RUNNING THE VETBIZ GAUNTLET: HOW TO GET OUT ALIVE (VERIFIED)

1. RUNNING THE VETBIZ GAUNTLET: HOW TO GET OUT ALIVE (VERIFIED) Sarah Schauerte Legal Meets Practical, LLC http://www.legalmeetspractical.com

2. What is the Vets First Contracting Program? • Created for VOSBsand expanded the Service-Disabled Veteran contracting program for VA procurements • Approved firms are eligible to participate in VOSB and SDVOSB set-asides issued by VA • Verification is administered by the Center for Veterans Enterprise

3. What does the future hold for VetBiz? • Intent is to go government-wide (apply to all federal contracts, not just VA contracts) • GAO report shows won’t happen soon • Aug. House bill proposed to take VetBiz Program from the VA, give to SBA • When VetBiz Program is “ready,” SBA will take over

4. Why Should I Verify? • You MUST be verified for VA VOSB and SDVOSB set-asides • It’s a free self-audit (CVE will tell you what eligibility requirements you don’t meet) • Minimizes chance of protest • It makes you a more attractive teaming partner for big businesses • Marketing purposes

5. VetBiz’s Bad Rap • Regulations hard to understand • Repeated requests for documents by CVE • Long wait • Denial Rates But……

6. If You Prepare, You Won’t Do This:

7. Preparation Is Rewarded This is a direct quote from a vet business owner who was verified on the first try: “The best tip is to be prepared.  Make an entire file - read it twice and then again and go over it with [your] attorney who knows this stuff.  The operating agreement/by-laws must be very precise in voting and control.  If there are investors involved as you know they cannot have control. If I remember correctly the CVE focused on me not drawing a salary.  So I composed a letter explaining why not drawing a salary was beneficial to the business.  They actually sent me a response saying that they never received a letter like that.  So you gotta fill all the holes.” 

8. Before You Start • Preparation is KEY! • Look at the required documents • Make a folder • Think about Letters of Explanation • Use the resources available to you • Verification self-assessment tool • Verification assistance briefs • Other veterans

9. Before You Start • Know the requirements: Your business must be owned and controlled by a (service-disabled) veteran • Ownership is covered in 38 CFR 74.3: (http://www.law.cornell.edu/cfr/text/38/74.3) • Control is covered in 38 CFR 74.4: (http://www.law.cornell.edu/cfr/text/38/74.4)

10. What Does Veteran-Owned Mean? An applicant or participant must be at least 51 percentunconditionally and directly owned by one or more veterans or service-disabled veterans

11. What Does Veteran-Controlled Mean? • Control means both the day-to-day management and long-term decision-making authority • Individuals managing the concern must have managerial experience of the extent and complexity needed to run the concern • Vet must work full-time during normal working hours • Vet must have highest officer position

12. Before You Start • Know the red flags: • Does the veteran have outside employment? • Does a non-veteran contribute resources to the business? • Does the veteran have experience in the line of business? • Is the business a franchise?

13. The 10 Big Reasons for Denial • Problems with corporate documents cover FOUR of the top ten reasons (more next…) • Day-to-day operations • Mgmt. of daily business and full-time devotion during normal working hours • Community property • Unfinished application • Dependence with other entities • Control of strategic policy

14. VetBiz Top Ten Denial Reasons

15. Denial Reason #1: Bad Drafting • Bad drafting in corporate documents accounts for SEVENTY-FIVE PERCENT of denials! • There are many opportunities in corporate documents to make mistakes costing you verification So what do you do?

16. Rules to Live By • Keep your corporate documents simple • Know what they say • Avoid thirty-page documents • Don’t take boilerplate documents off the Internet • Triple-check the “problem” sections, including voting, officers, and interest

17. A Look at Drafting Problems Quorum Restrictions (38 CFR 74.4(f)) • Quorum – This is what % of interest is necessary to conduct company business • This provision MUST read so no company action/voting can happen without the vet! • This is the #1 reason for denial (by a landslide)

18. A Look at Drafting Problems Weighted Voting Requirement (38 CFR 74.4(f)) • This is what % of interest is necessary to approve company action • For VetBiz purposes, provision will generally be the same as the quorum provision • If veteran has 51% interest, a 51% interest must be necessary to approve company action

19. A Look at Drafting Problems Highest Officer Position (38 CFR 74.4(g)) • Veteran must be identified as someone who manages the company • Veteran must be the highest-ranked officer (President, CEO)

20. A Look at Drafting Problems Unconditional Ownership (38 CFR 74.3) • Veteran must own at least 51% of the business, no strings attached • Veteran’s interest cannot be involuntarily terminated • Veteran must not be restricted in how he transfers his interest

21. Strategic Policy/Day-to-Day Operations • This means supervising the marketing, production, sales, and administrative functions of the firm • Examples of day-to-day operations of the company include assigning of check signing authority, the hiring and firing of employees, and assignment of ownership rights of company property • Veteran operating remotely can be deal breaker

22. Mgmt/Full-Time Requirement • The vet who manages must devote full-time during the normal working hours of firms in the same or similar line of business • Outside employment can be deal breaker • If vet has outside employment, must be explained clearly in a Letter of Explanation

23. Community Property • In community property states, a vet’s spouse automatically has half of what’s his. This means the spouse has to give up enough to make sure the vet owns 51% or more. • Communityproperty states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin

24. Dependence With Other Entities • This is a CONTROL issue • “…[W]hen [b]usiness relationships exist with non-Veterans or entities which cause such dependence that the…business cannot exercise independent business judgment without great economic risk • Include being given resources necessary to operate, such as employees, equipment, office and/or warehouse space (leverage)

25. Remember! • Denial or verification is fact-specific • Read the VA’s definition of ownership (38 CFR 74.3) and control (38 CFR 74.4) and verification assistance briefs to identify any issues • Submit detailed Letters of Explanation using buzzwords (ex, “day-to-day management,” “long-term decision-making”)

26. A Crash Course on the Process

27. Step #1: VA Form 0877 • The Veteran applies to have a company verified by entering ownership information into VIP and signs VA Form 0877 electronically in the VIP registration section. • Access the registration page here: https://www.vip.vetbiz.gov/Public/Register/Register.aspx. • CVE verifies veteran status at this point

28. Step #2: Enter Business Information • Make sure this lines up with Sam.gov information! • Triple-check for accuracy.

29. Step #3: Upload Relevant Documents • Review necessary documents (at: https://www.vip.vetbiz.gov/Public/Register/DocumentList.aspx) • Clearly label documents to avoid confusion • Understand where you need to clarify/explain, and draft Letters of Explanation. • DO NOT HIT “SUBMIT” UNTIL YOU ARE READY!

30. Letters of Explanation • Outside employment • Resources provided by non-veteran member • Reason why non-veteran signs contracts/on bank signature cards • How non-veteran holding necessary license doesn’t take control from the veteran • Reason why veteran not being highest compensated is good for the business • Reason why don’t have management agreement (home-based business)

31. Step #4: Stand by Your Email • CVE WILL ask you for additional documentation • Clock doesn’t start until an application is “complete,” and if you fail to complete, CVE will remove application after 30 days

32. Step #4 Contd: Application Status Phases • Initiation – CVE will verify basic company information.  The staff may take a more in depth look at your company profile.  They may also perform other background checks on your business and/or business owners, uploaded documents, and make recommendations on your verification record • Examination – CVE will validate various attributes of your business, (such as your company website, or the number of Government contracts you reported in your business profile, etc.).  They may also perform other background checks on your business and/or business owners, uploaded documents, and make recommendations before moving your business profile to the Evaluation phase. • Evaluation - CVE is reviewing the additions to your Verification record.  The staff may contact you about the status of your business, contacting one of your business representatives and/or visit your business site in order to collect further information.  At this time an approval/denial determination will be made regarding your business profile. And then…..

33. Step #5: Determination Now, there are three different ways an initial application can go: • Approval/Verification • Pre-Decision • Pre-Determination

34. Step #5: Determination Approval • Listing in VetBiz database • Verification good for two years • Continuing obligation to report changes to CVE (changes in ownership, NAICS codes)

35. Step #5: Determination Pre-Determination • Gives businesses the opportunity to fix errors in their corporate documents (rather than receive an automatic denial) • These are called “correctable findings” • Business has 48 hours to tell CVE it plans on making the corrections, then 5 business days to do so • ONE SHOT DEAL, then denial/approval

36. Step#5: Determination Pre-Decision • This process allows businesses the opportunity to withdraw their application instead of receive a denial letter • WITHDRAW. NO incentive to receive denial • Must be done within 48 hours of notice • After withdraw, can immediately reapply (with roadmap!)

37. Step #5: Determination What happens if you’re denied?

38. Step #5: Determination • If you’re denied, you have two options: a request for reconsideration, or wait six months to reapply • Request for reconsideration – Fix errors that resulted in denial and ask to reconsider (must be done within 30 days). CVE will re-review the entire application, can take months • Reapply – Allowed to reapply after six months

39. CONCLUSION • You CAN run the VetBiz gauntlet and escape unscathed. • Remember – PREPARE, PREPARE, PREPARE!

40. Questions? Sarah Schauerte, Esq. Legal Meets Practical, LLC scs@legalmeetspractical.com (703) 552-3220 http://www.legalmeetspractical.com (website and blog on veteran-related issues)