Groups say veteran-owned contracting still broken

Wednesday - 3/20/2013, 3:06pm EDT

DoD Reporter Jared Serbu

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Despite a history of complaints to Congress and the Department of Veterans Affairs, veterans advocacy groups say VA is still placing far too many hurdles in front of veteran-owned small businesses in its contracting program. VA, meanwhile, says it's making changes.

VA's programs for preferentially awarding contracts to veteran-owned small businesses are unlike those of any other agency in government. In a 2006 law, Congress told VA to take a "veterans first" approach to procurement, making service-disabled veteran-owned small businesses its first choice for any given contract and all other veteran-owned small businesses its second choice.

But to deter fraud, Congress also told VA to set up a system to verify contractors' veteran status before they could get set-aside contracts. That set up a careful balancing act for the agency between detecting potential fraud and making the process as easy as possible for legitimate veteran-owned businesses. And veterans groups are telling Congress VA has allowed that scale to fall way too far in one direction.

"The bottom line is many veterans find this process to be overly burdensome, distracting and not worth the effort," Davy Leghorn, the assistant director for the American Legion's National Economic Commission told a joint hearing of the House Veterans Affairs committee and Small Business committee Tuesday. "We want these businesses to be successful, not hamstrung."

With the exception of VA, when veteran-owned small businesses want to get contracts that are set aside for them, they can simply self-certify through the government's System for Award Management that they meet the legal definitions of a veteran-owned firm. Potential competitors for a contract can challenge that veteran designation after-the-fact via the Small Business Administration, but those challenges are exceedingly rare.

VA, on the other hand, because of the verification requirement Congress created, requires an extensive, often months-long paperwork process upfront before a company can even be considered for a set-aside contract with the department.

Leghorn said his group supports verification in principle, but contends VA has gone overboard.

"Currently, to root out bad actors who maliciously seek to defraud the federal government, VA places a series of overzealous, bright-line rules to evaluate the applications," he said. "Most of these rules apply to unconditional ownership and control requirements, and VA has formulated extreme interpretations that are unrealistic. The American Legion agrees with the U.S. Court of Federal Claims' February 14 Miles ruling, where the court applied the U.S. Bankruptcy Court's pragmatic definition that does not burden the veteran's ownership interest. Neglecting to adopt this approach, VA will continue to make this process punitive and burdensome to the majority of firms seeking this verification."

Groups decry maze of requirements

Joe Wynn, a special advisor to the Vietnam Veterans of America, said VA's process for determining whether a company is actually owned and controlled by a veteran is extremely inconsistent in practice. He said the small firms he's dealt with have had their applications denied for myriad and unpredictable reasons.

"Basically, a veteran has to be the majority owner, the majority board member, majority stockholder, the highest paid employee, hold the highest office, have the experience to manage the daily operations, make all the long term decisions, must devote full time to the business, offer no right of first refusal, don't lease your office space, and by all means don't live in a community property state," he said. "Without absolute proof of any one of these things, the veteran will likely be denied."

Veterans advocates also complain that it's almost impossible for veteran-owned small businesses to navigate that maze of requirements that might cause their application to be denied, charging that VA's approach so far has been to deny first and ask questions later.

Jonathan Williams, a federal procurement attorney who works with veteran-owned business clients, said the department is not exactly upfront about all the potential reasons it would decline to approve a given application.

"They don't necessarily have to tell you all the reasons they're denying you when they send you an initial denial letter," he said. "So what we've started to do is ask the veteran to send us all of their documents, the entire application, even if it was denied for one needle in the haystack. And then we do a full review to see what else they might be denied for three months or six months from now. You can imagine that's a very time consuming and costly exercise for veterans to go through, and many of them can't afford to do it. But that's a symptom of the fact that they don't have to tell you every reason up front and they will often cite different reasons three or four months after you correct the initial problem."