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Duty, Reservists, Veterans VA Changes Rules for Contracting With Service-Disabled Veteran-Owned Small Businesses, But Will it Stop the Fraud? By Rick
Rogers To squelch fraud by so-called service-disabled veteran-owned small businesses, the Veterans Affairs Department has issued new guidelines for bidding on set-aside contracts. But some question whether the changes will provide tangible oversight of a program that awards contracts worth billions every year to SDVOSBs, as they are known. The new regulations mandate that entrepreneurs be allowed just one company at a time in the contracting program and must work full-time in the business, according to a final rule published earlier this month in the Federal Register. The Small Business Administration, along with federal procuring activities, run the SDVOSB program. In fiscal year 2008, $6.5 billion in federal contracts were awarded to firms who self-certified themselves as SDVOSBs. But a recent spot-check by the Government Accountability Office of SDVOSBs found 10 examples of firms not meeting program eligibility requirements, but still landing about $100 million in SDVOSB contracts.
"This program needs adult supervision to keep it reasonably affective," said James Lasswell, president of INDUS Technology, Inc., a San Diego-based company that provides systems engineering, technical and program management services for government and industry clients. INDUS is a certified SDVOSB. "There has been a relatively rapid rise in SDVOSBs in recent years. I don't have a problem with any of these enforcement efforts." Search in VetBiz Registry for SDVOSBs found that there are 703 located in Southern California. But Lasswell isn't sure the government has the resources to ensure that these businesses are what they claim to be. Neither does Davie Dickey, president of Alpha Ten Technologies, Inc., located in San Marcos. His company is certified as a SDVOSB as well. He said the government can pass regulations, but without the staff to perform due diligence, he wonders if the cheating will stop. "There isn't a lot of oversight," said Dickey, whose business provides technical information services, training and program management expertise to the government. "There has been a huge decline of manpower of contract folks. We are hoping that is going to change." "It is so weird that contacting is getting tougher, but the same things keep happening," Dickey said. The new regulation
implements portions of the 2006 Veterans Benefits, Health Care The VA awarded
35 percent of its fiscal 2008 contract dollars to small companies, Government contracts to SDVOSBs accounted for only 1.5 percent of all government contract dollars paid in fiscal year 2008. Since the SDVOSB program began in 2003, the government has not met its annual mandated goal of 3 percent. To be eligible
for the set-aside, companies must register with the VetBiz.gov The VA said it lacks the manpower to conduct site visits to all firms applying to participate in the program, but that it can still effectively monitor SDVOSBs by reviewing business documents, said David Canada, senior procurement analyst, Center for Small Business Utilization. "The majority of companies have no ownership and control issues. (The) VA's Center for Veterans Enterprise verifies that the company is veteran-owned and controlled," Canada explained in a written response to questions posed by DefenseTracker. "So, mandatory 100 percent site visits would be an unnecessary burden to those companies that are shown to have no ownership and control issues through document review. CVE currently conducts onsite examinations of companies that the document review suggests may have some issues that merit further examination." To read the
GAO report on the fraudulent SDVOSBs, go to: http://www.gao.gov/new.items/d10255t.pdf Below is the unedited transcript of the questions supplied by DefenseTracker and answers supplied by David Canada, senior procurement analyst, Center for Small Business Utilization, about the SDVOSB program. Questions about
contracting from Rick Rogers, DefenseTracker.com Responses prepared
by: 1a. How many contracting experts does the VA have to perform oversight of this program? OSDBU response: Every warranted contracting officer in the Department of Veterans Affairs has a duty to monitor contractor performance to ensure compliance with Federal statutes and acquisition regulations. VA has one of the largest acquisition corps in the Federal government. The OSDBU does not have specific numbers of warranted personnel. This information would be available from the Office of Acquisition, Logistics and Construction. Within the Office of Small and Disadvantaged Business Utilization, there are 40 full-time personnel authorized. This figure is supplemented by contractor support, as needed. 1b. How has the latter number changed, if at all, in this time? OSDBU response: Staffing in OSDBU has not changed. As noted above, OSDBU does not have records on the number of contracting experts departmentwide. 2a. My understanding is that the SDVOSB set-aside program began in 2003. Is that right? OSDBU response: The governmentwide SDVOSB set-aside program was authorized by the Veterans Benefits Act of 2003, Public Law 108-183. It was implemented in the Federal Acquisition Regulation (FAR) on May 5, 2004 (FAC 2001-23, FAR Case 2004-002). 2b. What was the program then and how has it changed? OSDBU response: The Federal Acquisition Regulation, Part 19.14 provides specific guidance on the program. This succinct regulation may be accessed online at https://www.acquisition.gov/far/. In 2007, Public Law 109-461 created unique VOSB and SDVOSB contracting authority in the Department of Veterans Affairs. The principal differences between the programs are: (1) VA will source first for service-disabled Veteran-owned small businesses, then Veteran-owned small businesses, then other small businesses when considering small business programs; (2) VA has authority to conduct Veteran-owned small business set-asides, unlike the rest of Federal government; (3) VA has more flexibility in negotiating non-competitive contracts with SDVOSBs and VOSBs; (4) some businesses owned by surviving spouses are eligible to sell to VA under the Public Law 109-461 authority; and (5) the law establishes that, to participate in VA's unique procurement program, the Department will verify ownership and control of businesses, whereas the rest of Federal government accepts self-representation. 3a. How much set-aside money for SDVOSBs goes uncontracted because there aren't two firms to compete on a bid? OSDBU response: The Federal Acquisition Regulation, section 19.1405, requires only that the contracting officer have a reasonable expectation of receiving two, fairly priced offers from eligible concerns. If only one business submits an offer on a set-aside, the contracting officer may elect to make the award, or may choose to re-compete under a different contracting authority. OSDBU does not have data available to provide a more specific response to this question. 3b. And if the contract does not go to a SDVOSB, where does the contract go? OSDBU response:
VA Acquisition Regulation 819.7004 establishes the contracting order
of priority for open market acquisitions. Specifically, it states: 4a. What amount of money -- both in terms of dollar amount and percentage -- set aside for SDVOSBs goes unclaimed for one reason or another? OSDBU response: Funding is not set-aside for the SDVOSB program. Each requirement to be contracted is independently considered when the contracting officer conducts market research. Numerous factors are evaluated before a decision is made to set-aside a contract. The extent of market research will vary, depending on such factors as urgency, estimated dollar value, complexity, and past experience. These factors and others are described in detail in the Federal Acquisition Regulation, Part 10, Market Research. The Department of Veterans Affairs has exceeded its SDVOSB and VOSB goals for the past several years. 4b. Is this set-aside money divvied up by region? For example, does Southern California have its own pool of contracts set aside for SDVOSBs and Southeast Virginia another? OSDBU response: The Secretary of Veterans Affairs establishes Department-wide percentages of dollars to be achieved with multiple small business programs. As noted above, money is not divided up by region, but instead, as each contract is awarded, the dollar value is reported as an "achievement" with that type of business, i.e., Veteran-owned small business. Contracting officers do have access to online databases which can easily be queried to identify local businesses. 5. Have any SDVOSBs been cited for fraud? If so, what was the result? OSDBU response: A business or an individual that has been prohibited from contracting with the Federal Government will be listed in the the Excluded Parties List System, managed by the General Services Administration. Before making an award a contracting officer checks this list. 6a. I've read that the VA had said it lacks the manpower to conduct site visits to all firms applying to participate in the program. Is that so? OSDBU response: It would not be cost effective to visit every Applicant. Oversight is conducted via the examination of ownership and control, onsite examinations, and contract protests. CVE's experience since starting the Verification Program indicates that the current procedures are able to identify questionable Applicants. 6b. If so, wouldn't that make effective oversight difficult? OSDBU response: Personnel in the Department of Veterans Affairs are serious about the integrity of VA's Veterans First Program and ensuring that businesses that receive awards from our Department are truly eligible to benefit from the legislation. That said, we are sensitive to serving the citizens who fund our operations. We intend to strike the right balance of program oversight with our fiduciary duty to the taxpayers. 7. A story I recently read said: "VA finds that mandatory site visits could be an unnecessary burden to vendors when VA can adequately verify firms through other means, such as document review," the rule stated. "The department will monitor awards to companies in the verification program and make decisions on which companies to inspect using a combination of factors, including staffing and funding." OSDBU response: The majority of companies have no ownership and control issues. CVE verifies that the company is Veteran-owned and controlled. So, mandatory 100% site visits would be an unnecessary burden to those companies that are shown to have no ownership and control issues through document review. CVE currently conducts onsite examinations of companies that the document review suggests may have some issues that merit further examination. 8. How would a VA review of records determine how many hours someone is putting into a business or who is really running the operation? There are concerns that disabled veterans are owners in name only. OSDBU response: CVE reviews company ownership documents, payroll reports, income tax returns, and other information to verify that the Veteran is the highest company officer and is managing and controlling the company on a day to day basis. When the documents fail to resolve the necessary issues, an onsite examination is conducted. 9. A GAO study of SDVOSBs found 10 examples of firms not meeting program eligibility requirements, but still landing about $100 million in SDVOSB contracts. The GAO report is a little unclear as to how many alleged SDVOSBs were reviewed altogether. How many of these businesses did the GAO look at and how many were found to be out of compliance? OSDBU response: We recommend directly contacting the individual identified in the GAO report. For more information, contact Gregory Kutz at (202) 512-6722 or kutzg@gao.gov. 10a. Under the new rules, what happens if someone if found to be cheating? OSDBU response: Whenever VA's Center for Veterans Enterprise determines that an applicant submitted false information, the matter will be referred to the Office of Inspector General for review. In addition, the CVE will request that debarment proceedings be initiated by the Department [see 38 CFR § 74.2(c)] 10b. What was done under the old rules? OSDBU response: As the Verification Program is less than 2 years old, there is not a lot of history to the "old rules." VA OSDBU's Center for Veterans Enterprise sought assistance from VA's Office of Inspector General. 10c. Can you point to any enforcement action taken either against the offending false SDVOSB or any larger company that they might have been partnered with? OSDBU response: Enforcement actions are beyond the scope of OSDBU's mission. We recommend the question be raised with either Mr. Gregory Kutz of GAO or with VA's Office of Inspector General. 11a. What happens if there is a pass through, with essentially a SDVOSB fronting for a larger defense contractor to win award? OSDBU response: VA's Acquisition Regulation, section 809.406-2, addresses this issue. Any deliberate violation of the limitation on subcontracting clause requirements may result in action taken by VA officials to debar any service-disabled veteran-owned, veteran-owned small business concern or any large business concern involved in such action. 11b. Is the larger defense contractor liable for punishment? If so, what? OSDBU response: See response to 11a above. 11c. Can the VA point to any instances where an illicit SDVOSB teamed with a non-SDVOSB contractor? OSDBU response: The OSDBU does not have this information. We suggest raising this question with Mr. Gregory Kutz or VA's Office of Inspector General.
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