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Maximize Business Opportunities in Michigan as a Service-Disabled Veteran

March 1, 2016
Startup Blog Post

Person in a wheel chair reviewing building plans with co-workersBe as successful in business as you were in the military. Take advantage of federal, state, and local laws which provide procurement preferences for service-disabled veterans. As the following blog article will address, Michigan has enacted laws which seek to promote service-disabled veteran owned businesses, or "SDVOB."

Before addressing the particulars of how to take advantage of a preference, it is important to understand why Michigan has a procurement preference in place and how it benefits veterans.

America has a history of taking care of its veterans as they make the transition from the military to civilian life. Our government provides veteran-specific financial and employment opportunities through programs like the Montgomery G.I. Bill or through hiring preference in government jobs. A procurement preference is a similar benefit.

A procurement preference, whether it be federal, state, or local, is designed to give service-disabled veterans a leg-up on the competition when it comes to government procurement contracts. Under Michigan's procurement preference, the State "shall give a preference of up to 10% of the amount of the contract." See MCL 18.1261. This applies to all solicitations for procurement contracts, which would include state expenditures for goods, services, and construction. As discussed below, this is a huge incentive for qualifying businesses.

How the SDVOB Preference Works In Michigan

The proof is in the percentage. Although the statute governing SDVOB preferences is rather vague in terms of its application, how it works in practice is rather straightforward.

For larger procurement contracts in Michigan, there is a two-step bidding process. First, a bidder must submit a written bid proposal. At this initial stage, pricing is not considered. A written bid proposal is scored on how the prospective contractor plans to fulfill the bid request and whether they have the experience level necessary to accomplish the task. At this stage of the process, all bids are on a level playing field, meaning no SDVOB preference is taken into account. If the SDVOB receives a passing score regarding the written portion of the bid proposal, then it will proceed to step two.

The major focus of the second step is on pricing – here is where your SDVOB preference kicks in! As mentioned, there is up to a ten percent preference in pricing for SDVOB submitted bids. This preference is applied to your bid and in effect lowers its overall cost when compared to other bidders. Here is a real world example of how the preference works:

Bidder "X" and bidder "SDVOB" are in competition for the same construction contract. Bidder X is not able to take advantage of the service-disabled preference. Bidder X's bid for the contract is $100,000. Bidder SDVOB's bid is $109,000. At this point, it would appear Bidder X's contract would be selected as the lowest bid. However, the State of Michigan then gives a preference of 10% to the SDVOB. It does this by multiplying the lowest bid, X's bid, by 10%, then subtracting the result from SDVOB's initial bid. In this instance, 10% of X's Bid would be $10,000. When subtracted from SDVOB's initial bid of $109,000, SDVOB's preference-rated bid becomes $99,000. In this scenario, SDVOB's bid becomes the official lowest responsive bid for the contract and should be selected by the State. The actual price the SDVOB will receive from the State for the contract remains $109,000; however, for the purpose of evaluating the contract against other prospective bidders, SDVOB's submission would be $99,000. This is a huge benefit!

Based on the preference created by the State, the SDVOB is likely to win the contract. What does this mean for the SDVOB from a business standpoint? First, you are more competitive. Once an SDVOB is past the initial written evaluation stage, there is a high likelihood your contract will end up being selected. This is backed up by statistics from the State. In fiscal year 2014, out of the 414 procurement contracts SDVOBs bid on, they were successful in winning over 88% of them. Second, an SDVOB can increase potential profit margins. All things being equal, the other contractors' bids will have their profit expectations built into them, even low bidders. As an SDVOB, you can place bids in excess of other bidders and still know your bid amount will be lowered as a result of the preference. This equates to potential for a higher profit margin.

How Do I Qualify as a Service-Disabled Veteran Owned Business?

Surprisingly, the process to qualify as an SDVOB is rather simple and has minimal requirements.

First, you must be a veteran. When you submit your initial proposal to the State you must do so with a copy of your DD214 or equivalent proof of service. If you lack this paperwork, you can contact the Veterans Administration for a replacement copy.

Next, you must submit proof of your service-connected disability. The Michigan statute relies on 38 U.S.C. § 101(16) for its definition of service-connected disability. This includes a disability which was incurred or aggravated in line of duty in the active military, naval, or air service. If you were medically discharged from the service, this information is likely located on your DD214. If you received a disability rating from the Veterans Administration after leaving the service, you must submit a rating decision letter or other equivalent paperwork. If you do not have this paperwork on hand, the Veterans Administration will be able to provide you with the necessary documents. Note: to receive a bidding preference under the Michigan statute you are not required to be rated at a certain disability percentage by the Veterans Administration – all disability ratings may apply.

Finally, the business must be an entity that is 51% or more owned by veterans with a service-connected disability. This requirement is interesting. The statute permits multiple veterans with a service-connected disability to add up their ownership interest in a company in order to meet this requirement. An associate of mine recently structured a business where there are three partners, each owning a third of the company. Two of the owners have service-connected disability ratings, one does not. Under the Michigan statute, the entire business would be able to place bids as an SDVOB. When placing a bid, information must be provided to the contracting agency which sets forth each party's ownership interest in the business entity.

Once you compile the documents which satisfy the aforementioned requirements, they will be submitted for consideration with your initial bid paperwork. Unlike a federal preference, there is no pre-qualifying process. Properly submitted bids will be considered.

Michigan is Actively Seeking SDVOB Submissions

If you are a qualifying SDVOB, this opportunity is too good to pass up! According to the statute, Michigan's goal is to spend at least 5% of its overall procurement budget on SDVOBs. This figure may sound small but to put this in perspective, in fiscal year 2014, Michigan spent more than $64 million on SDVOB contracts. Moreover, the State has yet to reach its 5% spending goal in any particular year.

In this regard, Michigan has launched significant efforts aimed at meeting the State's 5% spending goal. In writing this blog post, I was fortunate to talk with Jenni Riehle, the Communications and Outreach Coordinator for Michigan's DTMB Procurement Program. According to her, Michigan is actively seeking qualifying businesses to participate in the SDVOB preference program. Ms. Riehle also commented that, along with construction procurement contracts, the State is seeking to potentially award large contracts in the areas of information technology, commodity purchases, and other technology-based services. One of these contracts could be yours; leverage your veteran status to maximize your business opportunities.

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