VA Veteran-Owned Small Business (VOSB) Verification Guidelines, 48221-48232 [2018-20639]

Agencies

• DEPARTMENT OF VETERANS AFFAIRS

[Federal Register Volume 83, Number 185 (Monday, September 24, 2018)]
[Rules and Regulations]
[Pages 48221-48232]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-20639]


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DEPARTMENT OF VETERANS AFFAIRS

38 CFR Part 74

RIN 2900-AP97


VA Veteran-Owned Small Business (VOSB) Verification Guidelines

AGENCY: Department of Veterans Affairs.

ACTION: Final rule.

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SUMMARY: The Department of Veterans Affairs (VA) is amending its 
regulations governing VA's Veteran-Owned Small Business (VOSB) 
Verification Program. The National Defense Authorization Act for Fiscal 
Year 2017 (``the NDAA''), placed the responsibility for issuing 
regulations relating to ownership and control for the verification of 
VOSBs with the United States Small Business Administration (SBA). This 
regulation implements the NDAA by referencing SBA's regulations 
governing ownership and control and adds and clarifies certain terms 
and references that are currently part of the verification process. The 
NDAA also provides that in certain circumstances a firm can qualify as 
VOSB or Service-Disabled Veteran-Owned Small Business (SDVOSB) when 
there is a surviving spouse or an employee stock ownership plan (ESOP).

DATES: This rule is effective on October 1, 2018.

FOR FURTHER INFORMATION CONTACT: Tom McGrath, Director, Center for 
Verification and Evaluation (00VE), Department of Veterans Affairs, 810 
Vermont Ave. NW, Washington, DC 20420, (202) 461-4600. (This is not a 
toll-free number.)

SUPPLEMENTARY INFORMATION: In Public Law 114-840, the NDAA designates 
the SBA as the Federal Agency responsible for creating regulations 
governing ownership and control. This rule amends VA's verification 
regulations in order to implement the NDAA as regulations relating to 
and clarifying ownership and control are no longer the responsibility 
of VA.
    On January 10, 2018, VA published in the Federal Register (83 FR 
1203) a proposed rule to amend its regulations governing its VOSB 
Program. The proposed rule allowed for a comment period ending on March 
12, 2018. During the comment period, VA received several comments from 
17 commenters.

Summary of Comments and VA's Response

A. General

    VA received several comments that described the commenters' views 
and experiences without any reference to a proposed regulatory 
provision. VA is unable to respond to these comments as they did not 
address the proposed provisions at issue here. One commenter questions 
the VA's authority with regards to the verification process and 
disagrees that the VA is authorized to issue regulations and make 
determinations of ownership and control. The commenter contends that 
VA's function with respect to verification should be limited to 
verifying veteran and disability status, and maintaining the VA list of 
verified SDVOSBs and VOSBs. Although the authority to issue regulations 
setting forth the ownership and control criteria for SDVOSBs and VOSBs 
now rests with the Administrator of the SBA, the Secretary is still 
charged with verifying that each applicant complies with those 
regulatory provisions prior to granting verified status and including 
the applicant in the VA list of verified firms. As the Secretary still 
maintains this authority and responsibility, VA finds the commenter's 
proposed limitation without merit. However, to eliminate any confusion 
as to whether the Secretary is attempting to regulate ownership and 
control requirements, VA will refer directly to SBA's regulations where 
appropriate. This will additionally allow VA's regulation to be 
immediately updated should SBA make regulatory changes related to 
ownership and control. Several other commenters discussed their 
personal difficulties with the verification process, how regulatory 
provisions are interpreted, and the manner by which the verification 
process is administered. As these comments do not address the proposed 
regulation, VA is unable to respond to these comments.

B. Section 74.1

    For consistency, Sec.  74.1 proposed removing all references to 
VetBiz and replacing the words Center for Verification and Evaluation, 
service-disabled veteran-owned small business, the Department of 
Veterans Affairs, Vendor Information Pages, and veteran-owned small 
business, and uses in their place the respective abbreviations--CVE, 
SDVOSB, VA, VIP, and VOSB in titles and the body of the regulation,

[[Page 48222]]

respectively. VA received no comments on this proposed change and is 
therefore adopting the abbreviations exactly as proposed. As these 
abbreviations are used through the proposed amendments, all such 
abbreviations as they appear will be adopted as proposed.
    VA proposed amending Sec.  74.1, which sets forth definitions 
important to the Vendor Information Pages (VIP) Verification Program, 
to remove six (6) definitions from Sec.  74.1 that relate to and 
clarify ownership and control. Specifically, VA proposed removing the 
following definitions: day-to-day management, day-to-day operations, 
immediate family member, negative control, same or similar line of 
business, and unconditional ownership. VA proposed deleting one 
additional definition, Vet.Biz.gov, to account for changes to the 
location of the Vendor Information Pages (VIP) database. VA did not 
receive any comments on these proposed removals and is therefore 
adopting these removals as proposed.
    VA additionally proposed amending Sec.  74.1 to add three new 
definitions. Specifically, VA proposed to add a definition for 
``applicant'' in order to clarify the use of the term throughout the 
regulation, a new definition ``application days'' in order to clarify 
how the time period in Sec.  74.11(a) is computed, and a definition 
https://www.va.gov/osdbu is added to identify the hosting website as VA 
is replacing VetBiz.gov as the host of the VIP database. VA did not 
receive any comments regarding the new definition https://www.va.gov/osdbu. Therefore, VA is adopting that definition exactly as proposed. 
VA received one comment regarding the new definition ``applicant'' that 
it should be renamed participant since it is a benefit Veterans earn. 
In response, the definition of applicant refers to a business concern 
that applies for verified status, but has not yet completed the process 
and received an approval letter from CVE. Additionally, the regulations 
already set forth a unique definition for participant. Therefore, VA is 
not changing the definition of `applicant' and will adopt the 
definition as proposed. VA received one comment on the proposed 
definition for ``application days''. The comment requested additional 
clarity as to the period that would be counted as `application days'. 
Though not in direct response to the definition of application days, VA 
received additional comments concerning when the 90-day application 
period begins. In response to these comments, VA agrees that additional 
clarification is needed. Accordingly, the commenters' recommendations 
are accepted in part and VA is further revising the language of Sec.  
74.1 to add a new definition ``register'' to clarify when the 90-day 
application period begins to run.
    VA additionally proposed amending Sec.  74.1 the following sixteen 
(16) definitions: Center for Veterans Enterprise, joint venture, Office 
of Small and Disadvantaged Business Utilization, non-veteran, 
participant, primary industry classification, principal place of 
business, service-disabled veteran, service-disabled veteran-owned 
small business, small business concern, surviving spouse, vendor 
information pages, verification eligibility period, veteran, veterans 
affairs acquisition regulation, and veteran-owned small business.
    VA received no comments on the proposed changes to the following 
four definitions: Center for Veterans Enterprise, non-veteran, vendor 
information pages, and Veterans Affairs acquisition regulation. 
Therefore, VA is adopting those definitions exactly as proposed.
    VA did not receive any specific comments on the definitions 
participant and small business concern. However, the NDAA has removed 
the responsibility of issuing regulations governing ownership and 
control from VA and transferred the responsibility to the SBA. The SBA 
has issued proposed regulations governing ownership and control which 
includes definitions for participant and small business concern. To 
eliminate any confusion, VA will refer directly to SBA's regulations 
when defining the terms participant and small business concern.
    VA proposed amending the definition joint venture to conform to the 
amendments to 13 CFR part 125. VA received several comments from one 
commenter regarding this proposed change. The commenter expressed 
support of VA's proposed definition, but expressed concern it would 
lead to VA and SBA having conflicting rules on the definition of joint 
venture. This concern appears to be based on an assumption that VA will 
not apply the applicable joint venture requirements, and exceptions, 
found in SBA's regulations. However, this is not the case. Proposed 
Sec.  74.5 would provide further guidance on joint ventures and refers 
to SBA's regulations directly. Accordingly, VA and SBA will treat joint 
ventures the same way. Though the commenter expressed concern that the 
SBA's regulations would, in certain circumstances, allow a large 
business to partner with a small business, the NDAA requires that VA 
and SBA create uniform eligibility criteria for SDVOSB firms, which 
includes those firms structured as joint ventures. Accordingly, VA will 
not alter the definition of joint venture and is adopting it exactly as 
proposed. VA proposed amending the definition of Office of Small and 
Disadvantaged Business Utilization to more accurately reflect the role 
fulfilled by this office with respect to VOSB matters. The definition 
included a provision stating that ``[t]he Executive Director, OSDBU, is 
the VA liaison with the SBA. Information copies of correspondence sent 
to the SBA seeking a certificate of competency determination must be 
concurrently provided to the Director, OSDBU.'' VA received one comment 
that authorizations regarding certificates of competency should be 
removed or addressed as part of the VAAR. Though certificates of 
competency do relate to contracting matters, VA sought to create a 
definition that fully describes that functions of the Office of Small 
and Disadvantaged Business Utilization. In addition, due to the 
overlapping nature of the verification and acquisition programs, there 
will be occasions where the regulation speaks to issues relating to 
contracting as well as verification. Accordingly, VA will not alter the 
definition of Office of Small and Disadvantaged Business Utilization 
and is adopting it exactly as proposed. VA proposed amending the 
definition of primary industry classification to make a technical 
change to use the acronym NAICS as it has already been defined in a 
parenthetical earlier in the definition. VA received two comments on 
the definition primary industry classification. Both commenters stated 
the definition was unnecessary. VA responds that this definition was 
not a new addition, and the only proposed change was to make a 
technical change to utilize the acronym `NAICS'. Moreover, VA believes 
the definition is warranted as firms list their business type and 
associated NAICS codes on the firm's business profile. Therefore, VA 
will not make any changes to this definition and is adopting it exactly 
as proposed.
    VA proposed amending the definition of principal place of business 
to change day-to-day operations to daily business operations in order 
to match the wording in 13 CFR 125.13. VA received two comments to the 
definition principal place of business. Specifically, one commenter 
sought to expand the definition to refer not only to day-to-day 
operations but long-term operations as well. Another commenter 
questioned the need for the definition. VA responds that the proposed 
change was intended

[[Page 48223]]

to create uniformity between the VA and SBA regulations as SBA is now 
responsible for issuing regulations governing the ownership and control 
requirements for SDVOSBs. Accordingly, the commenter's proposed 
expansion is outside of VA's authority to regulate and therefore VA is 
adopting the definition exactly as proposed.
    VA proposed to amend the definitions for service-disabled veteran, 
service-disabled veteran owned small business, surviving spouse, 
veteran, and veteran owned small business to align with SBA's proposed 
definitions for these terms. Initially, VA proposed to amend these 
definitions by incorporating the exact language contained in the NDAA 
and utilized by SBA in its proposed rule. VA received numerous comments 
on the proposed revisions. One commenter expressed concern that SBA's 
definitions did not provide sufficient guidance. Several commenters 
requested that VA include clarifying language when referencing ESOPs 
within the definitions. Two other commenters requested VA clarify the 
term ``permanent and severe'' disability as used in the definitions. 
Numerous commenters recommended additional revisions to the proposed 
definition for surviving spouse, primarily requesting the VA expand the 
eligibility criteria for individuals attempting to qualify as a 
surviving spouse. VA responds that the NDAA transferred the authority 
from VA to the SBA to make such substantive changes to definitions that 
impact ownership and control of SDVOSBs. Rather, VA's charge is 
verifying that firms meet the ownership and control requirements 
promulgated by SBA. Accordingly, VA finds the revisions suggested by 
the commenters are outside the scope of the proposed rule. However, VA 
acknowledges the potential that SBA may in the future amend these 
regulatory requirements, either as a result of statutory changes or on 
its own. To account for these potential changes, and eliminate any 
confusion as to whether VA is attempting to create unique definitions, 
VA will alter the language of the above definitions to explicitly state 
the terms will have the same meaning as set forth in SBA's regulations.
    VA proposed amending the definition of verification eligibility 
period to reflect the current eligibility period of 3 years, which was 
effectuated via publication in the Federal Register on July 12, 2017 at 
82 FR 32137. VA received one comment regarding this proposed change. 
The commenter expressed concern that the eligibility period subjects 
verified concerns to onerous and expensive re-certifications. VA 
responds that the proposed change is only a technical change to align 
the definition with the actual eligibility period that was made 
effective in a final rule published in the Federal Register on July 12, 
2017 (82 FR 32137), which amended Sec.  74.15 to reflect the current 
three-year eligibility period. Therefore, VA will not alter the 
language of the definition and is adopting it exactly as proposed.

C. Section 74.2

    VA proposed amending Sec.  74.2(a) to add the clause ``submitted 
required supplemental documentation at https://www.va.gov/osdbu'' to 
clearly explain the key steps necessary to submit an application and 
obtain verification. VA received one comment that the proposed 
additional language referencing ``required supplemental documentation'' 
is unnecessary. The provision providing for submitting supplemental 
documentation is not a new concept to the regulation. It is a 
recognized method for verifying applicants and was previously described 
in Sec.  74.11. As the amendment is merely reordering the regulation to 
provide more clarity and the comment does not propose a substantive 
change, VA will adopt the language of Sec.  74.2(a) exactly as 
proposed.
    VA proposed amending Sec.  74.2(b) to amend the title to reference 
the System for Award Management, to address the impact of criminal 
activity on eligibility, to grant the VA authority to exclude all 
principals of the concern, and to specify that the debarment of any 
individual will impact the concern's eligibility. VA received one 
general comment on all circumstances where there is an immediate 
removal and that any such removal should have an appeals process where 
no final action should not be taken until the appeal is resolved. VA 
additionally received several comments on Sec.  74.2(b). One comment is 
that there are sufficient legal certifications, statutes and remedies 
that would render offerors ineligible. A second is that the terms are 
ambiguous and invite arbitrary and capricious judgement that can lead 
to denial of due process. Another commenter suggested that the 
definition be revised to be brought in line with the requirements for 
the SBA's 8(a) Program, to provide for reviewing criminal violations on 
a case-by-case basis. In response, the amendments to Sec.  74.2(b), 
currently titled ``good character'' are merely to provide clarity to 
circumstances under which a company is currently subject to removal on 
the grounds of good character as opposed to cancellation. Persons found 
guilty of, or found to be involved in criminally related matters or 
debarment proceedings have received due process through whatever 
administrative or criminal proceeding giving rise to the removal. VA is 
not an additional level of review, but merely acting on determinations 
issued by courts or other administrative bodies or processes. 
Additionally, VA has mirrored the causes for immediate removal on those 
set forth in FAR 9.4, which sets forth means by which concerns can be 
deemed ineligible to receive any federal contract. The concept of 
immediate removal has been an integral component of Sec.  74.2 since 
2010. It has been used as a streamlined method of removing companies 
found ineligible for VA's set aside procurement program. In both 2010 
and 2012, GAO published reports tasking VA with reducing potential 
instances of fraud and abuse. VA has found in its administration of the 
verification program that the use of the procedures identified in Sec.  
74.2 protects VA acquisition integrity and diminishes ongoing exposure 
to fraud, waste, and abuse. The United States Court of Federal Claims 
in the case of Veterans Contracting Group, Inc., v. United States, No. 
17-1015C, pg. 10 (Dec. 21, 2017) recognizes that immediate removal does 
not necessarily trigger a loss of due process protections. Finally, all 
examinations of business entities, concerning issues of criminality or 
otherwise, are conducted on a case-by-case basis and take into account 
all relevant facts. Amending the regulation to further mirror the SBA's 
8(a) program regulations is unnecessary. As VA views the proposed 
amendments as merely adding clarity to the current process and that no 
other comments have been received on the other amendments to Sec.  
74.2(b), VA adopts the amendments exactly as proposed.
    VA proposed amending Sec.  74.2(c) by adding the phrase ``false 
statements or information'' to reference the title and to provide 
further clarification on eligibility requirements. VA additionally 
proposed amending Sec.  74.2(c) to clarify that removal is immediate 
and to remove the word ``the'' before CVE in the last sentence of the 
section. One commenter supports the amendment stating that submitting 
false statements should be stringently enforced. VA received a comment 
that submitting false statements is a felony and that an independent VA 
determination that a company made false statements can lead to denial 
of due process. VA received another comment that a determination by CVE 
as to whether false statements exists is redundant, ambiguous, could be

[[Page 48224]]

subjectively arbitrary, and is not authorized. In response, the 
amendments to Sec.  74.2(c) are intended to clarify current 
interpretation and policy. The current language of Sec.  74.2(c) has 
always been interpreted to allow for immediate removal upon a 
determination that a concern knowingly submitted false information. The 
proposed amendment adds the word immediate to remove any ambiguity. 
With respect to potential due process issues, VA offers the response 
provided in VA's response to comments made to Sec.  74.2(b). As VA 
views the proposed amendments as merely adding clarity to the current 
process and that no other comments have been received on the other 
amendments to Sec.  74.2(c), VA adopts the amendments as proposed.
    VA proposed amending Sec.  74.2(d) by including tax liens and 
unresolved debts owed to governmental entities outside of the Federal 
government as disqualifying an applicant. VA also proposed amending the 
title of the section to remove the word federal to reflect that both 
federal and local obligations may disqualify an applicant and to 
provide that participants that no longer qualify under Sec.  74.2(d) 
will be removed in accordance with Sec.  74.22. VA received one comment 
that expanding unresolved debts owed to government entities outside the 
Federal government is overreaching and outside the expertise of the VA. 
VA received another comment that including outstanding obligations of 
all state and local jurisdictions where a company does business is 
impractical, invites arbitrary and capricious determinations and can 
lead to a denial of due process. VA received two additional comments 
that the proposed language could potentially disqualify both a business 
entity that has either a legitimate tax dispute or a business entity 
that entered into a payment plan. Including unresolved debts owed to 
state and local governmental units is an appropriate amendment to the 
regulation considering the significant governmental benefits that a 
verified concern may become eligible. Furthermore, failure to qualify 
on the grounds of outstanding financial obligations is not an immediate 
disqualifying event which may trigger due process considerations. 
Specifically, in accordance with Sec.  74.22, a business concern may 
provide any explanation deemed appropriate to explain the circumstances 
of any outstanding financial obligation, regardless of the 
jurisdiction. Thus, so long as the business entity provides an adequate 
response to a cancellation proceeding, the business will not be removed 
from the VIP database. VA does not find that expanding the regulation 
to include unresolved debts owed to state and local governmental units 
as overly burdensome or that there is a potential due process 
violation. Therefore, as there are no other comments, VA is adopting 
Sec.  74.2(d) as proposed.
    VA proposed amending Sec.  74.2(e) to clarify the consequences of 
SBA protest decisions and other negative findings and to amend the 
title of the section. VA received one comment that supports immediate 
removal on the basis of negative findings, but recommends that more 
examples should be provided because it is otherwise overly broad. VA 
received a second comment that there should be a clear process to 
determine ineligibility including during an appeal to prevent due 
process violations. VA received another comment that there is clear law 
and regulation on the ramifications of SBA protests decisions and 
negative findings. The proposed amendments to Sec.  74.2(e) merely seek 
to clarify CVE's current process and to confirm that SBA decisions and 
other negative finding are subject to immediate removal as opposed to 
cancellation. Other than reordering the language and clarifying the 
treatment of status protests and other negative findings, Sec.  74.2(e) 
does not propose any substantive changes. Treatment of negative 
findings is not a new concept in the regulation rather the proposed 
change is written to encompass all negative findings, regardless of 
origin. In addition, as immediate removal is not a new concept, the 
proposed change does not implicate any new due process issues. 
Moreover, the potential negative determinations would be the result of 
a proceeding in which the aggrieved party would have been given notice 
and an opportunity to be heard. As VA views the proposed amendments as 
merely adding clarity to the current process and that no other comments 
have been received on the other remaining amendments to Sec.  74.2(e), 
VA adopts the amendments as proposed.
    VA proposed amending Sec.  74.2 to include paragraph (f) that 
specifically requires that all applicants for VIP verification must be 
registered in the System for Award Management (SAM). As VA did not 
receive any comments on this change, VA adopts the amendment as 
proposed.

D. Section 74.3

    VA proposed amending Sec.  74.3 to reflect that ownership is to be 
determined in accordance with 13 CFR part 125 as the result of the 
requirements outlined in the NDAA. To put into effect this legislative 
change, VA proposed amending Sec.  74.3(e) to redesignate it as Sec.  
74.3(b) to account for the removal of paragraphs (a)-(d). As VA did not 
receive any comments on this change, VA adopts the amendment as 
proposed.
    VA proposed amending Sec.  74.3(b)(1) and (3) by a technical change 
to replace ``application'' with ``VA Form 0877'' in order to clarify 
the requirement and conform language to the rest of the regulation. VA 
also proposed amending Sec.  74.3(b)(1) to add a 30-day time period for 
submission of a new application after a change in ownership. This time 
period provides CVE the ability to definitively and accurately track 
changes of ownership. VA received one comment that recommends that the 
time a business should notify VA of a change in ownership should be 
clarified to begin on the date the concern finalizes the change within 
the business's corporate documents. VA understands the comment, but 
further clarification would not change the basic notification 
requirement. A business organization should provide notice of a change 
at the time is occurs. VA received additional comments on Sec.  74.3 
recommending that Sec.  74.3(b)(2) and (3) be removed and addressed in 
the VAAR as these provisions relate to functions of contracting 
officers. In response, the amendment to Sec.  74.3(b)(2) is merely a 
renumber of an existing regulation with no change in content. 
Additionally, while this provision may also implicate contracting 
issues, VA believes it is important for applicant firms to understand 
how future changes can impact eligibility. Similarly, Sec.  74.3(b)(3) 
is nearly identical to the prior provision except for a technical 
change that indicates that a new application is filed with VA and not 
the contracting officer. VA sees no basis in making any additional 
amendments to the regulations based on the comments. As no other 
comments on the remaining proposed amendments to Sec.  74.3(b) were 
received, VA is adopting the amendments exactly as proposed.

E. Section 74.4

    VA proposed amending Sec.  74.4(a) to state that control is 
determined in accordance with 13 CFR part 125 pursuant to the NDAA. VA 
also proposed removing paragraphs (b) through (i) upon that same basis. 
Although VA did not expressly note that it was removing the designation 
for paragraph (a), since there will not be any other paragraphs, VA 
proposes removing the designation for paragraph (a), as it is 
unnecessary. VA did not

[[Page 48225]]

receive any comments on the proposed amendment to Sec.  74.4 other than 
as previously discussed. Therefore, VA is adopting the amendments as 
proposed.

F. Section 74.5

    VA proposed amending Sec.  74.5 to include joint ventures. The 
section is additionally reworded to clearly establish that 38 CFR part 
74 does not supersede 13 CFR part 121 with respect to size 
determinations. VA adds paragraph (b) to specifically address 
eligibility of joint ventures. Paragraphs (b)(1) and (2) are added to 
provide notice of applicable requirements outlined elsewhere in VA 
regulation. VA did not receive any comments on the proposed amendment 
to Sec.  74.5 other than as previously discussed and is therefore 
adopting the amendment as proposed.

G. Section 74.10

    VA proposed amending Sec.  74.10 to remove reference to the 
physical address for CVE so to allow address changes without the need 
for an amendment to the regulation. VA did not receive any comments on 
the proposed amendment to Sec.  74.10 and is therefore adopting the 
amendment as proposed.

H. Section 74.11

    VA proposed amending Sec.  74.11(a) to outline its new application 
processing procedures and various editorial non-substantive conforming 
changes. Additionally, VA proposed amending Sec.  74.11(a) to 
incorporate the term `application days' and to increase the application 
processing time to 90 application days, when practicable. VA received 
comments that expressed a concern that the term registration as 
referenced in Sec.  74.11(a) is unclear. VA provided a response above 
which addresses this concern. Specifically, VA agrees that that the 
regulation could be clearer, and has included a definition for the term 
register. VA believes the additional definition adequately addresses 
the commenter's concerns, and therefore does not find any additional 
revision to Sec.  74.11(a) to be necessary. VA proposed adding a new 
Sec.  74.11(c) to address instances where CVE does not receive all 
requested documentation. In order to comply with VA's statutory charge 
to verify applicants for the VIP database, VA requires documentation to 
demonstrate eligibility. VA received comments on Sec.  74.11(a) and 
(c), respectively, that subjectivity should be removed from the meaning 
of ``conforming documentation'' and the meaning of ``to adequately 
respond.'' In response, there is no one requirement for conforming 
documentation or providing adequate responses. Conforming documents are 
documents that respond to a specific request. Adequate responses are 
responses that provide answers to a specific inquiry. For example, if a 
request is to provide the last three years' business income tax returns 
and only one year is provided, without providing the other two years or 
a letter of explanation, conforming documents have not been provided. 
It can also be said that the response was not adequate. VA sees no 
basis in making any additional amendments to the regulations based on 
the comments. As no other comments on the remaining proposed amendments 
to Sec.  74.11(a) and (c) were received, VA is adopting the amendments 
exactly as proposed.
    VA proposed redesignating Sec.  74.11(c) as Sec.  74.11(d) and 
adding the term ``totality of circumstances'' as the standard of review 
for reviewing an applicant's eligibility. VA also proposed amending 
Sec.  74.11(d) by referencing Sec. Sec.  74.11(b) and (c) and 74.13(a) 
as exceptions to the totality of circumstances standard and to state 
that the burden of establishing VOSB status is on the applicant. VA 
received one comment on Sec.  74.11(d) but it was mislabeled and should 
have been a comment to Sec.  74.11(h). As VA did not receive any 
comments on the proposed amendment to Sec.  74.11(d), VA is therefore 
adopting the amendment as proposed.
    VA proposed redesignating Sec.  74.11(d) as Sec.  74.11(e) and 
proposed amending the first and second sentences by removing the word 
``adversely.'' VA also proposed removing the third sentence as it 
refers to withdrawal or removal of verified status. This scenario is 
addressed in Sec.  74.21 in cancellations, which specifically outlines 
participants can exit the VIP database. This proposed removal helps to 
eliminate redundancy and reduce the likelihood of confusion. VA also 
proposed adding new Sec.  74.11(e)(1) to specifically address 
bankruptcy as a changed circumstance. As VA did not receive any 
comments on the proposed amendments to Sec.  74.11(e), VA is therefore 
adopting the amendments as proposed.
    VA proposed redesignating Sec.  74.11(e) as Sec.  74.11(f). Section 
74.11(f) outlines the CVE Director's options in issuing determination 
letters. VA received one comment on Sec.  74.11(f) that voluntary 
withdrawals should be included as a third decision option. In response, 
other than redesignating the section numbering, Sec.  74.11(f) does not 
propose any substantive changes. Furthermore, Sec.  74.11(f) only 
speaks to decisions by CVE. As a withdrawal would be the choice of the 
applicant, made available to applicants prior to a formal adverse 
decision being issued by CVE, VA does not believe it should be 
addressed in this subsection. As Sec.  74.11(f) is only meant to speak 
to final determinations, no revisions will be made to Sec.  74.11(f). 
VA is therefore adopting the amendments as proposed.
    VA proposed redesignating Sec.  74.11(f) and (g) as Sec.  74.11(g) 
and (h), respectively. Section 74.11(h) outlines the methods for 
delivering determination letters. VA also proposed amending Sec.  
74.11(h) to add a second sentence requiring firms to update their 
contact information. VA received one comment on Sec.  74.11(h) that VA 
should remove all reference to alternative means of transmitting 
decisions since the VA only uses electronic mail. In response, while is 
it true that VA routinely transmits decisions by email, alternate 
delivery options are always available and might be necessary to account 
for unforeseen circumstances. As no additional comments on the 
remaining proposed amendments to Sec.  74.11(g) and (h) were received, 
VA is adopting the amendments exactly as proposed.

I. Section 74.12

    VA proposed amending Sec.  74.12 to expand the list of required 
documentation routinely requested by CVE. This list includes documents 
previously referenced in Sec.  74.20(b). VA additionally proposed 
amending Sec.  74.12 so that the term ``electronic form'' would be 
changed to ``VA Form 0877'' and the term ``attachments'' would be 
changed to ``supplemental documentation.'' VA also proposed amending 
Sec.  74.12 by removing the last two sentences in the section. VA 
received several comments on the proposed revisions to Sec.  74.12. 
However, none of the comments spoke to the proposed amendments. One 
comment questioned the need for the terms ``principal place of 
business'' and ``primary place of business'' in Sec.  74.12. In 
response, the term ``principal place of business'' is used to identify 
the place where a complete copy of all supplemental documentation used 
in verification examinations is to be retained. The term ``primary 
place of business'' is not used in Sec.  74.12. Another comment is that 
the required documents outlined in Sec.  74.12 are not required for 
every set of circumstances and that the regulations do not provide for 
exceptions for unavailable or irrelevant documents. In response, VA 
understands that not all documents are available or required for every 
business

[[Page 48226]]

structure. In such cases, VA accepts letters of explanation. If the 
explanation reasonably explains the unavailability of the document or 
information, the document will not be required. For example, if a 
corporation does not have an operating agreement and an explanation is 
provided that operating agreements are not required for corporations, 
VA would accept that explanation. One commenter suggested that there 
should be an appeal process when an applicant believes that the 
document request is overreaching. In response, VA states that there is 
an appeals process. However, the process relates to final 
determinations made by CVE. Ultimately, a firm bears the burden of 
demonstrating eligibility with the verification requirements. If CVE 
does not receive sufficient documentation to allow the office to 
conclude the firm satisfies the verification requirements, it will deny 
the concern verified status. In accordance with the NDAA, appeals are 
to be filed with SBA's Office of Hearings and Appeals (OHA) in 
accordance with 13 CFR part 134. VA sees no basis to make any 
additional amendments or adjustments to the regulations based on the 
comments to Sec.  74.12. Accordingly, VA is adopting the amendments 
exactly as proposed.

J. Section 74.13

    VA proposed amending Sec.  74.13 to modify the title and to remove 
references to the reconsideration process. In accordance with the NDAA, 
appeals of initial denials on the grounds of ownership and control will 
be adjudicated by SBA OHA. VA additionally proposed amending Sec.  
74.13(a) to refer to the appeal process set forth in 13 CFR part 134. 
VA additionally proposed redesignating Sec.  74.13(e) as Sec.  
74.13(b), and removing existing paragraphs (b) through (d), (f) and (g) 
as they are no longer relevant. VA also proposed removing the phrase 
`service-disabled veteran' as the term veteran would be used to refer 
to both veterans and service-disabled veterans. VA received one comment 
that the reconsideration process saves time and money. Effective 
October 1, 2018, in accordance with the NDAA, the VA post determination 
process will be transferred to SBA OHA. All appeals will be adjudicated 
in accordance with 13 CFR part 134. Therefore, VA will not alter the 
language of Sec.  74.13 and is adopting the amendments exactly as 
proposed.

K. Section 74.14

    VA proposed redesignating Sec.  74.14 as Sec.  74.14(a) and to 
remove references to requests for reconsideration. VA further proposed 
amending the list of occurrences that the six-month waiting period 
applies before an applicant may submit a new application. These 
occurrences include notices of verified status cancellation and appeals 
filed with OHA that sustain initial denial letters and verified status 
cancellations issued by CVE. VA further proposed adding a new Sec.  
74.14(b) to clarify that a finding of ineligibility during a 
reapplication will result in the immediate removal of the participant. 
VA did not receive any comments on the proposed amendment to Sec.  
74.14 and is therefore adopting the amendments as proposed.

L. Section 74.15

    VA proposed amending Sec.  74.15(a) by splitting the paragraph into 
paragraphs (a), (b), and (c). VA proposed removing current Sec.  
74.15(b) because it deals with affiliation and is therefore addressed 
in Sec.  74.5. VA proposed amending newly designated Sec.  74.15(a) to 
improve specificity. VA proposed amending new designated Sec.  74.15(b) 
to require participants to inform CVE within 30 days of changes 
affecting eligibility. VA proposed amending redesignated Sec.  74.15(c) 
to include all situations in which the eligibility period may be 
shortened. VA proposed redesignating (c), (d), and (e) as (d), (e), and 
(f), respectively. VA further proposed amending the redesignated Sec.  
74.15(e) to reference immediate removals pursuant to Sec.  74.2. VA 
received one comment that agrees with the process in Sec.  74.15(b), 
requiring firms to inform VA within thirty days of changes affecting 
eligibility, but expressed a concern that VA should provide guidance on 
which changes would affect eligibility, since most firms would not be 
aware of which changes are material. In response, VA has published 
guidance on the OSDBU website. The same guidance which affects 
companies applying for the verification program would likewise apply to 
a company seeking to modify aspects of ownership and control in its 
business documents. In addition, VA has a list of trained verification 
counselors, who are available to assist with issues concerning a 
company's eligibility. VA received another comment that a company may 
lose its eligibility by no longer qualifying as a small business, but 
under an existing award, it remains eligible to perform a long-term 
contract. The fear is that the business would no longer appear as an 
eligible concern on the VIP database. In response, eligibility for a 
long-term contract is a contracting issue that should be managed 
through the contracting officer. Verification for the VIP database 
speaks to current eligibility under existing standards. The regulations 
do not contain an exception for companies performing long-term 
contracts. Thus, VA sees no basis in making additional amendments to 
the regulations based on these comments. As there are no other comments 
to Sec.  74.15(a) through (c) and (e), VA is adopting the amendments 
exactly as proposed.
    VA received a comment on Sec.  74.15(d) that firms should be 
informed of the nature and facts against them when VA initiates a 
verification examination upon receipt of credible evidence concerning 
its eligibility. In response, VA informs a participant concerning 
issues of eligibility when it initiates cancellation proceedings. Upon 
the issuance of a Notice of Proposed Cancellation, the concern receives 
notice of the nature and specific facts which VA considers to adversely 
impact the firm's eligibility and is provided an opportunity to provide 
a response. VA received another comment that there should be an appeals 
process if a company is removed from the VIP database on the grounds of 
ineligibility and the company should remain eligible in the database 
pending resolution of the appeal. VA responds that, in the event a 
participant is removed as the result of a verified status cancellation, 
it has a right of appeal. Specifically, in accordance with the NDAA, 
the VA post decision process will be transferred to SBA OHA. All 
appeals will be adjudicated in accordance with 13 CFR part 134. 
However, the regulation does not allow concerns to retain their 
eligibility during the appeal process. Upon a finding that a company no 
longer qualifies for the VIP database, it is removed immediately. VA 
sees no basis in making any additional amendments to the regulations 
based on these comments. As there are no other comments on Sec.  
74.15(d), VA is adopting the amendments exactly as proposed.

M. Section 74.20

    VA proposed amending the first three sentences of Sec.  74.20(b). 
In the first sentence, VA proposed removing the phrase ``or parts of 
the program examination''. In the second sentence, VA proposed changing 
``location'' to ``location(s)'' and in the third sentence, VA proposed 
changing the word ``[e]xaminers'' to ``CVE''. As the proposed revisions 
to Sec.  74.12 fully address the required documentation necessary for 
verification, VA proposed removing the list of documents from Sec.  
74.20. VA did not receive any comments on the proposed amendment

[[Page 48227]]

to Sec.  74.20 and is therefore adopting the amendments as proposed.

N. Section 74.21

    VA proposed amending Sec.  74.21 to reorder changes made to other 
sections of this part. VA proposed amending Sec.  74.21(a) to remove 
reference to the `` `verified' status button'' in order to reflect the 
current user interface of the VIP database. VA proposed amending Sec.  
74.21(c) by referencing the immediate removal provisions established in 
Sec.  74.2. VA additionally proposed redesignating Sec.  74.21(c) as 
Sec.  74.21(d). VA received one comment on Sec.  74.21(d)(4) that it is 
redundant and therefore irrelevant, since it is covered under Sec.  
74.21(d)(1) and (2). In response, VA agrees with the commenter that 
Sec.  74.21(d)(4) may overlap with Sec.  74.21(d)(1) and (2) to some 
degree. However, Sec.  74.21(d)(4) contains a specific control 
requirement which is highlighted to ensure clarity. VA proposed 
removing Sec.  74.21(c)(5) and (8) as involuntary exclusions are now 
addressed in Sec.  74.2. VA also proposes redesignating Sec.  
74.21(c)(6), (7), and (10) and (d) as Sec.  74.21(d)(5), (6), and (7) 
and (e), respectively. VA proposed adding Sec.  74.21(d)(8) to notify 
the public that failure to report changed circumstances within 30 days 
is good cause to initiate cancellation proceedings. VA received one 
comment that Sec.  74.21(d)(9) should provide for a cure period prior 
to the issuance of a Notice of Proposed Cancellation and that the 
regulations should take into consideration the varying nature of 
licenses. In response, the comment to Sec.  74.21(d)(9) is not the 
subject of the proposed change to the regulation. Additionally, the 
cancellation proceedings provide the concern an opportunity to respond 
and refute the proposed bases for cancellation prior to any adverse 
action being taken. As it is each participant's obligation to remain 
eligible for the program in accordance with the applicable verification 
requirements, and the current procedures contain procedural safeguards, 
VA sees no need to create an additional cure period.
    In addition, VA proposed removing the term `` `verified' status 
button'' to reflect the current user interface of the database and 
adding the phrase ``or its agents'' to clarify who may request 
documents. VA proposed deleting the words ``a pattern of'' to clarify 
the requirements necessary to remove a company for failure to provide 
requested information. VA also proposed removing the term 
``application'' as VA Form 0877 reflects current program requirements. 
VA additionally proposed changing the phrase `60 days' to `30 days' to 
conform with revised Sec.  74.3(f)(1). Considering the comments 
received on Sec.  74.21(d), VA sees no basis in making any additional 
amendments to the regulations based on these comments. As there are no 
other comments on Sec.  74.21(d), VA is adopting the amendments exactly 
as proposed.

O. Section 74.22

    VA proposed amending Sec.  74.22(a) to note the beginning of the 
relevant 30-day time period as the date on which CVE sends notice of 
proposed cancellation of verified status. VA additionally proposed to 
amend Sec.  74.22(e) to implement the new appeals procedure to OHA 
prescribed in the NDAA. VA did not receive any comments on the proposed 
amendment to Sec.  74.22 and is therefore adopting the amendments as 
proposed.

P. Sections 74.25 and 74.26

    VA proposed amending Sec.  74.25 to replace ``the Department'' with 
``VA'' and amending Sec.  74.26 to add more specificity to the 
regulation concerning the information to be submitted for verification. 
VA received one comment on the proposed revision to Sec.  74.26 which 
stated that it needed OMB authorization. In response, without more 
specific information, VA is unaware of the requirement for obtaining 
OMB authorization for Sec.  74.26 other than the ordinary review 
process. Moreover, there are no material amendments to Sec.  74.26 as 
the language is merely being refined. Therefore, VA sees no basis in 
making any additional amendments to the regulations based on the 
comment. As no other comments to Sec. Sec.  74.25 and 74.26 were 
received, VA is adopting the amendments exactly as proposed.

Q. Section 74.27

    VA amends Sec.  74.27 to outline document storage requirements. VA 
received one comment on Sec.  74.27 that it needed OMB authorization. 
In response, without more specific information, VA is unaware of the 
requirement for obtaining OMB authorization for the provisions 
contained Sec.  74.27 other than the ordinary review process. Moreover, 
the amendment to Sec.  74.27 is not substantive. There are no material 
amendments to Sec.  74.27. VA proposed amending Sec.  74.27 to reword 
the first sentence to specify that all documents submitted will be 
stored electronically. ``Vendor Information Pages'' is changed to 
``CVE'' and the location reference is removed. The second sentence is 
revised to indicate that owner information will be compared to 
available records. In addition, information is added regarding records 
management procedures and data breaches. Therefore, VA sees no basis in 
making any additional amendments to the regulations based on the 
comment. As no other comments on the amendments to Sec.  74.27 were 
received, VA is adopting the amendments exactly as proposed.

R. Sections 74.28 and 74.29

    VA proposed amending Sec.  74.28 to replace `Department of Veterans 
Affairs' and `Center for Veterans Enterprise' with VA and CVE, 
respectively and Sec.  74.29 to refer to VA's records management 
procedures. VA did not receive any comments on the proposed amendments 
to Sec. Sec.  74.28 and 74.29 and is therefore adopting the amendments 
as proposed.

Effect of Rulemaking

    The Code of Federal Regulations, as proposed to be revised by this 
rulemaking, would represent the exclusive legal authority on this 
subject. No contrary rules or procedures would be authorized. All VA 
guidance would be read to conform with the rule finally adopted if 
possible or, if not possible, such guidance would be superseded.

Justification for the October 1, 2018 Effective Date

    The Administrative Procedure Act (APA) requires that ``publication 
or service of a substantive rule shall be made not less than 30 days 
before its effective date, except . . . as otherwise provided by the 
agency for good cause found and published with the rule.'' 5 U.S.C. 
553(d)(3). The purpose of the APA provision delaying the effective date 
of a rule for 30 days after publication is to provide interested and 
affected members of the public sufficient time to adjust their behavior 
before the rule takes effect. For the reasons set forth below, VA finds 
that good cause exists to make this final rule become effective on 
October 1, 2018, less than 30 days after it is published in the Federal 
Register.
    As noted above, VA and the SBA have been working together to 
jointly implement the provisions of NDAA 2017. In doing so, VA and the 
SBA believe a single date on which all of the changes go into effect is 
the most effective path for implementation. VA and the SBA consider 
October 1, 2018 to be the best date for implementation of new unified 
rules for the programs. October 1, 2018 is the start of the new fiscal 
year, and is therefore the best date for separation of contract actions 
between different sets of regulations.

[[Page 48228]]

Having contract actions applying different regulations in the same 
fiscal year can often lead to confusion among contracting officials, 
and program participants. Procurements conducted in fiscal year 2018 
will generally follow the old rules, while all new procurements in 
fiscal year 2019 will follow the new jointly developed regulations 
which VA believes will lead to less confusion.
    In addition to the joint effort in implementing these provisions of 
NDAA 2017, VA has in a related rule making process implemented Sections 
1932 and 1833 of NDAA 2017. These sections dealt with the transition of 
certain protest and appeal functions from the VA to SBA's Office of 
Hearings and Appeals. The final rule implementing those sections also 
has an implementation date of October 1, 2018. 83 FR 13626.
    VA and SBA believe that a uniform transition combining the programs 
ownership and control requirements is extremely important. As such, VA 
believes that an earlier effective date that aligns with the new fiscal 
year for contracting, and with the other changes implementing NDAA 2017 
is the best course of action.

Paperwork Reduction Act

    This rule contains no provision constituting a collection of 
information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-
3521).

Regulatory Flexibility Act

    The Regulatory Flexibility Act of 1980 (RFA), 5 U.S.C. 601-612, as 
amended, requires Federal agencies to consider the potential impact of 
regulations on small entities during rulemaking. Small entities include 
small businesses, small not-for-profit organizations, and small 
governmental jurisdictions. Section 605 of the RFA allows an agency to 
certify a rule, in lieu of preparing an analysis, if the rulemaking is 
not expected to have a significant economic impact on a substantial 
number of small entities.
    This rule making has an average cost to the small business of $803, 
and it would apply only to applying for verified status in the VIP 
database. The regulation merely clarifies and streamlines the existing 
rule and adds no additional burdens or restrictions on applicants or 
participants regarding VA's VOSB Verification Program. The overall 
impact of the rule is of benefit to small businesses owned by veterans 
or service-disabled veterans.
    The overall impact of the rule will not affect small businesses 
owned and controlled by veterans and service-disabled veterans. The 
rule removes ownership and control from 38 CFR part 74 which will be 
assumed under a separate set of regulations promulgated by SBA. The 
rule also refines and clarifies process steps and removes post 
examination review. Post examination review will also be assumed under 
a separate set of regulations.
    Examination of businesses seeking verification as veteran-owned 
small businesses or service-disabled veteran-owned small businesses 
seeking VA set aside contract opportunities is through the examination 
model. The examination model revises the verification process by 
assigning dedicated case analysts and providing applicants with 
additional access to VA staffers during verification.
    From December 2016 through February 2017, 352 small businesses that 
completed the process and received determination letters participated 
in a follow-up survey detailing their costs and the attribution of the 
costs. Seventy-three (73) percent of participating businesses had 
either $0 costs or responded not applicable; 14 percent estimated costs 
between $1 and $1,000; 3 percent responded with a cost estimate between 
$1,001 and $2,000; 3 percent responded with a cost estimate between 
$2,001 and $3,000; 2 percent responded with a cost estimate between 
$3,001 and $4,000; 2 percent responded with a cost estimate between 
$4,001 and $5,000; and 4 percent responded with a cost estimate over 
$5,000. The average cost of all businesses providing survey responses 
was $803 per business. The largest cost categories were employee costs, 
attorney costs, travel/printing, consultants, and accountants. 
Currently, there are 14,560 verified companies in VA's database and 
approximately 2,100 companies with applications in process. In 
addition, no comments were received regarding RFA issues. Therefore, 
the Secretary certifies that the adoption of this proposed rule would 
not have a significant economic impact on a substantial number of small 
entities as they are defined in the Regulatory Flexibility Act. 
Therefore, under 5 U.S.C. 605(b), this rulemaking is exempt from the 
initial and final regulatory flexibility analysis requirements of 
sections 603 and 604.

Executive Orders 12866, 13563, and 13771

    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 Review) defines a 
``significant regulatory action,'' which requires review by the Office 
of Management and Budget (OMB), 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. VA's impact analysis can be found as a 
supporting document at https://www.regulations.gov, usually within 48 
hours after the rulemaking document is published. Additionally, a copy 
of the rulemaking and its impact analysis are available on VA's website 
at https://www.va.gov/orpm by following the link for VA Regulations 
Published from FY 2004 through FYTD. This rule is not an E.O. 13771 
regulatory action because this rule is not significant under E.O. 
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 one year. This rule will not have such effect on 
State, local, and tribal governments, or on the private sector.

Catalog of Federal Domestic Assistance

    This rule will affect the verification guidelines of veteran-owned 
small

[[Page 48229]]

businesses, for which there is no Catalog of Federal Domestic 
Assistance program number.

List of Subjects in 38 CFR Part 74

    Administrative practice and procedure, Affiliation, Appeals, 
Application guidelines, Control requirements, Definitions, Eligibility 
requirements, Eligibility term, Ownership requirements, Procedures for 
cancellation, Reapplication, Records management, Request for 
reconsideration, Verification examination.

Signing Authority

    The Secretary of Veterans Affairs 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. Robert L. 
Wilkie, Secretary, Department of Veterans Affairs, approved this 
document on September 12, 2018, for publication.

    Dated: September 12, 2018.
Jeffrey M. Martin,
Impact Analyst, Office of Regulation Policy & Management, Office of the 
Secretary, Department of Veterans Affairs.

    For the reasons set forth in the preamble, we amend 38 CFR part 74 
as follows:

PART 74--VETERANS SMALL BUSINESS REGULATIONS

0
1. The authority citation for part 74 is revised to read as follows:

    Authority: 38 U.S.C. 501 and 513, unless otherwise noted.


0
2. Revise Sec.  74.1 to read as follows:


Sec.  74.1  What definitions are important for Vendor Information Pages 
(VIP) Verification Program?

    For the purpose of this part, the following definitions apply:
    Applicant means a firm applying for inclusion in the VIP database.
    Application days means the time period from when a veteran 
registers for verification to the time of a determination, excluding 
any days in which CVE is waiting for the firm to submit information or 
documentation necessary for the office to continue processing the 
application.
    Center for Verification and Evaluation (CVE) is an office within 
the U.S. Department of Veterans Affairs (VA) and is a subdivision of 
VA's Office of Small and Disadvantaged Business Utilization. CVE 
receives and reviews all applications for eligibility under this part 
and maintains the VIP database. CVE assists VA contracting offices to 
identify veteran-owned small businesses and communicates with the Small 
Business Administration (SBA) with regard to small business status.
    Days are calendar days unless otherwise specified. In computing any 
period of time described in this part, the day from which the period 
begins to run is not counted, and when the last day of the period is a 
Saturday, Sunday, or Federal holiday, the period extends to the next 
day that is not a Saturday, Sunday, or Federal holiday. Similarly, in 
circumstances where CVE is closed for all or part of the last day, the 
period extends to the next day on which the agency is open.
    Eligible individual means a veteran, service-disabled veteran, or 
surviving spouse, as defined in the United States Code and the 
regulation promulgated by the SBA, currently 13 CFR part 125.
    Joint venture is an association of two or more business concerns 
for which purpose they combine their efforts, property, money, skill, 
or knowledge in accordance with 13 CFR part 125. A joint venture must 
be comprised of at least one veteran-owned small business. For VA 
contracts, a joint venture must be in the form of a separate legal 
entity.
    Non-veteran means any individual who does not claim veteran status, 
or upon whose status an applicant or participant does not rely in 
qualifying for the VIP Verification Program participation.
    Office of Small and Disadvantaged Business Utilization (OSDBU) is 
the office within VA that establishes and monitors small business 
program goals at the prime and subcontract levels. OSDBU works with VA 
Acquisitions to ensure the creation and expansion of small businesses 
opportunities by promoting the use of set-aside contracting vehicles 
within VA procurement. OSDBU connects and enables veterans to gain 
access to these Federal procurement opportunities. The Executive 
Director, OSDBU, is the VA liaison with the SBA. Information copies of 
correspondence sent to the SBA seeking a certificate of competency 
determination must be concurrently provided to the Director, OSDBU. 
Before appealing a certificate of competency, the Head of Contracting 
Activity must seek concurrence from the Director, OSDBU.
    Participant has the same meaning given to such term in 13 CFR part 
125.
    Primary industry classification means the six-digit North American 
Industry Classification System (NAICS) code designation which best 
describes the primary business activity of the participant. The NAICS 
code designations are described in the NAICS Manual published by the 
U.S. Office of Management and Budget.
    Principal place of business means the business location where the 
individuals who manage the concern's daily business operations spend 
most working hours and where top management's current business records 
are kept. If the office from which management is directed and where the 
current business records are kept are in different locations, CVE will 
determine the principal place of business for program purposes.
    Register means the initiation of an application for verification or 
reverification by the business owner or a business representative.
    Service-disabled veteran has the same meaning given to such term in 
13 CFR part 125.
    Service-disabled veteran-owned small business concern (SDVOSB) has 
the same meaning given to such term in 13 CFR part 125.
    Small business concern (SBC) has the same meaning given to such 
term in 13 CFR part 125.
    Surviving spouse has the same meaning given to such term in 13 CFR 
part 125.
    VA is the U.S. Department of Veterans Affairs.
    Vendor Information Pages (VIP) is a database of businesses eligible 
to participate in VA's Veteran-owned Small Business Program. The online 
database may be accessed at no charge via the internet at https://www.va.gov/osdbu.
    Verification eligibility period is a 3-year period that begins on 
the date CVE issues its approval letter establishing verified status. 
The participant must submit a new application for each eligibility 
period to continue eligibility.
    Veteran has the same meaning given to such term in 13 CFR part 125.
    Veteran-owned small business concern (VOSB) has the same meaning 
given to such term in 13 CFR part 125.
    Veterans Affairs Acquisition Regulation (VAAR) is the set of rules 
that specifically govern requirements exclusive to VA prime and 
subcontracting actions. The VAAR is chapter 8 of title 48, Code of 
Federal Regulations, and supplements the Federal Acquisition Regulation 
(FAR), which contains guidance applicable to most Federal agencies.

0
3. Revise Sec.  74.2 to read as follows:


Sec.  74.2  What are the eligibility requirements a concern must meet 
for the VIP Verification Program?

    (a) Ownership and control. A small business concern must be

[[Page 48230]]

unconditionally owned and controlled by one or more eligible veterans, 
service-disabled veterans or surviving spouses, have completed the 
online VIP database forms, submitted required supplemental 
documentation at https://www.va.gov/osdbu, and have been examined by 
VA's CVE. Such businesses appear in the VIP database as ``verified''.
    (b) Good character and exclusions in System for Award Management 
(SAM). Individuals having an ownership or control interest in verified 
businesses must have good character. Debarred or suspended concerns or 
concerns owned or controlled by debarred or suspended persons are 
ineligible for VIP Verification. Concerns owned or controlled by a 
person(s) who is currently incarcerated, or on parole or probation 
(pursuant to a pre-trial diversion or following conviction for a felony 
or any crime involving business integrity) are ineligible for VIP 
Verification. Concerns owned or controlled by a person(s) who is 
formally convicted of a crime set forth in 48 CFR 9.406-2(b)(3) are 
ineligible for VIP Verification during the pendency of any subsequent 
legal proceedings. If, after verifying a participant's eligibility, the 
person(s) controlling the participant is found to lack good character, 
CVE will immediately remove the participant from the VIP database, 
notwithstanding the provisions of Sec.  74.22.
    (c) False statements. If, during the processing of an application, 
CVE determines, by a preponderance of the evidence standard, that an 
applicant has knowingly submitted false information, regardless of 
whether correct information would cause CVE to deny the application, 
and regardless of whether correct information was given to CVE in 
accompanying documents, CVE will deny the application. If, after 
verifying the participant's eligibility, CVE discovers that false 
statements or information have been submitted by a firm, CVE will 
remove the participant from the VIP database immediately, 
notwithstanding the provisions of Sec.  74.22. Whenever CVE determines 
that the applicant submitted false information, the matter will be 
referred to the VA Office of Inspector General for review. In addition, 
CVE will request that debarment proceedings be initiated by the 
Department.
    (d) Financial obligations. Neither an applicant firm nor any of its 
eligible individuals that fails to pay significant financial 
obligations, including unresolved tax liens and defaults on Federal 
loans or State or other government assisted financing, owed to the 
federal government, the District of Columbia or any state, district, or 
territorial government of the United States, is eligible for VIP 
Verification. If after verifying the participant's eligibility CVE 
discovers that the participant no longer satisfies this requirement, 
CVE will remove the participant from the VIP database in accordance 
with Sec.  74.22.
    (e) Protest Decisions or other negative findings. Any firm verified 
in the VIP database that is found to be ineligible by a SDVOSB/VOSB 
status protest decision will be immediately removed from the VIP 
database, notwithstanding the provisions of Sec.  74.22. Any firm 
verified in the VIP database that is found to be ineligible due to a 
U.S. Small Business Administration (SBA) protest decision or other 
negative finding may be immediately removed from the VIP database, 
notwithstanding the provisions of Sec.  74.22. Until such time as CVE 
receives official notification that the firm has proven that it has 
successfully overcome the grounds for the determination, that the 
decision is overturned on appeal, or the firm applies for and receives 
verified status from CVE, the firm will not be eligible to participate 
in the 38 U.S.C. 8127 program.
    (f) System for Award Management (SAM) registration. All applicants 
for VIP Verification must be registered in SAM at https://www.sam.gov 
prior to application submission.

0
4. Revise Sec.  74.3 to read as follows:


Sec.  74.3  Who does CVE consider to own a veteran-owned small 
business?

    (a) Ownership. Ownership is determined in accordance with 13 CFR 
part 125. However, where 13 CFR part 125 is limited to SDVOSBs, CVE 
applies the same ownership criteria to firms seeking verified VOSB 
status.
    (b) Change of ownership. (1) A participant may remain eligible 
after a change in its ownership or business structure, so long as one 
or more veterans own and control it after the change. The participant 
must file an updated VA Form 0877 and supporting documentation 
identifying the new veteran owners or the new business interest within 
30 days of the change.
    (2) Any participant that is performing contracts and desires to 
substitute one veteran owner for another shall submit a proposed 
novation agreement and supporting documentation in accordance with FAR 
subpart 42.12 to the contracting officer prior to the substitution or 
change of ownership for approval.
    (3) Where the transfer results from the death or incapacity due to 
a serious, long-term illness or injury of an eligible principal, prior 
approval is not required, but the concern must file an updated VA Form 
0877 with CVE within 60 days of the change. Existing contracts may be 
performed to the end of the instant term. However, no options may be 
exercised.
    (4) Continued eligibility of the participant with new ownership 
requires that CVE verify that all eligibility requirements are met by 
the concern and the new owners.

0
5. Revise Sec.  74.4 to read as follows:


Sec.  74.4  Who does CVE consider to control a veteran-owned small 
business?

    Control is determined in accordance with 13 CFR part 125. However, 
where 13 CFR part 125 is limited to SDVOSBs, CVE applies the same 
control criteria to firms seeking verified VOSB status.

0
6. Revise Sec.  74.5 to read as follows:


Sec.  74.5  How does CVE determine affiliation?

    (a) CVE does not determine affiliation. Affiliation is determined 
by the SBA in accordance with 13 CFR part 121.
    (b) Joint ventures may apply for inclusion in the VIP Verification 
Program. To be eligible for inclusion in the VIP Verification Program, 
a joint venture must demonstrate that:
    (1) The underlying VOSB upon which eligibility is based is verified 
in accordance with this part; and
    (2) The joint venture agreement complies with the requirements set 
forth in 13 CFR part 125 for SDVOSBs. However, while 13 CFR part 125 is 
limited to SDVOSBs, CVE will apply the same requirements to joint 
venture firms seeking verified VOSB status.

0
7. Revise Sec.  74.10 to read as follows:


Sec.  74.10  Where must an application be filed?

    An application for VIP Verification status must be electronically 
filed in the Vendor Information Pages database located on the CVE's Web 
portal, https://www.va.gov/osdbu. Guidelines and forms are located on 
the Web portal. Upon receipt of the applicant's electronic submission, 
an acknowledgment message will be dispatched to the concern containing 
estimated processing time and other information. Address information 
for CVE is also located on the Web portal.

(The Office of Management and Budget has approved the information 
collection requirements in this section under control number 2900-
0675.)


0
8. Revise Sec.  74.11 to read as follows:

[[Page 48231]]

Sec.  74.11  How does CVE process applications for VIP Verification 
Program?

    (a) The Director, CVE, is authorized to approve or deny 
applications for VIP Verification. CVE will receive, review, and 
examine all VIP Verification applications. Once an applicant registers, 
CVE will contact the applicant within 30 days to initiate the process. 
If CVE is unsuccessful in its attempts to contact the applicant, the 
application will be administratively removed. If CVE is successful in 
initiating contact with the applicant, CVE will advise the applicant of 
required documents and the timeline for submission. If the applicant 
would be unable to provide conforming documentation, the applicant will 
be given the option to withdraw its application. CVE will process an 
application for VIP Verification status within 90 application days, 
when practicable, of receipt of a registration. Incomplete application 
packages will not be processed.
    (b) CVE, in its sole discretion, may request clarification of 
information relating to eligibility at any time in the eligibility 
determination process. CVE will take into account any clarifications 
made by an applicant in response to a request for such by CVE.
    (c) CVE, in its sole discretion, may request additional 
documentation at any time in the eligibility determination process. 
Failure to adequately respond to the documentation request shall 
constitute grounds for a denial or administrative removal.
    (d) An applicant's eligibility will be based on the totality of 
circumstances existing on the date of application, except where 
clarification is made pursuant to paragraph (b) of this section, 
additional documentation is submitted pursuant to paragraph (c) of this 
section, as provided in paragraph (e) of this section or in the case of 
amended documentation submitted pursuant to Sec.  74.13(a). The 
applicant bears the burden to establish its status as a VOSB.
    (e) Changed circumstances for an applicant occurring subsequent to 
its application and which affect eligibility will be considered and may 
constitute grounds for denial of the application. The applicant must 
inform CVE of any changed circumstances that could affect its 
eligibility for the program (i.e., ownership or control changes) during 
its application review.
    (1) Bankruptcy. Bankruptcy is a change in circumstance requiring 
additional protection for the agency. Should a VOSB enter into 
bankruptcy the participant must:
    (i) Inform CVE of the filing event within 30 days;
    (ii) Specify to CVE whether the concern has filed Chapter 7, 11, or 
13 under U.S. Bankruptcy code; and
    (iii) Any participant that is performing contracts must assure 
performance to the contracting officer(s) prior to any reorganization 
or change if necessary including such contracts in the debtor's estate 
and reorganization plan in the bankruptcy.
    (2) [Reserved]
    (f) The decision of the Director, CVE, to approve or deny an 
application will be in writing. A decision to deny verification status 
will state the specific reasons for denial and will inform the 
applicant of any appeal rights.
    (g) If the Director, CVE, approves the application, the date of the 
approval letter is the date of participant verification for purposes of 
determining the participant's verification eligibility term.
    (h) The decision may be sent by mail, commercial carrier, facsimile 
transmission, or other electronic means. It is the responsibility of 
the applicant to ensure all contact information is current in the 
applicant's profile.

(The Office of Management and Budget has approved the information 
collection requirements in this section under control number 2900-
0675.)


0
9. Revise Sec.  74.12 to read as follows:


Sec.  74.12  What must a concern submit to apply for VIP Verification 
Program?

    Each VIP Verification applicant must submit VA Form 0877 and 
supplemental documentation as CVE requires. All electronic forms are 
available on the VIP database web pages. From the time the applicant 
dispatches the VA Form 0877, the applicant must also retain on file, at 
the principal place of business, a complete copy of all supplemental 
documentation required by, and provided to, CVE for use in verification 
examinations. The documentation to be submitted to CVE includes, but is 
not limited to: Articles of Incorporation/Organization; corporate by-
laws or operating agreements; shareholder agreements; voting records 
and voting agreements; trust agreements; franchise 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; financial statements; Federal personal and business tax returns 
for up to 3 years; and licenses.

(The Office of Management and Budget has approved the information 
collection requirements in this section under control number 2900-
0675.)


0
10. Amend Sec.  74.13 by revising the section heading and paragraphs 
(a) and (b) to read as follows


Sec.  74.13  Can an applicant appeal CVE's initial decision to deny an 
application?

    (a) An applicant may appeal CVE's decision to deny an application 
by filing an appeal with the United States Small Business 
Administration (SBA) Office of Hearings and Appeals (OHA) after the 
applicant receives the denial in accordance with 13 CFR part 134. The 
filing party bears the risk that the delivery method chosen will not 
result in timely receipt by OHA.
    (b) A denial decision that is based on the failure to meet any 
veteran eligibility criteria is not subject to appeal and is the final 
decision of CVE.
* * * * *

0
11. Revise Sec.  74.14 to read as follows:


Sec.  74.14  Can an applicant or participant reapply for admission to 
the VIP Verification Program?

    (a) Once an application, an appeal of a denial of an application, 
or an appeal of a verified status cancellation has been denied, or a 
verified status cancellation which was not appealed has been issued, 
the applicant or participant shall be required to wait for a period of 
6 months before a new application will be processed by CVE.
    (b) Participants may reapply prior to the termination of their 
eligibility period. If a participant is found to be ineligible, the 
participant will forfeit any time remaining on their eligibility period 
and will be immediately removed from the VIP Verification database. An 
applicant removed pursuant to this section may appeal the decision to 
OHA in accordance with Sec.  74.13. The date of a new determination 
letter verifying an applicant will be the beginning of the next 3-year 
eligibility period.

0
12. Revise Sec.  74.15 to read as follows:


Sec.  74.15  What length of time may a business participate in VIP 
Verification Program?

    (a) A participant receives an eligibility term of 3 years from the 
date of CVE's approval letter establishing verified status.
    (b) The participant must maintain its eligibility during its tenure 
and must inform CVE of any changes that would affect its eligibility 
within 30 days.
    (c) The eligibility term may be shortened by removal pursuant to 
Sec.  74.2, application pursuant to Sec.  74.14(b), voluntary 
withdrawal by the participant pursuant to Sec.  74.21, or cancellation 
pursuant to Sec.  74.22.
    (d) CVE may initiate a verification examination whenever it 
receives

[[Page 48232]]

credible information concerning a participant's eligibility as a VOSB. 
Upon its completion of the examination, CVE will issue a written 
decision regarding the continued eligibility status of the questioned 
participant.
    (e) If CVE finds that the participant does not qualify as a VOSB, 
the procedures at Sec.  74.22 will apply, except as provided in Sec.  
74.2.
    (f) If CVE finds that the participant continues to qualify as a 
VOSB, the original eligibility period remains in effect.

0
13. Revise Sec.  74.20 to read as follows:


Sec.  74.20  What is a verification examination and what will CVE 
examine?

    (a) General. A verification examination is an investigation by CVE 
officials, which verifies the accuracy of any statement or information 
provided as part of the VIP Verification application process. Thus, 
examiners may verify that the concern currently meets the eligibility 
requirements, and that it met such requirements at the time of its 
application or its most recent size recertification. An examination may 
be conducted on a random, unannounced basis, or upon receipt of 
specific and credible information alleging that a participant no longer 
meets eligibility requirements.
    (b) Scope of examination. CVE may conduct the examination at one or 
all of the participant's offices or work sites. CVE will determine the 
location(s) of the examination. CVE may review any information related 
to the concern's eligibility requirements including, but not limited 
to, documentation related to the legal structure, ownership, and 
control. Examiners may review any or all of the organizing documents, 
financial documents, and publicly available information as well as any 
information identified in Sec.  74.12.

0
14. Revise Sec.  74.21 to read as follows:


Sec.  74.21  What are the ways a business may exit VIP Verification 
Program status?

    A participant may:
    (a) Voluntarily cancel its status by submitting a written request 
to CVE requesting that the concern be removed from public listing in 
the VIP database; or
    (b) Delete its record entirely from the VIP database; or
    (c) CVE may remove a participant immediately pursuant to Sec.  
74.2; or
    (d) CVE may remove a participant from public listing in the VIP 
database for good cause upon formal notice to the participant in 
accordance with Sec.  74.22. Examples of good cause include, but are 
not limited to, the following:
    (1) Submission of false information in the participant's VIP 
Verification application.
    (2) Failure by the participant to maintain its eligibility for 
program participation.
    (3) Failure by the participant for any reason, including the death 
of an individual upon whom eligibility was based, to maintain 
ownership, management, and control by veterans, service-disabled 
veterans, or surviving spouses.
    (4) Failure by the concern to disclose to CVE the extent to which 
non-veteran persons or firms participate in the management of the 
participant.
    (5) Failure to make required submissions or responses to CVE or its 
agents, including a failure to make available financial statements, 
requested tax returns, reports, information requested by CVE or VA's 
Office of Inspector General, or other requested information or data 
within 30 days of the date of request.
    (6) Cessation of the participant's business operations.
    (7) Failure by the concern to provide an updated VA Form 0877 
within 30 days of any change in ownership, except as provided in Sec.  
74.3(f)(3).
    (8) Failure to inform CVE of any such changed circumstances, as 
outlined in paragraphs (c) and (d) of this section.
    (9) Failure by the concern to obtain and keep current any and all 
required permits, licenses, and charters, including suspension or 
revocation of any professional license required to operate the 
business.
    (e) The examples of good cause listed in paragraph (d) of this 
section are intended to be illustrative only. Other grounds for 
canceling a participant's verified status include any other cause of so 
serious or compelling a nature that it affects the present 
responsibility of the participant.

0
15. Amend Sec.  74.22 by revising paragraphs (a) and (e) to read as 
follows:


Sec.  74.22  What are the procedures for cancellation?

    (a) General. When CVE believes that a participant's verified status 
should be cancelled prior to the expiration of its eligibility term, 
CVE will notify the participant in writing. The Notice of Proposed 
Cancellation Letter will set forth the specific facts and reasons for 
CVE's findings and will notify the participant that it has 30 days from 
the date CVE sent the notice to submit a written response to CVE 
explaining why the proposed ground(s) should not justify cancellation.
* * * * *
    (e) Appeals. A participant may file an appeal with OHA concerning 
the Notice of Verified Status Cancellation decision in accordance with 
13 CFR part 134. The decision on the appeal shall be final.

0
16. Revise Sec.  74.25 to read as follows:


Sec.  74.25  What types of personally identifiable information will VA 
collect?

    In order to establish owner eligibility, VA will collect individual 
names and Social Security numbers for veterans, service-disabled 
veterans, and surviving spouses who represent themselves as having 
ownership interests in a specific business seeking to obtain verified 
status.

0
17. Revise Sec.  74.26 to read as follows:


Sec.  74.26  What types of business information will VA collect?

    VA will examine a variety of business records. See Sec.  74.12, 
``What must a concern submit to apply for VIP Verification Program?''

0
18. Revise Sec.  74.27 to read as follows:


Sec.  74.27  How will VA store information?

    VA stores records provided to CVE fully electronically on the VA's 
secure servers. CVE personnel will compare information provided 
concerning owners against any available records. Any records collected 
in association with the VIP verification program will be stored and 
fully secured in accordance with all VA records management procedures. 
Any data breaches will be addressed in accordance with the VA 
information security program.

0
19. Revise Sec.  74.28 to read as follows:


Sec.  74.28  Who may examine records?

    Personnel from VA, CVE, and its agents, including personnel from 
the SBA, may examine records to ascertain the ownership and control of 
the applicant or participant.

0
20. Revise Sec.  74.29 to read as follows:


Sec.  74.29  When will VA dispose of records?

    The records, including those pertaining to businesses not 
determined to be eligible for the program, will be kept intact and in 
good condition and retained in accordance with VA records management 
procedures following a program examination or the date of the last 
Notice of Verified Status Approval letter. Longer retention will not be 
required unless a written request is received from the Government 
Accountability Office not later than 30 days prior to the end of the 
retention period.

[FR Doc. 2018-20639 Filed 9-21-18; 8:45 am]
 BILLING CODE 8320-01-P