rule and republishing, the proposed modifications to the 
proposed rule must be considered a logical outgrowth. Considering the 
extent of the revisions as outlined in this publication and that VA 
proposes to include additional modifications to the rule, it is 
unlikely that the proposed rule as modified would be considered a 
logical outgrowth. Because of the adverse comments received during the 
comment period, VA is withdrawing the proposed rule.

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 June 23, 2017, for publication.

    Approved: June 23, 2017.
Jeffrey Martin,
Office Program Manager, Office of Regulation Policy & Management, 
Office of the Secretary, Department of Veterans Affairs.
[FR Doc. 2017-18543 Filed 8-31-17; 8:45 am]