New analysis:

Service-disabled veterans awarded majority of VA construction work

66% of VA construction contracts are set-asides to SDVOSBs

The Veterans Affairs Department has awarded the majority of its construction contracts as set-asides to small firms owned by service-disabled veterans in recent years.

In fiscal 2014, for example, VA set-asides for construction work by SDVOSBs totaled $1.36 billion, which was 66% of the VA’s construction contract spending of $2.06 billion.

For fiscal 2015, the SDVOSB construction set-asides at VA totaled 75% of total construction at press time, but that data is incomplete.

The SDVOSB dominance in VA construction has been steady for five years, starting from fiscal 2010. Before that, the SDVOSB set-aside share in VA construction was 23% and 38% in fiscal 2008 and 2009, respectively.

Set-Aside Alert’s figures were obtained from the Federal Procurement Data System, as displayed on USASpending.gov.

VA SDVOSBs grow share

The share of VA set-aside contracts in construction awarded to SDVOSBs has grown rapidly in the last seven years:

Most of the set-asides are relatively small. There were about 6,100 transactions for SDVOSB construction set-asides at VA in fiscal 2014; the most won by a single firm was $35 million worth.

Weaker trend governmentwide

The prevailing status of SDVOSBs in construction at the VA is striking, especially in comparison to their much smaller share governmentwide.

SDVOSB construction set-asides, as a percentage of all government construction contract spending, nonetheless has risen higher in recent years:

2006 law

One of the main factors shaping VA contracting is a 2006 law to boost SDVOSBs. Under the law, the VA is obliged to give small firms owned by service-disabled veterans top priority in contracting. Veterans who are not service-disabled get second priority. The department awarded nearly 19% of all its contracts to SDVOSBs in fiscal 2014, which greatly exceeded the government’s 3% goal.

For set-asides to dominate a market is unusual

It is uncommon to see set-asides become the chief force in a sphere of the government contracting market. One of the principles underlying public sector set-asides is that the targeted firms generally are disadvantaged. In some cases, that has been interpreted to mean that those firms are not dominant in their industry.

For example, a prerequisite for creation of a set-aside in the Small Business Administration’s Women-Owned Small Business program is that women-owned firms cannot be dominant in the industry in which the specific set-aside would be awarded. But that is the only federal set-aside program with that restriction.

VA construction problems

The VA is one of the four largest agencies for federal construction contracting, along with the Army, Navy and General Services Administration.

Total construction contract spending for the government was $31 billion in fiscal 2014.

However, the VA’s construction has been controversial, primarily due to a pattern of costs running over and schedules falling behind. For example, at the VA hospital construction in Aurora, CO, costs have soared to $1.7 billion and the VA plans to ask Congress for an additional $830 million to complete the work. The prime contractor on that project is a veteran.

The Government Accountability Office and others have audited VA’s construction programs and identified multiple shortcomings, primarily blaming VA mismanagement. The VA’s strong reliance on awarding set-aside construction contracts to SDVOSBs apparently has not been examined.

Set-Aside Alert’s additional data

In addition, we compiled a database of set-aside and sole-source contracts awarded to SDVOSBs and expiring in fiscal 2016 and 2017. Those contracts totaled $4.4 billion. Construction was the top industry for the SDVOSBs in our database, comprising $2.2 billion. (See related story)

Editor’s note: VA set-asides awarded to SDVOSBs reported on USASpending.gov are mostly SDVOSB-specific set-asides, but may include a small number of other types of set-asides. By law, VA must prioritize SDVOSBs.

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