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What happens to federal set-aside contracts when the owner of the government contractor passes away?

The Small Business Administration (SBA) and Department of Veteran’s Affairs (VA) have multiple programs where federal contracts can be “set-aside” for companies owned by certain classifications of persons. But what happens to those set-aside contracts when the certified owner of the company passes away, and someone different (such as a surviving spouse or child) becomes the new owner?

The below review of the SBA and VA regulations shows that the death of a certified owner is not treated equally among the different set-aside programs. It is very important for the new owner to understand which contracts can be continued after a change in ownership, and which may be terminated by the government.

[Note: The below review assumes that the new owner is not able to obtain the same certification as the owner who passed away. For each of the programs, there is a procedure in place to recertify the business if the new owner is also eligible for the same program that the contract was set-aside under.]

Socially and Economically Disadvantaged – 8(a)

The SBA’s 8(a) program is the harshest of all the set aside programs when the certified owner passes away. All 8(a) contracts are terminated for the convenience of the government immediately upon the owner’s death, unless a waiver is obtained.

And in order for the SBA to waive the termination requirement, the new owner or estate of the deceased owner must inform the SBA of the owner’s death within 60 days.

And even then, the waiver can only be granted to a non-8(a) certified owner if:

“The head of the procuring agency, or an official with delegated authority from the agency head, certifies that termination of the contract would severely impair attainment of the agency’s program objectives or missions.”

For practical purposes, unless another 8(a) certified owner steps into the shoes of the deceased owner, it is highly likely that the company will lose its 8(a) contracts.

Source: 13 CFR § 124.105(i)(2) and 124.515

Service-Disabled Veteran Owned Small Business (SDVOSB)

Compared to the 8(a) program, the exact opposite is true for the SBA’s SDVOSB program. In this case, if the service-disabled veteran passes away, the company is still considered a SDVOSB through the life of any existing contracts.

If fact, case law suggests there is not even a legal obligation to tell the procuring agency of the owner’s death – so long as the service-disabled veteran’s death is immaterial to the contractor’s ability to perform the contract.

Source: 13 CFR § 125.15(e) and Neie, Inc. v United States, 13-164C (Fed. Cl. 2013)

Women-Owned Small Business (WOSB)

I have heard the WOSB regulations referred to by a leading expert in the field as a “hot mess.” Unlike the other set-aside programs, there are currently no regulations dealing with what happens upon the change in ownership of a woman-owned small business.

I believe the same analysis from the above SDVOSB program would apply, where the new owner can continue any contracts where a bid was already submitted, but could not bid on any new contracts after the owner passed away.

VA Veteran’s First Program

The Department of Veteran’s Affairs has a separate program for set-aside contracts where veteran-owned small businesses must be verified in advance of bidding on VA contracts set aside for a VOSB or SDVOSB. The VA regulations have different rules based on whether the new owner is the surviving spouse of a service-disabled veteran or not.

Surviving Spouse of a Service-Disabled Veteran

If the veteran was 100% disabled or died as a result of a service-connected disability, the surviving spouse can step in as the new owner and maintain certified status until the earliest of the following:

  1. The date the spouse remarries
  2. The date the spouse sells the business,
  3. The date the business no longer qualifies as small, or
  4. 10 years after the original owner’s death.

But if the deceased veteran owner was not 100% disabled, the surviving spouse is only allowed to perform existing contracts to the end of their term, and not exercise any options.

Other Change in Ownership

If the deceased veteran owner did not leave a surviving spouse, the VA regulations say: “Continued eligibility of the participant with new ownership and the award of any new contracts require that CVE verify all eligibility requirements are met by the concern and the new owners.”

Source: 38 CFR § 74.1 and 74.3(e)

Take-away for Federal Contractors

It is interesting how the different set aside programs all have different regulations when it comes to dealing with the death of the company’s owner. It is important for government contractors to have a written succession plan in place that details who to notify, and when to notify, for any set-aside work after the owner passes away – especially if the ability to continue contracts is dependent on a surviving spouse who has had no previous role in the business.

For more information about our government contracting and estate planning legal services, please contact Attorney Adam Zuwerink at adam@govconlawyer.com or 231-457-4235.