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Witness Testimony of Scott F. Denniston, Office of Small and Disadvantaged Business Utilization, Director, U.S. Department of Veterans Affairs

Madame Chairwoman and Committee Members, thank you for convening this hearing on Contract Bundling Oversight.  I am honored to represent Secretary Nicholson, Deputy Secretary Mansfield and the dedicated employees throughout the Department of Veterans Affairs who serve our veterans daily.           

As you know, VA puts Veterans first!  We work to ensure not only veteran-owned small businesses, but all small businesses receive the maximum practicable opportunity to participate in VA’s procurement program.  This approach is an important goal of VA.  To demonstrate our level of commitment we have issued a number of directives, Informational Letters (IL) and memoranda to improve opportunities for small businesses and to encourage all VA procurement officials to consider small businesses whenever possible.  For example, on December 28, 2005, IL # 049-06-1, Increasing Opportunities for Awards to Veteran-Owned Small Business (VOSB) and Service Disabled Veteran-Owned Small Businesses (SDVOSB) was issued to provide guidance to contracting officers on awarding contracts to small business concerns owned and controlled by veterans and service disabled veterans.  Additionally, most recently, IL #049-07-08, Veterans First Contracting Program was issued to provide guidance to contracting officers concerning the award of contracts to VOSB and SDVOSB under Public Law 109-461, Veterans Benefits, Health Care, and Information Technology Act of 2006.

VA’s Office of Small and Disadvantaged Business Utilization (OSDBU) plays a vital role in fulfilling President Bush’s strong commitment to the small business community and the unbundling of contracts.  This commitment was reinforced when VA’s OSDBU and the Office of Acquisition and Materiel Management (OA&MM) implemented the nine action items provided in the          October 30, 2002, Office of Federal Procurement and Policy’s report, “Contract Bundling, a Strategy for Increasing Federal Opportunities for Small Business,” as follows:

  1. Ensure accountability of senior agency management for improving contracting opportunities for small business. 
  2. Ensure timely and accurate reporting of contract bundling information through the President’s Management Council
  3. Require contract bundling reviews for task and delivery orders under multiple award contract vehicles
  4. Require agency review of proposed acquisitions above specified thresholds for unnecessary and unjustified contract bundling
  5. Require identification of alternative acquisition strategies for the proposed bundling of contracts above specific thresholds and written justification when alternatives involving less bundling are not used.
  6. Mitigate the effects of contract bundling by strengthening compliance with subcontracting plans.
  7. Mitigate the effects of contract bundling by facilitating the development of small business teams and joint ventures.
  8. Identify best practices for maximizing small business opportunities.
  9. Dedicate agency OSDBU’s to the President’s Small Business Agenda.

Recognizing the potential impact contract bundling has on small businesses, VA took the extraordinary step of lowering its contract bundling review threshold to one half of the $2 million threshold required by the Federal Acquisition Regulation (FAR) for civilian agencies.  In reviewing all acquisitions equal to or greater than $1 million, VA’s OSDBU greatly increases the number of acquisitions subject to review, which provides more opportunities to scrutinize acquisitions and reduces contract bundling.  A lower review threshold in VA signals a serious commitment to mitigating the effects of contract bundling on small and veteran-owned small businesses.

Contract bundling may be necessary and justified if an agency would derive a measurably substantial benefit.  Measurable substantial benefits include cost savings (10% of the estimated contract, quality improvement), that will save time or enhance performance, reduction in acquisition cycle times, better terms and conditions and any other benefits.  VA’s justified and necessary contract bundling requirements have included eyeglasses, medical equipment, prescription medicine, professional services and prosthetic devices. 

Much progress has been made since the commencement of VA’s OSDBU contract bundling reviews in March 2004.  Since that time, IL #049-05, Contract Bundling and Contract Bundling Reviews was issued to provide guidance on the FAR final rule for implementing contract initiatives in the VA.  In response, VA’s OSDBU has considered and recommended various strategies to mitigate the scope of necessary and justified contract bundling. 

Since Fiscal Year (FY) 2004, VA’s OSDBU has received over 1,000 acquisitions for contract bundling/small business program review.  Of this number about 800 actions were determined not to be bundled actions. Approximately 36 acquisitions were determined to be necessary and justified contract bundling.  The remaining 164 actions were received with inadequate justification to support contract bundling. In such cases, the acquisitions were returned to the acquisition professional after OSDBU provided assistance in developing an alternative acquisition solution that will provide maximum participation for small businesses.  VA’s OSDBU addressed contract bundling through three program initiatives:  prime contracting reviews, subcontracting development and outreach/training. 

Our prime contracting team conducts contract bundling reviews and recommends appropriate strategies such as:  small business teaming, joint ventures and partnering agreements, and multiple awards on a line item and or facility basis, which may include an award by a facility.  The VA Prime Vendor and Standardization Programs are cited most often as the basis for the consolidation and contract bundling.  The overwhelming majority of requirements determined to be necessary and justified were based upon cost saving exceeding 10% and quality improvement of care to veteran patients.  Reduction in acquisition cycle time and better terms and conditions were cited less often, as the basis for justifying contract bundling.

The prime contracts team takes a proactive role in making recommendations to VA procurement professionals to increase awards for small businesses particularly when a bundled requirement is deemed necessary and justified.  For example, in a collaborative effort between VA’s OSDBU and a contracting officer, a waiver for the non-manufacturer rule was obtained when market research demonstrated that no small business manufacturers existed for desktop and lap computers and peripheral equipment under VA’s Procurement of Computer Hardware and Software (PCHS- 3) solicitation.   The PCHS-3 solicitation was subsequently cancelled.  However, this wavier created a partial SDVOSB set-aside for the re-competed Information Technology (IT) hardware and software acquisition, where in it’s the absence, none would have existed.  As a result of this wavier, a government-wide Solutions for Enterprise Wide Procurement (SEWP IV) contract was awarded by the National Aeronautics and Space Administration (NASA) on June 1, 2007.  SEWP IV resulted in six SDVOSBs and three additional VOSBs receiving contracts.  We review, modify and add to our list of recommendations of various strategies to mitigate the adverse effects of necessary and justified contract bundling. 

VA’s contract bundling review process also considers subcontracting when opportunities exist.  Our subcontracts team plays an important role in ensuring that prime contractors’ subcontracting plans are in compliance with the subcontracting program. The team reviews subcontracting plans from VA contracting activities, reviews large solicitations to ensure subcontracting opportunities exist, and recommends that small business subcontract goals be based the amount of dollars to be subcontracted.  In addition, the team provides subcontract training to VA procurement professionals and prime contractors on a continual basis, requests conference calls and meetings with large prime contractors, assists prime contractors in locating various small business concerns and provides large businesses with electronic tools such as our Vendor Information Page (VIP) to locate VOSB and SDVOSB.  This team also provides information to large businesses about where they can advertise subcontracting opportunities.

As an example, in support of VA’s Loan Guaranty Program our subcontracting team partnered with program officials to coordinate outreach sessions around the country for potential small businesses interested in subcontracting.  Our subcontracts team was instrumental in providing small business concerns assistance with subcontracting opportunities for this acquisition by posting information about these outreach sessions on VA’s website.  A contract valued at $90 million dollars was awarded to Ocwen to manage all VA’s Real Estate Owned Properties (REO) throughout the United States, and its territories for the life of the contract.

Since the inception of the REO contract with VA, Ocwen has shown progressive improvement in 3 socioeconomic categories. In FY 2006, alone Ocwen subcontracted 100% or $75.4 million to small businesses.  The goal for veteran-owned small business was 7% and they attained 9.62% or $7.2 million.  Also, Ocwen surpassed the 3% goal by attaining 3.32% or 2.5 million for subcontracting with SDVOSB. 

Outreach/training is critical since it provides guidance, information and training to small business and the veteran’s community.  Our outreach/training team conducts monthly face-to-face vendor counseling sessions as well as attends a wide variety of tradeshows and conferences to provide outreach assistance to small businesses.  Additionally, OSDBU works with local VA procurement professionals to ensure coverage at conferences in the local areas and provides educational material to assist small businesses who contact us by letter, electronically, or telephonically.  Also, VA conducts unique events for specific contract opportunities. These industry day events are acquisition specific conferences and are conducted to disseminate information to small businesses.  Examples of industry days are: VA’s PCHS- 3 and VA’s Vocational Rehabilitation and Employment Services acquisition.  I have included a chart with the results of the industry events as an attachment to my statement for the record.

We believe these efforts are starting to pay dividends as evidenced by increases in VA’s FY 2006 socioeconomic accomplishments in nearly all small business categories.  VA was successful in achieving and exceeding all of the statutory goals as well as VA Secretary’s Small Business Program Goals for FY 2006 to Small Business, Small Disadvantaged Business, Women-Owned Small Business, Service Disabled Veteran-Owned Small Business and HUBZone.  A chart highlighting VA’s socioeconomic accomplishments for FY 2003 – 2006 is provided as an attachment, to my written statement for the record. 

Madame Chairwoman, let me say that I appreciate what each of you on this Subcommittee is doing to improve economic opportunities for ALL VOSBs.  Thank you again for convening today’s hearing.  I will submit my written statement for the record.  I welcome your interest and I am prepared to answer any questions that you or the Member may have.


VA’s Socioeconomic Accomplishments

FY 2003- 2006

Abbreviations

FY= Fiscal Year, SB = Small Business, SDB = Small Disadvantaged Business, WOSB = Women Owned Small Business, VOSB= Veteran Owned Small Business, SDVOSB= Service Disabled Veteran-Owned Small Business

FY SB SDB WOSB VOSB SDVOSB HUBZone
2003 31.83% 8.55% 3.83% 3.08% 0.49% 3.00%
2004 28.53 9.27 4.48 4.13 1.25 3.10
2005 27.82 9.49 5.29 4.92 2.09 3.59
2006 29.45 8.85 5.00 6.49 3.39 3.28

FY 2003 accomplishments collected from the OSDBU’s final report of 12/8/2003.

FY 2004 accomplishments collected from the OSDBU’s final report of 2/2/2005.

FY 2005 accomplishments collected from the OSDBU’s final report of 1/12/2006.

FY 2006 accomplishments collected from the OSDBU’s final report of 3/9/2007.