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Hearing Transcript on Acquisition Deficiencies at the U.S. Department of Veterans Affairs.
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ACQUISITION DEFICIENCIES AT THE U.S. DEPARTMENT OF VETERANS AFFAIRS
HEARING BEFORE THE SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS OF THE COMMITTEE ON VETERANS' AFFAIRS U.S. HOUSE OF REPRESENTATIVES ONE HUNDRED ELEVENTH CONGRESS FIRST SESSION DECEMBER 16, 2009 SERIAL No. 111-54 Printed for the use of the Committee on Veterans' Affairs
U.S. GOVERNMENT PRINTING OFFICE For sale by the Superintendent of Documents, U.S. Government Printing Office
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CORRINE BROWN, Florida |
STEVE BUYER, Indiana, Ranking |
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Malcom A. Shorter, Staff Director SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS
Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public hearing records of the Committee on Veterans' Affairs are also published in electronic form. The printed hearing record remains the official version. Because electronic submissions are used to prepare both printed and electronic versions of the hearing record, the process of converting between various electronic formats may introduce unintentional errors or omissions. Such occurrences are inherent in the current publication process and should diminish as the process is further refined. |
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C O N T E N T S
December 16, 2009
Acquisition Deficiencies at the U.S. Department of Veterans Affairs
OPENING STATEMENTS
Chairman Harry E. Mitchell
Prepared statement of Chairman Mitchell
Hon. David P. Roe, Ranking Republican Member
Prepared statement of Congressman Roe
Hon. Timothy J. Walz, prepared statement of
Hon. Steve Buyer
Prepared statement of Congressman Buyer
WITNESSES
U.S. Government Accountability Office:
Kay L. Daly, Director, Financial Management and Assurance
Prepared statement of Ms. Daly
Gregory D. Kutz, Managing Director, Forensic Audits and Special Investigations
Prepared statement of Mr. Kutz
U.S. Department of Veterans Affairs:
Maureen T. Regan, Counselor to the Inspector General, Office of Inspector General
Prepared statement of Ms. Regan
Glenn D. Haggstrom, Executive Director, Office of Acquisition, Logistics, and Construction
Prepared statement of Mr. Haggstrom
MicroTech, LLC, Vienna, VA, Anthony R. Jimenez, President and Chief Executive Officer
Prepared statement of Mr. Jimenez
National Veteran Owned Business Association, Scott F. Denniston, Director of Programs, and President, Scott Group of Virginia, LLC, Chantilly, VA
Prepared statement of Mr. Denniston
Project On Government Oversight, Scott H. Amey, Esq., General Counsel
Prepared statement of Mr. Amey
Veterans' Entrepreneurship Task Force (VET-Force), Robert G. Hesser, 1st Co-Chairman, and President and Chief Executive Officer, Vetrepreneur, LLC, Herndon, VA
Prepared statement of Mr. Hesser
SUBMISSIONS FOR THE RECORD
Stearns, Hon. Cliff, a Representative in Congress from the State of Florida, statement
MATERIAL SUBMITTED FOR THE RECORD
Witness Comments on H.R. 4221, the "Department of Veterans Affairs Acquisition Improvement Act of 2009":
Comments on H.R. 4221 by the National Veteran-Owned Business Association (NaVOBA)
Comments on H.R. 4221 from Anthony Jimenez, President and Chief Executive Officer, MicroTech, LLC
Post-Hearing Questions and Responses for the Record:
ACQUISITION DEFICIENCIES AT THE U.S. DEPARTMENT OF VETERANS AFFAIRS
Wednesday, December 16, 2009
U. S. House of Representatives,
Subcommittee on Oversight and Investigations,
Committee on Veterans' Affairs,
Washington, DC.
The Subcommittee met, pursuant to notice, at 10:05 a.m., in Room 334, Cannon House Office Building, Hon. Harry E. Mitchell [Chairman of the Subcommittee] presiding.
Present: Representatives Mitchell, Space, Walz, Adler, and Roe.
Also Present: Representative Buyer.
OPENING STATEMENT OF CHAIRMAN MITCHELL
Mr. MITCHELL. Welcome to the December 16, 2009, Subcommittee on Oversight and Investigations hearing. Today's hearing is on Acquisition Deficiencies at the U.S. Department of Veterans Affairs (VA).
This hearing will come to order. I ask unanimous consent that all Members have 5 legislative days to revise and extend their remarks and that statements may be entered into the record. Hearing no objection, so ordered.
I would like to thank everyone for attending today's hearing and especially thank our witnesses for testifying today.
We are here to examine the VA acquisition system and procurement structure. Our hearing will hopefully determine the extent of the reform needed in order to ensure that the acquisition process within the VA is one that is fair, fiscally responsible, and effective, most importantly, serves veterans.
We all know that the acquisition system within the VA has failed to develop a process that is both transparent and fiscally responsible. One recent report produced by the U.S. Government Accountability Office (GAO) revealed that network and medical center staff within the Veterans Health Administration (VHA) failed to use the Federal Supply Schedule (FSS) due to a lack of information and the proper tools needed to use the FSS.
This resulted in lost savings of almost $8.2 million a year or $41 million over 5 years. This is simply unacceptable.
Several VA Office of Inspector General (OIG) and GAO reports have detailed major deficiencies within the procurement process at the VA, citing prolific material weaknesses, and how disabled veteran-owned small businesses (VOSBs) are being cheated out of millions of dollars in contract opportunities each year due to a lack of sufficient oversight.
Just last month, the GAO released a report on the Service-Disabled Veterans-Owned Small Business (SDVOSB) Program showing a fragmented structure within the VA and a lack of oversight of companies claiming service-disabled veterans-owned small business status.
Fraud and abuse has allowed ineligible firms to improperly receive millions of dollars in set-side and sole-source contracts, potentially denying legitimate service-disabled veterans and their businesses the benefits of the veteran and small business program.
With the ineffective oversight and lack of effective fraud prevention controls, these ineligible firms have received almost $100 million in contracts over the years.
There is no secret that there are major deficiencies in the VA's procurement process and to blame are a number of things, including a lack of centralized acquisition structure, self-policing policies in place that allow fraud and abuse, and continuous material weaknesses.
Although I remain fairly optimistic that reform of this system can be accomplished, legislation to fix these problems may be necessary along with change in policy and procedures.
I am grateful that the GAO, as well as service-disabled veteran-owned small business owners and entrepreneurs, are here today to shed light on issues such as these.
[The prepared statement of Chairman Mitchell appears in the Appendix.]
Mr. MITCHELL. Before I recognize the Ranking Member for his remarks, I would like to swear in our witnesses. And I would ask that all witnesses that are going to testify today please stand and raise their right hand.
[Witnesses sworn.]
Mr. MITCHELL. Thank you.
I now recognize Dr. Roe for opening remarks.
OPENING STATEMENT OF HON. DAVID P. ROE
Mr. ROE. Thank you, Mr. Chairman, for yielding.
Today's hearing entitled, Acquisition Deficiencies at the U.S. Department of Veterans Affairs is important to the Subcommittee as we move forward to assist the Department in guiding it through to better management of its procurement and acquisition processes.
The Department of Veterans Affairs is one of the largest procurement and supply agencies in the Federal Government. Its annual expenditures are more than $14.1 billion for supplies and services, including construction, drugs, medical supplies, and equipment.
Information technology (IT) equipment and services and other critical patient care items must be procured and distributed to the VA's health care facilities in what is the largest health care delivery system in the country.
Over the past 12 years, the VA and the Office of Inspector General have detailed what can be considered the existence of serious long-term severe systemic procurement problems within the VA.
Last Congress, this Subcommittee held a hearing on miscellaneous obligations, which highlighted how difficult it is to track expenditures at the VA without proper oversight and guidance.
From reading the hearing report of that hearing, it was apparent the frustration felt by all Members present with the brokenness of the acquisition process within the VA. I understand that the Department followed this hearing by providing its acquisition workforce with new rules and procedures regarding the use of miscellaneous obligations.
I will be interested to hear from the Department how well these new rules are being implemented. I hope that there is improvement in tracking these expenditures since the last hearing.
Additionally, the Government Accountability Office issued a report showing fraud and abuse within the Service-Disabled Veteran-Owned Small Business Program. The findings are extremely disturbing.
And I look forward to testimony from GAO relating to this report and to see if they have any further recommendations to fix these fraudulent practices and make certain that contracting officials who knowingly allow this are held accountable.
I was pleased to join Ranking Member Buyer last week in introducing H.R. 4221, the "Department of Veterans Affairs Acquisition Improvement Act of 2009." I understand that Mr. Buyer will discuss his bill further this morning and look forward to working with him and other Members of this Committee to help Secretary Shinseki fix the acquisition process at the Department of Veterans Affairs.
Holding this hearing is an important step in the right direction. Moving forward legislatively will also be an additional step we can take, and look forward to working with you, Mr. Chairman, in this effort.
And one final comment. With unemployment at ten percent and not going down, small businesses around this country failing, it is absolutely imperative that we as an organization spend the taxpayers' funds wisely with people losing faith in our government when they see this kind of waste. And I think it is imperative that we show the way for businesses around this country. And I think it is unacceptable what I have read in this report last evening.
And I yield back my time.
[The prepared statement of Congressman Roe appears in the Appendix.]
Mr. MITCHELL. Thank you.
Votes have been called. If Mr. Walz and Mr. Buyer want to wait until we get back?
Mr. BUYER. First of all, I would ask unanimous consent that I may participate in the Subcommittee hearing.
Mr. MITCHELL. So ordered.
Mr. BUYER. All right. And, Mr. Walz, do you have an opening statement?
Mr. WALZ. No. I will just submit it for the record.
[The prepared statement of Congressman Walz appears in the Appendix..]
Mr. BUYER. Okay.
Mr. MITCHELL. You may go ahead.
Mr. BUYER. How much time do we have left for votes?
Mr. MITCHELL. Eleven minutes and 54 seconds.
OPENING STATEMENT OF HON. STEVE BUYER
Mr. BUYER. All right. I will go ahead and start.
I want to thank you, Mr. Chairman, for yielding.
I want to thank both of you, Chairman Mitchell and Dr. Roe, for your leadership here.
And, Sergeant Major, thanks for being here.
This is going to be a pretty important hearing, helping to lay out a foundation. Both of these GAO reports, if you had a chance to look at them, have some disturbing facts in them. So I appreciate all of you for holding this hearing on acquisition reform.
Years ago, when I was Chairman of this Subcommittee, we reviewed a number of issues relating to acquisition at the Department of Veterans Affairs, including the VA's own Task Force on Acquisition Reform.
What came out of the hearings we held and the investigations conducted by VA's own Inspector General's Office and the Government Accountability Office and VA's Procurement Reform Task Force ordered by then Secretary Principi in 2001 was a strong sense that the acquisition procedures at the VA were broken, fragmented, and disorganized.
Ranking Member Roe, in his opening statement, alluded to the hearing that you held last Congress on July 31st, 2008, on miscellaneous obligations. That hearing only served to further emphasize the fact that without proper oversight, funds that could be used to better serve our Nation's veterans were being wasted on broken procurement practices with little or no oversight review.
The frustration of all the Members on both sides of the aisle at the hearing was loud and clear. It was obvious that action was needed then to address the problems of acquisition at the VA.
To its credit, the VA commissioned an $800,000 plus PricewaterhouseCoopers’ study to see how dysfunctional and broken the acquisition process was at the VA. This study offered three options.
I believe the VA selected the option that would create the least push back from the bureaucracy, and sent to the last Congress a legislative proposal that would create an Assistant Secretary of Acquisition, but it did not provide any further direction or solution to respond to the universal complaint throughout the VA that glaciers move faster than its own contracting process.
So I started working on legislation to change the way the VA conducts its acquisition business. My staff and I spoke with industry experts, the GAO, VA OIG to formulate a way to fix broken acquisition services at the VA in order to create better accountability.
I have also discussed this issue several times with Secretary Shinseki who has acknowledged that it is imperative for the VA to change its procurement system to expedite the many transformational ways the VA does business.
And I have shared a draft of this bill with him, and I look forward to working not only with him but also with Chairman Mitchell and Chairman Filner and any other Members of the Committee that would like to.
Last week, I was joined by several Members of the Committee, in particular Dr. Roe, in the introduction of H.R. 4221, the "Department of Veterans Affairs Acquisition Improvement Act of 2009."
And I welcome any input, Chairman Mitchell, that you may have or, Sergeant Major. I am completely open to ideas as we proceed not only for myself but also recommendations that we are going to receive from the OIG and the GAO and working with the Administration.
The only way that we were successful and way ahead to centralize the IT from a decentralized model was we had unanimous support of this Committee. And I think in order for us to be successful on an acquisition model, we have to do the same thing. I think it has to be replicated to do that. This is not going to be an easy task. This is going to be very challenging.
The Administration drafted a bill introduced last Congress by Senator Akaka. This new bill creates a new Assistant Secretary position, the Assistant Secretary for Acquisition, Construction, and Asset Management, who will serve as the Chief Acquisition Officer for the Department of Veterans Affairs.
Our bill also builds the acquisition workforce structure through the use of Deputy Assistant Secretaries to align the VA's business lines and principal Deputy Assistant Secretary.
The bill further requires the Secretary to establish and maintain a comprehensive Department-wide acquisition program, which the Secretary will develop, implement, and enforce a streamlined approach to entering into contracts in purchasing goods and services.
The legislation would thereby provide better oversight and accountability for procurement at the Department of Veterans Affairs.
One of the key points that came out of the Industry Acquisition Roundtable that I held on October 27th was the strong need for a well-trained workforce. This legislation would provide the direction needed to put in place and keep a workforce that is knowledgeable and able to provide acquisition and contracting services to the Department.
The bill also recognizes the VA's separate and dysfunctional procurement construction and asset management processes into distinct entities with contracting expertise.
Mr. Chairman, H.R. 4221 is the first step to provide a centralized oversight and policy for contracting and acquisition within the Department by streamlining the business operations under an Assistant Secretary.
It is my hope that we can work together to improve the bill and create an acquisition model that can eventually be followed by other agencies because VA's acquisition problems are, in fact, government wide.
With that, I yield back.
[The prepared statement of Congressman Buyer appears in the Appendix.]
Mr. MITCHELL. Thank you.
At this time, we will have a break. There are four votes. So how long will that take? You are the veteran. Thirty minutes? Okay. We will reconvene in about 30 minutes.
Thank you.
[Recess.]
Mr. MITCHELL. We will reconvene the hearing. It is my understanding in the next hour, there is probably another vote.
At this time, I would like to welcome panel one to the witness table. Joining us for our first panel is Scott Amey, General Counsel for the Project On Government Oversight (POGO); Scott Denniston, President of the Scott Group of Virginia; Tony Jimenez, President and CEO of MicroTech; and Bob Hesser, President and CEO of Vetre?
Mr. HESSER. Vetrepreneur.
Mr. MITCHELL. There, Vetrepreneur. There it is. As well as members of the Veterans' Entrepreneurship Task Force or VET-Force.
I ask that all witnesses stay within 5 minutes of their opening remarks. Your complete statements will be made part of the hearing record. We will begin with Mr. Amey.
STATEMENTS OF SCOTT H. AMEY, ESQ., GENERAL COUNSEL, PROJECT ON GOVERNMENT OVERSIGHT; SCOTT F. DENNISTON, PRESIDENT, SCOTT GROUP OF VIRGINIA, LLC, CHANTILLY, VA, AND DIRECTOR OF PROGRAMS, NATIONAL VETERAN OWNED BUSINESS ASSOCIATION; ANTHONY R. JIMENEZ, PRESIDENT AND CHIEF EXECUTIVE OFFICER, MICROTECH, LLC, VIENNA, VA; AND ROBERT G. HESSER, PRESIDENT AND CHIEF EXECUTIVE OFFICER, VETREPRENEUR, LLC, HERNDON, VA, AND 1ST CO-CHAIRMAN, VETERANS' ENTREPRENEURSHIP TASK FORCE (VET-FORCE)
STATEMENT OF SCOTT H. AMEY, ESQ.
Mr. AMEY. Good morning. Thank you, Chairman Mitchell and Ranking Member Roe, for inviting me to testify.
I am Scott Amey, General Counsel of the Project on Government Oversight, also known as POGO.
Throughout its 28-year history, POGO has worked to remedy waste, fraud, and abuse in government spending in order to achieve a more effective, accountable, open, and ethical Federal Government.
POGO has a keen interest in government contracting matters, and I am pleased to share POGO's thoughts with the Subcommittee today. I am very pleased that the Subcommittee is holding today's hearing.
The VA ranked fifth with approximately $14.6 billion in contract awards in fiscal year 2009 and has a complex mission that requires the procurement of pharmaceuticals, medical supplies and equipment, as well as building construction, maintenance, and repair services.
Many events over the past 15 years have called into question the effectiveness of the Federal acquisition and contracting system.
Federal spending has grown tremendously, exceeding $530 billion in both fiscal year 2008 and 2009. Oversight of Federal spending has decreased. The acquisition workforce has been stretched thin and been supplemented by contractors. Spending on services now outpaces goods and stimulus spending is adding to an already complex system. In short, poor contracting planning, management, and oversight decisions are placing taxpayer dollars and sometimes lives at risk.
On a positive note, interest in improvements in Federal acquisition and contracting systems has grown significantly in recent years as Congress, and now the White House, are paying more attention. Multiple executive orders and memos have come out from the White House mandating that agencies minimize contracting risk and maximize the value of the goods and services procured each year.
Many contracting experts and government officials blame the inadequate size and training of the acquisition workforce for all of today's problems. POGO agrees that the workforce is an issue, but we believe that additional problems deserve equal attention. These problems are inadequate competition, deficient accountability, lack of transparency, and risky contracting vehicles.
My testimony today will focus in on 20 different recommendations which have been provided in my written testimony, but I will just highlight a few of those today.
Although I will point out some positives and negatives in VA contracting, I will defer to today's other panelists to highlight specific failures and ways to improve VA acquisition and contracting systems.
And as already has been mentioned, multiple GAO reports have come out, including one that detailed overruns and delays in VA construction projects.
As far as inadequate competition, competition in contracting is essential to getting the best products and services at the most practical prices. The government needs to reverse the philosophy of quantity over quality. Acquisition is now about speed and competition is oftentimes considered a burden. That is a recipe for waste, fraud, and abuse.
VA's competition numbers are unknown. According to Federal data in 2008, full or limited competition procedures were used 21 percent of the time. Sole-source contracts totaled nearly 21 percent of the acquisition dollars spent. The actual competition numbers is unknown because according to usaspending.gov, 54 percent of the dollars awarded, nearly $8 billion, were listed as not identified as far as their competition category. This Committee might want to inquire about VA's actual extent of competition in its contracts.
VA stimulus contracting is faring a little better. VA programs received approximately $1.4 billion in Recovery Act funds with $543 million paid out thus far. And according to GAO, those have been competed approximately 94 percent of the time.
Government wide, agencies must do more to ensure that full and open competition involving multiple bidders is the rule, not the exception. Agencies also need to debundle or break apart contracts to try to lure contractors both large and small into the system. Doing that might also reduce the multiple layers of subcontracting that we have seen in recent years.
Deficient accountability, Congress should not underestimate the value of accountability and oversight. The VA OIG's pre-award and post-award oversight have potentially saved the Agency $165 million in fiscal year 2009. A question for this Subcommittee is, how much of those potential dollars were actually recovered.
The Committee has already touched on the set-asides for veteran-owned businesses as well as for service-disabled veteran-owned small businesses, so I will not touch on that.
Additionally, I would like to recommend that this Subcommittee investigate service contracts and the high number of unemployed veterans who are out there. In the VA Human Resource or contract planning, if it is based on tailoring service contracts to contractors rather than former servicemembers, the Agency is doing a major disservice to the vets and that has created a problem and a higher rate of unemployment for returning vets.
POGO also believes that contracting laws should require contractors to provide cost or pricing data to the government for nearly all contracts and allow all contracting actions, including task and delivery orders, to be subject to bid protest.
My additional testimony touches on lack of transparency and risky contracting vehicles, specifically cost reimbursement, commercial items, and time and material labor hour contracts, but that has all been submitted in my written comments.
Thank you for inviting me to testify today. I look forward to working with this Subcommittee further to explore how the government and the VA can improve Federal contract spending. Thank you.
[The prepared statement of Mr. Amey appears in the Appendix.]
Mr. MITCHELL. Thank you.
And our next speaker, Mr. Denniston.
STATEMENT OF SCOTT F. DENNISTON
Mr. DENNISTON. Thank you. Chairman Mitchell, Ranking Member Roe, Committee Members and staff, thank you for the opportunity to testify today on the Department of Veterans Affairs Acquisition Program.
I am Scott Denniston, President of Scott Group of Virginia, representing one of my clients, the National Veteran Owned Business Association (NaVOBA) and its over 2,000 veteran small business owners around the country.
Within the past week, I have been contacted by a veteran-owned business in Arizona providing vinyl banners to the VA's Vocational Rehabilitation Service. Shipment to 58 Regional Offices was completed in October 2009.
The veteran is unable to be paid as VA regulations require a receiving report be completed. The veteran business owner when inquiring as to being paid is bounced between the contracting office and the Program Office as to who is responsible for completing the receiving report.
All the veteran knows is he has fulfilled the contract requirements and now suffers. The interest the veteran is paying for operating capital will negate all profit that he expected to earn on the contract. He stated he will never do business with the VA again.
And interestingly enough, just Monday, I received an update from this veteran who said that over the weekend, he sent an e-mail to General Shinseki asking for some assistance and on Monday morning, he received over 20 calls from VA staff who said they needed to report back to the Secretary by the close of business as to why he cannot get the receiving report done. Bottom line, though, he still has not received payment.
Another veteran doing business with VA is frustrated as he is currently working on two contracts with expiration dates of December 31st, 2009. The two contracts represent approximately $6 million a year in revenue. To date, he has not been told whether VA intends to exercise any of the options. As you can imagine, this causes great angst for the firm and its employees. Will they have a job come January 1st?
When the business owner inquires to the contracting office, he is told the contracts have been transferred to another contracting office. When he inquires to the new contracting office, he is told there is no contracting officer assigned and no knowledge of who the Program Office is.
When the veteran business owner inquires to VA's Central Office, he is told that the policy is to notify contractors within 60 days of expiration of VA's intent. Nice policy, but who follows it and where does the veteran small business owner go for assistance?
Another common practice at VA, which frustrates veteran small business owners, is VA's practice of advertising a request for proposal (RFP), having vendors incur substantial cost to submit proposals to VA, then VA cancels the opportunity and procures through an existing contract vehicle or enters into agreement with another Federal agency to award a contract for the same services.
The small businesses who submit the original offer did so in vane as now, because the VA's change of mind, they cannot bid on the opportunity.
NaVOBA members continue to be concerned about VA's overly restrictive interpretation of Public Law 109-461, commonly referred to as the Veterans First Contracting Program.
NaVOBA believes the provisions of P.L. 109-461 require VA to provide a preference to service-disabled veteran and veteran-owned small businesses for all goods and services the VA purchases. VA interprets the law's provisions to apply only to open market acquisitions.
As you know, VA spends a large percentage of its acquisition dollars using the Federal supply schedules. Therefore, service-disabled vets and veteran-owned small businesses are not provided a preference on much of what VA procures.
This in addition to VA's efforts to eliminate distributors and resellers from VA's Federal supply schedules, as well as VA's efforts to consolidate contracting opportunities under the guise of strategic sourcing makes selling to VA difficult for veteran-owned small businesses.
NaVOBA understands the Federal supply schedule is the preferred method of doing business, but we also believe that VA has responsibility to provide maximum practical opportunity to veterans on everything the VA buys.
On August 13th, 2009, VA Deputy Secretary Scott Gould hosted a supplier relation transformation forum. The Deputy Secretary is to be commended for hosting this event. The purpose was to hear from large and small vendors to the VA on what issues and impediments exist in doing business with VA. The forum was attended by over 100 people representing 82 vendors from most industries doing business with the VA.
There were many common themes that were expressed during that conference, all of which are in my testimony.
A suggestion NaVOBA would like to have VA consider is that the vendor community today is dynamic, enterprising, and inventive. VA cannot in the normal course of operating maintain ongoing operations and also evaluate new technologies and opportunities to use new products and services to improve care to veterans.
The vendor community is frustrated as VA is reluctant to change. The VA is in our opinion missing opportunities as there is no mechanism to test new products in the VA environment.
We propose the VA establish an organization independent of day-to-day operations to test new products and services through trials, test programs, and field demonstrations to more rapidly bring technologies and solutions to VA's operation. Such an organization could pay huge dividends in caring for our Nation's veterans.
In summary, the VA must be more sensitive to the needs and concerns of the veteran community, especially the veteran small business community. Every VA employee should work in a small business for a period of time and understand the impact of their decisions and inactions on cash flow, retention of employees, bank's lines of credits, and the myriad of issues facing veteran entrepreneurs on a daily basis.
Again, I would like to thank the Committee for this opportunity to testify and look forward to answering any questions.
[The prepared statement of Mr. Denniston appears in the Appendix.]
Mr. MITCHELL. Thank you.
Mr. Jimenez.
STATEMENT OF ANTHONY R. JIMENEZ
Mr. JIMENEZ. Good morning, Chairman Mitchell, Ranking Minority Member Roe, and Subcommittee Members. I greatly appreciate the opportunity to testify at this hearing regarding acquisition deficiencies at the Department of Veterans Affairs, and I am honored to represent other veteran-owned and service-disabled veteran-owned small business owners.
My name is Tony Jimenez and I am the President and Cheif Executive Officer of MicroTech. MicroTech is a minority-owned and a certified and verified service-disabled veteran-owned small business. We are also a certified 8(a) small business and we provide information technology, systems solutions, design, installation of telecommunications and video telecommunications systems, as well as product solutions and consulting services.
I retired from the Army in 2003 after serving 24 years on active duty and started MicroTech in 2004. Today I employ over 400 great Americans in an era of layoffs and job cutbacks. MicroTech has become a powerful job creation engine and force for economic development in my community, in my State of Virginia, and in a number of other locations across the Nation.
This year, MicroTech was named America's number one fastest growing Hispanic-owned business. And just last week, our success was celebrated during the NASDAQ Closing Bell ceremony.
Since I first testified before Congress in 2006, MicroTech has grown 3,000 percent in gross revenue and is now a prime contractor on over 100 Federal projects and 14 indefinite delivery/indefinite quantities (IDIQs), blank purchase agreements (BPAs), and government wide acquisition contracts (GWAC) contract vehicles and we are the prime on all 14 of those.
MicroTech manages over a half a million IT government users daily and provides products and solutions to over 30 government agencies along with every branch of the military. We have repeatedly been recognized by trade groups, industry publications, diversity organizations as a leading small business that has notably succeeded at supporting the business of government.
MicroTech's exponential growth has led to the recognition in a number of different areas, including the Deloitte Tech Fast 500. We were the number one communications and networking small business in the metropolitan area of Washington and Baltimore. We are the number one unified communications specialist according to CRN Magazine, the number one 8(a) business according to Washington Technology Magazine, and we are a Washington Business Journal fast growing company.
Like most veterans who retire from active duty, initially I had no idea what I was going to do when I retired and I knew I wanted to remain close to the fight and continue in some way to serve my country, but I was not exactly sure how to do that.
As an owner of a business that manages large-scale Federal projects, I now have the opportunity to use my unique military skills and expertise to help the government reach its goals as well as my ability to continue to work close with veterans and provide jobs to veterans.
My small business targets contracting opportunities based not only on our core competency but also on my opportunity to hire veterans, to hire service-disabled veterans, and to hire wounded warriors, and, more importantly, to give them jobs and perform the work, giving them a chance at a viable second career.
The unfortunate thing is that in the short 5 years I have been doing business with the Federal Government, I have discovered that opportunities for veteran-owned businesses and service-disabled veteran-owned businesses have been extremely hard to find. They are not abundant and they are definitely not as abundant as I assumed they would be.
In the last few years, I have noticed that the emphasis on increasing government contract opportunities for service-disabled veterans is improving, but we have still got a long way to go.
Our experience with the Department of Veterans Affairs regarding the three-percent rule actually has been very positive. We believe that VA exceeds its service-disabled veteran small business prime contracting goals and will continue to do so and that they reflect a commitment from the top and across the Agency to do the right thing for veterans.
VA awarded 15 percent of its fiscal 2008 contract dollars to veteran-owned small businesses and 12 percent to service-disabled veteran-owned small businesses.
On December 8, the VA displayed their special commitment to veterans by finalizing a new set-aside contract program focused on veteran-owned small businesses, offering them a substantial advantage in VA business contract procurement.
Veteran-owned businesses and even prime contractors that propose using veteran-owned firms or subcontractors now receive special VA preference.
As the rest of the government has failed to make the three-percent rule a priority, there are currently no penalties to failing to meet Executive Order 13360 and very few incentives for meeting or exceeding the established standard. This lack of oversight makes it extremely difficult for agencies to realize the advantage of contracting with veteran-owned businesses and service-disabled veteran-owned small businesses.
There needs to be a significant improvement made to correct the systemic problems in current procurement systems and to add incentives for achieving the three-percent goal. And I recommend the following steps:
I believe that contract bundling adversely impacts competition and hurts small business. The standard procedures for contract bundling require agencies to provide justifications for bundling decisions and have the decisions reviewed at higher levels.
Consolidate contracts so that small businesses can share in the benefits of bundling. And one of the things I have talked about in the past is that we as a small business have found that we have the ability to manage large contracts provided we partner with the right large contracting organization to large systems integrators.
However, many of the contracts that are presently being procured for do not provide an opportunity for a small business to be, for lack of a better term, the general contractor for the large opportunities.
We believe that placing more orders under small business GWACs would also be a success, particularly those like VETS, which is the Veteran Technology Service government wide acquisition contract, and the NASA SEWP contract, the NASA Solutions for Enterprise-Wide Procurement. Those are two excellent examples of contract vehicles that offer multiple award contracts with highly qualified service-disabled veteran-owned small businesses.
And I believe the VA has done an outstanding job of using those GWACs. Obviously it could be improved.
I also encourage the Small Business Administration (SBA) to proceed under the proposed rule making of RIN 3245 AF70. Thank you.
[The prepared statement of Mr. Jimenez appears in the Appendix.]
Mr. MITCHELL. Thank you.
Mr. Hesser?
[Witness sworn.]
Mr. MITCHELL. Thank you.
Mr. HESSER. I wanted to make sure I was legal when I am talking.
Good morning, Chairman Mitchell, Ranking Member Roe, other Members of the Subcommittee, fellow veterans, and guests.
Let me first thank you for the opportunity to come before you today to share views on VA acquisition deficiencies and how this Subcommittee can help to increase contracting opportunities for veteran and service-disabled veteran-owned businesses.
I am the 1st Co-Chair of the Veterans' Entrepreneurship Task Force known as the VET-Force. My testimony today is mine and the VET-Force.
My Navy active duty was many years ago. With 22 1/2 years, I was unexpectedly transferred to the disability retirement list as a Master Chief. I was given a check and sent home. At that time, I could not work a full workday. This has happened to thousands of veterans. The VET-Force and its members want this practice stopped.
Public Law 106-50 and subsequent legislation and rule making has significantly improved the veterans procurement program. This testimony is aimed at the Veterans Administration and number one out of five areas is the Center for Veterans Enterprise (CVE).
CVE personnel are responsible for tasks that require ten-fold the assets they now have. Many of their tasks cannot be completed in a timely fashion because they do not have the authority to complete them. In other words, they are frequently micro managed.
Twelve thousand veteran-owned companies desiring verification are waiting their turn. CVE was verifying 200 each month. I do not know what the recent figure is, but there is a lot to go.
Contracting officers in the VA: Not all contracting officers are required to follow regulations and rules. I mean that because the Veterans Integrated Service Networks (VISNs), every VISN is different. They are not always given authority commensurate to their responsibility.
Appropriations and budgets: CVE is a nonappropriated organization and exists only by the grace of the VA supply fund. CVE needs its own line item and significant increase of available funds.
VA General Counsel (GC): The VA has not complied with Public Law 109-461. The date of enactment was supposed to be 180 days and we are within 6 days of it being 3 years. And it does not look like they are going to go anywhere and get it done because they still have to get an agreement between the VA and SBA and that is not getting anywhere.
It is General Counsel's responsibility to ensure regulations are followed in a timely and accurate manner. The result of their ignoring 108-183, 109-461, and Executive Order 13360 is apathy and confusion throughout the VA acquisition community. Every VISN is different.
General Counsel's inaction has caused in some areas within the VA acquisition community derogatory feelings toward the VOSB Procurement Program. Lack of firm direction has been and is still today creating road blocks.
Vocational rehabilitation and employment, we have to have more counselors and money for them to operate. Our wounded warriors are now coming home and when they want to be self-employed, we send them to CVE. They have not had any counseling. So we need to hit that area as well.
Passage of the original concept of Public Law 109-461 was highly supported by the VET-Force and most veteran supporters. It is still supported by the VET-Force. The law is written for the VA.
One requirement is that the VETBIZ database be expanded using both VA and the U.S. Department of Defense (DoD) data. It also requires the VA to make VETBIZ available to the entire Federal Government to view the registrants within the database. It also states the VA will verify all VOSBs and SDVOSBs prior to awarding a Veterans Affairs contract.
Public Law 109-461 does not say that the VA's application of their 38 CFR 74 regulation was to be Federal government wide. That was not the original idea. As we understand of the Congressional staff and everybody else, it is "try the VA first."
Both Public Law 106-50 and 183 direct non-VA contracting officers to accept self-certification. The Federal acquisition regulations (FARs) also require all contracting officers to practice due diligence prior to an award. Only those desiring VA contracts are to be verified by CVE.
VA's present procedure is to verify the company and issue them a verification pin. The VA then enters in that company's profile that they are verified.
When a VA contracting officer wants the award contracted SDVOB who is in a VETBIZ queue for VA verification, the contracting officer simply calls CVE and they rush it through. That is very good.
However, when an SDVOB in the VETBIZ queue submits a response to a non-VA, say Department of Labor, SDVOB set-aside request for proposal by a contracting officer who uses VETBIZ, the company not verified will unjustly be considered as not qualified to bid.
The VET-Force has recommended to the VA CVE that all VA verifications remain accessible only to VA acquisition personnel. The VA CVE has not accepted this recommendation. Not doing so is sabotaging the Service-Disabled Veteran-Owned Program.
The first step was the VA only. Then we were going to move off. The second step should have been all the way. We know of cases where a source went out from one Department, one other Agency. She got twenty applications, she went on the VetBiz Web site and found eight of them who had been verified. The only people who got a request for quotation (RFQ) were those eight people. That is wrong. Self-certification is the only thing to require until we get this ball rolling properly.
Thank you, sir.
[The prepared statement of Mr. Hesser appears in the Appendix.]
Mr. MITCHELL. Thank you.
And I thank all of you for your testimony.
I have a couple questions, first of Mr. Amey.
There have been several discussions within the Subcommittee about the threat resellers and pass-through entities play in procuring government waste and abuse.
Do you think this concern is justifiable and what should the VA be doing to mitigate this risk?
Mr. AMEY. It is very justifiable. And I believe last year in the Defense Authorization Bill, if it was not in the 2009 Bill, it was in the 2008 bill, tried to handle that issue with trying to limit pass-throughs, that if there is not value added through a subcontract, and I do not know exactly how they are going to monitor value added in that case, but at that point, then the subcontract opportunity should not be awarded.
I believe that is only DoD. So they are the types of improvements that we need to expand government wide to hit all agencies to prevent pass-throughs and prevent someone from adding very little value added, but at the same time reaping profits from that procurement.
Mr. MITCHELL. Thank you.
And this question is for Mr. Denniston.
Why do you think the VA has a practice of advertising a request for proposal and then have vendors incur all, as you mentioned, all the substantial costs to submit the proposal only to have the VA cancel the opportunity and procure through an existing contract vehicle? It just does not make too much sense.
Mr. DENNISTON. My feeling on that, sir, is that there needs to be better acquisition planning. And the VA to their credit about a year and a half ago established a process called the integrated product teams, IPTs, where the goal was to get the program people, the contracting people, the small business people, and the General Counsel people together to actually plan acquisitions and know what the statement of work should be, what VA's needs are.
I think if that process was followed, I think we would not have the situations that we have got now where RFPs are requested and then canceled.
Mr. MITCHELL. So there is a policy?
Mr. DENNISTON. There is a policy in place.
Mr. MITCHELL [continuing]. To start following that?
Mr. DENNISTON. I think it needs to be followed more strictly, yes.
Mr. MITCHELL. Thank you.
And, Mr. Hesser, in your testimony, you discussed the displeasure with the VA's General Counsel Office. Specifically you mentioned inaction on the GC's part and the derogatory feelings toward the VOSB, and the SDVOSB procurement programs.
Can you elaborate on why you feel that these derogatory feelings are there towards the veterans and their businesses?
Mr. HESSER. I think first at VET-Force, we deal only with procurement, so we are supported by all the other organizations. So we get a lot of information. And if somebody has a hard time, they will call us. And sometimes it's not too good because it takes a lot of my time.
But we have a case where a very senior individual in the Veterans Administration has told a client who is a vet who is trying to get business there, well, the contracting officers do not like you. And the program, they do not like this program, so do not waste your time literally. And I would be willing to share that, but I do not think it should be done publicly.
We have other cases where the service-disabled veteran has tried to go in, this was maybe as long as 5 or 6 months ago, and tried to sell a product that they did not manufacture. They represented the company, but they used that product to make their business services, et cetera. And they were told that, no, we want to deal directly with the manufacturer. We do not want to deal with the dealer.
Now, most of that has been cleared up because several organizations went in there screaming. But that is strictly against the law, but they do it anyhow.
General Counsel has in many cases made policy directions that are not there. They came out with 38 CFR 74 and it was supposed to be their rule of thumb of going. Now General Counsel is aware of it. CVE is, in fact, saying that you cannot be a service-disabled veteran-owned small business on a part-time basis because you are not fully in control of it.
Like most veterans start in their house. Of course they work for somebody else to make some money and then work their way into the business.
They also say that you cannot own two businesses. And there are cases where we have individuals do that. We have one individual who has two companies because one is very highly tech with doctors and master's degrees and one is not. They are general services, secretaries, et cetera, he provides. He has two separate cost differences there for his labor, so he has to have two. He has been doing it for years.
The General Counsel sticks their head in places and they allow things to happen that they should not be doing. The law is the law. A rule is a rule. And to make that law, rule and everybody tries to follow by it and they do not do it. And, yes, we have some cases we will be happy to discuss.
Mr. MITCHELL. Thank you.
Dr. Roe?
Mr. ROE. Thank you, Mr. Chairman.
And thank you all for testifying and thank you all for your service to our country.
And I just have a couple of comments to start with and then some questions.
I guess the problem I am having with this is that we have hard-working American citizens out there every day, veterans included, and we have disabled veteran businesses, and we have other veteran businesses.
And my job back home in Tennessee before I came here was Mayor of our city, the largest city in our district. And I know it is not a lot of money for Washington, but over the last 6 years, we managed about $1 billion, a little short of $1.5 billion.
And we would have projects, and we are talking about $100 million water and sewer projects. We are talking about building tens of millions of dollars for schools, roads, all the things that local governments do. It was a very transparent, clear process about how the taxpayers got value for their tax dollars.
If we had an RFP or we had a contract, it was a sealed bid and the lowest bidder meeting all the specifications of that project got the project. It was a fairly quick process. And I would think that the VA, we know the rules for the veteran-owned small businesses and the disabled veteran businesses, and they should have every access to that business.
Master Chief, I agree with you completely. It ought to be transparent. It ought to be easy to do. So that is one of the parts as I read this material last night that was disconcerting to me was that there seems to be a lot of at least, I will not say fraud and abuse, I will say inefficiencies in this system that is wasting a lot of money and is incredibly slow to get done.
And I think this bill that Congressman Buyer has, and I am a co-sponsor, will address some of these things. And I would suggest that other Members here take a very close look at it, to have someone who is responsible.
As you said, these veterans are getting the run-around. They are running in a circle. They go here and they are told to go there and they are told to go there and finally they just quit.
And I am sure, Mr. Jimenez, you have probably faced that in your business and I am sure you will share some of that frustration with us.
And, Mr. Amey, on page three of your, on the POGO, on page three of your written testimony, you stated that 54 percent of the contract dollars were listed as not identified.
And are these miscellaneous obligations or are these additional obligations that have not been categorized into some form or does anybody know where the money is?
Mr. AMEY. I hope someone knows. But you do not know. Federal procurement data has always had major data errors in it. You do not know if it is just a problem with the acquisition workforce with not pulling down the right pull-down screen in data entry or if they do not know what type of competition it really was. And that is the problem.
That is the first time in going through a lot of procurement data that I have ever seen half of the pie chart that has been filled in black with unknown amount. And, you know, when it is $8 billion, that is a lot of amount to kind of have unknown. And it is something that we need to get down to the bottom of.
And that is why the full and open competition number is low. You know, in the normal Federal Government, that number averages about 60 or close to 70 percent. Here it is in the 20s. You know, I am not saying that there is all kinds of waste, fraud, and abuse going on?
Mr. ROE. Right.
Mr. AMEY [continuing]. As far as the extent of competition goes, but without even knowing. And in the data, it is kind of funny because it says like searching for the answer or something like that. Like it is very user friendly, like public, you know, language in it, but that was the same information and tag line they had for the 2008 data as well as the new 2009 data. So it does not seem as if they have righted the ship.
Mr. ROE. I can assure you in my business that I ran, which was a medical practice, that there was not any miscellaneous obligation and I did know where the money was going. And I think most businesses know because either?if they do not know, as Mr. Jimenez will tell you, you do not have a business. You go out of business.
Mr. Jimenez, what criteria did MicroTech have to fulfill in order to become certified and verified as a service-disabled veterans-owned small business? I would like to hear that.
Mr. JIMENEZ. Sir, I do not recall the number of the form, but we filled out a form. All the partners had to sign. All the partners then submitted it along with the documentation required which I believe was proof of 51 percent ownership or more by myself, as well as day-to-day control by myself, as well as my service-disabled veteran status, as well as the other documents required. And it was submitted. It was not a smooth process initially.
In fact, at the time, Mr. Denniston was still employed by the VA and we were hoping we got it done early and we were hoping it would come back. And they were actually very thorough and came back and asked some additional questions and gave us some additional guidance and we got it in.
And we did not experience the problems that other folks are experiencing. But I suspect it was because we were one of the early ones and we heard about it and we got out and got it done.
Mr. ROE. How long a period of time was that?
Mr. JIMENEZ.&n
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