VA is exceeding veteran contracting goals, says watchdog

The Veterans Affairs Department has made impressive progress in awarding a high percentage of its contracts to veteran-owned small businesses, but needs to improve its ability to verify the status of those firms, a government watchdog testified on Thursday.

In fiscal 2009, VA awarded almost 20 percent of its contracts to veteran-owned small businesses, nearly doubling its total from fiscal 2007, according to preliminary data the Government Accountability Office released during a hearing of the House Veterans Affairs Economic Opportunity Subcommittee.

The percentage of VA contracts awarded to service-disabled veteran-owned small businesses is also on the rise, up from 7 percent in fiscal 2007 to nearly 17 percent in fiscal 2009, GAO reported.

The 2006 Veterans Benefits, Health Care and Information Technology Act contributed to the increase. The law required VA to establish a contracting set-aside program and to boost the percentage of sole-source contracts going to veteran-owned small businesses.

GAO has spent almost three years examining the effects of that provision and plans to release a formal report on the data in June, said William Shear, director of financial markets and community investments at GAO.

A closer look at the data shows reason for concern, Shear said. The report found that when VA uses another agency to execute its contracts, the agreements did not always employ the required language mandating preferences for service-disabled veteran-owned and veteran-owned small businesses.

"Without a plan or oversight activity such as monitoring, VA cannot be assured that agencies have made maximum feasible efforts to contract with SDVOSBs or VOSBs," Shear said.

VA also is struggling to implement a provision in the 2006 law that requires the department by 2012 to verify all companies winning sole-source and set-aside contracts are properly screened and vetted, GAO found.

Companies can self-certify as veteran-owned small businesses, but an October 2009 GAO report found the governmentwide program was vulnerable to fraud and abuse.

Thus far, VA has verified roughly 2,900 companies -- approximately 14 percent of businesses in its mandated database of veteran-owned and service-disabled veteran-owned small businesses, Shear said. The department is processing more than 4,700 additional applications, but interest in the program appears to be causing an administrative backlog. VA's Center for Veterans Enterprise has received more than 10,000 applications for verification since May 2008.

Tim Foreman, executive director of VA's Office of Small and Disadvantaged Business Utilization, said three contractors have been hired to help process and verify the applications. "A problem has been that the training [of the contractors] has not been as good as our people," Foreman said.

The department also hired a contractor to review its contractor verification process and to recommend ways to streamline and improve the system, Shear said.

GAO conducted a random sample of the files for 112 businesses that VA had verified by the end of fiscal 2009. Nearly half the files lacked required information on how staff determined that control and ownership requirements were met. VA procedures call for site visits to investigate the ownership and control of higher-risk businesses with more than $5 million in department contracts.

"But the agency has a large and growing backlog of businesses awaiting site visits," Shear said. "Although site visit reports indicate a high rate of misrepresentation, VA has not developed guidance for referring cases of misrepresentation for enforcement action."

The department plans to stand up a suspension and debarment office by this summer, according to Foreman. Other cases of fraud or abuse, he said, could be referred to the VA inspector general or to the Justice Department for prosecution.

Governmentwide, agencies have fallen well short in meeting the statutory goal of awarding 3 percent of all contracts to small businesses. In fiscal 2008, service-disabled veteran-owned small businesses received 1.5 percent of all federal prime contracts.

"Procurement officers will tell you that number is negligible and no big deal," said Joseph C. Sharpe Jr., director of the National Economic Commission at the American Legion. "But while a 2 percent shortfall may not sound like a lot, it ultimately cost entrepreneurs $10 billion in missed opportunity. Or to put it another way, it cost Americans $10 billion in lost job creation."

Preliminary governmentwide data indicates that service-disabled veteran-owned small businesses won roughly 2 percent of all contracts in fiscal 2009, said Joseph Jordan, associate administrator for government contracting and business development at the Small Business Administration.

The increase can be attributed partly to the 2009 Recovery Act, in which veteran-owned small businesses received more than 6 percent of all prime contracting dollars, or almost $1.6 billion. During that same period, 4.3 percent, or nearly $1.1 billion, have been awarded to service-disabled veteran-owned small businesses, he said.

Many of the outreach, training and education processes that were successful in increasing stimulus contracting for veteran-owned small businesses soon will be applied to all federal procurements, Jordan said.

On Monday, President Obama established an interagency task force to improve the percentage of contracts going to veteran-owned small businesses.