News

1401, 2019

UPDATE: SBA puts on the brakes — SBA will NOT recognize new size calculation requirements (5 year average instead of 3) until new SBA Regs issued

January 14th, 2019|

By Carissa Siebeneck Anderson & Jon DeVore

We recently posted an article (see below) regarding recent legislation impacting how small business size will be calculated.  Congress passed the Small Business Runway Extension Act that changed those calculation requirements—previously, size based on gross receipts (revenue) was calculated based on at least a 3-year average, and the new legislation changed 3 to 5 years.  We hoped that SBA would issue guidance clarifying when and how the changes to the size standards would take effect.

Well, SBA has issued an internal notice, but the distribution of that notice was delayed due to the government shutdown, but it is making its way into the public sphere slowly.  Not everyone will be happy with SBA’s reaction to this legislation – which is basically to put on the brakes.

SBA states:

 “The Small Business Act still requires that new size standard be approved by the Administrator through a rulemaking process.  The Runway Extension Act does not include an effective date, and the amended section 3(a)(2)(C)(ii)(II) does not make a five-year average effective immediately. 

The change made by the Runway Extension Act is not presently effective and is therefore not applicable to present contracts, offers, or bids until implemented through the standard rulemaking process.  The office of Government Contracting and Business Development (GCBD) is drafting revisions to SBA’s regulations and SBA’s forms to implement the Runway Extension Act.  Until SBA changes it regulation, business still must report their receipts based on a three-year average.[1]

While it is a useful step in the right direction that SBA has provided clear guidance (internally), this will not end the confusion.  First, SBA has not issued public guidance, which we hope they will do soon—perhaps in the form of press release or other quick release method once the SBA’s doors are officially open again.  Second, the way that the statute was changed and the lack of an effective date or implementation guidance within the legislation did leave things a bit ambiguous as to legislative intent as to how the size standard would be implemented.  Any line-item change to the requirements in this statute could have caused a similar problem, because of how the statute itself is phrased.  With arguable ambiguity in statutory interpretation comes agency discretion in interpretation.  While reasonable minds could certainly disagree with SBA’s interpretation, the agency will likely enjoy a significant degree of discretion in interpreting statutes applicable to itself, especially as the SBA is charged with implementing the size standards generally throughout the federal government. SBA could also have reasonably interpreted the change to be effective immediately or issued an implementation date.  (See, 15 U.S.C. § 632(a)(2)(C)(ii)(II), which is the Section 3(a)(2)(C)(ii)(II) of the Small Business Act. (Linked below.)) Instead, we will all have to wait for SBA to issue new regulations.  This uncertainty highlights the need for stronger coordination in the future between small business advocates in Congress and the SBA to ensure a smoother implementation.

While it may be somewhat unpopular with some, SBA measured approach does have some merit and potential benefits.  One advantage to this approach, is that SBA will be able to give more guidance as to how and when to implement the change when it does go into effect. 

Potential Legal Challenge?  Others may disagree with SBA’s interpretation of the statute and its effective status.  SBA’s interpretation could be legally challenged in the form of a size protest appeal before OHA or other similar action.  It would be interesting to see whether OHA would agree with the SBA’s interpretation that the statute is not effective immediately, but instead only goes into effect upon completing the formal rulemaking process and obtaining administrator approval.  (These other components are also criteria that must be met under the statute along with the now 5-year average period for size calculation.) 

SBA Recommends Maintaining the Status Quo…So, we would not recommend changing how your business calculates its size just yet (i.e. stick to the 3-year average for now), unless you intend to wage a legal fight to test SBA’s discretion and interpretation.  In the meantime, we must sit and wait for the regulatory process to be completed on SBA’s timeline.  That timeline is uncertain in the best of times, but especially now amidst the ongoing and record-breakingly long government shutdown. 

Get your comments and questions ready.  While SBA has not opened up a formal comment period, business might consider whether they have any questions about how the change should/will impact their business.  Those comments and questions should be collected and submitted to SBA during the mandated comment period that must precede any final regulations in the size standard area.


[1] SBA Information Notice 6000-180022, Small Business Runway Extension Act of 2018, to all GCBD (Office of Government Contracting and Business Development) Employees (Effective 12-21-2018) (emphasis added).


Related Post: Originally posted on January 4, 2019.

Congress has changed how small business size will be calculated.  At the end of the year, both the House and Senate passed the Small Business Runway Extension Act of 2018 (H.R. 6330/S. 3562).  This brief but important piece of legislation was signed into law on December 17, 2018.[1] 

Currently, small business size is calculated based on the average annual receipts (or number of employees depending on the NAICS Code) of the business over the most recently completed three fiscal years.[2]  The new bill expands the average calculation to include the last five years.[3] 

Impact – Longer Small Business Eligibility Period & More Small Business Competition.  This noteworthy change will extend the potential period of small business eligibility.  It will decrease the impact of one uncharacteristically large year.  This change is likely to be a welcome change for small businesses, and potentially even make some former small businesses eligible for small business programs again.  It should be noted that extending the period of eligibility will also likely increase competition for small business contracts, as most small businesses will remain eligible for small business procurements for longer.  Thus, the small business community benefits by getting (potentially) longer periods of small business eligibility, and the government benefits from an increased number of small businesses and thus increased competition for small business contracts.  This should also make it easier and more cost-effective for agencies to reach their small business procurement goals.

Expect A Period of Confusion.  The legislation did not include any timelines for drafting implementing regulations.  There is likely to be a period of confusion while the statute is out-of-sync with the regulations regarding calculation of size.  We would strongly encourage affected businesses to contact SBA to encourage the agency to issue public guidance for small businesses and contracting professionals on how to handle the transition period.  It is clear that as the statute has been updated, it trumps any conflicting regulations.  The SBA will take some time to update its regulations.  However, small businesses that plan to utilize the new formula should be prepared to explain and cite the new law (and its binding legal effect despite conflicting regulations that need to be updated to reflect the revised statute).  Entity-owned businesses may also need to update other business tools and processes, such as tools that track business revenue by specific NAICS Codes for size purposes and to avoid multiple businesses in the same NAICS Codes, which will also become even more critical and potentially confusing.

Please contact Carissa Siebeneck Anderson or Jon DeVore at BHBC if you have any questions about how this new law will affect your business.


[1] Public Law No: 115-324, available at https://www.congress.gov/bill/115th-congress/house-bill/6330.    

[2] See Small Business Act (15 U.S.C. 632(a)(2)(C)(ii)(II); 13 CFR 121.104(c) Period of Measurement.

[3] H.R. 6330: “Section 3(a)(2)(C)(ii)(II) of the Small Business Act (15 U.S.C. 632(a)(2)(C)(ii)(II)) is amended by striking ‘3 years’ and inserting ‘5 years’.”

1112, 2018

Federal Court rules on the Constitutionality of Passenger Fees and Hints as to Acceptable Local Uses

December 11th, 2018|

Written by Matthew Widmer and William Earnhart

 On December 6, 2018, the United States District Court for the State of Alaska issued an order that could have a profound impact on the way municipal governments can spend certain fees. The case concerned two types of passenger fees imposed by the City of Juneau on cruise ship operators. One fee was a $5-per-passenger fee; the other was a $3 fee. An association of cruise ship operators filed suit in federal court claiming that the fees violated the River and Harbors Appropriation Act of 1899 (RHRA), as well as the Tonnnage Clause, Commerce Clause, and Supremacy Clause of the United States Constitution.

A cruise ship passenger fee or “head tax” is imposed by most of Alaska coastal communities visited by cruise ships. The fees are intended to off-set the additional costs and services required by the large influx of visitors.  Many cruise ships contain a larger population than the communities themselves.  Although summer tourism is an important part of local economies it also places tremendous stress on port infrastructure and community services.

The Court ruled that the Tonnage Clause and the RHRA required that any fee imposed on a vessel must be compensation for services provided “to the vessel” itself or services that would be made available to the vessel if it requested. It would be illegal to use those fees for services that only benefitted passengers or the general public. It was perfectly legal if the services provided to the vessel were also used by vessel passengers or public. As long as the fees were used for services that assisted the marine operations of the vessel, the expenditures were legal. The Court also ruled that the Supremacy Clause did not prevent the City from collecting the fees.

In an effort to provide examples in its decision, the court noted that a gangplank would be a permissible expenditure because boarding and disembarking from a vessel is a service provided to that vessel. The fact that passengers or the general public would also use the gangplank was entirely permissible. Sidewalk repairs or access to a public library’s internet would not be permissible because these were not services provided to the vessel itself.

Municipalities that collect passenger fees from cruise ship operators should take a few things away from this decision:

  • Collecting passenger fees continues to be legal. The court specifically ruled that the Supremacy Clause did not prevent a municipality from collecting passenger fees.
  • Reviewing how those passenger fees are spent is important. As long as the fees are being used to provide services to a vessel, the expenditures are most likely permissible. But fees spent for any other purpose, such as general city infrastructure, could lead to future legal challenges.
  • Fees can only be imposed to make services available to the vessel for which the fees are being collected. If fees are being spent on services that a vessel cannot use, then those expenditures might be illegal.
1311, 2018

SBA Proposes Sweeping Changes to Make Compliance a Little Easier for HUBZone Program Participants

November 13th, 2018|

Written By Carissa Siebeneck Anderson & Jon M. DeVore

The U.S. Small Business Administration proposed sweeping changes to the HUBZone Program regulations last week. Most of the proposed regulations will be considered welcome changes that seek to streamline and relax some compliance requirements, making it easier for firms to maintain and retain their HUBZone status after initial adoption into the HUBZone Program. The changes also clarify ambiguities in the regulations.

The deadline for submitting comments on the proposed rules is December 31, 2018. We recommend that interested parties consider submitting comments on the proposed rules, even if it is to generally support the SBA’s proposal. Opportunities to revise this program’s rules are rare. We strongly recommend that the following stakeholders review the specific changes proposed and seek advice from counsel as needed:

  • Current HUBZone businesses
  • Entity-owners (such as tribes, ANCs, etc.) of HUBZone businesses
  • Current or potential applicants to the HUBZone Program
  • Businesses interested in partnering with HUBZone businesses

Proposed Rule Highlights

  • Move to Annual Recertification. The proposed rule would eliminate the burden on HUBZone small businesses to continually demonstrate that they meet all eligibility requirements at the time of each offer and award for any HUBZone contract opportunity. SBA would require only annual recertification of HUBZone status, instead of multiple contract-specific certification dates throughout the year. So participants would re-certify once a year, and participants would certify their HUBZone status at the time of the offer for each HUBZone contract, but the date of eligibility will be determined by the annual certification date (not the offer date). This change will lessen the administrative and compliance burden on HUBZone businesses, and it also makes compliance activity more predictable and certifications more stable.
  • Relaxation of Requirement for 35% of Employees to be HUBZone Residents. SBA proposes some practical changes to relax some compliance requirements regarding the requirement to have 35% of your employees in a HUBZone Area, making it easier for HUBZone participants to retain their status.
    • Who is a HUBZone Resident? SBA has relaxed requirements for which employees can be claimed as HUBZone residents. In addition to employees currently residing in a HUBZone as of the certification date, HUBZone residents will also include employees who resided in a HUBZone at the time of certification regardless of whether the employee moved to a non-HUBZone area later or the area lost its HUBZone status. SBA also proposed changes to include employees who reside overseas for the contract duration, when they continue to meet certain requirements regarding residency in a U.S. HUBZone while not performing the overseas contract.
    • “Attempt to Maintain” Compliance with 35% HUBZone Resident Employees. The proposed rule would authorize SBA to propose decertification of a HUBZone small business concern that is performing one or more HUBZone contracts if SBA determines that the concern no longer has at least 20% of its employees living in a HUBZone. The proposed rule has defined the statutory requirement that a HUBZone small business concern ‘‘attempt to maintain’’ compliance with the 35% HUBZone requirement while performing a HUBZone contract to mean having not less than 20% HUBZone employees. During the proposed decertification process, the concern could demonstrate that it does in fact continue to have at least 20% HUBZone employees and has otherwise attempted to meet the 35% requirement.
  • Definition of Employee. HUBZone stakeholders may have different feelings regarding this issue. SBA proposes some clarifications to the definition of employee, which refers to an individual who works a minimum of 40 hours per month. SBA is considering revising the requirement from 40 hours per month and replacing it with 20 hours per week. If this impacts your business (positively or negatively), you may wish to provide comments on this issue.

Topics for Comments

While all comments are welcome, SBA specifically requested comments regarding the following issues:

  • Seasonal Employees. Should/can seasonal employees be counted while still maintaining the integrity of the eligibility requirements?
  • 20% Minimum HUBZone Resident Employees. What do you think about the proposed 20% minimum requirement (under the 35% HUBZone resident employee rule)? “SBA believes that a lower percentage (i.e., allowing less than 20% HUBZone residents) would unreasonably diminish the impact of the program on the targeted areas and populations. However, SBA requests comments as to whether a different percentage is also reasonable and would accomplish the objectives of the HUBZone program while not unduly burdening firms performing HUBZone contracts.”
  • In-kind Compensation guidance. Is SBA’s treatment of in-kind compensation (non-monetary compensation such as housing, food, etc.) reasonable?
  • Overseas Employees & Contracts. Proposed application of employee residency requirements to employees working overseas on overseas contracts.

More SBA Regulations Expected for 8(a) Program & Mentor Protégé Programs

We wanted to note that this set of regulatory changes to the HUBZone Program is really the first of two major revisions of SBA regulations. The SBA is working on revamping much of the SBA 8(a) Program and aspects of the Mentor Protégé Programs. We anticipate the release of proposed regulations regarding those changes next year.

Please contact Carissa Siebeneck Anderson or Jon M. DeVore if you would like assistance to develop comments or if you would like more details on the proposed regulatory changes.

411, 2018

GAO Reports FCC and USDA Data Collection and Program Processes Fail to Support Federal Broadband Funding on Tribal Lands

November 4th, 2018|

Written by Leslie Wheelock

The Federal Communications Commission (FCC) and the US Department of Agriculture, Rural Utilities Service (RUS) are responsible for implementing the programs that provide funding for rural broadband. Two recent Government Accountability Office (GAO) reports note that lack of fair data collection methods as well as lack of tribal input and feedback have made tribal access to such broadband funding extremely difficult or impossible. In both reports the GAO provided recommendations to remedy these hurdles. Both reports and their recommendations are set forth below.

GAO-18-630

The first GAO report, entitled “Broadband Internet: FCC’s Data Overstate Access on Tribal Lands,” (GAO-18-630) was released on September 7, 2018, and examined issues associated with carrier-provided data measuring broadband access on Tribal lands and the impact the overstating of available broadband has on broadband deployment across Indian Country.

In this report the GAO found that the FCC collects broadband availability data from broadband providers, but its method for collection of that data does not accurately or completely capture broadband access – the ability to obtain service – on tribal lands. The GAO recognized the FCC’s definition of “available”[1] creates the opportunity for the FCC to overstate fixed broadband availability on tribal lands by allowing providers to: (1) count an entire census block as served if only one location has broadband, and (2) report availability in blocks where they do not have any infrastructure connecting hoes to their networks. Additionally, when reporting on broadband access on tribal lands, the FCC does not collect information on factors that both the FCC and tribal stakeholders have identified as affecting broadband access, including affordability, service quality and service denials. The FCC utilizes the collected broadband availability data to create the National Broadband Map.

The GAO highlighted that the FCC, in its 2010 National Broadband Plan, identified the need for the federal government to improve the quality of data regarding broadband on tribal lands, and recommended that the FCC work with Tribes to ensure that any information collected is accurate and useful.[2] In this September report, the GAO found insufficient tribal outreach from the FCC, insufficient FCC support of tribal efforts to build technical expertise concerning broadband issues, and no formal process to obtain tribal input on FCC broadband data.

Finally, the GAO noted that the FCC has abdicated its government-to-government role with tribes by requiring that providers receiving funds to serve tribal lands meaningfully engage with Tribes and discuss broadband deployment planning.[3] GAO noted that the FCC had done little follow up on this requirement since issuing guidance on the requirement in 2012, and has taken limited steps to obtain any feedback from this request. GAO noted that both Tribes and providers identified failed attempts to engage with the other.

GAO RECOMMENDATIONS

  1. The FCC develop and implement methods – such as a targeted data collection – for collecting and reporting accurate and complete data on broadband access specific to tribal lands. [It was reported to Congress that the FCC agreed with this recommendation and stated that it is exploring methods to collect more granular broadband deployment data.][4]
  2. The FCC develop a formal process to obtain tribal input on the accuracy of provider-submitted broadband data that includes outreach and technical assistance to help Tribes participate in the process. [It was reported to Congress that the FCC agreed with this recommendation and stated that it will work with stakeholders to explore options for implementing such a process.][5]
  3. The FCC obtain feedback from tribal stakeholders and providers on the effectiveness of FCC’s 2012 statement to providers on how to fulfill their tribal engagement requirements to determine whether FCC needs to clarify the agency’s tribal engagement statement. [It was reported to Congress that the FCC agreed.][6]

In addition to the GAO recommendations, it is important to recognize that RUS is proposing utilizing the FCC’s National Broadband Map (created from the compiled broadband availability data), together with its own mapping data, to identify areas of the United States that are eligible to participate in the $600,000,000 e-Connectivity Pilot for which regulations are currently being crafted.[7]

GAO-18-682

The second GAO report, entitled “Few Partnerships Exist and the Rural Utilities Service Needs to Identify and Address and Funding Barriers Tribes Face,” (GAO-18-682) was released on September 28, 2018, and examines the use of partnership arrangements between Tribal entities – Tribal governments and telecommunications providers owned by Tribes – and other entities, and their impact on broadband funding and deployment across Indian Country.

In this report, the GAO found that partnership arrangements between Tribes and other entities to increase broadband deployment on tribal lands are not widespread. It is important to note that ALL the examples of partnership arrangements provided in this GAO report arose out of funding available from USDA’s Rural Utility Service (RUS) and NTIA under programs authorized by the American Recovery and Reinvestment Act of 2009 (Recovery Act).

GAO stated that during its review, it did not find ANY partnership arrangements that leveraged currently available federal funding from the FCC’s Connect America Fund (CAF) or RUS’s Community Connect Program. Although not stated in this report, it is clear that there will be no partnership arrangements that benefit Tribes absent the availability of higher levels of financing and the prospect that partnership applications are viewed more favorably when distributing that financing. As a result, this GAO report continued by looking at current tribal options independent of partnership efforts.

The GAO report identified the two primary barriers Tribes may face with seeking federal funding for broadband deployment as: (1) the statutory requirement for Eligible Telecommunications Carrier (ETC) designation for CAF funding[8] and (2) grant application requirements of the RUS programs.

The FCC’s Connect America Fund is the largest source of federal funding for broadband deployment in unserved and underserved areas. But only ETCs are eligible for CAF funding; and there are only 11 Tribes that have providers designated as ETCs. Between 2012 and 2017, the FCC received nine ETC applications, four of which were from tribally owned providers – but only one tribally owned provider was designated as an ETC. Additionally, during the same 5-year period, GAO found that only 14 tribal entities received federal funding to increase broadband deployment from the FCC and RUS combined.

RUS does not require that applicants for RUS funding be ETCs. However, with regard to the RUS Community Connect Grant Program, the Tribes have multiple concerns:
The language included in the grant applications is difficult to understand.

  • The administrative requirements are burdensome.
  • The time between grant announcement and submission deadlines is not long enough to prepare the required application materials.
  • The required submission of existing and proposed network diagrams requires funding of engineers and consultants – expenses a tribe may not be able to cover.
  • The requirement to demonstrating financial sustainability within 5 years is not feasible – the period is more like 15 years.
  • The requirement that Tribes provide at least 15% matching funds from non-federal sources is also a complete show stopper for some Tribes.

GAO RECOMMENDATION

As a result of the above concerns, and after finding that RUS has not taken steps to identify or address the barriers Tribes face when applying for RUS grant funding, GAO recommended that RUS undertake an assessment to identify any regulatory barriers that may unduly impede efforts by Tribes to obtain RUS federal grant funds for broadband deployment on tribal lands and implement any steps necessary to address the identified barriers. When GAO asked RUS officials about the feasibility of undertaking such an assessment, RUS has stated it has limited resources and multiple competing purposes for those resources.

It is important to recognize that, although finding fault with the FCC’s ETC requirement, the GAO did not include a recommendation to Congress that a statutory workaround be crafted for the FCC’s ETC requirement that would allow tribes to access CAF funding.

 

[1]  The FCC defines “available” as whether the provider does – or could, within a typical service interval or without an extraordinary commitment of resources, provide service to at least one end-user premises in a census block. This definition allows service providers to report broadband availability by census block but can consider the census block to be “served” even if only one household in the block has service available to it – or even worse, if the provider doesn’t currently serve anyone in the block but could do so within a “typical service interval” and without “an extraordinary commitment of resources.”

[2] FCC, Connecting America: The National Broadband Plan (Mar. 16, 2010).

[3] In the Matter of Connect America Fund, Report and Order and Further Notice of Proposed Rulemaking, 26 FCC Rdc 17663 (2011).

[4] United States. Cong. Senate Committee on Indian Affairs. Oversight Hearing on “GAO Reports Relating to Broadband Internet Availability on Tribal Lands” October 3, 2018. 115th Cong. 2nd sess. Washington: GAO-19-134T (Statement of Mark Goldstein, Director, Physical Infrastructure Issues).

[5] Id.

[6] Id.

[7] RUS-18-TELECOM-0004-0001, 83 Fed. Reg. 35609 (2018).

[8] See, 47 CFR 54.201 – Definition of eligible telecommunications carriers, generally.

2410, 2018

Ownership and Control of Service-Disabled Veteran-Owned Small Business Concerns

October 24th, 2018|

Written by:  Jon M. DeVore

 

In 2006, Congress passed the Veterans Benefits, Health Care, and Information Technology Act of 2005 (38 U.S.C. 501,513), this in part created the Vets First Contracting Program within the Department of Veterans Affairs (VA). This program enabled approved firms to participate in Veteran-Owned Small Business (VOSB) and Service Disabled Veteran-Owned Small Business (SDVOSB) set asides issued by the VA.  On October 1, 2018, both the VA and the U.S. Small Business Administration (SBA)  made changes in their regulations that change the manner in which Veteran Owned Businesses will be certified and determined eligible to participate in Federal Procurement Programs.

In 2017, Congress passed the National Defense Authorization Act of 2017 (NDAA) which directed standardized definitions for VOSBs, and SDVOSBs between the VA and SBA. The NDAA further clarified how veteran-owned firms were certified and directed how the U.S. Small Business Administration (SBA) and VA would administer the veteran contracting program.  The NDAA instructed the VA to use SBA regulations to determine ownership and control of both VOSB and SDVOSBs. The VA would determine whether the individuals were veterans or service disabled veterans and would verify applicant firms. Any challenges as to control and size issues would be determined by the SBA and ultimately heard by SBA Office of Hearings and Appeals (OHA).

The VA removed references related to ownership and control to clarify the terms and references part of the verification process. This clarified that surviving spouse or employee stock ownership plan (ESOP) could also be qualified for the program under specific circumstances.

The SBA published final regulations that were effective October 1, 2018.  This rule amends the rules of practice of SBA’s OHA to implement protests of eligibility for inclusion in the VA center for Verification and Evaluation database eligibility, and it also includes procedures for appeals and denials of cancellations of inclusions in the database.  SBA amended its regulations and issued definitions of ownership and control for small business concerns (SBC) which applies to the VA in its verification and “Vets First Contracting Program” and all other government acquisitions requiring self-certification.

The Rule:

The rule defines a Service Disabled Veteran as one who possesses either a valid disability rating letter issued by the VA establishing a rating between 0-100% or a valid disability determination from the DOD, or is registered in the beneficiary identification and records locator subsystem maintained by the VA.  Reserve and National Guard disabled from disease or injury incurred or aggravated in line of duty also qualifies. These veterans with a permanent and severe disability are those with a service-connected disability that was determined by the VA to have permanent and total service connected disability for purposes of receiving disability compensation or pension.

The new rule and regulations define a VOSB concern as one where not less than 51 percent of which is owned by one or more veterans or, for publicly owned business, not less than 51% of the stock of which is owned by one or more veterans, and the management and daily business operations are controlled by one or more veterans or, if permanently and totally disabled, no less than 51% is owned by one or more veterans for both small business concerns and publicly owned businesses. Daily business operations are defined as the marketing, production, sales, and administrative functions of the firm, as well as supervision of the executive team.

An owner of an SDVO SBC and Conditions of Ownership are:

The SBA regulations essentially remain the same with some important changes for unique circumstances providing a concern must be at least 51% unconditionally and directly owned by one or more service-disabled veterans. For partnerships at least 51% of aggregate voting interest must be unconditionally owned by one or more service-disabled veterans. For publicly owned businesses, no less than 51% of stock must be unconditionally owned by one or more veterans.  One or more service-disabled veterans must be entitled to receive at least 51% of the annual distribution of profits paid to owners of corporation, partnership etc.  Ownership is determined regardless of whether the ownership and business concern is located in a community property state.

A SDVOSB upon the death of the service-disabled veteran will continue to qualify as a small business concern if the surviving spouse acquires the veterans ownership interest, veteran was rated 100% disabled under VA or the veteran owner with majority ownership died as a result of the service related disability.  The SBA limits the ability to continue to be a qualified business from the time of the death of the veteran and the ending of the earliest of the following three events:

  • The veteran’s spouse remarries;
  • The spouse divest ownership interest in the business; or
  • Ten (10 years) after the death of the veteran.

Control of a SDVOSB or VOSB:

The SBA has clarified the requirement for veteran control of the business concern under a variety of circumstances essentially providing eligibility integrity while providing that the veteran can still get the benefits in unique situations.  In the case of a permanent or severely disabled veteran the spouse or designated caregiver may act on behalf of that veteran.  A Permanent Caregiver for the veteran may control the affairs of the business on behalf of the veteran when it has been legally demonstrated that the person has the responsibility for managing the wellbeing of the veteran with a severe or permanent disability as determined by the VA.  There may be only one permanent caregiver.

Control over a corporation for one or more service-disabled veterans (or spouse or caregiver of a permanent and severe disabled veteran, will be deemed to be service disabled to control the board of directors when a single service-disabled veteran owns 100% of all voting stock of an applicant or concern, or owns at least 51% of all voting stock of an applicant or concern, is on the board of directors, and no super majority voting requirements exist for shareholders to approve actions.

If supermajority exists in the articles of incorporation the veteran must be able to overcome super majority voting requirements. If more than one seeks to qualify the concern each individual on the board together should own at least 51%. All voting stock, there is no requirement for supermajority, and the shareholders can demonstrate that they have made enforceable arrangements to permit one of them to vote the stock as a block without a shareholder meeting. If supermajority exists shareholders must provide for a sufficient percent of voting stock to overcome requirements. Weighted voting is required when an applicant does not meet these above requirements.

The SBA will NOT make a determination that the veteran lacks control in “extraordinary circumstances.”  The limited extraordinary circumstances are defined as:

  • Adding a new equity stakeholder
  • Dissolution of the company
  • Sale of the company
  • Merger of the company
  • Company declaring bankruptcy, and
  • Negative control.

There is a rebuttable presumption that service-disabled veterans do not control the firm when they are unable to work for the firm during normal working hours that businesses in the industry usually work (not limited to other full or part time employment, student, other activities etc.). There is also a presumption that these veterans do not control the firm if they are not within a reasonable commute to the firm’s HQ or job-site. Ability to respond to phone calls or emails is not by itself a presumption.

If the service-disabled veteran has been called to active duty, they may elect to designate in writing one or more individuals to control the concern on behalf of the service-disabled veteran during the period of active duty. This will not remove the eligibility based on absence during active duty. Written records must be kept.

This short report on the new regulations is not intended to be comprehensive and does not cover all of the details of the two sets of regulations.  This short report is not intended as legal advice.  We recommend people interested in this issue complete due diligence and independent research into the new regulations.

1709, 2018

Supreme Court Issues Opinions in Three BHBC Appellate Cases

September 17th, 2018|

Written by Anmei Goldsmith

Last Friday, September 24, 2018, the Alaska Supreme Court issued opinions in three cases briefed and argued by the BHBC municipal team – with favorable decisions in two of the three. In each case, the municipal team, led by the practice group’s lead attorney Holly Wells, vigorously defended its client city’s interests. These three cases highlight the municipal team’s depth of experience in appellate work, particularly for its municipal clients.

In City of Kodiak v. Kodiak Public Broadcasting Corporation, Slip Op. No. 7291, Holly Wells and Katie Davies successfully defended the City of Kodiak from an award of full attorney’s fees in a case involving production of public records under the Public Records Act. A radio station in Kodiak, KMXT, filed suit against the City to compel production of certain public records after the City objected. After brief litigation lasting less than two months, the City agreed to turn over all the records KMXT requested. KMXT then demanded its full attorney’s fees – almost $25,000, arguing that because access to public records is a fundamental right, it was entitled to full fees under AS 09.60.010, which allows full fees to the prevailing party in a constitutional claim. The trial court awarded KMXT its full attorney’s fees. The Supreme Court overturned this award, agreeing with the City that KMXT asserted a statutory right rather than a constitutional right, and was therefore not entitled to its full attorney’s fees. The case was remanded back to the Superior Court for a decision on Rule 82 attorney’s fees.

In Griswold v. Homer City Council, et al., Slip Op. No. 7297, BHBC defended the City of Homer in another case involving disclosure of public records under the Public Records Act. Holly Wells and Katie Davies defended the City’s assertion of the attorney-client privilege and the deliberative process privilege as exceptions to the general rule that the public has full access to inspect and copy public records generated by municipal governments. The Supreme Court took this opportunity to reaffirm the existence of the deliberative process privilege and the balancing test that trial courts must apply when this privilege is litigated. The Supreme Court also addressed for the first time how the attorney-client and work-product privileges interact with the Public Records Act. The Supreme Court held that these two privileges are exceptions to the general disclosure rule of the Public Records Act and provided guidance for future cases. This case was remanded to the trial court to re-examine the requested records in light of the Supreme Court’s holdings and to decide issues not addressed in the appeal.

In Griswold v. Homer Board of Adjustment, et al., Slip Op. No. 7295, the trial court issued an order “sua sponte” dismissing Griswold’s appeal of a conditional use permit granted by the City of Homer’s Board of Adjustment. Though neither side had raised the standing issue in the trial court, the trial court nevertheless decided the issue on its own. This placed Homer in the unusual legal position of defending an order it did not request. The Supreme Court overturned the trial court’s dismissal order and reaffirmed the principle that notice of an adverse argument that affects a party’s participation in a case, such as standing, is an essential part of due process. The case was remanded to Superior Court for further proceedings on the substantive issues of the case. Holly Wells and Tom Klinkner briefed and argued this case.