“The case of Superior Optical Labs, Inc. (Superior) v. United States focuses on the control of a Service-Disabled Veteran Owned Small Business (SDVOSB) and how that control, or more precisely, lack of control, can disqualify an SDVOSB with 69% service-disabled veteran ownership from a solicitation set aside for SDVOSBs. This particular Solicitation was set aside entirely for an SDVOSB to provide prescription eyeglasses and related services through the Veterans Integrated Services Network (VISN). Superior was awarded the contract, which was then protested by PDS Consultants, Inc. (PDS) challenged the SDVOSB eligibility of Superior. In the end, OHA held that Superior did not qualify as a SDVOSB for purposes of the procurement due to a lack of control as required by SBA rules. PDS then challenged OHA’s decision at the Court of Federal Claims…”
“PDS Consultants, Inc. (PDS) came along and filed a protest on the basis that Superior was controlled by, and shared resources with, Essilor of America, Inc. (Essilor). Additionally, PDS claimed Superior received ‘critical financial support from Essilor’ and that Superior was required to use Essilor products. PDS alleged that this control came from a Services and Supply Agreement (the Agreement) between Superior and Essilor that was executed on November 1, 2017, when Superior’s current President and CEO obtained a controlling interest in the company.
Under the Agreement, Superior was required to purchase from Essilor, in the course of contract performance, the majority of the volume of lenses, frames, contact lenses, and consumables if such products were offered by Essilor. Superior was required to submit monthly reports to Essilor to verify compliance. If a contract with VISN or another VA contract restricted purchasing from Essilor, Superior was required to purchase the maximum volume from Essilor without jeopardizing Superior’s SDVOSB status. Superior was required to use Essilor’s pricing, and Superior was required to notify Essilor in writing and receive Essilor’s approval prior to bidding if Superior planned to bid on a fixed-price government contract…”
“Unfortunately for Superior, OHA found that Superior was not controlled by its President on the September 2020 date it submitted its offer for the solicitation, nor on the October date PDS filed its protest, the two relevant dates identified by OHA. Due to the terms of the agreement which required a written agreement for termination, the Termination Agreement was not found to take effect until the October 20, 2020, date. As such, the agreement was still in effect and the need for Superior to receive Essilor’s written approval prior to changes in control was found to ‘plainly interfere with [Superior’s President]’s ability to make all business decisions and exercise complete control over Superior’ as required per SBA rules. The minimum purchase terms and conditions requiring Essilor’s approval prior to bidding further interfered…”
“There are two important takeaways from this example. First, know all the terms of any contracts you enter into. It is likely Superior would have never been in this situation had it executed a written termination agreement, as required in its contract terms. And second, be wary of other entities where there is any possibility of finding the other party has control, and do not make bids at a time when control may be deemed in the hands of any entity that is not of a similar socio-economic status. These kind of ‘change in control’ provisions are quite common in commercial agreements. So, for SDVOSB or other companies under SBA’s WOSB or 8(a) programs, it’s important to review any agreement for potential impact on control over the company…” Read the full article here.
Source: Control Matters: For SDVOSB Companies, Pay Attention to Appearances as Well as Realities – By Stephanie Ellis, March 2, 2022. SmallGovCon.
