Tuesday, July 29, 2025

SmallGovCon: OHA: Provisions in Operating Agreements for SBA Set-Aside Program Participants can Sink Eligibility

“In a recent [Office of Hearing and Appeals] OHA decision regarding Service-Disabled Veteran-Owned Small Business (SDVOSB) eligibility, (CVE Protest of: Randy Kinder Excavating, Inc.  d/b/a RKE Contractors, Protester Re: E&L Construction Group, LLC), an unsuccessful bidder filed a protest of a set-aside contract award, alleging that the company was not unconditionally controlled by the disadvantaged owner. After considering a variety of arguments, OHA issued a decision based on a handful of provisions in the respondent’s operating agreement.

The salient facts of the case are as follows. The VA’s Center for Verification and Evaluation (CVE) initially verified E & L Construction Group, LLC (E&L)  as a Service-Disabled Veteran-Owned Small Business (SDVOSB). The CVE found E&L in compliance with applicable regulations and included the company in the Vendor Information Pages database of eligible firms, effective for three years…”

“Specifically, RKE alleged that E&L was co-located with another company, Patriot Construction and Industrial, LLC (Patriot); that E & L rented space to a division of Patriot; and that E&L and Patriot were in the same line of business and presumably share resources and office space. Patriot’s owner and Chief Executive Officer Ben LeBlanc was also the 49% owner of E&L and Mr. Leblanc provided significant financial assistance to E&L. RKE argued that because of these business relationship’s, E&L was dependent upon Mr. LeBlanc for survival, which RKE believed indicated Mr. Esponge’s lack of unconditional control of E&L. E&L responded to RKE’s protest and asserted that that the company was not affiliated or economically dependent on Patriot or Mr. LeBlanc and sought to make it clear that Mr. Esponge was the founder, manager, and majority owner of E&L…”

“SBA regulations require that SDVO’s have unlimited, unrestricted ownership and must have the ability to dispose of their ownership in any way the SDVO owner chooses with few exceptions.

In this case, OHA found that E&L’s 2020 Operating Agreement placed significant limitations on Mr. Esponge’s ownership of the company. OHA referenced the sections in the 2020 Agreement that limited Mr. Esponge’s ability to sell his ownership interest by requiring a right of first refusal to E&L; the provision restricting his ability to retire or withdraw from the company, without written approval from other members; certain “involuntary transfer events” in the agreement which required Mr. Esponge’s  to transfer his interest to E&L . Accordingly, OHA found that E&L is not at least 51% unconditionally owned by a Service-Disabled Veteran…” Read the full article here.

Source: OHA: Provisions in Operating Agreements for SBA Set-Aside Program Participants can Sink Eligibility – By Kevin Wickliffe, October 5, 2021. SmallGovCon.

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Jackie Gilbert
Jackie Gilbert
Jackie Gilbert is a Content Analyst for FedHealthIT and Author of 'Anything but COVID-19' on the Daily Take Newsletter for G2Xchange Health and FedCiv.

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