SDVOSB Legislative Updates
Congress Increases SDVOSB Prime Contracting Goal to Five Percent
Congress has increased the prime contracting goal for service-disabled veteran-owned small businesses from three percent to five percent of total prime contract spending. Together with this major increase, Congress will prohibit the government from counting awards to self-certified SDVOSBs toward its prime and subcontracting goals.
These changes are implemented in the final version of the 2024 National Defense Authorization Act. The 2024 NDAA "conference report," which is a negotiated compromise between the House and Senate over the terms of the 2024 NDAA, was recently agreed upon, and will become law as soon as it is signed by the President.
Section 863 of the 2024 NDAA is titled "INCREASE IN GOVERNMENTWIDE GOAL FOR PARTICIPATION IN FEDERAL CONTRACTS BY SMALL BUSINESS CONCERNS OWNED AND CONTROLLED BY SERVICE-DISABLED VETERANS." Section 863 simply deletes the term "3 percent" in the underlying goaling statute, 15 U.S.C. 644(g)(1), and replaces it with "5 percent".
Congress has not included any grace period or other delay in Section 863's effectiveness, meaning--in theory, at least--the new five percent goal will take effect immediately upon the President's signature. Whether the SBA applies the goal to the ongoing fiscal year remains to be seen, but it appears that the five percent goal will be effective, at the latest, in the fiscal year beginning on October 1, 2024.
Section 863 not only significantly increases the three percent SDVOSB goal, but challenges the government to improve its recent governmentwide SDVOSB performance. In Fiscal Year 2022, the most recent in which the SBA has provided its annual scorecard data, the government awarded 4.57 percent of prime contract dollars to SDVOSBs. While the difference between 4.57 percent and five percent may not sound like much, by my back-of-the-envelope math, hitting five percent last year would have resulted in more than $2.5 billion in extra SDVOSB prime contracting.
Together with the increase of the SDVOSB goals, Congress will prohibit the government from counting awards made to self-certified SDVOSBs--both at the prime contract and subcontract levels. Section 864 of the 2024 NDAA, titled "ELIMINATING SELF-CERTIFICATION FOR SERVICE-DISABLED VETERAN-OWNED SMALL BUSINESSES" does just what its title promises. Section 864 states that "[e]ach prime contract award and subcontract award that is counted for the purpose of meeting the [SDVOSB] goals" must be entered into with an SBA-certified SDVOSB.
Unlike the goaling increase, Congress has included a grace period in Section 864. The statute directs the SBA to prepare regulations implementing Section 864 within 180 days, then allows the government to continue counting awards to self-certified SDVOSBs until October 1 of the fiscal year following publication of the SBA's regulations. Even then, the government can count awards made to a self-certified SDVOSB so long as the self-certified company submits an SDVOSB certification application within one year of the 2024 NDAA's enactment.
The bottom line: Section 864 will take awhile to become fully effective. Eventually, though, the government will no longer be able to count dollars awarded to self-certified SDVOSBs toward its goals.
You may be wondering--didn't Congress already eliminate SDVOSB self-certification? Isn't this "new" rule in Section 864 duplicative and unnecessary?
No, and here's why.
In the words of the SBA, the 2021 NDAA and the SBA regulations implementing it "created a certification requirement at SBA for SDVOSBs seeking sole source and set-aside contracts across the Federal Government." But while these laws restricted access to SDVOSB prime contracts to certified companies, they did not prohibit the government from continuing to claim goaling credit for prime contracts awarded to self-certified SDVOSBs through other vehicles, such as small business set-asides, nor did these rules prohibit the government from claiming subcontracting credit for awards to self-certified SDVOSBs.
The SBA hasn't hidden the ball on this issue. In its commentary accompanying the regulation implementing the 2021 NDAA, the SBA said:
SBA received a number of comments requesting that SBA eliminate self-certification entirely. As discussed further below, SBA has considered these comments and decided to implement its proposal to continue allowing self-certification for SDVOSBs at the subcontract level and for purposes of SDVOSB goaling credit.
Apparently, Congress wasn't entirely pleased with SBA's position. Congress has now directed the SBA to take precisely the action the SBA refused to take a couple years ago and eliminate goaling credit for contracts and subcontracts awarded to self-certified SDVOSBs.
For government contractors, what are the key takeaways from the changes adopted in Sections 863 and 864 of the 2024 NDAA?
First, at the prime contract level, agencies will be under pressure to award a greater percentage of dollars to SDVOSBs than the government has ever achieved, meaning significantly more prime contracting opportunities should become available to certified SDVOSBs. Moving forward, the SBA's SDVOSB certification will be even more valuable to primes.
Second, thanks to the pending elimination of SDVOSB self-certification at the subcontract level, large primes will be seeking more and stronger connections with certified SDVOSBs. SDVOSB subcontractors that have held off on applying to the SBA because self-certification was allowed at the second tier should plan to become certified ASAP.
Third, non-SDVOSBs--large and small alike--should consider how to best approach these changes. As the percentage of SDVOSB prime contract dollars increases, the percentage of dollars awarded to non-SDVOSBs necessarily must decline. That doesn't mean that these changes necessarily are bad news for all non-SDVOSBs, however. Savvy non-SDVOSBs may, for example, see this as a prime opportunity to enter into an SBA-approved mentor-protege agreement with an SDVOSB.
The government has exceeded its three percent SDVOSB goal in recent years but now the goalpost is moving. Once the 2024 NDAA becomes law, the SDVOSB goal will become five percent--and although it may take awhile, eventually the government will only be able to meet that goal by counting dollars awarded to SBA-certified SDVOSBs.
Taken from the GovCon Roundup Weekly Newsletter dated December 11, 2023
Efforts to Raise SDVOSB Contracting Goals Included in Senate Version of FY24 NDAA
In an effort to place SDVOSB's on par with other small business categories, the US Senate recently passed FY24 NDAA which includes language to increase Contracting Opportunities for Service-Disabled Veteran Owned Small Businesses (SDVOSB) from 3% to 5%. The final NDAA still requires reconciliation with the House of Representatives' version and then approval before it can be signed into law.
SDVOSB Program Now Managed by the SBA
NDAA 2021 amended the VO SBC/SDVO SBC requirements to transfer the responsibility for certification of VO SBCs and SDVO SBCs to SBA as of January 1, 2023 (Transfer Date) and created a certification requirement at SBA for SDVO SBCs seeking sole source and set-aside contracts across the Federal Government. In short, this means veteran-owned businesses will no longer be able to "self-certify" their VOSB and SDVOSB statuses and must receive certification through the SBA if they are to keep their existing contracts or win new contracts in these set aside categories beginning in 2024. And yes, this also impacts a Prime contractor's small business utilization plan! Primes utilizing VOSB's and SDVOSB's will soon need to require SBA certified VOSB/SDVOSB's if they are to continue receiving SB credit in these categories.