VA Exceeded Its Veteran Contracting Goals since FY07, but It Faces Challenges in Meeting Its Other Small Business Goals and Monitoring Interagency Agreements

VA exceeded its VOSB and SDVOSB contracting goals since FY07 and  made significant use of its veteran preferences authorities but faces  challenges in continuing to meet its other small business contracting goals  and monitoring interagency agreements. 3). 110-389 or  the 2008 Act) amended the 2006 Act’s provisions to require that any  agreements into which VA enters with other government entities to  acquire goods or services on VA’s behalf on or after January 1, 2009,  require the agencies to comply, to the maximum extent feasible, with VA’s  contracting goals and preferences for VOSBs and SDVOSBs. However, VA does not have an effective process in place to  ensure that all interagency agreements include the 2008 Act’s required  language and to monitor the extent to which agencies comply with the  requirements. VA Has Made Limited Progress in Implementing Its Verification Program and Has Not Developed a Thorough and Effective Program

VA has made limited progress in implementing a program to verify the  veteran status, control, and ownership of businesses. As of April 8, 2010,  VA had verified about 2,900 businesses––approximately 14 percent of  VOSBs and SDVOSBs in the VetBiz.gov database. VA’s procedures call  for site visits to further investigate the ownership and control of higher- risk businesses, but the agency has a large and growing backlog of  businesses awaiting site visits. 5, 2010)  as a result of the verification program. VA Has Not Met Subcontracting Goals for VOSBs and SDVOSBs but Has Developed a Review Process to Help Increase Subcontracting Achievements

VA has developed a mechanism to review prime contractors’ subcontracts  with VOSBs and SDVOSBs, but the agency has not yet implemented it. The 2006 Act  requires that VA “establish a review mechanism to ensure that, in the case  of a subcontract of a Department contract that is counted for purposes of  meeting a goal established pursuant to this section, the subcontract was  actually awarded to a business concern that may be counted for purposes  of meeting that goal.” For FY07, VA set agencywide goals for all  subcontracts awarded of 7 percent for VOSBs and 3 percent for SDVOSBs;  for FY08 and FY09, VA set goals of 10 percent for VOSBs and 7 percent for  SDVOSBs. At the close of each fiscal year, VA staff will provide the form  to prime contractors with approved subcontracting plans. However, VA  contracting officers used the authorities to award contracts––totaling  almost $4 million––to 11 businesses that had been denied verification. VA’s subcontracting  accomplishments also have fallen short of goals for the past 3 years. However, it is too early to assess the  effectiveness of VA’s subcontracting efforts. To better ensure that VA meets the requirement to use veteran preferences  authorities with verified businesses only, as required by the 2006 Act, VA  should develop a more effective system to ensure that contracting officers  do not use veteran preferences authorities to award contracts to  businesses that have been denied verification, and provide additional  guidance and training to contracting officers as necessary. Key contributors to this report are listed in appendix V.

Appendix I: Objectives, Scope, and Methodology

Our report objectives were to review (1) the extent to which the  Department of Veterans Affairs (VA) met its prime contracting goals for  veteran-owned small businesses (VOSB) and service-disabled veteran- owned small businesses (SDVOSB) in fiscal years (FY) 2007, 2008, and  2009, and what, if any, challenges VA faced in meeting these goals; (2) VA’s  progress in implementing procedures to verify the ownership, control,  and, if applicable, service-disability status of firms in its mandated  database of VOSBs and SDVOSBs; and (3) VA’s progress in establishing a  review mechanism of prime contractors’ subcontracts with VOSBs and  SDVOSBs. To respond to these objectives, we reviewed agency documents related to  VA’s implementation of the Veterans Benefits, Health Care, and  Information Technology Act of 2006 (Pub. Additionally, we conducted a file review of a sample  of verified businesses to determine the extent to which VA followed  procedures and to identify any deficiencies in the verification process.
Why GAO Did This Study

The Veterans Benefits, Health Care, and Information Technology Act of 2006 (the 2006 Act) requires the Department of Veterans Affairs (VA) to give priority to veteran-owned and service-disabled veteran-owned small businesses (VOSB and SDVOSB) when awarding contracts to small businesses. The 2006 Act also requires GAO to conduct a 3-year study of VA's implementation of the act. GAO evaluated (1) the extent to which VA met its prime contracting goals for VOSBs and SDVOSBs in fiscal years 2007-2009; (2) VA's progress in implementing procedures to verify the ownership, control, and status of VOSBs and SDVOSBs in its mandated database; and (3) VA's progress in establishing a review mechanism of prime contractors' subcontracts with VOSBs and SDVOSBs. GAO obtained and analyzed data on VA's prime and subcontracting accomplishments, and reviewed a sample of verified businesses to identify any deficiencies in VA's verification program.

What GAO Found

While VA exceeded its contracting goals with VOSBs and SDVOSBs for the past 3 years, it faces challenges in continuing to meet its other small business contracting goals and monitoring agreements with other agencies that conduct contract activity on VA's behalf. While VA was able to exceed its contracting goals for VOSBs and SDVOSBs, its contracting with women-owned small businesses and HUBZone firms fell short of its goals during this period. In addition, GAO's review of interagency agreements found that VA lacked an effective process to ensure that interagency agreements include required language that the other agency comply, to the maximum extent feasible, with VA's contracting goals and preferences for VOSBs and SDVOSBsand to monitor the extent to which agencies comply with the requirements. VA has made limited progress in implementing an effective verification program. While the 2006 Act requires VA to use the veteran preferences authorities only to award contracts to verified businesses, VA's regulation does not require that this take place until January 1, 2012. In fiscal year 2009, 25 percent of the contracts awarded using veteran preferences authorities went to verified businesses. To date, VA has verified about 2,900 businesses--approximately 14 percent of businesses in its mandated database of VOSBs and SDVOSBs. Among the weaknesses GAO identified in VA's verification program were files missing required information and explanations of how staff determined that control and ownership requirements had been met. In addition, VA's procedures call for site visits to further investigate the ownership and control of higher-risk businesses, but the agency has a large and growing backlog of businesses awaiting site visits. Furthermore, VA contracting officers awarded contracts to businesses that had been denied verification. Finally, although site visit reports indicate a high rate of misrepresentation, VA has not developed guidance for referring cases of misrepresentation for investigation and enforcement action. Such businesses would be subject to debarment under the 2006 Act. To ensure a thorough and effective verification program, VA needs robust procedures for reviewing businesses, an effective system to ensure that contracting officers do not use veteran preferences authorities with denied businesses, and clear guidance for referring businesses potentially abusing the program. VA has developed a mechanism to review prime contractors' subcontracts with VOSBs and SDVOSBs, but the agency has not yet implemented it. For the past 3 years, VA fell substantially short of achieving subcontracting goals for VOSBs and SDVOSBs. The agency acknowledged shortcomings in this area and intends to use a review mechanism to confirm all subcontracting activities by prime contractors with approved subcontracting plans for a sampling of contracts awarded in fiscal year 2010. VA expects increased performance for subcontracting goal attainment as a result. It is too soon to assess the effectiveness of VA's subcontracting efforts.