U.S. GOVERNMENT PUBLISHING OFFICE

30–266 WASHINGTON : 2019

VETS FIRST? AN EXAMINATION OF VA’S 

RESOURCES FOR VETERAN-OWNED SMALL BUSINESSES 

HEARING 

BEFORE THE

SUBCOMMITTEE ON INVESTIGATIONS, 

OVERSIGHT, AND REGULATIONS 

OF THE

COMMITTEE ON SMALL BUSINESS 

UNITED STATES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED FIFTEENTH CONGRESS 

SECOND SESSION 

HEARING HELD 

JUNE 7, 2018 

Small Business Committee Document Number 115–075 

Available via the GPO Website: www.govinfo.gov 

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Congress.#13
(II) 

HOUSE COMMITTEE ON SMALL BUSINESS 

STEVE CHABOT, Ohio, Chairman 

STEVE KING, Iowa 

BLAINE LUETKEMEYER, Missouri 

DAVE BRAT, Virginia 

AUMUA AMATA COLEMAN RADEWAGEN, American Samoa 

STEVE KNIGHT, California 

TRENT KELLY, Mississippi 

ROD BLUM, Iowa 

JAMES COMER, Kentucky 

JENNIFFER GONZA ́ LEZ-COLO ́ N, Puerto Rico 

BRIAN FITZPATRICK, Pennsylvania 

ROGER MARSHALL, Kansas 

RALPH NORMAN, South Carolina 

JOHN CURTIS, Utah 

NYDIA VELA ́ ZQUEZ, New York, Ranking Member 

DWIGHT EVANS, Pennsylvania 

STEPHANIE MURPHY, Florida 

AL LAWSON, JR., Florida 

YVETTE CLARK, New York 

JUDY CHU, California 

ALMA ADAMS, North Carolina 

ADRIANO ESPAILLAT, New York 

BRAD SCHNEIDER, Illinois 

VACANT 

KEVIN FITZPATRICK, Majority Staff Director 

JAN OLIVER, Majority Deputy Staff Director and Chief Counsel 

ADAM MINEHARDT, Staff Director 

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C O N T E N T S 

OPENING STATEMENTS 

Page 

Hon. Trent Kelly ...................................................................................................... 1 

Hon. Alma Adams .................................................................................................... 2 

WITNESSES 

Mr. Scott Denniston, Executive Director, National Veterans Small Business 

Coalition, Centreville, VA .................................................................................... 5 

Mr. Bob Taylor, Founder, Owner, and CEO, Alliant Healthcare Products, 

Grand Rapids, MI ................................................................................................ 7 

Ms. Cheryl Nilsson, Chief Executive Officer, First Nation Group LLC, 

Niceville, FL ......................................................................................................... 8 

Mr. Davy G. Leghorn, Assistant Director, The American Legion, Washington, 

DC .......................................................................................................................... 10

APPENDIX 

Prepared Statements: 

Mr. Scott Denniston, Executive Director, National Veterans Small Business Coalition, Centreville, VA .................................................................... 20 

Mr. Bob Taylor, Founder, Owner, and CEO, Alliant Healthcare Products, 

Grand Rapids, MI ......................................................................................... 32 

Ms. Cheryl Nilsson, Chief Executive Officer, First Nation Group LLC, 

Niceville, FL .................................................................................................. 37 

Mr. Davy G. Leghorn, Assistant Director, The American Legion, Washington, DC ..................................................................................................... 39 

Questions for the Record: 

None. 

Answers for the Record: 

None. 

Additional Material for the Record: 

Coalition To Defend Vets First ........................................................................ 64 

Marathon Medical ............................................................................................ 71 

TrillaMed ........................................................................................................... 72 

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(1) 

VETS FIRST? AN EXAMINATION OF VA’S 

RESOURCES FOR VETERAN-OWNED SMALL 

BUSINESSES 

THURSDAY, JUNE 7, 2018 

HOUSE OF REPRESENTATIVES, 

COMMITTEE ON SMALL BUSINESS, 

SUBCOMMITTEE ON INVESTIGATIONS, OVERSIGHT, AND

REGULATIONS, 

Washington, DC. 

The Subcommittee met, pursuant to call, at 2:23 p.m., in Room 

2360, Rayburn House Office Building, Hon. Trent Kelly [chairman 

of the Subcommittee] presiding. 

Present: Representatives Kelly, Chabot, Blum, Marshall, and 

Adams. 

Chairman KELLY. All right. We got our Ranking Member here, 

Ms. Adams, who is such a great friend. Good morning. I call this 

hearing to order. 

First of all, I just want to thank my Ranking Member, who does 

such a great job on this Subcommittee and the Committee in full. 

And this is truly one of those committees that is left in Congress 

where I feel like we do a whole lot of bipartisan stuff. And I think 

that is important for America, that we work together on issues that 

affect small businesses. So I am very glad that she is here and the 

rest of our Committee. 

I would also like to recognize our Chairman, Chairman Chabot, 

who is here. And we appreciate the full Committee Chairman. And 

should the Ranking Member show up, Ms. Vela ́zquez, I hope I will 

remember to recognize her, but she also does a great job. 

As this Committee is aware, our Nation’s veterans make up a 

significant percentage of the American workforce. Many of our Nation’s heroes exit military service and choose to begin a new mission: opening a business. Some even own and maintain a business 

while serving in the military Reserves. 

The majority of veteran-owned businesses are small businesses, 

and these businesses employ approximately 5 million workers and 

account for more than $1 trillion in annual business receipts. 

However, as a member of the Army National Guard, I am aware 

that veteran business owners experience challenges that nonveteran colleagues do not, such as a potential employer’s difficulty 

in understanding a military resume and converting that to civilian 

skill sets or the result of a service-connected disability. 

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That is why programs like the Veterans First Contracting Program, or Vets First, at the Department of Veterans Affairs is so important. 

The Veterans First Contracting Program was established by Congress in 2006 to assist the VA in carrying out their mission of serving America’s veterans. This program gave the VA a unique authority to award direct, sole-source contracts to veteran-owned and 

service-disabled veteran-owned small businesses as long as the 

firm meets three criteria: the firm is a responsible source, the 

award falls between $150,000 and $5 million, and the award can 

be made at a fair and reasonable price. 

However, despite this authority, the VA has continued to impede 

its own authority and work against the intentions of Congress by 

creating internal regulations and policies that make it harder to 

award contracts to veteran-owned small businesses. 

A striking example of this occurred just 2 months ago when the 

VA filed a justification and approval to move thousands of medical 

products under the control of just four prime vendors as part of 

their Medical/Surgical Prime Vendor Program. Many of these products could be and often were purchased directly from small businesses. 

Instead, the VA has said that veteran-owned businesses will be 

included at only the subcontracting level, and, unfortunately, they 

have yet to provide any details for a subcontracting plan. 

The VA has used many excuses for these actions, the most common being that it is too burdensome or too expensive to work with 

veteran-owned small businesses. I hope our panel today will help 

to demonstrate that this is simply not true. 

I thank our witnesses for being here today, and I look forward 

to the conversation. 

I now yield to the Ranking Member, Ms. Adams, for her opening 

statement. 

Ms. ADAMS. Thank you, Mr. Chairman. 

And before I begin, I wanted to just introduce two interns: 

Jameia Booker from Johnson C. Smith University and Tony 

Watlington from North Carolina A&T. These two young people are 

part of the Bipartisan HBCU Caucus that Congressman Walker 

and I do each summer. So I just wanted to thank them for being 

here. 

And thank you, Mr. Chairman, and thank you to our witnesses 

today. 

One of the most important tools that we have to provide courageous individuals who served our country with a new life after 

their military service is the contract preferences to ensure their 

participation in the Federal marketplace. 

The Service-Disabled Veteran-Owned Small Business Procurement Program disbursed almost $18 billion through over 17,000 

contracts in fiscal year 2017. SDVOSB awards accounted for approximately 4.5 percent of Federal contracts, meeting the 3-percent 

statutory goal. Notably, the government awarded 5.29 percent, or $23.4 billion, 

of its prime contracts to VOSBs. And while this accomplishment 

should be applauded, it should also be pointed out that it comes 

with calls for higher utilization of emerging veteran-owned small 

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businesses from the Department of Veterans Affairs and throughout the government. 

While the SBA’s program allows SDVOSBs to receive contracting 

preferences, these businesses do not have priority over other smallbusiness preferences. However, recognizing the importance of getting contracts to not only SDVOSBs but VOSBs as a whole, Congress passed the Veterans Benefits, Healthcare, and Information 

Technology Act. 

Today’s hearing focuses on the sole-source authority granted to 

the Department of Veterans Affairs through the creation of the 

Vets First Contracting Program and determining what progress 

has been made to the process since the Committee’s last hearing 

on this issue. 

The VA recently issued a justification and approval for other 

than full and open competition on April 12, 2018, to allow four 

prime vendors currently performing distribution contracts under 

the Medical/Surgical Prime Vendor-Next Generation Program to 

choose potential suppliers. 

This presents cause for concern for the SDVOSB community, as 

many of them rely on doing their business with the government. 

This particular approach from the VA shrinks the industrial base 

by limiting opportunities and possibly circumvents their Vets First 

sole-source authority, cutting out many small, veteran-owned businesses. 

The VA says they plan to negotiate subcontracting plans with the 

prime vendors to include as many small businesses as possible, but 

this is also concerning given the government’s overall lackluster enforcement of subcontracting plans. 

Previously, the GAO has found that non-SDV firms have won 

SDV contracts. This included front companies posing as veterans, 

pass-throughs, and outright fraud. As a result, millions of dollars 

were diverted away from legitimate SDV businesses. 

Diverting business opportunities away from our veterans by assuming subcontracting is enough to supplement the loss of prime 

contracts through vehicles such as this is a strategic sourcing approach that has been proven to unfairly hit small businesses the 

hardest. 

Addressing these failings and ensuring SDV procurement programs work as intended is long past due. So, with the current employment environment for veterans of the wars in Iraq and Afghanistan, it is essential that all veterans’ resources are properly managed and existing opportunities protected. 

Given that entrepreneurship remains a viable career path for 

many of these men and women, programs like Vets First are critical to reduce the unemployment rate for veterans. I think I can 

speak for all the members here today in saying that we will do 

whatever it takes to help service-disabled veterans overcome the 

challenges they face in today’s economy. 

And, with that, I want to thank the witnesses again for appearing before our Subcommittee today, and, Mr. Chairman, I yield 

back. 

Chairman KELLY. Thank you again to our Ranking Member. 

If Committee members have an opening statement prepared, I 

ask that they be submitted for the record. 

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I would like to take a moment to explain the timing lights for 

you. You each have 5 minutes to deliver your testimony. The light 

will start out as green. When you have 1 minute remaining, it will 

turn to yellow. And, finally, at the end of your 5 minutes, it will 

turn to red. 

I ask that you try to adhere as close as possible. Don’t make me 

bang on this gavel, okay? No. 

And now I would like to introduce our panel of witnesses. 

Our first witness is Scott Denniston, executive of National Veterans Small Business Coalition in Centreville, Virginia. He is also 

the president and chief executive officer of the Scott Group of Virginia, LLC. Prior to those roles, he directed the Office of Small 

Business Programs and the Center for Veterans Enterprise at the 

Department of Veterans Affairs. Mr. Denniston also served our 

country in the Army. 

Thank you for your service and for testifying today. 

Our next witness will be Bob Taylor, the founder, owner, and 

CEO at Alliant Healthcare Products in Grand Rapids, Michigan. 

Mr. Taylor served in the United States Air Force as a navigator for 

17 years and, after leaving Active Duty, held multiple positions 

within the medical device industry for the past 26 years. 

Thank you for your service to our country and being here today. 

Our third witness is Ms. Cheryl Nilsson, chief executive officer 

of First Nation Group, LLC, in Niceville, Florida. First Nation 

Group is a service-disabled veteran-owned small business, womanowned small business, and a HUBZone company. Ms. Nilsson is a 

retired Air Force officer. 

And we thank you for your service and for testifying today. 

I now yield to the Ranking Member, Ms. Adams, to introduce our 

next witness. 

Ms. ADAMS. Thank you, Mr. Chairman. 

It is my pleasure to introduce Mr. Davy Leghorn, assistant director of the National Employment and Education Division for The 

American Legion, the largest veterans service organization in the 

country. 

In his current capacity, Mr. Leghorn oversees the employment 

and small-business portfolios and administers The American Legion’s National Veterans Hiring Initiative. 

Prior to joining The American Legion, he served in the United 

States Army as both a mortar infantryman and a civil affairs specialist. 

Welcome, Mr. Leghorn, and thank you for your service, sir. 

Chairman KELLY. We will now do 5-minute questions, and we 

will try to adhere to that too. 

Thank you for your service, Mr. Leghorn. And I also got to visit— 

oh, I am sorry. We will start with Mr. Denniston. Sorry. 

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STATEMENTS OF SCOTT DENNISTON, EXECUTIVE DIRECTOR, 

NATIONAL VETERANS SMALL BUSINESS COALITION, CENTREVILLE, VIRGINIA; ROBERT TAYLOR, FOUNDER, OWNER, 

AND CHIEF EXECUTIVE OFFICER, ALLIANT HEALTHCARE 

PRODUCTS, LLC, GRAND RAPIDS, MICHIGAN; CHERYL 

NILSSON, CHIEF EXECUTIVE OFFICER, FIRST NATION 

GROUP, LLC, NICEVILLE, FLORIDA; AND DAVY G. LEGHORN, 

ASSISTANT DIRECTOR, THE AMERICAN LEGION, WASHINGTON, D.C. 

STATEMENT OF SCOTT DENNISTON 

Mr. DENNISTON. Good afternoon, Chairman Kelly, Ranking 

Member Adams, and distinguished members of the Subcommittee. 

On behalf of the over 400 members of the National Veterans Small 

Business Coalition, the largest nonprofit trade association representing veterans in the Federal market, it is my pleasure to be 

here today. 

On the invitation for the testimony, the question that you had 

was ‘‘Vets First? An Examination of VA’s Resources for VeteranOwned Small Businesses.’’ I would suggest there are no resources. 

As the chart attached to my testimony illustrates, VA, through 

its internal small-business goaling process, has in the last 8 years 

never raised its goal, in spite of accomplishments which exceed 

those goals. The chart also shows a decline in accomplishments 

since the peak year of fiscal year 2010. 

So I submit that there is little commitment by senior leadership. 

I would also submit that Vets First and the Kingdomware Supreme 

Court decision have had absolutely no impact on VA procurements. 

As recently as last October, at a congressional roundtable hosted 

by the chair and Ranking Member of the Subcommittee on Oversight and Investigations of the House Veterans Affairs Committee, 

senior VA leadership expressed their opinion that service-disabled 

vets add no value and cost VA more money. 

Also, the policies the VA has established limit the areas of opportunity for service-disabled vets. This was done by VA with no public comment or review and flies in the face of transparent government. 

Last August, the National Veterans Small Business Coalition 

published a paper identifying strategies used by VA to circumvent 

Vets First. The strategies negatively impact at least 7,000 veteranowned small businesses attempting to do business with VA each 

year. 

We provided three specific recommendations to Congress to stop 

this abuse: one, halt VA contracting actions that don’t support Vets 

First; request GAO investigate the VA’s disregard of Vets First; 

and, third, conduct hearings to hold VA accountable. 

We are grateful to this Committee for the hearings today, as well 

as the House Veterans’ Affairs Committee, which has also had 

hearings and a roundtable on these issues. 

In October of 2017, the Subcommittee on Oversight and Investigations had a roundtable where, after it was over, the National 

Veterans Small Business Coalition made eight specific recommendations to the VA as to how to improve the program. And 

a copy of that letter is attached to my testimony. 

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One of the topics from your introductions that is of interest to 

this Committee is the VA Med/Surg Prime Vendor Program. The 

Strategic Acquisition Center of VA was established over 3 years 

ago to develop an effective Med/Surg Prime Vendor Program. It has 

been a failed program for the last 3 years. 

On April 12, the SAC issued, as you mentioned, a class justification for less than full and open competition to change the contracts 

from distribution contracts to distribution and supply contracts for 

four large, for-profit entities that are in the business of leveraging 

their own operations to increase their own bottom lines, not to be 

concerned about the health of veteran patients. 

These four entities will now determine which vendors get to supply what products to VA and at what price. All veteran small businesses are relegated to subcontractors, with no protections offered 

by the Vets First program. 

On April 14, the four prime vendors received the modifications 

directing them to negotiate between the suppliers and themselves 

to provide products to the VA. VA did not at that time require an 

approved subcontracting plan, as required by the FAR. And just as 

the policies and faulty interpretations led to the unanimous Supreme Court decision in Kingdomware, VA’s position was that this 

was a, quote, ‘‘modification’’ to an existing contract and a subcontracting plan was not required. 

I also want to bring to the Committee’s attention another disturbing action of the VA last year. Former VA Secretary David 

Shulkin announced that he was going to make a directed solesource award, estimated at approximately $4 billion, to the Cerner 

Corporation to install an electronic health record, as it had done at 

DOD. The contract was recently awarded by the VA. 

We have requested a copy of the subcontracting plan under the 

Freedom of Information Act. VA has acknowledged our request but 

has yet to provide a copy of the plan. 

Given VA’s abysmal record in subcontracting—which, over the 

last 10 years, the VA has never met its subcontracting goal of 3 

percent to service-disabled vets, and only in 2 of those 10 years did 

they even make half of that goal—we have great concerns about 

the subcontracting plan that may or may not exist for the Cerner 

contract. 

But to let you know that everything is not negative at the VA, 

we have worked with the VA for the past year to develop an electronic ordering system for micropurchases for the VA called 

GoVets. It was developed by one of our members, Veratics in Florida. And that now has the ability to have electronic ordering of 

micropurchase products to the VA. 

Remember, the SAC has worked 3 years to get 7,000 products 

onto the formulary. In the 6 months that we have been working at 

this full-time, we have over 50 companies on there with over 50,000 

products for the VA. So it makes you wonder why the SAC, with 

all their people, can’t do what they are entitled to do. 

That is the end of my oral testimony. I would ask that my written comments be submitted for the record with attachments. 

Chairman KELLY. Without objection. 

Thank you for your testimony. 

And we now recognize Mr. Taylor for 5 minutes. 

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STATEMENT OF ROBERT TAYLOR 

Mr. TAYLOR. Thank you. 

Good afternoon, Chairman Kelly, Ranking Member Adams, and 

other distinguished members of the Subcommittee. Thank you for 

the opportunity for me to be here today. And it is my honor to be 

able to be here to testify to this Committee about the important 

value that we provide to the VA. 

My name is Bob Taylor, and I am here to testify on behalf of my 

company and the 39 employees of Alliant Healthcare Products. 

Alliant Healthcare is a Grand Rapids, Michigan-based service-disabled veteran-owned small business. 

As background, in my 17-year military career leading to the rank 

of major, I served my first 6 years in the Air Force on Active Duty 

as a navigator and radar navigator on B-52 bombers. In my much 

younger years, as a first lieutenant, I flew 11 combat missions in 

the first Gulf War from an island called Diego Garcia in the Indian 

Ocean. I clearly remember one day when we learned that one of 

our B-52s had crashed and we had lost three of our crewmates. 

I would never do anything with my business to disrespect their 

sacrifices or those of any other veterans. The fact that this hearing 

is a little over 1 week following Memorial Day reminds us all that 

there are veterans that have sacrificed far more than me or more 

than anyone else here today. 

So, to me, it is not only a business matter but it is with a sense 

of purpose that I have always tried to set high standards in all of 

my business dealings. I refuse to operate as a simple pass-through 

or what is referred to as a rent-a-vet. I constantly remind people 

that we are not just selling widgets to consumers but we are often 

selling lifesaving healthcare products to care for our warfighters 

and for other veterans that have served our country. 

Now, how do we add value? Alliant Healthcare Products focuses 

on helping companies navigate the complexities of the Federal market. We assist large and small businesses who provide market-leading and innovative healthcare technologies to the VA. We have 

earned a strong reputation as an exceptional Federal market expert who provides value throughout the supply chain of the VA. 

Our most important benefit to the government is that we do not 

increase our prices on the clear majority of the products that we 

sell to the VA. We allow the VA to negotiate their price, the fair 

and reasonable pricing, as though they were buying directly from 

the manufacturers themselves, and then we honor those prices. 

Manufacturers pay us for the services that we provide them, but 

the government does not pay us for any of our services. 

In the words of one contracting officer, and I quote, ‘‘We love 

working with Alliant because you offer the same exact pricing and 

your team understands the government procurement process better 

than the manufacturers,’’ unquote. 

Selling to the VA is quite different than selling to the commercial 

hospitals, and manufacturers’ representatives are often ill-prepared 

to deal with the complexities of acquisition regulations. As a service, Alliant has our own area vice presidents who cover the United 

States. They provide support to make sure acquisition regulations 

are followed and help contracting officers get what they need in a 

timely manner. 

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From another contracting officer, and again I quote, ‘‘Alliant is 

able to attend in-person meetings with clinical representatives. 

Having someone in meetings that understands how to speak government language is incredibly beneficial,’’ unquote. 

At Alliant, we are also very creative problem-solvers. For example, a VA wanted to receive high-value endoscopes kitted together, 

because if they received them separately, they can often not find 

each other once they are inside the hospital, and this can cause reordering of very expensive, high-priced components. In this case, 

the large manufacturer was unable to provide these kits due to 

their internal policies. Well, we purchased the same components 

and placed them together at our manufacturing site in a single 

package and delivered to the VA exactly what they wanted. 

In conclusion, Alliant does provide value to the VA, to their contracting officers, and to the patients who are treated by the best 

technology available. 

My question to this Committee and to the VA itself is this: What 

is the possible downside to working with SDVOSBs if the hospitals 

receive what they need in a faster manner, with a more efficient 

process, with cost-effective, creative solutions, more accurate transactions, and delivered with better outcomes? And that is exactly 

Alliant Healthcare’s mission. 

This concludes my testimony. Thank you very much for the time. 

Chairman KELLY. Thank you for your testimony, Mr. Taylor. 

And Ms. Nilsson is recognized for 5 minutes. 

STATEMENT OF CHERYL NILSSON 

Ms. NILSSON. Chairman Kelly and distinguished members of 

the Subcommittee, I would like to express my sincere thanks for 

the invitation to submit testimony today at this hearing. I am honored to be here. 

My name is Cheryl Nilsson, and I am the CEO of First Nation 

Group. I served on Active Duty as an Air Force judge advocate for 

23 years, specializing in government procurement, and retired in 

the rank of colonel. 

First Nation is a service-disabled veteran-owned, HUBZone, 

woman-owned small business. We employ 100 people, 100 employees, and 40 percent live in the HUBZone, are from the HUBZone, 

and 14 percent are veterans. 

We distribute respiratory products to VA hospitals nationwide, to 

hundreds of thousands of veterans each year. We ship over 1,700 

orders a day. Ninety-nine percent of those orders ship within 24 

hours. We maintain a huge inventory with over 4,000 SKUs at 3 

strategically located warehouses, including 1 at our HUBZone location in Detroit. This enables us to quickly meet urgent and emergency VA needs. 

What value does an SDVOSB like First Nation bring to the VA? 

There are many. 

One, experience. For over 30 years, we have specialized in serving in the Federal market. We are laser-focused on the VA. Ninetynine percent of our business is with the VA. 

We are the VA’s corporate knowledge for anything related to 

sleep therapy. We do business with over 1,700 purchasing agents 

around the country and probably know over half of them by name. 

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We are a one-stop shop. We carry large inventories with a full 

range of sleep products from all major manufacturers. We provide 

customized, multivendor patient solutions. One order could include 

products from three or four manufacturers, significantly streamlining the VA ordering process. 

First Nation does what most large vendors can’t or won’t do: We 

sweat the small stuff. We fill hundreds of thousands of orders a 

year. Over 95 percent are under $3,500. Seventy percent are smallbox deliveries under $200 that are shipped directly to the veterans’ 

homes all over the Nation. These small purchases are a nuisance 

for most large businesses, and for us it is core. 

The VA is our only focus and passion. Few large businesses could 

risk being so specialized. Their focus must be in the larger commercial marketplace. We are the experts in this complex market. Manufacturers and the VA depend on this expertise to get the state-ofthe-art products established in the VA. 

We are nimble. We can and do customize orders, large or small, 

even with 1,700 a day. We can easily pivot to make immediate and 

last-minute changes. We are a non-manufacturer. There is no conflict of interest over brand preference. We represent all the leading 

manufacturers. We can sell to the VA whatever the VA wants, 

when they want it, multi-brands, on large and small orders. 

Cost savings. We nurture and establish long-term OEM relationships. We buy in large order quantities to get top-tier pricing and 

pass the savings onto the VA. 

Just-in-time shipments. We preposition inventory in three strategically located warehouses. The morning mantra for our First Nation warehouses: ‘‘Order in, order out.’’ Ninety-nine percent of the 

time, they make it. Orders are shipped and invoiced in 2 days. 

First Nation’s success as a VA supplier has afforded us the opportunity and privilege to give back to the communities. First Nation was founded with the goal of building a sustainable social enterprise to benefit the company’s employees, the veterans, and the 

underserved in the community where we live and work. 

Some examples of these steps in the journey towards a social enterprise: 

Our focus with the veterans, like the VA, has been in eradicating 

veteran homelessness. We joined forces with Veterans Matter 4 

years ago and, I am proud to say, have housed over 21 homeless 

veterans. 

We expanded our focus this year to support Paralyzed Veterans 

of America and are a premier sponsor with UPS for the 2018 Veterans Wheelchair Games. 

In employee charitable giving, to encourage and empower employees to embrace the First Nation giving culture, First Nation 

matches their charitable contribution 10 to 1. 

In closing, small companies like ours feel very much at risk. The 

combination of the abandonment of the FSS, the focus on working 

only with manufacturers and large businesses, the distrust of 

VOSBs and an apparent unwillingness to embrace Vets First, and 

strategies to significantly limit prime contractors threatens veteran-owned businesses like First Nation and presents huge barriers of entry for any veteran who wants to do business with the 

VA. 

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We need Congress’ continued support of small business and the 

Vets First program and assistance in overcoming the challenges we 

are facing today. 

Thank you again for the opportunity to testify. I am happy to answer any questions at this time. 

Chairman KELLY. Thank you, Colonel, for your testimony. 

And I now recognize Mr. Leghorn for 5 minutes. 

STATEMENT OF DAVY G. LEGHORN 

Mr. LEGHORN. Chairman Kelly, Ranking Member Adams, and 

distinguished members of the Subcommittee, on behalf of our national commander, Denise Rohan, and the 2 million members of 

The American Legion, we thank you for the opportunity to testify 

this afternoon. 

This issue is of the utmost importance to The American Legion, 

because how VA buys medical supplies directly affects the care of 

the most vulnerable segment of our population, veteran patients. 

Public Law 106-50 made all Federal agencies stakeholders in 

supporting the veterans small-business industrial base. Subsequently, Public Law 109-461 gave VA the authority to set higher 

agency small-business goals for veterans. Included was a provision 

requiring VA to set aside contracts for veteran-owned firms as long 

as the rule-of-two was satisfied. A new procurement hierarchy 

within VA was created. It is referred to as the Vets First Contracting Program. 

Later, the Supreme Court would finetune the Vets First contracting policy with VA with the Kindomware decision in 2016. In 

2018, VA launched the MSPV-Next Generation, an IDIQ contracting program which effectively removes 40 percent of the medical supply spend from the rule-of-two, utilizing only four prime 

vendors as suppliers and distributors. 

The master list of items, prices, and suppliers purchased through 

the MSPV-Next Generation is referred to as the formulary. The formulary is created by running a procurement-like process to discover businesses who can meet the standards and offer the best 

prices. 

VA needs over 80,000 items to support all of the medical centers. 

The 7,800 items currently on the list is not enough to satisfy the 

demand, and VA’s solution is to grant a 2-year period where prime 

vendors will determine what supplies VA medical centers need—a 

drastic departure from the current clinician-driven process. 

The American Legion believes that VA is the most qualified to 

deliver healthcare services to veterans, and we want them to step 

up to their responsibilities. 

The intimation that adherence to the Vets First procurement priorities could potentially cause catastrophic disruption to the 

healthcare supply chain is markedly false. The American Legion 

supports the Kingdomware decision and opposes any attempt to 

subvert the application of the rule-of-two at VA. 

In 2016, The American Legion passed Resolution 154 advocating 

for a reasonable number of Federal set-asides for veteran-owned 

firms. MSPV-Next Generation not only reduces Federal contracts 

for veteran-owned businesses but also sidesteps the rule-of-two. Its 

existence is of great concern to The American Legion. 

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Privatizing the functions of the VA Office of Acquisitions and Logistics presents a conflict of interest and harms small businesses. 

The American Legion would like to work with Congress and VA to 

look at the empirical evidence used for justification to better understand the underlying rationale for the private-sector bailout so another will not be required. 

Mr. Chairman, accepting the concept that the only solution is to 

abdicate responsibility by privatizing the procurement of critical 

supplies sets an irreversible path for VA to address all of its other 

problems through privatization as the only alternative. 

The American Legion makes the following recommendations: 

We believe that prime vendors must not be allowed to decide 

which healthcare products are to be added to the formulary and 

checks are put into place to prevent them from systematically displacing SDVOSBs as distributors. 

If VA is looking for a solution that meets small-business goals, 

adheres to the Kingdomware decision, has government-certified fair 

and reasonable prices, and is FDA-, Trade Agreements Act-, and 

Buy American Act-compliant, they should look at the utilization of 

the Federal Supply Schedule. The FSS could be an alternative 

starting point for market research and a basis for rapidly moving 

products onto the formulary. 

Going forward, since the J&A’s implementation, prime vendors 

are already assuming the distributor’s role in the procurement 

process. The displacement of veteran-owned distributors at VA coincides with a downward trend in distributor utilization within the 

healthcare supply industry and is exacerbated by GSA’s implementation of the 2017 NDAA’s section 846, which establishes a program for Federal agencies to buy commercial products through ecommerce portals. Distributors are feeling the pinch across the 

Federal agencies and in the private sector. All industry indicators 

thus far present a very bleak future. 

Despite the odds stacked against the SDVOSB distributors, The 

American Legion remains committed to advocating for their utilization and place within the Federal procurement process. 

Chairman Kelly, Ranking Member Adams, and distinguished 

members of the Subcommittee, thank you for the opportunity to explain the position of the 2 million members of The American Legion, and I look forward to answering any questions you may have. 

Chairman KELLY. Thank each of you again for your testimony. 

And now we will have 5 minutes each to ask you questions. If 

we have the desire, we will go through a second round, but if not— 

I couldn’t have testified any better than you guys did. I could have 

been down there sitting and talking, because I agree with what 

every one of you said pretty much. 

So I will start with me. 

Colonel Nilsson, First Nation Group is unique in that it is service-disabled veteran-owned, woman-owned, and located in a 

HUBZone. And you kind of articulated it, so I was listening, but 

I want you to go over it in about a minute, if you would tell me 

what your company does for other Federal agencies in the VA that 

can’t be done by a larger business. 

Ms. NILSSON. Primarily, we fit in a niche where we, for lack of 

a better word, kind of take the crumbs. We do what the other comSBR002 with DISTILLER

12 

panies really don’t want to do, and that is dealing directly with the 

veterans, directly with those purchasing agents. And we get what 

they want when they want it, ship it out fast. 

We are a little like a prime vendor in sleep. We have all the 

products that the VA needs and wants, and we almost know what 

they need because we have been doing it so long. So manufacturers 

come to us because we are the distributors and the supplier of 

sleep and many respiratory products to the VA. 

Chairman KELLY. Thank you very much. 

You know, and it is really irritating that the VA, which is there 

to care for our Nation’s veterans—their sole purpose is to care for 

our Nation’s veterans—would not care for our Nation’s veterans 

and not be exceeding all goals instead of halfway meeting those 

goals. It is very disappointing, but it shows a culture that we have 

to change. Their primary goal should be to service our American 

veterans, whether medically or through the contracts as long as we 

do those. 

With that, Mr. Denniston, you mentioned in your testimony that 

the contract justification and approval submitted by the VA in 

April mentioned subcontracting opportunities for veteran-owned 

and service-disabled veteran-owned businesses. 

To your knowledge, has the VA provided any details on this? 

Mr. DENNISTON. Mr. Chairman, the answer to that is no. 

The J&A was done in April. Two days later, the prime vendors 

got the go-ahead to move forward. When we asked the question 

about the subcontracting, we were told that that was in the works 

and that the VA would ask for a plan by the end of June. 

The problem is, in those 2 months, the prime vendors will have 

already made the agreements with the manufacturers, which, in effect, cut out the distributors. So the damage is already done. 

Chairman KELLY. I have to be careful, because this stuff infuriates me so much that I have to watch my language up here. 

But don’t prime vendors usually establish subcontracting opportunities before the prime contracts are awarded? 

Mr. DENNISTON. Yes, sir, they do, but remember, when the 

original contract was written, it was only for the distribution of 

product. Most of the opportunities for service-disabled vet and 

small businesses in particularly the distributing world is for the 

product. None of the product was included in that original subcontract. 

So, when we changed the scope of the contract from distribution 

to distribution and supply, there should have been another subcontracting plan that incorporated the opportunities for the distributors to play as subcontractors, and that has not been done. 

Chairman KELLY. I don’t believe too much in coincidences, and 

I believe when you know business and you do things, I think they 

are intentional. And I think they intentionally are getting to the 

result that they want to get to. And, again, it goes back to my primary comment: They should be taking care of veterans, not looking 

at ways to not take care of veterans. 

And, Mr. Taylor, unfortunately, there is a misconception about 

contracting with veteran-owned small businesses, and your testimony touches on this. Can you explain this misconception and talk 

more about what Alliant Healthcare does to combat this? 

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Mr. TAYLOR. Well, it is a constant effort to try and combat this. 

The misconceptions are communicated throughout the VA, so we 

are always in an effort to try and prove and demonstrate our value. 

One of the things that we do that other companies—it is very difficult, sometimes, for a large manufacturer sales rep to go into a 

VA. It is a much more complicated environment. And I believe, 

without us, some of these firms would not even promote their products within the VA. So I think we do a good job of helping new 

technology get to the VA that wouldn’t normally get there. 

Chairman KELLY. Thank you. And I think that is important. 

That would be products that were either more expensive or not 

available for our veterans if you weren’t doing your job, is the way 

I interpret that. 

And, with that, I am over my time—or I have a few seconds left, 

and I yield back my time and now recognize the Ranking Member, 

Ms. Adams. 

Ms. ADAMS. Thank you, Mr. Chairman. 

And thank you all for your testimony. Very enlightening. 

Mr. Leghorn, in your testimony, you stated that the VA’s Medical/Surgical Prime Vendor-Next Generation Program is privatizing 

the functions of the VA’s Office of Acquisitions and Logistics’ Strategic Acquisition Center. This presents a significant conflict of interest and inflicts harm on veteran-owned small businesses. 

So how can Congress prevent this harm and strengthen the VA’s 

ability to expand the growth of set-aside contracting to small businesses through Vets First? 

Mr. LEGHORN. Ranking Member Adams, thank you for your 

question. 

The first thing that Congress can do, I believe, is to just halt the 

agency from allowing the prime vendors so much power to determine which suppliers and what items go on that list. It is a huge 

conflict of interest because a few of the prime vendors are actually 

manufacturers as well. They could easily tool around with the 

items on the formulary to, in effect, cut out small businesses. 

The other thing that we could look at doing is to go back and 

look at the FSS that VA runs and see if we could rapidly move 

items onto the formulary that way or to even just utilize the FSS 

more broadly for medical supplies. 

Ms. ADAMS. Okay. 

After Kingdomware was decided, the VA used the Ability One 

list to purchase goods without first applying the rule-of-two, which 

ensures set-asides for small businesses. This activity was later 

struck down by a court. 

It seems that the VA continues to struggle with putting veteranowned small businesses and service-disabled veteran-owned small 

businesses first when purchasing goods. 

Is this an indication of the VA’s attitude toward veteran small 

businesses in general? 

Mr. LEGHORN. You know, the Ability One issue is really tricky. 

You know, we are dealing with conflicting authorities. The American Legion believes that the Supreme Court has the Kingdomware 

decision right in the black letter reading of the law. And the fact 

that VA continues to employ workarounds around the rule-of-two 

is really bothersome. 

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14 

And, as the Chairman said, it doesn’t make any sense that an 

agency whose goal is to help the veterans community would purposely try to tank and bypass the rule-of-two within the Vets First 

program. 

Ms. ADAMS. Thank you. 

Mr. Denniston, are there possible unintended questions for small 

businesses to the VA’s MSPV-NG that have not been considered in 

their approach to this procurement that Congress should act on? 

Mr. DENNISTON. I think the answer to that question is fairly 

broad. 

Let me just make a comment. We have been talking about the 

VA. The VA is 350,000 employees, most of whom want to do the 

right thing. And the people in the field that actually buy the products that we are talking about I truly believe want to do the right 

thing. The challenge is that the impediments have been put in 

their way because of poor policy, poor training, and poor oversight. 

And my personal opinion is that is how we need to fix these problems. 

To your point, historically, VA has done a terrible job of managing the subcontracting program. That is evident over the last 10 

years. And VA has given us no assurances that anything is going 

to change now with the new MSPV program. 

In fact, in December of last year, when we were all in St. Louis 

for the national VA small business conference, when we asked the 

question of why should we feel you are going to do anything different, the answer from the senior VA leadership was, ‘‘You have 

to trust us.’’ Well you can’t trust people after 10 years of evidence 

to the contrary. 

Ms. ADAMS. Okay. Thank you, sir. 

Mr. Chairman, I am going to yield back. 

Chairman KELLY. I thank the Ranking Member again. 

And I now yield to Mr. Blum, the Chairman of the Subcommittee 

on Agriculture, Energy, and Trade, for 5 minutes. 

Mr. BLUM. Thank you, Chairman Kelly. 

Thank you to our panelists for being here today, and thank you 

for your service to our great Nation. 

Mr. Denniston—is that correct? 

Mr. DENNISTON. Denniston, yes. 

Mr. BLUM. Denniston. The chart that accompanied your testimony is interesting. It is flat-lined for the last 8 years. Why do you 

think it is flat-lined? 

Mr. DENNISTON. I think it shows a lack of commitment to the 

Vets First program. I think it shows—— 

Mr. BLUM. At what level? 

Mr. DENNISTON. At the senior level of the VA. 

During the administration of Bush 43, when none of the government was making the goals, there was an executive order, 13360, 

that said that all Federal agencies had to have a strategic plan and 

that strategic plan had to be measured by a senior VA official. In 

the time that I was there during the Bush administration, it was 

the Deputy Secretary of VA. 

There is no strategic plan at VA, and there is no senior leadership that is looking at holding people accountable for the accomplishments. And it is that same level of senior leadership that 

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should be looking at the difference between the goals and the accomplishments and raising the goal if, in fact, there was a commitment to the program, in my opinion. 

Mr. BLUM. You saying under Bush 43—— 

Mr. DENNISTON. Correct. 

Mr. BLUM.—there was a strategic plan—— 

Mr. DENNISTON. Correct. 

Mr. BLUM.—at the VA and there is not today? 

Mr. DENNISTON. Correct. 

Mr. BLUM. How does that happen? 

Mr. DENNISTON. Lack of interest in the program. The real 

challenge is that the VA does not see as part of its mission helping 

service-disabled veterans. 

Mr. BLUM. I agree with Chairman Kelly. How can that be? I 

mean—— 

Mr. DENNISTON. I can’t answer that, sir. 

Mr. BLUM. That is absurd to me. 

Mr. DENNISTON. Yeah. And to all of us sitting here at the 

table. 

Mr. BLUM. Amazing. 

You stated in your testimony that the National Acquisition Center ran a successful MSPV program, but after the leadership was 

transferred to the SAC, they failed. What happened there? Why do 

you think that is true? 

Mr. DENNISTON. The big difference was, when the program 

was at the National Acquisition Centers, as Mr. Leghorn mentioned in his testimony, the Federal Supply Schedules were the 

basis for the formulary that was used for the Med/Surg Program. 

When the program was moved to the Strategic Acquisition Center, 

the requirement to use the Federal Supply Schedule was dropped. 

There was a policy change at the VA that said the Federal Supply 

Schedules, which they run as a delegated procurement from the 

GSA, are not considered competitive contracts; therefore, they can’t 

be used as the basis for the formulary. 

Now, the problem with that is that disagrees with GSA policy. 

And that issue has been brought up to VA by numerous organizations in Washington that represent large business as well as small 

business, and every one of us says to the VA, if you want to fix the 

problem, go back and use the Federal Supply Schedules as your 

basis. VA won’t do that. 

Mr. BLUM. I am a career business guy, not a career politician. 

I look at the VA, you know, our veterans, our national treasures. 

Would you say the VA—and this is a question for everyone there— 

is mismanaged? Is the VA mismanaged? 

Mr. DENNISTON. Yes, sir. In the procurement acquisition 

arena, yes. 

Mr. BLUM. How about the rest of it? 

Mr. DENNISTON. I can’t speak to that. That gets a little bit 

broader than what I focus on with the National Veterans Small 

Business Coalition. 

Mr. BLUM. It sure seems to be that way to me, from what I 

hear. 

Mr. DENNISTON. Yep. I can’t argue with you. 

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16 

Mr. BLUM. And is this a problem at the very top, or is this a 

midlevel management problem? Where is this mismanagement? I 

mean, is there accountability? I just find it incredible. Is there accountability there? Why aren’t heads rolling? Why aren’t people 

terminated? 

Is this middle management? Is this upper management? Where 

is this problem at? 

Mr. DENNISTON. You hit the nail on the head. It is with senior 

leadership. Because, as we learned in the military, everything 

starts at the top and comes down. And there has been such turnover at VA. 

The other problem is that acquisition is a technical field. It has 

the Federal Acquisition Regulations that are this high, its own language. The people that come in that are the secretaries and the 

deputy secretaries don’t really understand that, so they rely on the 

technical experts the VA has hired. And there are a lot of problems 

there, because it is those people who are making the statements 

that working with service-disabled vets is administratively burdensome and costs the VA money. 

Mr. BLUM. Anybody else want to jump in on either of those 

questions? Why we flat-lined and/or the VA is mismanaged. 

Ms. NILSSON. The VA, as Scott pointed out, especially in the 

group that we work with, is thousands of people. And at the working level, one, they love working with veteran-owned businesses 

and really work hard to find them in order to work with them. 

At the large acquisition levels that we are talking about with 

prime vendor, that is where a lot more of the difficulty comes with 

believing that there is a place for small business or for veteranowned business. I don’t think they really believe that we can do 

what they expect, do good work at a good price. And so we spend 

a lot of time trying to convince the leadership that we are worth 

their time. And that has been challenging. 

Mr. BLUM. I agree with Chairman Kelly. You would think the 

organization should also care tremendously about veteran-owned 

businesses. I just find it incredible. 

But thank you for your testimony today, and thank you for your 

service. 

Chairman KELLY. The gentleman’s time has expired. 

We are going to do a second round of questions. I will try not to 

use all 5 minutes, but I am going to start with me and then go to 

Ms. Adams. 

I just want to say I have never met bad soldiers, bad airmen, bad 

sailors. I have seen—bad units, usually, I have not seen very many 

of unless there is bad leadership. 

Now, that doesn’t indict the whole VA. Most of those people go 

to work there for lesser pay than they could make somewhere else. 

They work harder, and they go there because their heart wants to 

help people. And so I am not indicting the whole VA. But I do 

think there is a leadership issue at some point that we need to get 

to and critique and make sure that we are doing our mission. 

Returning to the MSPV, the VA’s argument for restructuring 

their program relies on the logic that a catastrophic disruption of 

the VA healthcare supply chain will occur if they do not act. 

Mr. Leghorn, what are your thoughts on this? 

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Mr. LEGHORN. Thank you for your question, Chairman Kelly. 

From the J&A, they—that is where that was quoted from, the 

catastrophic failure will happen if their proposals do not come to 

pass. But within the same document, they were talking about other 

ways that the VA procures things. They are not the most effective 

way of doing it, and it might not yield as much money savings to 

the VA when they buy in bulk off the MSPV-NG, but those are still 

viable ways that the agency is procuring medical supplies as we 

speak. 

So to say that if this doesn’t come to pass that there is going to 

be a catastrophic failure, it is clearly not true, because there are 

only 7,800 items on there right now and VA medical centers are 

currently still running. 

Chairman KELLY. Very good. 

And I just want to—I am in a group called the Warrior Caucus. 

It is bipartisan. And there are members, former servicemembers 

who—Seth Moulton and Steve Russell co-chair that committee. And 

we had Secretary-nominee Wilkie in there a couple of weeks ago, 

and I am going to tell you, you know, he appeared to have his eye 

on the ball and looking at the right things. And, you know, I am 

just saying that from the questions that we had, from our bipartisan questions about what they are doing. 

So I think good leadership at the top, and I understand it is not 

necessarily the secretaries, but they can at least delve down in to 

identify the leadership level at which it is deficient. And so that is 

what we have to do: identify the deficient leaders at the right level 

and either remove them or make them do their job in the way that 

it was intended. 

Mr. Denniston, the chart attached to your testimony is interesting. And in a few words—and I want to go back again, because 

I know you talked about it, but sometimes this—we call those footstompers, you know? We want to touch it again. Would you sum 

up in a few words what your chart illustrates? 

Mr. DENNISTON. Lack of commitment to the program, lack of 

oversight. And I think that gets back to the points that I made before, that the people in the field that are actually buying the products and serving veterans need to have good, effective policies, good 

training, and then good oversight. 

Chairman KELLY. And, finally—boy, I wish I could ask you all 

a million questions. It just gets my dander up. 

But, Mr. Leghorn, I am going ask you this as the American Legion rep, which is an organization that I am in and a member of 

and does a lot of good. What are some of the consequences of removing competition from the process of awarding government contracts? Removing the veteran-owned small businesses, removing 

them from the competition, what are some of the consequences of 

doing that? 

Mr. LEGHORN. Thank you for your question, Chairman Kelly. 

The impact that we run into is, you know, a lot of the distributors that currently sell to the VA or would sell medical supplies to 

the VA are already on the GSA schedule. They are schedule holders. And the abandoning of the GSA Advantage, the FSS, would 

displace a lot of veteran-owned small businesses and preclude them 

from contracting directly with the VA as prime contractors. 

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I wish I had the numbers of people that would be affected for you 

to see, but perhaps Scott knows what that number is. 

Mr. DENNISTON. More than the numbers, to answer your question, sir, the impact would be poor patient care. 

I think Bob and Cheryl have done a great job of explaining the 

hands-on services they provide. We have another one of our members, Mid-Cities Medical, who does home respiratory care for veterans, where they will go into a veteran’s home, they determine 

what is the best products that they have, they bring the products 

in, they set them up, they train the veteran on how to use them. 

They provide all the services necessary for warranty, repair, and 

maintenance. 

Those are the kinds of services, hands-on in the local community, 

that small businesses provide that you are not going to get from 

four large prime vendors. 

Chairman KELLY. Thank you very much. And my time has expired, and I now recognize the Ranking Member. 

Ms. ADAMS. Thank you, Mr. Chairman, and I agree with you. 

Perhaps we need to move some folks. 

Let me ask Mr. Leghorn, just to follow up a bit, what should 

Congress do to make it clear that we do not accept the justification 

of unnecessary consolidation of contracts at the expense of the industrial base outside of what is already included in statute? 

Mr. LEGHORN. Thank you for your question, ma’am. 

I think, going back to our recommendations, we have to stop VA 

from consolidating the prime vendors. Today, they have four identified prime vendors. A lot of us believe that their end game is to, 

frankly, end up with one, because it is a procurement shortcut, and 

dealing with one prime vendor is a lot simpler than dealing with 

four prime vendors or a whole bunch of distributors. 

So we have to halt it there, because, in essence, they are trying 

to create a shortcut that will, in essence, end up as a monopoly. 

And you will not save money when you are dealing with somebody 

that could regulate their own prices. 

Ms. ADAMS. Yeah. Okay. 

So, Mr. Taylor, what are some ways we can incentivize agencies 

to use the contracting programs that require service-disabled veteran-owned small businesses and veteran-owned small businesses 

to be hired outside of the goals? 

Mr. TAYLOR. Thank you for the question, ma’am. 

Really, the incentives aren’t the most important thing. When Mr. 

Bloom asked if there is mismanagement, I don’t think the issue has 

been mismanagement as much as it has been a purposeful effort 

to work around the VOSB and SDVOSB goals. So, if the goals are 

out there, we just need to create an environment where the will of 

Congress is followed by the agencies. 

And, like Cheryl provided earlier in her testimony, I think most 

of the rank-and-file, the people, the acquisition officers, contracting 

officers, want to deal with SDVOSBs and VOSBs. And so I think 

we just need to remove the impediment versus providing incentives, if that makes sense. 

Ms. ADAMS. Okay. Thank you. 

So, while the VA must give preference to service-disabled veteran-owned small businesses and veteran-owned small businesses, 

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there is still room for improvement given the decline in the number 

of veteran-owned businesses receiving contracts. 

What are some goals that we can set and work to achieve with 

agencies within the next fiscal year? And any one of the panelists 

can answer that. 

Mr. DENNISTON. I would suggest that the goals are there; I 

think the issue is oversight. 

Agencies do—let me go back. Prime vendors, the private sector 

does what their customers want. So if VA, as an example, lets 

prime vendors know that this is important to them, they will make 

the goals. The businesses are good at that. The problem we have 

here is the VA has basically said, we don’t care about the goals. 

So, Madam Ranking Member, to your point, it is an oversight 

issue. As the Small Business Committee, you have the ability to 

bring agencies in and ask them how they are doing towards the 

goals. You have the ability to say, ‘‘Executive Order 13360 requires 

a strategic plan. I want to see your strategic plan, and what are 

you doing to implement it?’’ I think it is letting agencies know that, 

to this body, small business is important. 

Ms. ADAMS. Okay. Thank you. 

Mr. Chair, we are the Oversight Subcommittee, but I yield back 

my time. 

Chairman KELLY. I want to again thank our witnesses for your 

testimony, for your service to our veterans and small businesses, 

and also each of your services to our great Nation. 

I also want to thank the Ranking Member for being such an advocate for small businesses and veterans also. 

It is clear from today’s discussion that the theory that contracting with veteran-owned small businesses is expensive and burdensome is nothing more than a misconception. Therefore, the VA 

needs to take their responsibility to help America’s veterans succeed in all aspects of life seriously by utilizing the authority granted to them by Congress to its fullest potential. We shouldn’t try to 

meet goals for veterans; we should try to exceed them. 

I ask unanimous consent that members have 5 legislative days 

to submit statements and supporting materials for the record. 

Without objection, so ordered. 

We are adjourned. 

[Whereupon, at 3:24 p.m., the Subcommittee was adjourned.] 

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A P P E N D I X 

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STATEMENT OF 

SCOTT DENNISTON, EXECUTIVE DIRECTOR 

NATIONAL VETERAN SMALL BUSINESS COALITION 

BEFORE THE 

COMMITTEE ON SMALL BUSINESS 

SUBCOMMITTEE ON INVESTIGATIONS, OVERSIGHT & REGULATIONS 

U.S. HOUSE OF REPRESENTATIVES 

June 711', 2018 

Good afternoon, Chairman Kelly, Ranking Member Adams, and distinguished members of the 

Subcommittee. On behalf of the members of the National Veteran Small Business Coalition and all 

veteran small business owners (VOSB) and service disabled veteran owned small businesses (SDVOSB) 

trying to do business with the Department of Veterans Affairs(VA), I sincerely appreciate this 

opportunity. Your invitation invited testimony on "Vets First? An Examination ofVA's Resources for 

Veteran·Owned Small Businesses." I would suggest THERE ARE NO RESOURCES! 

As the chart attached to this testimony illustrates, VA through its internal small business goaling process 

has in the past 8 years NEVER raised its goals in spite of accomplishments which exceed the goals 

established for the previous year. The chart also shows a decline in accomplishments since a peak in 

Fiscal Year 2010. I submit there Is little commitment by senior leadership to the Vets First program. VA 

leadership does not see it as part of their mission to implement Vets First! 

Since early in World War II, Congress has recognized and legislated the importance of building and 

maintaining a small business industrial base for national security. Unfortunately, senior VA leadership, 

culture and policies do not support the Congressional intent. VA has lost sight of its unique mission to 

support we who have "borne the battle" and how VA mission outcomes are enhanced by building a 

veteran owned small business Industrial base. As recently as last October at a Congressional Roundtable 

hosted by the Chair and Ranking Member of the Subcommittee on Oversight and Investigations of the 

House Veterans Affairs Committee senior VA leadership expressed their opinion that SDVOSBs/VOSBs 

add no value and cost VA more money. Also, the policies VA has established limit the areas of 

opportunity for SDVOSBs/VOSBs. This is done by VA with no public comment or review and flies in the 

face of transparent government. 

Public Law 109·461, signed on December 22"d, 2006, established the program commonly known as "Vets 

First". Vets First requires VA to give special considerations to VOSBs and SDVOSBs in all VA procurement 

opportunities. VA spent 10 years fighting against Vets First though polices established, acquisition 

strategies developed, and limited training for VA contracting personnel. For 10 years, many times 

VOSBs and SDVOSBs were forced to protest VA decisions to the General Accounting Office or file suit in 

the Federal Court System. In most instances, the protests of the VOSB/SDVOSBs were upheld! On June 

16'", 2016, the United States Supreme Court in its decision in the Kingdomware Technologies case, ruled 

against VA and provided specific guidance to VA as to how VA was expected to implement Vets First. 
21 

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lin August last year, tne NVSBC published a paper identifying strategies used by VA to circumvent VETS 

First. (A copy is attached to my testimony) The strategies negatively impact at least 7,000 

VOSBs/SDVOSBs attempting to do business with VA each year. These strategies include: 

Requesting other agencies to contract for VA services 

Unreasonably tightening specifications to eliminate VOSBs/VOSBs from competition 

Contracting out inherently governmental contracting functions 

Requiring "higher level" review and approvals 

Establishing restrictive procurement policies 

Ignoring "market research" requirements 

We provided 3 specific recommendations to Congress to stop this abuse ofVOSBs/SDVOSBs by VA: 

Halt all VA contract actions which do not support Vets First 

Request GAO Investigate VA's disregard of Vets First 

Conduct hearings to hold VA accountable to follow Vets First 

We are grateful to this Committee for this hearing as well as to the House Veterans Affairs Committee 

which has also held hearings and a "Roundtable" on these issues. We also understand the House 

Veterans Affairs Committee has requested GAO to investigate VA's performance regarding Vets First. 

lfhe key issue is the lack of accountability that requires VA leadership to follow the laws as intended by 

Congress and the U.S. Supreme Court! 

As previously mentioned, on October ll'h, 2017, the Subcommittee on Oversight and Investigations of 

the House Veterans Affairs Committee held a roundtable on the Vets First contracting program. At the 

conclusion of the roundtable, Chairman Bergman and Ranking Member Kuster asked participants for 

specific recommendations to "fix" the Vets First program. The NVSBC submitted 8 specific 

recommendations to the Committee. A copy of our letter dated October 17th with the 

recommendations is attached to my testimony. 

I would also like to draw your attention to a copy of my testimony on March 7th, 2018 before the House 

Veterans Affairs Committee which is also attached to this testimony. One of the topics of that 

testimony, I understand, is of great interest to this Committee; VA's Medical/Surgical Prime Vendor 

Program (MSPV). The Strategic Acquisition Center (SAC) a VA acquisition office located in 

Fredericksburg, VA has attempted for over 3 years to establish an effective MSPV program. Prior to the 

establishment of the SAC, the VA's National Acquisition Center (NAC) located in Hines, IL managed a 

successful MSPV program as well as VA's Pharmaceutical Prime Vendor Program. When the SAC was 

established responsibility for the MSPV Program was transferred to the SAC. The SAC decided to change 

acquisition strategy for MSPV and this has resulted in a 3 year failed program. On April12, 2018, the SAC 

1ssued a "Class Justification and Approval for Other Than Full and Open Competition" (J&A) to change 

he current MSPV contracts from "distribution" to "distribution and supply" contracts thereby turning 

pver the sourcing decisions for VA' s Med-Surg supply chain to four Ia rge "for profit" entities that are in 

the business of leveraging their own operations to increase their own bottom lines, NOT be concerned 
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about the health of veteran patients. These four entities will now determine which vendors get to 

supply what products to VA and at what price. All VOSBs/SDVOSBs are relegated to "subcontractors" 

with no protections offered by the Vets First program. 

By April141

h, 2018, the four prime vendors received the modification directing them to begin 

negotiations with supplies/manufacturers of products. VA DID NOT at that time require an approved 

small business subcontracting plan as required by Federal Acquisition Regulations. Just as the policies 

and faulty interpretations lead to the unanimous U.S. Supreme Court decision in Kingdomware 

Technologies, VA's position was that as this was a "modification" to an existing contract a 

subcontracting plan was not required at that time. 

When we first learned the SAC was "considering" this approach in the fall of 2107 we asked how Vets 

First would apply we were told it doesn't as VOSBs/SDVOSBs would be subcontractors. When we asked 

what type of small business subcontracting plan would be required we were told "don't know yet". 

When we addressed the fact that in the past 10 years VA has NEVER achieved its subcontracting goals 

we were told "just trust us"! In addition, relegating VOSBs/SDVOSBs to subcontractors allows VA to 

avoid the issue of a waiver of the SBA "Non-Manufacturing Rule". VA has established a policy of 

requiring higher level approval prior to any contracting officer requesting a waiver from SBA. We believe 

this policy is in direct violation of the Small Business Act, and is another example of VA efforts to 

circumvent Vets First. 

On April19'h, 2018, I met with the VA Deputy Secretary to voice NVSBC members concerns about the 

SAC's MSPV.strategy. Our concerns were based not only on the Vets First issues but as users of the VA 

healthcare system and as taxpayers. Our concerns dealt with cost, conflicts of interest, no surge 

capacity, no clinical input, and no oversite to name a few. A copy of the "Briefing Paper" developed for 

that meeting is also attached to my testimony. Disappointingly, more than 6 weeks later we have no 

response from VA leadership and VA continues down a flawed path! 

Over the past year, NVSBC has met with VA leaders from VHA, SAC, and Office of Small Business 

Programs (OSDBU) to discuss how to provide more micro-purchase opportunities to VOSBs/SDVOSBs 

given the recent increase of the micro-purchase threshold from $3,500 to $10,000. These discussions 

have led NVSBC to develop in conjunction with an NVSBC member, Veratics of Indian Beach, FL, an 

electronic ordering platform, similar to Amazon, called "Go Vets". Our vision is all VA verified 

VOSBs/VOSBs who can provide products to VA will upload their products on the platform. "Go Vets" 

provides a "one stop, easy button" platform to purchase products using purchase cards. "GoVets" 

currently has 50 SDVOSBs with over 50,000 products on the platform. We continue to add SDVOSBs and 

products on a daily basis. We have demonstrated "GoVets" to VA leadership and are working to get the 

platform into the VA purchasing environment We believe "Go Vets" will be crucial to the survival of 

VOSBs/SDVOSBs if VA is allowed to relegate VOSBs/SDVOSBs to subcontractors in the MSPV program. 

We would be happy to demo "Go Vets" to the committee and staff at your convenience. 

I also want to bring to this committee's attention another disturbing action by VA. Last year, former VA 

Secretary, Dr. David Shulkin announced that he was going to make a "directed sole source award", 

estimated to be approximately $4 billion to Cerner Corporation to institute an "Electronic Health 

Record" (EHR) at VA. Cerner has a similar contract to implement an EHR within the Department of 

Defense. The contract was recently award by VA. The NVSBC has requested of VA a copy of the 

approved small business subcontracting plan. VA has acknowledged our request, but has yet to provide 
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a copy of the plan. Given VA's abysmal record in subcontracting we wonder if a plan was even required. 

A $4 billion, long term contract should provide numerous subcontracting opportunities for all small 

businesses including VOSBs/SDVOSBs. We request this Committee's help in obtaining a copy of the small 

business subcontracting plan. 

Mr Chairman, Ranking Member, and Members of the Committee this concludes my testimony. I thank 

you all for your time and interest and am happy to respond to any questions or comments you may 

have. 
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ATTACHMENTS TO TESTIMONY OF SCOTT DENNISTON 

1. Department of Veterans Affairs Goaling & Accomplishments: FY 2005-FY2017 

2. VETS First; Casualty of Friendly Fire: National Veteran Small Business Coalition, August, 2017 

3. Letter to Chairman Bergman and Ranking Member Kuster: Subcommittee on Oversight & 

Investigations, Committee on Veterans Affairs: National Veteran Small Business Coalition, 

October 17, 2017 

4. Statement of Scott Denniston, Executive Director, National Veteran Small Business Coalition, 

Committee on Veterans Affairs, Subcommittee on Oversight & Investigations, March 7'h, 2018 

5. Briefing Paper for Veterans Affairs Deputy Secretary, Thomas Bowman, by the National Veteran 

Small Business Coalition, Aprill9'h, 2018 

Insert offset folio 25 here 30266.006SBR002 with DISTILLER

25% 

20% 

15% 

10% 

5% 

0% 

Public Law 109-461 

Veterans Benefits, Health 

Care and Information 

Technology Act of 2006 

Sections 502 & 503 

Effective June 20, 2007 

(VA Acquisition Regulations) 

15. 

FY 05 FY 06 FY07 FY08 

7% 

FY 09 FY 10 FY 11 

VA SDVOSB and VOSS Goals 

flatlined the last eight fiscal years 

(FYs 2010 thru 2017). Significant 

Delta between "goals" and actual 

accomplishments. 

FY 12 FY 13 FY 14 FY 15 FY

-voss Goal -~ .. voss Actual -sovosa Goal -sovoss Actual 

©2017 FedBizAssist, L.LC<
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VETS First 

Casualty of Friendly '[;'ire 

VA must immediately halt ALL planned solicitations and develop an acquisition strategy 

complying with VETS First 

For over ten years, The VA has been circumventing Vets First, ignoring the U.S. Congress, the Goverrmtent 

Accountability Office and the U.S. Supreme Court by allowing large national companies to bid on contracts 

reserved !(,r Veteran owned small businesses 

Why VETS First'? 

-To care for him who shall have borne the battle.·· 

-Abraham Lincoln 

VETS First supports Veteran owned small businesses by 

prioritizing them- Supp01iing the U.S. economy, assisting 

Vetenms and ful!illing the agency's mission. 

Veteran owned businesses uniquely understand the needs of 

military contracts, they hire Veterans, are less expensive and 

have greater quality measures than large, non-Veteran owned 

companies. 

VA 's actions negatively impact over 7,000 Veteran and 

service disabled Veteran owned small businessesEmploying hundreds of thousands of Americans and 

Veterans. 

J>ositive Multiplier Effect of VETS First: 

Requesting other agencies 

contract for VA services 

Illegally tightening 

specitlcations to eliminate 

V cteran-o""'cd small 

businesses from competition 

for service 

Hiring ont VA contracting 

functions to large private sector 

companies 

Actively developing policies 

that do not support VETS First 

• Implementing "Deviations" 

without public conunent 

No ovcrsite of field contracting 

activities 

Veterans hire Veterans at a higher rate than non-Veteran employers. 

Statistically, the best method of support for a Veteran is to provide a meaningful job. 

Veteran owned small businesses are based in and support their local communities. 

National Veteron Small Business Coalition (NVSBC) 

14001-C StGermain Drive #652 Centreville, VA 20121 

(703) 287-4140 www.nvsbc.org 
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Small Business 

Congress needs to: 

History of VA Working Against tb" Veteran Community 

Snapshot 

The Government Accountability Office has ruled multiple times that the VA needs to implement VETS 

First. 

The Supreme Court Unanimously Ruled that the VA is in violation of the law. 

41 Members of Congress have signed the Amici Curiae Brief in Support of VETS First. 

OvervieH' 

Nation invested millions in training these military service members. VETS First is intended to recoup this 

expense giving veterans an opportunity to continue service to our Nation. 

The VA was not complying. 

In 2006, Congress passed Public Law 109-461. The Veterans Benefits, Health Care 1md lnlonnation 

Technology Act, \Vhich contained a provision known as Vets First that established a preference tbr contracting 

with Veterans and service-connected disabled Veteran-ov•mcd srnall businesses. 

- The VA chose to ignore this provision. 

In 2011. the company Aldevra protested to the GAO that the VA failed to follow the law. The GAO found that 

the VA had violated Vets First. Over the years, the GAO has heard similar claims, and has consistently sided 

witll Veteran-ov,.rned small businesses 

-The VA refused to follow the GAO's direction. 

National Veteran Small Business Coalition (NVSBC) 

14001-C StGermain Drive #652 Centreville, VA 20121 

(703) 282-4140 www.nvsbc.org 
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ln 20!2, Veteran owned small business tiled a law suit that went to the U.S. 

Supreme Court. The court unanimously ruled the VA was not implementing Vets First and directed the 

department to usc the "Rule of Two" before awarding a contract to a non-Veteran supplier. The rule of two is 

the policy that the VA shall award contracts on the basis of competition restricted to small business concems 

owned and controlled by Veterans iftbe contracting officer has a reasonable expectation that two or more small 

business concems owned and comrolled by Veterans will submit offers and that the award can be made at a fair 

and reasonable price that o!lers best value to the United States 

The U.S. District Court in Newark mled in May 2017 thatthe VA·s Ability One program does not trump the 

Vets First program; in fact} the opposite is true. 

About N a tiona! Veterans Small Business Coalition 

The National Veteran Small Business Coalition (NVSBC) is the voice of the Veteran and service-disabled 

Veteran om1ed small business (VOSB and SDVOSB) when addressing the Federal Government. NVSBC 

works to ensure that Veteran small businesses are given first consideration for tederal prime and subcontract 

procurement opportunities. These Veteran O\Vners continue to serve their count!)', putting the security of the 

United States above all else. 

National Veteran Small Business Coalition (NVSBC) 

14001-C StGermain Drive #652 Centreville, VA 20121 

(703) 282-4140 www.nvsbc.org 
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Honorable Jack Bergman, Chainnan 

Subcommittee on Oversight and Investigations 

Commitlcc on Veterans Affairs 

335 Cannon House Office Building 

Washington, DC 20515 

Honorable Ann Kuster, Ranking Member 

Subcommittee on Oversight and Investigations 

Committee on Veterans Affairs 

335 Cannon House Of!ice Buildin~ 

Washington, DC 20515 -

Dear Mr. Chainnan and Ranking Member: 

October 17,2017 

On behalf of the Board of Directors and members of the National Veteran Small 

l:lusiness Coalition (NVSBC), THANK YOU for hosting the Veterans First 

Contracting Program Roundtable on October 11'\ 2017. Thank you also for inviting 

the NVSBC to be represented! We believe it important that you hear from actual 

veteran small business owners as to our challenges working with VA under the VETS 

First program, 

We are glad you saw firsthand the biases of senior VA leadership towards working 

with service disabled veteran and veteran owned small businesses 

(SDVOSBs/VOSBs). Their opinions that SDVOSBs/VOSBs add no value and cost 

more highlight some of our challenges. Also, the policies VA has established which 

limit the areas of opportunity for SDVOSBs/VOSl3s with no public comment or 

review fly in the face of a transparent government. There are also many examples of 

VA circumventing Federal Acquisition Regulations to avoid working with 

SDVOSBs!VOSBs in favor of large business, many of which cost VA more money. 

Botlom line. VA docs not believe it their mission to work with SDVOSBs and 

VOSBs. 

During the Roundtable you asked for specific recommendations to fix the issues at 

VA. The NVSBC would like to oftcr the following legislative recommendations for 

your consideration: 

1. Establish that VETS First applies to "micro-purchases. VA spends 

approximately $4 billion per year in micro-purchases. VA policy exempts 

micro-purchases from VETS First. The Supreme Court detennincd that all 

VA ··contract actions·· are subject to VETS First. Micro-purchases meet the 

FAR definition of a ··contract action". Also, micro-purchases are a "target 

rich" environment for startup SDVOSBsNOSBs trying to break into the VA 

market. 
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2. Establish that VA.under VETS First can pay up to a 10% price differential to award to 

SDVOSBsfVOSBs. This would place VETS First on equal footing with the government-wide HUB Zone 

Program. This is critically important given VA senior leadership's position that VA only wants to pay 

"'lowest price". 

3. Establish a blanket Non-Manufacturer Rule waiver if products can be purchased tram SDVOSBs/VOSBs 

at a price which is fair and reasonable to VA. FAR requires that under any set-aside prow.un a small 

business. if not the actual manufacturer, must provide the product of another small business 

manufactured in the United States. FAR also allows the Small Business Administration (SBA) to issue a 

waiver to that rule. ifSBA finds there arc insufficient small business manufacturers in the United States. 

SBA regulations allow the contracting officer and only the contmcting officer to request such a waiver. 

VA has established a policy requiring contracting ofiicers to receive "higher level" authority BEFORE 

requesting a waiver from SBA. This is illegal and usurps SBA statutory authority. VA established this 

policy without public comment and in our opinion, to circumvent VETS First. 

4. Require VA, when contf'acting with a large business. to establish as part of the evaluation process a 

requirement that past subcontracting goals and accomplishments be part of the evaluation requirement 

for any future awards. Further, this evaluation factor must equal to at a minimum, 20% of the evaluation 

criteria. VA has NEVER met its· subcontracting goal for SDVOSBs and VOSBs since the establishment 

of VETS First. 

5. Prohibit VA from using Government Wide Acquisition Contracts (GWACs) and Federal Strategic 

Sourcing Initiative contracts (FSS!), unless VA purchases from SDVOSBs and VOSBs on the contract 

vehicles. While there are a limited number ofSDVOSBs and VOSBs on FSS!, VA continues to purchase 

millions of dollars of office supplies from large business that could be provided by SDVOSBs!VOSBs. 

6. Require the Secretary of VA to establish contracting goals with SDVOSBsiVOSBs at levels higher than 

the previously year's accomplishments. As evidenced by the chart we provided at the roundtable, VA, 

for the past 8 years has Hat lined goals at less than the previous year~s accomplishments, This shows no 

interest or commitment to supporting SDVOSBs and VOSBs. 

7. Require the Secretary of VA to include as part of the yearly performance plans for all senior level 

officials, contracting officers, purchasing agents and program managers the accomplishment of 

contracting goals with SDVOSBs and VOSBs. Currently no one in VA is held accountable for meeting 

reasonable and realistic goals. 

8. Require the Secretary of VA to establish ·veteran Friendly" acquisition regulations and policies within 

90 days and require all VA personnel, including contracting officers, purchasing agents and program 

ol1icia!s, to be trained in the new policies within 6 months. 

National Veteran Small Business Coalition (NVSBC) 

14001-C StGermain Drive it652. Centreville, VA 20121 

(703) 282·4140 www.nvsbc.org 
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rhe real issue is VA has never seen working with SDVOSBs and VOSBs as part of its core mission. Yet, every 

study dealing with TB!, PTSD, homelessness, vocational rehabilitation, etc. concludes that the best way to improve 

the lives of veterans is thru increased self-esteem, which many times come from meaningful employment. We know 

veterans hire veterans. JfVOSBs and SDVOSBs are provided more opportunities in VA contracting, more veterans 

will be employed' 

We are happy to meet with you at any time to discuss these and other recommendations. Thank you tor your 

leadership in this critically important area. 

Scott Denniston 

Executive Director 

Cc: William Mallison 

Grace Rodden 

National Veteran Small Business Coalition (NVSBC) 

14001-c StGermain Drive #652 Centreville, VA 20121 

(703) 282-4140 www.nvsbc.org 
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Testimony for US Congressional Hearing 

The Committee on Small Business Subcommittee on Investigations, Oversight, and Regulations 

"Vets First? An Examination of VA's Resources for Veteran-Owned Small Businesses" 

Robert Taylor, Alii ant Enterprises, LLC a Service-Disabled Veteran-Owned Small Business (SDVOSB) 

June 7, 2018 

Chairman Kelly, Ranking Member Adams, Members of the Committee on Small Business Subcommittee 

on Investigations, Oversight, and Regulations; thank you for the opportunity for me to be here today. It 

is my honor to provide this committee with my testimony on the important value our company provides 

to the VA. 

My name is Bob Taylor and I am testifying on behalf of my company and the 39 employees of Alii ant 

Healthcare Products, a Grand Rapids, Michigan based Service-Disabled Veteran-Owned Small Business 

(SDVOSB). I am also here as one representative of the National Veteran's Small Business Coalition. 

Background 

In my 17-year military career leading to the rank of Major, I served my first 6 years active duty Air Force 

as a navigator and radar navigator on B-52 Bombers. 

In my much younger years, as a First Lieutenant, I flew eleven combat missions in the First Gulf War 

from the Island of Diego Garcia in the Indian Ocean. I clearly remember one day when we learned that 

one of our B-52s had crashed and three crew members were lost. I can still see the faces of those young 

men and I carry their memories with me. I would never do anything with my business to disrespect their 

sacrifices or those of other veterans who have made such great sacrifices. 

The fact that this hearing is a little over one week following Memorial Day, reminds us all that there are 

veterans who have sacrificed far more than me or anyone else here today. 

So, to me, it's not only a business matter, but a sense of responsibility and a with sense of purpose, that 

I have always tried to make sure that my business sets high standards in all of our business dealings. I 

refuse to operate as a simple "pass-through" or what's referred to as a "rent-a-vet".! constantly remind 

people we're not just selling widgets to consumers, but we're providing what are often life-saving 

health care products to care for our war fighters and veterans who have served their country. 
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How do we add value? 

Alii ant Healthcare Products focuses on helping other companies navigate the complexities of the federal 

market. We assist large and small businesses who provide market-leading and innovative healthcare 

technologies. We have developed a strong reputation as an exceptional federal market expert who 

provides value throughout the supply chain of the VA. 

Our most important benefit to the government is we do not mark-up prices for the clear majority of the 

products we sell to the VA. We allow the VA to negotiate fair and reasonable pricing as though they are 

buying directly from the manufacturer themselves and then we honor those prices. Manufacturers pay 

us based on the services we provide them, and the government does not pay for our services. 

In the words of one contracting officer: 

"We love working with Alliont because you offer the same exact pricing and your team 

understands the government procurement process better than the manufacturers" 

Selling to a VA hospital is quite different than selling commercially and manufacturers' representatives 

are ill-prepared to deal with the complexity of acquisition regulations. As a service, we have our own 

Area Vice Presidents who cover the United States. They provide support to make sure acquisition rules 

are followed and help contracting officers get what they need in a timely manner. 

From another contracting officer, again, I quote: 

"AIIiant is able to attend in-person meetings with clinical representatives. Having someone in 

meetings that understands haw to speak government language is incredibly beneficial." 

We are also very creative problem solvers. For example, A VA wanted to receive high-value endoscopes 

kitted together because if they receive them separately the individual pieces seldomly find each other 

within the hospital causing unnecessary re-ordering of high-priced components. In this case, the large 

manufacturer was unable to provide these kits due to their internal policies. Our certified quality 

systems allowed us to purchase the same components and place them together at our manufacturing 

site in a single package and deliver exactly what the VA wanted. 

Conclusion: 

Alii ant does provide value to the VA, their contracting officers, and the patients who are treated by the 

best technology available. My question to this committee and to the VA is this: What is the possible 

downside to working with SDVOSBs if the hospitals receive what they need in a faster manner, with a 

more efficient process, with cost effective-creative solutions, more accurate transactions, and all 

delivered with better outcomes?-- And that is exactly our mission. 

***End of oral testimony*** 
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The added benefits of working with Veteran-Owned Businesses 

There are many examples I can provide based on Alliant's internal expert resources such as people who: 

review solicitations, provide telephone support for questions and information, and contract specialist 

who make sure the right products are on the right contracting tool. 

Moreover, there are also more hidden benefits of a Vet's First program. For example, veterans like me, 

re-invest and develop new and creative ways to serve the Government. In one case, I have re-invested 

our money into acquiring a cardiovascular surgical business and in research and development of stateof-the-art medical products. A sister company to Alii ant Healthcare Products, Surge Cardiovascular, has 

developed unique products one of which, as we've been told by surgeons, is the only product on the 

market which can handle the blood flow of larger patients for minimally invasive valve replacement 

surgeries. I've also re-invested into a medical device contract manufacturer, Medisurge, LLC. I'm hiring 

more people and providing innovative products like one which mixes silver with micro-sized glass beads 

to provide a healing matrix for severe wounds. And, there are more products and services in our 

pipeline. 

Another hidden benefit is that we provide focus of our large manufacturer's representatives towards 

the VA. Given a choice between calling on a large commercial account like Beaumont Hospital System 

near Detroit, Ml or the Detroit VA Medical Center, most representatives will choose the commercial 

account over the VA, because the VA is harder to navigate, contracting officers can be intimidating, and 

there are many unknowns to how the VA works. Alliant gives the representatives a reason to go into the 

VA Medical Centers, we help them overcome their hesitance, and we facilitate the procurement 

process. Consequently, we assure that the best technologies are now getting represented in the VA and 

the veterans always benefit from access to better technology. In the words of one of our manufacturing 

clients: 

"Affiant Healthcare provides our team the confidence needed to provide veterans access to 

innovative new products for better healthcare. Without A/liant, our team would likely not pursue 

VA hospitals due to the complex procurement process that our team is unfamiliar with." 

Veterans also take care of other veterans. That's why in 2015 I founded the Patriot Promise Foundation 

aimed at helping the 47% of veterans who struggle with reintegration following their service. In 2019, 

we plan to take the next step with the foundation and create a "Venture Philanthropy" model where 

100% veterans work together building a business, supporting each other, and creating new missions and 

purpose for each veteran associated with the foundation. 

In addition, I will be introducing a book later this year titled "From Service to Success." This book 

presents the information and the tools necessary to better cope with life after service. It will also help 

veterans create their own mission for a brighter future. 
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Additional Testimonials not included in oral testimony 

From our manufacturing clients: 

"AIIiant Healthcare helps and ensures that we comply with all government regulations, 

procurement guidelines, TAA I BAA issues, etc. Without Alliant, we would not know what to look 

for regarding solicitation language and expectations of Contracting Officers. Alliant fills a clear 

gap in our knowledge and resource level that is required to successfully sell to the Federal 

Government" 

"AIIiant Healthcare con speak the language. Affiant can communicate to Contracting Officers, 

Logistics officers, and Procurement Specialist in a way that our manufacturing representatives 

cannot. Their ability to communicate effectively to government personnel usually results in the 

VA receiving quicker access to the products and solutions they need." 

"AIIiant Healthcare informs us of regulation changes and new contracting options that are 

applicable to our products. Without Alliant, our products would not be available to veteran's via 

ECA T, DAPA, or MSPV. We do not have an internal team monitoring these new contracts and 

opportunities." 

"AIIiant Healthcare has the ability to help our company with TAAIBAA1 compliance issues." 

"AIIiant Healthcare is one of very few SDVOSB's that employ field-based representatives that 

physically visit VA facilities across the country. Their knowledge of the facility and purchasing 

preferences significantly help our clinical representatives find solutions to fit the needs and 

requirements of the VA doctors." 

From other government customers: 

"AIIiant is so easy to work with, you make my job easy, one phone call my work is complete" 

"I am very impressed with your value proposition to the government (same pricing model)- this 

is extremely refreshing to hear" 

"AIIiant understands my contracting requirements and can help find creative solutions. This 

cannot be said in regards to most large manufacturers." 

"We love how knowledgeable Alii ant Healthcare is with the government purchasing models -

you make our jobs easy" 

"I appreciate your ability to help my purchasing needs get fulfilled quickly. By having an SDVOSB 

that understands the government landscape and has regional representatives I support, I'm able 

to order products quicker and easier than going directly through a large manufacturer" 

1 TAA/BAA- TAA is an abbreviation for Trade Agreement Act, BAA is an abbreviation for Buy American Act. This is 

quite difficult for some companies to comply with due to the complexity of their supply chains and the particular 

sourcing of individual components. Alliant assists in making sure the companies comply with these important Acts. 
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Other Resources: 

Hi Rick, (Rick is one of Alliant's Area Vice Presidents) 

It's my pleasure ... you and Jamie hove been wonderful to work with since I awarded to Alliant the 

first time ..... and I'm always pleased to see a quote/proposal from Alliant even if we're not able to 

award to you. Hie-ups happen, and 1/we understand that. ... hoppens with us, too. And Alliont 

Healthcore is always very responsive and quick in sorting out anything that comes up. 

I appreciate your note and look forward to working with you and your team on future projects. 

Pete 

Edward G. (Pete} Lyke 

U.S. Army (Retired} 

Contracting Officer 

Supply/Equipment Team 

***End of written testimony*** 
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Testimony of Cheryl Nilsson 

Chief Executive Officer, First Nation Group, LLC 

Hearing entitled: 

"Vets First? An Examination of VA's Resources for Veteran-Owned Small Businesses" 

Before the U.S. House Committee on Small Business Subcommittee on Investigations, 

Oversight, and Regulations 

June 7, 2018 

Chairman Kelly, and distinguished Members of the Subcommittee, I would like to 

express my sincere thanks for the invitation to submit testimony for this hearing. I am honored 

to present.my views on the value that veteran-owned small businesses provide to the VA, other 

federal agencies, our communities, and the National economy. 

My name is Cheryl Nilsson, and I am the CEO of First Nation Group, LLC. I served on 

active duty as an Air Force Judge Advocate for 23 years, specializing in government 

procurement, and retired at the rank of Colonel. Since retiring, I served as an in-house counsel to 

two defense contractors over the span of 13 years before becoming CEO of First Nation in 2014. 

First Nation is a woman-owned, SDVOSB, HUBZone, small business with just over 

100 employees, over 40% of whom live in HUBZones and 14% of which are veterans. 

First Nation has been one of the leading suppliers of medical and surgical products to VA 

for over 30 years. We have built an exceptional reputation in meeting veteran needs--especially 

in the area of sleep and respiratory therapy products. We are uniquely able to provide the widest 

range of sleep products of any company in America. This enables VA clinicians to prescribe the 

very best possible individual CP AP and mask solution for each veteran. 

We distribute respiratory products to VA hospitals nationwide and to hundreds of 

thousands of veterans each year. We ship over 1, 700 orders per day, and 99% of those orders 

ship within 24 hours. We maintain an inventory of over 4,000 SKUS, often exceeding over $40 

million dollars in inventory at three strategically located warehouses, including one at our 

HUBZone location in Detroit. This enables us to quickly meet urgent and emergency VA needs. 

First Nation has a FSS contract that allows VA to easily order supplies from us. We work with 

every major CP AP manufacturer and provide substantial discounts to the VA. 

Because we stock so many different products and have extensive experience meeting VA 

direct-to-patient requirements, we are able to provide VA and our veterans with customized, 

multi-vendor patient solutions. This avoids having to order and ship multiple packages with 

different products made by different manufacturers. Additionally, we work with each VA 

Prosthetics Department to ensure they have the information and product support they need to 

serve our veterans. Our representatives also work with VA to deliver unique multi-vendor 

tailored solutions- no other vendor of sleep therapy products provides this direct and on-site 

support from trained sleep therapy product representatives. 
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Without First Nation and other small businesses that serve VA, the range of available and 

affordable medical and surgical supplies and customized patient solutions would be greatly 

decreased. First Nation, like other small businesses, are more nimble, move more rapidly, offer 

valuable solutions, and achieve cost savings for VA- all while allowing VA to achieve its small 

business contracting goals. 

First Nation's success as a VA supplier has afforded us the opportunity and privilege to 

give back to veterans and our communities. Indeed, charitable pursuits are one of the core 

missions of our company. First Nation was founded with the goal of building a sustainable 

social enterprise to benefit the company's employees, veterans, and the underserved in our 

community. 

First Nation's FSS contract reflects socio-economic status in 5 separate categories. In 

particular, our SDVOSB status allows us to pursue VA contracts that are reserved under "Vets 

First Contracting Program". We and many SDVOSBs and VOSBs like us depend on contracts 

issued under this program for a significant part of our business. 

Congress created the Vets First Contracting Program in 2006 with the Veterans Benefits, 

Health Care, and Information Technology Act (the "Vets Act"). However, despite VA 's efforts, 

we have experienced several challenges in the application of the VA's current policy on 

subcontracting, sole source awards and non-manufacturer rule waivers. 

Recent changes to the MSPV-NG contracts and other proposed reductions in prime 

contract opportunities for Small Business also presents concern, because the VA has essentially 

bundled the acquisition of 80,000 products into one procurement. Limiting SDVOSB and VOSB 

opportunities to the subcontract level takes the more valuable work away from veterans and 

small businesses that are so critical to our economy. 

In closing, I would like to reiterate that First Nation has enjoyed its partnership with VA 

over the years and we are honored to support the VA' s mission and hundreds of thousands of 

veterans each year. We know we are providing critical patient care solutions depended on by so 

many of our veterans, ensuring they get the care they deserve. We are doing so with haste, with 

cost savings for the tax payers, and with the mission to serve our veterans and give back in our 

communities. In these ways, First Nation and many other SDVOSBs and VOSBs like us 

embody the worthy aims of the Vets First Contracting Program. We urgently need Congress' 

continued support of this program and assistance in overcoming the challenges we are facing to 

ensure the VA and small businesses like ours can fulfill the important promise of the Vets First 

Contracting Program, the promise that we will take care of our Nation's veterans returning from 

active service -both as patients and as small business owners. 

Thank you again for the opportunity to submit this testimony. 

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STATEMENT OF 

DAVY LEGHORN, ASSISTANT DIRECTOR 

NATIONAL VETERANS EMPLOYMENT AND EDUCATION DIVISION 

THE AMERICAN LEGION 

BEFORE THE 

SUBCOMMITTEE ON INVESTIGATION, OVERSIGHT AND REGULATION 

OF THE COMMITTEE ON SMALL BUSINESS 

UNITED STATES HOUSE OF REPRESENTATIVES 

ON 

"VETS FIRST? AN EXAMINATION OF VA'S RESOURCES FOR VETERAN-OWNED 

SMALL BUSINESS" 

JUNE 7, 2018 
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STATEMENT OF 

DAVY LEGHORN, ASSISTANT DIRECTOR 

NATIONAL VETERANS EMPLOYMENT AND EDUCATION DIVISION 

THE AMERICAN LEGION 

BEFORE THE 

SUBCOMMITTEE ON INVESTIGATION, OVERSIGHT AND REGULATION 

OF THE COMMITTEE ON SMALL BUSINESS 

UNITED STATES HOUSE OF REPRESENTATIVES 

ON 

"VETS FIRST? AN EXAMINATION OF VA'S RESOURCES FOR VETERAN-OWNED 

SMALL BUSINESS" 

.June 7, 2018 

Chainnan Kelly, Ranking Member Adams, and distinguished members of the Subcommittee on 

Investigation, Oversight and Regulation, on behalf ofNational Commander Denise Rohan and the 

two million members of The American Legion, we thank you for the opportunity to testify at this 

hearing on the challenges facing veteran-owned small businesses operating as wholesale 

distributors under the Department of Veterans Affairs' (VA) Medical Surgical Prime Vendor-Next 

Generation (MSPV-NG) program. This issue is of the utmost importance to The American Legion 

as it directly affects the care of our most vulnerable constituents: veteran patients. 

The American Legion wants what is best for veterans. We believe VA is the most qualified to 

deliver healthcare services to veterans and we want them to step up to their responsibilities. The 

intimation that the adherence to the Vets First procurement priorities could potentially cause 

''catastrophic disruption" 1 to the healthcare supply chain is markedly false. 

The American Legion supports the Supreme Court Decision in Kingdomware Technologies, Inc. 

v. United States, 2 and opposes any attempt to subvert or sidestep the application of the rule-ot~two 

in VA's Vets First contracting program. In 2016, The American Legion passed Resolution No. 

1543 to advocate for a reasonable number of federal contracts to be set-aside for businesses that 

are owned and operated by veterans. MSPV -NG reduces federal contracts for veteran-owned 

businesses, which is of concern to The American Legion. 

Soldiers' homes and veterans' hospitals date back to 1866. VA does not provide supporting data 

or research for their assertions in the Class Justification and Approval for Other than Full and Open 

(J&A) document. 4 There is no quantitative evidence showing that the mismanagement of a singular 

contracting vehicle could potentially result in "catastrophic disruption" to a 150 year old healthcare 

infrastructure system. If one contracting program has the ability to cripple an entire federal agency, 

the question becomes whether such a contracting program should exist. 

1 Exhibit A 2 Kingdomware Techs., Inc. v. United States, 579 U.S. (2016). 3 Resolution No. 154: Support Reasonable Set-Aside of Federal Procurements and Contracts for Businesses Owned 

and Operated by Veterans. 4 Exhibit A 

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VA's proposition to avoid this disruption is to grant a two-year period where companies and 

manufactures will determine what supplies VA Medical Centers' need, moving away from the 

current clinician-driven process. Privatizing the functions of VA 's office of Acquisitions and 

Logistics' Strategic Acquisition Center (SAC) presents a significant conflict of interest, and inflicts 

great harm to veteran owned small businesses. The American Legion wants to work with Congress 

and VA to find empirical evidence and better understand the underlining rational and private sector 

solution, so another will not be required. 

Background 

Public Law 106-505 made all federal agencies stakeholders in supporting veterans' 

entrepreneurship. A subsequent law passed in 20066 provides VA with the authority in setting 

higher agency standards for service-disabled veteran owned small business (SDVOSB) and 

veteran owned small business (VOSB) set-asides. The Veterans Benefits, Health Care, and 

Information Technology Act of2006 also included a provision requiring VA to set-aside contracts 

for veteran-owned firms so long as the rule-of-two 7 is satisfied. A new procurement hierarchy 

within VA was created, which places the highest priority with SDVOSBs followed by VOSBs. 

VA refers to this program as the Veterans First Contracting Program (Vets First). The Supreme 

Court's Kingdomware Decision; fine-tuned the Vets First contracting policy within VA. The 

Court held that the rule-of-two was not limited to those contracts necessary to fulfill the Secretary's 

goals under Vets First contracting program and applies to orders placed under the Federal Supply 

Schedule. 

In 2018, VA relaunched the legacy MSPV contracting program. MSPV-NG would effectively 

remove 40 percent of the medical supply procurement from the rule-of-two. The current MSPVNG program utilizes four regional prime vendors. The list of permissible medical supplies they 

sell on MSPV -NG is determined by a master-list of items, prices and suppliers, commonly referred 

to as, "the formulary." The formulary is created by running a procurement-like process to discover 

the number of businesses who can meet the standard and offer the lowest prices. 8 VA believes 

low-vendor responses, bid protests and cancelled solicitations are the reasons why there are only 

7,800 items on the formulary. 9 

According to a SDVOSB distributor from South Carolina, who responded to these solicitations, 

VA does not mention they utilize short-window solicitations that were open market, allowing 

bidders to choose from 150 items. As such, distributors only bid on items they can earn a profit 

on. This resulted in a situation where there are over 200 bids on a handful of high-margin items, 

and zero bids on items with a lower or no profit margin. 

In another solicitation, VA only ran the process for Schedule 6500 series medical equipment, as 

opposed to all the MSPV -NG products. Many veteran owned distributors also sell their products 

5 The Veterans Entrepreneurship and Small Business Development Act of 1999. 

"The Veterans Health Care, Benefits and Information Technology Act of2006; PL 109-461. 7 38 u.s.c 2187(d). 

'Exhibit A. 9 lbid. 

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through the General Services Administration's (GSA) online government purchasing service; 10 

Before they can submit their bids, the veteran owned business must update their prices and/or add 

6500 series products to their schedule. Distributors began the process of adding 6500 series items 

to the GSA Schedule, but the solicitation ended before they could complete the update. This 

contributed to why VA did not receive an adequate amount of sample bids for adding items to the 

formulary. 

Through these types of solicitations, VA found the justification needed to create the proposals in 

the J&A. According to the J&A, VA plans to move 40 percent of their contracting dollars in 

medical supplies through the MSPV-NG program, consequently bypassing the rule-of-two, 

disregarding the Supreme Court ruling in the Kingdomware Decision. 

Many American Legion members who are also small business owners agree that VA's proposals 

in the J&A would systematically unseat veteran owned small businesses as distributors for 

manufacturers and give all the selling capabilities to the prime vendors. This is bad for veteran 

owned small businesses and contrary to The American Legion's call for a reasonable amount of 

purchases be set aside for veteran owned small businesses in federal procurement. 

The American Legion's Small Business Taskforce & Programs 

The American Legion focuses our small business programing around three core services, 

Advocacy, Counseling and Events. As a resolution-based organization, we support small business 

policy that enables our veterans and their spouses to succeed in their entrepreneurial endeavors. 

Our counseling services assist veteran entrepreneurs with their disability claims and help them 

obtain SDVOSB or VOSB status under the Vets First contracting program. The American Legion 

hosts many small business workshops and conferences on an annual basis, connecting our veteran 

entrepreneurs with other veteran entrepreneurs and business opportunities. 

The Small Business Taskforce is a working group of Legion members and small business owners 

who meet regularly to discuss the state of the veteran small business industrial base. The American 

Legion relies on Taskforce volunteers to take on advisory roles in our entrepreneurship programs 

and services and to lend their expertise in small business advocacy. The Small Business Taskforce 

is the Legion's voice of the veteran entrepreneur. 

The Distributor's Role 

Traditionally, VA orders supplies directly from distributors. The distributors then ship the items 

to a prime vendor who consolidates all the orders for delivery and inventory. The prime vendor 

then ships the consolidated order to the VA medical facility. 

Small businesses add value to MSPV -NO. Service-disabled veteran owned small businesses serve 

as resellers or distributors, and provide locally sourced maintenance, customer service, account 

management, order tracking and meticulous reporting requirements in federal contracting. When 

smaller prime vendors do not have space to keep the requisite 110 percent of the MSPV -NO 

formulary items in stock, they rely on their distributors to warehouse the additional inventory. 

10 "GSA Advantage!," U.S. General Services Administration, June 4, 2018, https:/lwww.gsa.gov/tools/supplyprocurement-etoolslgsa-advantage 

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Keeping inventory of formulary items at II 0 percent, ensures that the formulary products are 

always in stock and available to the VA. 

Distributors also absorb the extra costs associated with getting the formulary product from the 

manufacturer. Because the prices are pre-negotiated, the SDVOSBs sustain these costs, making 

sure their problems are isolated from prime vendors and the VA. Because these prices are not 

passed up the chain, it saves money for VA and passes the savings to the taxpayer. As prime 

vendors take over the distributors' role, they would likely markup pricing or fees to recoup the 

extra costs associated with getting the product from the manufacturer. 

Prime vendors offer one-size fits-all solutions to VA Medical Centers (VAMCs); they cannot 

duplicate what the distributors offer. Distributors have close working relationships with VA 

medical facilities; they know how their local VAMCs purchase and what it purchases. Distributors 

always keep certain formulary items in stock to fulfill their local VAMC's needs. 

Legion members who are also wholesale distributors have a moral commitment to the veteran 

patient and VA. There is one SDVOSB from South Carolina that has worked it into their company 

policy to sell products (not in stock) at a loss to VA at the pre-negotiated prices. They are willing 

to Jose money to get products delivered to the VA on time, because according to them, it's the 

right thing to do. 

Prime Vendors 

VA needs an estimated 80,000 itemed formulary to support all of the J 67 medical centers. The 

current 7,800 items on the list are not enough to satisfy VA's demands for supplies. 11 Running 

procurements to build the formulary is tedious work. VA's Office of Acquisition and Logistics' 

Strategic Acquisitions Center (SAC) has decided to outsource their responsibilities to prime 

vendors. 

Giving prime vendors the authority to decide which items to allow into the formulary is 

problematic. Several of our small business taskforce members fear that prime vendors could abuse 

their authority in a way that could render small businesses non-competitive. For example, some 

prime vendors are also manufacturers of medical supplies, meaning they can potentially shut out 

other brands and competitors from the formulary and create an unfair advantage. 

Recommendation 1 

According to the J&A, VA forecasts a "catastrophic disruption" of the VA healthcare supply chain 

if a substantial amount of contract administration is not given to the prime vendors. The J&A does 

not mention that retaining contract management and oversight is the key to mitigating risks and 

preventing developing crises or reference alternative solutions. Accepting the concept that the only 

solution is to abdicate responsibility by privatizing the procurement of critical supplies, sets an 

irreversible path for VA to address all of its other problems through privatization as the only 

alternative. 

If VA is looking for a viable solution that meets small business goals, has government certified 

"fair and reasonable" prices, and is Food and Drug Administration, Trade Agreement Act and BuyAmerican Act compliant, they should look to the utilization of the GSA's Federal Supply Schedule 

11 Exhibit A. 

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(FSS). The FSS could be an alternative starting point for market research and the basis for moving 

products on to the MSPV -NG formulary. 

Many of the stakeholders agree that GSA is an appropriate entity to run the contract and determine 

which items, prices and suppliers appears on the formulary. Similarly, many stakeholders also 

agree that sellers and manufacturers are likely the least appropriate entities to run the contract and 

should not be given authority to input items on the formulary. 

The American Legion believes that VA must not allow prime vendors to decide which medical 

products are to be added to the formulary. Prime vendors should not be authorized to displace 

SDVOSBs as distributors. Lastly, VA should use the FSS as tbe basis for market research when it 

comes to populating the MSPV-NG formulary. 

Recommendation 2 

The MSPV-NG program is a part of the My VA transformation, which puts veterans and their 

families first. According to the Strategic Acquisitions Center, the cost savings from buying through 

the MSPV-NG contracting program will be applied to high-priority veterans' programs. The 

American Legion would like to know which programs specifically and how the savings from the 

MSPV-NG program will be accounted for. 

Some of our SDVOSB distributors are on the GSA Schedule and the VA FSS. SDVOSBs 

contribute funds back to the government in Industrial Funding Fees (IFF) when they utilize the 

contracting services of the agency. IFF is trackable. If the aim ofthe MSPV -NG is to reinvest their 

savings, The American Legion believes VA can accomplish the same goal by buying from GSA's 

online government purchasing service or VA FSS contracts. 

The Future 

Small business distributors fear that they will lose business, when VA's proposal in the J&A is 

fully implemented. Since the proposal's implementation, prime vendors are already working 

directly with manufacturers and displacing small distributors from the procurement process. 

Subcontracting then becomes the best way for SDVOSBs to tap into MSPV-NG. Unfortunately, 

subcontracting plans only apply to two of the four prime vendors, and within the last decade, VA 

has yet to meet their negotiated subcontracting goals with the SBA. 12 Without the bandwidth to 

track and enforce their subcontracting goals, VA provides little incentive for prime vendors to 

subcontract to small businesses. The door for SDVOSB inclusion into the MSPV-NG structure is 

closing. 

Compounding all of this is the GSA's implementation of 2017 National Defense Authorization 

Act's Sec 846, 13 which directs GSA to establish a program for federal agencies to buy commercial 

products through commercial e-commerce portals. MSPV-NG prime vendors are not the only 

businesses abandoning their distributors and resellers. Businesses that sell products to the federal 

govemment are already choosing not to stock or not to renew contracts with distributors in 

12 "Department of Veterans Affairs Contracting Scorecard," U.S. Small Business Administration, June 4, 2018, 

https:i/www.sba.gov/document!support--department-veterans-affairs-contracting-scorecard 

"Public law 115-91. 

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anticipation of the launch of the commercial e-commerce portal. These businesses know that in 

order to get their products to rank high on an online retail platform, they must pay to stock product 

with that company. 

Additionally, micro-purchases on government charge cards are left out of SBA small business 

goals. Purchase card abuse is not relegated to the VA This problem exists in every federal agency. 

VA purchase card abuse was exposed in 2015 and is an admitted and identified issue within the 

agency. 14 GSA's proposal of raising the micro-purchasing ceiling to $10,000 overall and $25,000 

for purchases made through the e-commerce portal does nothing to curb purchase card abuse; 

instead, it practically facilitates it. 

Whether national, regional, state or local, SDVOSB wholesale distributors sell to more agencies 

than just the VA these distributors are feeling the pinch across all federal agencies. This is the 

climate SDVOSB distributors are operating in and they are very concerned about their future in 

the government procurement space. All indicators thus far, present a very bleak future. Despite the 

odds stacked against the SDVOSB distributors, The American Legion remains committed to 

advocating for their utilization and place within the federal procurement process. 

Conclusion 

Chairman Kelly, Ranking Member Adams and distinguished members of this critical committee, 

The American Legion thanks this you for the opportunity to explain the position of our two million 

members of this organization. Questions concerning this testimony can be directed to Jonathan 

Espinoza, Legislative Associate, in The American Legion's Legislative Division at (202) 861-

2700, or jespinoza({vlegion.org 

14 "Veteran Heath Administration Audit of Purchase Card Use to Purchase Prosthetics," Department of Veterans 

Affairs Office ofthe Inspector General, June 4, 2018, https:llwww.va.gov/oiglpubs!V AOIG-15-04929-35l.pdf 

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EXHIBIT A 

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Class Justification and Approval 

for 

Other than Full and Open Competition 

1. Contracting Activitv: Department of Veterans Affairs (VA) 

Office of Acquisition Operations · . 

Strategic Acquisition Center (SAC) 

10300 Spotsylvania Avenue, Suite 400 

Fredericksburg, VA 22408 

2. DescriPtion of the Action: VA proposes to justify and obtain approval for the 

execution of contract modifications to modify the process of creating Master Item Lists 

forVA's Medical-Surgical Prime Vendor-Next Generation (MSPV-NG) IndefiniteDelivery Indefinite-Quantity {IDIQ} contracts. The contracts which require modification 

are: · 

These contracts are for the distribution of healthcare supplies underVA's MSPVcNG 

program. The MSPV-NG Program was developed as the key element in VA's integrated 

healthcare supply chain improvement initiative and was designed to significantly 

improve efficiency, accuracy, and patient safety. The MSPV-NGProgram was intended 

to support the establishment of a national strategic sourcing solution that combines a 

. Government provided capability for ordering a wide range of medical and surgical 

supplies via a master listing with electronic cataloging (e-catalog} and ordering 

capability. The MSPV model offers VA critical benefits not available through other 

contract models, including traditional single 'source supply contracts. Comprehensive 

distribution support simplifies VA's supply chain objective: to achieve timely delivery in 

response to the heavy volume of orders In support of Veterans Health Administration's 

(VHA) urgent operational medicaVsurgical supply needs. The Prime Vendor (PV) model 

is required because VA lacks sufficient internal capability to warehouse, coordinate 

deliveries, and consolidate supply stores. Moreover, once a master list of 

medical/surgical supplies has grown to sufficient size and maturity, substantial savings 

in VA's cost to purchase those supplies is anticipated. However, the MSPV-NG has 

fallen considerably short of the intended outcomes. 

In order to address patient safety concerns resulting from VA's current supply chain 

inefficiencies, the scope of the proposed modifications Includes changing the regional 

MSPV-NG contracts from "distribution" contracts to "distribution and supply" contracts 

Enabling the MSPV-NG PVs with the capability to supply and distribute required · 

healthcare supplies is critical in order to fully meet the diverse needs of VHA's facilities 

and the Veterans which they support. The primary objective is to increase the number 

Source Selection Iofonnation- See FAR 2.101 and 3.104 
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of healthcare supplies available to VHA facilities nationwide in order to enhance the 

quality of care provided to Veterans. Another anticipated benefit of the proposed 

modifications is that they will improve efficiency by reducing the use of non-preferred 

sources that do not leverage the distribution efficiencies of the PV (example: 

Government Purchase Card {GPC), local/regional contracts, etc.) By leveraging already 

existing PV distribution and supply channels, VA also anticipates being able to generate 

increased Veteran-owned business opportunities. In short, these modifications will help 

VHA achieve many of the intended outcomes not currently realized under MSPV-NG. 

3. Acquisition History; VA manages the United'States' largest integrated healthcare 

system. The system consists of 18 Veterans Integrated Services Networks with 

approximately 1,243 healthcare facilities including 170 medical centers. VA's 

healthcare system also includes 1,063 outpatient sites of care of varying complexity to 

include outpatient clinics, community living centers, Veteran centers and domiciles. 

Together these healthcare facilities, and the more than 53,000 independent licensed 

healthcare practitioners working within them, provide comprehensive care to 

approximately 9 million enrolled Veterans. Although VA's healthcare system is designed 

to receive a significant portion of its medical and surgical supply support via a national 

MSPV-NG program, the current MSPV-NG program is not capable of meeting VA's 

healthcare system demands. 

In order to facilitate patient care within VA, a legacy program known as "MedicalSurgical Prime Veridor,(M$PV)" was put into place to s~:~pply and deliver required, 

recurring expendable medical, surgical, and related supplies, The legacy program 

strived to achieve 40 percent of all VA medical and surgical s:pend through the MSPV 

program. The MSPVIegacy program has since ended and a new program, MSPV-NG, 

has taken its place. Due to such a significant portion ofVA's healthcare system's 

medical and surgical items being delivered via the, national MSPV-NG program, the 

MSPV-NG contracts have experienced significant challenges in meeting demands thus 

jeopardizing patient health and safety. 

It is estimated that approximately 80,000 items will be needed to support VA Medical 

Centers until logical product grouping can be negotiated with manufacturers or their 

authorized distributors utilizing a formalized clinically driven sourcing process. The 

current MSPV-NG program incfuaes four regional PV contracts for distribution. The 

underlying Government provided master listing of products these PVs distribute from is 

created using a procurement-like process that has yielded a master list of approximately 

7,800 items. Currently, VA's healthcare facilities are utilizing a variety of non-preferred 

contract methods to procure necessary items not available on the Government master 

list. The substantial number of necessary items that are unavailable in the catalog 

complicates local delivery and logistics and often leads to higher costs for these 

supplies. This includes significant over-reliance on GPCs transactions, which 

jeopardizes the MSPV-NG program's ability to adequately monitor and review supplies 

being purchased and used for direct patient care. Without the ability to adequately 

monitor and review the purchased supplies through the Government master list, there is 

2 

Source Selection Information- See FAR 2.101 and 3.104 
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extreme risk to patient health and/or safety when it comes to ensuring the supplies are 

compliant with Food and Drug Administration (FDA) regulations for medical supplyitems, monitoring and conducting appropriate safety and defective-item recalls, and 

compliance with all Buy-American Act (BAA) and/or Trade-Agreements Act (T M) 

compliant items. Currently, the required Government master list has only a mere 

fraction of the required supplies needed for adequate patient care, health, and safety 

needs .. The current acquisition-like process for determining items, prices, and suppliers 

on the master list involves soliciting industry and awarding Blanket Purchase 

Agreements (BPAs) to vendors meeting the stated requirements at the lowest offered 

price. However, actual orders are never issued against these BPAs. The BPA process 

serves only to identify the items and prices for the PV's distribution agreement with the 

BPA holder. No Government funds are disbursed directly to the BPA holder, only to the 

PV. Although this process awards no contracts per se, it exposes the Master List 

generation process to all of the delays inherent in the acquisition process including • 

multiple protests, spotty vendor response, and several rounds of canceled competitive 

solicitations. 

This modification seeks to streamline the MSPV-NG process in order to rapidly expand 

the quantity and types of items contained on the Government master list, thus allowing 

the MSPV to continue maturing as a viable enterprise which is ultimately expected to 

yield substantia! efficiencies. While the BPA or similar process will continue for high 

volume items with potential for significant strategic sourcing efficiencies, this 

modification will enable the PVs to assist the Government in sourcing thousands of new 

items quickly. This will be accomplished by allowing the PVs to leverage their existing 

commercial network in order to propose sources and prices for items identified by the 

MSPV Program Office. After an examination of the prices and sources identified by the 

PV by the MSPV-NG Program Office and SAC's contracting team, approved items will 

be added to the Government master list. The PV will then execute a distribution 

agreement with the supplier and the process will continue as before. In effect, the PV's 

supply chain network and expertise will be leveraged· to assist the Government in 

conducting market research and price discovery for thousands of critical commercial 

medical items.· 

4. Description of Supplies/Services: Because of VA's ongoing requirement to quickly 

fill critical gaps in its healthcare supply chain and increase sourcing flexibility to obtain 

health care supplies critical to patient care, VA medical facilities have a critical need to 

access a wider variety of medical/surgical supplies than is currently available via the 

MSPV·NG catalog. By modifying the Government master list determination process of 

the existing MSPV-NG contracts, facilities will be able to expeditiously procure a 

broader array of supplies using normal MSPV-NG PV channels. This ability will improve 

patient care and safety as VA medical facilities will be able to keep and maintain 

Veteran appointments and will be able to safely and expeditiously procure the supplies 

needed for Veteran patient care. 

3 

Source Selection Information- See FAR 2.101 and 3.104 
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Under the proposed modification, the MSPV-NG PVs will assist in sourcing, maintain 

and distribute an of the currently required medical, surgical, dental, laboratory, · 

prosthetic supplies, other medical/surgical, cleaning, rescue and safety supplies and 

non-expendable equipment used by a medical facility. Required items continue to 

include the following Product Service Codes {PSC): 4240 (Safety and Rescue 

Equipment); 6505 (Drugs, biologicals). However, prescriptive drugs and prescriptive 

biologics requiring an FDA license will not be sourced through the MSPV-N.G program; 

6509 (Drugs and Biologicals, Veterinary Use); 6510 (Surgical Dressing Materials); 6515 

(Medical & Surgical Instruments, Equipment and Supplies); 6520 (Dental Equipment, 

Instruments, Supplies); 6525 (Imaging equipment and supplies); 6530 (Hospital 

equipment); 6532 (Hospital and Surgical Clothing and Related Special Purpose 

Medical/Surgical Supplies);6540 (Ophthalmic instruments, equipment and supplies); 

6545 (Replenish-able Field Medical Sets, Kits, and Equipment); 6550 (In Vitro 

Diagnostic Substances, Reagents, Test Kits and Sets); 6630 {Chemical Analysis 

Instruments and Equipment); 6640 (Laboratory Equipment and Supplies); 6650 (Optical 

Instruments, Test Equipment, Components and Accessories); 6670 {Scales and 

Balances); 7910 (Floor Polishers and Vacuum cleaning Equipment); 7920 (Brooms, 

Brushes, Mops and Sponges); 7930 (Cleaning and Polishing Compounds and 

Preparations); 8305 (Textile Fabrics); 8520 (ToilefSoap, Shaving Preparations, and 

Dentifrices). 

The solution offered by this Class Justification and Approval (J&A)will allow VA 

healthcare facilities to continue placing orders under the MSPV-NG contracts and avoid 

an interruption in the healthcare supply chain. The PVs will continue to distribute items 

that are procured through current VA contracts, IDIQ contracts; Blanket Ordering 

Agreements, and BPAs that are on the existing Government-provided master listing and 

any other items identified for high potential strategic sourcing efficiencies in the future. 

The items to be added under this Justification and Approval have been identified as 

high-use medical items vital to the supply chain. VHA's Program Office analyzed the 

FY 2017 Medical Products Data Bank focusing on the top high-volume purchases and 

identified various types of critically needed, high use medical supplies, enabling VHA's 

ordering officers to place orders for required medical supplies. The supplies to be 

added for distribution via the MSPV-NG contracts are based on market research 

consisting of .a review of medical surgical supply usage annualized based on 2017 

calendar year usage data. With these modifications, PVs will be allowed to assist in 

sourcing and continue to distribute items on the attached pre-negotiated price Jist which 

is based on comparison to an index of current commercial prices as well as other 

applicable market price information. There is no increase in value to the prime vendors, 

because the prime vendors are using the master list to procure the items, and the items 

are within the number originally solicited. The products the sites order are not going to 

increase beyond the original scope of the contracts. To the extent there is any value 

{though I consider this to be a no-cost modification), any such value is reflected by the 

24 months' period of performance. The period of performance is not to exceed 24 

months. 

4 

Source Selection Information- See FAR 2.101 and 3.104 
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5. Statutoffi Authority: If the proposed action is a change in scope to the current PV 

contracts r e statutory authority permitting other than full and open competition is 41 

U.S.C. 3S04(a)(1) as implemented b~ the Federal Acquisition Regula.tion (~AR) ~ubpart 

6.302·1 entitled, "Only One Responsible Source and No Other Supplies Will Sat1sfy 

Agency Requirements." Full and open competition need not be provided for when 

supplies required by the agency are available from only one responsible source, or ft:om 

only one or a limited number of responsible sources, and no other type of supplies Will 

satisfy agency requirements. However, it is the position of the Contracting Officer that 

this action does not change contract scope as the PV continues to perform the core 

function of this contract. 

6. Rationale Supporting the Use of the Authority Cited Above: As regional distributors 

for ttie MSPV-NG program, the current PVs have the existing infrastructure, ordering 

capability, and required resident knowledge which makes them uniquely qualified and 

the only sources currently capable of both enhanced sourcing and distributing required 

medical commodities throughout the entire VA healthcare network. Any attempt to 

award the required supplies through a different source would cause unacceptable 

delays in fulfilling the VA's requirements and would directly impact the health, safety, 

quality and timeliness of care to Veterans. The proposed action will not expand the 

scope of the current contracts because the original competition for the PV contracts was 

clear and unambiguous: it is/was the Government's intent to rapidly increase the MSPVNG Master Lists to approximately the 80,000 item level. · 

Significant adverse consequences will occur if the proposed J&A is not approved as 

VA'shealthcare supply chain will continue to be negatively impacted, directly affecting 

patient care and .treatment. Continuance of the MSPV-N~ Distribution Program is vital; 

any delay of supply and distribution will directly impair the delivery of healthcare and 

services to approximately 9.5 million Veterans currently receiving care through VA's 

healthcare system. A break in VA's healthcare supply chain will hinder the delivery of 

essential medical, surgical, dental, and laboratory supplies and other contracted 

healthcare such as cleaning, rescue and safety supplies and services used in the direct 

delivery of patient care. 

To solicit, evaluate and fully implement new competitive contracts rather than fulfill this 

requirement via the proposed modification would result in unacceptable delays. Based 

on an analysis of acquisition timelines experienced in competitively awarding the current 

generation of MSPV contracts in 2016, a minimum of 16 months is projected to 

complete all necessary steps from the time FedBizOps publication to contract award(s). 

The ~016 MSPV-NG contract awards, which were solely for distribution services, 

requ~red 13 months to publicize and competitively award (fou~ months to synopsize the 

requrrement, publish a draft solicitation and solicit industry comments; two months from 

solicitation release to solicit proposals; and seven months from solicitation closing to 

conduct evaluation and source selection following solicitation closing). In comparison to 

the 2016 effort, the proposed modification effort would likely take three additional 

months to evaluate due to a more complex requirement that incorporates not only the 

distribution services already being provided in the current MSPV-NG contracts, but also 

an additional supply component not contained in the current contract (nor its any MPSV 

5 

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52 

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predecessor contracts. Once a competitive award is made, protests are deemed likely 

due to the visibility and magnitude of these contracts; the minimum duration needed to 

resolve any protest is slightly over three months. Once any/all protests are resolved 

and performance can proceed, a substantial period for ramp-up/transition and 

implementation must be completed before PVs can attain performance levels and 

commence handling MSPV orders. Based on the terms of the current 2016 MSPV-NG 

contracts, the ramp-up/transition/implementation_period requires a minimum of 4 

months during which the MSPV PVs will gather product utilization data from facilities, 

load all supplies into an ordering database, coordinate and set up performance with 

facilities; provide training to facility staff on ordering procedures; and coordinate and 

provide training to necessary refresher training to using facilities. Market research with 

qualified· commercial vendors shows that this timeframe could possibly be reduced but 

only minimally, by no more than one month based on the vendors' most optimistic 

projections. Permitting orders to proceed in advance of full implementation, and 

complete PV readiness would jeopardize patient safety based on the nature of the . 

medical/surgical supplies to be ordered. 

There are no other vendors other than current PVs that the Government could negotiate 

with in order to quickly add the volume of required items. There ls also a need to add 

and delete products as necessary in order to meet the needs of VA Medical Centers 

and medical practitioners. The current PVs are positioned and equipped to assume the 

sourcing and distribution of requirements to be added as a result of this J&A because 

they already have established commercial contracts with suppliers and have existing 

relationships with many of the suppliers where products need to be added. Under the 

proposed modification, VA's healthcare facilities will be able to expeditiously procure 

their required supplies using the mandated MSPV-NG channels, which account for FDA 

safety requirements, as well as requirements to inform healthcare providers and 

process required product recalls and replacements, as well as conform to the BAA and 

TAA. 

In terms of overall quality of care, the proposed J&A will significantly increase the safety 

and efficiency of patient care because VHA's Ordering Officers will be able to procure 

necessary supplies while simultaneously monitoring the full supply chain for any critical 

issues (i.e. medical item recalls, filtering out non-FDA compliant or grey-market items or 

non BAAITAA compliant items}. The four current regional PVs are the only sources 

within their given geographical regions that are capable of meeting their contractual 

duties through use of authorized Government sources of supply, as proposed in this 

modification. No other contractor currently has the required infrastructure, ordering 

capability, or Electronic Data Interchange (ED I) in place to deliver the necessary 

medical supplies required to support patient care and safety without interruption or 

degradation to quality of care. Furthermore, the current MSPV-NG PVs are the only 

sources that have the cognizance to manage previously shipped and current inventory 

and supply issues critical to patient safety: management and processing of product 

safety recalls and filtering of "grey markef' non-approved FDA medical supply items. 

Only the current MSPV-NG PVs have the infrastructure in place to support any 

6 

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mandated or optional product recall, as well the capability to provide sourced 

replacement items without incurring a reduction or interruptions in patient care. 

The current PVs have pre-existing business relationships throughout the medical supply 

industry and the medical commodities required by VA are commercial off-the-shelf 

items. Given these two facts, VA's ability to consolidate and maximize its buying power 

by moving those medical requirements currently being purchased via GPCs over to the 

MSPV-NG will without doubt, result in substantial savings to the Government. Under the 

proposed Class J&A, the estimated cost reduction for purchase of individual items via 

the MSPV-NG Formulary is approximately $32M over the course of 24 months. Note: 

The $32M estimate does not account for efficiencies in the ordering and inventory 

management processes. 

Disapproval of the J&A will result in the continued disruption of VA's healthcare supply 

chain and negatively affect the Department's ability to provide world-class patient care 

to our nation's Veterans. Other negative ramifications include negated potential savings 

as facilities source supplies through other means. Workload, man-hours, and cost of 

operations will increase as already depleting resources are focused on obtaining 

supplies, and VA will revert to the inefficient means of sourcing medical supplies as 

occurred before the introduction of the national MSPV program in 2005. Those 

inefficient methods include use of GPCs and local VHA contracting initiatives. 

Without .the issuam:;e of the proposed sole source action, the continued use of nonpreferred acquisition methods will increase the workload for VA contracting 

professionals exponentially. Use of GPCs as an ordering method has shown to be more 

than five times the workload burden of using the MSPV-NG ordering method. tn 

addition, VHA has approximately 2,000 contracting staff processing 576,134 formal 

contracting actions annually. In the event MSPV-NG's Ordering Officers were unable to 

place orders via the MSPV-NG catalogs and those orders are added to the workload of 

an already overburdened contracting staff, the result would be catastrophic. Lead times 

to procure these items through contracting for other than emergency orders are 45 

days; however, emergency orders require action within three days. Virtually all orders 

would become emergencies in order to ensure timely delivery of safe, reliable 

healthcare to Veterans. 

The MSPV-NG PVs are currently the only sources serving in the critical role of 

comprehensive emergency supply response in support of local, regional, or national 

emergencies or disasters. Additionally, VA supports the Federal Emergency 

Management Agency (FEMA) and US Department of Health & Human Services with the 

delivery of medical supplies and coordination of support missions for response to and 

recovery from nationally-declared emergencies and disasters. VA accomplishes this 

requirement through the current regional MSPV-NG PVs, who are contractually required 

to perfo!""' a full range of support to healthcare facilities to ensure resiliency, continuity 

and rap1d recovery of health care services during disasters and other 

potential disruptions to healthcare service delivery. VA Medical Centers and other 

7 

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54 

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select federal facilities are designated FEMA facilities with significant contingency and 

emergency response roles. Accordingly, the PVs are the primary providers of 

emergency medical supplies during major catastrophic events. Any interruption in VA's 

health care supply chain or in the nation's emergency supply chain significantly 

jeopardizes VA's ability to ensure minimum disruption in the delivery of critical services 

in a contingency situation. In the event of a national, regional, or locally designated 

emergency, a supply chain interruption would not only negatively impact healthcare 

delivery to our nation's Veterans and their dependents, but also potentially have a 

direct, negative impact on the greater public. The proposed J&A is vital to support VA's 

nationwide hea!thcare system and prevent disruptions to Veteran care. The identified 

medical items represent supplies determined essential to patient care and safety by VA 

medical centers to meet VA patient care and safety needs. Continued use of these 

products and sources of supply will ensure. timely delivery and minimize VA supply 

chain interruptions. 

A well-coordinated supply chain is necessary to ensure VA's healthcare facilities are 

fully supported and Veterans are cared for timely. There are no reasonable, short-term 

alternatives that would adequately address these critical circumstances. Any financial 

costs incurred by the Government under the authority of the proposed J&A, and any 

potential costs or cost avoidance not realized through competition would not outweigh 

the benefits received through continuance of the healthcare supply chain. Approval of 

the Class J&A is in the best interests of the Government and is justified by the 

circumstances. 

Non-approval of this Class J&A would result in significant negative impact to the 

Government in terms of monetary cost, however, the far greater negative impact would 

be the undeniable risk to the overall health, welfare and safety of millions of Veterans 

Although every effort was made to compare costs, benefits and all other options, no 

reasonable, timely alternative has been identified. 

VHA's MSPV Program Office has considered the impact to competition that will result 

from the proposed action, and acknowledges the importance of maximizing competition 

in the procurement system. However, VHA asserts this is an extraordinary situation, and 

maintains that due to the critical nature of the items that will be accessible on the 

delivery of medical and surgical supplies and services to millions of Veterans, and the 

need to quickly expand the number of supplies available from the PVs, the facts of this 

case justify the unusual measure proposed under this Class J&A. The Program Office 

considered the need to balance competitive procurement principles with the best 

interest of the Government and determined that the expedited infusion of the proposed 

critically needed medical supplies under the authority of this Class J&A is mitigated and 

justified. A break in the healthcare supply chain will be costly and detrimentally 

disruptive to VA operations and deliveiy of critical healthcare services to more than 9 

million Veterans. Additionarly, it is in the Government's best interest to continue to 

support the MSPV enterprise to maturity, at which point substantial efficiencies and cost 

savings to VA are expected to be realized. Items procured under the authority of this 

8 

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55 

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Class J&A vtill be included in the MSPV-NG program for a maximum period of twentyfour (24) months until the medical supplies can be competitively awarded. At such time, 

the items will be replaced with the competitively awarded functional equivalent. 

The MSPV-NG program is the mandated means to obtain medical supplies; these items 

are regarded as.critical to patient care. In executing this change the following 

improvements will be realized: 

a. The MSPV-NG distributors shall continue to not charge any VA formularyapproved or other Government source of supply to handle their product in 

conjunction with the contract. 

b. The Government mandates all distributors to remain EDI compliant. 

c. The MSPV-NG distributors shall not require product suppliers to carry liability 

insurance in excess of $1,000,000 charge any tracking fees, find/or require 

additional discounts from product suppliers. 

This action is vital to support VA's nationwide health care system and prevent 

disruptions to Veteran care. The identified medical items represent supplies collectively 

determined ·essential by VHA medical centers to meet patient care needs. The 

inclusion of these medical supplies and distribution will ensure timely delivery and 

minimize healthcare supply chain interruptions. 

7 .. Efforts to Obtain Competition: Substantial previous and ongoing efforts have peen 

rhade to maximize and obtain competition for the required supplies. The following 

timeline and description of past efforts to obtain competition are provided: 

VHA, in cooperation with VA's National Acquisition Center (NAC), initiated contract 

support for the MSPV program in 2005. The result was the first generation of seven PV 

distributor contracts that not only support VHA, but also support the Department of 

Health and Human Services, Department of State, Indian Health Service, and the 

Federal Bureau of Prisons. Since that time, VHA and NAG have successfully executed 

two long-term, multiple-award 5-year contracts in support of the MSPV program. The 

MSPV contract expired in October 2015 and was replaced by the MSPV-NG contract. 

However, because of delays with MSPV-NG, a set of bridge contracts were executed by & 

the NAG extending the period of performance to April 19, 2016. Those bridge contracts "" 

were as follows: VA797N-15-C-0003, VA797N-15-C-0004, VA797N-15-C-0005, "'f 

VA797N-15-C-0006, VA797N-15-C-0007, VA797N-15-C-0008, and VA797N-15-C0009. 

In preparation for the continuation of the MSPV Program, in 2014 SAC assumed 

responsibility of awarding the MSPV-NG contracts. Due to a protest and continued 

technical evaluations, SAC's Contracting Officer determined that a second set of bridge 

contracts was required to ensure continuity of services and the continuance of 

healthcare support throughout the VA community beyond the bridge contracts' 

expiration on April19, 2016. ln February 2016, SAC awarded the second set of bridge 

contracts. The bridge contracts are as follows: VA119-16-D-0007, VA119-16-D-0008, 

9 

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56 

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Insert offset folio 63 here 30266.044

VA119-16-D-0009, VA119-16-D-0010, VA119-16-D-0011, VA119-16-D-0012, and 

VA119-16-D-0013. The period of performance for the second SAC bridge contracts 

began April20, 2016, with an expiration of April19, 2017. 

Leveraging the NAC's lessons learned, VHA Program Office and SAC developed a 

procurement strategy that included a complete VA-wide MSPV-NG Government 

provided master listing of approved supplies that would be available for use by April 

2016. To execute this plan, VHA and SAC formed a team in February 2015 to initiate 

development of the MSPV-NG Government provided master listing of medical/surgical 

supplies. The team's goal was to solicit and award approximately 7,000 individual lineitems, identified as an optimal initial level, for the pending MSPV-NG Government 

master listing. The team developed a streamlined approach to solicit and award these 

items, which involved VHA providing salient characteristics for all7,000 line-items, and 

SAC awarding competitive BPAs based on those salient characteristics. 

Between Apri12015 and January 2016, the MSPV-NG Program Office forwarded to 

SAC approximately 4,400 individual procurement packages consisting of both single 

and multiple line-items, of which approximately 3,500 were solicited and 900 returned to 

VHA for Inclusion in future grouping efforts. Although SAC issued multiple Requests for 

Quotations, vendor response rates averaged less than 30 percent. Due to lack of 

response, SAC and VHA sought Input from industry via a series of MSPV-NG Industry 

Days. When queried, the vendors identified two main problems: (1) VHA's salient 

characteristics were often flawed and/or insufficient. The salient characteristics did not 

appear to be based on clinical input, and often cited unnecessary manufacturer-specifiC 

features which prohibited timely, quality responses, or in many cases, no responses at 

all. ; (2) Vendors indicated that VA's practice of requesting single item quotes was an 

administrative burden and not cost effective enough for them to provide quotes. 

To obtain a better success rate and to work on completing the new MSPV-NG 

Government approved master listing supplier contracts, two possible. strategies were 

identified: (1) VHA created supply-line commodity teams, and began seeking clinical · 

input for the development of salient characteristics. Additionally, logical commodity 

groupings were developed; and (2) moving forward, VHA's Program Management 

Office was to group line-items by supply-line categories, or by United Nati«;\ns Standard 

Products and Services Codes. Supply-line categories were found to be th~ most 

favored by industry. To validate this strategy, a Request for Information (RFI} was 

issued to industry in February 2016. The RFI resp.onses confirmed the supply-line 

category approach as the most appropriate method to solicit BPAs for item inclusion in 

the approved Government provided master listing. 

On February 24, 2016, competitive awards were made to four MSPV-NG PV 

distributors, with an estimated performance starting 120 days after notice to proceed. 

The period of performance under these contracts was scheduled to begin October 

2016. It was anticipated the PVs would have a full-fine of.approximately 12,000 to 

15,000 competitively awarded BPA line-items to populate their electronic catalogs at 

10 

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57 

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contract award with another 15,000 to 35,000 items to be added during performance. 

Due· to lack of vendor response, the Government provided master listing of 

medical/surgical supplies fell short of the necessary items required to complete the PVs' 

a-catalogs. In an attempt to resolve the shortfall identified above, numerous changes in 

VA's strategy for populating the Government provided master list were considered. This 

directly resulted in the need to establish additional MSPV-NG bridge distribution 

contracts to ensure continuation of service. The MSPV-NG bridge contracts were 

awarded with a start date in April2016. This included a 3-month base period of 

performance, and three 3-month option periods. The final period of performance 

expiration date was not-to-exceed 12 months. 

October 2016 saw the transfer of the MSPV-NG contracts to the new PVs; however, the 

Government provided master list fell drastically short of the anticipated range of 

approximately 80,000 items; only about 1,600 items that were previously competed by 

SAC and NAC were transferred to the Fqrmulary/Catalog. Limited Source Justifications 

(LSJs) were established, on a not to exceed 12 month basis, to add the most widely 

used medical supplies to the Government provided master list. These items were 

identified using spend data from Medical Products Data Bank; only items available 

under the FSS were eligible for the LSJs. The reprieve offered by these LSJs allowed 

VHA's Ordering Officers to continue placing orders under the MSPV-NG contracts on a 

temporary basis and avoid an interruption in the healthcare supply chain while SAC 

continued to pursue competitive procurements for the MSPV-NG Government provided 

master listing of medical/surgical suppliers. Three rounds of solicitation packages were 

planned for staggered release during the summer of 2017; these solicitations would 

have yielded over 2,600 unique line items. However, the first round of solicitations was 

protested, which stalled release of the subsequent solicitations. It was decided that 

these packages needed to be reworked. The LSJs began to expire during the fall of 

2017. As a short-term solution to keep these items on the Government provided master 

listing, SAC transferred these LSJs to distribution and pricing agreements. The SAC 

solicited approximately 1,400 line items via FSS in October 2017, all solicitations were 

protested. Those solicitations for set-aside items are currently working towards award 

and those solicitations not set aside were cancelled. Of the 1,400 items solicited, less 

than 150 Items will be eligible for award. 

New packages are currently being developed for a projected release of quarter one of 

2018. Due to protests and tow response rates, multiple acquisition efforts for medical 

supplies resulted in little to no return on investment; hence the current need to amend 

the competitively awarded MSPV-NG distribution contracts to enable them to function 

as supply and distribution contracts while a truly clinician driven and value analysis 

based Government provided master listing is pursued. 

In addition to the corporate subcontracting plans provided by PVs that are large 

businesses, VA will negotiate individual contract subcontracting plans with all Medical 

Surgical PVs, regardless of business size, in order to address subcontracting with 

Veteran Owned Small Business (VOSB) and Service Disabled Veteran Owned Small 

11 

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58 

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Business (SDVOSB). Performance results against the individual subcontracting plans 

will be considered in determining past performance ratings submitted to the Contractor 

Performance Assessment Reporting System. VA's OffiCe of Small and Disadvantaged 

Business Utilization wilf assist the PVs in identifying qualified SDVOSBs and VOSBs for 

subcontracting consideration throughout the contract performance period. 

8. Determination of Fair and Reasonable Cost: ·As the Contracting Officer, I hereby 

determine that the anticipated cost to the Government will be fair and reasonable. 

These are widely available commercial items for which fair and reasonable pricing can 

be easily established. In negotiating pricing for the modifications, the Government will 

approve "not to exceed" prices for added supplies based on commercial indices. 

9. Market Research: The market research conducted for the MSPV-NG requirement 

has been conducted on a continuing basis, concluding immediately prior to this 

justification being finalized. It showed there are multiple individual suppliers capable of 

providing the needed healthcare suppiies; however, there are currently no suppliers 

outside of the existing PVs that can immediately integrate the necessary supplies Into. 

the VA's supply chain on a nation-wide basis, as required. The MSPV program 

observed a $202M decrease in MSPV purchases between FY 2016 and FY 2017 due to 

decreased availability of products in the MSPV catalog, In FY 2017. GPCs accounted 

for more than $48 of VA'r> medical supplies, equipment and services spend. The 

principal reason for the decline in MSPV usage and .high GPC volume was the lack of 

items available via MSPV-NG catalog. The current process produced a catalog of 

approximately 7,000 line items, far short of the estimated enterprise requirements. 

VA has a need to have consistent, uninterrupted sources of supply that meets systemwide requirements without compromising direct patient care to VA's medical.centers 

and/or related facilities. Current PVs understand VHA systems, have insight into what 

VHA buys, and have the infrastructure in place to support quick implementation. The 

capability is there and only the current PVs can fulfill the imminent requirement to 

supply and distribute healthcare supplies throughout VA. VHA's MSPV Program Office 

is developing a long-term strategy that is both supported by market research and 

clinically driven. 

10. Any Other Facts Supporting this Class Justification: VA has been unsuccessful in 

implementing a clinically driven sourcing capability which is a fundamental foundation 

for modern best-in-class healthcare supply chains, including VHA's healthcare supply 

chain. VHA is diligently working to develop improved, clinically driven sourcing 

capabilities but benchmarking with world-class commercial healthcare systems reveals 

that success in this area typically takes between ten and fifteen years. To avoid 

potential catastrophic disruption to VA's healthcare supply chain, the only feasible 

alternative to quickly supply current and urgent healthcare supply chain needs across 

the VA network is to use a more agile process to satisfy requirements. To quickly fill 

critical gaps in VA's healthcare supply chain (impacting both.access to care and quality 

of care) it is essential that PVs have appropriate authority to leverage commercial 

12 

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59 

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contracting capabilities while VA continues to pursue its goal of maximizing cost, quality 

and healthcare outcomes in the context of clinically driven sourcing. This additional 

sourcing flexibility to obtain critical healthcare supplies will more closely approximate 

VHA's existing best in class pharmaceutical PV program that relies heavily on 

commercial buying practices. In an effort to mitigate current capacity gaps negatively 

impacting implementation of clinically driven sourcing, VHA's MSPV Program Office 

intends to conduct market research seeking commercial research, analytical and 

documentation capabilities that will simplify and accelerate evidence-based decision 

making by VHA clinical communities. 

Given the urgent need for facilities to access a much broader listing of medical and 

surgical supplies via the MSPV-NG PVs and given that fair and reasonable prices can 

be confirmed using commercia! cost indices, it is in the best interest of VA to ensure a 

broad suite of medical surgical supplies are available to the facilities through normal 

distribution channels (Medical-Surgical PVs) while the VHA Program Office implements 

future programs, incorporates clinician-driven sourcing, value analysis led by clinicians, 

and a national catalog of medical surgical supplies. 

The current MSPV-NG contracts have fostered creation of an undocumented GPC 

enabled medical/surgical supply chain. Non-supply GPC holders can easily order 

supplies independently without supply personnel involvement. Under these 

circumstances, the items ordered would not be recorded in the master data base, and. 

would be invisible to supply personnel reviewing patient safety recalls. In other words, a 

clinic or ward could unknowingly be using a hazardous product and endangering 

Veteran patients because there was no record of the item in the healthcare facility's 

master file. 

These recalls are common. Per the Stericycle Expert Solutions Q3 2017 Recall Index 

Report, 167 medical device and 89 pharmaceutical recalls occurred nationwide in the 

subject quarter; and 15.7 percent of pharmaceutical recalls were due to sterility 

problems and 17 .4percent of quality ·issues were attributed to medical device recalls. 

GPC vendors may not consistently track items to ensure product guarantees and the 

chain of custody that the MSPV program automatically provides. GPC provided items 

may appear to be U.S. approved, but may be repackaged items acquired from non-US 

sources. They may also have been expired prior to repackaging. 

The Joint Commission International white paper titled, "The Effect of Illicit Supply 

Chains on Patient Safety"(© 2017) highlighted, "a major threat to patient safety is the 

debilitating/compromising effect caused by heafthcare commodities that are purchased 

Inadvertently or purposely from the "grey market. • These items may appear to be the 

same as the manufacturer's items but may be counterfeit, contaminated, adulterated 

diverted, expired, and or illegally obtained and therefore pose a significant risk to patient 

safety and the integrity of the health care organization. " 

13 

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Insert offset folio 67 here 30266.048

Contrary to GPC transactions, MSPV-NG PVs r,nust acquire healthcare commodities 

directly from manufacturers, or from authorized distributors that have an established 

relationship with the federal Government through FSS contracts or VA written 

contracts/SPAs/BOAs. These items are researched and sourced by diverse teams that 

inclupe expert clinicians and National Center for Patient Safety representatives. The 

items also undergo technical review by the same teams prior to contract award to 

ensure they meet clinical requirements. 

In addition, only FDA approved medical/surgical supplies that are compliant with Giobal 

Standard 1, Health Industry Business Communications Council, and/or International 

Society for Blood Transfusion 28 standards are available through the MSPV-NG 

program. Unlike some GPC vendors, PVs are subject to inspection by both VA facility 

and VHA supply chain management experts to ensure the handling and distribution and 

U.S. approved sources clauses of the MSPV-NG contract are met. 

For the reasons described above, the proposed J&A is urgentlY needed to ensure the 

robustness of the MSPV-NG catalog and the availability of safe clinician required 

commodities for the treatment of our Veterans. 

11. A Listing of the Sources. if an'[ that Expressed. in Writing. an Interest in the 

Acquisition: None 

12. Actions to Increase Competition: The MSPV-NG Program Office is moving forward 

with a plan to streamline the procurement and delivery of high-use medical, surgical, 

dental, select prosthetic, laboratory and facility management supplies throughout VA. 

This plan is outlined in the MSPV-NG Program Implementation Directive soon to be 

published. MSPV-NG is a national mandatory program, providing a customized 

distribution system to meet or exceed facility requirements by providing an efficient, 

cost-effective, just-in-time distribution and catalog ordering processes. 

To fulfill the objective of providing a streamlined ordering capability across VA, the 

Program Executive Office (PEO} envisions a future, clinician-driven. formularytcatalog 

that Is robust, agile, and proactively responsive to the requirements of users in the field. 

Clinician-driven sourcing is a central component of MSPV-NG formulary/catalog 

development and collaboration across VA will facilitate ongoing improvement of VA's 

sourcing of Key, high-use medical and surgical supply items. Clinician-driven sourcing 

requires accountability, participation, a.nd collaboration amongst clinical specialists who 

have the knowledge and education of items needed for the highest quality of care for 

Veterans. In the future state, the national Clinical Program Offices (CPOs) will work in 

partnership with the PEO to ensure that clinicians in the field have access to the right 

medical products at the right time. In order to ensure the MSPV-NG program is fully 

based on a foundation that is rooted In clinician-driven sourcing principles, a clear 

strategy and plan of action must be developed in concert with collaboration of Executive 

leadership from the MSPV-NG PEO, the Healthcare Commodities PEO, VHA, VHA 

Procurement and logistics Office, VA Office of Acquisition and Logistics, National 

14 

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61 

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CPO!~, Chief Medical Offices, National Center for Patient Safety, and other key offices 

as required. 

Due to the immense amount of executive-level, clinical, functional, and national 

coordination required to institute a fully-functional, clinician-driven healthcare product 

supply chain, the plan to implement and improve the program includes the following 

high-level milestones and interim objectives: 

• Quarter 1- Quarter 2 CY2018: VA I VHA Executive Leadership and 

National Clinical Program Office Engagement 

o MSPV-NG PEO will conduct roads how to engage with VHA Executive 

Leaders and National Clinical Program Offices to: 

• Solicit clinical stakeholder/leadership buy-in 

• Identify key points of contact for continued CPO engagement with 

MSPV-NG PEO 

• Initiate development of a long-term plan to ensure VHA's Program 

Office has a sustainable and comprehensive clinician drive 

sourcing strategy. Draft and obtain approval for clinical-driven 

governance structure 

• Quarter 3 CY2018: Align Clinician Driven Sourcing Strategy to.Meet 

Future Clinical Operations and Veteran Needs 

o If required, issue an RFP for a Formulary/Catalog management source to 

continuously provide a6cess and pricing for commercial medical surgical 

items at prices commensurate with VHA volume. 

o Establish clinical-driven governance structure 

o Continue development of a long-term plan to ensure VHA has a 

sustainable and comprehensive clinician drive sourcing strategy 

o Engage with VA leadership to ensure aU key stakeholders buy-in to the 

clinician driven sourcing approach and strategy 

o Develop and approve processes for MSPV-NG Formulary/Catalog 

refinement to include, item additions, retirements, etc. 

• Quarter 4 CY2018 and Beyond: Implement Clinician Driven Sourcing 

Strategy to Meet Future Clinical Operations and Veteran Needs 

o Stand-up and implement governance and processes for clinician-driven 

sourcing strategy tor new product identification, value analysis, and 

product retirement. 

o Full implementation of sustainable processes to support MSPV-NG 

program 

This J&A will be required until a new MSPV contract can be awarded and implemented. 

It is estimated that this can be accomplished within 24 months of final signature. 

15 

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62 

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Technical and Requirements Certification: I certify that the supporting data under my 

cognizance,which are included in this justification, are accurate and complete to the 

best of my knowledge and belief. 

Determination of Best Value/ Procuring Contracting Officer Certification: ! hereby 

determine that the proposed contract action will represent the best value to the 

Government and certify thatthis justification is accurate and complete to the best of my 

Date 

Legal Sufficiency Certification: I have reviewed the justification and find it legally 

sufficient as to formalities and compliance with the requirement set forth in FAR 6.302-1 00~ . . 

!6 

Source Selection Information- See FAR 2.101 and 3.11l4 
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Concurrence 

Based on the foregoing justification, I concur with the execution of a modification and 

class justification for medical commodities on an other than full and open basis, 

pursuant to the authority cited in 41 U.S.C. 3304(a)(1) as implemented by the Federal 

Acquisition Regulation (FAR) Subpart 6.302-1 entitled, "Only One Responsible Source 

and No Other Supplies Will Satisfy Agency Requirements," subject to availability of 

funds, and provided that the services and commodities herein described have otherwise 

been authorized for this acquisition. 

--

Date 

17 

Source Selection fnformatlon- See FAR 2.101 and 3.104 
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VIA EMAIL ONLY 

The Honorable Trent Kelly 

Chairman 

U.S. House of Representatives 

Committee on Small Business 

COALITION 

TO DEFEND 

VETS FIRST 88817thStr.,ei NW,11thFioo• 

Wash<"lgton. D.C. 20006 

June 6, 2018 

Subcommittee on Investigations, Oversight, and Regulations 

2361 Rayburn House Office Building 

Washington, D.C. 20515 

Re: Veteran-Owned Small Businesses Need More Support from VA 

Dear Chairman Kelly: 

Our coalition represents small businesses owned by service-disabled veterans and veterans 

(referred to as "SDVOSBs" and "VOSBs"); we have worked with many SDVOSBs and VOSBs that 

participate in the U.S. Department of Veterans Affairs' ("VA") Veterans First Contracting Program. 

Congress created this program through the Veterans Benefits, Health Care, and Information Technology 

Act of2006. The Veterans First Contracting Program is designed to maximize the participation of 

SDVOSBs and VOSBs in VA acquisitions through contracting priorities that require VA to go "Vets 

First" in awarding its contracts. In a nutshell, the Veterans First Contracting Program "is a logical 

extension of VA 's mission to care for and assist veterans in returning to private life. It provides VA 

with the new contracting flexibilities to assist veterans in doing business with the VA. SDVOSBs and 

VOSBs will obtain valuable experience through this VA program that can be useful in obtaining contracts 

and subcontracts with other government agencies as well.'" 

The same policy judgments Congress made when it created the Veterans First Contracting 

Program -to care for and assist veterans in returning to private life and playing a greater role in our 

economy- hold true today. In fact, the veterans we represent believe the Vets First mandate is needed 

now more than ever. Despite Congress' creation of this important program over 10 years ago, VA's 

prime contract spending on SDVOSBs and VOSBs has declined in recent years. So, too, has the number 

of small business prime contractors working with the federal government in general. And, subcontracting 

opportunities for SDVOSBs and VOSBs on VA contracts are nearly non-existent. In short, it is far from 

"mission accomplished" for the Veterans First Contracting Program. 

Like all small businesses, SDVOSBs and VOSBs are critical 

to our economy and our industrial base. However, the current 

federal contracting climate is presenting a significant challenge for 

small business contractors. Federal spending data shows that 

consolidation of contracting opportunities across the federal 

government in recent years has led to a 25% reduction in the number 

of small business contractors performing on federal prime contracts 

since 2010. 

Similarly, despite the statutory mandate and contracting 

program designed to give priority to SDVOSBs and then to VOSBs 

140 4---"' ......... ""-~-------------

130 -!-------"'....,.----- ...__- 120 -1-----------

110 +--·-~--~-··~·----~-

Figure 1- Declining Small Business Primes (OOOs) 

Source: Deltek 
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COALITION 

TO DEFEND 

~~:~~.~~~~~~ 

for VA prime contracts, VA's prime contract awards to SDVOSBs and VOSBs are in decline. 

Additionally, subcontracting to SDVOSBs and VOSBs on VA projects is almost nonexistent- and well 

below VA' s modest goals. These trends persist despite the fact that VA has certified 12,519 firms as 

SDVOSBs and VOSBs eligible for VA contracting priority. 

21% 

20% \ -.......... 19% / --·- \/ \ 18% \ / 17% v 

16% 

15% -t---,-----,---;----~--'"'""1-·---------,--------·-, 

FYJO FYJI FY12 FY13 FY14 FY15 FY16 

Figure 2M Declining VA Prime Contract Spending on SDVOSBs 

4% .----------------------------------------

111 Goal 11 Actual 

FYIO FYI! FY12 FY13 FY14 FYJ5 FY16 

Figure 3M VA SDVOSB Subcontracting Goals vs. Actual Subcontracting to SDVOSBs 

VA has not fully supported or adhered to the VA Act's "Vets First" mandate. Since the law's 

enactment, VA has fought numerous protests in which the agency advocated for a limited interpretation of 

the Vets First mandate." VA even took the extraordinary step (through an October 17, 2011 policy memo 

issued by VA's Deputy Assistant Secretary for Acquisition and Logistics) of ignoring recommendations 

of the U.S. Government Accountability Office ("GAO") in response to these protests.';; 
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The veteran small business community has reason to believe that some are advocating repealing 

or amending the VA Act to limit the Vets First mandate because using SDVOSBs and VOSBs 

unnecessarily increases the cost for VA (and taxpayers). Such a rationale is dubious at best. Previous 

studies, including by the Congressional Budget Office, have found that contracting with small businesses 

does not significantly increase costs to the government.;v Further, the VA Act rightly requires SDVOSBs 

and VOSBs to submit reasonable prices. Congress appropriately determined that helping veterans as 

business owners, at a reasonable price, is a worthy objective and investment for our country and, 

specifically, for VA. 

Below we detail many of the issues currently plaguing the Veterans First Contracting Program: 

1. VA spending on SDVOSBs is in decline and VA is not aggressively establishing new 

spending goals 

VA is not aggressively establishing higher spending goals for SDVOSBs and VOSBs. For 

example, despite achieving nearly 18% spending on SDVOSBs in 2016, VA's goal for SDVOSB 

spending in 2017 was only 10%. 

Moreover, VA's performance at the subcontract level has been abysmal. Given that VA spends 

the vast majority of its procurement dollars on large businesses each year, and those large businesses are 

required under the Federal Acquisition Regulation ("FAR") and the terms of their contracts to maximize 

utilization ofSDVOSBs and VOSBs at the subcontract level, the subcontracting goals and enforcement 

process at VA is clearly broken. 

Recommendation No. 1.1: VA needs to establish more aggressive prime contract and subcontract 

spending goals for SDVOSBs and VOSBs, at least 25% for each category, prepare an action plan to 

overcome any barriers to meeting the goals, identify where they may need outside support, and regularly 

report to Congress on implementation of this action plan, their progress toward meeting the goals, and 

how they will hold senior VA procurement officials accountable if the new goals are not met. 

Recommendation No. 1.2: Congress should require VA to report annually on its efforts to meet the 

subcontracting goals and its enforcement efforts, including the amount of liquidated damages VA collects 

from prime contractors that do not meet their SDVOSB and VOSB subcontracting goals. 

2. 96% of VA contracts below the simplified acquisition threshold in FY16 were J!l!! set aside for SDVOSBs or VOSBs 

Some projects are so large and complex that 

they are not suitable for small businesses. However, 

smaller contracts are generally best suited for small 

businesses, especially those below the simplified 

acquisition threshold ("SAT"), which was recently 

increased to $250,000. In fact, the U.S. Small 

Business Administration ("SBA") regulations and 

the FAR require agencies to consider the "Rule of 

Two" and conduct a set-aside for small businesses on 

all contracts below the SAT. 

Despite the preference for small businesses 

to perform smaller acquisitions, as well as the greater 

Set Aside for 

SDVOSBNOSB 

Set Aside for 

Small 
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COALITION 

TO DEFEND 

VETS FIRST 

suitability of this work for small firms, VA is failing to conduct any type of small business set aside for 

the vast majority of its contracts below the SAT. As shown in Figure 4, FYJ6 contracting data obtained 

from VA through a Freedom of Information Act ("FOIA") request paints a stark picture on the Jack of VA 

set-asides below the SAT. In FYJ6, VA conducted a total of 122,628 procurements valued at below the 

SAT. Of that total, I 09,113 of the procurements - or a staggering 89% - were not set aside. And, only 

5,314 of the procurements -or 4% -were set aside for SDVOSBs or VOSBs. Thus, at a time when VA's 

overall spending on SDVOSBs and VOSBs is declining, its performance in adhering to the Vets First 

mandate is far worse on smaller procurements many SDVOSBs and VOSBs would be best suited to 

perform. 

Recommendation No.2: VA should issue new procurement guidance to confirm that its procurement 

personnel must comply with the VA and Small Business Acts on contracts below the SAT. Also, 

Congress should require VA to report on its progress in maximizing participation of small businesses, 

especially SDVOSBs and VOSBs, on procurements below the SAT. 

3. VA has adopted a policy that makes it more difficult than Congress intended for VA 

procurement officials to issue SDVOSB or VOSB sole source contracts 

The VA Act permits VA to make sole source awards to SDVOSBs and VOSBs when three 

conditions are met: (I) the concern is a responsible source; (2) the contract award price will exceed 

$150,000 but will not exceed $5 million; and (3) award can be made at a fair and reasonable price that 

offers best value to the United States. Notably, this sole source authority granted in the VA Act does not 

require that the SDVOSB or VOSB awarded the contract is the only SDVOSB or VOSB that can provide 

the services or supplies at issue. Rather, the law merely requires that the SDVOSB or VOSB is a 

responsible source and award can be made at a fair and reasonable price -without a "Rule of Two" 

analysis. The law therefore shortens the VA procurement cycle, while increasing SDVOSBNOSB 

opportunities. 

Congress' will in creating the SDVOSBNOSB sole source provisions in the VA Act is 

comparable to the sole source authority it granted to SBA's 8(a) program, yet VA has in practice negated 

Congress' intent. VA has done so by implementing regulations and internal policies that limit the ability 

of VA contracting personnel to make sole source awards to SDVOSBs and VOSBs. 

Recommendation No.3: Congress should direct VA to adhere to the sole source provisions of the VA 

Act and rescind all policies and regulations that make sole source awards to SDVOSBs and VOSBs more 

difficult to implement than Congress intended in the law. Congress should also require VA to report on 

its timeline for revising its sole source policies and rules and on its annual use of the sole source authority 

under the VA Act. 

4. VA has issued many changes to its procurement regulations to limit the reach of the 

Vets First mandate through "class deviations" that are not subject to public notice and 

comment rulemaking 

In February 2017, VA issued a class deviation that is contrary to SBA's NMR and has a 

significant adverse effect on SDVOSB and VOSB suppliers. SBA 's NMR states that a small business 

may not provide products that it did not manufacture unless it meets certain conditions, including 

providing a product manufactured by a small business, or a waiver of the NMR is granted. If applicable 

requirements are met, SBA will waive the NMR for either a class of products or for a specific 

procurement. 
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COllLITION 

TO DEFEND 

VETS FIRST 

VA's February 17, 2017 class deviation was issued to add a VAAR provision that (i) requires the 

Head of Contracting Activity ("HCA") to approve any request by a VA contracting officer for a waiver of 

the NMR for individual procurements and, (ii) where SBA had issued a class waiver to the NMR, requires 

the contracting officer to receive approval from the HCA prior to utilizing other than competitive 

procedures or restricted competition as defined in 38 U.S.C. § 8217. 

Added without notice and comment rulemaking, this improper class deviation negatively impacts 

SDVOSB and VOSB suppliers for two reasons. With respect to waivers of the NMR for individual 

procurements, the authority to submit a request to SBA is vested with the contracting officer. By 

requiring a VA contracting officer to obtain the approval of the HCA before even making a request for an 

individual waiver of the NMR, VA has usurped a contracting officer's authority to request a waiver of the 

NMR and put that power in the hands of the HCA. 

With respect to class waivers of the NMR, this V AAR provision also requires HCA approval 

prior to using other than competitive procedures or restricted competition for a product for which SBA 

has already issued a class waiver of the NMR; again usurping a contracting officer's authority. 

Recommendation No. 4: VA should rescind its class deviation on the NMR and follow SBA guidelines 

concerning the use of SDVOSB and VOSB set-asides with an NMR waiver. 

5. Medicai!Snrgical Prime Vendor (MSPV) Contract Modification is Flawed 

In 2016, the VA' s Strategic Acquisition Center (SAC) and the Veterans Health Administration 

(VHA) leadership determined in order to have an effective medical/surgical supply chain; VA needed a 

contracted formulary to serve as the backbone of its supply chain for medical-surgical products. The 

SAC has worked for approximately the past 3 years to develop an MSPV program, which to date has 

resulted in a contracted formulary with approximately 6500 items. The current 4 prime vendor contracts, 

consisting of Cardinal Health 2000, LLC, Medline Industries, Inc., Kreisers, LLC, and American Medical 

Depot, LLC, require the prime vendors to stock and ship the 6500 items to VA facilities around the 

country once the SAC contracts for the specific items and places the items on a formulary. 

The current MSPV program has experienced limited success due to lack of clinical input by VHA 

and lack of input with industry, particularly the service disabled veteran owned small businesses. This 

limited success has resulted in greater use of purchase cards, less discipline in the VA acquisition process, 

higher costs to VA as well as VA having little accurate data as to what is being purchased and at what 

cost. 

On April 12th, 2018, the SAC issued a "Class Justification and Approval for Other than Full and 

Open Competition" (J&A) to change the current MSPV contracts from "distribution" to "distribution and 

supply" contracts, thereby turning over the primary sourcing decisions for the VA's Med-Surg supply 

chain to four large "for profit" entities that have no Group Purchasing Organizations (GPO) credentials 

and are in the business of leveraging their own operations to increase their own bottom-lines. 

The recently released J&A modifies the current MSPV contracts so that a) the size of the MSPV 

formulary is being dramatically increased to 37,500 SKUs: and b) not only are the MSPV contractors 

distributing products, but they are now also empowered to determine not only the source of supply but 

also the price to be charged to VA. This strategy only benefits the current prime vendor contractors and 

VA will rose control over approximately $4 billion in medical products purchased each year. This strategy 

is bad business practice and violates FAR requirements and places current SDVOSB and VOSB prime 

contractors in a position where they can only be engaged as subcontractors to the four prime vendors. 
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~~~ COALITION 

TO DEFEND 

VETS FIRST 

Recommendation 5.1: VA must consult with SBA to ensure that the J&A modification is not 

improperly bundled to the detriment of small businesses. 

Recommendation 5.2: VA must apply the Vets First mandate to orders placed under the MSPV, 

consistent with Kingdom ware, and VA should ensure that MSPV prime vendors establish aggressive 

SDVOSB and VOSB subcontracting goals with penalties, including liquidated damages, for not meeting 

the goals and public reporting on their goal performance. 

Recommendation 5.3: VA must remove inherently governmental functions from the J&A modification 

and have OMB review the strategy to ensure it does not require the prime vendors to perform inherently 

governmental functions. 

The above issues paint a compelling picture that congressional action is necessary to ensure that 

VA meets its statutory obligations and fully embraces the Vets First mandate. And time is of the essence 

each day that goes by, the policies and practices at VA that are contrary to Vets First become more 

entrenched, infect more procurement strategies, and harm !llore SDVOSBs and VOSBs. 

We would like your help to press VA for answers and meaningful changes. Ultimately, we 

believe it is important to hold senior VA procurement personnel accountable and to get needed answers 

on what VA is doing to correct these issues. 

Sincerely, 

John Shoraka 

Managing Director 

Enclosure 

Pub. L. No. I 09-461, § 502, 120 Stat. 3403, 3431-32 (2006); see also VA Acquisition 

Regulation: Supporting Veteran-Owned and Service-Disabled Veteran-Owned Small Businesses, 74 FR 

64619-01. 

See. e.g., Powerhouse Design Architects & Eng'rs, B-403174, et seq. (Oct. 7, 201 0) 

(GAO rejected VA's argument that procurements under the Brooks Act were not subject to the VA Act 

and its Vets First mandate); Angelica Textile Servs. v. United States, 95 Fed. Cl. 208 (2010) (the court 

rejected VA' s attempt to contradict its own policy by ignoring the Vets First Contracting Program in 

favor of the AbilityOne program); Aldevra, B-405271; B-405524 (Oct. II, 201 I) (GAO rejected VA's 

interpretation that task orders under the FSS are not subject to the Veterans First Contracting Program). 

iii The October 17, 20 II memo was issued to all VA acquisition personnel and stated that 

VA would not follow GAO's ruling in the Aldevra case because "VA is of the opinion GAO's 

interpretation [in Aldevra] is flawed and legally incorrect." 
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~=-=~ COALITION 

TO DEFEND 

VETS FIRST 

8$8 17th 'Str•H\1 NVV, 11th Floor 

WHh1r>9t'''~· D.C. :'OON> 

iv See CBO Cost Estimate for H.R. 4093 (May 2, 2014); see also American Society for 

Public Administration in the Public Administration Review, Vol. 54, No.5 (finding no significant 

differences between bids submitted on set-aside competitions and bids submitted on unrestricted 

competitions). 
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Scott Denniston 

NVSBC 

Re: VA SAC J&A Impact on Marathon Medical, SDVOSB 

Dear Mr. Denniston, 

..& 

• Marathon Medical 

June 1, 2018 

The VA Strategic Acquisition Center has implemented a new policy that in effect places the 

responsibility of the management and oversight of the VA MSPV-NG {Medical Surgical Prime 

Vendor Next Generation Program) formulary additions/deletions on large businesses 

{Concordance Healthcare Solutions, AMD, Medline Industries and Cardinal Healthcare) which 

violates current FAR regulations. 

Transferring the primary Federal Government responsibility of the SAC to private industry is 

fraught with problems and causes direct harm to Marathon Medical a SDVOSB Medical 

Products Distribution Company. In executing this plan, the SAC has circumvented the Vets 

First Law 109-461 and removes the ability for Marathon and all other SDVOSB distributors a 

fair and reasonable way to compete for formulary additions and to support our existing VAMC 

customers. For example, each of the Prime Vendors has reached out to our mfg. partner's 

directly requesting best pricing for items that we currently supply on their behalf to VAMCs 

nationwide at prices established on the FSS, SPAs and other approved contract vehicles. Plus, 

we supply non contracted items (Open Market) at the low unit of measure quantity and at 

lower prices than if the VAMC were to purchase them directly from the mfg. As a stocking 

distributor with two warehouse locations across the USA we are equipped to deliver true 

value to the VAMC hospitals directly or in partnership with the Prime Vendor organizations. 

Allowing the large business interests to manage what products and who supplies them on four 

unique formularies with no clear cut way to include and enforce a plan for SDVOSB 

involvement eliminates our value as a stocking distributor for consumable and disposable 

products that will make up the SAC formulary. 

In addition, one of our additional value added services will be impacted. We manage multiple 

companies FSS, DAPA, E·CAT and GSA contracts. If the current process is kept in place and the 

large business distributors are empowered by the SAC to directly negotiate with our existing 

mfg. partners it will negatively impact the value we bring as contract administrators and place 

a heavier burden on those manufacturers that have chosen not to commit the time and funds 

to this process. 

Sine~/~ 

£~--- John St. Leger 

President 

3251Lewiston Street, Suite 16 • Aurora, CO 80011 

877-431-4753. ' 303-339-4305. f 855-339-4309 

www.marathonmed.com 
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Honorable Trent Ke!!y, Chairman 

Subcommittee on Investigations, Oversight, and Regulations 

Committee on Small Business 

U.S. House of Representatives 

2361 Rayburn House Office Building 

Washington, DC 20515 

Dear Chairman Kelly: 08 JUN 18 

As an Army General, and fellow combat veteran, surely you can appreciate that we are the decorated combat 

veteran owners of one off the oldest and larger Veteran Owned National/Global Medical Distribution Companies in 

the Federal Contracting sector (multiple purple hearts, medals for valor between us from Vietnam to modern wars 

with WWII and Korean War investors/board members both deceased and living). And with 140 employees in the 

state of Mississippi (Biloxi office), we are taking this time to provide you (per your request last week on the Hill) to 

explain why, how, where and/or when SDVOSB businesses (using ours as a specific example) bring value to the 

Federal Government. Needless to say, our dedication, patriotism and battlefield sacrifices should speak for 

something though apparently not at the VA, especially with regard to procurement, where it's Deputy Secretary of 

Procurement and dozens of other decision makers at 810/811 Vermont (VACO), insist and constantly as well as 

publicly that we veterans are a "thorn," "unprofessional," "costly" and a "nuisance" or should and "will be 

relegated to mopping floors, selling toilet paper and other things becoming of veterans while industry 

professionals empower the VA accordingly!" to name a few of the insults slung at just our company over the years 

(at VA held events, seminars, industry days etc.-all this despite representing a dozen Fortune brands including 5 

each Fortune 50 corporations, multiple global standardizations (out competing Wall street firms on pricing, service 

etc.) with Dept. of Defense and other agencies and more than a hundred thousand completed transactions at VA, 

which have absolutely improved patient safety as well as quality of life for veteran patients. Such dedication 

(veterans serving veterans vs executives serving shareholders) equally increases QA/QC, accountability and other 

value add. This doesn't mean public companies or large businesses are to be disparaged, just that they have a 

different protocol both spiritually and legally than small veteran owned businesses. 

That said, there are a majority of patriots and professionals alike who work at the VA, who also do NOT want only 4 

public companies to become an all-powerful monopoly (which breeds fraud, waste and abuse as we all know) and 

realize that diversity, competition and further that the veteran owned, small business ethos is what drives local 

jobs, and the economy on a whole (as well as voters). Small Business is also the overwhelming force providing a 

customized "customer service" to the VA. For example, when the VA calls any of us ... collectively, we're: "Johnny 

on the spotJI vs 11SO big the left doesn't know what the right is doing!" 

Not only does the aforementioned underscore the contrast of notion perpetrated by substantial VA 

executives-that we care not about our fellow veterans and equally are just waste time and money and further if 

we would just go away the VA would somehow operate efficiently and within budget: is beyond laughable!! Yet 

this sentiment is totally alive and well in Mr. Frye's office!! He actually came to the annual VA small business show 

and harassed GE, Siemens and other global corporations (debased them and mocked us for working together while 

further making what many perceived idol threats or worse); these are Fortune Companies we have collaborated 

with for years and years of which the results are undeniable (just see TrillaMed as thee only, ONLY corporation in 

history to standardize quality control, pricing and otherwise with regard to FSS pricing and protocol for life saving 

Radio Pharmaceuticals (and we have 3 dozen other examples!!). 

Please Sir, as true to our Special Operations training, we still work today as we did back in the jungles of South East 

Asia, Latin America and the middle east, under the motto: DEEDS NOT WORDS! 

Therefore, we present the following: 
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TRILLAMED VALUE-ADD 

I. 100% FEDERALLY-FOCUSED DISTRIBUTOR (One can serve only a single master .. .for us it's the VA) 

Dedicated & focused "Federal-only" clinical sales team 

Federal National Accounts Team 

Government Contracts Team 

Customer Service team: order taking, post award follow-up, OEM warranty support, etc. 

FSS, DAPA, ECAT, SPA, MMESO and other contract vehicle support 

*In other words, All of the large businesses are 90% focused NOT on the federal gov't since the private sector 

is 90% larger than the roughly 35M Federal Employees, DoD and Veterans. 

**Therefore, they rely on competent procurement partners to help them enforce compliance, service and 

other programmatic and project management needs and requirements. Naturally, the Fed Gov't is the default 

beneficiary of such service. (It also gets to do its part locally, by working with community and small business, 

which also hires people, and this raises payroll taxes and helps funds congress's coffers accordingly ... which is 

WHY President Eisenhower created the SBA and why legislatively 21% goes to small business (since large biz is 

far better at not hiring, paying taxes/off shore money and generally protecting shareholders by law vs small 

biz, which is spiritually dedicated to the 600k remaining WWII veterans who now depend on us like we once 

did them!!) 

II. PRICING: 

TrillaMed works to match the OEM-based price point, ensuring the VHA receives the very best pricing 

and no added costs through the dedicated SDVOSB vendor. 

In other words, we pay for ourselves. The OEM pays us to outsource their madness which 

costs the Fed Gov't nothing yet fully improves quality of service, which ultimately improves 

quality of life and patient safety. 

Providing dedicated focus to large business OEMs: 

OEMs often do not possess dedicated Federal sales teams; reps are often focused on both 

commercial and federal accounts, which limits the focus and support 

OEMs often do not possesses dedicated resources to Federal Government Contracting 

TrillaMed I other value-added SDVOSBs provide dedicated support on behalf of the OEM in all 

areas related to Federal initiatives 

Allows OEM to focus on manufacturing world-class solutions and provides supplemental 

focused support to Federal accounts 

The Fed Contracting process is not simplified or easy to navigate (i.e., competitive contracting 

process does not allow for a "guarantee" of a transaction desired by the Med Center 

Said strategic support goes a long way in navigating through the procurement processes and not only 

are the Fed Gov't and OEM much happier but the tax payer, war fighter and veteran are much more 

respected as time, money and effort directed on the up and up reduce fraud, waste and abuse! 

Ill. KEY INDUSTRY INFORMATION 

OEMs sell through distributors in the commercial market- why should it be any different in the 

Federal Space? 

Apparently it's not VA's intention to state that in order to fix its broken procurement system, it 
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