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Witness Testimony of Mr. Richard F. Weidman, Executive Director Policy & Government Affairs Vietnam Veterans of America

Congress passed Public Law (PL) 109-461, the Veterans Benefits, Health Care, and Information Technology Act of 2006. While this legislation provided a number of benefits for veterans; what’s of particular importance for the purposes of this hearing today, is that Title V, Sections 502 and 503 of this legislation, authorized a unique "Veterans First" approach to VA contracting. This approach has changed the priorities for contracting preferences within the Department of Veterans Affairs (VA), by placing Service-Disabled Veteran Owned Small Businesses (SDVOSBs) and Veteran Owned Small Businesses (VOSBs) first and second, respectively, in satisfying VA's acquisition goals as set by the Secretary of the VA.

In so doing, it requires that certain conditions must be met. All SDVOSBs and VOSBs, must submit an application to be ‘VERIFIED’ by the VA’s Center for Veterans Enterprise (CVE),to be eligible for award of a contract exclusively within the Department of Veterans Affairs and to be registered in the VA’s Vendor Information Pages (VIP), aka Veterans Small Business Database, available at www.VetBiz.gov.

Unfortunately, it's this Verification Process established by the VA and codified in regulations 38 CFR 74 that is being used to determine a Veteran's status, ownership and control of their company that is causing

Literally thousands of veteran and service-disabled veteran business owners to be deprived of millions of dollars in contracting opportunities that could benefit them, their families, and their communities.

In the last year, CVE’s requirements, criteria, process and standards have begun to be more transparent.  While this visibility has been insightful, CVE's own statistics show that nearly 60% of all veteran business owners applying for verification are being denied.  It has become apparent that either the regulations are fundamentally flawed, or that the adjudication process is out of control.

INTRO:

Good morning, Chairman Johnson, Chairman Stuzman and other distinguished members of the subcommittees on Oversight and Investigation and Economic Opportunity.  The Vietnam Veterans of America (VVA) is pleased to have the opportunity to appear here today to express our views and the views of many veteran business owners who are members or affiliates of the Veterans Entrepreneurship Task Force (VET-Force).

Both VVA and the VET-Force have been deeply involved with the Department of Veterans Affairs' (VA) Veterans Small Business Verification process as carried out by its Center for Veteran's Enterprise (CVE) since its beginning.  As the regulation was being crafted, we voiced our concerns about the unintended consequences.  As companies began to receive denials with no apparent basis, we saw these unfold with increasing severity and impact on our veteran businesses.  For more than 5 years, we have sought to obtain the definitions, documentation requirements, standards and criteria that were utilized by CVE so that we could understand and communicate to the veteran community why companies were being denied for following standard, best business practices.

In just this past May, VA's Small Business Director implemented a Partner Education Program to enable Procurement Technical Assistance Center (PTAC) and Veteran Service Organization representatives to better assist Veteran business owners with understanding CVE’s requirements, criteria, process and standards.  VVA, VET-Force, the American Legion, Nabvets, Vets Group, the National Veteran Small Business Coalition are some the groups who have been participating.  While this program has produced 3 rather productive workshops, it has also shown that most Veterans are denied due to issues of control and that there are many sections of the regulations which are subject to the interpretation of the reviewer. 

Major Issues Affecting the VA’s Veterans Business Verification Process

 

There are a number of issues that have surfaced regarding the verification process undertaken by CVE to ensure that a business concern is a SDVOSB or VOSB; here are just a few:

I.  Verification of Veterans Status, Ownership & Control.  CVE is either understaffed or lack a sufficient number of experienced staff persons qualified to conduct the veteran business verification procedures as defined by 38 CFR Part 74.  It’s CVE’s task to collect and review the necessary documents from veteran business owners as well as to schedule a site visit of the applicant's company. 

Veterans Status.  The documents needed are to verify that the business owner is a veteran who was discharged under conditions other than dishonorable or is a service disabled veteran who possesses either a disability rating letter issued by DOD or the VA.  Veterans being listed in other VA databases is supposedly no longer required.

Ownership, Control & Management.  Additional documents are needed to establish if the veteran(s) or service disabled veteran(s), or in the case of a veteran with a permanent or severe disability, the spouse or permanent caregiver of such veteran, meet the majority ownership requirement, and that they control the company by performing the day-to-day management, which is clearly defined in 38 CFR 74.

 

Verifying Ownership.  Verifying the status of the veteran seems to be the easiest part; particularly since the VA already maintains or has access to the records of veteran and service disabled veterans.  Verifying Ownership is somewhat more challenging because CVE must verify if the Ownership is direct and unconditional.  It must verify if the type of Ownership is that of a Partnership, Limited Liability Company, or a Corporation; and if stock is involved, it must verify the stock options’ effect on the Ownership.  There’s also the matter of determining Ownership interests when an owner resides in any of the community property States or territories of the United States.

Verifying Control.  According to 38 CFR 74.4, Control is not the same as Ownership, even though both may reside in the same person.  Control means management and long-term decision making authority.  CVE must verify that the service disabled veteran or veteran business owner has both.  But where this gets more involved, is when control is sometimes contingent on who has the expertise or licenses to run the operation.  An owner who is a computer engineer may not be the best CEO.  But according to CVE’s verification requirements, the owner must hold the highest officer position in the company.

Then there is also the somewhat conflicting view that owners need not work in the company full-time but must show sustained and significant time invested in the business.  But there is also the requirement that one or more veteran or service disabled veterans who manage the company must devote full-time to the business during normal working hours.  And even though the veteran owner has an unexercised right to cause a change in the management quickly or easily, use of a non-veteran manager may disqualify the company as being veteran owned.

In addition, all of these control issues have to be verified in the context of the type of company - Partnership, Limited Liability Company, or Corporation.  And it must be determined to what extent do non-veterans have the power to influence or control the company – either directly or indirectly via critical financial or bonding support, Board actions, etc.

Some examples:  (1) the regulation states that Control of the business means that Ownership must be unconditional.  So we are having 51% Service Disabled Veteran Business Owners whose spouse is a 49% owner of the business being denied because the ownership documents state that the 49% owner has some say in how the company can be disposed of.  Therefore, the majority owner does not have unconditional control.

And may I point out that in this example, the decision regarding disposing of the company has nothing to do with the fact that the company is capable and qualified to provide goods or services to the VA;

(2)   We are hearing from Veterans who are100% owners of their companies but they also have a Board of Directors.  So even though the owner is President of the company and Chairman of the Board, if each board member is allowed one equal vote then the owner is viewed by CVE to not have full control and is therefore denied;

(3)  And even more than ever before we are hearing from Veteran Business Owners who live in 'Community Property States' where for a veteran who is married, most property acquired during the marriage is owned jointly by both spouses and is divided upon divorce, annulment or death.  So even in light of the fact that the business is 51% or more owned by the Veteran according to all documents related to the ownership of the business, such veteran is likely to be denied by CVE; and

(4)  According to the program guidelines used by CVE, based on their interpretation of the governing regulations found in 38 CFR 74, a Veteran Business Owner must demonstrate that they control both the day-to-day management and administration of business operations.  While CVE uses administration and business operations as part of their criteria, these are clearly not part of the regulatory requirement (38 CFR 74.4) which clearly states:

Section 74.4 who does CVE consider to control a veteran-owned business? 

(a) Control means both the day-to-day management and long-term decision making authority for the VOSB.  Where, from section 74.1 definitions "Day-to-day management means supervising the executive team, formulating sound policies and setting strategic direction.  Therefore, if a Veteran Business Owner cannot convince CVE that they are capable of controlling more than one business or controlling their business while being employed by another, they will be denied. 

And to further discourage Veteran Business Owners in this situation, if the Veteran Business Owner has hired a Business Manager with more expertise than them to run the day-to-day operations, then that will also be grounds for denial according to CVE.  From CVE's own definitions and regulation, there is clearly no basis or rational for these denials.

 

We are frequently receiving complaints regarding decisions like these resulting in the Veteran Business Owner being denied and causing the loss of millions of dollars and numerous jobs, many in the districts of members of these subcommittees.

The procedures used by CVE are sometimes questionable.  We receive many complaints from veterans who were told that they needed to submit additional documentation without being given a clear explanation of why the information is required or what the statutory or regulatory basis is for these documents.  Our constituents tell us that these requests are overly invasive and burdensome.

We are also concerned about the security of the documentation submitted and the quality of the review of documentation.  Time after time, we have received complaints whereby CVE has reportedly lost the documentation submitted with the Veteran's application.   And this does not always occur during the initial submission.  As in the case of Ron Washington, who was scheduled for a site visit by a CVE examiner only to find that the CVE examiner claimed that he could not locate the appropriate documents submitted with the application.

We understand the necessity for the CVE program of verification and/or certification of Veteran and Service Disabled Small Business Owners.

We know that many of you have supported and voted for legislation that will benefit Veterans and their families.  We realize that through the use of  various procedures, guidelines, and regulations a program can be established for only a selected group.  And those applicants that don't meet those requirements will not be admitted thus preventing fraud and misrepresentation by others who don't qualify.

We are well aware of that the use of more stringent verification requirements were implemented by CVE following a GAO report that exposed flaws in the verification process, a report by the Inspector General, and the passage of Public Law 111-275.  So we know that CVE and the VA wants to decrease its chances of error.

But these veterans represent thousands of capable and qualified veterans and service disabled veteran business owners of all races, Black, White, Hispanic, Asian, Jewish, they are Male, Female, Old, and Young.  Their preference is due to service and sacrifices in defense of this country and for no other reason. 

And when the requirements of the CVE program are so narrowly viewed and overly burdensome that nearly half as many Veteran Business Owners are being harmed by the very agency that it is designed to protect, support, and honor for their service to our country, then it's time we modify, improve or replace the existing program.

II.  Misperception of CVE’s ‘VERIFIED’ status.   Other ways many Veteran Business Owners are being harmed as a result of CVEs implementation of the VA Veteran Small Business Verification Program.  Many if not all federal agency contracting personnel believe that SDVOSBs and VOSBs must first be registered in the VA’s Veteran Small Business Database and produce a document stamped with a “VERIFIED’ seal of approval by CVE in order to be recognized as a genuine SDVOSB or VOSB.  And it's not hard to determine how this misperception came about. 

For several years now, CVE, other organizations, including the VET-Force, have been encouraging veteran business owners to register in the Veterans Small Business Database and for federal agencies and Large Primes to use the Veterans Small Business Database as the ‘Authoritative Place’ to locate capable and qualified veteran business owners.  However, this was before the actual verification standards and procedures had begun.

According to Public Law 108-183, the Veterans Federal Procurement Program, a veteran is only required to SELF-CERTIFY as a SDVOSB, in order to do business under this small business preference group.  There is no formal certification by SBA or any other entity required.  However, under Public Law 109-461, in order to do business with the VA, a veteran or service disabled veteran owned business must successfully complete VA’s verification process and register in the VIP database that’s open for use by all federal agencies, Large Primes, and the public.  

While these issues listed above may be considered to be some of the major ones creating controversy about CVE's management of the VA’s Veterans Small Business Verification process, there are many other issues that will result in a determination of Denial.

Recommendations to Address the Major Issues.

1.     Provide transparency to the OGC opinions and decisions that are the basis for CVE standards and adjudication procedures.

2.     For now, separate the verification process into two phases.

Phase One:  Verify Veteran Status Only for all registrants in the database.  Continue Self-Certification of Ownership as allowed under Public Laws 106-50 and PL 108-183 while verifying – whether the business owner is a veteran or service disabled veteran. 

Phase Two:  Verify Ownership and Control.  Review of documents for ownership starting with SDVOBs and then VOSBs seeking to perform contracts with the VA.  It should be noted however, that verification of Control should only be to the extent necessary to support the Ownership and to ensure that the company is not being used as a ‘Rent-A-Vet’ or a pass through company.

3.     Provide a clear definition of the roles and responsibilities required to demonstrate control of a company.  These must be compliant with and limited to the definition provided in section 74.1.

4.     Allow the verification of more than one company owned by the same veteran(s).  Entrepreneurship should not be stifled for the sake of convenience.  Each company should be evaluated and verified on its own merit. Any agency will always have the right to determine the select criteria to satisfy contract requirements.

5. Change Title 38 definition of ownership and control to match Title 13, and hence the regulations to bring VA into sync with a government wide definition.

6. Add Center for Veterans Enterprise (CVE) to Title 38, putting into Economic Opportunity Administration (currently under the Deputy Undersecretary of Veterans Benefits for Economic Opportunity). We believe that there needs to be a free standing fourth division of VA known as the Veterans Economic Opportunity Administration (VEOA). The VEOA would include Vocational Rehabilitation, Veterans Education Service, the Center for Veterans Enterprise (restored to its original conception of assisting veterans in doing business with the VA),  a separate Verification Unit for veteran owned businesses and service disabled veteran owned businesses, and lastly the Veterans Employment & Training Service (currently a “red headed stepchild at the Department of Labor.

To work properly, there will have to be much better coordination and collaboration of the VEOA with the Small Business Administration (SBA) and the Office of Personnel Management (OPM). While we also believe that much closer cooperation and coordination with the Department of Defense is needed, we will save comment on that “Gordian Knot” for another day.

All of the above can be accomplished within existing resources, but it will take significantly better organization and training of staff, as well as increased accountability demanded of managers and supervisors. Most importantly, however, it will take a significant and vital change in corporate culture of the new division.

The very best and the most important readjustment program we can provide for veterans who are de-mobilized or discharged is to the opportunity to obtain and sustain meaningful employment at a living wage. This is the watershed event of the entire readjustment process, and should be treated as such.

Messrs. Chairmen, thank you for pursuing this vital issue, for your strong leadership in holding this hearing today, and for affording us this opportunity to present our views here today. I will be happy to answer any questions.

VIETNAM VETERANS OF AMERICA

Funding Statement

August 2, 2012

          The national organization Vietnam Veterans of America (VVA) is a non-profit veterans' membership organization registered as a 501(c) (19) with the Internal Revenue Service.  VVA is also appropriately registered with the Secretary of the Senate and the Clerk of the House of Representatives in compliance with the Lobbying Disclosure Act of 1995.

          VVA is not currently in receipt of any federal grant or contract, other than the routine allocation of office space and associated resources in VA Regional Offices for outreach and direct services through its Veterans Benefits Program (Service Representatives).  This is also true of the previous two fiscal years.

         

For Further Information, Contact:

          Executive Director of Policy and Government Affairs

          Vietnam Veterans of America

          (301) 585-4000, extension 127

RICHARD “Rick” WEIDMAN

Richard F. “Rick” Weidman serves as Executive Director for Policy & Government Affairs on the National Staff of Vietnam Veterans of America. As such, he is the primary spokesperson for VVA in Washington. He served as a 1-A-O Army Medical Corpsman during the Vietnam War, including service with Company C, 23rd Med, AMERICAL Division, located in I Corps of Vietnam in 1969. In August of 1970 he was Soldier of the Month at Fort Dix, New Jersey, the first Medic to be so recognized in more than a decade.

Mr. Weidman was part of the staff of VVA from 1979 to 1987, serving variously as Membership Services Director, Agency Liaison, and Director of Government Relations.  Rick left VVA staff in 1987 to serve in the Administration of Governor Mario M. Cuomo (NY) as statewide director of veterans’ employment & training (State Veterans Programs Administrator) for the New York State Department of Labor. In that capacity he led significant improvements in vocational employment training for veterans in New York State, helping to ensure that all veterans were able to benefit, including those in Bedford-Stuyvesant and Fort Green sections of Brooklyn, by working with Black Veterans for Social Justice. In those years he was instrumental in creation of the Veterans Bill of Rights for Employment Services in New York State, which was widely emulated around the nation.

From 1995 to 1997 he continued strong advocacy for all segments of the veteran population when he served as Senior Advisor to the Chairman of the Veterans Affairs Committee of the New York State Assembly. He returned to the National staff of VVA in Silver Spring, Maryland in 1998.

Rick has served as Consultant on Legislative Affairs to the National Coalition for Homeless Veterans (NCHV), and served at various times on the VA Advisory Committee on Readjustment of Combat Veterans, the Secretary of Labor’s Advisory Committee on Veterans Employment & Training, the President’s Committee on Employment of Persons with Disabilities - Subcommittee on Disabled Veterans, the VA Advisory Committee on Advisory Committee on Serious Mental Health, the Advisory Committee on veterans’ entrepreneurship at the Small Business Administration, and numerous other advocacy posts in veteran affairs at the national level.

Weidman has been recognized with the “Visionary Award” of the American Academy of Ophthalmology and as Regional Veterans’ Advocate of the year by the SBA, among many other awards for effective advocacy for veterans. He is currently Chairman of the for Veterans Entrepreneurship Task Force (VET-Force), which is the consortium of major veterans’ groups, as well as individual veteran and service disabled veteran small business owners, regarding expanding opportunities for veterans, particularly disabled veterans, to own and successfully operate their own small business, to include improvement of Federal procurement policies and practices. In 2006, Inc. Magazine named Rick as one of the “best Friends of Small Business” in Washington, and one of ten “Operatives and advocates with serious clout” for small business owners.

Mr. Weidman was an instructor and administrator at Johnson State College (Vermont) in the 1970s, where he was also active in community and veterans affairs. He attended Colgate University (B.A., 1967), and did graduate study at the University of Vermont.

He is married and has four children.