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WOSB Program: Company Ineligible Because Husband Managed Business

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Koprince Law LLC

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A self-certified woman-owned small business was ineligible for a WOSB set-aside contract because the woman owner’s husband held the company’s highest officer position and appeared to manage its day-to-day operations.

A recent SBA Office of Hearings and Appeals decision highlights the importance of ensuring that a woman be responsible for managing the day-to-day business of a WOSB–and that the woman’s role be reflected both in the corporate paperwork and in practice.

OHA’s decision in Yard Masters, Inc., SBA No. WOSB-109 (2017) involved an Army solicitation for grounds maintenance services.  The solicitation was issued as a WOSB set-aside under NAICS code 561730 (Landscaping Services), with a corresponding $7 million size standard.

After evaluating competitive proposals, the Army awarded the contract to Yard Masters, Inc.  A competitor then filed a WOSB protest, alleging that Yard Masters was ineligible.  The protester contended that a man, Bryce Wade, was Yard Masters’ majority owner and President until recently and that he still exercised control over the company.

In response to the protest, Yard Masters admitted that Bryce Wade had previously been the majority owner, but that he had recently sold stock to his wife, Sally Wade, making her the 51% owner.  Yard Masters also produced Sally Wade’s resume and meeting minutes, showing that Sally Wade was the Chief Executive Officer.

The SBA Area Office examined Yard Masters’ bylaws, and determined that the bylaws “do not create a CEO position” or assign any duties to the CEO.  Instead, the bylaws identified the President (a position held by Bryce Wade) as the “chief executive and administrative officer of the corporation.”  The SBA Area Office also noted that “Bryce Wade signed [Yard Masters’] proposal and its contract documents for the instant procurement,” as well as the company’s tax returns.  The tax returns “identify Bryce, and not Sally, Wade as a compensated officer.”

The SBA Area Office found that Sally Wade did not control Yard Masters, and issued a determination finding the company ineligible for the Army WOSB set-aside contract.

Yard Masters appealed to OHA.  Yard Masters argued, in part, that the corporation’s meeting minutes made clear that Sally Wade had ultimate direction and control of the company.

Yard Masters “argues that Sally Wade is its CEO,” OHA wrote.  “The problem is that the Board did not formally create a position of CEO.”  OHA continued, “[t]he Bylaws were never changed to add the position of CEO.  The Bylaws clearly state that the President is the corporation’s ‘chief administrative and executive officer.’  Bryce Wade holds that position.”  OHA concluded that Yard Masters’ “highest officer position is President, and Bryce Wade, not Sally Wade, holds it.”

OHA also noted that “all actions taken on [Yard Masters’] behalf were taken by Bryce Wade.”  Even after Sally Wade “supposedly had taken control” of the company, “Bryce Wade signed [Yard Masters’] offer” and was listed as the point of contact.  And incredibly, after the WOSB protest was filed, “t was Bryce Wade, not Ms. Sally Wade, who communicated with SBA on [Yard Masters’] behalf.”

OHA denied the appeal and upheld the SBA Area Office’s decision.

The Yard Masters case offers at least three important lessons for WOSBs.

First, corporate paperwork matters.  I can’t count how many times, in my practice, I’ve seen a situation like Yard Masters’, where a company officer is using a title that isn’t established in the governing documents.  In order for a woman to hold the highest officer position in the company, the governing documents need to establish that her role is, in fact, the highest.  Even small, family-owned companies like Yard Masters need to ensure that their corporate documents are up to snuff.

Second, perception matters.  Although there’s not necessarily anything inherently wrong with a man signing contracts and other documents on behalf of a WOSB, it does tend to suggest that the man has outsize influence within the company.  WOSBs ought to be careful about who signs contracts, checks and other corporate documents–as well as who is listed as points of contact in SAM and in proposals.

And third, as a corollary to the previous item, if you’re getting protested for WOSB eligibility, don’t have a man be in charge of communicating with the SBA.  Talk about not sending the right signals.

The SBA is still working in the long-awaited rules that will require all WOSBs to be formally certified.  But in the meantime, Yard Masters is a good reminder self-certified WOSBs need to do their due diligence to ensure that they comply with all WOSB requirements.


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