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Federal Market Intelligence for Small Business |
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GAO: VA’s vet-owned small biz contracting rose to 25.8% in ‘17VA contracting officers report ‘pressure’ with Rule of 2The Veterans Affairs Dept.’s contracting with veteran-owned small businesses experienced a huge increase following a 2016 Supreme Court decision, according to a new report from the Government Accountability Office. At the same time, VA contracting officers report continued difficulties in implementing the preferences for veteran-owned small businesses that were upheld by the court, the GAO said. The VA’s contracts with small businesses owned by veterans and service-disabled veterans (VOSBs and SDVOSBs) surged to 25.8% in fiscal 2017, up from 16.9% in fiscal 2015, the GAO said. VA construction contracts with those firms soared to 77.4%, up from 64.9%, during the two-year period. But along with the growth there have been problems. VA contracting officers interviewed by the GAO say they feel “pressure” to create set-asides for SDVOSBs and VOSBs even when they are not confident of receiving bids or of achieving an award at a fair and reasonable price that provides best value. Many of those set-asides subsequently were canceled because no offers were received, causing delays. In other cases, SDVOSB or VOSB set-aside awards were made even though other small businesses had met the same or nearly the same requirements at a significantly lower price, contracting officers told the GAO. The GAO recommended increased contracting officer training and oversight. It also found that the VA does little to enforce compliance of small business subcontracting, and advised more oversight. Supreme Court decision The VA is bound by a 2006 law to give top priority in all its contracting to SDVOSBs and VOSBs. The VA’s program to implement the law is Veterans First. Challenges with implementing Veterans First grew following the “Kingdomware” decision by the U.S. Supreme Court in 2016, the GAO found. The court ruled that the VA must apply the “Rule of Two” to SDVOSBs and VOSBs in all its procurements. Under the Rule of Two, there are two conditions: 1) the contracting officer reasonably expects that at least two small firms (SDVOSBs or VOSBs) will submit offers, and 2) the award can be made at a fair and reasonable price that provides best value to the government. If both conditions are met, VA must create an SDVOSB or VOSB set-aside. The justices said the law must be applied to every VA procurement, with no exceptions. Surge in SDVOSB and VOSB buys Following the Supreme Court decision, VA’s contracting with SDVOSBs and VOSBs has grown dramatically. Combined, the SDVOSB/VOSB contracting increased from 16.9% in fiscal 2015, to 20.8% in fiscal 2016, to 25.8% in fiscal 2017. Construction contracts with SDVOSBs/VOSBs rose from 64.9%, to 65.3%, to 77.4%, over the period. The VA’s non-construction contracts with SDVOSBs/VOSBs also got a boost: from 7%, to 12% to 18.8%, from fiscal 2015 to 2017. The GAO did not examine SDVOSBs and VOSBs separately. The number of veteran-owned small firms rose steadily during the period, with the greatest increase--from 8,925 to 11,926 firms--occurring in fiscal 2017. Contracting officer concerns While the VA provided guidance and training on implementing Veterans First after the Supreme Court decision, contracting officers continue to have concerns.
Leasing has been an area of particular concern. It is an industry in which it has been historically rare for veteran-owned small firms to meet requirements. Nonetheless, with market research showing two apparently eligible vet-owned firms in many cases, the VA contracting officers told GAO they created the SDVOSB/VOSB set-asides and then canceled them when no offers were received. The officers say this has added three to six months on average to complete leasing contracts, the GAO reported.
This difficulty apparently has resulted in higher prices for the government in some cases, GAO said. “For instance, a branch chief we interviewed provided five examples of purchases under $16,000 where, in recent, separate procurements, non-SDVOSB/VOSB small businesses had proposed prices for the same or substantially similar items that were about $400 to $3,000 less than those proposed by the SDVOSBs/VOSBs. These procurements were conducted as SDVOSB/VOSB set-asides, and awards were made to SDVOSBs/VOSBs on the basis of the Veterans First preference,” GAO said.
The VA contracting officers said they fear negative attention from VA leadership, the Office of Small and Disadvantaged Business Utilization (OSDBU) and from the Office of General Counsel, as well as from potential protesters, if they were to decline to create an SDVOSB or VOSB set-aside, or if they were to deem a proposed price from an SDVOSB or VOSB as not being fair and reasonable, GAO said. Because of this pressure--whether real or perceived--the contracting officers’ default choice tends to be to create the SDVOSB or VOSB set-asides. The officers say they authorize the set-asides even though they are unsure if the firms actually will bid, or whether the firms can successfully meet the government’s requirements at a fair and reasonable price with best value, the GAO said.
Recommendations The report made six recommendations to increase oversight of Veterans First and of VA subcontracting rules. VA agreed with the recommendations. More information: GAO report: https://bit.ly/2yHtf22
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