End of VA honor system
cuts 70 percent of vendors
with veteran status
By Leah Nylen and Kathleen Miller, Monday, September 12, 12:13 AM
Since 2008, the Department of Veterans Affairs has awarded billions of dollars in contracts under a program to steer work to firms owned by veterans without requiring proof of their eligibility for the funding.
A new mandate forcing companies to prove their ownership and management status has led to the removal of at least 18,800 companies from the VA vendor preference list, the government said. Until last year, contractors were able to self-certify their status as veteran-owned businesses.
Air Force veteran Chad Gill, whose Plankinton, S.D.-based company supplies ammunition, insecticide and pesticide to federal agencies, said he welcomes the stricter requirements.
“The honor system doesn’t really work in the real world,’’ said Gill, who served at a Merced, Calif., Air Force base and is the chief executive of Phoenix Environmental Design.
Only about 8,200 veteran-owned companies remain in the agency’s “Vendor Information Pages,’’ said Josh Taylor, a VA spokesman. That represents a 70 percent reduction after the introduction of tougher certification measures.
Other federal agencies, which still allow self-certification, spent $8.9 billion last year with companies that said they were owned by service-disabled veterans.
Government auditors and investigators have been uncovering contract fraud and abuse by companies claiming to be owned and managed by veterans or service-disabled veterans for years.
The VA inspector general found in July that the agency awarded $46.5 million in contracts to 32 companies that weren’t owned or controlled by veterans or were passing most of the work on to non-veteran businesses. The IG estimated that the agency gives out as much as $500 million in contracts a year to ineligible companies.
An October 2009 audit by the Government Accountability Office found 10 ineligible companies received about $100 million in government contracts through fraud or abuse during fiscal 2003 through 2009. Six of the 10 companies had received contracts from Veterans Affairs, according to the report.
Some of the ineligible companies were used as pass-throughs for other non-veteran-owned businesses, including large, multinational corporations, that performed the contracted work. Others weren’t small businesses or weren’t controlled by a service-disabled veteran, according to the report.
‘Veterans First’
A 2006 law directed Veterans Affairs to give contracting preference to companies owned by veterans and service-disabled veterans. Under the program known as “Veterans First,” the department can award contracts of up to $5 million without competition to qualified companies. The law also made qualified businesses owned by service-disabled veterans the first choice for all contracts, and companies owned by veterans the second choice. Other federal agencies can’t favor one type of small business over another and can only reserve contracts for veterans who were disabled in the service of their country.
Since fiscal 2008, the first full year under Veterans First, the department has awarded about $11.5 billion to veteran and service-disabled veteran businesses, according to data compiled by Bloomberg. That’s about 20 percent of total procurement spending by the agency during that period.
To increase oversight and improve veteran employment opportunities, President Obama signed a veteran benefits law in October that requires Veterans Affairs to verify the ownership and management of companies in the registry of companies eligible for contracts through Veterans First. Companies had until March 21 to submit documentation, such as tax paperwork and canceled checks, proving their eligibility.
Veterans Affairs has removed from the VetBiz Registry at least 18,800 companies that failed to meet requirements, had outdated information or didn’t respond to requests for documentation, according to Taylor.
Companies removed from the VA program weren’t all intentionally misrepresenting themselves, Tom Leney, executive director of the department’s Office of Small and Disadvantaged Business Utilization, said last month. Some, such as those with non-veteran business partners, aren’t comfortable turning over complete control to one owner and opt not to participate, said Leney, who has overseen the small-business program since April.
“Most of the firms that we end up having to deny verification to have a problem with their business model,’’ Leney said. “They’re not bad firms.’’
12 companies debarred
Veterans Affairs has stepped up its efforts to pursue fraud, Leney said. The agency has conducted 840 on-site pre-certification visits this year compared to 110 last year. It also has completed since July roughly a dozen unannounced audits of certified companies to ensure compliance with veteran-owned requirements, he said.
As of Aug. 24, the inspector general’s office has debarred 12 companies or individuals this year for fraud related to veteran status. Seven proposed debarments are pending. The inspector general also can refer cases to the Justice Department for potential prosecution.
Mark Amtower, who owns a Maryland company that advises federal contractors on how to win government business, said all U.S. agencies should require proof that companies are owned and managed by service-disabled veterans before awarding contracts. He also said there should be more severe punishments for those found guilty of fraud.
“You are defrauding the federal government; it’s not dissimilar from going into a federal reserve bank and walking out with bullion,” Amtower, the senior partner at Amtower & Co. in Highland, said this month . “Defrauding the government is defrauding the government.’’
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