Key to SDVOSB: Does the Veteran owner have control?

Does the veteran owner have control of the Service Disabled Veteran Owned Small Business (SDVOSB)? That was the key issue In the Matter of Battalion, LLC, Appellant. This case arose from a Dept. of the Air Force SDVOSB set aside. The SBA's OHA decided this case pursuant to the Small Business Act of 1958. The bid protest arose when an unsuccessful offeror, Douglas P Fleming, LLC, filed a protest challenging the appellant's size and status as an SDVOSB. Fleming alleged in part that the appellant's majority owner, Mr. Jason Harris, was a full-time employee of Sota Construction Services, Inc., a firm controlled by the appellant's minority owner, Mr. Earnest Sota.

Operating Agreement Language

The appellants submitted an operating agreement, which named the veteran owner as the managing member and designated Class A members, a majority of which would constitute a quorum. Unfortunately, the operating agreement also related that the members could conduct business in the absence of the managing member. The document stated that the managing member would be elected at the appellant's annual meetings, but the SBA found no evidence that the veteran was ever so elected. While the operating agreement gave certain powers to the managing member, it required delegation of those powers from the remaining members through a formal act, which according to the SBA's findings, never happened.

Non-Veteran Owner Exercised Too Much Control

In finding that the appellant did not qualify as a service-disabled veteran-owned small business concern (SDVO SBC), the SBA OHA determined that the non-veteran minority owner, Sota Construction Services, exercised control over the appellant in that the veteran owner was contracted as a consultant to the minority owner and derived most of his personal income from that entity. OHA also found that Sota Construction controlled the appellant by providing critical financial support by way of cheap rent and bonding assistance.

The SBA OHA found this case analogous to the decision in Matter of Marine Construction Services, LLC. In that case, the veteran owner was an employee of, and dependent upon, the minority owner, which was not an SDVOSB. The OHA found that the highest officer of an SDVOSB normally is permitted to have outside employment, but found the problem to be that the veteran was employed by the 49% minority owner. The OHA found that the analysis would be different had the veteran majority been employed by an unrelated party with no involvement in the challenged firm's business.

If you are a Veteran with a business and have a problem with a government contract, please contact the experienced attorneys at Veterans Advocacy Law Group via our online contact form.