A recent decision by the Court of Federal Claims brings some good news to Veteran Owned Small Business concerns (VOSBs), as well as owners of other types of small businesses. The court, in KWV, Inc. v. United States, No. 12-882C (Fed. Cl. May 9, 2013), has recognized as permissible flexible management schemes that are a more accurate reflection of small business practices and realities than has typically been permitted by the Department of Veterans Affairs (VA), or for that matter, the Small Business Administration.
KWV initially self-certified as a VOSB with the VA in 2006 when self-certification was still permitted. After the regulations governing the VA’s Center for Veterans Enterprise (CVE) changed in 2007, KWV applied for and was certified as a VOSB by the CVE. KWV was organized as a closely held corporation with 60% of the shares being owned by James Maron, a veteran, and the remaining 40% being owned by his two sons and a granddaughter. Maron had over 50 years’ experience in the construction industry, including 30 years as a contractor. Maron lived six months of the year in Rhode Island, where KWV was located, and six months in Florida.
After being certified by CVE, KWV secured two contracts that permitted it to bid on task orders issued by the VA for work on the Boston Health Care System. It successfully bid on one such task order in 2012 and was subsequently protested. The protester alleged that Maron was not in control of day-to-day management of the company citing his residency in Florida for six months of the year. The protester claimed that Maron’s two non-veteran sons were effectively in control of KWV. The protest was considered by the VA’s Office of Small and Disadvantaged Business Utilization (OSDBU). At the conclusion of the protest, OSDBU ruled that Maron did not maintain sufficient day-to-day control and disqualified KWV from participation in the Veterans First Contracting Program. OSDBU’s decision relied on the fact that Maron resided half the year in Florida despite evidence that Maron managed the day-to-day business of KWV via telephone and e-mail when he was in Florida. KWV filed suit in the Court of Federal Claims asserting that the disqualification by OSDBU was improper.
The Court of Federal Claims ruled in favor of KWV and issued an injunction reinstating KWV’s status as a VSOB. In reaching its decision, the court concluded that a review of control cannot be limited to a superficial review of protest filings. Rather, a more in-depth review of how the company operates is necessary. The central rule in play for the court was 48 C.F.R § 819.307 which requires that the day-to-day management and long-term decision making both be done by the veteran owner. Under that regulation, control means “both the strategic policy setting” for the company and the “day-to-day management” and administration of business operations.
The court considered OSDBU’s review of KWV’s operations to be perfunctory in that OSDBU only reviewed the written record of protest filings. At no point did OSDBU conduct a site visit or interview Maron in person. Furthermore, the court found that the OSDBU’s decision focused primarily on Maron’s residency and disregarded evidence that Maron was the sole day-to-day manager who controlled the operations of KWV via e-mail and telephone when he was not in Rhode Island and traveled frequently to meetings on behalf of the company.
The court’s decision in KWV, Inc. does not stand for the principle that an owner of a VOSB, or other type of small business, may automatically reside a long distance away from the home office without the owner’s ability to exercise day-to-day control being called into question. The court’s decision does appear to require the government to review the actual operations of the small business when determining the eligibility, or conversely considering the disqualification of a small business. The court mentioned several times in the decision that OSDBU had only reviewed the paper record of the protest filings. While these are primary sources of evidence in determining the eligibility of a small business, the reviewing agency should take an in-depth look to see who controls the concern. Superficially the fact that Maron spent half the year living hundreds of miles from KWV’s home office appeared inconsistent with day-to-day control. In an age of electronic instantaneous communication, however, such distance can be rendered almost meaningless.