Source: https://govt.westlaw.com/sbaoha/Document/Ibeff45044fc611e99d59c04243316042?originationContext=Search+Result&listSource=Search&viewType=FullText&navigationPath=Search%2Fv3%2Fsearch%2Fresults%2Fnavigation%2Fi0ad62d3300000169ca6feb9153b53c2a%3FstartIndex%3D1%26Nav%3DADMINDECISION_PUBLICVIEW%26contextData%3D(sc.Default)&rank=1&list=ADMINDECISION_PUBLICVIEW&transitionType=SearchItem&contextData=(sc.Search)&t_Method=tnc&t_querytext=DA(last+90+days)
Timestamp: 2019-04-18 23:00:08+00:00

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*1 On November 5, 2018, Tactical Office Solutions, LLC (Appellant) appealed the decision of the U.S. Department of Veterans Affairs (VA) Center for Verification and Evaluation (CVE) cancelling Appellant's verification in VA's Vendor Information Pages (VIP) database of eligible Service-Disabled Veteran-Owned Small Businesses (SDVOSBs). Appellant maintains that the cancellation is clearly erroneous and requests that the U.S. Small Business Administration (SBA) Office of Hearings and Appeals (OHA) vacate the cancellation. For the reasons discussed infra, the appeal is granted.
*1 OHA adjudicates CVE appeals pursuant to 38 U.S.C. § 8127(f)(8)(A) and 13 C.F.R. part 134 subpart K.1 Appellant timely filed the appeal within ten business days of receiving the cancellation notice. 13 C.F.R. § 134.1104(a). Accordingly, this matter is properly before OHA for decision.
*2 The contracts between FENS and [Appellant] are in fact arm's length transactions. Each company acts independently, and they are not subject to any pressure from the other party. [Appellant] strives for the lowest price for the best service possible on all projects and works with a number of vendors in order to achieve this objective. The three managing members of FENS do not have any financial interest in [Appellant], nor do they exert any undue influence over management and administration of [Appellant]. In fact, FENS provides estimates for jobs and ultimately invoices [Appellant] for those jobs if engaged.
*7 On November 5, 2018, Appellant appealed the cancellation to OHA. Appellant maintains that CVE committed several major errors in reaching its decision. Therefore, the cancellation should be vacated.
*8 Appellant attacks the notion that Appellant and FENS have co-mingled accounting practices, arguing that CVE has not explained its determination on this point. (Id.) The cancellation notice does, however, make reference to a previously-undisclosed interview of Mr. Kirpas, in which he reportedly referred to a “combined finance department” operated by Appellant and FENS prior to January 2014. Appellant states that it disclosed its arrangements with FENS to CVE in 2014, 2016, and in its response to NOPC #2. (Id.) Further, the use of FENS personnel to perform administrative functions would not, in any event, prevent James Apicella from maintaining full control over Appellant.
*9 Appellant has 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.
*9 VA regulations require that, when CVE believes that a participant's verified status should be cancelled prior to the expiration of its eligibility term, CVE must first issue the participant a written Notice of Proposed Cancellation which identifies “the specific facts and reasons” for the proposed cancellation. 38 C.F.R. § 74.22(a). The participant must be afforded an opportunity to respond to the Notice of Proposed Cancellation, and CVE must “consider any information submitted by the participant” before deciding to cancel the participant's verified status. Id. § 74.22(b).
*9 In the instant case, I agree with Appellant that CVE did not give Appellant proper notice of “the specific facts and reasons” for the proposed cancellation. As Appellant observes, CVE issued Appellant a Notice of Proposed Cancellation (NOPC #2) on July 16, 2018, but that notice was based almost entirely on “findings” purportedly made by the VA OIG. Section II.A, supra. CVE did not provide Appellant copies of any OIG findings, or of any underlying source materials, such as reports, e-mails, or interview transcripts. Id. Moreover, NOPC #2 conveyed only the OIG's ultimate conclusions, without supporting facts or explanation. Thus, NOPC #2 asserted, for example, that ““[the] OIG has determined that [Appellant] and [FENS] have co- mingled accounting practices, shared office space, and shared employees and resources”. Id. NOPC #2 did not, however, identify any shared employees or shared resources, or explain any factual basis for the allegation that the two firms have co-mingled accounting practices. Similarly, NOPC #2 stated that ““[the] OIG has found that [Appellant] relies on [FENS] to exist and that [[Appellant] has acted as a pass through to enable [FENS] to obtain SDVOSB contracts”, but again provided no factual basis to support these claims. Id. Due to the vague and conclusory nature of the allegations presented, NOPC #2 fails to meet the requirement that Appellant be informed of “the specific facts and reasons” for its proposed cancellation.
*10 I further agree with Appellant that NOPC #2 also was defective because CVE based its cancellation decision on issues beyond those discussed in NOPC #2. Thus, for example, although not mentioned in NOPC #2, the cancellation decision expressed concern that “payments for FENS' services appear to have been calculated in a manner that prevented James Apicella the ability to account for profits and losses as evidenced by correspondence regarding James Apicella's inability to demonstrate personal income from [Appellant] in 2015.” Sections II.A and II.B, supra. Similarly, the cancellation decision alleged, for the first time, that according to the OIG, “FENS employees noted that they work for both [Appellant] and FENS but only received compensation from FENS and did not account for time spent on [Appellant's] projects”, and “FENS employees assisted [Appellant] with the preparation and submission of [Appellant's] SDVOSB verification application and that, in addition to FENS granting [[Appellant] free access to the use of its designers to assist [Appellant] with contractual bids, FENS employees prepared proposals for government contract solicitations on behalf of [Appellant].” Sections II.A and II.B, supra. While these allegations again are highly generalized — without, for example, identifying what “FENS employees” or “proposals for government contract solicitations” are being referenced — the more fundamental point is that these allegations were not raised in NOPC #2. Under 38 C.F.R. § 74.22, it is improper for CVE to base a cancellation decision on issues that the participant has had no opportunity to address or refute. Accordingly, the appearance of new issues for the first time in the cancellation decision further establishes that NOPC #2 did not provide Appellant adequate notice of “the specific facts and reasons” for the proposed cancellation.
*10 Appellant also contends that CVE treated the OIG's findings as non-rebuttable, thereby violating CVE's obligation to “consider any information submitted by the participant” before deciding to cancel the participant's verified status. 38 C.F.R. § 74.22(b). In addition, Appellant maintains, CVE lacked proper basis to cancel Appellant's verified status, because CVE has not disputed that Appellant was, at all relevant times, solely owned and managed by James Apicella, a service-disabled veteran. I find it unnecessary to resolve these questions at this time. Contrary to Appellant's suggestions, it is not evident from the record that CVE disregarded Appellant's response or the accompanying evidence Appellant submitted in response to NOPC #2. Likewise, while it may be true that CVE has not yet articulated a valid basis for cancellation, this does not establish that no possible basis could exist. The underlying regulation, 38 C.F.R. § 74.21, identifies several potential grounds for cancellation, including failure to maintain control by service-disabled veterans. Thus, ownership and management by a service-disabled veteran are not necessarily sufficient to insulate Appellant from cancellation, if Appellant is not also fully controlled by a service-disabled veteran.
*11 For the above reasons, the appeal is GRANTED, and the Notice of Verified Status Cancellation is VACATED. This is the final agency action of the U.S. Small Business Administration. 38 U.S.C. § 8127(f)(8)(A); 13 C.F.R. § 134.1112(d); 38 C.F.R. § 74.22(e).
The regulations at 13 C.F.R. part 134 subpart K became effective October 1, 2018. 83 Fed. Reg. 13,626 (Mar. 30, 2018).

References: § 8127
 § 134
 § 134
 § 74
 § 74
 § 74
 § 74
 § 74
 § 8127
 § 134
 § 74