Department of Veterans Affairs Contracting with Veteran Owned-Small Businesses

GAO-09-391R: Published: Mar 19, 2009. Publicly Released: Mar 19, 2009.

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William B. Shear
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The federal government's long-standing policy has been to use its buying power--the billions of dollars it spends through contracting each year--to maximize procurement opportunities for small businesses, including those owned by service-disabled veterans. Under the Veterans Benefits, Health Care, and Information Technology Act of 2006, the Department of Veterans Affairs (VA) is to give first and second priority to small businesses owned by service-disabled and other veterans, respectively, when it uses small business preferences to award its contracts, which totaled more than $14 billion in fiscal year 2008. The act also requires VA to establish contracting goals for service disabled veteran-owned small businesses (SDVOSB) and other veteran-owned small businesses (VOSB) and gives VA unique authorities to use contracting preferences for SDVOSBs and VOSBs to help it reach those goals. The act requires us to conduct a 3-year study on VA's efforts to meet its SDVOSB and VOSB contracting goals and to brief Congress annually, by January 31, 2008, 2009, and 2010. Accordingly, we briefed Congressional staffs on January 31, 2008, on steps that VA had taken to implement its new contracting authorities and verify the ownership of firms in VA's mandated database of SDVOSBs and VOSBs, as well as potential challenges that VA could face in meeting its contracting goals. The purpose of this report is to make publicly available the contents of the briefing held on January 30, 2009.

VA exceeded its prime contracting goals for SDVOSBs and VOSBs in fiscal years 2007 and 2008, reflecting leadership commitment and broad-based agency efforts. Specifically, in fiscal year 2007, VA awarded 7.1 percent ($832 million) of its prime contract dollars to SDVOSBs and 10.4 percent ($1.22 billion) to all VOSBs (including SDVOSBs), exceeding its goals of 3 percent and 7 percent, respectively. In fiscal year 2008, VA awarded 11.8 percent ($1.66 billion) to SDVOSBs and 14.9 percent ($2.10 billion) to all VOSBs, exceeding its increased goals of 7 percent and 10 percent, respectively. Leadership efforts that contributed to VA's success in meeting these goals included the efforts of VA's Office of Small and Disadvantaged Business Utilization (OSDBU) to ensure awareness of and commitment to meeting the goals and headquarters initiatives to monitor and recognize strong performance by contracting offices. Nearly all of VA's major contracting offices met the agencywide goals, and they made extensive use of the set-aside and sole-source authorities and applied the contracting priority for SDVOSBs and VOSBs established by the Veterans Benefits, Health Care, and Information Technology Act. In light of VA's dynamic contracting environment--particularly with respect to recent and anticipated turnover in its leadership and contracting staff-- sustaining or increasing its levels of SDVOSB and VOSB contracting may be challenging and will require vigilance as VA manages competing small business goals and continues to institutionalize its new contracting priorities and authorities. For example, as VA finalizes its rulemaking process implementing provisions of the act, ongoing effort will be important to ensure that all contracting staff (especially new staff and those involved in monitoring compliance) have a full understanding of the contracting authorities and priorities. VA verified ownership of a limited number of SDVOSBs and VOSBs in its database and was working to address other requirements, including assessing who actually controls veteran-owned firms receiving certain VA contracts. The act requires VA to maintain a database of SDVOSBs and VOSBs, verify that registered firms are owned and controlled by veterans or service-disabled veterans, and use its set-aside and sole-source award authorities only for these verified firms. VA already maintained an online database, VetBiz Vendor Information Pages, in which nearly 16,500 firms have self-certified as SDVOSBs or VOSBs. VA began accepting verification applications from firms registered in the database after publishing guidelines for its verification program in an interim final rule in May 2008. As of December 23, 2008, VA had verified that veterans or servicedisabled veterans owned 484 firms, denied the verification applications of 15 firms, and was processing another 419 applications. To date, VA's verification process has focused on cross-referencing information submitted by owners with VA data to confirm majority ownership by veterans or service-disabled veterans. In spring 2009, VA expects to pilot procedures for more detailed reviews of selected firms to verify day-to-day control by a service-disabled or other veteran. According to VA officials, VA will begin requiring its contracting officers to use the set-aside and sole-source award authorities only with verified SDVOSBs and VOSBs when the agency finalizes rulemaking related to implementation of these authorities, which they anticipate in May 2009 at the earliest. Until then, existing VA policy states that firms only have to be registered in VA's database to receive set-aside or sole-source awards. We intend to assess VA's implementation of its verification process in our future work.

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