United States Government Accountability Office

Washington, DC 20548 

March 19, 2009 

The Honorable Daniel K. Akaka 

Chairman 

The Honorable Richard Burr 

Ranking Member 

Committee on Veterans’ Affairs 

United States Senate 

The Honorable Stephanie Herseth Sandlin 

Chairwoman 

The Honorable John Boozman 

Ranking Member 

Subcommittee on Economic Opportunity 

Committee on Veterans’ Affairs 

House of Representatives 

Subject: Department of Veterans Affairs Contracting with Veteran-Owned Small 

Businesses 

The federal government’s long-standing policy has been to use its buying power—the 

billions of dollars it spends through contracting each year—to maximize procurement 

opportunities for small businesses, including those owned by service-disabled veterans. 

Under the Veterans Benefits, Health Care, and Information Technology Act of 2006, the 

Department of Veterans Affairs (VA) is to give first and second priority to small 

businesses owned by service-disabled and other veterans, respectively, when it uses 

small business preferences to award its contracts, which totaled more than $14 billion in 

fiscal year 2008.1

 The act also requires VA to establish contracting goals for servicedisabled veteran-owned small businesses (SDVOSB) and other veteran-owned small 

businesses (VOSB) and gives VA unique authorities to use contracting preferences for 

SDVOSBs and VOSBs to help it reach those goals. 

The act requires us to conduct a 3-year study on VA’s efforts to meet its SDVOSB and 

VOSB contracting goals and to brief Congress annually, by January 31, 2008, 2009, and 

2010. Accordingly, we briefed your staffs on January 31, 2008, on steps that VA had taken 

to implement its new contracting authorities and verify the ownership of firms in VA’s 

mandated database of SDVOSBs and VOSBs, as well as potential challenges that VA 

could face in meeting its contracting goals. The purpose of this report is to make publicly 

available the contents of the briefing held on January 30, 2009. Enclosure I contains a 

copy of the briefing slides that we used to brief your staffs on (1) the extent to which VA 

 1

Pub. L. No. 109-461 § 502 (Dec. 22, 2006), 38 U.S.C. § 8127. 

Page 1 GAO-09-391R Veterans Affairs Contracting with Veterans 
met its prime contracting goals for SDVOSBs and other VOSBs in fiscal years 2007 and 

2008 and what, if any challenges, VA faced in meeting those goals; (2) VA’s progress 

implementing procedures to confirm the ownership, control, and service disability status 

of firms in its mandated database of SDVOSBs and other VOSBs; and (3) how VA is 

meeting the requirement for a review mechanism for subcontracts with SDVOSBs and 

other VOSBs, and what process VA follows to ensure that large business prime 

contractors provide appropriate subcontracting opportunities. 

Background 

Federal agencies’ contracting with private businesses is, in most cases, subject to goals 

for various types of small businesses, including SDVOSBs.

2

 The Small Business Act, as 

amended, sets a governmentwide goal for small business participation of not less than 23 

percent of the total value of all prime contract awards—contracts that are awarded 

directly by an agency—for each fiscal year.3

The Small Business Act also sets annual 

prime contracting goals for participation by four other types of small businesses: small 

disadvantaged businesses (5 percent); women-owned or service-disabled, veteranowned, (5 and 3 percent, respectively); and businesses located in historically 

underutilized business zones (HUBZones, 3 percent). Although there is no 

governmentwide prime contracting goal for participation by all VOSBs, VA had 

voluntarily set an internal goal for many years before the enactment of the Veterans 

Benefits, Health Care, and Information Technology Act. 

The Veterans Benefits, Health Care, and Information Technology Act provides VA 

authorities to make noncompetitive (sole-source) awards and to restrict competition for 

(set aside) awards to SDVOSBs and VOSBs. VA’s authorities differ from those available 

to other federal agencies. Specifically, the Veterans Benefits Act of 2003 authorized 

agencies to set contracts aside and make sole-source awards of up to $3 million ($5 

million for manufacturing) for SDVOSBs (but not other VOSBs).4

 However, an agency 

can make a sole-source award to an SDVOSB only if the contracting officer expects just 

one SDVOSB to submit a reasonable offer. By contrast, VA’s authorities under the 

Veterans Benefits, Health Care, and Information Technology Act apply to SDVOSBs and 

other VOSBs. Also, whereas use of the set-aside authority is voluntary for other agencies, 

VA is required to set aside contracts for SDVOSBs or other VOSBs (unless a sole-source 

award is used) if the contracting officer expects two or more such firms to submit offers 

and the award can be made at a fair and reasonable price that offers the best value to the 

 2

The Small Business Act, as amended, defines a small business generally as one that is “independently 

owned and operated and that is not dominant in its field of operation.”In addition, a business must meet 

the size standards published by the Small Business Administration (SBA) to be considered small; these 

standards may use criteria such as a business’ annual revenue or its number of employees to determine 

size. Pub. L. No. 85-536, as amended, 15 U.S.C. § 632(a). 

3

15 U.S.C. § 644(g). Because agencies’ activities lend themselves to differing contracting opportunities, SBA 

negotiates goals in annual procurement with federal agencies to achieve the governmentwide goals. 

4

Pub. L. No. 108-183 § 308 (Dec. 16, 2003), 15 U.S.C. § 657f. 

Page 2 GAO-09-391R Veterans Affairs Contracting with Veterans 
United States. VA may make sole-source awards of up to $5 million, with no restriction 

on the number of SDVOSBs or other VOSBs expected to submit offers.5

Summary 

VA exceeded its prime contracting goals for SDVOSBs and VOSBs in fiscal years 2007 

and 2008, reflecting leadership commitment and broad-based agency efforts. Specifically, 

in fiscal year 2007, VA awarded 7.1 percent ($832 million) of its prime contract dollars to 

SDVOSBs and 10.4 percent ($1.22 billion) to all VOSBs (including SDVOSBs), exceeding 

its goals of 3 percent and 7 percent, respectively. In fiscal year 2008, VA awarded 11.8 

percent ($1.66 billion) to SDVOSBs and 14.9 percent ($2.10 billion) to all VOSBs, 

exceeding its increased goals of 7 percent and 10 percent, respectively. Leadership 

efforts that contributed to VA’s success in meeting these goals included the efforts of 

VA’s Office of Small and Disadvantaged Business Utilization (OSDBU) to ensure 

awareness of and commitment to meeting the goals and headquarters initiatives to 

monitor and recognize strong performance by contracting offices. Nearly all of VA’s 

major contracting offices met the agencywide goals, and they made extensive use of the 

set-aside and sole-source authorities and applied the contracting priority for SDVOSBs 

and VOSBs established by the Veterans Benefits, Health Care, and Information

Technology Act. In light of VA’s dynamic contracting environment—particularly with 

respect to recent and anticipated turnover in its leadership and contracting staff—

sustaining or increasing its levels of SDVOSB and VOSB contracting may be challenging 

and will require vigilance as VA manages competing small business goals and continues 

to institutionalize its new contracting priorities and authorities. For example, as VA 

finalizes its rulemaking process implementing provisions of the act, ongoing effort will 

be important to ensure that all contracting staff (especially new staff and those involved 

in monitoring compliance) have a full understanding of the contracting authorities and 

priorities.6

VA verified ownership of a limited number of SDVOSBs and VOSBs in its database and 

was working to address other requirements, including assessing who actually controls 

veteran-owned firms receiving certain VA contracts. The act requires VA to maintain a 

database of SDVOSBs and VOSBs, verify that registered firms are owned and controlled 

by veterans or service-disabled veterans, and use its set-aside and sole-source award 

authorities only for these verified firms.7

 VA already maintained an online database, 

VetBiz Vendor Information Pages, in which nearly 16,500 firms have self-certified as 

SDVOSBs or VOSBs. VA began accepting verification applications from firms registered 

in the database after publishing guidelines for its verification program in an interim final 

 5

38 U.S.C. § 8127(d). 

6

VA published a proposed rule that includes changes to the VA Acquisition Regulation to implement 

portions of the act, including the set-aside and sole-source authorities. 73 Fed. Reg. 49141 (Aug. 20, 2008). 

7

To receive a federal contract, a firm must register in Central Contractor Registration, a governmentwide

database. Small businesses in that database can certify in a supplemental database maintained by SBA that 

they are veteran-owned or service-disabled veteran-owned. Only contracts awarded to these self-certified

SDVOSBs and VOSBs count toward agencies’ prime contracting goals. 

Page 3 GAO-09-391R Veterans Affairs Contracting with Veterans 
rule in May 2008.8

 As of December 23, 2008, VA had verified that veterans or servicedisabled veterans owned 484 firms, denied the verification applications of 15 firms, and 

was processing another 419 applications. To date, VA’s verification process has focused 

on cross-referencing information submitted by owners with VA data to confirm majority 

ownership by veterans or service-disabled veterans. In spring 2009, VA expects to pilot 

procedures for more detailed reviews of selected firms to verify day-to-day control by a 

service-disabled or other veteran. According to VA officials, VA will begin requiring its 

contracting officers to use the set-aside and sole-source award authorities only with 

verified SDVOSBs and VOSBs when the agency finalizes rulemaking related to 

implementation of these authorities, which they anticipate in May 2009 at the earliest. 

Until then, existing VA policy states that firms only have to be registered in VA’s 

database to receive set-aside or sole-source awards. We intend to assess VA’s 

implementation of its verification process in our future work. 

VA plans to implement a mechanism to ensure that only subcontracts with legitimate 

SDVOSBs and other VOSBs count toward the goals that large business contractors 

establish in their subcontracting plans.9

 VA currently focuses its oversight of 

subcontracting on contractors with these plans, mainly by reviewing their electronic 

reports of subcontracting activity. The Veterans Benefits, Health Care, and Information 

Technology Act requires that, to the extent that VA counts subcontracts with SDVOSBs 

and VOSBs toward its contracting goals, it must confirm that such subcontracts were 

awarded to legitimate SDVOSBs and VOSBs. VA currently counts only prime contracts, 

not subcontracts, toward its agencywide SDVOSB and VOSB contracting goals. 

Nonetheless, VA’s proposed rule would require OSDBU to confirm that when large 

business prime contractors with subcontracting plans report subcontracts with 

SDVOSBs and VOSBs, those firms have been verified. Implementing this review 

mechanism will require VA to begin collecting data on the firms that receive 

subcontracts because large business prime contractors currently are not required to 

report such information. VA expects to have received approval from the Office of 

Management and Budget to collect such data by the time the proposed rule is finalized. 

Although any firm with a federal contract of $100,000 or more generally must provide 

subcontracting opportunities to small businesses, VA—like other federal agencies—

concentrates on large businesses with larger contracts that require subcontracting plans, 

mainly by reviewing the contractors’ periodic electronic reports of their actual 

subcontracting performance against their goals. VA awarded 128 contracts that required 

subcontracting plans in fiscal years 2007 and 2008. In future work, we intend to explore 

further VA’s oversight of contracting officers’ decisions to require a subcontracting plan, 

as well as its oversight of the plans when they are required. 

 8

73 Fed. Reg. 29024 (May 19, 2008). 

9

Large businesses with federal contracts of $550,000 or more ($1 million for construction) generally must 

have subcontracting plans that include goals for subcontracting with SDVOSBs, VOSBs, and other types of 

small businesses. Federal Acquisition Regulation Part 19.702. 

Page 4 GAO-09-391R Veterans Affairs Contracting with Veterans 
Agency Comments 

We provided a draft of this report to VA and SBA for comment. Additionally, we provided 

a copy of the draft briefing slides to VA and pertinent statements to SBA for comment 

prior to the January 30, 2009, briefing. VA and SBA provided technical comments on the 

draft report and the slides, which we incorporated as appropriate. 

Scope and Methodology 

To address our objectives, we analyzed data from the Federal Procurement Data SystemNext Generation (FPDS-NG); reviewed relevant statutes, regulations, policies, and 

guidance related to VA’s small business goals and programs; conducted field visits and 

structured interviews with contracting officials from 9 of the 21 Veterans Integrated 

Service Networks (VISNs), VA’s regional health care networks; and interviewed officials 

from other major VA contracting offices and headquarters, SBA, and nine veteran service 

organizations. On the basis of our review of FPDS-NG system documentation, interviews 

with VA officials, and electronic testing, we concluded that the data were sufficiently 

reliable for our purposes. We selected the 9 VISNs to ensure a mix of SDVOSB, VOSB, 

and total contracting levels, organizational structures, and geographic locations. 

We conducted this performance audit in Washington, D.C.; Chicago, Illinois; Milwaukee, 

Wisconsin; and the Dallas, Texas, area from March 2008 to January 2009 in accordance 

with generally accepted government auditing standards. Those standards require that we 

plan and perform the audit to obtain sufficient, appropriate evidence to provide a 

reasonable basis for our findings and conclusions based on our audit objectives. We 

believe that the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives. 

______________________________________________________________________________ 

We are sending copies of this report to interested congressional committees, the 

Secretary of Veterans Affairs, and the Acting Administrator of the Small Business 

Administration. In addition, the report will be available at no charge on GAO’s Web site 

at http://www.gao.gov. If you or your staffs have any questions about this report, please 

contact me at (202) 512-8678 or shearw@gao.gov. Contact points for our Offices of 

Congressional Relations and Public Affairs may be found on the last page of this report. 

Major contributors to this report were Harry Medina, Assistant Director; Marianne 

Anderson; Julianne Dieterich; Julia Kennon; Marc Molino; Barbara Roesmann; and Paul 

Thompson.

William B. Shear 

Director, Financial Markets and Community Investment 

Enclosure 

Page 5 GAO-09-391R Veterans Affairs Contracting with Veterans 
Enclosure I: Briefing on Department of Veterans Affairs Contracting with 

Veteran-owned Small Businesses 

1

Veterans Affairs Exceeded Contracting Goals 

for Small Businesses Owned by Veterans, 

Started Verifying Veteran Ownership, 

and Plans to Review Data on 

Subcontracts with Such Firms

Briefing to the House and Senate 

Committees on Veterans’ Affairs

January 30, 2009

Page 6 GAO-09-391R Veterans Affairs Contracting with Veterans 
Enclosure I: Briefing on Department of Veterans Affairs Contracting with 

Veteran-owned Small Businesses 

2

Overview

• This is the second of three briefings on the Department of Veterans Affairs’

(VA) contracting with service-disabled veteran-owned small businesses 

(SDVOSBs) and other veteran-owned small businesses (VOSBs). The

briefings and a final report due in 2010 were mandated by Public Law 

(P.L.) 109-461, which took effect on June 20, 2007. VA refers to its 

implementation of this law as the Veterans First program.

• P.L. 109-461 gives VA unique contracting authorities for SDVOSBs and

VOSBs and gives these firms first and second priority, respectively, when

VA makes acquisitions pursuant to a contracting preference.

• The briefing will cover the following topics:

• Objectives

• Scope and Methodology

• Summary of Findings

• Discussion of Objectives

Page 7 GAO-09-391R Veterans Affairs Contracting with Veterans 
Enclosure I: Briefing on Department of Veterans Affairs Contracting with 

Veteran-owned Small Businesses 

3

Objectives

• To what extent did VA meet its prime contracting goals for 

SDVOSBs and other VOSBs in fiscal years 2007 and 2008 and 

what, if any, challenges did VA face in meeting these goals?

• What progress has VA made in implementing procedures to confirm 

the ownership, control, and, if applicable, service-disability status of

firms in its mandated database of SDVOSBs and other VOSBs?

• How is VA meeting the requirement for a review mechanism for 

subcontracts with SDVOSBs and other VOSBs, and what process 

does VA follow to ensure that large business prime contractors 

provide appropriate subcontracting opportunities?

Page 8 GAO-09-391R Veterans Affairs Contracting with Veterans 
Enclosure I: Briefing on Department of Veterans Affairs Contracting with 

Veteran-owned Small Businesses 

4

Scope and Methodology

• Scope

• VA policymaking efforts and contracting office practices to implement P.L. 109-

461.

• Emphasis on the regional healthcare networks of the Veterans Health 

Administration (VHA), which accounted for the majority of VA’s purchases.

• Methodology1

• Analysis of VA procurement data in Federal Procurement Data System-Next 

Generation (FPDS-NG), which we deemed to be reliable for our purposes.

• Review of statutes, regulations, policies, and guidance related to VA’s small 

business goals and programs.

• Field visits and structured interviews with nine of VHA’s 21 regional Veterans 

Integrated Service Networks (VISN) and interviews with other major VA 

contracting offices and VA headquarters and Small Business Administration

(SBA) officials and selected veteran service organizations.

• We selected VISNs to ensure a mix of SDVOSB and VOSB contracting 

levels, sizes, organizational structures, and regions. The nine sites 

represented a majority of the networks’ total, SDVOSB, and VOSB contract 

dollars in fiscal year (FY) 2007.

1 We conducted our work in Washington, D.C., Chicago, Milwaukee, and the Dallas area from March 2008 to

January 2009 in accordance with generally accepted government auditing standards.

Page 9 GAO-09-391R Veterans Affairs Contracting with Veterans 
Enclosure I: Briefing on Department of Veterans Affairs Contracting with 

Veteran-owned Small Businesses 

5

Summary of Findings

• VA exceeded its prime contracting goals for SDVOSBs and VOSBs in 

FY07 and FY08, reflecting leadership commitment and broad-based

agency efforts. Sustaining or increasing its levels of contracting with these

firms may be challenging and require vigilance due to a dynamic 

contracting environment and as VA manages competing small business 

goals and institutionalizes its new contracting priorities and authorities.

• VA verified ownership of some SDVOSBs and other VOSBs in its 

database, as required by P.L. 109-461. Officials are working to address 

other requirements, including assessing who actually controls veteran- owned firms.

• VA plans to implement a mechanism to ensure that only subcontracts with 

legitimate SDVOSBs and other VOSBs count toward the goals that large 

business contractors establish in their subcontracting plans. Although many 

contractors must provide subcontracting opportunities to small businesses, 

VA—like other agencies—focuses its oversight on large businesses with 

subcontracting plans, mainly by reviewing electronic reports. 

Page 10 GAO-09-391R Veterans Affairs Contracting with Veterans 
Enclosure I: Briefing on Department of Veterans Affairs Contracting with 

Veteran-owned Small Businesses 

6

VA Exceeded Its SDVOSB and VOSB Prime 

Contracting Goals in FY07 and FY08

• In FY08, VA awarded 14.9 

percent of its contract dollars to 

all VOSBs, including 11.8 

percent to SDVOSBs,

compared with 10.4 percent to 

VOSBs, including 7.1 percent 

to SDVOSBs, in FY07.1

• In dollar terms, the amount VA 

awarded to all VOSBs

increased from $1.22 billion in 

FY07 to $2.10 billion in FY08, 

including $832 million awarded 

to SDVOSBs in FY07 and 

$1.66 billion in FY08. 

Contracting Goals and Challenges

1 Our analysis of FY08 data reflects data input as of January 2009. Because agencies enter and revise data in FPDS-NG

on an ongoing basis, the results reported here may differ from SBA’s official FY08 report on federal agencies’ 

achievement of small business goals, which will be released later in FY09.

Page 11 GAO-09-391R Veterans Affairs Contracting with Veterans 
Enclosure I: Briefing on Department of Veterans Affairs Contracting with 

Veteran-owned Small Businesses 

7

VA Exceeded Its SDVOSB and VOSB Prime 

Contracting Goals in FY07 and FY08 (cont.)

• In meeting its goals, VA used SDVOSB or VOSB sole-source or set-asides

to award the majority of SDVOSB dollars in FY08, but more rarely used

these authorities for other VOSBs.

Contracting Goals and Challenges

Page 12 GAO-09-391R Veterans Affairs Contracting with Veterans 
Enclosure I: Briefing on Department of Veterans Affairs Contracting with 

Veteran-owned Small Businesses 

8

VA Exceeded Its SDVOSB and VOSB Prime 

Contracting Goals in FY07 and FY08 (cont.)

• In FY07 and FY08, nearly all of VA’s contracting activities (those 

associated with VISNs and other major units within VA) met the 

agency-wide SDVOSB and VOSB goals. 

• Contracting activities with relatively more construction and 

repair or maintenance requirements tended to contract more 

with SDVOSBs and VOSBs.

• Because VA purchases nearly all of its pharmaceuticals 

through a national contract with one large business, VA’s seven 

regional Consolidated Mail-out Pharmacies had the lowest 

levels of SDVOSB and VOSB contracting (less than 1 percent 

in FY08).

Contracting Goals and Challenges

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Enclosure I: Briefing on Department of Veterans Affairs Contracting with 

Veteran-owned Small Businesses 

9

VA’s Success Meeting the Goals Reflected Leadership 

Commitment and Broad-based Efforts

• Examples of Leadership Commitment

• VA substantially increased its SDVOSB and VOSB goals in FY08, and 

contracting staff throughout the agency described Office of Small and

Disadvantaged Business Utilization (OSDBU) efforts to ensure awareness of

and commitment to meeting the goals.

• OSDBU generated monthly agency-wide progress reports, and key leaders met 

regularly with the Deputy Secretary to review progress against all small 

business goals.

• VA requires the individual job performance plans of staff involved in contracting 

to include the attainment of SDVOSB and VOSB goals. In practice, many 

contracting office managers said that the plans refer to meeting all small 

business goals.

• An agency-wide awards program sponsored by the Secretary recognizes 

contracting offices for leadership in meeting small business goals, including for 

SDVOSBs and VOSBs.

• In its mid-year progress report on VA’s FY08 small business programs, SBA 

recognized VA for outstanding achievement. 

• Of the 24 agencies that SBA assessed, VA was one of four that met its

SDVOSB goal in FY07 (there is no government-wide VOSB goal).

Contracting Goals and Challenges

Page 14 GAO-09-391R Veterans Affairs Contracting with Veterans 
Enclosure I: Briefing on Department of Veterans Affairs Contracting with 

Veteran-owned Small Businesses 

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VA’s Success Meeting the Goals Reflected Leadership 

Commitment and Broad-based Efforts (cont.)

• Examples of Broad-based Efforts

• While we heard some external concerns that VA might not be 

implementing Public Law 109-461 because it had not 

completed rulemaking, we found that contracting offices were 

acting on the authorities and priorities of the Veterans First 

program.

• VA issued interim guidance in June 2007 and published a 

proposed rule in August 2008, which VA officials expect to be 

finalized by May 2009 at the earliest.

• Officials in VA’s Office of Acquisition and Logistics said that,

when the rule is finalized, they plan to revise other existing 

guidance related to SDVOSB and VOSB contracting as 

needed. 

Contracting Goals and Challenges

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Enclosure I: Briefing on Department of Veterans Affairs Contracting with 

Veteran-owned Small Businesses 

11

VA’s Success Meeting the Goals Reflected Leadership 

Commitment and Broad-based Efforts (cont.)

• Examples of Broad-based Efforts (cont.)

• All but one of the 21 VISNs met both goals in FY08. Seven awarded

at least 20 percent of their contract dollars to VOSBs in FY08. 

• Among the nine VISNs we contacted, contracting managers generally had similar approaches to oversight of acquisition planning and 

expectations for how staff should apply the Veterans First priorities

and contracting authorities.

• Differences in the VISNs’ size, organizational structure, and

oversight practices did not explain variations in their VOSB 

contracting levels, which ranged from 13 to 29 percent in FY08.

• Composition of the acquisitions may have been a more important 

factor in explaining the VISNs’ performance. 

• Among all VISNs, those that spent less than the average share of

their dollars on construction generally had below-average levels of 

SDVOSB and VOSB contracting in FY08. Conversely, the VISNs

with above-average levels of construction spending generally had 

above-average levels of SDVOSB and VOSB contracting. 

Contracting Goals and Challenges

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Enclosure I: Briefing on Department of Veterans Affairs Contracting with 

Veteran-owned Small Businesses 

12

Sustaining or Further Increasing VA’s SDVOSB 

and VOSB Contracting Will Require Vigilance

• Overall, VA exceeded its contracting goals in FY07 and FY08—even after it

set substantially higher goals in FY08. Because VA has a dynamic

contracting environment, sustaining or achieving further growth in its levels

of SDVOSB and VOSB contracting may be challenging and will require

continued vigilance. 

• Some of VA’s leadership will change with the new administration, and

the federal contracting workforce traditionally has high turnover.

• VA’s Veterans First regulation will require staff to comply with unique

provisions that depart from the federal government’s already-complex

priority system for small businesses.

• In this context, and based on information provided by VA officials, factors 

that will call for sustained attention include

• managing competing goals and priorities among small business 

contracting programs, and

• institutionalizing the new Veterans First contracting priorities and 

authorities. 

Contracting Goals and Challenges

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Enclosure I: Briefing on Department of Veterans Affairs Contracting with 

Veteran-owned Small Businesses 

13

Sustaining or Further Increasing VA’s SDVOSB and 

VOSB Contracting Will Require Vigilance (cont.)

• Managing Competing Goals and Priorities

• According to some contracting officers and managers, 

balancing SDVOSB and VOSB priorities with expectations to 

meet the other statutorily required small business goals is 

challenging.

• Some officials noted that the more successful contracting 

officers are in identifying SDVOSBs and VOSBs and 

applying the priority to them, the more difficult it would be for 

VA to continue to meet the other small business goals.

• VA’s proposed rule to implement Veterans First included a 

provision to allow VA, in consultation with SBA, to lower its 

other small business goals—an approach that would affirm the 

primacy of Veterans First.

Contracting Goals and Challenges

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Veteran-owned Small Businesses 

14

Sustaining or Further Increasing VA’s SDVOSB and 

VOSB Contracting Will Require Vigilance (cont.)

• Managing Competing Goals and Priorities (cont.)

• VA’s SDVOSB, VOSB, and total small business contracting grew in FY07 and

FY 08 as other small business categories were unchanged or declined.

Contracting Goals and Challenges

Notes: HUBZone refers to participants in SBA’s Historically Underutilized Business Zone program. Small

Disadvantaged Businesses include participants in SBA’s 8(a) program. Beginning in FY08, VA did not set a 

separate 8(a) goal.

Page 19 GAO-09-391R Veterans Affairs Contracting with Veterans 
Enclosure I: Briefing on Department of Veterans Affairs Contracting with 

Veteran-owned Small Businesses 

15

Sustaining or Further Increasing VA’s SDVOSB and 

VOSB Contracting Will Require Vigilance (cont.)

• Institutionalizing Veterans First

• VA uses pre-solicitation reviews of proposed contracting strategies 

(such as an SDVOSB set-aside) for new acquisitions to monitor 

compliance with the Veterans First priorities and contracting 

authorities. On the whole, this system of review appears to be working well. 

• OSDBU generally performs the review of VA’s largest

acquisitions—$100,000 or more for the central office and $500,000 

or more for field-based offices.

• Although OSDBU cannot halt an acquisition if it disagrees with 

the proposed strategy, OSDBU officials said that the limited 

authority has not been a problem because contracting offices 

generally are cooperative in considering its recommendations.

• Many contracting officials noted OSDBU’s active involvement in

this review process and the emphasis that it places on the

priority for SDVOSBs and VOSBs.

Contracting Goals and Challenges

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Enclosure I: Briefing on Department of Veterans Affairs Contracting with 

Veteran-owned Small Businesses 

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Sustaining or Further Increasing VA’s SDVOSB and 

VOSB Contracting Will Require Vigilance (cont.)

• Institutionalizing Veterans First (cont.)

• For smaller acquisitions that do not require OSDBU review, an 

official from the contracting activity performs the review. 

• While we did not find evidence of widespread problems in how officials approached their reviews at the VISNs we 

contacted, we did find isolated examples of inconsistencies. 

For example, at two VISNs, officials responsible for the 

reviews could not correctly explain the sole-source authority for SDVOSBs and VOSBs. 

• Although they generally understood the priority for veterans and were familiar with VA’s interim guidance on Veterans 

First, many of the contracting offices we contacted had many new staff or vacancies, which suggests that ongoing effort 

will be important to ensure that all staff have a full 

understanding of the program and the new regulations. 

Contracting Goals and Challenges

Page 21 GAO-09-391R Veterans Affairs Contracting with Veterans 
Enclosure I: Briefing on Department of Veterans Affairs Contracting with 

Veteran-owned Small Businesses 

17

VA’s Use of Its National Contract Programs and Other 

Mandatory Contracting Sources Has Not Impeded Its 

Ability to Meet SDVOSB and VOSB Goals

• National Contracts (Prime Vendor and Standardization)

• VA’s prime vendor programs require medical facilities to order most 

pharmaceuticals, many medical and surgical items, and subsistence (food and

related supplies for inpatients) through prime vendors, which distribute products 

nationwide or throughout one or more VISNs. 

• VA’s use of the prime vendor programs has not prevented the agency from

meeting its prime contracting goals for SDVOSBs or VOSBs, and has not

prevented individual VISNs from meeting the agency-wide goals. 

• In FY08, VISN purchases from prime vendors totaled $1.2 billion and 

represented 14 percent of the VISNs’ total contract dollars, according to our analysis of FPDS-NG.

• VA generally obtains volume discounts on many pharmaceutical, medical, and

surgical items by establishing national standardization contracts and other

types of agreements with the manufacturers or distributors that supply the 

prime vendors.1

• Some of these contracts are with SDVOSBs and VOSBs, but items 

supplied by such firms through prime vendors (none of which are 

SDVOSBs or VOSBs) do not count toward VA’s prime contracting goals.

Contracting Goals and Challenges

1 In prior work, GAO found that VA realized substantial cost savings through the prime vendor and standardization programs and 

recommended that VA take steps to increase use of its national contracts. See GAO, Contract Management: Further Efforts Needed

to Sustain VA's Progress in Purchasing Medical Products and Services, GAO-04-718 (Washington, D,C,: Jun. 22, 2004).

Page 22 GAO-09-391R Veterans Affairs Contracting with Veterans 
Enclosure I: Briefing on Department of Veterans Affairs Contracting with 

Veteran-owned Small Businesses 

18

VA’s Use of Its National Contract Programs and Other 

Mandatory Contracting Sources Has Not Impeded Its 

Ability to Meet SDVOSB and VOSB Goals (cont.)

• Other Mandatory Sources of Supply

• VA’s existing guidance and proposed rule retain the federally mandated use of

Federal Supply Schedule (FSS) contracts, but this would not preclude VA from

sustaining or increasing awards to SDVOSBs and VOSBs, many of which have

FSS contracts.

• FSS orders cannot be set aside, but VA encourages staff to search for and 

give preference to SDVOSBs and VOSBs when seeking FSS bids.

• Some veteran advocates have argued that VA should allow FSS orders to

be set aside for SDVOSBs and VOSBs under the authorities of P.L. 109- 461. The General Services Administration’s position is that VA does not

have the authority to allow set asides on FSS orders.

• VA’s existing guidance retains the federally mandated use of Ability One 

agencies (nonprofits that employ blind and disabled persons), Federal Prison

Industries, and the Government Printing Office (GPO). However, the proposed rule would allow contracting officers to give priority to SDVOSBs and VOSBs

over Federal Prison Industries and GPO.

• If VA had directed to VOSBs the $23 million awarded in FY08 to Federal 

Prison Industries and GPO, its VOSB contracting would have increased

minimally, from 14.9 to 15.0 percent of its contract dollars. (Ability One

agencies received another $66 million.)

Contracting Goals and Challenges

Page 23 GAO-09-391R Veterans Affairs Contracting with Veterans 
Enclosure I: Briefing on Department of Veterans Affairs Contracting with 

Veteran-owned Small Businesses 

19

VA Verified Ownership of a Limited Number of 

SDVOSBs and VOSBs

• P.L. 109-461 requires VA to maintain a database of SDVOSBs and 

VOSBs and verify that registered firms are owned and controlled by 

veterans or service-disabled veterans. 

• As of December 23, 2008, VA had verified that veterans or servicedisabled veterans owned 484 firms registered in its VetBiz Vendor 

Information Pages (VIP) database.

• Firms in the database will be verified only at their request; 419 

requests, among the nearly 16,500 registered firms, were 

pending.

• VA had denied the verification applications of 15 firms.

• Currently, the verification process focuses mainly on crossreferencing information submitted by owners with VA data to 

confirm majority ownership by veterans or service-disabled 

veterans. VA also checks other online databases to confirm that

the firm is licensed and eligible for federal contracts.

Verification Process

Page 24 GAO-09-391R Veterans Affairs Contracting with Veterans 
Enclosure I: Briefing on Department of Veterans Affairs Contracting with 

Veteran-owned Small Businesses 

20

VA Is Working to Address Other Requirements 

in the Verification Process

• When a firm requests verification, its owners attest that a service-disabled 

or other veteran controls it. Currently VA does not take steps to verify dayto-day control unless there are discrepancies with online databases. 

• VA developed risk-based categories to target firms for detailed remote 

reviews or on-site examinations, which would include steps to verify 

control. Officials are developing procedures for such examinations and

anticipate piloting them in the spring of 2009.

• For example, VA considers certain joint ventures to be at high risk 

of misrepresentation, because the SDVOSB or VOSB party to the 

venture may not control it. But, identifying joint ventures and

assessing their validity are challenging because of data limitations

and complex joint venture requirements.

• In developing its verification procedures, VA is considering how to

avoid weaknesses that we previously identified in SBA’s efforts to 

verify the eligibility of HUBZone firms.1

• We reported that SBA could provide limited assurance that the 

information was accurate due to its limited efforts to verify selfreported information through site visits or other extensive reviews.

Verification Process

1 GAO, Small Business Administration: Additional Actions Are Needed to Certify and Monitor HUBZone Businesses 

and Assess Program Results, GAO-08-643 (Washington, D.C.: Jun. 17, 2008).

Page 25 GAO-09-391R Veterans Affairs Contracting with Veterans 
Enclosure I: Briefing on Department of Veterans Affairs Contracting with 

Veteran-owned Small Businesses 

21

VA Is Working to Address Other Requirements 

in the Verification Process (cont.)

• P.L. 109-461 requires VA to use its set-aside and sole-source award

authorities only for verified SDVOSBs and VOSBs. 

• VA published a proposed rule in August 2008 that includes such 

provisions. Until the rule is finalized, VA guidance states that firms only

have to be registered in the VIP database to receive set-aside or solesource awards.

• VA officials said that they expected to be able to process the currently 

pending applications for verification before the rule is finalized.

• VA’s verification process is not an appropriate mechanism to address 

concerns—often cited by VA contracting and Office of Inspector General

officials—that some SDVOSBs or VOSBs will not comply with limitations on 

how much work they can subcontract to other firms.1

• VA’s verification process is designed to consider ownership and 

control of the firm, which is consistent with P.L. 109-461’s requirement, 

and does not focus on compliance with contract requirements.

Verification Process

1 Federal regulations applicable to all agencies require firms receiving small business set-asides or 8(a) awards to 

perform a minimum percentage of the work, but do not require them to report on their subcontracting activity.

.

Page 26 GAO-09-391R Veterans Affairs Contracting with Veterans 
Enclosure I: Briefing on Department of Veterans Affairs Contracting with 

Veteran-owned Small Businesses 

22

VA Plans to Put in Place Mechanisms to Collect and 

Review Data on Subcontracts with SDVOSBs and 

VOSBs

• P.L. 109-461 requires that, if VA counts subcontracts with SDVOSBs and

VOSBs toward its contracting goals, it must confirm that such subcontracts 

were awarded to legitimate SDVOSBs and VOSBs.

• VA does not count subcontracts toward its agency-wide contracting

goals, but its proposed rule would require large business prime

contractors that submit subcontracting plans to include goals for 

SDVOSBs and VOSBs that are at least commensurate with VA’s 

prime contracting goals.

• The proposed rule also would require OSDBU to review subcontracts 

with SDVOSBs and VOSBs reported under the abovementioned plans.

• Large business prime contractors currently do not report information on the 

firms that receive subcontracts. VA officials said that they plan to have

received Office of Management and Budget approval to begin collecting

such data by the time the proposed rule is finalized.

Subcontracting

Page 27 GAO-09-391R Veterans Affairs Contracting with Veterans 
Enclosure I: Briefing on Department of Veterans Affairs Contracting with 

Veteran-owned Small Businesses 

23

VA Oversight of Subcontracting Focuses on Large 

Businesses with Subcontracting Plans

• Contractors generally must provide “maximum practicable 

opportunity” for small business participation in federal contracts of 

$100,000 or more. 

• In its oversight of this federal requirement, VA—like other 

agencies—focuses on those large businesses with contracts of 

$550,000 or more ($1 million for construction) that have 

subcontracting plans. 

• The Federal Acquisition Regulation and VA policy do not set 

specific expectations for contracting officers to monitor 

contracts without subcontracting plans, and the regulations

provide no mechanism for prime contractors to report on 

subcontracting activity for such contracts.

• VA awarded 117 contracts that required subcontracting plans in 

FY08 and 111 in FY07, according to FPDS-NG.

Subcontracting

Page 28 GAO-09-391R Veterans Affairs Contracting with Veterans 
Enclosure I: Briefing on Department of Veterans Affairs Contracting with 

Veteran-owned Small Businesses 

24

VA Oversight of Subcontracting Focuses on Large 

Businesses with Subcontracting Plans (cont.)

• VA relies on the requirements in the Federal Acquisition Regulation 

to guide staff and does not have additional written policies on 

oversight of subcontracting plans, according to VA acquisition 

policy officials. For example:

• Contracting officers must determine whether a subcontracting plan is required. If so, they must ensure that it has the required elements, such as reasonable goals for subcontracting with SDVOSBs, VOSBs, and other types of small businesses.

• Contracting officers also are expected to monitor performance against subcontracting plans, primarily through review of electronic reports the prime contractor submits.

• If a contractor fails to make a good faith effort to comply with

the subcontracting plan, the only formal recourse available 

to federal agencies is to seek damages. VA and SBA officials said that agencies almost never have taken such

punitive action.

Subcontracting

Page 29 GAO-09-391R Veterans Affairs Contracting with Veterans 
Enclosure I: Briefing on Department of Veterans Affairs Contracting with 

Veteran-owned Small Businesses 

25

VA Oversight of Subcontracting Focuses on Large 

Businesses with Subcontracting Plans (cont.)

• OSDBU or SBA officials often help review subcontracting plans 

before VA awards a contract, but the contracting officer has primary 

responsibility for ensuring adoption of an appropriate plan and 

monitoring prime contractor performance.1

• Officials at two contracting activities with the largest number of subcontracting plans said that they generally expect subcontracting plans to have achievable goals, with growth in 

subcontracting dollars or percentages over time. 

• In monitoring the plans, one of the contracting activities focuses 

on its annual reviews of electronic reports, requesting action plans if the prime contractor falls short of goals and using the option to extend contracts as leverage to press for more 

aggressive subcontracting efforts. The other contracting activity uses the prime contractors’ routine financial reports to monitor their subcontracting activity on an ongoing basis.

Subcontracting

1 SBA also reviews agencies’ subcontracting oversight and large businesses’ subcontracting programs. However, we found that resource constraints limited the ability of staff to fulfill SBA’s responsibilities. See GAO, Small Business Administration: Agency Should Assess Resources Devoted to Contracting and Improve Several Processes in the 8(a) Program, GAO-09-16 (Washington, D.C.: Nov. 21, 2008).

Page 30 GAO-09-391R Veterans Affairs Contracting with Veterans 
Enclosure I: Briefing on Department of Veterans Affairs Contracting with 

Veteran-owned Small Businesses 

26

VA Oversight of Subcontracting Focuses on Large 

Businesses with Subcontracting Plans (cont.)

• Even if a contract with a large business exceeds the dollar threshold, 

subcontracting plans are not required when there are no subcontracting

opportunities. The few other exceptions to the requirement most often 

would not apply to VA contracts.

• In FY07, VA did not require subcontracting plans on 44 contracts that 

exceeded the dollar threshold because no subcontracting opportunities 

existed, according to FPDS-NG.

• Also in FY07, VA did not require subcontracting plans on another 141

contracts that exceeded the dollar threshold, but FPDS-NG did not 

collect data on the reasons for not requiring a plan.

• GAO and others have identified a number of issues at various agencies 

concerning oversight of subcontracting requirements.1

• In future work, we intend to explore further VA’s oversight of 

subcontracting plans and of contracting officers’ decisions whether to

require a subcontracting plan.

Subcontracting

1 See GAO, Federal Acquisition: Oversight Plan Needed to Help Implement Acquisition Advisory Panel Recommendations,

GAO-08-160 (Washington, D.C.: Dec. 20, 2007), and Report of the Acquisition Advisory Panel to the Office of Federal 

Procurement Policy and the Congress of the United States (Washington, D.C.: January 2007).

(250445)

Page 31 GAO-09-391R Veterans Affairs Contracting with Veterans 
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