The SDVOSB Certification Overhaul: Critical Changes Every Contractor Must Understand better
The transformation of Service-Disabled Veteran-Owned Small Business certification from a self- certification system to mandatory SBA verification represents one of the most significant regulatory shifts in federal contracting in recent decades. What began as a well-intentioned program to support veteran entrepreneurs evolved into a system vulnerable to widespread fraud, ultimately forcing Congress to enact comprehensive reforms that fundamentally restructured how the federal government identifies and verifies veteran-owned businesses eligible for contracting preferences.
This transformation was driven by nearly $900 million in documented fraud cases uncovered by government auditors, revealing systematic exploitation of verification gaps between the Department of Veterans Affairs and other federal agencies.¹ The legislative response, culminating in the complete elimination of self-certification by December 22, 2024, created a unified regulatory framework under the Small Business Administration that closes longstanding loopholes while establishing enhanced enforcement mechanisms with substantial legal liability for violations.
The regulatory overhaul affects thousands of businesses competing for billions in federal contracting opportunities annually, with implications extending far beyond individual certification decisions to encompass broader questions of program integrity, fraud prevention, and the balance between accessibility and verification rigor in federal procurement programs. Understanding this transformation requires examining both the systemic failures that necessitated reform and the comprehensive legal framework that emerged from Congressional intervention.
The fraud crisis that drove legislative reform
The catalyst for SDVOSB certification reform emerged from devastating findings in Department of Defense Inspector General Report DODIG-2020-063, which identified $876.8 million in contracts improperly awarded to ineligible entities between 2016 and 2018.² The audit revealed that 55% of reviewed contractors failed to meet basic SDVOSB requirements, with 16 of 29 contractors examined having been previously denied SDVOSB status by the VA's verification system yet continuing to receive DoD contracts through self-certification loopholes. The scope of documented fraud extended beyond statistical anomalies to reveal systematic schemes designed to exploit regulatory gaps. Government Accountability Office investigations dating to 2009 had consistently identified vulnerabilities in the dual certification system, where businesses denied verification by the VA could continue self-certifying for contracts with other federal agencies.³ This regulatory fragmentation created opportunities for what investigators termed "pass-through" arrangements, where SDVOSB firms served as fronts for large corporations, and "rent-a-vet" operations that manipulated certification requirements through sham business relationships.
One particularly egregious case involved a contractor who received $209.6 million in SDVOSB contracts despite corporate documents showing equal partnership arrangements with a non- veteran, while the service-disabled veteran lived 2,000 miles from business operations and exercised no meaningful control over daily activities. Another scheme resulted in $19.7 million in fraudulent awards where subcontractor employees performed primary work including project management functions, violating ostensible subcontractor rules designed to ensure veteran firms actually perform contracted services.⁴ The Congressional response built upon years of GAO recommendations calling for enhanced oversight and verification procedures, with House Report 112-85 documenting extensive testimony from veteran business owners who reported being systematically undercut by fraudulent competitors, creating market distortions that undermined the program's fundamental mission of supporting legitimate veteran entrepreneurs.⁵
Legislative transformation through the National Defense Authorization Acts
Congress addressed SDVOSB certification vulnerabilities through a deliberate, phased approach implemented across multiple National Defense Authorization Acts. Section 862 of the 2021 NDAA initiated the transformation by transferring certification authority from the Department of Veterans Affairs to the Small Business Administration effective January 1, 2023, creating government-wide certification requirements for SDVOSB set-aside and sole-source contracts.⁶ This initial reform addressed the regulatory gap that allowed contractors denied VA verification to continue self- certifying for non-VA federal contracts.
The 2024 NDAA completed the transformation through Section 864, which eliminated all remaining self-certification provisions effective October 1, 2024, with a final application deadline of December 22, 2024, for businesses seeking to maintain self-certification eligibility during SBA review.⁷ The statute mandates that all prime contracts and subcontracts counting toward SDVOSB participation goals must be awarded to SBA-certified firms, creating comprehensive coverage across federal procurement while establishing uniform verification standards. This legislative framework also increased the government-wide SDVOSB contracting goal from 3% to 5% annually, demonstrating Congressional confidence that enhanced verification procedures could coexist with expanded opportunities for legitimate veteran-owned businesses.
The statutory language provides no discretionary extension authority beyond the December 22, 2024 deadline, creating an absolute cutoff with immediate legal consequences for businesses that fail to comply. The grace period provision allows firms filing complete applications by this deadline to continue self-certifying until SBA renders final determinations, but self-certification eligibility terminates immediately upon negative decisions or failure to apply by the statutory cutoff.
The new regulatory framework under 13 CFR Part 128
The implementation of 13 CFR Part 128 establishes comprehensive SDVOSB certification requirements that eliminate the inconsistencies between VA and SBA systems while creating uniform standards administered exclusively by SBA. The regulation implements statutory authority from both Section 8127 of Title 38 for VA contracting and Section 36 of the Small Business Act for government-wide procurement, consolidating previously fragmented oversight into a single, comprehensive framework. The regulatory structure establishes stringent unconditional ownership standards requiring qualifying veterans to directly own at least 51% of the concern without intermediary entities, trusts, or other indirect arrangements that were previously exploited in fraudulent schemes.
Control requirements mandate that qualifying veterans exercise both long-term strategic decision- making authority and day-to-day operational control, with the highest officer position held by a qualifying veteran and control being actual rather than merely titular. Corporate governance structures must ensure veterans hold controlling interests in boards of directors, with supermajority voting requirements prohibited if they prevent veteran control.⁸ Special provisions accommodate veterans with permanent and total disability, who may delegate daily operations to spouses or permanent caregivers with written VA determination and veteran consent, but these delegations must be formally documented and approved through SBA's verification process. The certification framework requires comprehensive documentary evidence including corporate records, partnership agreements, stock certificates, and organizational charts demonstrating both ownership and control, while veteran status verification must be established through VA disability determinations.
Ongoing compliance obligations include 30-day notification requirements for material changes affecting ownership, control, or business structure, with failure to report such changes potentially resulting in immediate decertification. The three-year certification period requires recertification demonstrating continued eligibility, with streamlined renewal processes for firms maintaining continuous compliance throughout their certification period.⁹
Legal implications and enforcement mechanisms
The enhanced regulatory framework creates substantial legal liability for non-compliance, with both civil and criminal penalties significantly exceeding previous consequences. Civil penalties include False Claims Act violations with treble damages plus penalties ranging from $5,500 to $11,000 per false claim, while the regulation establishes a presumption of loss equal to the total contract amount for willful misrepresentation, applying to all contracts, subcontracts, grants, and cooperative agreements awarded based on fraudulent certification.¹⁰ Criminal penalties include up to five years imprisonment for false statements under various federal statutes, with recent Department of Justice enforcement actions demonstrating increased prosecutorial focus on SDVOSB fraud since 2017.
The regulatory framework includes automatic debarment and suspension authority, with VA's specific five-year minimum debarment provision for misrepresentation creating particularly severe consequences for violations involving VA contracts. The December 22, 2024 deadline represents a legal bright line with profound implications for program participants, creating irreversible consequences for businesses that fail to apply for SBA certification by the statutory cutoff. This deadline creates significant compliance requirements, as firms must maintain current SAM.gov registrations reflecting accurate SDVOSB status and report material changes within required timeframes to avoid automatic disqualification from program benefits. Enhanced fraud prevention measures include centralized certification through SBA's Veterans Case Management System, which provides real-time verification capabilities for contracting officers while creating auditable trails for all certification decisions.
Impact on subcontracting and prime contractor obligations
The elimination of self-certification significantly impacts subcontracting compliance, as FAR 52.219- 9 requirements now mandate verification of SDVOSB certification status through SBA databases, with only SBA-certified firms counting toward subcontracting goals. Prime contractors must establish systems for tracking certified status and reporting compliance through the Electronic Subcontracting Reporting System, with failure to meet subcontracting goals potentially resulting in negative past performance ratings and contractual consequences. Section 864 of the 2024 NDAA requires all contracts counting toward agency goals to be awarded to certified firms, creating comprehensive coverage across both prime contracts and subcontracts while closing regulatory loopholes that previously allowed self-certified firms to contribute to agency performance metrics.
Prime contractor obligations now include mandatory verification procedures with potential False Claims Act liability for certifications based on inaccurate subcontractor status, as the presumption of loss provisions apply to subcontracting violations. The regulatory framework establishes that contracting officers must verify certification status through official SBA databases rather than accepting contractor representations, shifting verification responsibility from individual businesses to government procurement systems while maintaining accountability for accurate reporting.
Statistical performance and implementation success
The SDVOSB program achieved record performance in FY2023 with $31.9 billion in contracting awards, representing 5.07% of federal contracting dollars and exceeding the increased 5% statutory goal established by the 2024 NDAA.¹¹ This performance represents significant growth from previous years and demonstrates that enhanced verification procedures can coexist with expanded market opportunities for legitimate veteran-owned businesses. SBA's VetCert system has processed over 10,400 applications in its first year of operation with an average 15-day processing time, demonstrating operational efficiency while maintaining enhanced verification standards.¹²
The Department of Defense and Department of Veterans Affairs remain the largest contracting agencies for SDVOSB awards, with VA's Veterans First program achieving significantly higher participation rates than government-wide averages through mandatory set-aside requirements. However, subcontracting performance continues to lag behind prime contracting achievement, suggesting opportunities for enhanced focus on subcontracting compliance and verification procedures in future program administration. The transition from VA to SBA certification created initial implementation challenges, including a temporary gap between systems and uncertainty about processing procedures during the transfer period, but SBA addressed these concerns through dedicated customer support infrastructure and comprehensive guidance documentation.
The MySBA Certifications platform, launched in 2024, integrates WOSB, VOSB/SDVOSB, HUBZone, and 8(a) certification programs into a single application system, allowing businesses to pursue multiple certifications simultaneously while reducing administrative burden.¹³ Implementation of the new system has demonstrated that enhanced verification standards and administrative efficiency are compatible objectives, with processing times improving while fraud prevention capabilities expand significantly. The technological infrastructure supporting the new certification system provides real-time verification capabilities and comprehensive audit trails that were unavailable under the previous dual-system approach, creating substantial improvements in both program integrity and administrative efficiency.
About the Author
Gabriel Vincent Tese, Esq. serves as Secretary-Treasurer of the Federal Bar Association's Government Contracts Section and has extensive experience advising businesses on obtaining state and federal contracting certifications. Licensed in Texas, New Jersey, and New York, Mr. Tese has guided businesses through the complex landscape of small disadvantaged business, service-disabled veteran-owned business, and minority-owned business certifications at both state and federal levels.
For guidance on SDVOSB certification and federal contracting compliance, contact Gabriel Vincent Tese, Esq. at teselaw.com.
Endnotes
1. U.S. Department of Defense Office of Inspector General, "Audit of DoD Service-Disabled Veteran-Owned Small Business Contract Awards," DODIG-2020-063 (2020).
2. Ibid.
3. U.S. Government Accountability Office, "Service-Disabled Veteran-Owned Small Business Program: Case Studies Show Fraud and Abuse Allowed Ineligible Firms to Obtain Millions of Dollars in Contracts," GAO-10-108 (2009).
4. U.S. Department of Defense Office of Inspector General, "Audit of DoD Service-Disabled Veteran-Owned Small Business Contract Awards," DODIG-2020-063 (2020).
5. H.R. Rep. No. 112-85 (2011).
6. National Defense Authorization Act for Fiscal Year 2021, Pub. L. No. 116-283, § 862 (2021).
7. National Defense Authorization Act for Fiscal Year 2024, Pub. L. No. 118-31, § 864 (2023).
8. 13 CFR § 128.202-203 (2024).
9. 13 CFR § 128.307 (2024).
10. 13 CFR § 128.600 (2024).
11. U.S. Small Business Administration, "Biden-Harris Administration Awards Record-Breaking $178 Billion in Federal Procurement Opportunities to Small Businesses" (April 29, 2024).
12. U.S. Small Business Administration, "SBA Marks One-Year Anniversary of Veteran Small Business Certification Program" (January 9, 2024).
13. Federal Register, "Eliminating Self-Certification for Service-Disabled Veteran-Owned Small Businesses," 89 Fed. Reg. 46448 (June 6, 2024).