Joint Hearing of the Committee on Homeland Security and Governmental Affairs of the U.S. Senate and the Committee on Veterans’ Affairs of the U.S. House of Representatives at 1:00 p.m. CDT.
Submission For The Record of Robert G. Hesser, Vetrepreneur, LLC, Herndon, VA
SDVOSB Owner, Herndon, VA
Retired Master Chief, USN
This document is a compilation of comments from members of the veteran business community and includes suggestions, ideas and concerns. Most of the comments were unsolicited and frequently passionate. Our commenter’s represent almost every ethnic, cultural, age, gender and possible demographic. We are united in our concern for how veterans, their families and employees are treated.
We are also united in our belief that the VA’s mission of helping veterans should be integral to acquisition planning and implementation….as we understand that the greatest value to the taxpayers is to have a robust and competitive small business industrial base. To us, that means that the objectives of Vets First include the impact on veteran unemployment and homelessness as well as opportunities through the marketplace to improve access to medical care through employer funded plans.
Vets helping vets, it’s that simple. We ask the committee to reinforce the importance of including the Department Veterans Affairs mission in the planning and execution of their acquisitions. In today’s economic environment, it will be good to get a win-win where we are helping our nation’s veterans while reducing the total cost of implementing the VA’s mission.
Vets First = Vets Last
The Department of Veterans Affairs (VA) has stated that it “conducts its contracting with small businesses in good faith and in the spirit of the “Veterans First” legislation that gives preference to eligible veteran-owned small businesses (VOSB’s) and service-disabled veteran-owned small businesses (SDVOSB’s).” Despite the value that veteran small business owners bring to VA procurement, they continue to face barriers and obstacles. One of the lateral benefits of the Veterans First law is its ability to decrease veteran unemployment, which is currently 11.5 percent with estimates as high as 25 percent when the troops return from Iraq and Afghanistan. Veterans hire veterans! From battle to business, veteran small businesses care for fellow comrades.
Background on Vets First Law
On December 22, 2006, Former President Bush signed P.L. 109-461, The Veterans Health Care, Benefits and Information Technology Act of 2006, which directs the Secretary for Veterans Affairs to “give priority to a small business concern owned and controlled by veterans, if such business concern also meets the requirements of that contracting preference.” 38 U.S.C. § 8128(a). Note that there is no mention of federal supply schedules, open market, or other qualifiers. The law clearly and profoundly declares that veteran owned small businesses shall be given priority when the VA procures goods and services.
VA Understood Vets Come First
It’s clear that the VA initially understood the intent of the law. In the June 19, 2007 Information Letter (IL 049-07-08), VA stated that “this approach changes the priorities for contracting preferences within VA, placing SDVOSB’s and VOSB’s first and second, respectively, in satisfying VA’s acquisition requirements.”
A year later, the VA still clearly understood the intent of the law to consider veteran owned businesses first because they declared in the August 20, 2008 Federal Register that “We interpret section 8128 and the legislative history to mean that SDVOSB’s and VOSB’s must receive priority in VA contracting opportunities without regard to other provisions of law concerning contracting preferences…VA finds that section 8128 requires VA contracting officers to have the authority to override other statutory contracting preferences to provide priority to SDVOSB’s and VOSB’s…”
VA Puts Vets Last
Then, in testimony before the US House of Representatives Committee on Veterans’ Affairs Subcommittee on Economic Opportunity on April 23, 2009, everything changed. Jan Frye, VA Deputy Assistant Secretary, Office of Acquisition and Logistics, testified, “It is important to note that the unprecedented and extraordinary contracting authorities granted to VA under Public Law 109-461 are preferences in open market contracting for veteran entrepreneurs.”
In one fell swoop; veteran owned small businesses were moved from FIRST to LAST in the VA Purchasing Priority List. The VA’s unilateral interpretation that the law only applies to “open market” purchases means that veteran businesses are now first in the LAST category on the purchasing priority hierarchy.
VA Uses Convoluted Purchasing Priority List
Eight months later, a commenter in the Federal Register (December 8, 2009) asked that the VA Purchasing Priority Hierarchy be specifically defined for contracting personnel to avoid confusion. The VA disagreed by stating “this rule clearly implements the priority purchasing preference for SDVOSB and VOSB in accordance with the statute. Under section 8128(a), VA must give priority to small business concerns owned and controlled by veterans, if the business concern meets the requirements of that contracting preference. In this rule, VA will provide discretion to its contracting officers to override certain statutory priority preferences, such as Federal Prison Industries and Government Printing Office. Under section 8128, VA is implementing priority for SDVOSB’s and VOSB’s to the extent authorized by the law...”
Yet, there is confusion for VA contracting personnel. The VA purchasing priority list basically goes like this. First and Second in the purchasing hierarchy includes – Number 1-Agency inventories and Number 2-Excess from other agencies. Veterans understand that the Vets First law does not apply here as the VA is not buying goods and services because they were previously purchased or are from an existing agency on-hand inventory. Number 3 – Federal Prison Industries. VA regulation (808.6) states that veteran businesses come before Federal Prison Industries. Number 4 – Supplies which are on the Procurement List maintained by the Committee for Purchase From People Who Are Blind or Severely Disabled (Ability One). The United States Court of Federal Claims found in the “Angelica” decision on October 26, 2010 that veteran businesses take priority over Ability One (otherwise known as “Javits-Wagner-O’Day Act” (JWOD)). The court found that “the New Guidelines…provide mandatory procedures for Departmental contracting officers and procurement officials to explore whether SDVOSB and VOSB entities are potential suppliers, in which instances they are to be accorded first priority over that provided by the Javits-Wagner-O’Day Act.” The court further found that the “Veterans Benefits Act is a specific mandate to the Department [VA], and only to the Department, to grant first priority to SDVOSB’s and VOSB’s in the awarding of contracts.”
Let’s continue down the VA purchasing priority list. Number 5 – Wholesale supply sources. Number 6 – Mandatory Federal Supply Schedules. There are no mandatory federal supply schedules. This will be further clarified once the proposed rule FAR Case 2009-024 takes effect. Number 7 – Optional use Federal Supply Schedules (“FSS”). The October 11, 2011 Government Accountability Office (GAO) Aldevra decision states, “We see nothing in the VA Act or the VAAR that provides the agency with discretion to conduct a procurement under FSS procedures without first determining whether the acquisition should be set aside for SDVOSB’s. The provisions of both the VA Act and the VAAR are unequivocal; the VA "shall" award contracts on the basis of competition restricted to SDVOSB’s where there is a reasonable expectation that two or more SDVOSB’s will submit offers and award can be made at a fair and reasonable price. Thus, contrary to the agency's position, the VA Act requires, without limitation, that the agency conduct its acquisitions using SDVOSB set asides where the necessary conditions are present. 38 U.S.C. sect. 8127-8128.”
Finally, we arrive to the bottom, last category on the VA purchasing priority list -- Number 8 – Commercial sources and open market. This “open market” area is where Jan Frye testified that the Vets First law applies.
Based on these findings, it’s no wonder why VA contracting personnel and the veteran business community are confused. The purchasing priority list is convoluted – how are veteran businesses ahead of some areas, yet below others? It makes no sense. The VA allows this confusion to continue as a means to NOT consider doing business with veterans first.
VA Refuses to Comply with Law
Even after the US Federal Court of Claims and GAO declared that VA should be considering veteran small businesses first, VA stands by its faulty interpretation. VA says in an October 17, 2011 internal memo from Jan Frye that the agency will continue to violate the law, “VA is of the opinion GAO’s interpretation is flawed and legally incorrect….Because GAO is part of the Legislative Branch, Executive Branch agencies are not bound by GAO's legal advice. Therefore, VA determined this GAO recommendation…shall not be followed…The GAO recommendation does not change how VA will acquire goods and services in support of its mission.”
VA Refuses to Consider Vets with a Federal Supply Schedule First
Even when veteran business owners have a Federal Supply Schedule contract, they are still not considered first! The VA has stated the “Vets First” program does not apply to awards made using Federal Supply Schedules, although the recent interim FAR rule FAR Case 2011-024 implementing the Small Business Jobs Act of 2010 would allow this evaluation factor.
Service disabled veteran owned small business owners have done their best to comply with all the VA terms to do business with them – the arduous task of verification, in business for two years, obtain past performance, apply and be awarded a Federal Supply Schedule contract, etc. Yet, after obtaining all these requirements, their opportunity to do business with the VA is given to others.
VA Transformation Twenty-One Total Technology (T4) Contract - $12,000,000,000 IT Contract Awarded to Six Veteran Small Businesses and Eight Non-Veteran Businesses with the existence of P.L. 109-461
Prior to solicitation release, during briefings and discussions with VET-Force the TAC (VA Technology Acquisition Center) provided an organizational and mission overview. A key point emphasized during this briefing was that T4 would capture funds, such as the GSA/VA Schedule Industrial Funding Fee (IFF) for the supply fund.
T4 Solicitation Q&A’s openly flaunted PL 109-461, “Vets First” in at least six of the Q&A responses to industry where TAC emphasized that the SDVOSB and VOSB awards were not set-aside and therefore were not subject to “Limitations of Subcontracting.”
T4, as procured, may actually serve to reduce the SDVOSB and VOSB industrial base. In an SDVOSB set-aside, more than 50 percent of the direct labor must be performed by the prime and any combination of SDVOSB’s. By not having an SDVOSB set-aside “limitations of Subcontracting” several SDVOSB companies will do quite well, but the key objective of 109-461 – to build SDVOSB capabilities and industrial base – will not be met.
With recent GAO and CoFC decisions re-affirming “Vets First” as the VA acquisition priority, it would appear that only six of the awardees (the SDVOSBs) will be eligible for Task Order Awards.
VA Buys Chinese Gloves Instead of Gloves Made in US from a Veteran with FSS
In one egregious example, a veteran invented a medical glove. The VA buys tens of millions of gloves annually. These gloves are manufactured in the United States in a historically underutilized business zone (HUBZone) in Alabama by a company that employs veterans. The gloves are distributed by a verified service disabled veteran with a Federal Supply Schedule. About 32 U.S. jobs are created for every $1 million in gloves sold. So where do you think the VA spends millions buying gloves to care for veterans? The VA spends our hard earned tax dollars to buy these gloves from a company that makes them in China and sells them to the VA for more money than the American manufactured, veteran distributed gloves.
The VA states that it “continues to strongly support eligible Veteran-owned small businesses who seek to do business with the federal government.” Yet this example and many others demonstrate otherwise.
VA Touts Inaccurate Numbers
The VA touts their achievements in awarding 23 percent of contracts to VOSB’s and 20 percent to SDVOSB’s. This is commendable; however, it is not accurate. The VA is double dipping. They're counting service disabled veteran owned small businesses as part of the veteran owned small business contracting percentages. The true numbers are that 3 percent of contracts go to VOSB’s and 20 percent to SDVOSB’s. This includes $500 millionawarded to 1,400 ineligible businesses highlighted in the July 25, 2011 VA Office of Inspector General audit. In addition, considering that there is a law to consider veteran small businesses first 100 percent of the time, the VA’s performance is disappointing and signifies a loss of approximately $11.8 billion a year to veteran owned small businesses.
VA Gives Small Contracts to Large Businesses
VA fails to first consider qualified veteran small businesses in Simplified Acquisitions. These are purchases valued between $3,000 and $150,000. The Small Business Act exclusively reserves these contracts for small businesses. For FY 2011, the VA had more than 213,000 simplified acquisition purchases equating to more than $3.8 billion. More than 55 percent of these purchases went to large businesses, most of which hold a Federal Supply Schedule contract. The VA awarded 7.74 percent to SDVOSBs and 4.25 percent to VOSBs of a combined total of $606 million of the $3.8 Billion of VA simplified acquisition transactions. This equates to $3.2 billion in simplified acquisition contract awards to non-veteran businesses.
VA Leadership Contradicts Itself
On July 21, 2009, Secretary of Veteran Affairs Eric Shinseki addressed veteran entrepreneurs at the 5th Annual National Veteran Small Business Conference in Las Vegas and stated, “VA will begin putting Veterans first – fully first – in our contracting efforts because we recognize the on-time, on-budget, quality solutions that you offer to meet our contracting needs.” This statement seems to contradict VA practices. The hypocrisy continues in the VA’s strategic plan for 2010-2014, which states that “As the economy begins to recover, small firms will be the most likely source of new jobs for Veterans. Small firms employ about half of all private sector employees, create 60 to 80 percent of net new jobs annually, and tend to lead the way in new employment when the economy improves. In this vein, VA has a longstanding commitment to contracting with Veteran-Owned Small Businesses (VOSB’s).” The VA is not doing what they say they will do! Vets hire vets! The only thing veteran small businesses ask is for first consideration at the VA. Right now, they don’t have it. If they’re not being considered, veterans can’t create jobs for themselves or for another veteran.
VA and the Small Business Administration (SBA) should develop a comprehensive partnership to assist veterans who are interested in participating in Federal procurement. VA should develop clearer and more comprehensive small business contracting policies:
Recommendation 1: Update or revise existing VA acquisition policies and regulations to comply with P.L. 109-461 and provide clear guidance to VA contracting personnel to increase veteran small business set-asides. The revision must clearly state that veteran small businesses have a contracting preference and priority:
- above statutory preference entities from General Federal Statutes under FAR Part 8 Required Sources of Supply that lists Federal Prison Industries, AbilityOne, and federal supply schedules;
- above statutory preference entities from General Federal Statutes under FAR Part 19 Small Business Programs that lists 8(a), HUBZone, & WOSB;
- above General Federal Procurement Statutes and Acquisition Initiatives such as Strategic Sourcing Initiative;
- in all acquisition thresholds;
- in all NAICS Codes;
- in all market categories such as Federal Supply Schedules and Open Market;or all goods or services procured by the VA;
- exclusively within the VA.
Recommendation 2: Issue guidance clarifying practices and strategies to prevent unjustified contract bundling and mitigate any negative effects of justified contract bundling on veteran small businesses.
Recommendation 3: Identify industries where focused efforts on existing qualified veteran small businesses would likely have the most positive effect on increasing small business utilization in prime contracting. Then develop a plan to increase veteran small business participation in those industries where veteran small businesses are non-existent to increase contract awards.
Recommendation 4: Strengthen the skills of the acquisition workforce by revising existing core certification, requiring training on veteran small business contracting, procurement policies and regulations, and creating focused refresher materials for continuous learning to increase the number of contract awards to veteran small businesses in all industries.
Recommendation 5: Increase the number of simplified acquisition procedure (SAP) transactions awarded to SDVOSBs at 16,000 (7.74 percent) and VOSBs at 9,000 (4.25 percent) of VA total awards of 213,000 to 60 percent of SAP transactions within one year. This can be accomplished due to the fact that more than 100,000 transactions (more than 50 percent) were awarded to non-veteran businesses for commodities. An increase in simplified acquisition transactions to the veteran small business community has a direct effect on increasing veteran employment.
Recommendation 6: Create a separate budget line item designating that the funds are to be used for only the Center for Veterans Enterprise. The Center for Veterans Enterprise will assist veterans in obtaining verification of their small business in accordance with 38 USC 74.
The veteran small business community has the best overall understanding and is in the best position to fully support VA’s mission with an in-depth procurement knowledge, experience, and understanding for mission success. The veteran small business community has a vested interest in VA’s mission success and the healthcare, job creation, and homelessness of their fellow veterans that goes beyond profits. There is no finer group of small business owners and their families who have invested through their individual sacrifices to ensure the American Nation persevered with each new and challenging millennium.
Bureau of Labor Statistics “Employment Situation of Veterans News Release” October 20, 2011 http://stats.bls.gov/news.release/vet.htm
VAAR 808.603 Purchase Priorities, VA Proposed Rule in Federal Register August 20, 2008
 Testimony before the US House of Representatives Committee on Veterans’ Affairs Subcommittee on Economic Opportunity, APRIL 23, 2009
VA Basic Ordering Agreement (BOA) V797P2071
 Simplified acquisition transaction numbers extracted from USASpending.gov on 11/18/2011.