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Witness Testimony of Thomas J. Leney, Executive Director, Small and Veteran Business Programs, Office of Small and Disadvantaged Business Utilization, U.S. Department of Veterans Affairs

Chairman Johnson, Chairman Stutzman, Ranking Member Donnelly, Ranking Member Braley, and members of the Subcommittees, thank you for inviting me to testify on the VA’s implementation of Veteran-owned small business (VOSB) provisions in the Veterans Benefits, Health Care, and Information Technology Act of 2006 (Public Law 109-461, Sections 502 and 503), and the Veterans Benefits Act of 2010 (Public Law 111-275 Section 104). 

The goal of VA’s Office of Small and Disadvantaged Business Utilization (OSDBU) is to help small and Veteran-owned businesses contribute most effectively to the important mission of VA.  The Center for Veterans Enterprise (CVE), which is part of OSDBU, is responsible for ensuring that all money and contracting preferences set-aside for Veterans and service-disabled Veterans go to legitimate Veteran-owned small businesses through a verification process that is intended to put contracts and job-creating opportunities into the hands of legitimate Veteran owned and controlled businesses.

Congress has provided VA with tools to aid Veteran entrepreneurs. The Vet First program under P.L. 109-461 enables VA to provide preference to Service Disabled Veteran Owned Small Businesses (SDVOSB) and Veteran Owned Small Businesses (VOSB). VA has used this program aggressively and leads the federal government in contracting with service-disabled Veteran-owned small businesses (SDVOSBs).  VA is also the only agency with specific authority to contract with all VOSBs, regardless of service-disability.  In Fiscal Year 2011, VA awarded more than $3 billion in contracts to both categories, out of our contracting base of $15.5 billion. P.L. 109-461 enabled VA to far exceed its procurement goals of 10 percent for SDVOSBs and 12percent for VOSBs, by reaching nearly 20 percent and nearly 22 percent respectively. 

That is real money in the hands of Veterans and their small businesses, and it establishes VA as a leader in this area. At the same time, VA has actively implemented statutory provisions to ensure the Public Law 109-461 procurement eligibility goes only to legitimate SDVOSBs and VOSBs.  We are carrying out the direction of Congress to verify such firms, and to ensure that only those firms whose business models meet the criteria laid out in P.L. 109-461 gain the benefits of the preferences it provides.  We have also moved aggressively against the relatively small number of firms who would misrepresent their status in order to obtain illegitimate benefit. 

I would like to update you on the progress VA has made to improve the VA VOSB Verification Program and our plans to continue improving so that legitimate SDVOSBs and VOSBs have greater access to VA procurement opportunities.  As we promised, we have completed the removal of all non-verified companies from the Vendor Information Pages (VIP).  In April 2011, we had nearly 1,800 non-verified companies in VIP.  As of September 4, 2011, only verified companies are listed in VIP, three months ahead of schedule.  In June, 2011, it took an average of 127 days to process an initial verification application.  Today it takes an average of 75 days.  When the Veterans Small Business Verification Act (Public Law 111-275, Section 104) required business owners to send in documents, we did not have an easy way for them to do so.  We received CDs, paper copies and even email attachments, and our first attempt at an online upload site did not produce the desired results.  Veterans now have the ability to submit their entire application on line, to include uploading all required documents directly to their VIP profile.  In April, a Veteran may have waited months to receive word that there was an issue with their Veteran or service-connected status in the VA Beneficiary Identification Records Locator Subsystem (BIRLS) database. The BIRLS database is used to determine the Veteran’s status, character of service and whether or not the Veteran has a service-connected disability.  Veterans now receive this status within 48 hours.

To further ensure the accuracy of our verification process, CVE conducts an additional Quality Check (QC) on 10 percent of its approval decisions.  The QC check includes site visits for a randomly selected sample of approved applications.  CVE officials have also increased our communications with applicants.   Our policy is that applicants receive updates within 30 days, and at all key points in the process.  The CVE help desk provides a response within one business day regarding at what stage the application is in and applicants can receive an update on demand in our new on line system. Decision letters are also now delivered electronically to avoid the delay of conventional mail.  VA’s online application tool also posts the approval letters in the company’s profile.

Along with more frequent correspondence, we have launched our Verification Education Program, which is a series of fact sheets that explain the most frequent reasons for denial.  This program aims to educate applicants on common issues.  Our goal is to eliminate common errors up-front to help legitimate SDVOSB/VOSBs quickly receive favorable decisions.  We are also seeking partnerships with the Association of Procurement Technical Assistance Centers, the Association of Small Business Development Centers and Veterans Service Organizations so that applicants can receive assistance from local business counselors.

VA has recently launched a new online application and tracking system called VIP-6.  The initial launch of VIP-6 created a number of challenges, but the platform is now fully operational.  The project is a complete overhaul of the legacy system, built on a new platform.  It seeks to provide VA with a robust application process that gives Veteran business owners the ability to complete applications online, immediately obtain the results of their Veteran status check by VA from BIRLS, and track the status of their application on demand.

The Government Accountability Office (GAO) did a follow-up on its May, 2010 evaluation of the CVE verification and identified some challenges and vulnerabilities that VA has since overcome.  Among these were issues of training, unannounced site visits and debarment of ineligible firms.  CVE staff are now evaluated and provided on-the-job-training for job functions.  A fraud awareness program is in place for CVE staff that will provide Certified Fraud Examiner credentials for all CVE staff through training and evaluation.  Qualified supervisors train staff on fraud awareness on a rotating basis.  All firms identified by the risk mitigation program as high risk currently undergo an in-depth second examination that includes an announced site visit.  Site visits are an important part of our risk mitigation program and a tool to ensure eligibility; we have increased them nearly ten-fold from calendar year 2010 and 2011.  Verified firms that are identified as high risk undergo unannounced site visits. CVE also has initiated random unannounced site visits for verified firms.

In June and October 2011, OSDBU provided training to 500 contracting officers on the use of VIP.  The Office of Acquisition and Logistics (OAL) clarified policy regarding contracting officer (CO) use of VIP for SDVOSB or VOSB set-aside and sole-source actions.  The policy clarification states that the CO must check VIP at both the proposal receipt and again before making the award.  Those businesses not in VIP are ineligible to submit a proposal and ineligible to receive an award.  Checking the database a second time ensures that a company has not lost its eligibility between the proposal submission and award.

VA is serious about debarring companies who intentionally misrepresent their status as a VOSB or SDVOSB, and has formed the 8127 Debarment Committee, named after the portion of the U.S. Codes that implements the small business portions of P.L. 109-461.  VA has developed and formalized specific processes and criteria related to the 8127 Debarment Committee which can be found on the committee’s web site.  As of October 2011, it had debarred seven separate contractors and related individuals. Two additional concerns which VA had worked to debar, filed suit and a resulting Court Order required VA remove the concerns and associated individuals from the Excluded Parties List System (EPLS) listing pending remand to VA for further action and final decision of the Court.  However, it is important to note that most ineligible firms are not committing fraud.  The vast majority of firms self-report issues that preclude their eligibility for verification.  Those firms that provide false information or omit material information are referred to VA’s Office of the Inspector General (OIG) for action.

Even with the substantial progress that VA has made, we realize that there are still challenges to face and improvements to be made.  Our request for reconsideration option has faced a tremendous increase in use.  Historically, about 20 percent of applicants who received an initial denial submitted a request for reconsideration.  Over the last two months, this has increased to more than 60 percent.  We have shifted and increased resources to speed up the process.  In order to be fair to all applicants, we continue to process all requests for reconsideration on a first-in, first-out basis.

Mr. Chairman, we were also asked to address an October 11, 2011, GAO decision upholding a bid protest by an SDVOSB on two VA solicitations for the purchase of food-preparation equipment.  In the Matter of Aldevra decision, B-405271 & B-405524, GAO determined that before placing purchase orders against the Federal Supply Schedule (FSS), VA should have first determined whether the factual predicates for a set-aside for VOSBs using the restricted-competition standards of 38 U.S.C. §8127(d) were satisfied.

GAO’s decisions in these matters are advisory and its recommendations are not binding on executive agencies.  This particular decision is still being discussed internally within the Executive Branch.

However, VA has consistently interpreted the authority Congress gave it in Public Law 109-461 as a small business set-aside program with VOSBs having priority over any other class of small businesses when VA is conducting full-and-open-competition procurements.  Congress also gave the Department authority to do “restricted competitions” (set-asides) “for the purpose of meeting the goals” set by the Secretary for contracting with VOSBs.  VA has not interpreted the latter as a requirement that VA always endeavor to do restricted competitions, nor have we interpreted it as abridging VA’s authority to make FSS buys when it is appropriate to do so.  VA has always been of this view, as it made clear in the Federal Register notice (74 Federal Register 64619 (December 8, 2009).

Conclusion

VA has made significant progress in the last six months in its VOSB verification program.  We have overcome many of the challenges and vulnerabilities that were raised by the GAO and OIG reports, and are working to resolve those that remain.  We are being proactive in our approach to these issues and seek continuous improvement.  Mr. Chairmen and Members of the Subcommittees, this concludes my statement.  I am pleased to answer any questions you may have.