A bill recently passed by the House of Representatives would create a new prime contract preference program for veteran-owned small businesses. Section 861 of the House’s version of the 2025 National Defense Authorization Act would require the Department of Defense to establish a VOSB prime contracting goal and would authorize the DoD to set-aside competitions for VOSBs and, under certain circumstances, issue sole source awards to VOSBs.
Section 861 of the House’s version of the 2025 NDAA, titled “Department of Defense Contracting Goals for Small Business Concerns Owned and Controlled by Veterans” has three main components.
First, the bill requires the DoD to establish an annual prime contracting goal for VOSBs that is “not less than the Governmentwide goal for that fiscal year for participation by small business concerns owned and controlled by service-disabled veterans” under the Small Business Act. Following a recent increase, the statutory Governmentwide goal for SDVOSBs is five percent, meaning that DoD’s new VOSB goal would be “not less than” the five percent SDVOSB goal.
Second, to help DoD Contracting Officers meet the new VOSB goal, the bill allows competitions to be set-aside for VOSBs. The bill provides, in relevant part:
“[A] contracting officer may award contracts on the basis of competition restricted to small business concerns owned and controlled by veterans if the contracting officer has a reasonable expectation that two or more small business concerns owned and controlled by veterans will submit offers and that the award can be made at a fair and reasonable price that offers best value to the United States.”
The wording is very close to that used in other socioeconomic set-aside authority, such as FAR 19.1405, which provides non-VA Contracting Officers with authority to use SDVOSB set-aside competitions. If Section 861 became law, the DoD would become the second agency, after the VA, with authority to set aside competitions for VOSBs.
Third, to further assist DoD contracting officers in meeting the new VOSB goal, the bill allows DoD Contracting Officers to issue sole source contracts to VOSBs below certain dollar amounts. Under the bill, sole source VOSB contracts below the dollar thresholds would be permitted when two conditions are met: (1) the VOSB “is determined to be a responsible source with respect to performance of such contract opportunity” and (2) “in the estimation of the contracting officer, the contract award can be made at a fair and reasonable price that offers the best value to the United States.”
To me, what’s most striking about the VOSB sole source authority under Section 861 is what’s missing: a “rule of two” restriction. For example, FAR 19.1405, for SDVOSBs, provides that sole source awards are permitted only where “[t]he contracting officer does not have a reasonable expectation that offers would be received from two or more service-disabled veteran-owned small business concerns.” Similar restrictions exist for HUBZone sole source contracts and women-owned small business sole source contracts.
Section 861 would create a sole source authority much closer to that available under the 8(a) Program, which omits a “rule of two” requirement. Unsurprisingly, information available on the SBA’s Data HUB shows that 8(a) sole source awards far outstrip sole source awards under socioeconomic programs containing a “rule of two” requirement. (And the VA, which is the only agency permitted to award SDVOSB sole source contracts without a “rule of two” restriction, awards more SDVOSB sole source contracts than all other agencies combined).
The bill clarifies that set-aside and sole source contracts will be available only to SBA-certified VOSBs. Self-certification is not allowed. If Section 861 becomes law, VOSBs would be well-advised to go to VetCert and get their applications submitted while the DoD is working on implementing the preference program.
Under Section 861, DoD would become only the second agency, after the VA, to offer prime contracting preferences to VOSBs. However, DoD’s VOSB preference under Section 861 would appear to be more powerful than VA’s. Under the VAAR and its underlying statutory authority, the VA must prioritize SDVOSB contracts over VOSB contracts. Section 861 contains no such order of precedence. Given that the bill establishes a VOSB goal equivalent to the SDVOSB goal, it’s reasonable to assume that the House intends that the new VOSB program be on equal footing with the other major socioeconomic preference programs.
Speaking of SDVOSBs, my initial reaction is that Section 861 would be a win for them, too. After all, every SDVOSB is automatically a VOSB. That is, “SDVOSB” is merely a subset of the broader category of “VOSB.” By creating a new VOSB preference, and a total DoD prime contracting goal of at least ten percent of DoD prime contracting dollars going to SDVOSBs and VOSBs, combined, Section 861 would seem to significantly benefit SDVOSBs by expanding the universe of DoD set-aside and sole source opportunities for which SDVOSBs would be eligible.
I’ve used phrases like “if Section 861 becomes law” throughout this post because the bill is still just that—a bill, not a law. The House of Representatives has approved Section 861 as part of its version of the 2025 NDAA, but the Senate did not include a similar provision in its version of the bill. This means that the fate of Section 861 will come down to negotiations between the two chambers on a final version of the bill. It wouldn’t be a bad idea for veterans and their advocates to contact their members of Congress in support of the provision.
The National Defense Authorization Act typically isn’t finalized until late fall or early winter, so we may be waiting a few months to see what happens. I’ll keep you posted.