Department of Veterans Affairs:

Agency Has Exceeded Contracting Goals for Veteran-Owned Small Businesses, but It Faces Challenges with Its Verification Program

GAO-10-458: Published: May 28, 2010. Publicly Released: May 28, 2010.

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The Veterans Benefits, Health Care, and Information Technology Act of 2006 (the 2006 Act) requires the Department of Veterans Affairs (VA) to give priority to veteran-owned and service-disabled veteran-owned small businesses (VOSB and SDVOSB) when awarding contracts to small businesses. The 2006 Act also requires GAO to conduct a 3-year study of VA's implementation of the act. GAO evaluated (1) the extent to which VA met its prime contracting goals for VOSBs and SDVOSBs in fiscal years 2007-2009; (2) VA's progress in implementing procedures to verify the ownership, control, and status of VOSBs and SDVOSBs in its mandated database; and (3) VA's progress in establishing a review mechanism of prime contractors' subcontracts with VOSBs and SDVOSBs. GAO obtained and analyzed data on VA's prime and subcontracting accomplishments, and reviewed a sample of verified businesses to identify any deficiencies in VA's verification program.

While VA exceeded its contracting goals with VOSBs and SDVOSBs for the past 3 years, it faces challenges in continuing to meet its other small business contracting goals and monitoring agreements with other agencies that conduct contract activity on VA's behalf. While VA was able to exceed its contracting goals for VOSBs and SDVOSBs, its contracting with women-owned small businesses and HUBZone firms fell short of its goals during this period. In addition, GAO's review of interagency agreements found that VA lacked an effective process to ensure that interagency agreements include required language that the other agency comply, to the maximum extent feasible, with VA's contracting goals and preferences for VOSBs and SDVOSBsand to monitor the extent to which agencies comply with the requirements. VA has made limited progress in implementing an effective verification program. While the 2006 Act requires VA to use the veteran preferences authorities only to award contracts to verified businesses, VA's regulation does not require that this take place until January 1, 2012. In fiscal year 2009, 25 percent of the contracts awarded using veteran preferences authorities went to verified businesses. To date, VA has verified about 2,900 businesses--approximately 14 percent of businesses in its mandated database of VOSBs and SDVOSBs. Among the weaknesses GAO identified in VA's verification program were files missing required information and explanations of how staff determined that control and ownership requirements had been met. In addition, VA's procedures call for site visits to further investigate the ownership and control of higher-risk businesses, but the agency has a large and growing backlog of businesses awaiting site visits. Furthermore, VA contracting officers awarded contracts to businesses that had been denied verification. Finally, although site visit reports indicate a high rate of misrepresentation, VA has not developed guidance for referring cases of misrepresentation for investigation and enforcement action. Such businesses would be subject to debarment under the 2006 Act. To ensure a thorough and effective verification program, VA needs robust procedures for reviewing businesses, an effective system to ensure that contracting officers do not use veteran preferences authorities with denied businesses, and clear guidance for referring businesses potentially abusing the program. VA has developed a mechanism to review prime contractors' subcontracts with VOSBs and SDVOSBs, but the agency has not yet implemented it. For the past 3 years, VA fell substantially short of achieving subcontracting goals for VOSBs and SDVOSBs. The agency acknowledged shortcomings in this area and intends to use a review mechanism to confirm all subcontracting activities by prime contractors with approved subcontracting plans for a sampling of contracts awarded in fiscal year 2010. VA expects increased performance for subcontracting goal attainment as a result. It is too soon to assess the effectiveness of VA's subcontracting efforts.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: According to VA, it conducted training sessions between January and March 2010 on topics related to this recommendation. On July 11, 2013, VA issued a procurement policy memorandum that established VA procedures that require documentation of its Office of General Counsel review and concurrence on interagency agreements above $750,000 to ensure compliance with PL 110-389. Specifically, the memorandum states that "Pursuant to 38 U.S.C. 8127, all interagency acquisitions shall include this provision: The Servicing Agency, to the maximum extent feasible, shall comply with the priorities for contracting with service-disabled Veteran-owned and Veteran-owned small businesses over other socio-economic classes of small businesses."

    Recommendation: To facilitate the Department of Veterans Affairs' progress in meeting and complying with the requirements of the 2006 Act, and to ensure compliance with the 2006 Act, as its provisions were amended by the 2008 Act (Pub. L. No. 110-389), the Secretary of Veterans Affairs should develop an effective process to ensure that agreements it enters into with other federal agencies for contracting on its behalf to acquire goods or services include the required language and monitor other agencies' contracting performance under those agreements.

    Agency Affected: Department of Veterans Affairs

  2. Status: Closed - Implemented

    Comments: As of July 2011, VA officials reported that the Office of Small Disadvantaged Business Utilization (OSDBU) filled vacant leadership positions. Also, as reported in GAO-13-95, VA has updated its verification program data systems to provide it with more automated capabilities. Also, VA has updated its online application system to require the submission of documents establishing an applicant's ownership and control. Additionally, VA has updated its Standard Operating Procedures to address how staff should assess applicants in recommending whether to grant or deny verification and on required documentation. Regarding the back log of site visits, VA reported in October 2013 that VA conducted 1,059 site visits in FY13, and that there was not currently a backlog. They also reported that, for FY13, denials/notice of proposed cancellations averaged 46 days, but that average dropped to 24 days for the last 180 days of the FY, and 1 day for the last 90 days. Lastly, VA has developed procedures for referring suspicious applicants to its Office of Inspector General.

    Recommendation: To facilitate the Department of Veterans Affairs' progress in meeting and complying with the requirements of the 2006 Act, and to help address the requirement in the 2006 Act to maintain a database of verified veteran-owned businesses, the Secretary of Veterans Affairs should develop and implement a plan that ensures a more thorough and effective verification program. Specifically, the plan should address actions and milestone dates for achieving the following: (1) promptly filling vacant positions within OSDBU, including the two leadership positions, and hiring additional staff positions as necessary; (2) improving its verification processes and procedures to ensure greater completeness, accuracy, and consistency in verification reviews, including updating data systems to reduce the amount of manual data entry by staff and revising the verification procedures to include additional guidance for staff on maintaining the appropriate documentation, requesting documentation from business owners or third parties under specific circumstances, and conducting an assessment that addresses each eligibility requirement; and (3) conducting timely site visits at businesses identified as higher risk and taking actions based on site visit findings, including taking prompt action to cancel business' verification status as necessary.

    Agency Affected: Department of Veterans Affairs

  3. Status: Closed - Implemented

    Comments: VA officials reported the agency has required verification prior to contract award since October 1, 2010. VA noted that as part of their market research, contracting officers are required to view its Vendor Information Pages (VIP) database to locate SDVOSBs and VOSBs. As we reported in GAO-13-95, firms must be certified as SDVOSB or VOSB by VA before being listed in VIP as of September 2011. VA noted that when a firm is denied verification, it is removed from VIP. Thus, when checking the VIP for registered/verified SDVOSBs and VOSBs, contracting officers will not see businesses which have been denied verification. Lastly, VA noted that it continuously provides training to its acquisition staff on the use of Veterans business contracting preferences via its VA Knowledge Network.

    Recommendation: To facilitate the Department of Veterans Affairs' progress in meeting and complying with the requirements of the 2006 Act, and to better ensure that VA meets the requirement to use veteran preferences authorities with verified businesses only, as required by the 2006 Act, the Secretary of Veterans Affairs should develop a more effective system to ensure that contracting officers do not use veteran preferences authorities to award contracts to businesses that have been denied verification, and provide additional guidance and training to contracting officers as necessary.

    Agency Affected: Department of Veterans Affairs

  4. Status: Closed - Implemented

    Comments: VA has developed detailed guidance for its staff regarding under which circumstance they are to make a referral or debarment request as a result of the verification program. Specifically, has developed Standard Operating Procedures (SOP) for the debarment process. The SOP outlines why an applicant should be sent to the debarment committee and outlines the process to be followed.

    Recommendation: To facilitate the Department of Veterans Affairs' progress in meeting and complying with the requirements of the 2006 Act, and to ensure that VA takes enforcement actions against businesses that have misrepresented themselves, as required by the 2006 Act, the Secretary of Veterans Affairs should develop detailed guidance that would instruct staff under which circumstances to make a referral or a debarment request as a result of the verification program.

    Agency Affected: Department of Veterans Affairs

 

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