When the Government Asks for Required Information, Answer (But First Make Sure You Have Prepared for the Question).
You might think that this could go without saying, but apparently it can’t: If you want to succeed in your dealings with the federal government, you need to timely provide information required by law, particularly when government personnel specifically ask you for it. The recent decision of the SBA’s Office of Hearings and Appeals in CVE Appeal of: David Han d/b/a Coresivity, SBA No. CVE-140, 2019 (S.B.A.), 2019 WL 5681310 provides a stark reminder that this guidance is especially true in the context of maintaining eligibility as a service-disabled, veteran-owned small business (SDVOSB) under the Veterans Small Business Regulations after changes to company’s ownership and structure.
On September 19, 2018, the U.S. Department of Veterans Affairs (VA) Center for Verification and Evaluation (CVE) verified Appellant, David Han d/b/a Coresivity, as an SDVOSB and included it in the Vendor Information Pages (VIP) database. At the time, Appellant was a sole proprietorship 100% owned by Mr. David R. Han, a service-disabled veteran. Nine months later, on June 18, 2019, Appellant notified CVE of changes in its legal structure, ownership structure, and business name. Appellant had been reorganized as an LLC and changed its name to “Coresivity LLC.” In addition, two non-veterans, Ms. Yoon K. Chung and Mr. Ryan T. Kim, had acquired ownership interests in—and become members of–the LLC. When CVE requested additional information and documentation pertaining to these changes, Appellant withdrew its change request from review.
But the proverbial cat was already out of the bag.
Within a month, CVE issued a Notice of Proposed Cancellation (NOPC), informing Appellant that CVE proposed to cancel Appellant’s verified status as an SDVOSB and allowing Appellant 30 days to respond with evidence that might cause CVE to retract the proposed cancellation. The NOPC explained that CVE needed specific information to ascertain whether Appellant remained an eligible SDVOSB, including (i) a detailed letter of explanation identifying all changes to Appellant since September 19, 2018; (ii) current resumes identifying the roles and responsibilities for each of Appellant’s apparent owners; (iii) a letter of explanation identifying the extent of the involvement of the non-veteran owners; (iv) a current signature card authenticated by the Appellant’s financial institution, identifying all authorized signatories on the Appellant’s business bank account; and (v) all applicable technical licenses and certifications for Appellant or a signed and dated detailed letter of explanation specifying that the Appellant currently has no certifications and the applicable reasons.
CVE went on to make clear that, without such information, it could not determine whether Appellant was still eligible as a SDVOSB, whether the veteran owner, Mr. Han, had maintained the required ownership, management, and control of Appellant, or whether business relationships exist with non-veterans that might prevent Mr. Han from exercising independent business judgment without great economic risk. In its communication with Appellant, CVE also noted that Appellant apparently had not registered under its new name and structure in the System for Award Management (SAM) and, therefore, was not compliant with 38 C.F.R. § 74.2(f).
Despite this, Appellant responded to the NOPC by simply submitting a letter asserting that Mr. Han had changed Appellant’s legal structure from a sole proprietorship to an LLC and later to a corporation. The response stated that Mr. Han owns 51% of Appellant and “make[s] the majority of all decisions,” Ms. Chung is Appellant’s Chief Operations Officer and owns 39% of Appellant and Mr. Kim owns 10% of Appellant and is “not involved in the day-to-day operations or management” of the company. Appellant’s response also provided a copy of its July 10, 2019 articles of incorporation for “Coresivity Inc.”, as well as an updated resume for Mr. Han and a resume for Ms. Chung. Appellant did not, however, submit a resume for Mr. Kim. Nor did it address the issue of Appellant’s SAM registration.
On September 5, 2019, CVE issued a Notice of Verified Status Cancellation (NOVSC) finding that Appellant’s response to the NOPC was “not adequate to justify overturning all of the findings listed in the NOPC” and formally cancelling Appellant’s status as a verified SDVOSB. In addition to detailing the reasons that prevented CVE from being able to determine whether Appellant still met the SDVOSB requirements, the NOVSC also noted that the SAM still did not contain any record for Coresivity, LLC or Coresivity, Inc.—so Appellant was still not compliant with 38 C.F.R. § 74.2(f).
Appellant immediately appealed the decision to the U.S. Small Business Administration Office of Hearings and Appeals (OHA), arguing that the cancellation was clearly erroneous and requesting that the OHA reverse the CVE’s decision. Appellant acknowledged that it did not previously provide CVE the resume of Mr. Kim, but offered that resume as an attachment to its appeal. Appellant did not allege any specific errors in CVE’s decision.
Not surprisingly, the OHA denied the appeal.
OHA’s decision first notes that VA regulations make clear that CVE may remove a concern from the VIP database if the concern “[f]ail[s] to make required submissions or responses to CVE or its agents, including a failure to make available … information requested by CVE … within 30 days of the date of request.” 38 C.F.R. § 74.21(d)(5). After explaining that Appellant bears the burden of proving, by a preponderance of the evidence, that the cancellation was based upon clear error of fact or law, 13 C.F.R. § 134.1111, the OHA found no basis to conclude that CVE improperly removed Appellant from the VIP database because Appellant clearly did not comply with CVE’s request for information. CVE’s removal of Appellant from the VIP database was undisturbed.
It’s difficult to know for sure whether Mr. Han and his partners could have structured their changed entity in a way that would maintain its SDVOSB eligibility. But there is no doubt that considering the requirements and how to meet them before making changes to the entity’s organization or operations–and taking the proper steps to document and record any changes made –would have been helpful. At the very least, it could have helped prepare the Appellant for providing effective answers to the CVE’s questions. And (it should also go without saying) developing effective answers is a prerequisite to being able to timely respond to government inquiries.
Contact Eric Whytsell for more information.