To be awarded a Service Disabled Veteran Owned Small Business (SDVOSB) set-aside or sole source contract, small business concerns must be certified by the Small Business Administration (SBA) under the Veteran Small Business Certification (VetCert) Program. To qualify as SDVOSB, the contractor must be a small business concern that is at least 51% owned and controlled by one or more veterans with a disability that is service-connected. A service-connected disability is a disability that was incurred or aggravated in line of duty in the active military, naval, air, or space service. Under the VetCert program, only certified SDVOSBs have the opportunity to compete for federal sole-source and set-aside contracts across the federal government. However, SDVOSBs that were not seeking sole-source or set-aside contracts could self-certify as an SDVOSB, which in-turn allowed government agencies and prime contractors to receive the relevant small business participation credit when contracting with such entities.

Earlier this year, the SBA issued a direct final rule amending its regulations governing the VetCert Program, which effectively ended the practice of self-certification by SDVOSBs. Under the new rule, beginning October 1, 2024, SDVOSBs will need to be certified under the VetCert program for the government and prime contractors to receive SDVOSB participation credit for entering into prime or subcontracts with them. This means that small business concerns will no longer be able to self-certify as a SDVOSB for all practical purposes. This is particularly noteworthy in light of the National Defense Authorization Act (NDAA) for fiscal year (FY) 2024, which raised the prime and subcontracting goals for SDVOSBs from 3% of dollar value of prime and subcontract awards in previous years to 5% effective FY 2024.

In anticipation of receiving certification applications from a large number of SDVOSB concerns, the SBA has built in a grace period for the implementation of this direct final rule. Under the grace period established for the implementation of this rule, any small business that submits a complete certification application to the SBA on or before December 22, 2024, shall be eligible to continue self-certifying as a SDVOSB until the SBA either approves or denies its application. Importantly, only submitting a complete application to the SBA during this grace period will ensure that the small business concern’s self-certification is effective until they receive a final decision on their application from the SBA. Therefore, to take advantage of this grace period, small businesses submitting their certification packages before the December 22, 2024 deadline should ensure that their application is complete.

Public comments are typically an important part of the standard rulemaking process under the Administrative Procedure Act (APA). However, SBA cited the good cause exception to forego public comments in implementing this final rule. The SBA published this rule as a direct final rule because public participation is considered unnecessary in implementing statutorily mandated requirements due to the lack of alternatives to such rulemaking. The SBA views this final rule as a non-controversial administrative action that is limited to implementing the provision of NDAA 2024, which effectively eliminated the self-certification for SDVOSBs as described above. The direct final rule process did allow for the public to submit any “significant adverse comments” by July 8, 2024. Had the SBA received any significant adverse comments by that date, it would have published a document in the Federal Register withdrawing this rule. Since no such comments were received by that date, the direct final rule will become effective as of October 1, 2024.

The government expects this regulation to benefit the contracting community by reducing the ambiguity and the uncertainty for contracting officers in attributing goaling and subcontracting credit for SDVOSB concerns. SBA anticipates that anywhere from 14,000 to 20,000 SDVOSBs could apply for certification as a result of this final rule. Therefore, impacted businesses should submit their complete VetCert application packages to the SBA before the grace period expires in December, 2024. The estimated level of effort to complete the application is around two hours. Once approved, the certification would be valid for a period of three years, after which the SDVOSB concern would be required to recertify.

This Federal Procurement Insight is provided as a general summary of the applicable law in the practice area and does not constitute legal advice. Contractors wishing to learn more are encouraged to consult the TILLIT LAW PLLC Client Portal or Contact Us to determine how the law would apply in a specific situation.