Department of Veterans Affairs Contracting with Veteran Owned-Small Businesses
Gao ID: GAO-09-391R March 19, 2009The federal government's long-standing policy has been to use its buying power--the billions of dollars it spends through contracting each year--to maximize procurement opportunities for small businesses, including those owned by service-disabled veterans. Under the Veterans Benefits, Health Care, and Information Technology Act of 2006, the Department of Veterans Affairs (VA) is to give first and second priority to small businesses owned by service-disabled and other veterans, respectively, when it uses small business preferences to award its contracts, which totaled more than $14 billion in fiscal year 2008. The act also requires VA to establish contracting goals for service disabled veteran-owned small businesses (SDVOSB) and other veteran-owned small businesses (VOSB) and gives VA unique authorities to use contracting preferences for SDVOSBs and VOSBs to help it reach those goals. The act requires us to conduct a 3-year study on VA's efforts to meet its SDVOSB and VOSB contracting goals and to brief Congress annually, by January 31, 2008, 2009, and 2010. Accordingly, we briefed Congressional staffs on January 31, 2008, on steps that VA had taken to implement its new contracting authorities and verify the ownership of firms in VA's mandated database of SDVOSBs and VOSBs, as well as potential challenges that VA could face in meeting its contracting goals. The purpose of this report is to make publicly available the contents of the briefing held on January 30, 2009.
VA exceeded its prime contracting goals for SDVOSBs and VOSBs in fiscal years 2007 and 2008, reflecting leadership commitment and broad-based agency efforts. Specifically, in fiscal year 2007, VA awarded 7.1 percent ($832 million) of its prime contract dollars to SDVOSBs and 10.4 percent ($1.22 billion) to all VOSBs (including SDVOSBs), exceeding its goals of 3 percent and 7 percent, respectively. In fiscal year 2008, VA awarded 11.8 percent ($1.66 billion) to SDVOSBs and 14.9 percent ($2.10 billion) to all VOSBs, exceeding its increased goals of 7 percent and 10 percent, respectively. Leadership efforts that contributed to VA's success in meeting these goals included the efforts of VA's Office of Small and Disadvantaged Business Utilization (OSDBU) to ensure awareness of and commitment to meeting the goals and headquarters initiatives to monitor and recognize strong performance by contracting offices. Nearly all of VA's major contracting offices met the agencywide goals, and they made extensive use of the set-aside and sole-source authorities and applied the contracting priority for SDVOSBs and VOSBs established by the Veterans Benefits, Health Care, and Information Technology Act. In light of VA's dynamic contracting environment--particularly with respect to recent and anticipated turnover in its leadership and contracting staff-- sustaining or increasing its levels of SDVOSB and VOSB contracting may be challenging and will require vigilance as VA manages competing small business goals and continues to institutionalize its new contracting priorities and authorities. For example, as VA finalizes its rulemaking process implementing provisions of the act, ongoing effort will be important to ensure that all contracting staff (especially new staff and those involved in monitoring compliance) have a full understanding of the contracting authorities and priorities. VA verified ownership of a limited number of SDVOSBs and VOSBs in its database and was working to address other requirements, including assessing who actually controls veteran-owned firms receiving certain VA contracts. The act requires VA to maintain a database of SDVOSBs and VOSBs, verify that registered firms are owned and controlled by veterans or service-disabled veterans, and use its set-aside and sole-source award authorities only for these verified firms. VA already maintained an online database, VetBiz Vendor Information Pages, in which nearly 16,500 firms have self-certified as SDVOSBs or VOSBs. VA began accepting verification applications from firms registered in the database after publishing guidelines for its verification program in an interim final rule in May 2008. As of December 23, 2008, VA had verified that veterans or servicedisabled veterans owned 484 firms, denied the verification applications of 15 firms, and was processing another 419 applications. To date, VA's verification process has focused on cross-referencing information submitted by owners with VA data to confirm majority ownership by veterans or service-disabled veterans. In spring 2009, VA expects to pilot procedures for more detailed reviews of selected firms to verify day-to-day control by a service-disabled or other veteran. According to VA officials, VA will begin requiring its contracting officers to use the set-aside and sole-source award authorities only with verified SDVOSBs and VOSBs when the agency finalizes rulemaking related to implementation of these authorities, which they anticipate in May 2009 at the earliest. Until then, existing VA policy states that firms only have to be registered in VA's database to receive set-aside or sole-source awards. We intend to assess VA's implementation of its verification process in our future work.
GAO-09-391R, Department of Veterans Affairs Contracting with Veteran Owned-Small Businesses
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GAO-09-391R:
United States Government Accountability Office:
Washington, DC 20548:
March 19, 2009:
The Honorable Daniel K. Akaka:
Chairman:
The Honorable Richard Burr:
Ranking Member:
Committee on Veterans' Affairs:
United States Senate:
The Honorable Stephanie Herseth Sandlin:
Chairwoman:
The Honorable John Boozman:
Ranking Member:
Subcommittee on Economic Opportunity:
Committee on Veterans' Affairs:
House of Representatives:
Subject: Department of Veterans Affairs Contracting with Veteran-Owned
Small Businesses:
The federal government's long-standing policy has been to use its
buying power--the billions of dollars it spends through contracting
each year--to maximize procurement opportunities for small businesses,
including those owned by service-disabled veterans. Under the Veterans
Benefits, Health Care, and Information Technology Act of 2006, the
Department of Veterans Affairs (VA) is to give first and second
priority to small businesses owned by service-disabled and other
veterans, respectively, when it uses small business preferences to
award its contracts, which totaled more than $14 billion in fiscal year
2008.[Footnote 1] The act also requires VA to establish contracting
goals for service-disabled veteran-owned small businesses (SDVOSB) and
other veteran-owned small businesses (VOSB) and gives VA unique
authorities to use contracting preferences for SDVOSBs and VOSBs to
help it reach those goals.
The act requires us to conduct a 3-year study on VA's efforts to meet
its SDVOSB and VOSB contracting goals and to brief Congress annually,
by January 31, 2008, 2009, and 2010. Accordingly, we briefed your
staffs on January 31, 2008, on steps that VA had taken to implement its
new contracting authorities and verify the ownership of firms in VA's
mandated database of SDVOSBs and VOSBs, as well as potential challenges
that VA could face in meeting its contracting goals. The purpose of
this report is to make publicly available the contents of the briefing
held on January 30, 2009. Enclosure I contains a copy of the briefing
slides that we used to brief your staffs on (1) the extent to which VA
met its prime contracting goals for SDVOSBs and other VOSBs in fiscal
years 2007 and 2008 and what, if any challenges, VA faced in meeting
those goals; (2) VA's progress implementing procedures to confirm the
ownership, control, and service disability status of firms in its
mandated database of SDVOSBs and other VOSBs; and (3) how VA is meeting
the requirement for a review mechanism for subcontracts with SDVOSBs
and other VOSBs, and what process VA follows to ensure that large
business prime contractors provide appropriate subcontracting
opportunities.
Background:
Federal agencies' contracting with private businesses is, in most
cases, subject to goals for various types of small businesses,
including SDVOSBs.[Footnote 2] The Small Business Act, as amended, sets
a governmentwide goal for small business participation of not less than
23 percent of the total value of all prime contract awards--contracts
that are awarded directly by an agency--for each fiscal year.[Footnote
3] The Small Business Act also sets annual prime contracting goals for
participation by four other types of small businesses: small
disadvantaged businesses (5 percent); women-owned or service-disabled,
veteran-owned, (5 and 3 percent, respectively); and businesses located
in historically underutilized business zones (HUBZones, 3 percent).
Although there is no governmentwide prime contracting goal for
participation by all VOSBs, VA had voluntarily set an internal goal for
many years before the enactment of the Veterans Benefits, Health Care,
and Information Technology Act.
The Veterans Benefits, Health Care, and Information Technology Act
provides VA authorities to make noncompetitive (sole-source) awards and
to restrict competition for (set aside) awards to SDVOSBs and VOSBs.
VA's authorities differ from those available to other federal agencies.
Specifically, the Veterans Benefits Act of 2003 authorized agencies to
set contracts aside and make sole-source awards of up to $3 million ($5
million for manufacturing) for SDVOSBs (but not other VOSBs).[Footnote
4] However, an agency can make a sole-source award to an SDVOSB only if
the contracting officer expects just one SDVOSB to submit a reasonable
offer. By contrast, VA's authorities under the Veterans Benefits,
Health Care, and Information Technology Act apply to SDVOSBs and other
VOSBs. Also, whereas use of the set-aside authority is voluntary for
other agencies, VA is required to set aside contracts for SDVOSBs or
other VOSBs (unless a sole-source award is used) if the contracting
officer expects two or more such firms to submit offers and the award
can be made at a fair and reasonable price that offers the best value
to the United States. VA may make sole-source awards of up to $5
million, with no restriction on the number of SDVOSBs or other VOSBs
expected to submit offers.[Footnote 5]
Summary:
VA exceeded its prime contracting goals for SDVOSBs and VOSBs in fiscal
years 2007 and 2008, reflecting leadership commitment and broad-based
agency efforts. Specifically, in fiscal year 2007, VA awarded 7.1
percent ($832 million) of its prime contract dollars to SDVOSBs and
10.4 percent ($1.22 billion) to all VOSBs (including SDVOSBs),
exceeding its goals of 3 percent and 7 percent, respectively. In fiscal
year 2008, VA awarded 11.8 percent ($1.66 billion) to SDVOSBs and 14.9
percent ($2.10 billion) to all VOSBs, exceeding its increased goals of
7 percent and 10 percent, respectively. Leadership efforts that
contributed to VA's success in meeting these goals included the efforts
of VA's Office of Small and Disadvantaged Business Utilization (OSDBU)
to ensure awareness of and commitment to meeting the goals and
headquarters initiatives to monitor and recognize strong performance by
contracting offices. Nearly all of VA's major contracting offices met
the agencywide goals, and they made extensive use of the set-aside and
sole-source authorities and applied the contracting priority for
SDVOSBs and VOSBs established by the Veterans Benefits, Health Care,
and Information Technology Act. In light of VA's dynamic contracting
environment--particularly with respect to recent and anticipated
turnover in its leadership and contracting staff--sustaining or
increasing its levels of SDVOSB and VOSB contracting may be challenging
and will require vigilance as VA manages competing small business goals
and continues to institutionalize its new contracting priorities and
authorities. For example, as VA finalizes its rulemaking process
implementing provisions of the act, ongoing effort will be important to
ensure that all contracting staff (especially new staff and those
involved in monitoring compliance) have a full understanding of the
contracting authorities and priorities.[Footnote 6]
VA verified ownership of a limited number of SDVOSBs and VOSBs in its
database and was working to address other requirements, including
assessing who actually controls veteran-owned firms receiving certain
VA contracts. The act requires VA to maintain a database of SDVOSBs and
VOSBs, verify that registered firms are owned and controlled by
veterans or service-disabled veterans, and use its set-aside and sole-
source award authorities only for these verified firms.[Footnote 7] VA
already maintained an online database, VetBiz Vendor Information Pages,
in which nearly 16,500 firms have self-certified as SDVOSBs or VOSBs.
VA began accepting verification applications from firms registered in
the database after publishing guidelines for its verification program
in an interim final rule in May 2008.[Footnote 8] As of December 23,
2008, VA had verified that veterans or service-disabled veterans owned
484 firms, denied the verification applications of 15 firms, and was
processing another 419 applications. To date, VA's verification process
has focused on cross-referencing information submitted by owners with
VA data to confirm majority ownership by veterans or service-disabled
veterans. In spring 2009, VA expects to pilot procedures for more
detailed reviews of selected firms to verify day-to-day control by a
service-disabled or other veteran. According to VA officials, VA will
begin requiring its contracting officers to use the set-aside and sole-
source award authorities only with verified SDVOSBs and VOSBs when the
agency finalizes rulemaking related to implementation of these
authorities, which they anticipate in May 2009 at the earliest. Until
then, existing VA policy states that firms only have to be registered
in VA's database to receive set-aside or sole-source awards. We intend
to assess VA's implementation of its verification process in our future
work.
VA plans to implement a mechanism to ensure that only subcontracts with
legitimate SDVOSBs and other VOSBs count toward the goals that large
business contractors establish in their subcontracting plans.[Footnote
9] VA currently focuses its oversight of subcontracting on contractors
with these plans, mainly by reviewing their electronic reports of
subcontracting activity. The Veterans Benefits, Health Care, and
Information Technology Act requires that, to the extent that VA counts
subcontracts with SDVOSBs and VOSBs toward its contracting goals, it
must confirm that such subcontracts were awarded to legitimate SDVOSBs
and VOSBs. VA currently counts only prime contracts, not subcontracts,
toward its agencywide SDVOSB and VOSB contracting goals. Nonetheless,
VA's proposed rule would require OSDBU to confirm that when large
business prime contractors with subcontracting plans report
subcontracts with SDVOSBs and VOSBs, those firms have been verified.
Implementing this review mechanism will require VA to begin collecting
data on the firms that receive subcontracts because large business
prime contractors currently are not required to report such
information. VA expects to have received approval from the Office of
Management and Budget to collect such data by the time the proposed
rule is finalized. Although any firm with a federal contract of
$100,000 or more generally must provide subcontracting opportunities to
small businesses, VA--like other federal agencies--concentrates on
large businesses with larger contracts that require subcontracting
plans, mainly by reviewing the contractors' periodic electronic reports
of their actual subcontracting performance against their goals. VA
awarded 128 contracts that required subcontracting plans in fiscal
years 2007 and 2008. In future work, we intend to explore further VA's
oversight of contracting officers' decisions to require a
subcontracting plan, as well as its oversight of the plans when they
are required.
Agency Comments:
We provided a draft of this report to VA and SBA for comment.
Additionally, we provided a copy of the draft briefing slides to VA and
pertinent statements to SBA for comment prior to the January 30, 2009,
briefing. VA and SBA provided technical comments on the draft report
and the slides, which we incorporated as appropriate.
Scope and Methodology:
To address our objectives, we analyzed data from the Federal
Procurement Data System-Next Generation (FPDS-NG); reviewed relevant
statutes, regulations, policies, and guidance related to VA's small
business goals and programs; conducted field visits and structured
interviews with contracting officials from 9 of the 21 Veterans
Integrated Service Networks (VISNs), VA's regional health care
networks; and interviewed officials from other major VA contracting
offices and headquarters, SBA, and nine veteran service organizations.
On the basis of our review of FPDS-NG system documentation, interviews
with VA officials, and electronic testing, we concluded that the data
were sufficiently reliable for our purposes. We selected the 9 VISNs to
ensure a mix of SDVOSB, VOSB, and total contracting levels,
organizational structures, and geographic locations.
We conducted this performance audit in Washington, D.C.; Chicago,
Illinois; Milwaukee, Wisconsin; and the Dallas, Texas, area from March
2008 to January 2009 in accordance with generally accepted government
auditing standards. Those standards require that we plan and perform
the audit to obtain sufficient, appropriate evidence to provide a
reasonable basis for our findings and conclusions based on our audit
objectives. We believe that the evidence obtained provides a reasonable
basis for our findings and conclusions based on our audit objectives.
We are sending copies of this report to interested congressional
committees, the Secretary of Veterans Affairs, and the Acting
Administrator of the Small Business Administration. In addition, the
report will be available at no charge on GAO's Web site at [hyperlink,
http://www.gao.gov]. If you or your staffs have any questions about
this report, please contact me at (202) 512-8678 or shearw@gao.gov.
Contact points for our Offices of Congressional Relations and Public
Affairs may be found on the last page of this report. Major
contributors to this report were Harry Medina, Assistant Director;
Marianne Anderson; Julianne Dieterich; Julia Kennon; Marc Molino;
Barbara Roesmann; and Paul Thompson.
Signed by:
William B. Shear:
Director, Financial Markets and Community Investment:
Enclosure:
[End of section]
Enclosure I: Briefing on Department of Veterans Affairs Contracting with
Veteran-owned Small Businesses:
Veterans Affairs Exceeded Contracting Goals for Small Businesses Owned
by Veterans, Started Verifying Veteran Ownership, and Plans to Review
Data on Subcontracts with Such Firms:
Briefing to the House and Senate Committees on Veterans‘ Affairs:
January 30, 2009:
Overview:
This is the second of three briefings on the Department of Veterans
Affairs‘ (VA) contracting with service-disabled veteran-owned small
businesses (SDVOSBs) and other veteran-owned small businesses (VOSBs).
The briefings and a final report due in 2010 were mandated by Public Law
(P.L.) 109-461, which took effect on June 20, 2007. VA refers to its
implementation of this law as the Veterans First program.
P.L. 109-461 gives VA unique contracting authorities for SDVOSBs and
VOSBs and gives these firms first and second priority, respectively,
when VA makes acquisitions pursuant to a contracting preference.
The briefing will cover the following topics:
* Objectives;
* Scope and Methodology;
* Summary of Findings;
* Discussion of Objectives.
Objectives:
To what extent did VA meet its prime contracting goals for SDVOSBs and
other VOSBs in fiscal years 2007 and 2008 and what, if any, challenges
did VA face in meeting these goals?
What progress has VA made in implementing procedures to confirm the
ownership, control, and, if applicable, service-disability status of
firms in its mandated database of SDVOSBs and other VOSBs?
How is VA meeting the requirement for a review mechanism for
subcontracts with SDVOSBs and other VOSBs, and what process does VA
follow to ensure that large business prime contractors provide
appropriate subcontracting opportunities?
Scope and Methodology:
Scope:
* VA policymaking efforts and contracting office practices to implement
P.L. 109-461.
* Emphasis on the regional healthcare networks of the Veterans Health
Administration (VHA), which accounted for the majority of VA‘s
purchases.
Methodology[Footnote 10]:
* Analysis of VA procurement data in Federal Procurement Data System-
Next Generation (FPDS-NG), which we deemed to be reliable for our
purposes.
* Review of statutes, regulations, policies, and guidance related to
VA‘s small business goals and programs.
* Field visits and structured interviews with nine of VHA‘s 21 regional
Veterans Integrated Service Networks (VISN) and interviews with other
major VA contracting offices and VA headquarters and Small Business
Administration (SBA) officials and selected veteran service
organizations.
- We selected VISNs to ensure a mix of SDVOSB and VOSB contracting
levels, sizes, organizational structures, and regions. The nine sites
represented a majority of the networks‘ total, SDVOSB, and VOSB contract
dollars in fiscal year (FY) 2007.
Summary of Findings:
VA exceeded its prime contracting goals for SDVOSBs and VOSBs in FY07
and FY08, reflecting leadership commitment and broad-based agency
efforts. Sustaining or increasing its levels of contracting with these
firms may be challenging and require vigilance due to a dynamic
contracting environment and as VA manages competing small business
goals and institutionalizes its new contracting priorities and
authorities.
VA verified ownership of some SDVOSBs and other VOSBs in its database,
as required by P.L. 109-461. Officials are working to address other
requirements, including assessing who actually controls veteran-owned
firms.
VA plans to implement a mechanism to ensure that only subcontracts with
legitimate SDVOSBs and other VOSBs count toward the goals that large
business contractors establish in their subcontracting plans. Although
many contractors must provide subcontracting opportunities to small
businesses, VA”like other agencies”focuses its oversight on large
businesses with subcontracting plans, mainly by reviewing electronic
reports.
Contracting Goals and Challenges:
VA Exceeded Its SDVOSB and VOSB Prime Contracting Goals in FY07 and
FY08:
In FY08, VA awarded 14.9 percent of its contract dollars to all VOSBs,
including 11.8 percent to SDVOSBs, compared with 10.4 percent to
VOSBs, including 7.1 percent to SDVOSBs, in FY07.[Footnote 11]
In dollar terms, the amount VA awarded to all VOSBs increased from
$1.22 billion in FY07 to $2.10 billion in FY08, including $832 million
awarded to SDVOSBs in FY07 and $1.66 billion in FY08.
Figure: Vertical bar graph:
[Refer to PDF for image]
Fiscal year: 2006;
Percentage of contact dollars: VOSB actual: approximately 6%;
Percentage of contact dollars: VOSB goal: approximately 7%
Percentage of contact dollars: SDVOSB actual: approximately 3%;
Percentage of contact dollars: SDVOSB goal: approximately 2.5%.
Fiscal year: 2007;
Percentage of contact dollars: VOSB actual: approximately 10.5%;
Percentage of contact dollars: VOSB goal: approximately 7%;
Percentage of contact dollars: SDVOSB actual: approximately 7%;
Percentage of contact dollars: SDVOSB goal: approximately 2.5%.
Fiscal year: 2008;
Percentage of contact dollars: VOSB actual: approximately 15%;
Percentage of contact dollars: VOSB goal: approximately 10.5%;
Percentage of contact dollars: SDVOSB actual: approximately 12%;
Percentage of contact dollars: SDVOSB goal: approximately 7%.
Source: Official SBA small business goaling reports (FY o6 and FY 07)
and GAO analysis of VA-funded actions in FPDS-NG as of January 12, 2009
(FY 08).
[End of figure]
In meeting its goals, VA used SDVOSB or VOSB sole-source or set-asides
to award the majority of SDVOSB dollars in FY08, but more rarely used
these authorities for other VOSBs.
Figure: 2 pie-charts:
[Refer to PDF for image]
Service-disabled VOSB contract dollars, FY08:
Sole-source dollars: 29.2% ($486,000,000);
Set aside dollars: 36.9% ($614,000,000);
Other dollars: 22.9%.
Nonservice-disabled VOSB contract dollars, FY08:
Sole-source dollars: 10.8% ($47,000,000);
Set aside dollars: 5.0% ($22,000,000);
Other dollars: 74.2%.
Source: GAO analysis of VA-funded actions in FPDS-NG as of January 9,
2009.
[End of figure]
In FY07 and FY08, nearly all of VA‘s contracting activities (those
associated with VISNs and other major units within VA) met the
agency-wide SDVOSB and VOSB goals.
* Contracting activities with relatively more construction and repair
or maintenance requirements tended to contract more with SDVOSBs and
VOSBs.
* Because VA purchases nearly all of its pharmaceuticals through a
national contract with one large business, VA‘s seven regional
Consolidated Mail-out Pharmacies had the lowest levels of SDVOSB and
VOSB contracting (less than 1 percent in FY08).
VA‘s Success Meeting the Goals Reflected Leadership Commitment and
Broad-based Efforts:
Examples of Leadership Commitment:
* VA substantially increased its SDVOSB and VOSB goals in FY08, and
contracting staff throughout the agency described Office of Small and
Disadvantaged Business Utilization (OSDBU) efforts to ensure awareness
of and commitment to meeting the goals.
* OSDBU generated monthly agency-wide progress reports, and key leaders
met regularly with the Deputy Secretary to review progress against all
small business goals.
* VA requires the individual job performance plans of staff involved in
contracting to include the attainment of SDVOSB and VOSB goals. In
practice, many contracting office managers said that the plans refer to
meeting all small business goals.
* An agency-wide awards program sponsored by the Secretary recognizes
contracting offices for leadership in meeting small business goals,
including for SDVOSBs and VOSBs.
* In its mid-year progress report on VA‘s FY08 small business programs,
SBA recognized VA for outstanding achievement.
* Of the 24 agencies that SBA assessed, VA was one of four that met its
SDVOSB goal in FY07 (there is no government-wide VOSB goal).
Examples of Broad-based Efforts:
* While we heard some external concerns that VA might not be
implementing Public Law 109-461 because it had not completed
rulemaking, we found that contracting offices were acting on the
authorities and priorities of the Veterans First program.
* VA issued interim guidance in June 2007 and published a proposed rule
in August 2008, which VA officials expect to be finalized by May 2009
at the earliest.
- Officials in VA‘s Office of Acquisition and Logistics said that, when
the rule is finalized, they plan to revise other existing guidance
related to SDVOSB and VOSB contracting as needed.
* All but one of the 21 VISNs met both goals in FY08. Seven awarded at
least 20 percent of their contract dollars to VOSBs in FY08.
* Among the nine VISNs we contacted, contracting managers generally had
similar approaches to oversight of acquisition planning and
expectations for how staff should apply the Veterans First priorities
and contracting authorities.
- Differences in the VISNs‘ size, organizational structure, and
oversight practices did not explain variations in their VOSB
contracting levels, which ranged from 13 to 29 percent in FY08.
* Composition of the acquisitions may have been a more important
factor in explaining the VISNs‘ performance.
- Among all VISNs, those that spent less than the average share of
their dollars on construction generally had below-average levels of
SDVOSB and VOSB contracting in FY08. Conversely, the VISNs with above-
average levels of construction spending generally had above-average
levels of SDVOSB and VOSB contracting.
Sustaining or Further Increasing VA‘s SDVOSB and VOSB Contracting Will
Require Vigilance:
Overall, VA exceeded its contracting goals in FY07 and FY08”even after
it set substantially higher goals in FY08. Because VA has a dynamic
contracting environment, sustaining or achieving further growth in its
levels of SDVOSB and VOSB contracting may be challenging and will
require continued vigilance.
* Some of VA‘s leadership will change with the new administration, and
the federal contracting workforce traditionally has high turnover.
* VA‘s Veterans First regulation will require staff to comply with
unique provisions that depart from the federal government‘s already-
complex priority system for small businesses.
In this context, and based on information provided by VA officials,
factors that will call for sustained attention include:
* managing competing goals and priorities among small business
contracting programs, and,
* institutionalizing the new Veterans First contracting priorities and
authorities.
Managing Competing Goals and Priorities:
* According to some contracting officers and managers, balancing SDVOSB
and VOSB priorities with expectations to meet the other statutorily
required small business goals is challenging.
- Some officials noted that the more successful contracting officers
are in identifying SDVOSBs and VOSBs and applying the priority to them,
the more difficult it would be for VA to continue to meet the other
small business goals.
* VA‘s proposed rule to implement Veterans First included a provision
to allow VA, in consultation with SBA, to lower its other small
business goals”an approach that would affirm the primacy of Veterans
First.
* VA‘s SDVOSB, VOSB, and total small business contracting grew in FY07
and FY 08 as other small business categories were unchanged or
declined.
Figure: Vertical bar graph:
[Refer to PDF for image]
The graph plots percentage of contracting dollars for the fiscal years
of 2006, 2007,and 2008 for the following groups:
VOSB (includes SDVOSB);
Small disadvantaged (includes 8(a));
Women-owned;
HUBZone;
All small businesses.
Total small business eligible dollars:
2006: $9.97 billion;
2007: $11.74 billion;
2008: $14.09 billion.
Source: SBA small business goaling reports (FY 06 and FY 07) and GAO
analysis of VA-funded actions in FPDS-NG as of January 12, 2008 (FY08).
Notes: HUBZone refers to participants in SBA‘s Historically
Underutilized Business Zone program. Small Disadvantaged Businesses
include participants in SBA‘s 8(a) program. Beginning in FY08, VA did
not set a separate 8(a) goal.
[End of figure]
Institutionalizing Veterans First:
* VA uses pre-solicitation reviews of proposed contracting strategies
(such as an SDVOSB set-aside) for new acquisitions to monitor
compliance with the Veterans First priorities and contracting
authorities. On the whole, this system of review appears to be working
well.
- OSDBU generally performs the review of VA‘s largest acquisitions”
$100,000 or more for the central office and $500,000 or more for field-
based offices.
- Although OSDBU cannot halt an acquisition if it disagrees with the
proposed strategy, OSDBU officials said that the limited authority has
not been a problem because contracting offices generally are
cooperative in considering its recommendations.
- Many contracting officials noted OSDBU‘s active involvement in this
review process and the emphasis that it places on the priority for
SDVOSBs and VOSBs.
* For smaller acquisitions that do not require OSDBU review, an
official from the contracting activity performs the review.
- While we did not find evidence of widespread problems in how
officials approached their reviews at the VISNs we contacted, we did
find isolated examples of inconsistencies. For example, at two VISNs,
officials responsible for the reviews could not correctly explain the
sole-source authority for SDVOSBs and VOSBs.
- Although they generally understood the priority for veterans and were
familiar with VA‘s interim guidance on Veterans First, many of the
contracting offices we contacted had many new staff or vacancies, which
suggests that ongoing effort will be important to ensure that all staff
have a full understanding of the program and the new regulations.
VA‘s Use of Its National Contract Programs and Other Mandatory
Contracting Sources Has Not Impeded Its Ability to Meet SDVOSB and VOSB
Goals:
National Contracts (Prime Vendor and Standardization):
* VA‘s prime vendor programs require medical facilities to order most
pharmaceuticals, many medical and surgical items, and subsistence (food
and related supplies for inpatients) through prime vendors, which
distribute products nationwide or throughout one or more VISNs.
* VA‘s use of the prime vendor programs has not prevented the agency
from meeting its prime contracting goals for SDVOSBs or VOSBs, and has
not prevented individual VISNs from meeting the agency-wide goals.
- In FY08, VISN purchases from prime vendors totaled $1.2 billion and
represented 14 percent of the VISNs‘ total contract dollars, according
to our analysis of FPDS-NG.
* VA generally obtains volume discounts on many pharmaceutical,
medical, and surgical items by establishing national standardization
contracts and other types of agreements with the manufacturers or
distributors that supply the prime vendors.[Footnote 12]
- Some of these contracts are with SDVOSBs and VOSBs, but items
supplied by such firms through prime vendors (none of which are SDVOSBs
or VOSBs) do not count toward VA‘s prime contracting goals.
Other Mandatory Sources of Supply:
* VA‘s existing guidance and proposed rule retain the federally
mandated use of Federal Supply Schedule (FSS) contracts, but this would
not preclude VA from sustaining or increasing awards to SDVOSBs and
VOSBs, many of which have FSS contracts.
- FSS orders cannot be set aside, but VA encourages staff to search for
and give preference to SDVOSBs and VOSBs when seeking FSS bids.
- Some veteran advocates have argued that VA should allow FSS orders to
be set aside for SDVOSBs and VOSBs under the authorities of P.L. 109-
461. The General Services Administration‘s position is that VA does not
have the authority to allow set asides on FSS orders.
* VA‘s existing guidance retains the federally mandated use of Ability
One agencies (nonprofits that employ blind and disabled persons),
Federal Prison Industries, and the Government Printing Office (GPO).
However, the proposed rule would allow contracting officers to give
priority to SDVOSBs and VOSBs over Federal Prison Industries and GPO.
- If VA had directed to VOSBs the $23 million awarded in FY08 to Federal
Prison Industries and GPO, its VOSB contracting would have increased
minimally, from 14.9 to 15.0 percent of its contract dollars. (Ability
One agencies received another $66 million.)
Verification Process:
VA Verified Ownership of a Limited Number of SDVOSBs and VOSBs:
P.L. 109-461 requires VA to maintain a database of SDVOSBs and VOSBs
and verify that registered firms are owned and controlled by veterans
or service-disabled veterans.
As of December 23, 2008, VA had verified that veterans or service-
disabled veterans owned 484 firms registered in its VetBiz Vendor
Information Pages (VIP) database.
* Firms in the database will be verified only at their request; 419
requests, among the nearly 16,500 registered firms, were pending.
* VA had denied the verification applications of 15 firms.
Currently, the verification process focuses mainly on cross-referencing
information submitted by owners with VA data to confirm majority
ownership by veterans or service-disabled veterans. VA also checks
other online databases to confirm that the firm is licensed and
eligible for federal contracts.
VA Is Working to Address Other Requirements in the Verification
Process:
When a firm requests verification, its owners attest that a service-
disabled or other veteran controls it. Currently VA does not take steps
to verify day-to-day control unless there are discrepancies with online
databases.
* VA developed risk-based categories to target firms for detailed remote
reviews or on-site examinations, which would include steps to verify
control. Officials are developing procedures for such examinations and
anticipate piloting them in the spring of 2009.
- For example, VA considers certain joint ventures to be at high risk
of misrepresentation, because the SDVOSB or VOSB party to the venture
may not control it. But, identifying joint ventures and assessing their
validity are challenging because of data limitations and complex joint
venture requirements.
* In developing its verification procedures, VA is considering how to
avoid weaknesses that we previously identified in SBA‘s efforts to
verify the eligibility of HUBZone firms.[Footnote 13]
- We reported that SBA could provide limited assurance that the
information was accurate due to its limited efforts to verify self-
reported information through site visits or other extensive reviews.
P.L. 109-461 requires VA to use its set-aside and sole-source award
authorities only for verified SDVOSBs and VOSBs.
* VA published a proposed rule in August 2008 that includes such
provisions. Until the rule is finalized, VA guidance states that firms
only have to be registered in the VIP database to receive set-aside or
sole-source awards.
* VA officials said that they expected to be able to process the
currently pending applications for verification before the rule is
finalized.
VA‘s verification process is not an appropriate mechanism to address
concerns”often cited by VA contracting and Office of Inspector General
officials”that some SDVOSBs or VOSBs will not comply with limitations on
how much work they can subcontract to other firms.[Footnote 14]
* VA‘s verification process is designed to consider ownership and
control of the firm, which is consistent with P.L. 109-461‘s
requirement, and does not focus on compliance with contract
requirements.
Subcontracting:
VA Plans to Put in Place Mechanisms to Collect and Review Data on
Subcontracts with SDVOSBs and VOSBs:
P.L. 109-461 requires that, if VA counts subcontracts with SDVOSBs and
VOSBs toward its contracting goals, it must confirm that such
subcontracts were awarded to legitimate SDVOSBs and VOSBs.
* VA does not count subcontracts toward its agency-wide contracting
goals, but its proposed rule would require large business prime
contractors that submit subcontracting plans to include goals for
SDVOSBs and VOSBs that are at least commensurate with VA‘s prime
contracting goals.
* The proposed rule also would require OSDBU to review subcontracts
with SDVOSBs and VOSBs reported under the above-mentioned plans.
Large business prime contractors currently do not report information on
the firms that receive subcontracts. VA officials said that they plan
to have received Office of Management and Budget approval to begin
collecting such data by the time the proposed rule is finalized.
VA Oversight of Subcontracting Focuses on Large Businesses with
Subcontracting Plans:
Contractors generally must provide ’maximum practicable opportunity“
for small business participation in federal contracts of $100,000 or
more.
In its oversight of this federal requirement, VA”like other
agencies”focuses on those large businesses with contracts of $550,000
or more ($1 million for construction) that have subcontracting plans.
* The Federal Acquisition Regulation and VA policy do not set specific
expectations for contracting officers to monitor contracts without
subcontracting plans, and the regulations provide no mechanism for
prime contractors to report on subcontracting activity for such
contracts.
* VA awarded 117 contracts that required subcontracting plans in FY08
and 111 in FY07, according to FPDS-NG.
VA relies on the requirements in the Federal Acquisition Regulation to
guide staff and does not have additional written policies on oversight
of subcontracting plans, according to VA acquisition policy officials.
For example:
* Contracting officers must determine whether a subcontracting plan is
required. If so, they must ensure that it has the required elements,
such as reasonable goals for subcontracting with SDVOSBs, VOSBs, and
other types of small businesses.
* Contracting officers also are expected to monitor performance against
subcontracting plans, primarily through review of electronic reports
the prime contractor submits.
- If a contractor fails to make a good faith effort to comply with the
subcontracting plan, the only formal recourse available to federal
agencies is to seek damages. VA and SBA officials said that agencies
almost never have taken such punitive action.
OSDBU or SBA officials often help review subcontracting plans before VA
awards a contract, but the contracting officer has primary
responsibility for ensuring adoption of an appropriate plan and
monitoring prime contractor performance.[Footnote 15]
* Officials at two contracting activities with the largest number of
subcontracting plans said that they generally expect subcontracting
plans to have achievable goals, with growth in subcontracting dollars
or percentages over time.
* In monitoring the plans, one of the contracting activities focuses on
its annual reviews of electronic reports, requesting action plans if
the prime contractor falls short of goals and using the option to
extend contracts as leverage to press for more aggressive
subcontracting efforts. The other contracting activity uses the prime
contractors‘ routine financial reports to monitor their subcontracting
activity on an ongoing basis.
Even if a contract with a large business exceeds the dollar threshold,
subcontracting plans are not required when there are no subcontracting
opportunities. The few other exceptions to the requirement most often
would not apply to VA contracts.
* In FY07, VA did not require subcontracting plans on 44 contracts that
exceeded the dollar threshold because no subcontracting opportunities
existed, according to FPDS-NG.
* Also in FY07, VA did not require subcontracting plans on another 141
contracts that exceeded the dollar threshold, but FPDS-NG did not
collect data on the reasons for not requiring a plan.
GAO and others have identified a number of issues at various agencies
concerning oversight of subcontracting requirements. {Footnote 16]
* In future work, we intend to explore further VA‘s oversight of
subcontracting plans and of contracting officers‘ decisions whether to
require a subcontracting plan.
[End of section]
Footnotes:
[1] Pub. L. No. 109-461 § 502 (Dec. 22, 2006), 38 U.S.C. § 8127.
[2] The Small Business Act, as amended, defines a small business
generally as one that is "independently owned and operated and that is
not dominant in its field of operation."In addition, a business must
meet the size standards published by the Small Business Administration
(SBA) to be considered small; these standards may use criteria such as
a business' annual revenue or its number of employees to determine
size. Pub. L. No. 85-536, as amended, 15 U.S.C. § 632(a).
[3] 15 U.S.C. § 644(g). Because agencies' activities lend themselves to
differing contracting opportunities, SBA negotiates goals in annual
procurement with federal agencies to achieve the governmentwide goals.
[4] Pub. L. No. 108-183 § 308 (Dec. 16, 2003), 15 U.S.C. § 657f.
[5] 38 U.S.C. § 8127(d).
[6] VA published a proposed rule that includes changes to the VA
Acquisition Regulation to implement portions of the act, including the
set-aside and sole-source authorities. 73 Fed. Reg. 49141 (Aug. 20,
2008).
[7] To receive a federal contract, a firm must register in Central
Contractor Registration, a governmentwide database. Small businesses in
that database can certify in a supplemental database maintained by SBA
that they are veteran-owned or service-disabled veteran-owned. Only
contracts awarded to these self-certified SDVOSBs and VOSBs count
toward agencies' prime contracting goals.
[8] 73 Fed. Reg. 29024 (May 19, 2008).
[9] Large businesses with federal contracts of $550,000 or more ($1
million for construction) generally must have subcontracting plans that
include goals for subcontracting with SDVOSBs, VOSBs, and other types
of small businesses. Federal Acquisition Regulation Part 19.702.
[10] We conducted our work in Washington, D.C., Chicago, Milwaukee, and
the Dallas area from March 2008 to January 2009 in accordance with
generally accepted government auditing standards.
[11] Our analysis of FY08 data reflects data input as of January 2009.
Because agencies enter and revise data in FPDS-NG on an ongoing basis,
the results reported here may differ from SBA‘s official FY08 report on
federal agencies‘ achievement of small business goals, which will be
released later in FY09.
[12] In prior work, GAO found that VA realized substantial cost savings
through the prime vendor and standardization programs and recommended
that VA take steps to increase use of its national contracts. See GAO,
Contract Management: Further Efforts Needed to Sustain VA's Progress in
Purchasing Medical Products and Services, [hyperlink,
http://www.gao.gov/products/GAO-04-718] (Washington, D,C,: Jun. 22,
2004).
[13] GAO, Small Business Administration: Additional Actions Are Needed
to Certify and Monitor HUBZone Businesses and Assess Program Results,
[hyperlink, http://www.gao.gov/products/GAO-08-643] (Washington, D.C.:
Jun. 17, 2008).
[14] Federal regulations applicable to all agencies require firms
receiving small business set-asides or 8(a) awards to perform a minimum
percentage of the work, but do not require them to report on their
subcontracting activity.
[15] SBA also reviews agencies‘ subcontracting oversight and large
businesses‘ subcontracting programs. However, we found that resource
constraints limited the ability of staff to fulfill SBA‘s
responsibilities. See GAO, Small Business Administration: Agency Should
Assess Resources Devoted to Contracting and Improve Several Processes
in the 8(a) Program, [hyperlink, http://www.gao.gov/products/GAO-09-16]
(Washington, D.C.: Nov. 21, 2008).
[16] See GAO, Federal Acquisition: Oversight Plan Needed to Help
Implement Acquisition Advisory Panel Recommendations, [hyperlink,
http://www.gao.gov/products/GAO-08-160] (Washington, D.C.: Dec. 20,
2007), and Report of the Acquisition Advisory Panel to the Office of
Federal Procurement Policy and the Congress of the United States
(Washington, D.C.: January 2007).
[End of section]
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