Preferences for Veteran- Owned Small Businesses in Awards of VA Contracts

The 2006 Veterans Benefits, Health Care, and Information Technology  Act established a requirement that VA contract competitions must be  restricted to SDVOSBs and VOSBs if: 1) the contracting officer  reasonably expects that at least two such businesses will submit offers,  and 2) the award can be made at a fair and reasonable price that offers  the best value to the government. VA obligations and awards for SD/VOSB set-asides increased in fiscal  years 2016 and 2017, particularly fiscal year 2017, which was the first full  fiscal year following the 2016 Supreme Court decision. VA Provided Training on Updated Veterans First Program Policy

VA has conducted training for its workforce on the 2016 Veterans First  policy and subsequent updates and guidance. Contracting Officers Face Several Challenges in Applying Aspects of the Veterans First Policy

Applying the 2016 Veterans First policy has presented challenges for  contracting officers. As a result, the decision of whether to set aside a solicitation  is often based on the second criterion of the VA Rule of Two—whether  there is a reasonable expectation that the award can be made at a price  that is fair and reasonable and offers the best value to VA. To meet this  criterion, the contracting officer combines research and professional  judgment to make a decision whether to set aside or not, according to VA  officials. Based on our review of  the training, it does not fully address the more challenging aspects of  implementing the Veterans First policy, such as making fair and  reasonable price determinations when acquisitions have been set aside. VA Conducts Limited Oversight of Compliance with Subcontracting Limitations

In many cases, clauses that require compliance with and enable  monitoring of subcontracting limitations are not included in VA contracts  and orders with SD/VOSBs. This  is known as the subcontracting limitations requirement. The purpose of the subcontracting limitations requirement is to ensure  that the SD/VOSBs that are awarded set-aside contracts do not  subcontract the work beyond prescribed levels, and ensure that the goal  of Veterans First—to promote opportunities for veteran-owned small  businesses—is not undermined. We found that 11 of the 29 contract actions did not contain the  current version of the clause—it was either missing entirely or an  outdated version of the clause was used (see figure 10). These  contracting officers also had some difficulty applying the VA Rule of Two,  particularly in the more challenging component, determining whether they  can reasonably expect prices offered by SD/VOSBs to be fair and  reasonable—issues that could be mitigated by establishing more targeted  training that would provide the VA with greater assurance that its  contracting officers have the knowledge and skills necessary to  implement this policy. Further, assessing whether training on the  Veterans First policy should be designated as mandatory would provide  VA with information necessary to determine if such training would be  beneficial for all contracting officers. Appendix I: Objectives, Scope, and Methodology

You requested that we examine changes to how the Department of  Veterans Affairs (VA) implements the Veterans First program as a result  of the Supreme Court’s decision. This  report assesses: (1) how VA procurement obligations to veteran-owned  small businesses changed in the period from fiscal years 2014 through  2017; (2) what actions VA has taken to update Veterans First policies and  regulations and provide training following the Supreme Court’s decision;  (3) what challenges, if any, VA is encountering in applying Veterans First  policies; and (4) the extent to which VA has mechanisms in place to  monitor compliance with subcontracting limitations by veteran-owned  small businesses, and the effectiveness of such mechanisms. As such, we conducted site visits at a non-generalizable  selection of three VHA regional offices, known as Veterans Integrated  Service Networks (VISN).
Why GAO Did This Study

VA spends billions every year to procure goods and services and is required to give preference to veteran-owned small businesses when awarding contracts—a program known as Veterans First. In turn, those firms must comply with limitations on the use of subcontracting. A 2006 statute established Veterans First, and a 2016 Supreme Court decision clarified conflicting interpretations, resulting in changes to how VA must now implement the program.
GAO was asked to review VA's implementation of Veterans First since the Supreme Court decision. Among other things, this report assesses the extent to which (1) changes occurred in procurement obligations to veteran-owned small businesses from fiscal years 2014 through 2017; (2) VA has encountered any challenges in implementing Veterans First policies; and (3) VA has mechanisms to oversee contractor compliance with subcontracting limitations.
GAO analyzed VA regulations, policies, and contracting data; conducted three site visits; and reviewed a non-generalizable sample, selected based on factors such as high dollar value, of 35 contracts and orders, 29 of which VA awarded under Veterans First.

What GAO Found

GAO found that the percentage of Department of Veterans Affairs (VA) obligations set aside for veteran-owned small businesses under its Veterans First program was higher in 2017—the first full year following the 2016 Supreme Court decision—than in previous years. In its decision, the court clarified that VA contract competitions must be restricted to these businesses if they meet two criteria: (1) the contracting officer reasonably expects that at least two such businesses will submit offers, and (2) the award can be made at a fair and reasonable price and best value to the government. This has become known as the “VA Rule of Two.” VA created a new policy for implementing Veterans First following the 2016 decision. The percentage of obligations set aside for veteran-owned small businesses increased from fiscal years 2014 to 2017 (see figure).
Contracting officers face challenges implementing aspects of Veterans First, some of which VA has addressed through policy and optional training. However, 12 of the 30 contracting officers GAO interviewed cited difficulty in assessing the second criterion of the VA Rule of Two when making a set-aside decision. Eight of them stated that they sometimes lacked confidence in their fair and reasonable price determinations. VA's training, however, does not fully address these more challenging aspects of implementing the Veterans First policy. More targeted training would provide VA with greater assurance that its contracting officers have the knowledge and skills necessary to implement the policy. Additionally, assessing whether training on this policy should be mandatory would allow VA to determine if it would be beneficial for all contracting officers.
GAO found that VA conducts limited oversight of contractor compliance with limitations on subcontracting and has few mechanisms for ensuring compliance. For example, GAO found that the required clause for ensuring that veteran-owned small business contractors perform the required portion of work was either missing entirely or an outdated version was used in 11 of the 29 set-aside contract actions GAO reviewed. Without better oversight, VA is limited in its ability to detect violations and ensure that the goal of Veterans First—to promote opportunities for veteran-owned small businesses—is not undermined.

What GAO Recommends

GAO is making six recommendations, including that VA provide more targeted training for contracting officers, assess whether training should be mandatory, ensure required clauses are included in contracts, and improve oversight of compliance with subcontracting limitations. VA agreed with GAO's recommendations.