Veteran-owned businesses squabble over definitions

The Government Accountability Office said Monday that the Army was not required to cancel a contract awarded under a set-aside for service-disabled veteran-owned businesses after the Small Business Administration ruled that the winner was not such a business.

The contract, won in March by the Vienna, Va.-based Wexford Group International Inc., entails providing support services to the Army's Rapid Equipping Force, which develops cutting-edge technology for Army use. GAO said the contract could continue because the SBA decision applies only to future procurements.

An unsuccessful competitor for the contract, Veteran Enterprise Technology Services, a Reston, Va., service-disabled veteran-owned business, protested the award earlier this year. Tom Flannery, co-owner of VETS, said he became suspicious because he knew that Wexford had undergone a stock transfer that reduced the percentage of shares owned by its chief executive, Bill Reno, a service-disabled veteran.

In an e-mailed response to questions, Hank Kinnison, Wexford's acting president, said the company is, in fact, a service-disabled veteran-owned business. He said that although the company disagreed with SBA's decision, Reno purchased additional shares to raise his ownership from 50.5 percent to more than 51 percent on May 2.

The remaining shares are held by employees participating in a stock ownership plan. Kinnison said 22 percent of those employees are service-disabled veterans and those shares were not counted in SBA's ruling, which is the basis of the company's disagreement with the agency. Service-disabled veteran-owned businesses certify themselves, except when there are protests, which are handled by SBA.

In October 2004, President Bush issued an executive order requiring agencies to increase contract awards to service-disabled veteran-owned businesses. Prior legislation set a target of 3 percent for the portion of agencies' total procurement dollars going to such businesses.

Agencies have not yet met that target; numbers released from the Small Business Administration last month show that in fiscal 2005, $1.9 billion, or 0.6 percent of contracting dollars, went to service-disabled veteran-owned businesses. Many such businesses complain that agencies don't give them a high enough priority over other companies.

Flannery said he is disappointed that the Army isn't supporting the program as fully as he believes it should.

An Army spokesman said the service is committed to meeting the 3 percent target. In fiscal 2005, it awarded $2.1 billion, or 2.9 percent of its total contracts, to veteran-owned businesses. The Army has hosted two conferences for veteran-owned businesses over the past two years.

Tracey Pinson, director of the Army's small business programs office, noted that it takes time for agencies to meet the targets specified by rules or legislation. "It took us eight years to meet the goal for minority-owned companies," she said. "We're working very hard on [service-disabled veteran-owned small businesses] and [veteran-owned businesses] and it shows," she said.