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80–170 2013

CONSISTENTLY INCONSISTENT: CHALLENGES FOR 

SERVICE-DISABLED VETERAN-OWNED SMALL 

BUSINESSES 

HEARING 

BEFORE THE

SUBCOMMITTEE ON CONTRACTING AND 

WORKFORCE 

COMMITTEE ON SMALL BUSINESS 

JOINT WITH THE

SUBCOMMITTEE ON OVERSIGHT AND 

INVESTIGATIONS 

COMMITTEE ON VETERANS’ AFFAIRS 

UNITED STATES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

HEARING HELD 

MARCH 19, 2013 

Small Business Committee Document Number 113–006 

Available via the GPO Website: www.fdsys.gov 

SBREP-219 with DISTILLER


Congress.#13
(II) 

HOUSE COMMITTEE ON SMALL BUSINESS 

SAM GRAVES, Missouri, Chairman 

STEVE CHABOT, Ohio 

STEVE KING, Iowa 

MIKE COFFMAN, Colorado 

BLAINE LUETKEMER, Missouri 

MICK MULVANEY, South Carolina 

SCOTT TIPTON, Colorado 

JAIME HERRERA BEUTLER, Washington 

RICHARD HANNA, New York 

TIM HUELSKAMP, Kansas 

DAVID SCHWEIKERT, Arizona 

KERRY BENTIVOLIO, Michigan 

CHRIS COLLINS, New York 

TOM RICE, South Carolina 

NYDIA VELA ́ ZQUEZ, New York, Ranking Member 

KURT SCHRADER, Oregon 

YVETTE CLARKE, New York 

JUDY CHU, California 

JANICE HAHN, California 

DONALD PAYNE, JR., New Jersey 

GRACE MENG, New York 

BRAD SCHNEIDER, Illinois 

RON BARBER, Arizona 

ANN McLANE KUSTER, New Hampshire 

PATRICK MURPHY, Florida 

LORI SALLEY, Staff Director 

PAUL SASS, Deputy Staff Director 

BARRY PINELES, Chief Counsel 

MICHAEL DAY, Minority Staff Director 

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(III) 

COMMITTEE ON VETERANS’ AFFAIRS 

JEFF MILLER, Florida, Chairman 

DOUG LAMBORN, Colorado 

GUS M. BILIRAKIS, Florida 

DAVID P. ROE, Tennessee 

BILL FLORES, Texas 

JEFF DENHAM, California 

JON RUNYAN, New Jersey 

DAN BENISHEK, Michigan 

TIM HUELSKAMP, Kansas 

MARK AMODEI, Nevada 

MIKE COFFMAN, Colorado 

BRAD WENSTRUP, Ohio 

PAUL COOK, California 

JACKIE WALORSKI, Indiana 

MICHAEL MICHAUD, Maine 

CORRINE BROWN, Florida 

MARK TAKANO, California 

JULIA BROWNLEY, California 

DINA TITUS, Nevada 

ANN KIRKPATRICK, Arizona 

RAUL RUIZ, California 

GLORIA NEGRETE McLEOD, California 

ANN McLANE KUSTER, New Hampshire 

BETO O’ROURKE, Texas 

TIM WALZ, Minnesota 

HELEN W. TOLAR, Staff Director and Chief Counsel 

NANCY DOLAN, Democratic Staff Director 

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(V) 

C O N T E N T S 

OPENING STATEMENTS 

Page 

Hon. Richard Hanna ................................................................................................ 1 

Hon. Mike Coffman .................................................................................................. 2 

Hon. Grace Meng ..................................................................................................... 3 

Hon. Ann Kirkpatrick .............................................................................................. 4 

WITNESSES 

Mr. Joseph Wynn, Special Advisor, VET-Force, Washington, DC ....................... 6 

Mr. Davy Leghorn, Assistant Director, National Economic Division, American 

Legion, Washington, DC ...................................................................................... 7 

Mr. Marc Goldschmitt, PMP, CEO, Goldschmitt and Associates, LLC, Reston, 

Virginia ................................................................................................................. 9 

Mr. Jonathan T. Williams, Partner, PilieroMazza, PLLC, Washington, DC ...... 10 

Mr. William Shear, Director, Financial Markets and Community Investment, 

U.S. Government Accountability Office, Washington, DC ................................ 18 

Mr. A. John Shoraka, Associate Administrator, Office of Government Contracting and Business Development, U.S. Small Business Administration, 

Washington, DC ................................................................................................... 19 

Mr. Tom Leney, Executive Director, Veterans and Small Business Programs, 

U.S. Department of Veterans Affairs, Washington, DC ................................... 21 

APPENDIX 

Prepared Statements: 

Mr. Joseph Wynn, Special Advisor, VET-Force, Washington, DC ............... 34 

Mr. Davy Leghorn, Assistant Director, National Economic Division, 

American Legion, Washington, DC ............................................................. 48 

Mr. Marc Goldschmitt, PMP, CEO, Goldschmitt and Associates, LLC, 

Reston, Virginia ............................................................................................ 58 

Mr. Jonathan T. Williams, Partner, PilieroMazza, PLLC, Washington, 

DC .................................................................................................................. 70 

Mr. William Shear, Director, Financial Markets and Community Investment, U.S. Government Accountability Office, Washington, DC .............. 79 

Mr. A. John Shoraka, Associate Administrator, Office of Government 

Contracting and Business Development, U.S. Small Business Administration, Washington, DC .............................................................................. 91 

Mr. Tom Leney, Executive Director, Veterans and Small Business Programs, U.S. Department of Veterans Affairs, Washington, DC ................ 95 

Questions and Answers for the Record: 

Joe Wynn, VET-Force ....................................................................................... 102 

Davy Leghorn, The American Legion ............................................................. 110 

Marc Goldschmitt ............................................................................................. 119 

Jonathan Williams, PilieroMazza ................................................................... 132 

William B. Shear, Director .............................................................................. 140 

John Shoraka, Associate Administrator ......................................................... 145 

Tom Leney, Department of Veterans’ Affairs ................................................ 160 

Additional Material for the Record: 

Congresswoman Herrera Beutler .................................................................... 177 

The American Legion ....................................................................................... 179 

Chairman Mike Coffman ................................................................................. 181 

Hon. Jackie Walorski ....................................................................................... 183 

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(1) 

CONSISTENTLY INCONSISTENT: CHALLENGES 

FOR SERVICE-DISABLED VETERAN-OWNED 

SMALL BUSINESSES 

TUESDAY, MARCH 19, 2013 

HOUSE OF REPRESENTATIVES, 

COMMITTEE ON SMALL BUSINESS, 

SUBCOMMITTEE ON CONTRACTING AND WORKFORCE, 

JOINT WITH THE

COMMITTEE ON VETERANS’ AFFAIRS, 

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS, 

Washington, DC. 

The Subcommittees met, pursuant to call, at 2:00 p.m., in Room 

2360, Rayburn House Office Building. Hon. Richard Hanna [chairman of the subcommittee on Contracting and Workforce] presiding. 

Present from Subcommittee on Contracting and Workforce: Representatives Hanna, Tipton, Bentivolio, Herrera Beutler, Meng, 

Clarke, and Chu. 

Present from Subcommittee on Oversight and Investigations: 

Coffman, Roe, Kirkpatrick, Takano, and Walz. 

Chairman HANNA. The hearing will come to order. I want to 

thank Chairman Coffman for working with me today on this joint 

hearing, and thank you all for being with us today. Additionally, 

several of our witnesses today are veterans, and I want to thank 

you all for your service and for taking the time out of your busy 

schedules to be here. 

The federal government has a goal of awarding 3 percent of all 

prime contracts to service-disabled veterans who own small businesses. Last year, this meant over $12 billion in prime contracts 

went to those firms. In helping agencies meet the 3 percent goal, 

Congress created two contracting programs, one specifically for the 

Department of Veteran Affairs and government-wide programs run 

by the Small Business Administration. 

Whenever we have small business contracting programs, the government faces certain tensions. First, we have an obligation to ensure that only qualifying firms are receiving and performing on 

these contracts. Second, we must ensure that the programs themselves do not become so burdensome that they keep small businesses from participating. The contracting programs for service-disabled veteran-owned small businesses highlight this tension. 

The SBA program has not done enough to discourage fraud, 

while the VA program has itself become the problem for some of 

these firms. In some of cases, the differences between the two programs have led to opportunities for fraud and bureaucratic impediSBREP-219 with DISTILLER

2 

ments to small business generation. For example, the surviving 

spouses of service-disabled veterans are allowed to maintain the 

business status for a period of time at the VA, but not at the SBA. 

In contrast, under the VA regulation, a service-disabled veteran in 

a community property state must convince their spouse to renounce 

any interest in the business in order to prove that the veteran controls the firm. SBA does not apply this restriction; instead, simply 

requiring that a firm updates its status when its ownership 

changes. 

The bottom-line is a legitimate firm may qualify under one program but not under another. If we really want to help these firms, 

we need to give them one clear set of rules to live by. Recent GAO 

reports have highlighted the problems with both the VA and the 

SBA, and many believe that legislation is required to create programs that have clear requirements, efficient processes, and transparent appellate processes. 

Over the course of this Congress, I plan to work alongside my 

colleagues on the Veterans Affairs Committee and with the representatives of service-disabled veterans on a solution that will improve the current processes by which both agencies operate. Small 

businesses have enough on their plate, and I hope today’s hearing 

will provide some insight on how to best help disabled veterans 

owning small businesses deal with these additional burdens. 

Again, I want to thank our witnesses for being here today and 

look forward to your testimony. I now yield to the chairman of the 

Subcommittee on Oversight and Investigations for Veterans Affairs, Mr. Coffman, for his opening remarks. 

Chairman COFFMAN. Thank you, Chairman Hanna for yielding. 

And thank you also to your Subcommittee for holding this joint 

hearing. 

The problems with VA’s service-disabled veteran-owned small 

businesses, the certification program, sadly, these are not new. The 

Veterans’ Affairs Committee had several Subcommittee hearings 

during the last Congress on the issue, but improvements within the 

program seem to be slow in coming. My Subcommittee continues to 

frequently hear from SDVOSBs and their advocates regarding 

what should be a straightforward process for veterans attempting 

to do business with the VA. 

While the verification process at CVE has improved and helped 

weed out some bad actors, it is abundantly clear that there is still 

a long road ahead. One topic discussed at length in the 112th Congress was VA’s definition of ownership and control of the small 

businesses. Despite the Committee’s bringing this problem to VA’s 

attention, VA’s definitions retain some key differences from the 

Small Business Administration, and the effect of these differences 

has been a self-induced backlog of legitimate companies attempting 

to get certified through CVE and do business with the VA. 

The fact the VA has a different interpretation of what constitutes 

ownership means that an individual could be recognized as a veteran small business owner with one government agency but not 

with the VA, and this should raise everyone’s eyebrows. However, 

that is the reality that some veterans face today, including servicedisabled veterans. SBA has had common sense requirements for 

what constitutes an SDVOSB in place for a long time. 

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3 

While VA’s intent may be in the right place, its regulatory and 

interpretative actions have put many eligible veterans at a disadvantage. We still need to get this right if we are going to enable 

our veterans, who sacrificed for this country, to do business with 

the Federal government. And if the VA is going to set the standard 

for recognizing the commitment of these same veterans, then a 

straightforward common sense process needs to be in place. It is 

my sincere hope that down the road we are not still discussing the 

same issues. The time for conversation has passed, and it is time 

to take action, fix the problem, and move on. 

I understand that the system will never be perfect, nor is there 

one simple answer. However, after all the years that have passed 

since this program has been set up and the resources that have 

been added to CVE, it is reasonable to expect that we should be 

further along than we are today. 

Mr. Chairman, I yield back. 

Chairman HANNA. And I yield to our ranking member, Ms. 

Meng, for her opening statement. 

Ms. MENG. Thank you, Chairman Hanna. Thank you to our witnesses for appearing before our Subcommittees today. And thank 

you to all the veterans, especially the ones in this room today for 

your wonderful service to our country. 

Over the last century, brave Americans have fought in Afghanistan, Iraq, Vietnam, Korea, and Europe, for not only our freedom 

but for the freedom of others. Over 635,000 men and women have 

died in these and many other wars. The surviving 22 million veterans include 5.5 million who were disabled while in the service. 

These courageous individuals deserve not only our enduring gratitude but also the opportunity to build a new life after their many 

years of military service. 

One of the most important tools we have to accomplish this mission is the Service-Disabled Veteran-Owned Small Business Procurement Program. In 2011, this initiative awarded more than 

100,000 contracts worth over 11 billion to SDV small firms. However, these awards have accounted for only about 2.6 percent of all 

federal contracts, below the 3 percent statutory goal. Efforts have 

been made to increase this level but challenges still remain. Among 

the most pressing issues are the ongoing problems in verifying 

firms participating in this SDV program. Previously, 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 service-disabled veteran-owned small businesses. To prevent these abuses, GAO recommended that a verification system be 

implemented, but given the overlapping roles of both the SBA and 

the VA in administrating this program, this reality has been slow 

to materialize. Regardless, we have to continue to make every effort to ensure that non-SDV firms cannot continue to steal these 

opportunities from service-disabled veteran firms. 

Given the recent sequester, it is now more important than ever 

to correct these flaws. This across-the-board cut will cause SDVs to 

lose out on more than 7,500 contracts worth more than $1 billion, 

making it critical that only eligible firms compete for the remaining 

opportunities. Addressing these failings and ensuring SDV procureSBREP-219 with DISTILLER

4 

ment programs work as intended is long past due. With an unemployment rate of more than 11 percent for veterans of the wars in 

Iraq and Afghanistan, it is essential that all veterans’ resources are 

properly managed and overseen. Given that entrepreneurship remains a viable career path for many of our men and women, programs like the one this hearing is on today are critical to reduce 

the high unemployment rate. 

I think I can speak for all of our Subcommittee members here 

today in saying that we will do whatever it takes to help servicedisabled veterans overcome the challenges they face in today’s 

economy. As a result, I am glad that in addition to the federal 

agencies here with us today that we are hearing directly from our 

veterans’ community. Thank you, and I yield back my time. 

Chairman HANNA. Thank you. 

I now yield to Ranking Member Ms. Kirkpatrick for her opening 

statement. 

Ms. KIRKPATRICK. Thank you, Chairman Hanna. And I want 

to thank all of the veterans who are here today because you have 

already paid the price. We now must fight for you with all our 

might, and I want you to know that we know that and we appreciate your being here today. 

In 1999, Congress required the Small Business administration to 

establish programs and services to help veterans make the transition from service member to small business owner by increasing 

federal contracting and subcontracting opportunities for veterans. 

As more veterans return home from Iraq and Afghanistan, our nation has the responsibility to help them re-enter civilian life. Some 

veterans may choose to go to school, work in the private and public 

sector, while others may choose to begin their business. Veterans 

bring with them self-discipline and a strong work ethic from their 

military service that we know will help them to succeed in any 

business. 

As we encourage veterans to enter into business with the Federal 

government, we must have the right elements in place. It should 

not be overly difficult to do business with the Federal government, 

but it should not be so easy that fraud is rampant and these opportunities that are set aside for veterans are lost. In 2010, the VA 

alone improperly awarded veteran set aside contracts valued at 

$500 million to ineligible businesses. The VA inspector general 

stated that it expects VA to improperly award $2.5 billion in contracts over the next five years unless oversight and verification procedures are strengthened. In the end, what we should seek is a 

good balance of providing smart and worthwhile verification, but 

we should not make it so difficult as to prevent veterans from 

doing business with the VA and the rest of the Federal government. 

Today’s hearing will build upon the hearings from the last Congress as we seek to ensure that federal contracting is being done 

effectively and efficiently by the Small Business Administration 

and the Department of Veteran Affairs, particularly for service-disabled veterans small business owners. As we explore what the definition of ownership and control form VA and SBA, along with other 

concerns, we should not lose sight that each business is the life of 

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5 

a veteran and the opportunity for a quality life for his or her family. 

I look forward to the testimony this morning, and I want to 

thank all the witnesses for being here. And I yield back, Mr. Chairman. 

Chairman HANNA. Thank you. 

If additional members have any opening statements prepared I 

ask that they be submitted for the record. I would also like to take 

a moment to explain the timing to you. Five minutes. Four minutes, the yellow light comes on. Then the red light. But we will be 

lenient as possible. If you could try to respect that time limit as 

best as possible. But we do want to hear what you have to say. 

With that, we have votes. I am going to adjourn this I would say 

for 20 minutes. We should be about that long and we will be right 

back and we will continue. Thank you. 

[Recess] 

Chairman HANNA. The Committee will reconvene. 

In the interest of time I will read the witnesses and their short 

bios. 

Our first witness today is Joe Wynn, who is testifying on behalf 

of VET-Force, a coalition of over 200 organizations and affiliates 

representing veterans nationwide. In addition to his work on Executive Committee of VET-Force, Mr. Wynn is the president of Vets 

Group, Inc., a nonprofit organization that provides entrepreneurial 

education, federal procurement training, employment assistance, 

and other supportive services primarily for veterans and people 

with disabilities or persons of limited means. He is also director 

and legislative liaison for the National Association for Black Veterans. A veteran himself, Mr. Wynn proudly served in the United 

States Air Force, and we thank you for your service, sir. 

Our second witness today is Davy Leghorn, the assistant director 

for the Economic Division of American Legion. The American Legion Economic Division aims to ensure that veterans receive several opportunities for success upon exiting the military. Mr. Leghorn is a veteran, having proudly served in the United States Military. We thank you for your service and for being here today, Mr. 

Leghorn. 

Our third witness is Mr. Marc Goldschmitt, founder and CEO of 

Goldschmitt and Associates, LLC, a service-disabled veteran-owned 

small business who has been involved with the CVE verification 

issue since its inception. Mr. Goldschmitt proudly served in the 

United States Navy. We thank you for your service and we thank 

you for your time today, Mr. Goldschmitt. 

Ms. MENG. It is my pleasure to introduce Mr. Jonathan Williams. Mr. Williams is a partner with PilieroMazza here in D.C. 

where he counsels businesses on a range of federal contracting 

issues, including the various small and minority business procurement programs. He has successfully tried cases at both the GAO 

and the Court of Federal Claims. Additionally, Mr. Williams has 

brought and defended numerous SBA protests and appeals pertaining to program eligibility. 

Welcome, Mr. Williams. 

Chairman HANNA. You may begin, Mr. Wynn. 

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6 

STATEMENTS OF JOSEPH WYNN, SPECIAL ADVISOR, VETFORCE; DAVY LEGHORN, ASSISTANT DIRECTOR, ECONOMIC 

DIVISION, THE AMERICAN LEGION; MARC GOLDSCHMITT, 

PMP, CEO, GOLDSCHMITT AND ASSOCIATES, LLC; JONATHAN 

T. WILLIAMS, PARTNER, PILIEROMAZZA, PLLC 

STATEMENT OF JOSEPH WYNN 

Mr. WYNN. Thank you. Good afternoon, Chairman Hanna, 

Chairman Coffman, Ranking Members and Subcommittee Members, fellow veterans, and guests. On behalf of VBA National President, John Rowan, its officers and members, and thousands of veteran business owners we represent, I thank you for taking the time 

to convene this very important hearing. 

In a recent report from the President’s Interagency Task Force 

on Veterans Small Business Development, it was stated that ‘‘Two 

of America’s greatest assets are the service of our returning veterans and the economic dynamism of our small businesses.’’ We 

recognize that entrepreneurs and small businesses are the engines 

of American innovation and economic prosperity, but now that we 

have fallen over the ‘‘fiscal cliff’’ due to sequestration, federal agencies will be faced with significant budget cuts which will also impact the hiring of new employees, so we will have to turn to small 

businesses and corporate sectors to pick up the slack. 

Veterans own about 2.4 million businesses or 9 percent of all of 

America’s businesses. These businesses generate about 1.2 trillion 

in receipts and employ nearly 5.8 million Americans. As highly 

trained professionals and leaders with experience in challenging 

environments, veterans’ potential for success for entrepreneurship 

and small business ownership will not be fully achieved if the VA’s 

regulations for verifying them as veteran business owners is allowed to become the standard throughout the federal marketplace. 

You would not think that the federal agency, the Department of 

Veterans Affairs, the very one created for ‘‘those who have borne 

the battle, their widows and their orphans,’’ would be the very 

agency that creates the greatest barriers and obstacles for thousands of veterans and business owners. Since the end of the Vietnam War, the VA has wrongfully denied thousands of veterans 

their claims for compensation for their service-connected injuries, 

and now since 2008, the VA has once again been denying thousands of veteran business owners contracting opportunities due to 

their ‘‘consistently inconsistent’’ interpretation of VA and SBA contracting regulations. 

Over the past two years, the VA has reported more than 20,000 

veteran business owners have applied for verification. Just over 

6,000 are now approved. First, many veteran service-disabled veteran business owners do not fully understand how they can be legally allowed to do business with other federal agencies but not 

with the VA. 

Second, some applicants have problems with the CVE verification 

process, and that does not mean that they are ignorant. I help support veterans and work with veterans, business owners in going 

through the process, and it is still very lengthy to get through. 

Third, veterans are subjected to multiple contracting program 

rules. Veterans, there is a self-certifying rule within the federal 

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7 

marketplace where some of those same businesses when it comes 

to doing business with the VA they may be denied. 

Fourth, an applicant may still be denied by the CVE reviewer 

based on their interpretation of sections of the regulations and/or 

the documents submitted by the application. 

Here are some of the main reasons: unconditional ownership, 

quorum restrictions, right of first refusal, community property 

laws, weighted voting requirement, dependence with other entities, 

control of strategic policy, higher officer position, day-to-day management, managerial experience. Basically, a veteran must be the 

majority owner, majority board member, majority stockholder, 

highest paid, hold the highest office, have the experience to manage the daily operations, make all the long-term decisions, must devote full-time to the business, offer no right of first refusal, do not 

lease your office space or make loans from a non-vet, and by all 

means, do not live in a community property state. 

Without absolutely proof of any one of these things, the veteran 

will likely be denied. In addition, not all veteran business owners 

are socially and economically disadvantaged, and definitely not all 

of them are women. So those two programs are statutorily different 

than the service-disabled vet program. 

In concluding, I just would recommend that Congress should 

amend the regulation in such a way as to eliminate multiple interpretations of any sections. Congress should require that VA develop 

an appeals process that is independent of the same office that 

issued the denial. Congress should not consider extending the provisions to all federal agencies until a survey or study has been 

done, and Congress should direct that study on how many legitimate businesses would also be denied if they used the existing 

CVE interpretation. 

This concludes my statement and I look forward to answering 

any questions. 

Chairman HANNA. Thank you. 

Mr. Leghorn. 

STATEMENT OF DAVY LEGHORN 

Mr. LEGHORN. A few months ago, 20 full-time employees were 

laid off in Wisconsin when a service-disabled veteran-owned construction firm lost $1.7 million worth of work and the ability to bid 

on future contracts. This was due to VA’s lengthy verification process. This is a real shame because the whole point of VA verification 

is to make these businesses eligible to compete for VA contracts. 

Chairman Hanna, Chairman Coffman, Ranking Member Meng, 

and Members of the Subcommittees, on behalf of our national commander Jim Koutz, and the 2.4 million members of The American 

Legion, we thank you for this opportunity to testify at this joint 

hearing on the challenges facing veteran-owned and service-disabled veteran-owned small businesses. 

The bottom-line is this. Many veterans find this process to be 

overly burdensome, distracting, and not worth the effort. The 

American Legion wants these businesses to be successful, not hand 

strung, which is why we passed an American Legion resolution titled Support Etherification Improvements for Veterans’ Businesses 

with the Department of Affairs. 

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8 

To be clear, The American Legion supports verification. Government contracting officers are risk-averse. They like certifications 

and they like it when a firm has been verified. The American Legion has been involved with VA verification since the program’s inception. We participate in VA’s Verification Assistance Counseling 

Program and we have worked with plenty of small business owners 

who have been denied verification. All too often we see businesses 

lose vital contracting opportunities due to the lengthy verification 

process. In some cases, businesses lose previously awarded contracts resulting in layoffs and furloughs of their employees. 

The American Legion cannot stress enough how detrimental the 

current process can be to these veterans who lives and family incomes are tied to their small businesses. The main challenge with 

the verification program seems to be VA’s inability to strike the appropriate balance between the requisite government oversight to 

protect the integrity of the program and the impact and costs to 

veteran small businesses. Currently, to root out bad actors who 

maliciously seek to defraud the Federal government, VA places a 

series of overzealous, bright-line rules to evaluate the applications. 

Most of these bright-line rules apply to unconditional ownership 

and control requirements, and VA has formulated extreme interpretations that are unrealistic. 

The American Legion agrees with the U.S. Court of Federal 

Claims and their February 14, 2013 Miles ruling where the court 

applied the bankruptcy court’s pragmatic definition that did not 

burden the veteran’s ownership interest. We urge VA to adopt this 

pragmatic approach to evaluate ownership and control as practiced 

by the bankruptcy courts. Neglecting to adopt this approach, VA 

will continue to make this process punitive and burdensome to the 

majority of the firms seeking verification. The current backlog of 

initial applications and appeals will not diminish and veteran business owners will continue wasting large sums of money on attorney 

fees. 

One of the unintended consequences of VA’s overzealous 

verification process is that established small businesses are choosing not to participate because the process is too burdensome and 

diverts their focus from running their businesses. So what you end 

up with are nascent businesses getting verified because it is easier 

for them to contort their operating agreements and bylaws to suit 

the current requirements for verification. VA then complains that 

they end up with too many inexperienced veteran businesses to 

draw from. On the other hand, we identify an unfair advantage 

with the larger small businesses who have the personnel and resources to dedicate to the verification process. Should VA continue 

to deny the vast majority of the firms based on these control issues 

and permit the backlog to grow, The American Legion would certainly support a comprehensive and cooperative relationship between VA and SBA whereby SBA would be the final arbiter of appeals. Finally, as highlighted within our written testimony, we are 

adamantly opposed to the six-month penalty wait time. 

In closing, The American Legion will continue to work with the 

SBA and VA to improve the verification process and to continue 

providing counseling service to our veteran entrepreneurs. I thank 

you again for the opportunity to bring the voice of veterans to this 

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9 

Committee, and I am happy to answer any questions you might 

have. 

Chairman HANNA. Thank you, Mr. Leghorn. 

Mr. Goldschmitt. 

STATEMENT OF MARC GOLDSCHMITT 

Mr. GOLDSCHMITT. Thank you. I wish to thank the Subcommittee Chairmen and the Ranking Members for holding this 

hearing today to address the statutory, regulatory, and interpretative differences between SBA’s Service-Disabled Veteran-Owned 

Small Business Program and VA’s Service-Disabled Veteran-Owned 

Small Business Program. 

As a verification assistance counselor and the subject matter expert for VET-Force and the National Veterans Small Business Coalition, I have gained significant insights into CVE’s issues. As a 

small business owner, I have tried to translate these issues into the 

cost and impact that they have on the veteran-owned business community. 

As a small business providing services to the Federal government, the current environment provides significant challenges to 

profitability, growth, and survival. CVE’s interpretations add additional arbitrary and unpredictable hurdles that make it more difficult for me to plan, finance, market, and operate my small business. These CVE interpretations tend to be more minimizing business reality and addressing more the extremes. 

In business risk management, the fact that an event can happen 

is always accompanied by the probability of the occurrence and the 

impact of the occurrence, be it profit, growth, cost, or schedule. For 

CVE, these impacts represent ownership and control. When CVE 

theorizes that an event might happen, they do a disservice to the 

veteran community, to the VA and to the taxpayers, by failing to 

ask a very simple question, ‘‘So what?’’ The net impact of those interpretations is as follows: 

Congress, through its laws passed for veterans, has had the intent to increase veteran business opportunities, is not served by depriving vets of everyday business practices and therefore putting 

them at competitive disadvantage. CVE’s Risk Avoidance Program 

or approach has crippled legitimate veteran-owned businesses 

while doing little to prevent fraud. On VA’s website, they have four 

businesses, one of which pled guilty, three of which were indictments over a two-year period. During that same two-year period I 

estimate about 4,500 companies were denied, which represents 

more than an average of 10 for each of your districts that were legitimate businesses that were denied. 

The CVE verification program is becoming a de facto standard 

for other agencies. When I go to other agencies and I talk to them 

about small business, one of the first things they ask is, ‘‘Are you 

CVE verified?’’ When I say yes, it’s, ‘‘Tell me more.’’ When I watch 

businesses that say no, the almost immediate response is the body 

language that says, ‘‘How do I get out of this conversation and get 

onto somebody that I want to talk to?’’ 

Lastly, the documentation required by CVE is often considered 

excessive. Sometimes it is incomplete, and it is potentially subject 

SBREP-219 with DISTILLER

10 

to compromise. There are additional examples in my written testimony. 

I would like to illustrate now from some examples CVE’s findings 

that undermine business building and create veteran paranoia and 

distrust with the VA. These are recent cases. Some of the ones that 

I have in my testimony have been resolved. 

For example, Bravo 1–9 Construction is a New Jersey-based construction business. The owner is a combat-wounded veteran rated 

100 percent by the VA. On his 0877 application, he indicated that 

he was a veteran, not a service-disabled veteran, yet with his package he submitted his letter from VA of a determination and a rating. In spite of having clear proof that the individual was a servicedisabled veteran, VA issued him with a veteran approval. 

Clauss Construction. Clauss is a California-based remediation 

services company. They do large building demolition, including explosive building implosion and collapse, which requires a variety of 

NAICS codes to demonstrate compliance with environmental and 

other issues. Clauss is a small business with less than 100 employees. Its primary business NAICS code is a 500 employee standard. 

CVE denied Clauss based upon a separate NAICS code, which was 

arbitrarily picked as the primary NAICS code in the SAM was 

their 500 employee NAICS code. When this error was pointed out 

to CVE, who by the way had the payroll from the company and 

could have counted the number of employees, their response was 

to refer the company to SBA for a formal size determination. 

As we look at these and other examples from my written testimony, we see that major corrective actions are interpretive and 

therefore can be immediately implemented. This will result in 

fewer denials and a significant reduction in effort and cost for both 

CVE and the veteran community. I provided some statutory, regulatory, and interpretive suggestions in my written testimony. 

That concludes my oral testimony, and I look forward to questions. 

Chairman HANNA. Thank you, Mr. Goldschmitt. 

Mr. Williams. 

STATEMENT OF JONATHAN T. WILLIAMS 

Mr. WILLIAMS. Good afternoon, Chairman Coffman, Chairman 

Hanna, other Distinguished Members of the Subcommittees. My 

name is Jonathan Williams. I am a partner with the law firm, 

PilieroMazza, which represents veterans in their dealings with the 

Small Business Administration and the VA. It is an honor to be 

here today to share my experiences representing SDVOSBs. 

I am a strong proponent of the SDVOSB programs administered 

by the SBA and the VA, and I have seen firsthand how these programs have benefitted many veterans. However, I have also seen 

many veterans struggle to obtain the benefits of the programs for 

a variety of preventable reasons. My testimony will address those 

problems, which I believe stem from two primary causes. 

First, the VA’s application process is too long and cumbersome. 

Second, the rules governing the two SDVOSB programs are confusing and inconsistent. 

Regarding the application process at the VA, the VA generally 

takes a ‘‘deny first, ask questions later’’ approach. As a result, most 

SBREP-219 with DISTILLER

11 

veterans do not learn of problems with their application until they 

receive a denial letter. This approach forces veterans to fix the application errors and then file a request for reconsideration. Of the 

requests for reconsideration we have handled, more than half could 

have been avoided if the VA had notified the veteran of minor 

issues before denying the application. Not surprisingly, the VA has 

struggled to process requests for reconsideration due to volume. 

The VA has acknowledged that the process needs improvement, 

and recently proposed an initial screening stage to help veterans 

address simple issues before their application is denied. The initial 

screening stage is a step in the right direction. 

The VA could improve the application process further by providing all bases for denial in the initial denial letter. We have 

worked with a number of veterans who were initially denied for 

one reason, addressed that issue on reconsideration, only to then 

be denied again for new reasons the VA had not previously identified. Requiring veterans to endure multiple rounds of reconsideration is frustrating, not to mention very costly and time-consuming. 

Many veterans perceive the application process at the VA to be 

adversarial. These veterans believe the VA personnel are looking 

for a reason to keep them out, rather than trying to help them to 

get in. Given that the VA’s program was enacted to assist veterans 

in the transition from active duty to civilian life, making veterans 

feel more welcomed into the program should be a priority. 

Turning to the second root cause of the challenges veterans have 

faced, the two SDVOSB programs are often inconsistent. The inconsistencies stem from the separate rules used by the SBA and the 

VA. Though similar, the two sets of rules differ in many respects 

and this has caused a lot of confusion amongst veterans, as well 

as government personnel. 

For example, both agencies have interpreted their rules to prohibit restrictions on the transfers of the veteran’s ownership in his 

company. Recently, the Court of Federal Claims rejected the VA’s 

interpretation and held that the VA’s rules permit commercially 

reasonable transfer restrictions. This was an important, businessfriendly ruling because transfer restrictions make it easier for veterans to attract investors. However, the court’s ruling only applies 

to the VA’s program. The SBA should revisit its position on transfer restrictions to avoid inconsistency between the two agencies on 

this issue. 

The two programs are also inconsistent regarding joint ventures. 

Joint ventures are a valuable tool through which small businesses 

can work together to access contracts they would not have been 

able to perform on their own. The SBA’s rules make it easier for 

veterans to take advantage of joint ventures. The VA, on the other 

hand, requires veterans to go through a second application process 

for the joint venture. This practice requires additional time and resources that many veterans do not have, and it is arguably contrary to the VA’s rules. If the VA handled joint ventures similar to 

the SBA, joint ventures would be a much more useful tool for veterans who work with the VA. 

Another point of confusion is over which agency should decide 

small business status. The VA’s statute indicates the definition of 

a small business comes from the Small Business Act, which the 

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SBA is entrusted to implement. Furthermore, the VA’s Acquisition 

Regulation recognizes that all protests pertaining to the size of 

SDVOSBs should be sent to the SBA. Yet, the VA’s rules permit 

the VA to deny an applicant based on size and affiliation concerns, 

even if the SBA has not been consulted. This trend should be 

stopped because it is inconsistent with the VA’s statutory mandate 

and in-fringes on the SBA’s role as the arbiter of small business 

status. 

To solve some of the regulatory inconsistencies in the short term, 

the VA and the SBA could change their interpretations of the existing rules. However, the best long-term solution would be to consolidate the two programs into one, with one set of rules and one agency to interpret those rules. Though by no means an easy task, consolidation of the two programs would be much simpler and more 

efficient for veterans and the government. 

That concludes my testimony. Thank you for the opportunity to 

appear before you here today. 

Chairman HANNA. Thank you. 

I understand that the VA appellate process takes about 147 days 

and is not heard by administrative judges, whereas the SBA’s appeal process takes roughly 15 days and does result in a published 

decision from an administrative judge. Knowing that and knowing 

what we have heard today, and I know your opinion, Mr. Williams, 

I will ask the question that Mr. Williams just gave his opinion on. 

Do you believe that this should be consolidated into one program? 

And do you believe, all three of you, that that should be the SBA 

or do you have something else in mind? 

Mr. GOLDSCHMITT. One of the recommendations I made is 

that the programs use a common adjudication of SBA’s OHA to get 

a common set of rules or at least a common set of adjudication and 

case law that can be worked from. So yes, I would agree with that. 

Mr. LEGHORN. The American Legion is a resolution-based organization. We currently do not have a resolution on this matter, but 

our resolution does state that we would like to streamline the process. And if it does take interference from SBA to be the final arbiter, we can get behind this. 

Mr. WYNN. Just a follow-up comment on that. It is our opinion, 

too, that it is getting to the point where it seems like SBA would 

probably have more experience in handling the appeals process. 

There seems to be no real appeals process at the VA. As I mentioned in my testimony, the same folks that are doing the denial 

are also the ones you have to go back to if you have a problem. So 

an independent body, and perhaps with the SBA that may be the 

solution. Thank you. 

Chairman HANNA. Thank you. Mr. Coffman? 

Chairman COFFMAN. Thank you. Mr. Goldschmitt, VA says 

that they do $3 billion in veteran-owned small business contracts, 

so why should they care about these issues? 

Mr. GOLDSCHMITT. Mr. Coffman, I think that there are several 

reasons they should look at that. The issues that we are looking 

at that are the adjudications by CVE create inefficiencies that 

cause a lot of cost, a lot of heartache to some of the small businesses. The impact of that is that there are fewer small businesses 

that can compete for business within the VA. Recently, they have 

SBREP-219 with DISTILLER

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had a number of denials of apparent awardees for contracts. These 

are the folk that made it through the contract program and were 

picked as the best, the best value to the government. And because 

of typically the rules that were discussed by Mr. Wynn and Mr. 

Leghorn about some of the simple things that could have been 

changed, they lost opportunities and VA lost the best of the best 

in those opportunities. 

The other is a number of successful businesses, because of the 

hurdles that are there by VA, choose to do business in other locations or other agencies within the government. So consequently, 

the VA does not necessarily get all of the best. So they are artificially limiting competition within VA, not getting the results in 

some cases based upon their evaluations. 

Chairman COFFMAN. Thank you. 

Mr. Leghorn, given The Legion’s own review of some of the 

issues regarding regulations, can you speak to CVE’s lack of the 

use of 13 CFR 121 and its impact on their decisions? 

Mr. LEGHORN. Currently, I think VA has not adopted or reconciled 38 CFR 74 with 13 CFR 121. If VA is going to move forward and make determinations on size eligibility, then they should 

adopt that section. 

Chairman COFFMAN. Thank you. 

Mr. Wynn, what are your recommendations for striking a balance 

between preventing continuing fraud and loosening the restrictions 

so SDVOSBs are not overburdened in the verification process? 

Mr. WYNN. Well, we do not want a program that is going to 

allow companies that misrepresent themselves to participate in 

that program. We definitely do not agree with that. But again, we 

still do not want a program that is so overly burdensome and complex that it screens out thousands of legitimate owned businesses. 

So it may be necessary to be more vigilant on the backend. That 

means after a company is admitted into the program, to provide 

more oversight and monitoring on a constant basis. We have had 

reports where companies that have been identified as misrepresenting themselves were allowed to still get additional contracts 

later. So hopefully more could be done after companies are in the 

program as opposed to doing so much more to screen them out from 

getting in. 

Chairman COFFMAN. Thank you. I yield back. 

Chairman HANNA. Ms. Meng. Ranking Member Meng. 

Ms. MENG. Mr. Leghorn, in your testimony you discuss how VA 

has said that 98 percent of businesses who are denied certification 

are not maliciously trying to defraud the government but rather 

there is an ignorance of the law. Do you believe that VA is doing 

enough to educate the businesses on the requirements for CVE 

verification? And how can the VA do a better job? 

Mr. LEGHORN. Well, I think actually VA does a very good job 

with the counseling program and everything that they have on 

their website to get the information out. But it is just a matter of 

outreach. That has to be ramped up a lot more in order to get the 

veteran entrepreneurs to know about the common pitfalls and how 

they can avoid them. 

Ms. MENG. Thank you. I yield back. 

Chairman HANNA. Mr. Takano. Do you have any questions? 

SBREP-219 with DISTILLER

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Mr. TAKANO. Thank you, Mr. Chairman. 

Mr. Williams, I want to just review some of your testimony. You 

stated that there is a ‘‘deny first, ask questions later’’ policy that 

apparently is used by this VA program. And you are saying also 

that veteran business owners do not often know how to correct 

their applications if they were told in advance and then even after 

they make the correction they often find new reasons. How often 

does this occur? I mean, I want to get a sense of how widespread. 

Mr. WILLIAMS. We see it very frequently. The ‘‘deny first, ask 

questions later’’ approach has been pretty consistent for the last 

year-and-a-half or so since the number of applications really shot 

up in mid-2011. I would say the vast majority of cases there was 

little or no dialogue between the VA and the applicant before the 

denial was issued. Now, we have seen some improvement in 2012, 

particularly with respect to requests for reconsideration, and some 

of those are handled by the VA’s Office of General Counsel. And 

we have had good success with those folks in dialoguing and having a back-and-forth about issues and trying to reach a common 

ground. But, for the most part, when a firm comes to us and they 

have been denied, they have not had any exchange with the VA to 

that point, so they are having to confront this issue for the first 

time having already been denied from the program. 

And the second point you raised is that they do not necessarily 

have to tell you every reason they are denying you in that initial 

denial letter. So what we have started to do is to ask the veteran 

to send us all of their documents, the entire application, even if it 

was denied for one needle in the haystack, we ask them to send 

us everything. And then we do a full review to see what else they 

might be denied for three months from now, six months from now. 

And you can imagine that is a very time-consuming and costly exercise for veterans to go through, many of whom cannot afford to 

go through it. But that is a symptom of the fact that they do not 

have to tell you every reason upfront, and they will often times cite 

different reasons three or four months after you correct the initial 

reason. 

Mr. TAKANO. None of you may be able to answer this question 

but I am trying to understand what might be the explanation for 

this stance. I mean, was there something in the history of the VA 

in this program where there were cases of fraud that may have 

caused this overly cautious behavior? I mean, is there any speculation? 

Mr. WILLIAMS. I do not know if it is overly cautious so much 

as it is that they are not looking at everything before they issue 

the denial. I suspect that a lot of times what happens is you get 

to the first document and you see a problem and you put it in the 

‘‘no’’ pile. And then they come back and they fix that but then you 

start to look at the rest of the application and you realize that 

there are other problems. I do not know that that is happening but 

I suspect that may have been part of the issue. 

Mr. TAKANO. Is it a staffing issue or a staff training issue? Or 

is it just kind of a philosophy? 

Mr. WILLIAMS. I do not know. I would imagine certainly there 

must be a resources or a staffing component to that that you look 

for the quickest way to move through some of the applications, and 

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if it can be denied based on one issue that you spot right off the 

bat, you go ahead and get it moving through the system. 

The VA has recently indicated that they plan to institute an initial screening stage, so they will try to screen applications for these 

issues in corporate records that tend to trip people up and give the 

applicants an opportunity to correct those issues before their application is denied. And that is a really positive step. It is something 

that we have been hoping that they would do. You know, the proof 

will be the pudding in terms of how that works and whether or not 

it just becomes another hoop that the veterans have to jump 

through. But that should reduce the number of reconsideration requests and the amount of time it takes to get through the reconsideration process. 

Mr. TAKANO. Mr. Chairman, I yield back. Thank you, Mr. Williams. 

Chairman HANNA. The gentleman yields back. 

Mr. Bentivolio. 

Mr. BENTIVOLIO. Thank you, Chairman Hanna and Chairman 

Coffman. And thank you, witnesses, for being here today. 

This holds some personal significance for me. I am a small business owner, or was before I came to Congress, and I am also a service-disabled veteran. So the policy we are discussing today affects 

me directly. And that said, of course, I come with no selfish intent 

but rather to serve the interests of my 2 million fellow service disabled veterans and their families. I am also a member of The 

American Legion and a life member of the VFW. 

But I just recently got this this morning, so I have dealt with the 

VA. And this is the first time I have heard that the VA actually 

will help a small businessman. I am maybe naı ̈ve, and I have since 

this morning become very acquainted with this and some of the 

questions we are going to ask and some of your testimony I have 

read over. But help me walk through this system because I have 

dealt with the VA as a Vietnam veteran. I never wanted to go back. 

And then as a veteran from Iraq I found it was a whole different 

thing. 

So I would like to ask you a question. Can you walk me through 

this as how I would go about or a fellow veteran in my district who 

wants to start his own business, his first step to going to VA, does 

he have to put together a business plan or is the application process similar to that in the format? 

Mr. GOLDSCHMITT. The business plan is not a requirement of 

verification, but the business documentation that addresses governance, ownership, et cetera, is part of that process. So the documentation that I would put together if I am going through as a 

small business coming into the government would be all of the 

small business steps of registering with Dunn & Bradstreet, registering in SAM, putting my information in. And from a VA perspective I would be putting together my paperwork that addresses 

my service disability, which they probably have in their system, 

but I would be putting together all of the paperwork on my company, including all of the registration with the state; my operating 

agreement or bylaws; a variety of information, including licenses. 

Mr. BENTIVOLIO. So let me see if I understand this. If I was 

a veteran I would not have to come in, give you a business plan 

SBREP-219 with DISTILLER

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or a marketing plan addendum to that or give you what I project 

my next three years of income is or my expenditures; how I am 

going to do this business? I do not have to do that? 

Mr. GOLDSCHMITT. No. 

Mr. BENTIVOLIO. Okay. So the next thing is who are those people who actually review my application? Do they have any business 

experience or are they government clerks that determine that? 

Mr. GOLDSCHMITT. I do not know what business experience 

they have but it is a mix of government and contractors. I think 

that would be a better question for Mr. Leney to talk about. But 

in my experience they have not been business owners or business 

managers. 

Mr. BENTIVOLIO. Interesting. Okay. I yield back my time. 

Thank you very much. 

Chairman HANNA. The gentleman yields back. 

Mr. Walz. 

Mr. WALZ. Thank you, Mr. Chairman. And thank you all for 

coming and helping us understand this. 

These are important programs, and when they work I think they 

are important and they do work. When they do not, they are incredibly frustrating. This might give a heads up for that panel that 

is sitting behind you. I am going to get a little bit parochial here 

on this, but this is a letter I got last night. I am just going to ask 

you as you listen to this paragraph, do you think this is typical or 

an anomaly? 

‘‘We went through the recertification process last summer and 

sat through the six-week outage on the registration side. We then 

submitted the final documents immediately after the outage ended 

and we got notification that we had reached the determination 

stage. Then within a few short weeks we were shown on the 

website as certified SDVOSB. Problem solved. Then last Wednesday, we got the attached letter saying our certification expired and 

we are out of the program. At this point it appears they lost our 

materials and pushed us out of the database.’’ 

Typical or anomaly in your opinion as you see this? 

Mr. GOLDSCHMITT. I would not call that typical, but I would 

not call that an anomaly because I am seeing that with an increasing frequency. 

Mr. WALZ. Have you heard of these types of things happening? 

Mr. GOLDSCHMITT. Yes. 

Mr. WALZ. Now, keep in mind, this is a 20-year-old business 

that has gone through this, been all there. Why are we wasting 

time on this? Nothing has changed. They went through the process. 

They followed it. They did it. And then you told them and they 

went ahead forward. It was the folks sitting behind you who are 

going to hear this. Why would they? This is the frustration I feel. 

I mean, if the process was working and they got certified, we 

should have been able to move on and now we are going to deal 

with this one. Do you hear these stories? 

Mr. WILLIAMS. Yes, we do a lot. That e-mail sounded very similar. 

Mr. WALZ. Yeah. In your opinion, why did this happen? 

SBREP-219 with DISTILLER

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Mr. WILLIAMS. Well, they did have technological issues with 

the system last summer. We heard from a lot of folk who disappeared out of the Vet Biz database last year. 

Mr. WALZ. Well, the folks sitting behind, I am going to come 

back after these votes. It is Windsor Software. Somebody might get 

on the phone. That would be good. But yeah. So we hear that? 

Mr. WILLIAMS. Mm-hmm. 

Mr. WALZ. So now I have a veteran small business service-disabled veteran following the rules, doing it, proud to have a symbol 

up on their website doing these things and they got booted out. 

What is their recourse now other than writing to me before they 

knew there was a hearing? What was their recourse to go back 

through and get back on again? 

Mr. WILLIAMS. There is an appeal process. If their eligibility is 

rescinded, they could file an appeal with the Agency, with the VA. 

Ultimately, they could go to federal court. 

Mr. WALZ. For a small business? 

Mr. WILLIAMS. Right. 

Mr. WALZ. Who was already certified? 

Mr. WILLIAMS. Correct. 

Mr. WALZ. Told they were. Kicked off. 

So it seems to me, and I will yield back to the chairman here in 

just a second, it seems to me that I heard you, Mr. Goldschmitt, 

you made this point about it is, is that we do this all too often. 

That the proof always lays on the veteran. The assumption is they 

are wrong. We process it from that point of view and we ask them 

to prove they are right. So now I have got a small business doing 

everything right, going to have to go back through this process to 

prove that they have been certified 19 times in a row, and have to 

get recertified. 

So the way to fix this? Anybody got a suggestion? 

Mr. WILLIAMS. Well, they extended the amount of time that 

you are eligible from before you have to re-verify from one year to 

two years, so I am not sure where this particular company fell in 

that spectrum, but perhaps extending it further. 

Mr. WALZ. Okay. Anybody else? 

Mr. WYNN. I would just like to say there are far too many businesses that have been denied for various reasons, and the thing 

about it, as you mentioned a 20-year business, a company that had 

been doing business for 20 years, we have seen a number of businesses that are out here doing business with federal agencies, perfectly legitimate businesses, only to get denied to do business at 

the VA. 

Mr. WALZ. Statistically, what is the chance that this is a fraudulent claim versus an error that was made on them? The chances 

are that this was an error. Am I correct? It could be a fraudulent 

claim. I do not know. I am going to find out from the folk behind 

you. But statistically, so everybody gets kicked out. Now they have 

to go back and prove that they are legitimate? 

Mr. WYNN. Well, it has been stated by the VA Small Business 

director and even in some of the GAO reports that less than 2 percent of those companies that were denied were denied for reasons 

of fraud. 

SBREP-219 with DISTILLER

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Mr. WALZ. Okay. I yield back. I will wait for ht next panel, Mr. 

Chairman. 

Chairman HANNA. The gentleman yields back. 

If there are no further questions from any members of this panel, 

unfortunately, we have to go vote. So I will dismiss this panel. 

When we come back, Mr. Coffman will take over the gavel and 

handle the second panel. 

So we are going to have votes. I will reconvene in probably 20 

minutes. Thank you. 

[Recess] 

Chairman COFFMAN. The Committee is now called back to 

order. 

Our first witness on the second panel is Bill Shear, director of 

the Financial Markets and Community Investment Team of the 

Government Accountability Office. Mr. Shear frequently comes before both Committees, and we look forward to hearing your testimony again today. You are now recognized for five minutes. 

STATEMENTS OF BILL SHEAR, DIRECTOR, FINANCIAL MARKETS AND COMMUNITY INVESTMENT; A. JOHN SHORAKA, 

ASSOCIATE ADMINISTRATOR, OFFICE OF GOVERNMENT 

CONTRACTING AND BUSINESS DEVELOPMENT, U.S. SMALL 

BUSINESS ADMINISTRATION; THOMAS J. LENEY, EXECUTIVE 

DIRECTOR, OFFICE OF SMALL AND DISADVANTAGED BUSINESS UTILIZATION, DEPARTMENT OF VETERANS AFFAIRS 

STATEMENT OF BILL SHEAR 

Mr. SHEAR. Chairmen Coffman and Hanna, Ranking Members 

Meng and Kirkpatrick, and Members of the Subcommittees. 

I am pleased to be here this afternoon to discuss the Department 

of Veterans Affairs’ efforts to verify the eligibility of veteran-owned 

small businesses, including service-disabled veteran-owned small 

businesses to receive contracting preferences under VA’s Veterans 

First Contracting program. This statement is based on our January 

2013 report on VA’s Verification Program. 

Given the status of VA’s verification procedures and operations, 

our work focused on issues related to planning for and designing 

the verification program, and on changes in the program’s management and operations. My testimony today addresses first the 

progress that VA has made in ensuring that its program verifies 

eligibility on a timely and consistent basis, and second, key operational and policy issues that VA will have to address if its 

verification program is expanded to support the government-wide 

Service-Disabled Veteran-Owned Small Business Contracting Program. 

In summary, the two key findings from our January 2013 report 

are: 

First, VA has instituted a number of significant changes to its 

verification processes to improve and address program weaknesses 

but it continues to face challenges in its efforts to establish a stable 

and efficient program to verify firms on a timely and consistent 

basis. These challenges are directly related to shortcomings in strategic planning and data systems for the verification program. 

SBREP-219 with DISTILLER

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Second, expanding VA’s Verification Program to support the government-wide Service Disabled Veteran-Owned Small Business 

Contracting Program would require VA to improve its verification 

process and address a number of operational and policy issues. 

To improve the management and oversight of VA’s verification 

program, our January 2013 report made two recommendations addressing strategic planning and data system needs. VA concurred 

with the two recommendations and stated that it had actions underway that would address them. 

Chairmen Hanna and Coffman and Ranking Members Meng and 

Kirkpatrick, this concludes my prepared statement. I would be 

happy to answer any questions you may have. 

Chairman COFFMAN. Our next witness is John Shoraka, administer of Government Contracting and Business Development at 

the Small Business Administration. In this capacity, he is responsible for ensuring maximum participation by small firms across the 

federal marketplace and overseeing all government contract programs benefitting small businesses. Thank you for being with us 

today, and you are now recognized. 

STATEMENT OF A. JOHN SHORAKA 

Mr. SHORAKA. Thank you, Chairman. 

Chairmen Coffman and Hanna, Ranking Members Kirkpatrick 

and Meng, and Members of the Subcommittees, thank you for inviting me to testify before you today. The SBA plays a pivotal role 

in helping veteran-owned small businesses and service-disabled 

veteran-owned small businesses or SDVOs obtain access to federal 

contracts. 

As you know, veteran-owned businesses are an integral part of 

our nation’s economy and its ongoing recovery. Veterans own 2.4 

million, or 9 percent, of U.S. businesses. These businesses generate 

about 1.2 trillion in receipts and employ nearly 6 million Americans. One key sector of the veterans small business economy is government contracting, where SBA and its SDVO program play a 

critical role. 

Our SDVO provides Federal procuring agencies with the authority to set acquisitions aside for exclusive competition by SDVOs. 

The program also gives procuring agencies the authority to make 

sole source awards to SDVOs if certain conditions are met. 

SBA’s government-wide program, along with the VA’s Veterans 

First contracting program, are intended to assist the Federal government in meeting the statutorily-established annual agency-wide 

goal of awarding at least 3 percent of the total value of contract 

dollars to SDVOs. In fiscal year 2011, over $11.8 billion in contracts went to SDVOs, up by 3.8 percent over the previous year. 

To qualify as an SDVO under SBA statutory guidelines, a firm 

must meet four conditions through a self-certification process. 

First, the firm must be at least 51 percent owned by one or more 

service-disabled veterans. Second, the firm’s management must be 

controlled by one or more service-disabled veterans, or in the case 

of a veteran with a permanent and severe disability, by the spouse 

or the permanent caregiver of the disabled veteran. Third, the first 

must meet the small business size standard for any federal conSBREP-219 with DISTILLER

20 

tract they bid on. And fourth, the firm must self-represent their 

disabled veteran status. 

Currently, there are approximately 12,000 self-certified SDVOs 

in the System for Award Management, which is the governmentwide contracting database. 

In terms of a participant’s status as a veteran with a service-connected disability, the owner-operator of an SDVO must be able to 

produce official documentation that he or she has a service-connected disability in the event of a ‘‘protest.’’ A protest occurs when 

a competing bidder or other interested party challenges the winning firm’s eligibility as an SDVO. The initial decision on a protest 

is made by my office. The determination of a protest may be appealed to SBA’s Office of Hearings and Appeals (OHA). 

OHA provides independent administrative appellate review of 

SBA program determinations, including the initial SDVO determinations made by my office. OHA decisions, in turn, may be appealed to the Federal courts. Currently, OHA is staffed by eight 

full-time employees, including two administrative judges, who decide appeals of the Office of Government Contracting’s initial 

SDVO determinations. In fiscal year 2012, OHA decided eight 

SDVO appeals, roughly 20 percent of GCBD’s 41 initial determinations that year. 

We use the protest process to help root out fraud, waste, and 

abuse in our small business programs by referring questionable 

firms to our General Counsel Debarment Official or SBA’s Inspector General for further investigation. In fiscal year 2012, SBA suspended, proposed for debarment, or debarred 30 firms or individuals involved in procurement-related misconduct. 

The SBA and VA mutually recognize the importance of the 

SDVO communities to the American economy. SBA and VA have 

collaborated to compare our programs in an effort to bring them 

into closer alignment and provide better service to the veterans’ 

community. While there are similarities, there are also key differences. For instance, VA’s Veteran First program is a certification 

program very similar to SBA’s 8(a) Business Development Program, while the government-wide SDVO program uses self-certification. In order to meet the requirements of a certification program, a firm must provide more initial information and work 

through the certification process to meet eligibility requirements. 

Another difference between the SBA and VA programs is in the 

timing of requests for documentation and review of documentation 

to demonstrate program eligibility. In a protest-based self-certification program, the requests for additional documentations are 

submitted in response to a protest that is filed after a firm has 

been identified as an apparent successful offeror. Once the documentation is received, a determination of eligibility is made. The 

VA certification process requires that documentation be submitted 

and a determination be made before an offer can be submitted or 

a contract be awarded. 

Our collaboration with the VA has been productive in identifying 

other areas of potential coordination and best practice sharing. I 

would be happy to discuss these efforts or any of the topics the 

Subcommittees wish to explore during the question-and-answer 

portion of the hearing today. 

SBREP-219 with DISTILLER

21 

Thank you once again for your support of our work in this area 

and for the opportunity for me to appear in front of you today. 

Chairman COFFMAN. Our final witness is Tom Leney, executive 

director for Small and Veteran Business Programs within the Office of Small and Disadvantaged Business Utilization at the Department of Veterans Affairs. In this capacity he is responsible for 

promoting small business participation at VA with a particular 

focus on service-disabled veteran-owned small businesses and veteran-owned small disabled businesses. As we have noted several 

times today, many of our distinguished witnesses are veterans, including Mr. Leney, who proudly served in the United States Army. 

We thank you for your service and look forward to your testimony. 

You are now recognized for five minutes. 

STATEMENT OF THOMAS J. LENEY 

Mr. LENEY. Thank you, Mr. Chairman and Chairman Coffman, 

Members of the Subcommittee. Thank you for inviting me to testify. 

Last year, the VA Veterans First Program enabled veteranowned small businesses to receive contract awards totaling more 

than $3.8 billion from the VA. Since its inception, the VA 

Verification Program has faced challenges balancing the need to 

prevent ineligible firms from taking improper advantage of the Veterans First program with our desire to make the process easier and 

faster for legitimate veteran-owned small businesses. The VA has 

made substantial progress on both fronts. 

In the aftermath of reports in 2011 from the VA Inspector General and the Government Accountability Office, our imperative was 

to ensure that all firms in the program have been properly verified 

as meeting the standards laid out in 38 CFR 74. We have addressed all the recommendations in these reports. Indeed, in its latest report the GAO acknowledged, as Bill did here today, Mr. 

Shear did here today, improvements. As we improve the 

verification process, however, we realize that many of the remaining issues are associated with the rules themselves. Although the 

regulation that governs VA’s Verification Program was derived 

from the SBA regulations that cover the government-wide SDVOSB 

program and the Section 8(a) Business Development Program, 

there has existed in the stakeholder community a widespread misconception that there are major differences between the VA and the 

SBA regulations. 

To understand what differences truly exist, VA collaborated with 

the SBA over the last several months to conduct a thorough comparison of the ownership and control portions of our respective regulations. Our analysis revealed two statutory differences and two 

regulatory differences. We also compared VA’s interpretation of the 

regulation to the SBA interpretations as reflected in the SBA status protests and in the OHA decisions over the past two years and 

found a single instance where our interpretation differed from the 

SBA’s and we are changing our interpretation to match theirs. 

Although VA seeks to align its interpretation with the SBA, we 

have determined that transfer restrictions on ownership that are 

part of normal commercial dealings, such as the right of first refusal, do not materially affect the ability of a veteran to uncondiSBREP-219 with DISTILLER

22 

tionally own or control the business. Therefore, VA will no longer 

interpret the current regulation to mean that such restrictions constitute a reason for denying eligibility. 

Since many rule issues cannot be resolved by reinterpretation, 

VA has initiated a formal process to consider changes based on lessons learned and outreach to a broad range of veteran stakeholders. We received a number of recommendations worthy of consideration. However, in view of the current alignment with SBA 

rules, any consideration of changes to the VA Verification Program 

will involve coordination with the SBA. Our goal is to increase opportunities for veteran businesses. Our analysis has revealed that 

most applicants fail because they do not fully understand the regulations. To address this problem we will expand our Verification 

Assistance Program by adding pre-application workshops to the 

three existing elements, which consist of an online self-assessment 

tool that walks the veteran through every element of the regulation, verification assistance briefs, 11 of which are on our website 

and cover about 85 percent of the reasons for denial, and partnerships to provide counseling services to applicants. Three of our 

counselors were present in the first panel. Only one was not a 

counselor, we do not allow for-profit organizations to partner with 

us on counseling. 

In May, we will adopt a practice of contacting an applicant with 

preliminary findings where there are issues of noncompliance that 

can be easily and quickly corrected. We will allow applicants to 

make corrections prior to initial determination. We are currently 

running some limited pilots to validate the process and to train the 

CVE staff. 

The most recent GAO report found that the management information system supporting verification is woefully inadequate for 

our purposes. To solve this problem, VA has a Next Generation 

System under development. We expect to award a contract for the 

new system in May with an initial operational capability in October 2013. 

In conclusion, we have overcome many of the challenges and 

vulnerabilities that were raised by the GAO and OIG reports and 

improved processes have reduced the average time to initial determination from more than 130 days during the summer of 2011 to 

fewer than 40 days for those applications that were completed last 

month. We continue to improve our processes and will revise our 

regulation in coordination with the SBA to achieve a program that 

enables real veterans to gain expanded access to real opportunities 

with the Department of Veteran Affairs. 

Mr. Chairman, members of the Subcommittees, this concludes 

my statement. I am pleased to answer any questions you may 

have. 

Chairman COFFMAN. Thank you. 

Mr. Shoraka, how could the Veterans Administration better 

apply the interpretive standards of 121 to ensure they are in sync 

with the Small Business Administration? 

Mr. SHORAKA. With regards to size, the SBA is the agency that 

makes determinations on size on any given one contract, on contract-specific determinations. So when there is a protest at a time 

when there is a contract being awarded, the SBA is the agency that 

SBREP-219 with DISTILLER

23 

will make that determination. What we often find that happens, 

since the determination at the VA is made during the certification 

process, the primary NAICS code for that entity is used to determine size and their eligibility to the program. However, if it is contract specific, the contract NAICS code will be used and that is 

where you will have a divergence in an entity being found small 

at certification and potentially other than small in a protest situation. 

Chairman HANNA. Mr. Shear, why was the Government Accounting Office able to determine whether the recent changes have 

been effective? 

Mr. SHEAR. Part of the reason why we stepped back and looked 

at strategic planning is that we observed that there was not a stable process in place where we could do testing and evaluate how 

well the process was working. So the progress, or in this case the 

lack of progress at VA, affected very much what our audit work included. One of the things that we have recommended, which we 

think is very important going forward for VA, is that part of the 

strategic planning should include some type of a feedback mechanism and performance metrics—that is developing metrics based on 

its audits of its own determinations to see basically how good those 

verification determinations were. VA started collecting some information on the quality of its determinations last fall but really VA 

needs a system in place. And VA needs a system in place to try 

to test how well its process is working. 

Chairman COFFMAN. So you do not have a feel right now as to 

whether or not they are working together as the program was intended? 

Mr. SHEAR. We do not have evidence that the process is working as intended. And among other things, we have heard similar 

types of concerns raised by the first panel. We reached out to these 

constituencies that represent service-disabled veterans, and we 

know there are a lot of concerns out there and there is a lack of 

metrics to really evaluate how well VA’s current process is working 

with the changes that have recently been made. 

Chairman COFFMAN. We will do a second round of questions. 

Mr. Shear, I suggest to you that we have plenty of evidence that 

it is not working. We had a panel just before that gave us a litany 

of examples, and I am sure they have many more. 

Mr. Shoraka, in the GAO report you discussed today you mentioned a statutory, procedural, and interpretive differences between 

the SBA and the VA programs. Just so we are all on the same 

page, can you explain what these perceived differences are specifically; the key differences in your interpretation rather than that 

more or less subjective phrase? 

Mr. SHORAKA. Sure. I mean, when you compare the rules and 

the regulations, there are some specific minor differences. And I 

think Mr. Leney mentioned, or someone today mentioned with regards to spouses of deceased service-disabled service members 

being able to control and run the company after the passing. That 

is one difference. But where we see significant sort of divergence 

is not necessarily in the rules themselves but in the interpretations. The SBA does not have bright-line determinations or brightline guidelines with respect to, as an example, board control. We 

SBREP-219 with DISTILLER

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look at the entirety of the case to determine where control and 

ownership resides. If you look at board control as an example, state 

by state there’s different rules and regulations around how the 

board determines quorum, et cetera. Those have to be taken into 

consideration to determine if indeed the veteran-owned small business or the veteran owns and controls the firm. 

Another area I think that was mentioned was rights of transfer. 

That is not a bright-line for us. Depending on what the common 

business practice is, that has to be evaluated based on the totality 

of the circumstances to determine if it indeed affects ownership and 

control of the firm. 

Chairman HANNA. Thank you. 

Mr. Leney, you run the Center for Veterans Enterprise and the 

Office of Small and Disadvantaged Business Utilization at the VA. 

Given that, section 15(k) of the Small Business act specifically directs that director of the Office of Small and Disadvantaged Business Utilization shall carry out exclusively the duties enumerated 

in this act and shall, while the director, not hold any other title, 

position, or responsibility, except as necessary to carry out responsibilities under section 15(k). How do you comply with that Small 

Business Act? Can you be the advocate for service-disabled veteranowned small business at the same time your tasked with 

verification, with all due respect? 

Mr. LENEY. Yes, sir. I can do both because the act of verifying 

veteran-owned small businesses enabled 5,400 veteran-owned small 

businesses to participate in a program that has distributed more 

than $3.8 billion in procurement dollars to veteran-owned small 

businesses. So I think that this program that the VA has established has created a gold standard. In the Federal government, 

when people know that a firm has been verified by the VA, they 

can take it to the bank. And the results, this is real money to real 

vets, and it is a program that benefits veterans. And there are 

5,400 firms in this program that get those benefits. So I personally 

do not have any issue with a conflict of interest because we are 

helping vets. 

Chairman HANNA. Can you show us where in the statute it is 

permitted? Maybe you can get back to us. 

Mr. LENEY. I think that is an important question and to give 

you a complete answer let me provide that for the record. 

Chairman HANNA. Sure. I appreciate that. 

Mr. Shoraka, has it ever occurred to you that beyond verification 

of the veterans you do not need the VA; that you are perfectly capable as the Small Business Administration of doing this as you do 

everywhere in the country? 

Mr. SHORAKA. Sure. 

Chairman HANNA. Well, I know you do not have the budget for 

it but the VA does; right? Thirty million dollars? What do you 

think of that. 

Mr. SHORAKA. Well, statutorily the AV has an important program to make sure that a portion of their contracts, their Vet First 

contracts go specifically to the service-disabled community. I think 

that is an important program that has helped us meet our goals. 

Or I should not say meet our goals; get closer and closer to our 

goals over the years. As I mentioned, we had an improvement of 

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3.8 percent from 2010 to 2011. What I can say is that our self-certification program for the service-disabled community for the rest 

of the Federal government in our view has been effective in selfpolicing itself. Over the last three years we have had more suspensions and debarments than the previous decade. It has been a system where interested parties including other vendors or even the 

contracting officer can initiate a protest in which case we get involved to make sure the firm is indeed service-disabled. 

Chairman HANNA. It just seems like so many of the problems 

are a function of disagreements and interpretation that if everything went in one place and when you look at the way you are organized and how much more efficient, relatively efficient you seem 

to be, at least historically, I hope you appreciate it is a fair question. 

I yield back, Chairman. 

Chairman COFFMAN. Mr. Walz, you have five minutes. 

Mr. WALZ. Thank you, Mr. Chairman. 

And I would like to first thank both the chairman and the ranking members on this. It is not often that we combine areas of jurisdiction together, and we will oftentimes sit in our Committee and 

criticize the lack of collaboration between agencies while we are not 

collaborating. They did not make that mistake when they brought 

you here, and I thank that. 

Mr. Leney, I would also like to publicly thank you and your staff 

for addressing the concern of my constituent in a timely, professional manner that allows us to give an answer. And I am grateful 

for that. The next time I will just come to you so I do not have to 

do it publicly. So I appreciate it and apologize to you for that, but 

I am grateful for it. 

Mr. Shear, maybe you can help me with this. It is not incompatible, is it, for us to figure out how to streamline this process and 

still keep the checks and balances on fraud in place? Would it be 

your opinion we can do both? 

Mr. SHEAR. There is a tradeoff and the two have to be balanced. 

And I think VA is still searching for a balance in terms of its policies and procedures. When we look at internal controls, we look at 

whether there is reasonable assurance that only eligible firms will 

participate. And VA should come up with rules and procedures that 

can help to fight fraud while still allowing legitimate firms to participate in this marketplace. 

Mr. WALZ. I was at that hearing in 2011. We did it. And I think 

we should acknowledge progress has been made. But I still think 

we are trying to fight this. And I struggle with this one always, 

whether it was the Department of Labor and vets jobs issues with 

the VA. I am somewhat biased where I tend to fall on the VA side 

of things as one stop shopping but I also recognize the expertise 

that is here. Does it make sense that these two agencies should 

partner in your opinion? Is that the best way to ensure delivery of 

services to these veteran-owned businesses and protect against 

fraud? 

Mr. SHEAR. As to the collaboration and cooperation that we 

have observed recently between the two agencies, we view it in a 

very positive sense. We view it in a positive sense in the broader 

picture that the president has identified a crosscutting priority goal 

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to serve small businesses and entrepreneurs. We see it in that 

framework. We see it in a more detailed framework in terms of 

what these agencies can bring to each other. For example, SBA has 

been working for roughly the last two or three years in developing 

a new data system to manage its 8(a) and its HUBZone programs. 

And now there is starting to be some collaboration between the 

agencies to see how could this system could help inform or even directly help VA deal with what is a very huge challenge. That is, 

it has to have a data verification system that really can work for 

what its mission is. 

Mr. WALZ. Mr. Leney, this is not a turf battle-type of thing, is 

it? You are trying to find the best balance on this. Is that the solution of working together, best practices, the two agencies? Because 

I recognize the two of you could go and do anything else anywhere 

else. You have chosen to be here for a reason. You believe in this 

program. You want to make it work. And if we do not get it right, 

the critics will be proven correct. And that means we can lose programs like this. So are we moving in the right direction your opinion? 

Mr. LENEY. Congressman Walz, there is no turf battle here. I 

would be happy if the SBA were to take this burden on. It would 

save me about 30 hours a week mostly in the evening. I talk to veteran business people every night, so if John would like to take that 

task on, that’s fine. 

Mr. WALZ. But they need you, don’t they? This idea of one-stopshopping is my internal bias towards the VA on veterans issues I 

think comes out of practice and effectiveness. 

Mr. LENEY. I think it is important to understand, Congressman, 

there is a fundamental difference here. Last year, we made determinations on 5,900 firms. The SBA did 37 status protests. We did 

436 requests for reconsideration. They have two administrative 

judges in OHA. And I would note that our request for reconsideration is not an appeal process. If they need to appeal, they come 

to me and say, ‘‘We think a mistake has been made.’’ Our Office 

of General Counsel makes a determination was a mistake made? 

If we determine that there was no mistake, and in less than 2 

percent of the cases was there a mistake, we then allow them to 

do what I call a Second Chance Program. Request for reconsideration is the ability to, if you were found noncompliant and you 

were truly noncompliant, you can correct it. We have worked very 

closely with the SBA. We are taking a leaf out of the 8(a) book 

where we have initiated; we are doing pilots as we speak. On 1 

May we will be initiating the Predetermination Findings Program 

where prior to a determination we will be reaching out to the veteran. We will be giving them a preliminary finding of all the things 

we found wrong. And I will tell you, we try very hard to find it all 

the first time. I have eight pages of metrics and statistics. We track 

a lot of things. And one of the things we track is how many times 

do we have an incomplete determination. Nine percent. Nine percent of the time is the numbers that we have. So yes, we try to 

make those corrections, but we are doing this predetermination 

findings process so that we do not have to get to a denial determination. They get a chance to fix it. We are doing the same thing 

the 8(a) program has been doing, learning their lessons and adoptSBREP-219 with DISTILLER

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ing their best practice. Reaching out, having the conversation. As 

many of the people on the first panel mentioned, there has not 

been that kind of a dialogue. So we are trying to take advantage 

of things that other people are doing to make the progress better. 

And I would note, we did 569 determinations in February. The 

average time was 34 days. The regulation gives us 60. In June of 

2011 it was over 130 days. So I think we made some progress. 

Mr. WALZ. And we certainly need to acknowledge it when we do 

that. There are a lot of folk working hard to make that happen. I 

yield back. 

Chairman COFFMAN. Thank you, Mr. Walz. 

Ms. Meng, from the State of New York. 

Ms. MENG. Thank you, Mr. Chairman. 

The VA has indicated that it wishes to collaborate with SBA in 

its efforts to develop a new data system. Mr. Shoraka, SBA has 

been developing a new data system to manage its 8(a) and 

HUBZone program. What attributes of the data system SBA is currently developing hold the most promise for providing a model for 

completion of a VA data system? 

Mr. SHORAKA. Thank you, Congresswoman. 

As Mr. Leney mentioned, we have been working together to 

share best practices, not only around processes and metrics but on 

systems as well. We are in the process and we have been over the 

last year in implementing what we call One Track, which will be 

the system for our 8(a) and our HUBZone program. The process is 

well on its way where at this point it would be difficult to adjust 

the system to accommodate the specific necessities or requirements 

of the veteran program. But what we have committed to do is share 

system requirements, to share statements of work, to make sure 

that the frontend level of work that the VA would have to go 

through in getting a new system up and running could be minimized as much as possible. 

Ms. MENG. Thank you. I yield back. 

Chairman COFFMAN. Thank you, Ms. Meng. 

Let’s see. Mr. Bentivolio. 

Mr. BENTIVOLIO. Thank you very much, Mr. Chairman. 

Let us see if I understand this correctly. Correct me if I am 

wrong. If I want to be certified VA, I go through SBA to get certified first and then go to him? Or go just to him? Is that right? 

Mr. SHORAKA. So if you are a veteran-owned service-disabled 

small business and you want to work with the rest of the Federal 

government and not the VA, you can self-certify yourself in the system for award management. 

Now, where the SBA gets involved in that process is if there is 

a protest on a specific bid that you may have bid on. Any interested 

party can protest that award. The VA system is a frontend certification program, very similar to our 8(a) program where the firm 

goes through a certification and documentation process which can 

take a period of time before any award is made. But that is when 

the firm is actually certified into the program. And in the case of 

the SDVOSB for the VA, that program is to do contracting with the 

Veterans Administration. 

Mr. BENTIVOLIO. Okay. So I guess what I am leading to is 

when I came home from Iraq I was considering getting a governSBREP-219 with DISTILLER

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ment job. I eventually got it but it was a different type than I expected. And the application process was very expensive. But when 

I applied for that government job there was a space where all I had 

to do was click that I was a veteran. And then I had to click another spot for the application if I was a disabled veteran. 

Now, it would seem to me that you and you are both looking for, 

first of all, qualified contractors to do government work. You are 

specifically VA. But you have some of the same criteria he does except yours is you have to have a DD Form 214 prove that you are 

a veteran and I have to have certification that I have to submit 

from the VA to, well, to prove that I am a disabled veteran; correct? I understand there are some regulation differences, but would 

it not be simpler for me, as a veteran, just to come to you and say, 

hey, I need this certification; that I am a disabled veteran and I 

need a DD Form 214 sent to him, official copy, and you label me 

as a disabled veteran that owns a business with the other additional requirements—51 percent owned, one or more vets. And I 

missed number three. I did not understand here and I did not understand four. 

Mr. SHORAKA. With regards to the documentation, in the case 

of a protest that documentation, which is either received from the 

VA, or the Department of Defense, or in some cases the Federal 

government or other agencies, that documentation is necessary for 

us as well but only in the case of a protest. Not on the frontend. 

Mr. BENTIVOLIO. But it would seem to be less troublesome if 

I just went to the SBA and just handed you my—or you got an official copy. I mean, does that not make sense or am I missing something here? 

Mr. LENEY. Congressman, it is always less troublesome to selfcertify. It is always more troublesome when somebody checks. And 

at the VA, we check. 

Mr. BENTIVOLIO. Well, you check that I am a disabled vet; 

right? 

Mr. LENEY. We do. 

Mr. BENTIVOLIO. And you check that I am a veteran. You have 

a copy of my DD Form 214; correct? 

Mr. LENEY. Yes. 

Mr. BENTIVOLIO. All right. So if I was applying for a government job and I have to verify that I have a college degree, I have 

to send an official transcript from my school. I do not, the school 

does, to an employer or another school for instance. Why cannot 

the same happen from you, a certified copy from VA goes directly 

to SBA? 

Mr. LENEY. In fact, one of the things that we have been doing 

in this collaborative effort is looking at where we can have a single 

portal sharing information. As we looked at the technology platforms that support the 8(a) and the HUBZone programs and the 

technology platform that supports our Veterans First Program, 

that is one of the things we are looking at. Can we create a system 

whereby a person enters his data one time and it is used by multiple programs? 

Mr. BENTIVOLIO. Yeah. And it seems to me that SBA has more 

experience in business and VA is more experienced in veterans. 

They could simply send over to you official documents to the VA 

SBREP-219 with DISTILLER

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to meet these other requirements, you verify it, and it is done. 

Done deal. It seems rather simple to me. 

Mr. SHORAKA. The only thing that I would add is that obviously statutorily the VA program is a full certification frontend program that certifies not only the status but also that the firm is indeed small, where our program, again, is a self-certification program that under protest we will determine status and size. 

Mr. BENTIVOLIO. I understand. So we need to change the regulations. Okay, good. I will do what I can. 

I yield back. Thank you. 

Chairman COFFMAN. Ms. Chu, California. You have five minutes. 

Ms. CHU. Thank you. 

Mr. Leney, the GAO report released earlier this month noted 

that the VA had not shared their comprehensive long-term strategic plan with key stakeholders such as veteran-support organizations and congressional staff and committees. Moving forward I 

think there are many of us on the Small Business Committee that 

would like to be more engaged on this issue with the VA. What 

steps have you taken or are planning to take to ensure that key 

stakeholders are involved in the VA Verification Program’s plans 

and priorities? 

Mr. LENEY. That is an excellent question. We have reached out 

to many of the stakeholders. In fact, all the people on the first 

panel are part of our outreach effort, and I think particularly with 

respect to the rules, with respect to a long-range plan. When I 

came to the VA the secretary looked at me and he had a two-word 

mission statement, ‘‘Fix Verification.’’ We had the kind of problems 

that did not need to be looking through a five-year crystal ball. The 

problems were in the trench with us. 

Now that we have cleared many of those problems, we now have 

a five-year plan that has gone through a rigorous review process. 

The secretary last summer established a SES Review Taskforce to 

look at verification. That plan has been briefed to this taskforce. It 

will be briefed next month to the Office of the Secretary and then 

we will be sharing it with the stakeholder community and would 

be happy to share it with the members of this Committee. We have 

no secrets. 

But when the enemy is in the trench with you, you deal with the 

enemy in the trench first because we had a lot of small businesses 

that were being tremendously disadvantaged when you have a 

process that takes 130 days on average. Now we are at a process 

that took 34 days last month, so we are in a position to think long 

term. 

Ms. CHU. So all this outreach took place since the GAO report; 

is that what you are saying? 

Mr. LENEY. No, ma’am. We have been conducting outreach 

since—I can speak personally—since April 2011. 

Ms. CHU. And why is it that the GAO report said that there had 

not been the sharing? 

Mr. LENEY. What they spoke about has not been the sharing of 

a five-year strategic plan. What their report referred to was a specific document, which is a five-year plan. We had strategic planning documents. Many of those issues have been shared with 

SBREP-219 with DISTILLER

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stakeholders, but we did not have a comprehensive five-year plan. 

That is what they were referring to. 

Ms. CHU. Well, I wanted to ask about the appeal process next. 

Mr. Shoraka, the appeal process in the SBA Office of Hearings and 

Appeals is about 15 days. Of course, the GAO report said 130 days 

but now you are saying 34 days as of last month. But nonetheless, 

the appeal process at SBA is still faster than what it is at the VA. 

So what more could the VA do to be similar to the SBA in speeding 

up the review process? 

Mr. SHORAKA. With regard to the process at the SBA, as I mentioned earlier in my testimony, my office makes the initial determination with regard to status. The firm or entity has the opportunity to appeal it to the Office of Hearings and Appeals, which is 

an independent body which can make a determination as to the 

facts of the case. And that process helps to ensure consistency in 

the programs, having that outside review and determination. But 

it is an independent process that takes place at the SBA, separate 

and apart from my office. 

Ms. CHU. Well, some on the earlier panel were suggesting that 

the SBA handle the appeals and I am wondering whether the SBA 

would have the capability of handling the appeals process for the 

VA 

Mr. SHORAKA. So, I know that that has been a discussion and 

we have heard that discussion. I think obviously it may have certain impacts that may not have been studied yet. I think the entirety of the various impacts that initiating an OHA appeal process 

for the VA determination or status determination process, there 

could be impacts to their program. There could be impacts to our 

program. Obviously, I think there is a resource question. As we 

have heard here today, they have a significant number of determinations they make every year. As I mentioned in my testimony, 

we are sort of resource-limited in our Office of Hearings and Appeals, so those types of things, the impacts and the resources, 

would certainly have to be studied before any sort of recommendation I think should be made. 

Ms. CHU. Okay, thank you. I yield back. 

Chairman COFFMAN. Thank you, Ms. Chu. 

Mr. Leney, CVE’s effort to balance verification with fraud is due 

in part to our criticism over the past two years. But you swung 

hard in the opposite direction. Do you have a long-term strategic 

plan to find a balance in verification? GAO says you do not have 

a plan. 

Mr. LENEY. Yes, sir. We have a long-term strategic plan. We did 

swing hard, in part in response to the urging of this panel and this 

Committee to make sure that no ineligible firm was able to take 

advantage of the program that you created for veteran-owned small 

businesses. So our first priority was to make sure that that did not 

happen. Our second priority was to make sure we then streamline 

the process in order that eligible firms and legitimate firms could 

get through the process quickly, and we have done that. Our third 

priority was to look at the rules. We had a mature rule. We had 

a mature set of interpretations. And now that we have looked at 

the process and we are now looking at the rule and we have made 

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changes. As I said, as of Friday, transfer restrictions are not an interpretation that will cause a firm to be ineligible. 

But we had to do a lot of fixing. People have made comments 

about the staff of CVE. I will note that 60 percent of the staff of 

CVE have audit background, 33 percent have IG experience, 33 

percent are lawyers, 53 percent have a business degree, and 40 

percent are former small business owners. So we have brought a 

different staff together. That staff is almost entirely new over the 

last 14 months to make sure we put together the kind of expertise 

that enables us to have a program that meets the objectives that 

have been set for us. 

Chairman COFFMAN. Mr. Leney, CVE has forgotten how to fulfill the advocacy role that was mandated. In lieu of verification, 

how will you find further balance there? 

Mr. LENEY. That role has not been forgotten; as Chairman 

Hanna mentioned, it is part of the OSDBU mission that remains 

part of my mission. We are pulling in a new program called VE 

Transfer, which is about capacity building for budding veteran entrepreneurs. It is just that the Center for Veteran Enterprise, its 

mission has changed. You are correct, sir, dramatically. Its fulltime focus now is to ensure that firms can gain access to the Veteran First Program and to ensure that only eligible firms gain access. 

Chairman COFFMAN. Mr. Leney, SBA’s Office of Hearings and 

Appeals noted 14 size appeal decisions in connection with SDVO 

set asides that reflected poorly on CVE’s determinations. Can you 

explain the use of the Office of General Counsel for CVE approval 

given this issue? 

Mr. LENEY. First, it is important to note that we do not do size 

determinations in the VA. Our policy is all size determinations are 

referred to the SBA. CFR 121 is about the determination of size. 

We do not match up to 121 because we do not determine size. We 

defer to the SBA on that subject. I believe the statistic you are referring to in those cases, the Office of Hearings and Appeals determined that we should have made a size request to the SBA and 

we did not. 

We look at ownership and control. If a firm is eligible in any of 

its NAICS codes, we do not deny their eligibility. If we believe the 

firm is a large business in all of the NAICS codes that it references, then we refer them to the SBA. 

Chairman COFFMAN. Follow-up last question. 

All SBA decisions can be appealed to the Office of Hearings and 

Appeals, which has independent administrative judges and is 

bound by precedent and publishes its decisions, but VA’s OGC handles appeals for CVE. Is it VA’s belief that their appeals process 

is as complete and transparent as SBA’s? 

Mr. LENEY. Just a point of fact. The Office of General Counsel 

does not handle appeals. The Office of General Counsel, we utilize 

in our request for reconsideration. And I want to be very clear that 

that is not an appeals process. That is a second chance process. Actually, appeals come to me. I have no objection to making the results of those appeals public. We have not in the past, but the issue 

that we found, sir, is not so much the need for appeal; it is the 

need for speedy action. 

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Chairman COFFMAN. Speedy action, but I really, boy, not making those results public, and then instead of calling it an appeal 

you call it a second chance, are the two different? I mean, that is 

just not a transparent process that could be deemed objective I 

think by any standard. Would you commit here today to make the 

process public? 

Mr. LENEY. I have no objection to making the process public, 

sir. 

Chairman COFFMAN. Very well. I will watch for that. 

Mr. HANNA. Chairman Hanna. 

Chairman HANNA. Thank you. It is my understanding that at 

one time the SBA and the VA discussed having SBA conduct 

verifications on VA’s behalf. Where is that going? What have you 

done with those negotiations? Are they ongoing? 

Mr. LENEY. We have not pursued it because it was too expensive. They wanted a million dollars to do 40. We do 5,600. 

Chairman HANNA. So the 30 million you get would not help. 

Mr. LENEY. The 30 million we get, if my multiplication is correct, would not get us to the 5,400. It would only get me to 1,200. 

Chairman HANNA. Thank you. Would you like to comment on 

that, Mr. Shoraka? 

Mr. SHORAKA. Yes. So I believe those discussions were held before my time at the agency. I am not necessarily aware of the quote 

of a million dollars, but what I will say is that obviously it is a resource question. Obviously, even when we talk about the process of 

OHA as the congresswoman mentioned with respect to the SBA 

taking over the OHA responsibilities for the VA and allowing an 

appeals process as a resource question. And as I mentioned again, 

the impact on the various programs. Statutorily, it is a full certification program. How would that impact those requirements and 

how can we study those impacts? 

Chairman HANNA. Thank you. How much do you spend 

verifying the program? The 8(a) program? 

Mr. SHORAKA. I do not know if I have the statistics on the 8(a) 

program. I can tell you that in our certification program, as you 

probably know, the 8(a) program is not just a contracting program. 

It is a business development program. It is a nine-year program 

where the firm receives technical assistance to be able after the 

nine years to be competitive on the free and open market. But 

what I would mention is that we have approximately 19 of our staff 

involved in the certification process at the SBA. I do not have an 

exact dollar number on what those 19 cost, but I can certainly get 

that information for you. 

Chairman HANNA. We have perhaps as many as a million vets, 

many of whom will apply for this. Are you both prepared to handle 

that load? And it is going to increase. How is that? 

Mr. SHORAKA. So our 8(a) program allows somewhere between 

600 and 800 firms into the program annually. Our acceptance rate 

is somewhere between 50 and 60 percent. So you can imagine that 

we probably review about double that, 1,600–1,800 applications annually. Obviously, I think if you are looking at a certification 

frontend program, that has significant resource allocation questions. 

Chairman HANNA. Thank you very much. 

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No further questions, Chairman. 

Chairman COFFMAN. Our thanks to the panel. You are now excused. I yield to Chairman Hanna for his closing remarks. 

Chairman HANNA. I want to join Chairman Coffman in extending my tanks to all of our witnesses. I think this hearing has 

helped us better understand the problems our service-disabled veterans are facing when they seek to do business with the Federal 

government. I look forward to working with my colleagues on the 

Veterans Affairs Committee to see how we can do a better job of 

serving all those who have served us so well. 

I ask unanimous consent that the members have five legislative 

days to submit statements and supporting materials for the record. 

Without objection, so ordered. 

Thank you. This hearing is now concluded. 

[Whereupon, at 5:12 p.m., the Subcommittees were adjourned.] 

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A P P E N D I X 

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EXECUTIVE SUMMARY 

During these difficult economic times in our Nation, some of 

those most impacted have been our military veterans and their 

families. The unemployment rate among veterans is high and 

among younger veterans and those in the National Guard and Reserves since 9/11 it’s higher than the national average. The U.S. 

Veterans Employment Initiative is an aggressive plan to put veterans back to work. 

Over the next 5 years, over one million more service members 

are projected to leave the military. The goal of this initiative is to 

ensure that work is available, accessible and in demand for our veterans and that these service members leave the military with the 

proper training and preparation they need to transition back into 

the civilian workforce. But now that we have fallen over the ‘fiscal 

cliff’ due to sequestration, federal agencies will be faced with significant budget cuts which will also impact the hiring of new employees. So we will have to turn to the small business and corporate sectors to help pick up the slack. 

In a recent report from the President’s Interagency Taskforce on 

Veterans Small Business Development, it was stated that ‘Two of 

America’s greatest assets are the service of our returning veterans 

and the economic dynamism of our small businesses.’ We recognize 

that entrepreneurs and small businesses are the engines of American innovation and economic prosperity. SBA reports that our nation’s 28 million small firms employ 60 million Americans, or half 

of the private sector workforce, and they are responsible for creating 2 out of 3 net new private sector jobs across the country. 

Already, veterans own about 2.4 million businesses or 9 percent 

of all of America’s businesses. These businesses generate about 

$1.2 trillion in receipts and employ nearly 5.8 million Americans. 

As highly trained professionals and leaders with experience in challenging environments, veterans’ potential for successful entrepreneurship and small business ownership will not be fully achieved 

if the VA’s regulations for verifying them as veteran business owners is allowed to become the standard throughout the federal marketplace. 

You would not think that the federal agency, the Department of 

Veterans Affairs, the very one created for ‘those who have borne 

the battle, their widows and their orphans,’ would be the very 

agency that creates the greatest barriers and obstacles for thousands of veterans and veteran business owners. Since the end of 

the Vietnam War, the VA has wrongfully denied thousands of veterans their claims for compensation for their service connected injuries and now since 2008, the VA has once again been denying 

thousands of veteran business owners contracting opportunities 

due to their ‘Consistently Inconsistent’ interpretations of VA 

and SBA contracting regulations. 

The Vietnam Veterans of America call on Congress to direct the 

VA’s Secretary, Deputy Secretary and Chief of Staff to STOP administering regulations, policies and procedures that are overly 

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burdensome, far too restrictive, and discriminatory towards veteran 

and service disabled veteran business owners. Our Veterans deserve far better support for their service. 

INTRO: 

Good morning, Chairman Hanna, (HSBC - SCW), Chairman 

Coffman (HVAC - SOI), members of the subcommittees, and fellow 

veterans. On behalf of VVA National President John Rowan and all 

of our officers and members we thank you for the opportunity for 

Vietnam Veterans of America (VVA) to appear before you today to 

share our views on the ‘‘Challenges Facing Small Businesses 

Owners and Controlled by Service-Disabled Veterans Seeking Federal Contracts using both the SBA and VA contracting program.’’ I ask that you enter our full statement in the 

record, and I will briefly summarize the most important points of 

our statement. 

Though my time of service was many years ago, as a veteran of 

the US Air Force with the 66th Strategic Missile Squadron, I still 

have very vivid memories of my military experience. And having 

served as an Advisor to the Vietnam Veterans of America and Legislative Liaison for the National Association for Black Veterans for 

the past 12 years, I also remember quite well the history of the 

Veterans Federal Small Business Development Movement in America from 1999 to today. 

We all know that Congress passed Public Law (PL) 109–461, the 

Veterans Benefits, Health Care, and Information Technology Act of 

2006 which included Title V, Sections 502 and 503 that authorized 

a unique ‘‘Veterans First’’ approach to VA contracting. This approach changed the priorities for contracting preferences within the 

Department of Veterans Affairs (VA), by placing Service-Disabled 

Veteran Owned Small Businesses (SDVOSBs) and Veteran Owned 

Small Businesses (VOSBs) first and second, respectively, in satisfying VA’s acquisition requirements. 

Those 2 sections of the law, which many if not all of our Veteran 

Service Organizations (VSOs) advocated for, has been hailed as a 

great accomplishment for the veteran community. But the subsequent regulation (38 CFR 74) that was published to guide implementation of the law has now adversely affected thousands of veterans business owners. 

Over the past 2 years, the VA has reported that of the more than 

20,000 veteran business owners that have applied for verification 

through CVE, only 5,520 are now approved. From previous Congressional hearings, GAO reports, and statements from the VA 

Small Business Director, we have been told that less than 2% of 

those denied were for reasons of fraud or intentional misrepresentation. Instead, the greatest percentage of denials were due to 

CVE’s narrow interpretation of the regulation’s sections pertaining 

to ownership and control. 

History of the Movement 

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It was Public Law 106–50, the Veterans Entrepreneurship and 

Small Business Development Act of 1999 that laid the foundation 

for veterans interested in starting or expanding their own small 

businesses to get federal assistance. Congress even stated in its 

findings of PL 106–50 that America had not done nearly enough to 

‘assist veterans, particularly service-disabled veterans, in playing a 

greater role in the economy of the United States by forming and 

expanding small business enterprises.’ 

PL 106–50 called for the creation of new entities and the restructuring of existing ones in order to assist veterans in pursuit of entrepreneurship. Under this law, the Office of Veterans Business 

Development (under SBA), the Center for Veterans Enterprise 

(under VA), and the National Veterans Business Development Corporation (quasi independent), were created. It also established a 3% 

procurement goal for federal agencies and large Prime contractors 

to purchase goods and services from service-disabled veteran owned 

businesses. But agencies did not pay much attention until 2003 

when Public Law 108–183 made the 3% minimum MANDATORY. 

And even then, it took a Presidential Executive Order (13–360) 

in October 2004 to really get agencies to carry out the law. Under 

the Order, agencies were instructed to designate a senior-level official to be held accountable for submitting a strategic plan showing 

how and when they would achieve the 3% contracting goal for service-disabled veteran owned businesses. But with no oversight and 

penalties associated with non-compliance, after a few years the effort diminished. 

So Congress took another direction in 2006 and passed Public 

Law 109–461 which authorized ONLY the VA to implement a 

unique ‘‘Veterans First’’ approach to VA contracting. This approach 

would change the priorities for contracting preferences within the 

Department of Veterans Affairs (VA), by placing Service-Disabled 

Veteran Owned Small Businesses (SDVOSBs) and Veteran Owned 

Small Businesses (VOSBs) first and second, respectively, in satisfying VA’s acquisition requirements. 

Since federal agencies choose not to follow the guidance provided 

in EO 13–360, veterans advocates called upon leaders of the House 

Veterans Affairs Committee, to use the Dept. of Veteran Affairs as 

the model agency to show the rest of the federal government could 

really increase contracting opportunities to Veteran and Service 

Disabled Veteran Owned Businesses. Afterall, the VA is the primary federal agency created to provide support and assistance to 

veterans. 

So Congress passed Public Law (PL) 109–461, the Veterans Benefits, Health Care, and Information Technology Act of 2006. While 

this legislation provided a number of benefits for veterans; what’s 

of particular importance for the purposes of this hearing today, is 

that Title V, Section 502 and 503 of this legislation, authorized a 

unique ‘‘Veterans First’’ approach to VA contracting. This approach 

changed the priorities for contracting preferences within the Department of Veterans Affairs (VA), by placing Service-Disabled Veteran Owned Small Businesses (SDVOSBs) and Veteran Owned 

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Small Businesses (VOSBs) first and second, respectively, in satisfying VA’s acquisition requirements. 

Public Law (PL 109–461) was implemented in two regulations: 

(1) 48 Code of Federal Regulations (CFR) Parts 802, 804, 808, 

810, 813, 815, 817, 819, 828 and 852 amended on December 8, 2009 

to define the acquisition rules for the program within the VA; and 

(2) 38 Code of Federal Regulations (CFR) Part 74, published 

on February 8, 2010 and clarified on January 19, 2011 to define the 

requirements for verification as a Veteran or Service Disabled Veteran Owned Business. 

These regulations require that certain conditions must be met. 

All SDVOSBs and VOSBs, must register in the VA’s Vendor Information Pages (VIP), aka Veterans Small Business Database, 

available at www.VetBiz.gov, and be ‘VERIFIED’ by the VA’s Center for Veterans Enterprise (CVE), to be eligible for award of a contract exclusively within the Department of Veterans Affairs. Once 

registered in the database, the veterans’ status, ownership, and 

control would be verified and penalties would be assessed for misrepresentation. 

Unfortunately, it’s this regulation 38 CFR 74 and CVE’s subsequent interpretations within their Verification Process established by the VA that is being used to determine a Veteran’s 

status, ownership and control of their company that is literally 

causing thousands of veteran and service-disabled veteran business 

owners to be deprived of millions of dollars in contracting opportunities that could benefit them, their families, veterans seeking employment and other members of our communities. 

HERE’S THE MAJOR ISSUES 

First many VOBs/SDVOBs do not fully understand how they can 

be legally allowed to do business with other federal agencies but 

not with the VA. Representatives of the VA have now taken the position that their VA regulations are nearly identical to the SBA’s 

regulations. If that in fact is true, then VA’s interpretation of the 

rules must be much different than SBA’s or either SBA is not doing 

it right. In the past 3 years, no other small business preference 

program participants (8a, Hubzone, WOSB, SDB) have exhibited 

public dissatisfaction to the extent where there have been repeated 

Congressional hearings, GAO reports and IG investigations of those 

programs. 

According to SBA regulations, a veteran owned business is allowed to ‘Self Certify’ as a VOB or SDVOB. However, such businesses must still be legally formed and the majority owner(s) must 

be veteran(s) or service disabled veteran(s). Owners of such businesses may be required to submit specific documentation to verify 

their status and ownership. 

Second, some applicants have problems with the CVE 

verification process, but that doesn’t mean they are ignorant. As a 

VA-CVE Volunteer Verification Assistance Counselor, I have been 

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participating in the verification process training workshops. And 

even though CVE has provided a great deal of information via its 

website on how to navigate the application process, it still requires 

an extensive amount of time to even review all of the preliminary 

information and sample scenarios. It is expected that those applicants who take the time to review all of the verification information, utilize the assistance of the veterans verification counselors, 

and are willing to make the necessary changes to their organizing 

documents are far more likely to be approved after 90 days. 

Third, Veterans are Subjected to Multiple Contracting 

Program Rules. Both the SBA and the VA operate procurement 

programs for SDVOSBs. The SBA program applies to procurements 

at all agencies other than VA, whereas the VA program applies 

only to VA contracts. While both programs apply nearly identical 

statutory definitions of a SDVOSB, the same veteran business 

owner may be eligible to compete for contracts at other federal 

agencies except the VA. And now some federal agency departments 

are denying veteran business owners contracting opportunities if 

they have not been verified by the VA, which is contrary to the PL 

108–183. 

Fourth, an applicant may still be denied by the CVE reviewer 

based on their interpretation of sections of the regulation (38 CFR 

74) and/or of the documents submitted by the applicant. I will identify the reasons for denial by the VA that have been most problematic below: 

I. The Verification Criteria - Determining Veteran Status, 

Ownership and Control 

Veterans Status. Verifying the status of the veteran seems to 

be the easiest part; particularly since the VA already maintains or 

has access to the records of veteran and service disabled veterans. 

The documents needed are to verify that the business owner is a 

veteran who was discharged under conditions other than dishonorable or is a service disabled veteran who possess either a disability 

rating letter issued by DOD or the VA. 

Additional documents are needed to establish if the veteran(s) or 

service disabled veteran(s), or in the case of a veteran with a permanent or severe disability, the spouse or permanent caregiver of 

such veteran, meet the majority Ownership requirement, and that 

they have Control of the company and participate in the Day-toDay operations. 

Verifying Ownership. Verifying Ownership is somewhat more 

challenging because CVE must verify if the Ownership is direct 

and unconditional (74.3). Not hard to verify if the type of Ownership is that of a Partnership, Limited Liability Company, or a Corporation; and if stock is involve, it must verify the stock options’ 

effect on the Ownership. But there’s the matter of Transfer Restrictions and determining Ownership interests when an owner resides 

in any of the community property States or territories of the 

United States. 

Verifying Control (where the real issues come out). According to 38 CFR 74.4 Control is not the same as Ownership, 

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even though both may reside in the same person. Control 

means management of the Day-to-Day operations and long-term 

decision making authority. CVE must verify that the service disabled veteran or veteran business owner has both. But where this 

gets more involved, is when control is sometimes contingent on who 

has the expertise or licenses to run the operation. An owner who 

is a computer engineer may not be the best CEO. But according to 

CVE’s verification requirements, the owner must hold the highest 

officer position in the company. 

Then there is also the somewhat conflicting view that owners 

need not work in the company full-time but must show sustained 

and significant time invested in the business. There is also the requirement that one or more veteran or service disabled veterans 

who manage the company must devote full-time to the business 

during normal working hours. And even though the veteran owner 

has an unexercised right to cause a change in the management 

quickly or easily, use of a non-veteran manager may disqualify the 

company as being controlled by the majority veteran owner. 

In addition, all of these control issues have to be verified in the 

context of the type of company - Partnership, Limited Liability 

Company, or Corporation. And it must be determined to what extent do non-veterans have the power to influence or control the 

company - either directly or indirectly via critical financial or bonding support, Board actions, office or equipment leases, or private 

loans, etc. 

II. Verification of Only One Company per Owner. A number 

of veterans have questioned CVE’s position to verify only one company per veteran business owner. This ruling is not clearly listed 

in 38 CFR Part 74. All throughout the Nation, there are people 

who own more than one company. It seems to be CVE’s view that 

verifying only one company per owner would prevent the 

VA from potential harm that could be caused by a veteran 

or service disabled veteran business under performing or 

defaulting on a contract. 

III. Misperception of CVE’s ‘VERIFIED’ status. Many if not 

all federal agency contracting personnel believe that SDVOSBs and 

VOSBs must or soon will have to first be registered in the VA’s 

Veteran Small Business Database and produce a document 

stamped with a ‘‘VERIFIED’’ seal of approval by CVE in order to 

be recognized as a genuine SDVOSB or VOSB. And it’s not hard 

to determine how this misperception came about. 

For several years now, CVE, other organizations, including the 

VET-Force, have been encouraging veteran business owners to register in the Veterans Small Business Database and for federal 

agencies and Large Primes to use the Veterans Small Business 

Database as the ‘Authoritative Place’ to locate capable and qualified veteran business owners. However, this was before PL 111–275 

directed the VA through CVE to enhance their verification standards and procedures. 

According to Public Law 108–183, the Veterans Federal Procurement Program, a veteran is only required to SELF-CERTIFY as a 

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SDVOSB, in order to do business under this small business preference group. There is no formal certification by SBA or any other 

entity required. However, under Public Law 109–461, in order to 

do business with the VA, a veteran or service disabled veteran 

owned business must successfully complete VA’s verification process and register in the same database that’s open for use by all federal agencies, Large Primes, and the public. 

IV. Community Property Rights Issue - Section 74.3f 

If a veteran business owner resides in any of the community 

property states, CVE considers applicable State community property laws. What this means to CVE is that all property or income 

acquired by either spouse during marriage is considered equally 

owned by both spouses for purposes of the division of the property 

upon death or divorce or for purposes of business transacted by 

either spouse. A transfer or relinquishment of interest by the nonveteran spouse may be necessary in some cases to establish eligibility. 

So according to CVE, in the event of a divorce, a non-Veteran 

spouse would be entitled to half of the Veteran owner’s interest in 

the company. Therefore, the veteran who is the majority business 

owner according to the business’ organizing documents cannot pass 

the test of unconditional ownership. However, there is a workaround to this dilemma if the non-veteran spouse will agree to 

transfer at least 2% of their property rights to the veteran business 

owner. This solution is still contrary to CVE’s view that the nonveteran spouse must transfer all of their property rights. 

V. Top 10 Reasons for Denials at VA 

While the issues listed above are some of the major ones creating 

controversy about the VA’s Veterans Verification Process, there are 

others considered to be equally as important. Here’s a list of the 

top 10 Reasons for Denial in Jan 2013: 

1. Quorum Restriction - Unconditional Ownership 

2. Transfer Restriction - Unconditional Ownership 

a. Right of First Refusal 

Right of First Refusal - Should not prevent a veteran business 

owner from doing business with the VA. See recent US Court of 

Federal Claims recent decision in the case of Miles Construction 

wherein the judge found that the current VA rules do not prohibit 

transfer restrictions that are a ‘‘normal commercial practice.’’ 

b. Community Property Laws (see narrative above) 

3. Weighted Voting Requirement 

4. Dependence with Other Entities 

5. Control of Strategic Policy 

6. 51% of Annual Distributions 

7. Management of Daily Business - 

8. Higher Officer Position 

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9. Day to Day Management 

10. Managerial Experience 

VI. Not all Veteran Business Owners are Women or Socially and Economically Disadvantaged 

VA has now taken the position that is regulations used for 

verifying VOBs/SDVOBs are not much different from SBA’s small 

business regulations. This appears to be true when looking at the 

regulations for SBA’s 8(a) business development program and the 

Women Owned Small Business Program (WOSB). In fact, many of 

the sections of 38CFR74 for VA Veterans Small Business 

Verification are nearly identical to sections of SBA’s 13CFR124 for 

Disadvantaged Small Businesses and 13CFR127 for the WomenOwned Small Business Federal Contract Assistance Procedures. 

However, it should be noted that the 8a and WOSB programs have 

different statutory purposes than the SDVOSB program administered by the VA. 

VII. 8(a) Business Development Program - Socially Disadvantaged and Economically Disadvantaged Based on Income 

In order to help small, disadvantaged businesses with limited income compete in the marketplace, the SBA created the 8(a) Business Development Program that offers a broad scope of assistance 

to firms that are owned and controlled at least 51% by socially and 

economically disadvantaged individuals. 

The 8(a) Program is an essential instrument for helping socially 

and economically disadvantaged entrepreneurs gain access to the 

economic mainstream of American society. The program helps 

thousands of aspiring entrepreneurs to gain a foothold in government contracting. 

The 8a Program, uses objective criteria to determine economic 

disadvantage based on personal income and total assets. Applicants 

to the program must demonstrate economic disadvantage based on 

the following criteria: 

• Adjusted Net Worth must not exceed $250,000 for initial eligibility or $750,000 for continuing eligibility. 

• Personal Income must not exceed $250,000 (averaged over 

three years) for initial eligibility or $350,000 for continuing eligibility. 

• Total Assets must not exceed $4 million for initial eligibility 

and $6 million for continued eligibility (allows for growth during 

the 9-year term). 

Other unique features of the 8a Program: (1) 9-year Limit of Participation; (2) Certain types of Joint Ventures without violating the 

Affiliation Rule; (3) Opportunity to participate in SBA Mentor-Protege Program. 

See comparative language from the 8a and VA’s program 

regulations below: 

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Section 124.106: Control is not the same as ownership, although 

both may reside in the same person. SBA regards control as including both the strategic policy setting exercised by boards of directors and the day-to-day management and administration of business operations. 

Section 74.4: Control is not the same as ownership, although 

both may reside in the same person. CVE regards control as including both the strategic policy setting exercised by boards of directors and the day-to-day management and administration of business operations. 

Section 124.106: An applicant or Participant’s management and 

daily business operations must be conducted by one or more disadvantaged individuals. 

Section 74.4: An applicant or Participant’s management and 

daily business operations must be conducted by one or more veterans or service disabled veterans. 

Section 124.106: Disadvantaged individuals managing the 

concern must have managerial experience of the extent and complexity needed to run the concern. 

Section 74.4: Veteran or service disabled veteran individuals managing the concern must have managerial experience of the 

extent and complexity needed to run the concern. 

Section 124.106: A disadvantaged individual need not have 

the technical expertise or possess a required license to be found to 

control an applicant or Participant if he or she can demonstrate 

that he or she has ultimate managerial and supervisory control 

over those who possess the required licenses or technical expertise. 

Section 74.4: A veteran or service disabled veteran individual need not have the technical expertise or possess a required 

license to be found to control an applicant or Participant if he or 

she can demonstrate that he or she has ultimate managerial and 

supervisory control over those who possess the required licenses or 

technical expertise. 

Section 124.106: However, where a critical license is held by a 

non-disadvantaged individual having an equity interest in the 

applicant or Participant firm, the non-disadvantaged individual 

may be found to control the firm. 

Section 74.4: However, where a critical license is held by a veteran or service disabled veteran individual having an equity interest in the applicant or Participant firm, the non-veteran individual may be found to control the firm. 

Section 124.106: An applicant or Participant must be managed 

on a full-time basis by one or more disadvantaged individuals 

who possess requisite management capabilities. 

Section 74.4: An applicant or Participant must be managed on 

a full-time basis by one or more veteran or service disabled veteran individuals who possess requisite management capabilities. 

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Section 124.106: A disadvantaged full-time manager must 

hold the highest officer position (usually President or Chief Executive Officer) in the applicant or Participant. 

Section 74.4: A veteran or service disabled veteran full-time 

manager must hold the highest officer position (usually President 

or Chief Executive Officer) in the applicant or Participant. 

Section 124.106: One or more disadvantaged individuals who 

manage the applicant or Participant must devote full-time to the 

business during the normal working hours of firms in the same or 

similar line of business. (Note: Any outside employment will 

have to be approved by SBA prior to employment.) 

Section 74.4: One or more veteran or service disabled veteran individuals who manage the applicant or Participant must 

devote full-time to the business during the normal working hours 

of firms in the same or similar line of business. (Note: Any outside employment will have to be explained and justified to 

CVE.) 

VIII. Women Owned Small Business Program and Economically Disadvantaged Women Owned Small Business 

Program 

The WOSB Program is a program that authorizes contracting officers to specifically limit, or set aside, certain requirements for 

competition solely amongst women-owned small businesses 

(WOSBs) or economically disadvantaged women-owned small businesses (EDWOSBs). 

IX. Intent of the laws 

(PL 109–461) 

To increase contracting opportunities for Veteran and Service 

Disabled Veteran Owned Businesses within the VA by granting VA 

contracting officials the authority to use contracting mechanisms to 

meet or exceed the VA Secretary’s established contracting goals for 

these types of businesses. 

It was not intended to discriminate against legitimate, capable 

and qualified veteran business owners nor to subject them to overly 

burdensome and excessive procedures in an attempt to prevent the 

VA from being embarrassed by approving one or two non-qualified 

business owners. 

(PL 108–183) 

PL 108–183 created a program to increase contracting opportunities for Service Disabled Veteran Owned Businesses within the federal marketplace by granting federal agency contracting officials 

the authority to use contracting mechanisms to meet or exceed the 

federal contracting goals for these types of businesses. 

Neither of the laws that created contracting programs for veteran 

business owners in the VA nor the Federal Marketplace called for 

asset, net worth, or personal income limitations. 

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X. Recommendations to Address the Major Issues 

1. Congress should amend 38CFR74 in such a way that will 

eliminate multiple interpretations of any sections. Each section of 

the regulation should be explicit. 

2. Veterans should not be denied the opportunity to participate 

in the Vets First Contracting program based on the following reasons: 

a. Failure to participate in the Day-to-Day Operations; 

b. Failure to devote full-time to the business; 

c. Majority owner, married and resident of a community 

property state; 

d. Failure to be the highest paid employee; 

e. Failure to have the requisite managerial experience; 

f. Making substantial loans from non-veterans; 

g. Utilizing equipment, property, or office space from a nonveteran 

3. Stick to a verification process only and not certification. 

Verify Veteran Status Only and continue Self-Certification of 

Ownership as allowed under Public Laws 106–50 and PL 108–183. 

Once the status has been verified, it does not have to be re-verified 

ever. The status will likely not change. 

4. Verification of Control should only be to the extent necessary 

to support the Ownership and to ensure that the company is not 

being used as a ‘Rent-A-Vet’ or a pass through company. 

5. Allow the verification of more than one company owned by the 

same veteran(s). Entrepreneurship should not be stifled for the 

sake of convenience. Each company should be evaluated and 

verified on its own merit. Any agency will always have the right 

to determine the select criteria to satisfy contract requirements. 

6. Immediately direct the SBA and the VA to conduct promotional campaigns to inform all federal agencies, including all 

military departments, Large Primes, and the public about the VA’s 

Verification Process being exclusively for contracting with the VA. 

7. Congress should not consider extending the provisions of 

38CFR74 to all Federal agencies and the DOD military departments until a thorough comparative analysis has been done between all SBA small business certified programs, i.e. 8a, Hubzone, 

SDB, WOSB. 

8. Congress should direct the VA to stop discriminating against 

Veteran Business Owners by imposing a different set of criteria on 

veteran owned businesses than is used to verify other types of 

small business owners. After determining the status of the owner 

as 8a, Hubzone, WOSB, SDB, etc, the rules regarding control 

should be applied the same to all small businesses. 

9. Congress should direct a study to determine how many legitimate small businesses would be denied if they were all verified 

using CVE’s interpretations of control as referenced in 38CFR74. 

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10. Congress should direct the VA to revise its overly burdensome and intrusive verification process. 

This concludes my statement. 

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47 

VIETNAM VETERANS OF AMERICA 

Funding Statement 

March 7, 2013 

The national organization Vietnam Veterans of America (VVA) is 

a non-profit veterans’ membership organization registered as a 

501(c)(19) with the Internal Revenue Service. VVA is also appropriately registered with the Secretary of the Senate and the Clerk 

of the House of Representatives in compliance with the Lobbying 

Disclosure Act of 1995. 

VVA is not currently in receipt of any federal grant or contract, 

other than the routine allocation of office space and associated resources in VA Regional Offices for outreach and direct services 

through its Veterans Benefits Program (Service Representatives). 

This is also true of the previous two fiscal year. 

For Further Information, Contact: 

Executive Director for Policy and Government Affairs 

(301) 585–4000 extension 127 

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STATEMENT OF 

DAVY LEGHORN, ASSISTANT DIRECTOR 

ECONOMIC DIVISION 

THE AMERICAN LEGION 

BEFORE THE 

SUBCOMMITTEE ON CONTRACTING AND THE WORKFORCE 

COMMITTEE ON SMALL BUSINESS 

AND 

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS 

VETERANS' AFFAIRS COMMITTEE 

UNITED STATES HOUSE OF REPRESENTATIVES 

ON 

CHALLENGES FACING SERVICE-DISABLED VETERAN-OWNED 

SMALL BUSINESSES 

MARCH 19, 2013 

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STATEMENT OF 

DAVY LEGHORN, ASSISTANT DIRECTOR 

NATIONAL ECONOMIC COMMISSION 

THE AMERICAN LEGION 

BEFORE THE 

SUBCOMMITTEE ON CONTRACTING AND THE WORKFORCE 

COMMITTEE ON SMALL BUSINESS 

AND 

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS 

VETERANS' AFFAIRS COMMITTEE 

UNITED STATES HOUSE OF REPRESENTATIVES 

ON 

CHALLENGES FACING SERVICE-DISABLED VETERAN-OWNED 

SMALL BUSINESSES 

March 19,2013 

A few months ago, twenty full time employees were laid off and had to receive unemployment 

benefits in Wisconsin when a service-disabled veteran owned construction firm lost $1.7 million 

worth of work and the ability to bid on contracts, due to the lengthy verification appeals process. 

Chairman Hanna and Chairman Coffman, Ranking Member Meng and Ranking Member 

Kirkpatrick and Members of the subcommittees: 

On behalf of our National Commander, James E. Koutz, and the 2.4 million members of The 

American Legion, we thank you for this opportunity to testify at this joint hearing on the 

challenges facing small businesses owned and controlled by veteran owned and service-disabled 

veterans seeking federal contracts using the Department of Veterans Affairs' (V A) contracting 

program. 

Many veterans find VA's Veterans First Contracting Program verification process to be overly 

burdensome, which is why The American Legion passed a resolution titled: Support Verification 

Improvementsjor Veterans' Businesses within the Department of Veterans Affairs.! 

The American Legion believes that Public Law 106-502 made all federal a~encies stakeholders 

in supporting veterans' entrepreneurship. A subsequent law passed in 2006 provides VA with 

the authority in setting higher agency standards for SDVOSB and VOSB set-asides. A new 

procurement hierarchy within V A was created, which places the highest priority with SDVOBs 

followed by VOSBs. VA refers to this program as the Veterans First Contracting Program (Vet 

First). 

I American Legion Resolution No. 108. 

2 The Veterans Entrepreneurship and Small Business Development Act of 1999. 

3 The Veterans Health Care, Benefits and Information Technology Act of 2006; PL 109-461. 

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The process of verification involves a review of a business' governance documentation and a 

determination as to whether the documentation is in compliance with VA's Center for Veteran's 

Enterprises' (CVE) legal requirements4 for admittance into the Vet First Program. The main 

challenge with the program is striking the appropriate balance between the amount of 

government intrusion necessary to verify a business and the amount of government oversight 

necessary to protect the integrity of the program. 

Good Business Sense vs. eVE's Requisite Threshold: 

Access to capital, increased capacity for performance and attraction of investors are key elements 

of growth; this growth stems from good business management. VA's requirements for 

admittance into the Vet First Program often conflict with good governance. The American 

Legion believes that V A must reconcile requirements for the growth of small businesses with the 

requirements for obtaining verification status. 

The goal of a small business is to grow and graduate from a federal small business set-aside 

program. However, some of CVE's 'unconditional control' requirements for verification stifle 

the growth of small businesses. For example, the veteran owner's control in the business must 

be so absolute for verification purposes that it wards off potential investors. 

The current requirement of 'unconditional control' prevents partnerships and the hiring of those 

who have substantial knowledge, accreditation or certification in the relevant field of the 

contract. Though the veteran owner may be well suited at managing staff, developing long-term 

strategy and making investments decisions, CVE seemingly values an owner's capacity to 

execute the operational tasks above all else. The American Legion believes that an owner's lack 

of certification and accreditation should not be a bar to verification, as long as the owner can 

demonstrate that he manages members of his staff that have the certifications and accreditations. 

A cornerstone of growing a company is also finding competent operational staff that does not 

need to be micromanaged. Because CVE values the execution of operational task above all else, 

veteran owners often find that they must demonstrate that they manage the day-to-day 

operations, the hiring, the business development and the flow of money in order to be verified. 

Though competent business owners should have all these things in their peripherals, the point of 

hiring competent experts that can work independently is so that the owner can develop long-term 

strategy, investment strategies and manage the employees. The American Legion believes that 

an owner's diminished involvement in the execution of operational tasks or reliance on 

competent operations staff should not bar the firm from verification. 

Some strategies to consider in reconciling the difference between what is required for the growth 

of a small business and what is required to obtain verification status is the alignment of the 

regulations that guide VA's verification programS with the process and regulations that guide 

SBA's SDVOSB program,6 and SBA's small business size regulations. 7 CVE should also 

consider the removal or alteration of regulations that restrict the growth of small business. 

438 CFR §74. 

5 Ibid. 

613 CFR §125. 

7 13 CFR§121. 

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A Preponderance of Evidence: 

According to CVE, in instances where subjective matters playa role in a denial, the denial is 

based on the totality of circumstances. These instances where the 'preponderance of evidence' is 

in relative equipoise, reasonable doubt is supposed to be resolved in the veteran's favor. Though 

this is practiced by VA's Office of General Counsell (OGC), this is seemingly not common 

practice amongst the examiners and site-inspectors. The American Legion has reviewed cases 

from firms that have been denied based on subjective issues, where if the 'benefit of the doubt' 

had been adequately applied by the examiner, appeals could have been avoided. 

The American Legion believes that a small business should obtain V A verification when the 

'preponderance of evidence' is sufficient8 to establish control, not when control has been 

established 'beyond a reasonable doubt.' In order to limit inconsistencies in the decisions 

rendered, The American Legion recommends that V A publish the decisions made by OGC. 

Further, in instances where applications are denied over subjective issues, OGC should have a 

heightened obligation to weigh the 'preponderance of evidence,' and explain why the 'benefit of 

the doubt' could not be resolved in the veteran's favor. 

Backlog's Effect on Small Business: 

There are severe lags in the time that is required for the initial verification application to get 

processed. It is currently just over 50 days for an initial decision and an additional 130 days for 

those cases that are appealed and go through 'request for reconsideration.' However, The 

American Legion would be remiss if we did not mention that CVE has significantly cut down the 

amount of time it takes for a small business owner to receive an initial decision. Back in October 

2012, it took substantially longer; approximately 85 days for CVE to make a determination on an 

initial application. Though The American Legion recognizes the hard work and dedication of 

VA's CVE and OSDBU staff and all the ground they have covered since the summer of 2011, 

we must remain objective and critical of the shortcomings that still plague the process. 

The American Legion has been involved with VA verification since the program's inception. 

Most notably, The American Legion is a participant in the Verification Assistance Counseling 

Program and we have worked with several small business owners who have been denied 

verification status. During the lengthy appeals process, these firms lose business; they lose the 

ability to bid on contracts and in many cases are forced to layoff employees. Hence, The 

American Legion cannot stress how grave the lengthy appeals process is to these small business 

owners whose lives and worldly investments are tied to their businesses. 

SBA and V A needs to work closer together to minimize the inconsistencies in the decisions 

being made. Currently, V A's Office of General Counsel (OGC) makes the final determinations; 

OGC does not utilize SBA's case laws in their decisions nor do they publish their decision. SBA 

has the legal expertise, 60 years of long-standing experience, ample base of precedential case law 

that can be applied to future rulings. VA does not. Further, SBA's Office of Hearings and 

8 When the evidence for demonstrating the veteran owner's control over his business is balanced. 

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Appeals (OHA) has a 15 day turnover rate for final decisions on appellate claims and OHA docs 

so with substantially less resources. Comparatively, VA's OGC currently averages over 130 

days for rendering decisions on appellate claims. In the realm of appeals, there is added value 

for VA to fall back on SBA's expertise and case laws. The American Legion would impress 

upon the Committee that increasing SBA's role in the appellate process would ensure more 

consistency in the final decisions being made. 

On the matter of the six month waiting period for reapplication,9 The American Legion questions 

why CVE places penalties for reapplication. Tom Leney, Executive Director of the Veterans and 

Small Business Programs for the Department of Veterans Affairs often says that 98 percent of 

the small businesses being denied are not maliciously trying to defraud the government and that 

the majority of the denials are fueled by ignorance of the law. If this is the case then, The 

American Legion believes that the punitive waiting period should be eliminated altogether. 

Differences between eVE and SBA: 

The American Legion supports Verification. Government contracting otIicers are risk averse; 

they like certifications and they like it when a firm has been verified by an agency. When a 

contract is awarded, a contracting officer can rest assured knowing that the recipient of the award 

has been vetted by a third party. 

SBA's model and VA's model for verifying a small business follows similar regulations, except 

where SBA allows firms to self certify as SDVOSBs and V A does not. V A requires a firm to 

enter a rigorous process on the front end, where every issue that may arise from the present and 

the future would have to be resolved before a firm is verified. SBA's process of self certification 

polices itself through status protests from the small business community once a contract has been 

awarded. SBA would then subject the protested firm to rigorous scrutiny. 

In order to root out bad actors that would seek to defraud the federal government, V A has taken 

cases heard by OHA and set those violations as bright-line rules and single points of failures in 

evaluating an application. However, despite the conjuring of numerous regulations and brightline rules, fraudulent applicants will always find ways to skirt the legal process. The 'zero 

defect' mentality that V A is admirably trying to enforce, is not realistic in application. By doing 

so, V A has inadvertently made the process punitive and burdensome for the majority of firms 

seeking verification, which created the current backlog of initial applications and appellate 

claims. 

8(a) is a business development program where SBA assists small businesses by ensuring that 

they stay eligible in the program. Comparatively, Vet First takes the form ofa certification 

program, where CVE's role is the gatekeeper, determining who is eligible. The two programs 

may serve similar purposes, but they have different goals. There is no need for V A to align their 

regulationsJO with the regulations that govern the 8(a) programs. J J Because in doing so, VA has 

created bright line rules that do not exist within SBA's SDVOSB program. 

9 Once a smal! business owner accepts a denial decision. V A stipulates that the firm must wait a period of six 

months before they can reapply. 

10 38 CFR §74. 

If 13 CFR § 124. 

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The only thing VA should take away from SBA's 8(a) program is the underlining mentality of 

leniency and assistance in ensuring that small businesses that enter the program stay in the 

program. The American Legion advocates for more human interaction in the initial application 

process. VA's news release issued on March 5, 2013 allowing applicants the opportunity to 

correct minor deficiencies before an initial denial is a step in the right direction. However, until 

CVE changes their extreme interpretations of regulations and their 'zero defect' mentality, the 

initial denial rate will remain high. 

The American Legion believes VA's rigid process of verifying ownership and control is 

overzealous and impractical. A rigid process on the front end stifles entrepreneurship. We 

reiterate that being vetted by an agency on the front end is good for small businesses; the 8(a) 

program is a good example of this. However, in order to become an effective and practical 

gatekeeper, V A needs to compromise on a reasonably positioned threshold for inclusion into the 

Vet First Program. 

Veterans' Community Perspective: 

Overall, the veteran community is not pleased with the way the Vet First Program has been 

managed by Department of Veterans Affairs' Center for Veteran Enterprise. Currently there are 

significantly more verification applications being denied than approved. The task of gathering 

and formatting the substantial amount of documentation that V A requires a small business owner 

to supply is both cumbersome and intrusive. Many small business owners are beginning to 

question CVE's reasoning that the requisite documentation actually establishes ownership and 

control. 

The American Legion believes the current application of 38 CFR §74 and VA's verification 

process is overtly adversarial and assumes that a veteran owned small business is "guilty until 

proven innocent." There have been many instances where small business owners had to threaten 

CVE with a lawsuit in cof\iunction with soliciting congressional interest in order to overturn a 

denial and restore their SDVOSBNOSB status. 

Growth o/CVE: 

The American Legion is keenly aware that there are propositions being made that would in effect 

make the verification process government-wide. With the current state of the backlog and a 

process that has not been perfected, The American Legion does not believe that CVE could 

shoulder the responsibility of handling what GAO estimates as 16,40012 more applications into 

an already strained verification program. 

As of October 2012, VA's CVE verification program had 28 full-time equivalent federal 

employees and 174 contractors. This was an increase of about 3 full-time equivalent staff and 64 

contractors since December 20 II. The American Legion does not want the current verification 

process to grow any larger with more internal processes that would delay the final adjudication 

12 u.s. Government Accountability Office. Veteran-Owned Small Businesses: Planning and Data System/or VA's 

Verification Program Need Improvement, GAO-I3-95. Washington, DC: Government Accountability Office, 2013. 

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and add to the existing backlog. Further, we would not approve of expanding the program 

government wide in its current state. 

Absent regulatory authority, the Federal Aviation Administration (FAA) has adopted VA 

Verification as a prerequisite for participating in their SDVOSB set asides. Further, the January 

2013 GAO report on the Verification Program13 did not mention that several states such as 

Maryland, Virginia, Illinois, Indiana and Pennsylvania, have adopted legislation streamlining V A 

verified SDVOSBs into state set-aside programs; these actions would inadvertently drive firms 

who never had interest in participating in the Vet First Program to seek verification status as 

well. It is not unreasonable to forecast that other states will follow suit. The verification 

program will continue to grow in the interim, regardless of whether or not government-wide 

expansion comes to pass and continue to place an unfair burden on veterans trying to compete in 

an already struggling economy. 

Conclusion: 

The American Legion will continue to work with the Small Business Administration and the 

Department of Veterans Affairs to improve the process, revise the verification program's 

regulations and to continue providing counseling services to our veteran entrepreneurs. Now is 

the time to fix the process and to find the compromise between the requirements for the growth 

of small business and the requisite threshold for obtaining verification status. The American 

Legion believes that the responsibility is upon all the stakeholders to ensure that we become 

better stewards of the verification program. 

The American Legion appreciates the opportunity to testify today. Again, thank you Chairmen 

Hanna and Coffman, Ranking Members Meng and Kirkpatrick and Members of the respective 

subcommittees for allowing The American Legion to present its views on these very important 

issues. 

For additional information regarding this testimony, please contact Mr. Jeffrey Steele at The 

American Legion's Legislative Division, 202-263-2987 or jsteele@legion.org. 

D Ibid. 

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BIOGRAPHY FOR 

DAVY LEGHORN 

ASSIST ANT DIRECTOR 

NATIONAL ECONOMIC COMMISSION 

THE AMERICAN LEGION 

Davy Leghorn was appointed to the position of Assistant Director of the Economic Division of 

The American Legion in January, 2012. Mr. Leghorn oversees the employment and small 

business portfolios and administers The American Legion's National Veteran Hiring Initiative. 

He previously worked as a National Appeals Representative for The American Legion at the 

Department of Veteran Affairs' Board of Veterans' Appeals, where he provided representation to 

veterans, their spouses and dependents in appellate hearings before the Veterans Law Judges. 

Mr. Leghorn served as a mortar infantryman in the Army witb the 2172 Armored Battalion, 417 

Cavalry and 3/15 Infantry, then as a Civil Affairs Specialist with 450th Civil Affairs Battalion. 

He currently serves as Second Vice Commander for George Washington Post #1 in The 

American Legion Department of the District of Columbia. 

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List of attachments; 

Attachment A: The American Legion Resolution No. 180 

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Attachment A: 

NINETY-THIRD NATIONAL CONVENTION 

OF 

THE AMERICAN LEGION 

Minneapolis, Minnesota 

August 30, 31, September 1,2011 

Resolution No. 108: Support Verification Improvements for Veterans' Businesses Within the 

Department of Veterans Affairs 

Origin: Convention Committee on Economic (Employment and Veterans Preference) 

Submitted by: Convention Committee on Economic (Employment and Veterans Preference) 

WHEREAS, The historical high unemployment rate of returning veterans and the current 

state of the economy present a career challenge for former military personnel, resulting in 

unemployment; and 

WHEREAS, The military is downsizing, which means that thousands of former military 

personnel who have honorably served their county will be unemployed; and 

WHEREAS, Small business development assistance to veterans who have honorably served 

this country is a veterans' benefit that dates back to the Servicemen's Readjustment Act of 1944; and 

WHEREAS, Small business benefits specifically for veterans always have included 

assistance in creating and operating veteran-owned small businesses; and 

WHEREAS, The Department of Veterans Affairs (VA) is authorized under the Veterans First 

program to enter into contracts first with Service-Disabled Veteran-Owned Small Businesses 

(SDVOSBs) and then with Veteran-Owned Small Businesses (VOSBs); and 

WHEREAS, Congress has made findings that V A has entered into contracts pursuant to the 

Veterans First program with companies that were not legitimate SDVOSBs or VOSBs; and 

WHEREAS, Pursuant to recent legislation, V A has implemented a formal verification 

process which companies must undergo prior to being found eligible to participate in the Veterans 

First contracting program; and 

WHEREAS, Many veterans have found the verification process to be overly burdensome, 

lengthy and too troublesome to undergo; now, therefore, be it 

RESOLVED, By The American Legion in National Convention assembled in 

Minneapolis, Minnesota August 30, 31, September 1, 2011, That The American Legion 

recommend the simplification and streamlining of the Department of Veterans Affairs 

verification of Service-Disabled Veteran-Owned Businesses (SDVOSBs) and Veteran-Owned 

Small Businesses (VOSBs) interested in participating in the agency's Veterans First 

Contracting Program; and, be it finally 

RESOLVED, That The American Legion endorses VA's efforts to ensure that contracts 

awarded pursuant to the Veterans First Program are awarded to companies that truly are 

entitled to receive these contracting benefits, 

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STATEMENT FOR THE RECORD: MARC GOLDSCHMITT, PMP, CEO GOLDSCHMITT AND ASSOCIATES LLC 

BEFORE THE SMALL BUSINESS SUBCOMMITTEE ON CONTRACTING AND THE WORKFORCE AND 

THE VETERANS' AFFAIRS SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS 

MARCH 19, 2013 

I wish to thank the subcommittee chairmen and ranking members for the opportunity to submit this 

statement for the record and for holding this hearing to address statutory, regulatory and interpretive 

differences in SBA and VA SDVOSB programs. 

Summary: 

As a Verification Assistance Counselor and the verification Subject Matter Expert for VET Force and the 

National Veterans Small Business Coalition, I have gained significant insights into the issues of CVE 

verification. As a small business owner, I have translated these issues to the impact and cost to the 

Veteran Small Business Community. These impacts and costs are the basis of my written and oral 

testimony. Key impacts and issues include: 

• evE interpretations minimize business reality and favor extremes. These extreme 

interpretations are major obstacles to increasing veteran small business opportunities. 

• Congress's intent to increase veteran business opportunities is not served by depriving vets of 

everyday business practices and therefore putting them at serious competitive disadvantage. 

A common business adage is to hire employees that are smarter than you. Buy/Sell agreements 

are common business practices that protect the investments of all owners. These are among 

the common business practices that are frequent causes for denials. 

• evE's "risk avoidance" approach has crippled legitimate veteran owned businesses while 

doing little to prevent fraud. eVE's website lists four successful prosecutions over a two year 

period. My understanding is that these prosecutions resulted from veteran community selfpolicing, not eVE referrals. Over this same timeframe I estimate more than 4S00 legitimate 

business have been denied. That's an average of more than 10 companies in each of your 

districts that are legitimate businesses that have been denied. I suspect that some of your 

districts may have 25, 50 or more than 100 such businesses. 

• evE's verification is becoming a de facto credentialing program for prime contractors, other 

Government Agencies and state set-aside programs. The existence of two Federal SDVOSB 

program standards is confusing, at best. Previously, as a small business, I could ignore 

verification if I was pursuing work anywhere other than VA. Now, one of the first questions I 

hear from prospective customers is "Are you eVE verified?" Watching their body language tells 

the story of how pervasive eVE's "second standard" has become. 

• The Documentation Required by CVE is excessive, incomplete and subject to compromise. 

Personal Income taxes have little or no probative value in establishing either ownership or 

control. While evE's systems do have access controls, my records can be viewed by anyone 

with access to the "library." The system lacks a control mechanism to allow access by only those 

with a need to know, and lacks an audit trail of who accessed my information and how it was 

used. 

• Major corrective actions are interpretive and can therefore be immediately implemented. 

This would result in fewer denials and a significant reduction in effort and costs for both CVE 

and the veteran community. 

STATEMENT FOR THE RECORD: MARC GOLDSCHMITT, PMP Page (1 
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The Impact of eVE's extreme interpretations 

As a small business providing services to the Federal Government, the current environment provides 

significant challenges to profitability, growth and survival. CVE's interpretations add arbitrary and 

unpredictable hurdles that make it more difficult for me to plan, finance, market and operate my 

business. These hurdles cause me, and other service disabled veteran and veteran owned small 

businesses to waste significant management time and emotional energy that could otherwise be 

invested in building my business' capability and capacity. While most of the following issues were 

eventually corrected, the impacts to all small businesses are severe and have long lasting effects. 

Unconditional Ownership 

The urban myth surrounding unconditional ownership is that "If I woke up this morning and decided to 

sell" any condition that would preclude, delay or limit this decision is cause for denial. This extreme 

interpretation ignores several business realities: 

• If that's how I run my business there wouldn't be anything worth buying, and 

• Buy/sell is a long involved process. It includes determining the value of the company, hiring a 

broker, finding a buyer and working through the buyer's due diligence. What is the likelihood of 

closing on the business sale if there is an uncooperative or hostile partner? 

Nagel Architects (Incorrect interpretations of state laws) 

Nagel Architects is a Wisconsin-based SDVOSB that is registered in Illinois as a Series LLC. Series LLC's 

are an emerging business model that provides enhanced liability protections. Nagel was the apparent 

awardee for a Million plus dollar Indefinite Delivery Indefinite Quantity (lDIQ) contract. Nagel's 

submission included documentation that Nagel is directly and unconditionally owned by an SDV. CVE 

ignored this documentation, improperly used Illinois state law and opined that the Series LLC is actually 

a holding company and therefore, denied Nagel. Nagel requested reconsideration and was again denied 

due to community property laws. Previously, Nagel had provided documentation from his attorney 

describing how, in accordance with Wisconsin law, Nagel met CVE's community property vesting 

requirements. CVE either ignored or improperly evaluated this documentation and again denied Nagel. 

The result was Nagel's loss of a significant IDIQ contract. 

An Ohio SDVOSB (Lack of Business reality) 

An Ohio SDVOSB was denied based upon a statement in the Operating Agreement that if a judge should 

render a judgment of bankruptcy, the bankrupt owner must surrender his ownership interest. The 

business reality is that as a small business owner, it is most likely the business that is the cause of the 

bankruptcy. 

A Texas SDVOSB (community property) 

A Texas SDVOSB 100% owner was denied because Texas is a community property state. The owner 

executed a property agreement with his wife providing him with 51% ownership and her with 49%. He 

submitted a request for reconsideration and was denied. His denial letter stated: "This would support a 

finding that the service-disabled Veteran only owns 51 percent of the company rather than suppart 

eVE's finding that the service-disabled Veteran owns 100 percent." 

XSIG (Lost Documentation,lncomplete documentation review, Threat of Prosecution) 

XSIG is a Maryland based security company. Organized as a "C-Corporation," XSIG has compliant By 

Laws as evidenced by its 8(a) certification. At the time of initial verification application, XSIG had a nonveteran minority owner. CVE demanded that XSIG submit an Operating Agreement which was neither 

required nor appropriate. After prolonged discussions, the owner downloaded an Operating Agreement 

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from the internet, which he submitted. Prior to CVE evaluation, the minority owner resigned all 

corporate offices and relinquished all ownership making the SDV a 100% owner. CVE was properly 

notified of the changes. CVE denied XSIG based upon the Operating Agreement even though the 

findings were no longer relevant based upon the ownership change. The owner sought CVE help in 

correcting this error and was told that he had to admit that the Operating Agreement that he submitted 

was incorrect. The owner was later notified, in writing, that he was lucky that he was not being 

prosecuted because he had submitted false information. 

Syncon (Incomplete review of documentation) 

Mark Lilly, a retired Navy SEAL Master Chief had successfully managed his Virginia-based construction 

business for two years when he applied for re-verification. Syncon was denied because his partner had 

more than 20 years' experience and he was, therefore, unduly dependent upon his partner. CVE's 

resume review totally ignored the Master Chiefs more than 20 years of relevant management 

experience. A more detailed review of both resumes revealed that the Master Chiefs Navy experience 

and business experience included military construction management while his partner's experience was 

only in residential construction. 

Clauss Construction (De Facto and Incorrect size determination) 

Clauss Construction is a California Based remediation services company. Large building demolition, 

including explosive building implosion and collapse, requires a range of NAICS codes expertise that 

includes environmental remediation, facilities management and broad construction expertise. With less 

than 100 employees, Clauss is a small business in its primary 500 employee based NAICS code, yet CVE 

arbitrarily selected a NAICS code and without due process removed Clauss from the VIP database as a 

verified SDVOSB. CVE collects payroll data information and could easily have counted the number of 

Clauss employees. When this error was pointed out to CVE, the response was to refer Clauss to the SBA 

for a formal size determination, again using an arbitrarily selected NAICS code in which Clauss is not 

small. 

VETS, Inc. (Lost documentation, Improper Removal from VIP) 

In November 2012, Veterans Enterprise Technology Solutions, Inc., a Virginia based LLC began its CVE reverification process. They immediately uploaded all applicable, updated documents to the CVE web-site. 

The CVE acknowledged receipt and scheduled our CVE Site Visit in December 2012. On 1 March 2013, 

VETS Inc. received an email message advising that they had not yet started the re-verification process 

and needed to do so as soon as possible. VETS Inc. contacted the CVE Help Desk and was informed that 

the system shows no record of VETS, Inc. initiating the re-verification process, shows no record of the 

submitted documentation and no record of the CVE site visit conducted in December 2012. 

Bravo 1-9 Construction (Gotcha!!) 

Bravo 1-9 Construction is a New Jersey based Construction business. The owner, Edward Renshaw, is a 

combat wounded veteran rated at 100% by VA. On his 0877 application, Mr. Renshaw only checked the 

veteran status box. As part of his application, Mr. Renshaw submitted a copy of his VA rating 

determination letter showing his 100% disability. In spite of having clear proof of his status as a Service 

Disabled Veteran, CVE did not "Get to yes" and, instead reached a "Gotcha" determination. 

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I wish to thank the subcommittee chairmen and ranking members for the opportunity to submit this 

statement for the record and for holding this hearing to address statutory, regulatory and interpretive 

differences in SBA and VA SDVOSB programs. 

My name is Marc Goldschmitt. I am a certified Program Management Professional (PMP), Verified 

SDVOSB Business Owner, VET Force Executive Committee Member, National Veteran Small Business 

Coalition Board Member, Vietnam Veterans of America Economic Opportunity Committee and a CVE 

Verification Assistance Counselor. Much of my business experience is in performing assessment and 

turnarounds involving people, process and technology. As the VET Force and National Veterans Small 

Business Coalition I am a Verification Assistance Counselor and evE verification Subject Matter Expert. 

Through roles, I have gained significant insight into just about every VA CVE verification issue. 

Today, however, I comment as a Service Disabled Veteran Owned Small Business owner. In this 

capacity I, like so many of my fellow veterans, have been personally affected by CVE's handling of the 

Verification process. evE extreme interpretations preclude use of best business practices and apply 

little or no business sense or reality. By forcing me to align my business model with what they think is 

right, my ability as a small business to do what is right and what is needed to build capacity and 

capability is artificially limited. This reduces my competitiveness in nonNA 

My comments are intended to address the outcomes and impact of evE verification statute, regulation 

and interpretation on the daily life of a veteran small business owner. 'make my comments through a 

series of simple observations and questions. These are not new issues or sudden revelations. Some 

have been on the table for more than five years. My overarching perspectives are: 

My perspective 

The Congress supports small businesses and knows that successful small businesses are essential 

building blocks for a strong, growing economy and a secure nation. 

All Government Agencies are stakeholders in building a Small Business and Service Disabled Veteran 

Owned Small Business industrial base and capability. Statutes such as Pll09-461 elevated the 

Department of Veterans Affairs to a leadership role in developing SDV industrial capacity and capability. 

Moreover: 

Verification is an essential tool in managing the integrity of VA's SDV initiatives 

Verification reviews corporate governance documentation and determines compliance with 38 

CFR 74 requirements 

Perfect statutes, regulations, implementations and interpretations do not exist, and 

The issues that have the greatest negative impact on meeting PL 109-461's goal of 

increasing veteran opportunities are interpretive and can, therefore, be immediately 

implemented. 

Contrasting Perspectives 

CVE's personnel are highly committed and motivated. Many are veterans The verification program, 

however, is a business ownership program that is applicable to veterans. As a business owner, the 

issues' face with start-up, financing, regulations, payroll, benefits, accounting, business 

development, etc. are not issues that my military service prepared me for .. Although I appreciate 

the fact that many of the eVE staff have walked in my shoes as military members and now as 

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Veterans, they have not functioned as veteran business owners, and in many ways, are unable to 

identify with the requirements of the business world or the needs of small business owners such as 

myself. As I look at issues of ownership and control, I will contrast eVE's extreme interpretations to 

business realities. 

The Business Governance Challenge 

The Governance Challenge: Balancing what's good for business versus what's needed for verificatian 

Good governance is an essential ingredient to business success, because: 

It fuels growth and profitability 

It must be demonstrated to be eligible for obtaining affordable capital, bonding, etc. 

It is essential to effective contract performance, and it is 

The business equivalent of "Smart Government" 

Governance documentation is required when a business is protested - while eVE verification activity is 

initiated by the veteran and the veteran can spend as much time as needed before hitting the submit 

button, in a protest situation the documentation must be submitted within five business days. Spending 

the time to develop the documentation and supporting processes to submit a verification application 

can be helpful, but when the eVE dictated business model requirements are contrary to best business 

practices, a program that was designed to help veterans becomes one that creates artificial barriers and 

reduces my ability to compete both in VA and all other Federal Agencies. These interpretive challenges 

can and must be immediately corrected. This is Smart Government and good business. 

What constitutes "Control?" 

What actions, functions and decisions constitute control? Does an individual control operations or 

manage operations? Is control strategic, tactical, operational or some combination? My perspective is 

that control originates from majority ownership interest and involves the strategic direction of the 

company and the authority to allocate resources to implement that strategy. It may also include the 

ability to delegate the management of resources, usually subject to performance metrics. For me to 

exercise control, I do not have to make every decision, but I do have to delegate appropriate authority 

and constraints to allow those individuals that can contribute and help grow my business to realize their 

full potential which means I am growing the SDV industrial base and capability as envisioned by 

Congress in Small Business and Veteran Owned Business statutes. eVE must differentiate between 

control, management and operations and provide a concise definition of the functions, actions, 

decisions and authorities that constitute control of the company. This is an interpretive issue that can 

be immediately corrected. 

Is CVE a "Get to Yes" or "Gotcha" Organization? 

CVE boasts that it is making positive strides in moving from a "Gotch a" mentality to a "Get to Yes" 

mentality. This was a constant theme during eVE's recent training session held on February 22, 2013. 

The VA's Office of General Counsel representative stated that CVE should be using a "Reasonable 

person" or preponderance of evidence standard. CVE's initiation, examination and evaluation teams 

provided the dose of reality and described a process with multiple redundant layers of checkers each of 

whom repeated that any ambiguity, conflicting information or uncertainty would result in denial. 

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Consequently CVE's criteria seem to exceed those for capital crimes of "beyond a reasonable doubt" and 

go to a new standard of "beyond any doubt." CVE must align priorities to in order to use the verification 

program to help increase opportunities for veteran owned small businesses rather than crippling 

veteran owned small businesses with excessive criteria and documentation submission requirements. 

Our challenge is to work collaboratively to change eVE from its historical "Gotch a" roots to a shining 

example of "Smart Government." 

Public Law 109-461 isn't just Verification and Vets First 

A major portion of PL 109-461 deals with security and protection of Personal Health Information (PHI) 

and Personally Identifiable Information (PII). CVE addresses some of these requirements in 38 CFR 74 

(Records Management Sections) and its System of Records Notifications (SORN). 

CVE's website and instructions to applicants and on its web site and correspondence also address these 

requirements by providing guidance for redaction of PI!. These instructions, however, raise several 

concerns: 

• The need for redaction indicates CVE's concern about the ability to manage and control PII 

• The CVE recommended process does not follow "De-Identification" guidance provided in VA's 

Privacy and Security Course. This interactive, web based course is an annual requirement for all 

VA Government and Contractor personnel. 

• As a note, if applicants correctly redacted the documents they submit, these documents would 

not be usable by CVE to assess ownership and control. 

OIG Report 10-02436, July 25, 2011 - Did VA Management swing the 

wrong pendulum? 

The referenced OIG report may not be a valid metric. There was an apparent problem with due 

diligence of VA's SDVOSB awardees' status. The implication is that all of these companies had been 

improperly verified and that, therefore, there are serious flaws in the CVE verification system. When the 

report says that 36 out of 42 were not qualified, it is silent on several key aspects: 

• How many of the 42 had actually been CVE verified? 

• How many of had applied for verification? 

• What criteria did OIG use to determine if these companies met 38 CFR 74 requirements? 

Were the problems companies that slipped through the cracks, or lack of process or effort for 

CO due diligence? 

CVE's "risk avoidance at any cost" has proven to be a costly, ineffective and harmful strategy. Based 

upon the referenced report, did VA management address the correct cause by directing Mr. Leney to 

implement this risk avoidance program or should they have focused on acquisition processes and 

issues? 

Is eVE collecting the correct documentation? 

Antoine de Saint-Exupery said it best - "Perfection is finally attained not when there is no longer 

anything to add but when there is no longer anything to take away .. " 

• Are personal income taxes required for determination of ownership and control or are they 

superfluous? 

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Resumes are often targeted to job search, technical or business development needs. Does 

collecting resumes from anyone other than the majority veteran owner serve any purpose 

other than to increase the cost and time of verifications? 

For LLC's many (if not most states) determine membership (ownership) interest by relative 

capital contributions, yet, to my knowledge, CVE has not asked for Balance Sheets from 

LLC's to verify the relative capital contributions. Corporate K-1's can be an indicator, as can 

the Operating Agreement, but the balance sheet is the only definitive measure. 

Death, Taxes and Denial 

CVE requires excessive personal tax information. In our February 22 training session, CVE 

personnel stated that they require all Federal Income tax Schedules and W-2's for owners and 

their spouses. I'm not sure how my medical deductions, charitable donations, other personal 

deductions or anything on any of the IRS' personal income tax schedules impact my ownership 

or control. Corporate tax returns contain the required information about ownership through Kl's and distributions. If I'm a sole proprietor, how relevant is my Schedule C to assessing 

control? CVE must limit collection of tax information to corporate tax return K-1's and only 

request personal tax information if the Office of Inspector General concurs that the additional 

information is required to determine if further OIG investigations are warranted. 

CVE also requires complete payroll information. When properly redacted this large stack of 

paper has zero probative value. That's a lot to review for what could be accomplished by a 

simple affidavit or letter of explanation followed up by a site visit or IG referral if there is 

sufficient cause for concern. 

Is Affiliation a eVE issue or concern? 

Affiliations are issues with size and are defined in 13 CFR 121, an SBA regulation. During my reverification, CVE noted W-2 income and distributions from another company - one that I 

previously had been a partner in - and they made strong requests for documentation that 

included the previous three years' corporate taxes and personal taxes of all of the other 

company owners. I avoided a protracted fight by submitting a redacted copy of the sales 

agreement. I note that 13 CFR 121's definition of affiliation by common ownership or 

management requires that the individual(s) control both entities so why CVE would deem it 

important to collect this information to determine if I control my "applicant" company? 

Change eVE from a "risk avoidance" mentality to a Smart Government approach of risk management 

and mitigation. eVE requires experienced business ownership experience and oversight to place each 

standard, presumption and conclusion in a realistic context. This will help eVE to assesses the impact 

and unintended consequences of proposed eVE requests for information, requests for clarification and 

denials. 

Similar but Equal? 

SBA uses 13 CFR 125 to determine SDVOSB status. CVE uses 38 CFR 74. CVE has cross walked 38 CFR 74 

with 13 CFR 125 and the 8(a) program's 13 CFR 124. From reviewing this crosswalk, there are few 

common items from 38 CFR 74 and 13 CFR 125. 13 CFR 124 and 38 CFR 74 are highly similar, but are 

they equal in the context of implementation and interpretation? The draft crosswalk that I was 

provided (current as of February 15, 2013) is not clear and convincing, and, in my opinion, falls far short 

of the "reasonable man" standard. 

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CVE is claiming that 38 CFR 74 aligns with SBA's regulations and interpretations. As a service disabled 

veteran owned small business, I do not have any issue with SBA's regulations and interpretations, nor 

am I aware of any veteran business owner who has expressed a concern with SBNs regulations. If SBA's 

regulations are good and correct and VA's regulations are aligned, then why is there a major push to 

change VA's regulation? Which is the case? ,Is VA's regulation faulty and in need of correction or is it 

aligned with a regulation that has been effective and accepted for many years by SDVOSB's and the SB 

communities? If eVE's interpretations of existing regulations differ should they not immediately be 

brought into line with that which is correct within the law? 

eVE decisions lack accountability 

There is no accountability for CVE errors. Companies suffering from incorrect CVE decisions have lost 

contracts and opportunities and, short of expensive lawsuits, there is no remedy. VA and CVE have not 

published statistics on the number of apparent awardees who are denied and, therefore, have lost 

awards. Those of us who have been working with veterans and CVE have each experienced apparent 

awardees that have lost significant contracts due to erroneous denials. Verification cases that I have 

worked, both formally and informally, have been provided independently to the HVAC 0&1 Committee 

Staff Director and are not included here because the owners feared CVE orVA retribution. Legislation 

and/or Executive action is required to define who controls eVE, establish accountability for incorrect or 

arbitrary and capricious CVE decisions and to define reasonable remedies for companies and 

individuals who have been financially and professionally harmed. 

Do the math - How long does Verification Really Take? 

Veterans use elapsed days from when they pushed the button until they get verification as their metric. 

CVE uses processing days (with timeouts) until a decision is rendered. For approximately 60% of 

applicants, CVE's under 60 days metric can therefore translate to 90 days. Of the other 40%, 

approximately half must wait six months or more and the other half will wait more than a year. 3,000 

legitimate companies each year pay a significant penalty while only a handful of bad actors have been 

prosecuted or debarred. SBA is required to complete an SDVOSB status determination within 15 

business days using substantially fewer resources. With significantly larger volumes, CVE can realize 

economies of scale and implement production line concepts. What is preventing CVEfrom achieving 

the same metric as SBA at a lower cost per case? 

Verification is the middle of a long journey 

For many veterans this is just a step from active duty to fulfilling their business dream. There 

may be long periods of rehabilitation, then, after release from active duty, there's the gauntlet 

of Compensation and Pension Claims. For my generation, diagnoses may only recently have 

been accepted or may have been improperly coded for years. In my case, it was 35 years before 

I had a proper diagnosis. Currently, I'm at just over 8 years and one 1month in the 

compensation and pension system. Like CVE, I was initially denied, then, with the same records 

and evidence, I subsequently had several contentions granted. eVE and VA need to be sensitive 

to the total veteran experience and act with the proper deference. 

Verification isn't just for VA anymore 

Many prime contractors, other Federal Agencies and State Governments now use CVE verification as a 

means of separating the "real" SDVOSB's from the herd. Consequently, the impact of a CVE denial 

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already reaches well outside of VA. Denials artificially restrict legitimate SD/VOSB businesses from 

contracts and subcontracts in other venues. 

The Federal Aviation Administration (FAA) requires eVE verification for their SDVOSB set-asides 

• Other Federal Agencies occasionally require eVE verification as a procurement eligibility 

requirement. These cases are usually brought to the OSDBU's attention and quickly corrected. 

• Other Federal Agency decision makers are asking "Are you eVE certified?" The perception, as 

reported to me by veterans, is that they are using eVE verification as a "Gatekeeper" function 

for either continued discussions or as a basis for requesting three quotes. 

• States are jumping on the bandwagon and requiring eVE verification to compete for state 

SDVOSB set-asides including, among others, Illinois and Indiana. 

Legislation or Executive action is required to compel eVE to immediately correct eVE interpretive 

issues that are resulting in outcomes that are not compliant with PL 109-461 and are unnecessarily 

harming veteran owned businesses. 

Does 38 CFR 74 comport with the law? 

Letter 

Public Law 109-461 states multiple times that VA is to determine if a company is veteran owned. VA's 

verification regulation introduces a significant change to the law through the requirement for 

"unconditional" ownership. CVE's interpretations of unconditional ownership are the basis of many 

denials. Does CVE's addition of "unconditional" constitute an impermissible reading of the statute? 

Intent 

Public law 109-461 is clear in its intent: To increase opportunities for Veteran Owned Small Businesses 

and Service Disabled Veteran Owned Small Businesses. Pl109-461 envisioned achieving this outcome 

through set-aside priorities (Veterans First) to facilitate access to procurements and Verification to 

assure that awards go to legitimate SDVOSB/VOSB companies. The expected outcome: an increase in 

the Veteran Owned Small Business industrial base: more companies, stronger capabilities, increased 

capacities. 

VA has achieved unprecedented levels of contract dollars to Veteran Owned and Service Disabled 

Veteran Owned businesses. So, why is the veteran community concerned? If I were a conspiracy 

theorist, I would be having a field day. Extended times to receive a disability rating, extended times and 

high denial rates to become verified. Then when we think we have reached the peak, we see another 

mountain where through vehicles such as VA's Transformation Twenty-One Total Technology (T4) and 

awards through the Navy's Space and Naval Warfare Command (SPAWAR) many IT opportunities are 

"off limits" even to those incumbent SDVOSB contractors that are successfully meeting the requirement. 

To many of my veteran brothers and sisters, these create the perception that more dollars are going to 

fewer companies. 

While these issues provide a brief background for the pervasive concern and distrust of VA from the 

Veteran Community, the issue of today's hearing is how has VA's verification program supported the 

goals of Pl109-461 and would it be beneficial to extend this program Government-wide? 

Through verification, there are fewer SD/VOSB companies that are available to compete for VA 

procurements. The system is clearly broken. As a veteran business owner, I contend that the problem 

lies in interpretations and presumed standards for the current regulation. CVE believes that the root 

cause is the current regulation - which, in essence, states that the current regulation does not comport 

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with the law. To me, this says that there is a legal and moral obligation to fix the problem now, not 

through a protracted Regulatory revision that will continue the bleeding for another two years. 

As a business owner, I need the shackles removed now so that I am on a level playing field and 

reasonably positioned to obtain capital, resources, partners and all of the necessary ingredients that I 

need to create meaningful jobs. It's not relevant to me if the fix is interpretive, regulatory of statutorywe are entering a challenging period and unreasonable constraints need to be removed now. 

Ghosts of Verifications past 

From its inception, CVE verification has been a contentious program that has caused much confusion, 

disdain and discontent within the veteran community. Known perennially as a "black hole" process, 

CVE's verifications program has stirred many veterans' emotions and has created a deep distrust of all 

things VA. While there is some truth to comments that many veterans may not understand the 

program, attorneys who have been working with SBA's 8(a) and HUBZone programs for more than 20 

years and those of us who have been working with CVE and veterans for years remain baffled by many 

CVE decisions and standards. 

Ghosts of Verifications Present 

CVE claims to be using 13 CFR 125, the SDVOSB regulation, as the baseline. A review of CVE's 

comparative analysis shows that when both SBA regulations address an issue, CVE's 38 CFR 74 language 

is most frequently verbatim from the 8(a) regulation. The 8(a) program is a Business Development 

Program that has documentation and business model requirements that go well beyond the business 

model requirements for the SDVOSB program. It is easy to say that these items need to be corrected in 

a Regulatory change, but, in my opinion, it is the interpretation of these requirements, not the 

existence, that are the root cause of problems in the verification program. This has been the mantra of 

the veteran community since the inception of the verification program. 

These interpretations have affected my ability as a small business to capitalize on partners and sweat 

equity. When I had my attorney draft an Operating Agreement to bring on a partner, he stated that I 

was crazy - no one that is in their right mind would sign the agreement. He was right. With the right 

partner, I could have accelerated my growth and profitability. 

Ghosts of Verifications Future 

My understanding is that it is the intent of this joint committee hearing is to assess the current state of 

CVE verification and, identify needed statutory, regulatory and interpretive changes. that are needed 

and, in some cases, long overdue. Perhaps recent GAO report and Court of Federal Claims cases such as 

Miles Construction will focus CVE interpretations on alignment with SBA interpretations and provide a 

dose of reality, allowing CVE to self-initiate required changes. My remaining comments will address 

recommended areas for change and strategies. 

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Statutory: 

Business 

Interpretive: 

Business benefits versus business interest (use Miles Construction COFe) 

Great 

Any term that is subjectille 

Regulatory: 

Best Business 

Provide a detailed mlmr,~r''')n 

125 and 13 CFR 

STATEMENT FOR THE RECORD: MARC GOWSCHMITT, PMP 

a specified threshold 

CVE standards 

CFR rnrrc«nnnrlir,p language from 

38 

rage I 
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Where 38 CFR 74 language is not in either 13 CFR 125 or 13 CFR 121, remove it unless 

there is a clear statutory, regulatory and business rationale that demonstrates the 

applicability to both the spirit and letter of Veterans First as envisioned in Pl109-461. 

Remove or modify 38 CFR 74 language that limits industrial base growth 

For language that is common to 38 CFR 74 and 13 CFR 12S (or 13 CFR 121) provide and 

compare VA's standards with SBA's standards/case law. 

Provide a Government wide "sunset" provision that allows the surviving spouse or heirs 

to maintain the VOSB or SDVOSB status of the business for a reasonable period of time 

Create a VA CVE advisory board, modeled after existing VA advisory boards, to report to the 

Secretary and provide independent assessment of CVE policies, processes and interpretations. 

The advisory board should consist of Veteran and Service Disabled Veteran Business owners and 

should include a mix of start-up, small business and mid-tier businesses. 

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SUMMARY 

Testimony of Jonathan T. Williams I 

Partner, PilieroMazza PLLC 

Before the Subcommittee on Contracting and Workforce and 

The Subcommittee on Oversight and Investigations 

Committee on Small Business and 

Committee on Veterans' Affairs 

V.S. House of Representatives 

March 19,2013 

SDVOSBs are confronting many challenges in attempting to take advantage of the two 

federal procurement programs for SDVOSBs. The challenges include: 

:.- The two similar, but different, sets of rules cause confusion and lead to conflicting 

interpretations and inefficiency 

:.- Non-business-friendly interpretations of existing rules decrease the usefulness of 

the programs for veterans 

:.- "Deny first and ask questions later" approach to the SDVOSB verification process 

has led to many avoidable denials, as well as lengthy and expensive 

reconsideration requests 

:.- Lack of visibility over the VA's application results 

:.- Administrative errors in the verification process have caused many SDVOSBs to 

lose valuable contracts with no recourse 

To address the challenges facing SDVOSBs, the V A and the SBA should take several 

steps, including: 

:.- Adopt more business-friendly interpretations of the regulations, including by 

permitting reasonable transfer restrictions on veteran ownership and by not 

requiring SDVOSB joint ventures to be separately verified by CVE 

:.- Engage in more back-and-forth with veteran applicants while their verification 

application is pending and institute an initial screening phase to address issues in 

the applicant's corporate records that can be easily corrected 

:.- Confirm that the SBA should handle all size and affiliation inquiries 

:.- Explore ways to minimize the unnecessary loss of contracts based on 

administrative errors and delays in the SDVOSB verification process 

:.- Consolidate the two regulatory schemes into one with regulations and an appeal 

process similar to what is currently available through the SBA 

This is Mr. Williams' final written testimony and replaces the previously submitted written 

testimony dated March 7, 2013. 
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INTRODUCTION 

Chainnan Coffman, Chainnan Hanna, and distinguished Members of the Subcommittees, 

I would like to express my sincere thanks for the invitation to subm it testimony for this hearing 

of the House Committee on Small Business Subcommittee on Contracting and Workforce and 

the House Committee on Veterans' Affairs Subcommittee on Oversight and Investigations. I am 

honored to present my experiences and those of my law finn in representing small businesses 

that participate in the Department of Veterans Affairs ("VA") and Small Business 

Administration ("SBA") procurement programs for Service-Disabled Veteran-Owned Small 

Businesses ("SDVOSBs"). 

My name is Jonathan Williams. I am a partner with PilieroMazza PLLC, a womanowned law finn based in Washington, DC. We work primarily with small and mid-sized 

government contractors regarding all manner of issues that arise when doing business with the 

federal government. One area of government contracting for which we are well known is our 

familiarity with the federal procurement programs for small businesses, including the SDVOSB 

programs and the SBA's Section 8(a) Business Development Program. I have practiced law for 

12 years and nearly all of this time I have spent working with government contractors, including 

small businesses that utilize these programs. 

I am testifying on behalf of myself as well as on behalf of my colleagues at PilieroMazza. 

My testimony is based on our experiences and knowledge of the V A and SBA SDVOSB 

programs, the differences and inconsistencies between the programs, the challenges SDVOSBs 

face in using the programs, and the ways that we believe the programs could be improved to 

operate more fairly and efficiently. 

TESTIMONY 

My testimony will address several of the most common challenges that our SDVOSB 

clients have confronted when seeking to use the SDVOSB contracting programs. These 

challenges occur in the interpretation of the similar, but different, regulations governing both 

programs, the verification process for entrance into the VA's program, and the administration of 

both programs. I will also discuss how, based on our experiences, we believe the SDVOSB 

programs can be improved to lessen the challenges for SDVOSBs and improve efficicncy and 

oversight for the government. The SDVOSB programs are well-intentioned and have helped 

many veterans, but changes are necessary to ensure that these important programs are more 

accessible, more efficient, and help more of our military veterans to "realize the American dream 

they fought to protect." 

A. Challenges Facing SDVOSBs in Using the SDVOSB Programs 

1. Difficulties with the eVE Verification Process 

The biggest challenge facing the SDVOSBs with which we work is to navigate the 

verification process through the V A's Center for Veterans Enterprise ("CVE"). The application 

process is generally lengthy and confusing, with requests for a lot of documents, many of which 

may be duplicative or foreign to veterans. We have heard from many SDVOSBs about the need 

to submit documents multiple times because the VA lost their infonnation. Last summer, we 

2 
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heard from many SDVOSBs whose profiles in www.VetBiz.gov were apparently erased due to a 

technological issue within the VA. 

There is also a lack of consistency in the application process and results. For example, 

many firms have been denied because of perceived problems in their corporate records, such as 

transfer restrictions2 in the operating agreement or bylaws and issues regarding voting and 

quorum for the board of directors. Yet, we have worked with firms that have been accepted into 

the program even though they have some of the same issues in their corporate records. 

Similarly, some applications and requests for reconsideration have been resolved in a few 

months, while other applications and requests for reconsideration have taken more than a year. 

Our clients often complain about the lack of feedback from the V A once the application 

is submitted. The V A generally sends emails to applicants to keep them updated on their 

progress through the system, but not all firms receive these messages. And even when received, 

the messages convey little more than the overall status of the application. Coupled with the fact 

that it is very difficult to get someone from CVE on the phone to talk to you about your 

application, the unknowns during the application process often make it frustrating for veterans. 

Because there is little discussion between the VA and the applicant about the substance of 

the application while it is pending, the first time veterans learn of problems in their application is 

typically when the VA issues a denial letter. The "deny first and ask questions later" approach to 

the application process is one of its biggest problems, in our view. We have seen some 

improvement from the VA on this in the last year, in particular for reconsideration requests 

handled through the VA's Office of General Counsel. That said, there is still not as much backand-forth with applicants as there should be. The SBA does a better job of this in processing 

applications for the 8(a) Program; the SBA typically sends questions to applicants to ferret out 

potential denial issues before the application is actually denied. In our experience, the V A forces 

most applicants to file a reconsideration request to address problems in the application after the 

application has been denied. 

The lack of communication between the VA and applicants is problematic for several 

reasons. First, it forces the SDVOSB to go through the time and expense of a reconsideration 

request, often to address issues that could have been easily corrected while the application was 

pending. Indeed, over 60% of the reconsideration requests we have handled since mid-2011 

involved correcting issues the V A had found in the SDVOSB's corporate records. Such issues 

include transfer restrictions on veteran ownership and quorum or voting provisions that do not 

make clear that the veteran is in total control of the company. All SDVOSBs are small 

businesses, and resources are often scarce. These firms tend to obtain their operating agreements 

from the internet and these generic documents regularly include boilerplate provisions that are 

not consistent with the requirements of the SDVOSB programs. Generally, the issues are not 

difficult to correct. In fact, in every one of the cases we handled involving problems with 

corporate records, we were able to correct the issues on reconsideration. A lot of time and 

expense could have been saved if the VA had raised the issue sooner and helped the veteran to 

understand and address the issue before the application was denied. 

A common transfer restriction is a "right of first refusal" whereby the owners of the company 

agree that, in the event an owner has an offer to buy his interest in the company, he must first give the other owners 

a right of first refusal to buy his interest. 

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With so many finns ending up in the reconsideration process that do not need to be there, 

it is not surprising that the V A has been unable to keep up with the reconsideration case load. 

The VA's regulations envision a 60-day period for reconsideration. In our experience, the VA is 

generally running one to two months behind and we have had some reconsideration requests take 

more than a year. The SBA generally makes SDVOSB eligibility decisions much sooner than 

the VA. We believe this is in part because the SBA has had a significant head start in managing 

application and review processes and has already worked through many of the growing pains the 

V A is currently experiencing. 

Another challenge of the reconsideration process is that the VA often finds new reasons 

to deny a finn after the finn successfully addresses the initial reasons for denial. This leads to 

multiple rounds of reconsideration requests for the same firm. It is very frustrating, not to 

mention costly and time consuming, for an SDVOSB to be told it was denied because of A, only 

to wait three or four months (or more) to be told that A has been resolved but now the finn is 

denied because of B, C, and D. This happens frequently and is a further indication that the initial 

denials often come too soon and without enough discussion with the applicants. 

The VA application process also lacks sufficient administrative review. Beyond the 

reconsideration process, which essentially returns the application to the same decision-makers 

for a "do over," applicants who believe they did not get a fair shake must file a law suit in federal 

court. The high cost of federal court litigation is no doubt a barrier to entry for many SDVOSBs. 

The SBA's Office of Hearings and Appeals ("OHA") is a good example of an administrative 

appeal process that offers review at a level above the initial decision-makers, by an 

administrative law judge, but that is generally far less costly than federal court litigation. At 

OHA, small businesses (including SDVOSBs) can have an administrative law judge review 

whether the initial SBA decision-maker made a clear error of law or fact. This is a helpful tool 

for small businesses, many of whom are successful in overturning SBA decisions through 

appeals to OHA. The fact that OHA decisions are publicly available also benefits the small 

business community at large. Conversely, there is no publicly available database of VA 

reconsideration or appeal decisions, which keeps veterans and their representatives in the dark 

about the VA's interpretations and precedent. 

2. Flaws in the Verification Process Cause Veterans to Lose Valuable 

Contracts 

The application and reconsideration challenges are more than simply frustrating. When 

the CVE makes a mistake in denying an application, or delays for months in deciding a 

reconsideration request, this can cause veterans to lose contracts worth millions of dollars. We 

have been contacted by many firms that lost contracts because of easily correctable issues in 

their corporate records or because of administrative errors. Currently, VA contracting officers 

are not required to wait for a decision on a pending reconsideration request or appeal before 

moving on from an initial award decision. Some SDVOSBs have been successful in preserving a 

contract award after an adverse eligibility ruling because they had the resources to file for an 

injunction or the contacts with the right people within the VA. But for too many SDVOSBs, the 

contract is lost. In our view, not enough is being done to ensure that the good actors do not lose 

valuable contracts because of mistakes or delays in the VA process. 

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3. Inconsistencies Between the VA and the SBA Programs Has Led to 

Confnsion and Inefficiency for SDVOSBs and the Government 

In our practice, we regularly encounter SDVOSBs and government procuring officials 

that are confused by the similar, but different, sets of rules that govern the VA and the SBA 

programs for SDVOSBs. For example, SDVOSBs have been forced to file bid protests with the 

U.S. Government Accountability Office because of procuring officials who have applied the 

VA's verification requirements to non-VA procurements. Contracting officers have sent 

SDVOSB protests on a non-VA contract to the VA, instead of the SBA. And VA contracting 

officers have failed to forward size protests to the SBA. 

Contrary to the VA's view, there are many differences between the SBA and VA 

SDVOSB regulations. For example, there are several aspects of the VA's regulations (and how 

the agency interprets its rules) that are less business friendly than the SBA's SDVOSB 

regulations. The VA's regulations require the veteran to be the highest compensated, while the 

SBA's SDVOSB rules do not. The same is true for the VA's requirement to have a veteran as 

the full-time manager of the company, which is not found in the SBA's rules. The VA appears 

to have patterned its rules off the SBA's rules for both the SDVOSB and 8(a) programs, which 

has created confusion and different standards for admission into the VA's program. 

Recently, the U.S. Court of Federal Claims issued a decision that underscores the 

inconsistencies between the two regulatory schemes. Both the SBA and the VA have interpreted 

their regulations as prohibiting transfer restrictions (such as a right of first refusal) on the 

veteran's ownership. In Miles Construction, LLC v. United States, No. 12-597C (Fed. Cl. 2013), 

the Court of Federal Claims found that the VA's rules do not permit the VA's prohibition on 

transfer restrictions. We believe the Court of Federal Claims reached the correct decision. In the 

past, we have had clients decline to pursue CVE verification because the owners were not able to 

agree on the lack of transfer restrictions. Miles Construction is an important, business-friendly 

ruling for veterans because reasonable transfer restrictions will help veterans to attract minority 

partners to help run and grow their businesses. And these restrictions do not impede the 

veteran's ownership and control of his company because the restrictions only come into play 

once the veteran has decided to sell his interest and leave the company. 

If the Miles Construction decision stands, veterans will be able to institute reasonable 

transfer restrictions on their ownership and make their companies more attractive to minority 

investors. However, such flexibility would only be available at the VA. This is because OHA 

has issued several decisions finding that the SBA's SDVOSB regulations prohibit transfer 

restrictions. Miles Construction overruled the VA's interpretation, but not the SBA's 

interpretation. As a result, unless the SBA/OHA adopts the rationale of Miles Construction, 

there will likely be a lot of confusion between firms that operate in both programs, as they will 

be permitted to have transfer restrictions for one but not the other. In effect, this will greatly 

diminish the significance of Miles Construction as a business-friendly ruling for SDVOSBs that 

operate in both programs. 

Another inconsistency between the two programs is in how they treat SDVOSB joint 

ventures. In our practice, joint ventures are a common and useful tool for small businesses 

hoping to perform larger projects that they would not be able to perform on their own. The 

SBA's rules permit ajoint venture to be considered an SDVOSB for a procurement so long as 

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one of the joint venture partners is an SDVOSB. However, the VA only permits ajoint venture 

to be considered an SDVOSB for a procurement if the joint venture itself goes through the CVE 

verification process. This is not an explicit regulatory requirement - it is a function of how the 

VA has interpreted its rules and could be altered with a new interpretation. The VA's current 

interpretation creates inefficiencies because it requires a second verification process that is not 

necessary. If one of the joint venture partners has already been verified by CVE, the verification 

should be applied to the joint venture. Such an interpretation would be consistent with how the 

SBA approaches SDVOSB joint ventures and would make it easier for SDVOSBs to take 

advantage of joint ventures for V A procurements. 

The V A and the SBA could change their interpretation of some of these rules, or modify 

their rules, to create more harmony between the two programs and thereby decrease SDVOSB 

confusion and increase government efficiency. But we question the utility of creating two 

identical sets of regulations for two distinct programs. As long as two programs exist, there will 

be an element of inefficiency that cannot be eliminated since there are two agencies essentially 

doing the same thing, but in different ways and with different interpretations. 

4. Several VA Rules Infringe the SBA's Role as the Arbiter of Small 

Business Status 

The VA's rules allow the VA to find that a veteran does not control his company if 

"[bJusiness relationships exist with non-veterans or entities which cause such dependence that 

the applicant or participant cannot exercise independent business judgment without great 

economic risk." 38 C.F.R. § 74.4(i)(4). There is no similar regulation for the SBA's SDVOSB 

program. Recently, we have seen an increase in the number of cases where the V A has 

questioned an SDVOSB's eligibility based on this regulation. The problem, in our view, is that 

the regulation draws on principles of affiliation and small business status that are the SBA' s 

exclusive purview under 13 C.F.R. § 121.103. In several cases, the VA has appeared to use 

concerns about affiliation to find that a veteran does not control his company. Affiliation 

concerns should be addressed by the SBA, not the VA. 

In fact, OHA has found that the standard for veteran control under the SBA's SDVOSB 

regulations is not the same as the standard for control under the SBA's small business affiliation 

rules. In DooleyMack Gov't Contracting, LLC, SBA No. VET-159 (2009), the SBA had 

concluded that a veteran did not control his company because "business relationships exist which 

cause such dependence that [the veteran] cannot exercise independent business judgment without 

economic risk." This SBA conclusion, which OHA rejected, is nearly identical to the VA's 

regulation at 38 C.F.R. § 74.4(i)(4). OHA overturned the SBA's analysis because the judge 

found that the SBA had confused the affiliation control principles under 13 C.F.R. § 121.103 

with the veteran control principles under 13 C.F.R. § 125.10. That same confusion is evidenced 

in 38 C.F.R. § 74.4(i)(4), which ostensibly addresses veteran control but reads like an SBA 

affiliation rule from 13 C.F.R. § 121.103. 

The VA's regulations also provide that the CVE will determine affiliation by applying 

the SBA's affiliation rules (38 C.F.R. § 74.5). Another VA rule allows the CVE to deny an 

application if the CVE determines that a concern does not qualify as small, even if the SBA has 

not issued a size ruling for that firm (38 C.F.R. § 74. I 3(d». Under this rule, a firm whose 

application is denied because of a size ruling by the CVE may subsequently request a formal size 

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detennination from the SSA, but the finn would have to file a new application with the eVE 

after receiving a size determination from the SSA. In these ways, the eVE is able to perform 

size and affiliation analyses that should be left to the SSA. 

Allowing the eVE to make size and affiliation detenninations when reviewing an 

SDVOSS application appears to be inconsistent with the VA's statutory mandate, which 

indicates that small business status for the VA's SDVOSB program is determined based on the 

Small Business Act, which the SBA is entrusted to implement. Furthennore, the V A's 

Acquisition Regulation § 819.307(a) recognizes that all protests pertaining to the size of an 

SDVOSB must be sent to the SBA for a size detennination. Since the VA understood that 

questions about size issues in a post-award protest should be sent to the SBA, it is unclear why 

the VA detennined that it could decide size issues on its own for SDVOSB applications. 

B. Suggestions to Improve the SDVOSB Programs 

To improve the VA's verification process, the VA should engage in more back-and-forth 

with applicants, including sending them questions or concerns, so that potential denial issues 

could be flagged and corrected as early in the process as possible. An initial screening stage to 

notifY veterans about potential issues with their corporate documents would likely avoid a 

significant number of reconsideration requests. The VA could put the application on hold for a 

certain amount of time while waiting for the applicant to respond to the concerns. The increased 

back-and-forth should be modeled on the SBA's processing of8(a) applications, which generally 

results in more communication between the agency and the applicant while the application is 

pending. Recently, the VA proposed implementing steps very similar to these, which is a 

positive development and should improve the efficiency of the application process. 

More back-and-forth with applicants would also help the VA to lessen the number of 

cases that require multiple reconsideration requests. The V A should strive to provide all bases 

for denial in the initial denial letter. And in the rare cases when this is not possible, the V A 

should consider providing an expedited review process for all reconsideration requests that may 

be necessary after the first one. 

The application process would also improve with a philosophical shift toward being more 

applicant-friendly. Many veterans tell us they feel like the VA personnel are looking for a 

reason to keep them out, as opposed to trying to help them get in. A priority has rightfully been 

given to ferret out fronts, fraud, and abuse. But in the extreme, this leads to an approach toward 

applicants that can come across as hostile, which is counterproductive to the effective operation 

ofthe program. Standards that make it too difficult or costly for eligible finns to get into the 

program are no less problematic than standards that make it too easy for ineligible finns to get in, 

Although perhaps easier said than done, the goal should be to shift the pendulum closer to the 

middle. 

More outreach to veterans, including workshops to help them understand the 

requirements for corporatc documents and governance, would also improve the program. Again, 

the VA has recently indicated that it is moving in this direction, which is good news for the 

veteran community. However, without publicly-available appeal decisions, veterans will 

continue to be at a disadvantage in trying to understand how the V A is interpreting and applying 

its regulations. The SBA has published its standard operating procedures ("SOP") for the 8(a) 

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Program, which is a useful tool for firms and practitioners to understand the inner workings of 

the 8(a) Program. A similar SOP for the VA's SDVOSB program would help to lessen the 

confusion many firms experience in seeking to understand and use the program. 

To address the regulatory challenges in the short term, the SBA and the VA can 

positively impact veterans by revisiting their interpretations of transfer restrictions, joint venture 

verification requirements, and related issues that could be interpreted in a more business-friendly 

way. Specifically, the V A should not appeal the Miles Construction decision and should instruct 

the CVE to begin allowing reasonable transfer restrictions on veteran ownership. OHA should 

revisit its prior decisions on transfer restrictions in light of Miles Construction. The VA should 

permit joint ventures to qualify as SDVOSBs without needing to undergo a second CVE 

verification application. The VA should send all questions about size and affiliation to the SBA 

for review. 

As a longer-term goal, the regu latory inconsistencies and inefficiencies would be best 

resolved by consolidating the two sets of rules into one. The SBA's rules currently are more 

business friendly and may be the better starting point. There should also be an administrative 

appeal process like the current SBA OHA process. The SBA will continue to handle size issues, 

and it has already spent a number of years refining its application and protest processes, so it 

may be the more appropriate of the two agencies for the consolidation. 

If the programs are consolidated with the SBA, there should be a government-wide prime 

contracting program for Veteran-Owned Small Businesses ("VOSBs"). The Small Business Act 

already contains subcontracting goals for VOSBs, and the VA's program has prime contract 

goals for VOSBs. A consolidated, government-wide program should have prime contract goals 

and set-aside procedures for VOSBs. 

Some thought should be given to whether an upfront certification process is the most 

efficient way to get firms into the program and prevent fraud and abuse. If and when the two 

SDVOSB programs are consolidated, it may work better to pattern the new program after the 

Woman-Owned Small Business ("WOSB") Program. Rather than going through an upfront 

application process, WOSBs are required to upload documents verifying their eligibility to an 

online repository, to be checked in the event of a protest. 

lfthe two SDVOSB programs were consolidated with the VA, we agree with the GAO's 

recent report that this should not happen until the VA is better able to handle its existing case 

load. Furthermore, there should be an interim rule that allows firms to self-certify while the 

changes are underway; otherwise, the V A-verified firms would have a significant advantage for 

SDVOSB contracts over those firms that currently self-certify their SDVOSB status and would 

then need to be verified before they could compete for SDVOSB contracts. 

Finally, more should be done to expedite the protest and verification processes so that 

SDVOSBs will not lose valuable contract opportunities while waiting for an initial decision or to 

overturn an administrative error. Some form of temporary stay of contract award pending the 

outcome of an expedited protest and appeal process would be beneficial, similar to what is 

provided for in the SBA's rules. Recently, a proposal was issued to modify FAR § 19.302 to 

provide that, when a post-award appeal from an SBA protest determination is filed with OHA, 

the procuring agency's contracting officer shall consider suspending contract performance until 

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OHA decides the appeal. A similar provision in the VAAR would provide some protection 

against the loss of valuable contracts based on an administrative error in the CVE verification 

process. The VA could also implement an expedited reconsideration or appeal process in the 

event of a pending contract award so veterans awarded an SDVOSB contract would have a 

chance to contest an adverse eligibility determination before the V A withdraws the contract. In 

short, more can be done to balance the need to expeditiously move forward with new contracts 

against the importance of ensuring that eligible firms do not lose valuable contract awards due to 

administrative errors in the verification process. 

CONCLUSION 

PilieroMazza and I are strong supporters of veterans and the federal procurement 

programs for SDVOSBs. From working with many veteran-owned firms, we see first-hand the 

benefits that veterans can obtain from the SDVOSB programs offered through the VA and the 

SBA. We also see the areas in which these programs can be improved to make the verification 

process and regulations simpler and more efficient. With some changes, more of our veterans 

will be able to derive the benefits intended tor them under the programs. "To care for him who 

shall have borne the battle," we owe our veterans that much. 

Thank you again for the opportunity to submit this testimony. 

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GAO 

For Release on Delivery 

Expected at 2:00 p.m. EDT Tuesday, March 19, 2013 

GAO-13-425T 

United States Government Accountability Office 

Testimony 

Before the Subcommittee on Contracting and the 

Workforce, Committee on Small Business, and 

the Subcommittee on Oversight and 

Investigations, Committee on Veterans' Affairs, 

House of Representatives 

VETERAN-OWNED SMALL 

BUSINESSES 

Planning and Data System 

for VA's Verification 

Program Need 

Improvement 

Statement of William B. Shear, Director 

Financial Markets and Community Investment 

GAO 

AccountablUty * Integrity * Reliability 
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Chairmen Hanna and Coffman, Ranking Members Meng and Kirkpatrick, 

and Members of the Subcommittees: 

I am pleased to be here to discuss the Department of Veterans Affairs' 

(VA) efforts to verify the eligibility of veteran-owned small businesses 

(VOSB), including service-disabled veteran-owned small businesses 

(SDVOSB), to receive contracting preferences under VA's Veterans First 

Contracting program.' During fiscal year 2012, VA awarded $3.8 billion in 

contracts to SDVOSBs and VOSBs, which underscores the importance of 

ensuring the eligibility of those firms to receive contracting preferences. 2 

My statement is based on our January 2013 report on VA's verification 

program. 3 During the period covered by our study-February 2012 to 

January 2013-VA was introducing significant changes to its verification 

procedures and operations. As a result, we determined that evaluating 

VA's compliance with its past procedures would be of limited value and 

that testing the effectiveness of verification procedures that were still 

evolving would be premature. We focused instead on issues related to 

planning for and designing the verification program and on changes in the 

program's management and operations. 

My testimony today addresses the (1) progress that VA has made in 

ensuring that its program verifies the eligibility of SDVOSBs and VOSBs 

on a timely and consistent basis, and (2) key operational and policy 

issues that VA will have to address if its verification program is expanded 

to support the government-wide SDVOSB contracting program. That 

1VA established the Veterans First Contracting program in response to the Veterans 

Benefits, Health Care, and Infoonation Technology Act of 2006, Pub. L No. 109-461, § 502, 

120 Stat. 3403, 3431 - 3435 (codified as amended at 3S U.S.C. § 8127). The act requires 

VA to give preference in its small business contracting to SDVOSBs and VOSBs. It also 

gives the agency unique authority to make noncompetitive (sole-source) awards to these 

firms and to restrict competition for awards to them (set-asides). Along with establishing VA's 

contracting preferences, the 2006 Act makes VA responsible for maintaining a database of 

SDVOSBs and otherVOSBs. The act requires VA to verify that all finns entered in the 

database are actually owned and controlled by one or more veterans and to confinn the 

status of any owner who indicates a seNice.-connected disability, 

20ur analysis of fiscal year 2012 data reflects data input into the Federal Procurement Data 

System-Next Generation (FPDS-NG) as of February 2013. Because agencies enter and 

revise data in FPDS-NG on an ongoing basis, the results reported here may differ from the 

Small BUSiness Administration's official fiscal year 2012 report on federal agencies' 

achievement of small business goals, which will be released later in fiscal year 2013. 

3See GAO, Veteran-Owned Smail Businesses: Planning and Data System for VA's 

Verification Program Need Improvement, GAO-13-95 (Washington, D.C.: Jan. 14,2013). 

Page 1 GAO·13-425T 
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program, which is administered by the Small Business Administration 

(SBA), authorizes other federal agencies to award set-aside or solesource contracts up to certain dollar thresholds to firms that self-certify as 

SDVOSBs. 4 

In summary, the two key findings from our January 2013 report are: 

VA has instituted a number of significant changes to its verification 

processes to improve and address program weaknesses but 

continues to face challenges in its efforts to establish a stable and 

efficient program to verify firms on a timely and consistent basis. 

These challenges are directly related to shortcomings in strategic 

planning and data systems for the verification program. Specifically, 

we noted that the plan lacked performance measures to assess 

whether the desired outcomes were being achieved and had a shortterm focus not typically associated with a strategic plan. Additionally, 

we found that VA's data system did not collect important data and had 

limited reporting and workflow management capabilities. 

Expanding VA's verification program to support the government-wide 

SDVOSB contracting program would require VA to improve its 

verification process and address a number of operational and policy 

issues. 

To improve the management and oversight of VA's SDVOSB and VOSB 

verification program, our January 2013 report made two 

recommendations addressing strategiC planning and data system needs. 

VA concurred with the two recommendations and stated that it had 

actions under way that would address them. 

For our January 2013 report, we reviewed relevant statutes, regulations, 

procedures, and planning and organizational documents. As we were 

completing our review in late October 2012, VA prepared an initial 

strategic planning document for the verification program in response to 

our inquiries. We compared that document to six leading practices 

"The Veterans Benefits Act 012003, PUb. L. No. 108-183, § 308, 117 Stat. 2651, 2662 

(codified at 15 U.S.C. § 657!). 

Page 2 GA0-13-425T 
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VA Has Made Changes 

to Improve Its 

Verification Program 

but Continues to Face 

Challenges in Its 

Strategic Planning 

and Information 

Technology Efforts 

relevant to agencies' initial strategic planning efforts.5 We also 

interviewed VA officials and representatives from three veteran service 

organizations and a technical assistance association that were 

participating in an outreach program VA had launched to assist applicant 

firms. We reviewed our prior work on the verification program and a report 

from VA's Office of Inspector General. We developed rough order-ofmagnitude estimates of how many more SDVOSBs might seek 

verification if it were required government-wide beyond those firms that 

VA had already verified or was in the process of verifying as of 

September 30, 2012.6 Further, because of SBA's role in administering the 

government-wide SDVOSB program, we reviewed SBA documents and 

interviewed SBA staff. Our work was performed in accordance with 

generally accepted government auditing standards. 

Since December 2011, VA has instituted a number of significant changes 

that are designed to improve its operations and address program 

weaknesses. These changes include: 

reviSing its Standard Operating Procedures to help ensure greater 

consistency in its verification process and instituting a more robust 

quality assurance process; 

increasing the number of employees and contractors assigned to the 

verification process to about 28 full-time equivalent employees and 

174 contractors as of October 2012; 

SWe have reported in the past that, taken together, the strategic planning elements 

established under the Government Performance and Results Act of 1993 and aSSOciated 

Office of Management and Budget guidance, and practices identified by GAO provide a 

framework of leading practices in federal strategic planning. The six leading practices that 

have been identified as being the most relevant to VA's initial strategiC planning efforts are 

(1) defining the miSSion and goals; (2) defining strategies that address management 

challenges and identifying resources needed to achieve goals; (3) ensuring leadership 

involvement and accountability; (4) involving stakeholders; (5) coordinating with other 

federal agencies; and (6) developing and using performance measures, 

6Specifically, our estimation method relied on the number of SDVOSBs listed in the 

Central Contractor Registration database that had not been verified by VA and were not in 

the process of being verified. Next, we determined whether or not these self-certified 

SDVOSBs had received contracts from agencies other than VA in fiscal years 2010 or 

2011 using FPDS·NG. 

Pago3 GAO·13425T 
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launching a new Verification Counseling program that trains partner 

organizations to provide counseling to firms interested in becoming 

verified; 

extending the term of a firm's verification status from 1 to 2 years and 

introducing simplified procedures for reverifying firms that have 

already passed a full verification examination to mitigate an expected 

increase in its workload; and 

forming a senior executive task force in June 2012 to review the 

verification program, determine whether it has sufficient resources 

and support, and present recommendations in the second quarter of 

fiscal year 2013. 

Despite the steps that it has taken since December 2011, VA has 

consistently placed a higher priority on addressing immediate operational 

challenges than on developing a comprehensive, long-term strategic 

focus for the verification program-an approach that has contributed to 

programmatic ineffiCiencies. As of October 2012, when we were 

completing our review, VA had not created a formal strategic plan for the 

verification program. In response to our observations, VA initiated action 

in late October 2012 to compile a strategic planning document for the 

verification program. In this initial strategic planning effort, VA appears to 

have at least partially applied six key leading strategic planning practices. 

We believe that fully implementing these leading practices would make 

the plan more useful. Specifically, we noted that the plan identified goals 

and objectives, but some of these were worded so broadly that it would 

be difficult to assess whether they had been met. For example, one longterm objective is establishing and sustaining a "best in show" operation. 

But VA's strategic plan does not define such an operation or provide any 

criteria or associated metrics to determine whether it has been achieved. 

Also, VA has not shared the plan with key stakeholders, such as veteran 

support organizations, business aSSOCiations, and congressional staff and 

committees. As a result, VA has missed an opportunity to make the 

verification program's plans and priorities transparent and to facilitate 

continued stakeholder involvement. Further, the plan lacks performance 

measures to assess whether the desired outcomes were being achieved 

and has a short-term focus of 2 to 3 years that is not typically associated 

with a strategic plan. Without a longer-term perspective, the current 

strategic plan serves more as a short-term management plan than as a 

forward-looking guide to help frame the verification program's future 

needs and direction. 

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Since the verification program began in 2008, VA has relied on data 

systems that it developed on an incremental, ad hoc basis in response to 

immediate needs, without an overarching plan or vision and without 

centralized oversight by VA's Office of Information and Technology.7 As a 

result, the current system has shortcomings that have required VA to 

develop inefficient workarounds in order to operate and oversee the 

verification program. For example, because the data system does not 

meet VA's needs for assigning and monitoring the progress of 

applications, supervisors use separate spreadsheets to track the status of 

applications as their teams review them, increasing the risk that data will 

not be completely or accurately recorded across systems. Furthermore, 

the verification program's current data system lacks certain data fields 

and reporting capabilities needed to provide key information for program 

management VA began formally planning in July 2012 to modify or 

replace the system, a process that the Office of Information and 

Technology will manage. But this planning effort had not been tied to 

broader long-term strategic planning to better ensure that the resulting 

system meets the verification program's long-term information needs and 

goals. Without tying that effort to long-term strategic planning, VA risks 

failing to meet the program's information needs going forward. 

To improve the management and oversight of VA's SDVOSB and VOSB 

verification program, our January 2013 report recommended that VA 

continue to develop, refine, and implement a formal strategic plan to 

provide a comprehensive framework to guide, integrate, and monitor 

the verification program's activities over time (including incorporating 

longer-term goals, objectives, and outcome measures for the 

verification program and sharing the plan with key stakeholders); and 

integrate its efforts to modify or replace the verification program's data 

system with the broader programwide strategic planning effort to 

ensure that the new system not only addresses the short-term needs 

of the program but also can be readily adapted to meet long-term 

needs. 

7We have previously reported that an agency must have relevant, reliable information to 

run and control its operations. More specifically, we have noted that pertinent infonnation 

should be identified, captured, and distributed to the right people in sufficient detail, in the 

right form, and at the appropriate time to enable them to carry out their duties and 

responsibilities efficiently and effectively. GAO, Internal Control Management and 

Evaluation Tool, GAO-Ol-1008G (Washington, D.C.: August 2001). 

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Expanding Its 

Verification Program 

Government-wide 

Would Require VA to 

Make Further 

Improvements and 

Address Policy Issues 

VA concurred with the two recommendations and stated that it had 

actions under way that would address them. For example, VA indicated 

that it anticipated submitting a strategic plan for the verification program 

to the Office of the Secretary in fiscal year 2013 and would develop a 

schedule to brief VA senior leaders and other key stakeholders once the 

plan is approved. VA also noted that it had begun the process of 

replacing the verification program's data system. 

Expanding VA's verification program to support the govemment-wide 

SDVOSB contracting program would require VA to increase the scale of 

its program to verify potentially thousands of additional firms.' Beyond 

those firms that VA has already verified or was in the process of verifying 

as of September 30, 2012, we estimated that between about 3,600 and 

16,400 more self-certified SDVOSBs might seek verification under a 

government-wide program." Thousands more existing but unverified and 

new SDVOSBs could eventually register and seek verification if it were 

required. 

Because VA would face additional operational challenges in preparing to 

verify potentially thousands of additional firms, it needs to continue to 

address existing program weaknesses. For example, we reported in 

August 2012 that VA had taken some positive actions to enhance its 

fraud prevention efforts, such as formalizing a process for conducting 

8Considering the risk of awarding contracts under the government~wide SDVOSB program 

to self-.certified firms that are ineligible or deliberately misrepresenting their SDVaSB 

status, in 2009 we suggested that Congress consider providing VA with the authority and 

resources necessary to expand its SDVOSB eligibility verification process to all 

contractors seeking to bid on SDVaSa contracts government-wide. GAO, Service~ 

Disabled Veteran-Owned Small Business Program: Case Studies Show Fraud and Abuse 

Allowed Ineligible Firms 10 Obtain Millions of DOllars in Contraots, GAO-l0-l08 

(Washington, D.C.: Oct. 23, 2009). For purposes ofaur January 2013 report, we were 

asked to consider steps necessary for VA to expand its verification program government~ 

wide. Accordingly, we did not evaluate whether another agency, such as SSA, could or 

should assume responsibility for such a program. Also, we focused only on SOVOSBs 

(not all VOSSs), because they are the subject of government-wide contracting goals and 

preferences and because a recent legislative proposal for a government-wide verification 

program applied only to them. 

"The estimate of 3,600 firms is based on the number of self-certified SDVOSBs that 

received contract obligations from agenCies other than VA in fiscal years 2010 or 2011 

(the last full fiscal year available), according to FPDS-NG. The estimate 01 16,400 firms 

includes those 3,600 firms and another 12,800 sell-certified SDVOSBs that did not receive 

contract obligations in fiscal years 2010 or 2011, according to FPDS-NG. 

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unannounced site visits to firms identified as high risk during the 

verification process. However, VA has not fully implemented 7 of the 13 

recommendations we made in October 2011 , including providing regular 

fraud-awareness training to VA verification and contracting personnel and 

removing contracts from ineligible firms. 10 Without implementing these 

recommendations, VA's program for awarding contracts to servicedisabled and other veteran-owned small businesses remains vulnerable 

to the fraud and abuse that could result in contracts being awarded to 

ineligible firms. In addition, VA has not determined whether recent 

operational changes have resulted in improved performance or whether 

its new methods for educating applicants have been effective. It has also, 

as noted earlier, not addressed limitations to its data system that hinder 

its ability to operate and oversee the program. 

In our January 2013 report, we noted that VA had begun a process to 

revise the verification program's regulations that would likely serve as the 

starting point if VA were charged with implementing a govemment-wide 

verification program. VA officials said that they were planning to revise 

the regulations partly in response to applicants' and veterans' 

organizations' concerns about VA's eligibility standards. For example, two 

veterans' organizations that we interviewed questioned VA's requirement 

that veteran owners be able to transfer their ownership interest without 

restriction by nonveteran owners, effectively suggesting that VA's 

standard for establishing control of a firm is too strict. VA officials said that 

they would weigh this concern and others as they developed proposed 

revisions to the regulation. 

However, as we concluded in our January 2013 report, any changes to 

VA's verification requirements could create or widen differences between 

the various government-wide small business contracting programs' 

10GAO, Service-Disabled Veteran-Owned Small Business Program: Vulnerability to Fraud 

and Abuse Remains, GAO-12-697 (Washington, D.C.: Aug. 1. 2012). We are reviewing 

documentation that VA submitted on February 28, 2013, to determine if VA's actions taken 

to address some of our prior recommendations are sufficient to consider them 

implemented. 

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requirements and VA's." Some veterans' organizations and others with 

whom we spoke have cited perceived differences between VA's eligibility 

standards and SBA's standards for the government-wide SDVOSB 

program and the 8(a) program for economically disadvantaged small 

businesses, whose certification process is most similar to VA's verification 

program. Initially, VA and SBA officials told us that they had not found 

major differences in the programs' regulatory eligibility requirements, the 

agencies' interpretation of them, or the documentation requirements for 

verification. However, in commenting on a draft of our January 2013 

report, SBA said that while the wording of the regulations pertaining to 

eligibility requirements was comparable, some key differences existed in 

the way the agencies interpreted them. SBA also noted that the agencies 

were consulting with one another to determine whether those differences 

could or should be resolved. 12 

Going forward, any unilateral changes to VA's verification policies and 

procedures could make aligning small business contracting programs more 

difficult. VA officials told us that the tension between competing calls for VA 

to ease its requirements and to be consistent with the government-wide 

SDVOSB and 8(a) programs would be a major consideration as VA 

continued making changes to its regulations, particularly in light of the 

potential for expanding VA's program government-wide. Accordingly, the 

officials said that they were consulting with SBA as they developed 

changes to VA's verification program regulation. 

11 10 addition to the government-wide SOVOSB program, federal contracting preference 

programs give federal agencies the authority to set aside contracts for smail business 

concerns and specific types of small businesses: women-owned small businesses, 

businesses located in historically underutilized business zones (HUBZone), and socially 

and economically disadvantaged small businesses participating in SSA's 8(a) program. 

While the SDVOSB and women-owned small business programs allow firms to self~certify 

their eligibility, SSA reviews supporting documentation to certify HUBZone and 8(a) firms, 

with the 8(a) program requiring more extensive documentation similar to what is required 

under VA's verification program. 

12SBA also noted a distinction regarding ownership by spouses of disabled veterans. By 

statute, firms owned and controlled by surviving spouses of deceased veterans may be 

eligible for verification by VA (38 U.S.C. § 8127(h», but they are not eligible under SBA's 

regulations for the SDVOSB program. 

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GAO Contacts and 

Staff 

Acknowledgments 

(250707) 

Chairmen Hanna and Coffman and Ranking Members Meng and 

Kirkpatrick, this concludes my prepared statement. I would be happy to 

answer any questions at this time. 

If you or your staff have any questions about this statement, 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 statement. Key contributors to this testimony include 

Harry Medina, Assistant Director; Emily Chalmers, Julianne Dieterich, 

Julia Kennon, and John McGrail. 

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U.S SMALL BUSINESS ADMINISTRATION 

WASHINGTON, D.C. 20416 

STATEMENT OF A. JOHN SHORAKA 

ASSOCIATE ADMINSTRA TOR FOR GOVERNMENT CONTRACTING AND BUSINESS 

DEVELOPMENT, U.S. SMALL BUSINESS ADMINISTRATION 

JOINT HEARING 

HOUSE COMMITTEE ON VETERANS' AFFAIRS 

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS 

AND 

HOUSE COMMITTEE ON SMALL BUSINESS 

SUBCOMMITTEE ON CONTRACTING AND THE WORKFORCE 

MARCH 19,2013 

Chairmen Hoffman and Hanna, Ranking Members Kirkpatrick and Meng, and Members 

of the Subcommittees, thank you for inviting me to testify before you today. The Small 

Business Administration (SBA) plays a pivotal role in helping veteran owned small 

businesses (VOSBs) and service disabled veteran owned small businesses (SDVOSBs) 

obtain access to Federal contracts. 

Background 

As you know, veteran owned businesses are integral to our nation's economy and its 

ongoing recovery. Veterans own about 2.4 million-{)r nine percent-{)f all businesses, 

large and small, in the U.S. These businesses generate about $1.2 trillion in receipts and 

employ nearly six million Americans. lOne key sector of the veteran small business 

economy is government contracting, where SBA and its SDVOSB program playa critical 

role. 

The SBA's SDVOSB Program provides Federal procuring agencies with the authority to 

set acquisitions aside for exclusive competition by SDVOSBs.2 The program also gives 

procuring agencies the authority to make sole source awards to SDVOSBs if certain 

conditions are met. 

SBA's government-wide program, along with VA's Veterans First contracting program, 

helps the Federal government meet the statutorily-established annual, agency-wide goal 

I U.S. Census Bureau: http://www.census.gov/newsroom/releaseslarchives/business_ ownership/cb 11-

88.html 

2 The Department of Veterans Affairs (VA) has its own SDVOSB program, known as Veterans First, which 

governs all VA procurements. Veterans First was established in response to the Veterans Benefits, Health 

Care, and Information Technology Act of2006 (2006 Act). 
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of awarding at least three percent of the total value of all awards to SDVOSBs. In Fiscal 

Year 2011, over $11.8 billion in contracts went to SDVOSBs, up by 3.8 percent over the 

previous year. 

Activities to Promote SDVOSBs in Federal Contracting 

SBA, through our Office ofGovemment Contracting and Business Development 

(GCBD), plays a critical role as a vocal advocate for VOSBs and SDVOSBs through 

myriad outreach efforts. SBA has a cadre of Procurement Center Representatives (PCRs) 

stationed at major Federal procuring centers throughout the country who are responsible 

for increasing small business opportunities in the Federal procurement process. These 

PCRs review proposed major procurements and recommend agency strategies that will 

maximize opportunity for all small businesses-including VOSBs and SDVOSBs. PCRs 

also review contract bundling requirements to determine if they are necessary and 

justified under SBA guidelines. 

SBA also employs Commercial Marketing Representatives (CMRs) to ensure that small 

businesses receive a fair share of subcontracting opportunities from the large prime 

contractors utilized by Federal agencies. When awarded a contract valued at $650,000 or 

higher for most contracts, or $ 1.5 million for construction of a public facility, these large 

prime contractors are required to establish a subcontract plan for small business 

participation. Through its CMRs, the SBA-along with the procuring agency--evaluates 

the large prime contractor's effort against their subcontracting plan. 

The White House is also playing a key role in helping veterans start, grow, and expand 

their small businesses. At the President's direction, the SBA is leading the Interagency 

Task Force on Veterans Small Business Development, which includes representation 

from seven Federal agencies and four leading veterans' organizations. The Task Force is 

focused on increasing the number of veteran-owned businesses and the number of 

Americans-including other veterans-that those businesses employ. 

SBA Requirements and Process 

To qualifY as an SDVOSB under SBA's statutory guidelines, a firm must meet four 

conditions through a self-certification process: 3 

I. The firm must be least 51 % owned by one or more service disabled veterans; 

2. The firm's management must be controlled by one or more service disabled 

veterans or-in the case of a veteran with a permanent and severe disabilitythe spouse or permanent caregiver of the disabled veteran; 

3. The firm must meet the small business size standard for their business and the 

size standard for any federal contract they bid on; and, 

4. The firm must self-represent their disabled veteran status. 

J The 2006 Act required V A to register and verilY all VOSBs and SDVOSBs that wish to participate in the 

Veterans First program. By contrast, SBA's government-wide SDVOSB program requires a selfcertification by SDVOSBs. 
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Currently, there are approximately 12,000 self-certified SDVOSBs in the System for 

Award Management, the government-wide contracting database. 

In terms of a participant's status as a veteran with a service-connected disability, the 

owner-operator of an SDVOSB must be able to produce official documentation that he or 

she has a service-connected disability in the event of a "protest.,,4 A protest occurs when 

a competing bidder or other interested party challenges the winning firm's eligibility as 

an SDVOSB. The initial decision on a protest is made by my office, GCBD. The 

determination ofa protest may be appealed to SBA's Office of Hearings and Appeals 

(OHA). 

OHA provides independent, administrative appellate review ofSBA program 

determinations, including the initial SDVOSB determinations made by GCBD. OHA 

decisions, in turn, may be appealed to the Federal courts. Currently, OHA is staffed by 

eight full-time employees, including two administrative judges who decide appeals of the 

Office of Government Contracting's initial SDVOSB determinations. In FY 2012, OHA 

decided eight SDVOSB appeals, roughly 20 percent ofGCBD's 41 initial determinations 

that year. 

One of our top priorities at SBA is to ensure that the benefits of our programs flow to 

their intended recipients. We have no tolerance for fraud, waste, and abuse and have 

therefore implemented a comprehensive three-pronged strategy to identify, prevent, and 

pursue non-compliance or fraud across all of our government contracting programs. The 

three prongs of our fraud, waste, and abuse strategy are as follows: 

I. Effective certification processes: Clear and comprehensive eligibility screening 

ensures that only qualified, eligible firms participate in SBA programs; 

2. Continued surveillance and monitoring: Targeted and thorough examinations, 

reviews, and site visits identitY firms which commit fraud and no longer qualify; 

and, 

3. Robust and timely enforcement: Prompt, proactive enforcement removes bad 

actors, deters wrongdoing, and reassures those eligible to participate in SBA's 

programs. 

GCBD uses the protest process to help root out fraud, waste. and abuse in our small 

business contracting programs by referring questionable firms to our General Counsel 

Debarment Official or SBA's Inspector General for further investigation. In FY 20 12, 

SBA suspended, proposed for debarment, or debarred approximately 28 firms or 

individuals involved in procurement-related misconduct. 

Differences between VA and SBA 

The SBA and VA mutually recognize the importance of the VOSB and SDVOSB 

communities to the American economy. SBA and VA have collaborated to compare our 

4 SBA regulations require that documentation of a service-connected disability must come from the V A, 

Department of Defense, or the U.S. National Archives and Records Administration. 
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programs in an effort to bring them into closer alignment and provide better services to 

the veterans' community. The comparison contrasted the statutes, regulations, 

interpretations, business processes, and information technology support of the programs. 

Our comparison found many similarities between the "ownership and control" eligibility 

requirements for the VA and SBA programs, due in large part to the VA program 

drawing extensively from SBA regulations for the 8(a) and SDVOSB programs. 

While there are similarities, there are also key differences, as I noted in my letter dated 

December 6,2012, submitted in response to GAO Report 13-95. For instance, VA's 

Veterans First program is a certification program similar to SBA's 8(a) Business 

Development Program, while the government-wide SDVOSB program uses selfcertification. In order to meet the requirements of a certification program, a firm must 

provide more initial information and work through the certification process to meet 

eligibility requirements. This process is inherently more labor-intensive than a protestbased self-certification program. 

Another difference between the SBA and VA programs is in the timing of requests for 

documentation and review of documentation to demonstrate program eligibility. In a 

protest-based self-certification, the requests for additional documentation are submitted in 

response to a protest that is filed after a contract award. Once the documentation is 

reviewed, a determination of eligibility is made. The VA certification process requires 

that documentation be submitted and a determination made before a contract can be 

awarded. 

Finally, although the regulations are similar, SBA's determinations are made on a caseby-case, fact-specific basis. Each application is reviewed on the totality of information 

presented by the applicant firm. Consequently, there are very few instances where there 

is only one factor contributing to the denial of a firm's program eligibility. As a result, it 

is inappropriate to presume there is only one clear bright line interpretation of a 

regulation as it applies to every potential applicant firm, and every potential set of factors. 

Our collaboration with V A has been productive in identifying other areas of potential 

coordination and best practice sharing. I would be happy to discuss these efforts or any 

of the topics the Subcommittees wish to explore during the question-and-answer portion 

of the hearing today. 

Thank you once again for your support of our work in this area, and for the opportunity to 

appear before you today. 
95 

STATEMENT OF THOMAS J. LENEY 

EXECUTIVE DIRECTOR 

OFFICE OF SMALL AND DISADVANTAGED BUSINESS 

UTILIZATION (OSDBU) 

DEPARTMENT OF VETERANS AFFAIRS 

BEFORE THE 

HOUSE COMMITTEE ON SMALL BUSINESS 

SUBCOMMITTEE ON CONTRACTING AND THE 

WORKFORCE and 

HOUSE COMMITTEE ON VETERANS’ AFFAIRS 

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS 

MARCH 19, 2013 

Chairman Hanna, Chairman Coffman, Ranking Member Meng, 

Ranking Member Kirkpatrick, and Members of the Subcommittees, 

thank you for inviting me to testify on statutory, regulatory and interpretive differences between the Small Business Administration 

(SBA) and Department of Veterans Affairs (VA) contracting programs for small businesses owned and controlled by service-disabled Veterans. 

Overview 

Since its inception, the VA Verification program has faced challenges balancing the need to prevent ineligible firms from taking 

improper advantage of VA’s ‘‘Veterans First’’ program, while making it easier and faster for legitimate Veteran-owned small businesses (VOSB) and service-disabled Veteran-owned small businesses (SDVOSB) to gain greater access to VA procurement opportunities. VA has made substantial progress on both fronts in our 

effort to implement 38 Code of Federal Regulations (CFR) Part 74, 

the regulation governing verification. As we improved the 

verification process we realized that most of the remaining issues 

were associated with the rule itself. To better understand the regulatory issues, VA reached out to stakeholders and as a result of 

their feedback, VA has initiated a formal rule change process in accordance with the Regulatory Flexibility Act and Executive Order 

13272 (Proper Consideration of Small Entities in Agency Rulemaking). 

In the aftermath of both VA’s Office of the Inspector General 

(OIG) report dated July 25, 2011, and the Government Accountability Office (GAO) report dated October 26, 2011, our imperative 

was to ensure all firms listed as eligible in the VA program had 

been properly verified as meeting the standards laid out in 38 CFR 

Part 74. Both VA OIG and GAO made recommendations for improvement. We have addressed all of the recommendations identiSBREP-219 with DISTILLER

96 

fied in the 2011 reports. In its latest report, GAO–13–95 Planning 

and Data System for VA’s Verification Program Need Improvement, January 14, 2013, GAO acknowledges improvement by stating: ‘‘Since December 2011, VA has instituted a number of significant operational changes, including revising standard operating 

procedures and enhancing quality assurance protocols.’’ Based on 

the report recommendations, VA made changes to its verification 

processes and policies. These changes include increased fraud 

awareness training for all VA Center for Veterans Enterprise 

(CVE) staff as well as support contractors, the development of better education tools to help applicants through our Verification Assistance Program, and reduction of fraud risk through a postverification audit process. 

CVE initiated the post-verification audit process to ensure that 

verified companies continued to be in compliance with program eligibility rules throughout the tenure of their two-year verification 

term. This process chooses firms based on both random and risk 

basis. This process was launched in May 2012; CVE has performed 

158 random audits and 112 risk-based audits in the fiscal year 

2013 to date, resulting in ten cancellations. 

Comparison of Rules Governing Verification Program 

We believe the most significant difference between VA and SBA’s 

programs lies in the volume of status determinations made by each 

program. By statute, a VOSB and an SDVOSB must provide documentation to VA to demonstrate its status and VA must verify this 

information before the firm can do business with VA as an 

SDVOSB. As SBA notes, this process is inherently more labor-intensive than a protest-based self-certification program. This statutory requirement resulted in VA making more than 4,500 status 

determinations in FY 2012 alone. Because SBA only determines 

SDVOSB status and only when a protest is filed, the SBA made 

only 40 status determinations over the past two fiscal years. 

Despite this statutorily-driven difference in the way the programs are run, there has existed in the stakeholder community a 

widespread concern that there are major differences between the 

VA and SBA regulations, even though the regulation that governs 

VA’s Verification program, 38 CFR Part 74, was derived in large 

part from the ownership and control portions of the SBA regulations that cover the Government-wide SDVOSB program in 13 CFR 

Part 125, as well as the regulation that covers the section 8(a) business development program, 13 CFR Part 124. In response to that 

concern, VA, in collaboration with SBA, conducted a thorough comparison of the ownership and control portions of the regulations. In 

addition to comparing regulatory language, we also looked at every 

SDVOSB status protest considered by SBA and all of the SBA Office of Hearings and Appeals decisions on SDVOSB cases for the 

last two fiscal years to identify any differences in interpretation. 

While we are in the process of discussing our findings with SBA, 

our tentative conclusion is that there are only a few differences in 

the regulation and interpretation of them and we are fully comSBREP-219 with DISTILLER

97 

mitted to working with SBA and conducting stakeholder outreach 

to help address these differences. 

There are two statutory differences between the programs due to 

the provisions of Public Law (P.L.) 109–461, as codified in 38 

United States Code (U.S.C.) Sections 8127 and 8128. The two statutory differences are: 

1. Application to Veteran-Owned Small Businesses: Section 

8127(f) states: ‘‘Database of Veteran-Owned Businesses. - (1) 

Subject to paragraphs (2) through (6), the Secretary shall 

maintain a database of small business concerns owned and 

controlled by veterans and the veteran owners of such business 

concerns.’’ VA’s authority includes both SDVOSBs and VOSBs; 

whereas the government-wide SBA program only addresses 

SDVOSBs. 

2. Surviving Spouse: Section 8127(h): ‘‘Treatment of Businesses After Death of Veteran-Owner. - (1) Subject to paragraph (3), if the death of a veteran causes a small business 

concern to be less than 51 percent owned by one or more veterans, the surviving spouse of such veteran who acquires ownership rights in such small business concern shall, for the period described in paragraph (2), be treated as if the surviving 

spouse were that veteran for the purpose of maintaining the 

status of the small business concern as a small business concern owned and controlled by veterans.’’ This currently applies 

to Veterans that were 100 percent service-disabled or who died 

as a result of a service-connected disability. SBA’s program has 

no surviving spouse exception. 

Since there were only two major statutory differences. VA derived its regulation mainly from 13 CFR Part 125, which implements the government-wide SDVOSB set-aside program established by 15 U.S.C. 657f, and 13 CFR Part 124.105 and 124.106. 

Where 13 CFR Part 125 was silent, VA considered language from 

13 CFR Part 124. In addition, in our examination of SBA status 

protest decisions and SBA Office of Hearings and Appeals (OHA) 

decisions, as well as discussions directly with representatives from 

SBA, we found that in most cases where SBA’s SDVOSB regulation 

is silent, SBA applies the provisions of the 8(a) regulation. For example, in its decision SBA No. VET-102 (2005), SBA OHA’s decision states: ‘‘OHA has recognized that the regulations regarding 

control of 8(a) Business Development and Small Disadvantaged 

Business program participants can provide guidance in interpreting 

the control requirement of SDVO SBC eligibility.’’ 

Our comparison of the regulations revealed three differences between VA’s Verification regulation and SBA’s SDVOSB regulation. 

1. VA added a requirement for a VOSB to notify the CVE of 

a change of ownership in 38 CFR 74.3(e). Although this requirement is noted in 13 CFR 124.105(i), this requirement is 

moot in the SBA SDVOSB regulation due to the self-certification nature of the program. 

2. VA added a provision when the final rule was published, 

based on public comments, which is specific to Employee Stock 

Ownership Plans (ESOP) that does not appear in either the 

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SDVOSB or the 8(a) regulations. VA included a provision that 

would consider certain ESOP’s to meet the requirements of direct ownership by the Veteran(s). 

Differences in Interpretation 

Once we determined what actual language differences existed between the regulations, we looked for differences in the interpretation of the rules. We compared VA’s interpretations to the SBA status protests and OHA decisions rendered over the last two fiscal 

years to see where any differences occurred. While VA is not bound 

by the SBA decisions, due to the similarities of the SDVOSB programs, VA finds the SBA case law can be persuasive authority. We 

could find only two clear cases where the VA interpretation differed 

from the SBA interpretation. 

In both 38 CFR 74.4(f) and 13 CFR 125.10(e)(1), the regulations 

state ‘‘[n]o single veteran owns 51 percent of all voting stock but 

multiple veterans in combination do own at least 51 percent of all 

voting stock, each such veteran is on the board of directors, no 

supermajority voting requirements exist, and the veteran shareholders can demonstrate that they have made enforceable arrangements to permit one of them to vote the stock of all as a block without a shareholder meeting. Where the concern has supermajority 

voting requirements, the Veteran shareholders must own at least 

that percentage of voting stock needed to overcome any such supermajority ownership requirements.’’ 

If we look at a sample situation where two Veterans own at least 

51 percent of the voting stock of a company and a non-Veteran also 

owns voting stock, VA interprets this language that a non-Veteran 

has the power to control the decision of the board of directors if the 

Veteran shareholders split their vote and the non-Veteran casts the 

deciding vote. The SBA interpretation of this situation is that the 

non-Veteran must vote with a Veteran to win the decision. VA is 

prepared to alter its interpretation to align with SBA in this case. 

Although VA seeks to align its interpretations with SBA, based 

on stakeholder discussions and feedback, we have determined that 

transfer restrictions that are part of normal commercial dealings, 

such as the right of first refusal, do not materially affect the ability 

of a Veteran to unconditionally own or control the business. Therefore, effective March 6, 2013, VA will no longer interpret the current regulation to mean that such restrictions constitute a reason 

for denying eligibility. 

Potential Rule Change 

VA has initiated stakeholder outreach as part of a process to 

identify potential changes to the rules based on the lessons learned 

from the implementation of the current verification regulation. We 

have reached out informally to a broad range of stakeholders as 

part of this process, and received a number of recommendations 

worthy of consideration. As part of this process we expect to publish an Advanced Notice of Proposed Rule Making in the Federal 

Register that will provide all stakeholders a formal method of proSBREP-219 with DISTILLER

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viding feedback and input that will be used to draft proposed rule 

changes governing VA VOSB Verification. 

Given the current alignment with the SBA’s programs, any consideration of changes to VA verification rules will involve discussion with the SBA as we week to keep the two programs aligned. 

Process 

In view of the long history of small business certification programs in the SBA, VA also reviewed the processes and metrics 

used in the SBA 8(a) certification program to determine lessons 

learned and best practices that we could apply to the VA 

verification program. As a result of this review, we have adopted 

two practices: 

1. We noted that when SBA contacts an applicant, it uses 

emails followed up by a phone call to confirm receipt of the 

communication. CVE has added a phone call to confirm that an 

applicant received email communications where any type of 

documentation is requested, or if a firm receiving a Preliminary Findings letter has not responded to CVE within 48 

hours. 

2. We also noted that SBA followed a practice of contacting 

an applicant with preliminary findings where there are issues 

of non-compliance that can easily and quickly be corrected and 

allowing them to correct those issues prior to a determination. 

Through an analysis of the most frequent reasons for which 

firms are being denied, CVE identified a set of issues that will 

not require a full re-evaluation and can be quickly corrected. 

These issues occur in more than 50 percent of our current denials. Applicants that could be denied for these issues will be 

provided a Preliminary Findings letter extending the opportunity to make correction or withdraw, prior to a determination. For more complicated issues that would require a full reevaluation, firms will be notified and will have the option to 

withdraw their application and re-submit without receiving a 

determination. 

We are currently running a series of limited pilots to validate 

this proposed process and train CVE staff on procedures for engagement with applicants. The program is targeted for a full 

launch on May 1, 2013. 

Program Improvements 

One of the major findings of the recent GAO report was that the 

Management Information System that supports verification is woefully inadequate for our purposes. VA agrees that our current information system is the biggest obstacle to meeting our verification 

objectives, and we have taken steps to fix it. The next generation 

Verification Case Management System (VCMS) is currently under 

development, and we expect to award a contract for a new system 

in May 2013. This will be a phased program with initial operational capability expected in October 2013. 

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While we have been aggressively pursuing the development of a 

new system, we discovered that SBA is also developing a new system for their 8(a) program. We have reached out to SBA to compare technical requirements. We are currently determining if the 

new SBA system, which is further along in its development, could 

be applied to both programs. 

GAO acknowledged that VA has made improvements to the program, and as a result of a number of process improvements, we 

have reduced the average time to initial determination from more 

than 130 days during the summer of 2011 to an average of 46 days 

for those applications completed last month. We still have a challenge in reducing the time for achieving final determinations in response to requests for reconsideration, a process that offers a ‘‘second chance’’ to firms found to be non-compliant. The process of 

reaching a final determination took an average of 128 days for 

firms receiving decisions in February 2013. While we are working 

to reduce the time required, we recognize that the best method to 

do so is to reduce the number of applications that are declared ineligible. Our analysis of initial denials revealed that most denials 

occur because the applicant does not understand the regulation or 

how it applies to their business model. 

As a result, our efforts to reduce the time and difficulty of 

achieving eligibility have focused on educating applicants regarding 

the application of the regulation and helping them understand 

what their business model needs to be to fit the requirements of 

the program. Our Verification Assistance Program currently consists of three elements: 

1. An online self assessment tool that takes a Veteran 

through each section of the regulation and all the required documents and explains how they relate to the regulation. 

2. A series of 17 Verification Assistance Briefs that explain 

the requirements and give examples of why firms are denied. 

These briefs address issues that cause more than 70 percent of 

all denials. 

3. Realizing some applicants need extra assistance, we established a counseling program in partnership with non-profit organizations to provide counseling services to Veterans preparing to apply for verification. The program was piloted in 

June 2012, and we continue to develop and improve it. All 

counselors now receive the exact same qualification training 

that our examiners, evaluators, and site visitors receive. To ensure transparency and consistency in interpretation, we have 

integrated our counselors into the same qualification training 

and testing that our examiners, evaluators and site visitors receive. 

In addition to the current program elements we will launch a 

fourth dimension to the program with the pilot of our first Pre-Application workshop for Veterans on March 13, 2013, at an event 

hosted by the SDVOSB Council in Virginia. This workshop will outline what a Veteran needs to know and do to put together a successful verification application. 

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Conclusion 

In conclusion, VA has made significant progress in its VOSB 

verification program. We have overcome many of the challenges 

and vulnerabilities that were raised by the GAO and OIG reports 

but we week continuous improvement, and in coordination with 

SBA, we seek to revise our regulation to achieve balanced objectives. 

Mr. Chairman and Members of the Subcommittees, this concludes my statement. I am pleased to answer any questions you 

may have. 

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Subcommittee on Contracting and Workforce, Committee 

on Small Business 

Subcommittee on Oversight and Investigations, Committee on Veterans’ Affairs 

Hearing: ‘‘Consistently Inconsistent: Challenges for Service-Disabled Veteran-owned Small Businesses,’’ March 19, 

2013. 

Questions for the Record - Joe Wynn, VET-Force 

1. If you had to provide one particularly egregious example of VA 

failing to certify a firm, what would it be? 

Answer 1. I spoke with a veteran business owner who reported 

that he was denied because of his age. He was told by a reviewer 

at CVE that he could not possibly manage the company because he 

was 92 years old. The veteran had to obtain a letter from his physician stating that he was in excellent health and fully aware of his 

faculties; and reference letters from staff and associates attesting 

to the fact that the veteran despite his age was fully in charge of 

commanding the operations of the company. 

2. What suggestions for aligning regulations between VA and 

SBA are most necessary? 

Answer 2. In my view, it appears that the regulations between 

the VA and SBA are nearly identical. I would also include in both, 

VA’s rule on the surviving spouse of a service disabled veteran taking over the business. But what appears to be more of a concern 

is the apparent differences in how SBA and VA are interpreting 

the regulations when much of the wording is the same. 

3. Do you think that VA should be relying, in part, on SBA’s 8(a) 

regulations as the basis for it verification program? 

Answer 3. I do not think that the VA should be relying on SBA’s 

8(a) regulations because not all VOBs and SDVOBs are socially 

and economically disadvantaged. While some veteran owned businesses may be just starting out in business and are struggling to 

increase capacity and gain contracting experience; may have been 

in business for years and some are even successful graduates of the 

8a program. 

By regulating all VOBs and SDVOBs from the perspective of the 

8a program profile CVE reviewers tend to make the assumption 

that a veteran business owner does not possess the requisite skills 

and capabilities to do contracting on the federal level without supportive assistance. 

4. One statutory difference between the VA and SBA program 

deals with the treatment of surviving spouses. If we were to try to 

reconcile these programs, how do you think we should address surviving spouses of service-disabled veterans? 

Answer 4. Because under the SBA program the status of the 

veteran owned business ends when the veteran business owner 

dies, there may not be sufficient time to develop an appropriate 

exit strategy that will prevent the other owners, staff and/or family 

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members from suffering a severe adverse economic impact as a result. But under the VA program, the surviving spouse of a service 

disabled veteran business owner may continue the operation of the 

business for up to 10 years if the veteran owner was 100% service 

disabled and died as a result of their service connected condition. 

The SBA rule should be the same as the VA rule. In addition, 

under both programs, the rule should be revised to allow 3 to 5 

years of continual operations by the surviving spouse, caregiver, or 

next majority owner thereby giving sufficient time for the orderly 

termination of the business. 

I think that we should be mindful of the fact that these preference programs for SDVOBs are a means to benefit not only the 

veteran, but the veterans family and their community. So we 

should not want to abruptly end the veterans family when the veteran dies. 

5. I understand that being verified by VA is increasingly important—not only is it required for VA contracts, but other agencies 

seem to be placing importance on verification, even though the 

statute doesn’t require it. For example, FAA’s regulations now require VA verification, and an Air Force contract recently required 

VA verification. I understand that other agencies see it as a credential, and that prime contractors and states are now also requiring VA verification. Please address the challenge that poses to 

firms that operate under SBA’s governmentwide program? 

Answer 5. Veterans operating businesses in the federal marketplace are now facing unlawful discrimination as a result of the 

misperception by many agencies and large Primes that a veteran 

owned business is not legitimate if they have not been verified by 

the VA. Over the past few years, we are seeing more evidence of 

this occurrence. As a result, because of CVE’s interpretation of the 

rules, many legitimate veteran owned businesses are being denied 

the opportunity to do business at the VA and with other agencies 

and/or large Primes as well. 

In addition, CVE’s interpretation and application of the rules 

places an additional burden on veteran business owners that is not 

placed on other non-veteran small business owners. 

6. During the March 19 hearing, Tom Leney stated ‘‘I think that 

this program that the VA has established has created a gold standard.’’ Do you believe this is correct? If not, in what sense is it incorrect? 

Answer 6. The VA’s program for verifying veteran small business owners should not be the gold standard because far too many 

legitimate veteran owned businesses are being denied. Just recently 60% of the firms applying for verification were denied. And 

Tom Leney, himself has admitted on several occasions that less 

than 2% of the denials were based on fraud or misrepresentation 

by the veteran business owner. 

7. At the same time, Mr. Leney stated ‘‘In the federal government, when people know that a firm has been verified by the VA, 

they can take it to the bank. And the results, this is real money 

to real vets, and it is a program that benefits veterans.’’ This seems 

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to suggest that VA expects its certification to be given deference at 

agencies other than VA, despite the fact that the government-wide 

program does not require VA certification. Is VA doing enough to 

make it clear to other agencies that the VA certification is to be 

used for VA contracts only? 

Answer 7. Despite statements from VA and CVE personnel that 

its veteran small business verification program only applies to veterans seeking to do business with the VA, it’s obvious that not 

enough is being done to dissuade other agencies and large Primes 

from thinking otherwise. And when the VA OSDBU makes public 

states that the VA’s verification program for veteran small businesses is the Gold Standard for small business verification it only 

leads other agencies and large Primes to believe that they can do 

less due diligence of veteran business owners by simply relying on 

VA’s results. 

Unfortunately, contracting officers from other agencies have also 

been pushed in the direction of relying on VA’s ‘good seal of approval’ of veteran businesses because of recent GAO and VA IG reports that identified some business owners in the federal marketplace who had misrepresented themselves as legitimate veteran 

business owners. Thus, agencies are looking for some other agency 

they can point to should they award a contract to an inappropriate 

veteran owned business. 

8. What effect does the lengthy and inadequate appeals process 

currently in place at VA have on small businesses’ ability to compete for contracts? 

Answer 8. We are often hearing from veteran business owners 

who have stated that during the period of time (6 months to a year) 

that they have waited for VA approval that they have lost opportunities to do contracting with the VA. This delay also causes some 

veteran business owners to miss opportunities with other agencies 

too because some agencies look for veteran business owners to first 

be certified by the VA. 

Actually, there is no fair and objective appeals process with the 

VA. When an applicant is denied, they have to wait a minimum of 

6 months before they can reapply. In order to dispute the denial, 

a veteran business owner may only have the option to request reconsideration or to request a review from the VA or CVE Director. 

There is no independent body that handles appeals from veterans 

who have issues with their being denied by VA. 

9. VA’s request for reconsideration takes 147 days and isn’t 

heard by administrative judges, whereas SBA’s appeals process 

takes 15 days and does result in a published decision from an administrative judge. The following questions relate to that disparity: 

a. How do you think the appellate process should function? 

b. Would published decisions be an improvement? 

c. Is there a reason to use administrative judges who are 

independent of the verification process? 

Answer 9. Because of the very reasons I referenced in my answer to questions #8, there needs to be an appellate process. That 

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process could be handled by administrative judges and those decisions should be published. 

10. If 48 percent of VA’s requests for reconsideration are granted, 

does that indicate a problem with the initial determination process? 

Answer 10. In the past year or two, it has been reported that 

over 60% of all veterans applying for VA business verification were 

denied. So even if 48% of VA’s requests for reconsideration are 

being granted, its still shows that far too many veterans are having 

to undergo additional reviews in order to obtain approval. CVE has 

reported that there are 10 major reasons why applications are denied. Hopefully, now under CVE’s new pilot program to make a 

pre-determination of the applicant’s information prior to the completion of the process will reduce the need for so many requests for 

reconsideration and reduce the number of denials. 

11. When VA published the current rule governing verification, 

it stated ‘‘VA estimates the cost to an individual business to be less 

than $100.00 for 70–75 percent of the businesses seeking 

verification, and the average cost to the entire population of veterans seeking to become verified is less than $325.00 on average.’’ 

76 Fed. Reg. 3022 (2011). Does that comport with your experience? 

Answer 11. I’m not sure how the VA has determined the cost 

to an individual business to be less than $100 to go through the 

verification process. I have received reports from business owners 

stating that the cost has been up to several thousands of dollars. 

While I’m sure that it does not cost that much for most businesses, 

it would surely cost more than $100 if you just factored in the 

hourly rate for someone in the company to put together all of the 

required information. 

12. VA recently announced that it would add a pilot pre-determination program that would occur before the initial verification 

program. While few would disagree that the program could stand 

streamlining, some have suggested that this will simply add a third 

hoop for our veterans to jump through. Is this a reasonable concern? 

Answer 12. The pre-determination process does raise some concerns. At present, it has not been made clear as to how that process 

will be conducted differently from the initial review process. The 

only difference that I can see at the moment, is that after the initial review, items in the application that raise red flags or could 

lead to denial, will be sent back to the applicant so that they can 

make changes, additions and/or deletions to the information and resubmit. 

The veteran, once notified of the preliminary findings by the 

CVE reviewer, will have only 5 days to resubmit corrected information. So depending on the extent of the changes required, it could 

take more than 5 days. If the applicant does not submit the new 

or additional information in 5 days, CVE will issue a determination 

letter which will probably be a denial. At that point, the applicant 

can request reconsideration and then we are right back where we 

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started with a 147 days or more wait time for the new information 

to be reviewed. 

13. Each time VA reorganizes its verification process, it seems to 

add employees and spend more money, with little improvement for 

our veterans. Please provide your thoughts on what the pre-determination program will mean in terms of costs and staff. 

Answer 13. Not sure if the pre-determination program will 

mean more staff and more costs. I’m sure it will create more processing time, more workload, and probably more confusion among 

staff and applicants. 

14. There is consensus that contract intended for service-disabled 

veteran-owned small businesses should go only to service-disabled 

veteran-owned small businesses. The following questions address 

the prevention of fraud. 

a. VA has said that of the firms found not to qualify; only 

about 2% are turned down for reasons of fraud. That means 

98% are turned down for structural reasons. What does that 

say about the program? 

b. SBA’s self-certification model has been criticized for leaving the door open to fraud. Is that the case, and how can we 

improve that process? 

c. Does the timing of VA’s verification pose challenges? Specifically, since VA’s program looks primarily at a company before the company is bidding on a contract, does it leave open 

the door to a verified company getting a contract, and then just 

passing the work through to another company? 

Answer 14. If 98% of the firms are denied for structural reasons 

then it says to me that the requirements are far to strict. In an 

attempt to screen out fraud and misrepresentation, too many legitimate business owners are being denied. SBA’s self certification 

model is obviously a more open process but its the law. However, 

if businesses are required to attest to their legal status as a legitimate veteran or service disabled veteran owned business, and are 

later found to be fraudulent, then they should be prosecuted to the 

full extent of the law, penalized, and not be allowed to participate 

in the program again. With proper oversight and due diligence on 

the part of contracting officers, SBA, and other agency officials, 

firms committing fraud in any program will be detected. 

For those firms that successfully complete the verification process must then market themselves to the VA for contracts. VA 

verified firms are not automatically awarded contracts simply because they have been verified. But for those that do received contracts, agencies should still provide oversight and due diligence to 

ensure that a firm remains eligible for the program it was selected 

to participate in and that it does not violate any of the small business rules. 

15. In your testimony you listed seven reasons you thought VA 

should stop using to deny companies verification. One of those was 

the instance where the service-disabled veteran isn’t involved in 

the day to day operations. In such cases, how do we make sure that 

this isn’t just a case of ‘‘rent-a-vet’’? 

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Answer 15. The VA verification requirements should not be so 

stringent that legitimate veterans business owners are denied 

based solely on a business’ profile and the assumption that they 

will be used as a ‘rent-a-vet’. Owners that are not working full time 

in the business or participating in the day to day operations should 

be allowed to present sufficient documentation to demonstrate that 

they are in control of the company. Meeting minutes, organization 

charts, management reports, CEO memos and directives, are just 

some of the examples which can be used to demonstrate that the 

owner controls the company. 

A veteran business owner should not be denied solely on the 

basis that they have others in the company with more experience 

than them or because they have partnerships with other companies 

that have more experience in the marketplace. VA - CVE should 

utilize some of its resources for oversight and follow up of veteran 

owned businesses where there is a perceived view that the firm is 

being overly reliant on non-veteran support. This in addition to unscheduled visits to the owners principal place of business and a review of contract actions of the business will help to identify companies that are misrepresenting themselves or abusing the program 

or breaking the law. 

16. One of the biggest obstacles with VA’s certification process is 

that it is ever changing. So much so that on this Tuesday March 

5th, two days before this hearing was originally scheduled to take 

place, VA again changed its process. I have a few questions in regards to that. 

a. With these latest changes, even in reading them the process seems cumbersome while certain parts discuss business 

days, other sections merely say hours. You’ll be able to stop the 

clock, but need to get them know within 48 hours. If that 48 

hours or 48 hours of business days. I foresee a lot of complications with this process; but as someone whose dealt with it before. What are your overall thoughts? 

b. The letter changing the policy indicates that this will be 

a pilot run of a pre-determination process, and be fully initiated on May 1, 2013. Based on your experiences, how likely do 

you think VA is to keep this process intact? 

c. More broadly, how often does VA make these sort of 

changes? 

d. How do these changes affect service-disabled veteran 

small business owners ability to understand the process? 

Answer 16. Please refer to my response to Question #12. In addition, I will say that the pre-determination process is something 

we have asked the VA to do for the past 2 years. What I do have 

a problem with is that (1) they practically had to be forced to do 

it; but (2) they are not allowing sufficient time for the applicant to 

resubmit the corrected information; (3) its probably still going to be 

difficult for an applicant to get a live person to assist them within 

that 5 day period; (4) to avoid getting caught up in the 5 day limit 

a veteran will have to withdraw their application and resubmit at 

a later time, thus going through the process again; and (5) this new 

process has already led to confusion because more applicant’s are 

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now asking more questions about how to navigate the entire process. 

There have been a number of changes to this VA - CVE 

verification process over the years. Another recent change is the allowance of transfer restrictions. That only came about after the recent court ruling in the Miles case. Other process changes have led 

to confusion and more time in the processing. 

Then there is still that part of the process which calls for a visit 

to the applicant’s principal place of business. From reports I have 

received, this part of the process is not consistent. 

17. I understand that you and many others volunteer to help 

service-disabled veterans navigate the VA processes. While I thank 

you for your service, are you aware of any other contracting programs that require this level of outside assistance before a firm can 

be compete for contracts? 

Answer 17. A few months ago, VA - CVE started a Veterans Assistance Partner Program whereby representatives from other organizations are supposed to be trained as VA Verification Counselors. 

At present, there are only a few organizations who volunteer their 

time assisting veterans with the verification process. I am one of 

them. But now the VA is directing more and more veterans to the 

volunteer counselors in order to reduce VA’s workload. Some veterans now are being told that they must consult with a counselor 

first. As a result, some counselors are now charging a fee for their 

services and since some counselors are attorney’s they are likely to 

charge fees as well. 

VA - CVE adopted this model from the VA’s use of Veteran Service Officers from Veteran Service Organizations to assist veterans 

with filing claims with the VA for compensation for service connected disabilities. This model has been in use for at least 20 years 

and has proven to be helpful for thousands of veterans. However, 

while its a good model to use for the VA verification assistance, it 

will take several years to perfect it for use on a national level. 

18. Mr. Wynn, how should Congress amend 38 CFR § 74 to provide for clearer interpretation of the sections you find most convoluted? 

Answer 18. At this time, I don’t want to present myself as the 

expert on these matters and tell Congress what they should do. But 

what I will suggest, is that you or the House Small Business Committee convene a roundtable either formally or informally to discuss amendments to 38 CFR 74. I think it would be helpful as a 

follow up to the hearing to have some open discussion and brainstorming to try and come up with what may or may not work. I 

would like to participate in such a discussion and hope that the 

other witnesses from the hearing would be invited as well. However, I’m not sure if the VA’s representatives are willing to offer 

recommendations for changes to the existing regulation. 

I think the SBA should be a part of that discussion, and selected 

staffers from the House Veterans Affairs Subcommittee on Economic Opportunity. A comparative analysis should be made beSBREP-219 with DISTILLER

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tween SBA’s and VA’s interpretations of the regulations that use 

the same language yet produce different results. 

Conclusion: 

I hope that I have provided useful responses to all of your questions. And please do not hesitate to contact me if you require additional information regarding this matter. 

Joe Wynn 

Nabvets Legislative Liaison 

VVA Special Advisor 

Member of VET-Force 

202 365–0482 

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Davy Leghorn’s Responses to Questions for the Record 

from 

Subcommittee on Contracting and Workforce, Committee 

on Small Business 

Subcommittee on Oversight and Investigations, Committee on Veterans’ Affairs 

Hearing: ‘‘Consistently Inconsistent: Challenges for 

Serivce-Disabled Veteran-Owned 

Small Businesses,’’ March 19, 2013. 

Submitted April 9, 2013. 

1. If you had to provide one particularly egregious example of VA failing to certify a firm, what would it be? 

VA’s stripping of SDVOSB status from the firm KWV Inc. has 

been the most egregious case by far. This was a clear example of 

how VA used an SBA OHA ruling set it as a brightline rule without looking at a totality of circumstances. The US Court of Federal 

Claims ruled in favor of KWV and VA restored the firm’s status. 

The Court ruled that VA shall extend KWV’s eligibility by 72 days 

to account for the days it was wrongfully removed. Hardly accounting for the awards and contracts they lost during that time. 

2. What suggestions for aligning regulations between VA 

and SBA are most necessary? 

Mr. Leney was right that there are few differences between 38 

CFR 74 and 13 CFR 125. However, most of the differences come 

down to interpretive differences. Where VA sets bright line rulings 

and uses them to preclude companies; SBA looks at a totality of 

circumstances. 

Mr. Leney was incorrect when he said VA was not making size 

determinations. We believe that when VA refers a case over to the 

SBA for a size determination and drops the firm in question from 

the vet-biz vendor list, they are making a size determination. When 

VA precludes a company from the Vet First program based off of 

a size restriction based off a firm’s NAICS codes, they are in essence making a size determination as well. If VA is going to make 

these round-a-about size determinations, then they need to adopt 

13 CFR 121 to give them the regulatory authority to do so correctly. 

3. Do you think that VA should be relying, in part, on 

SBA’s 8(a) regulations as the basis for it verification program? 

No, the 8(a) program is a business development program, VA 

Verification is a certification program (closer to SBA’s HubZone 

program). VA’s partial adaptation of the 8(a) program is how they 

came up with a punitive 6 month waiting period. We know of not 

statutory requirements that forces VA to enforce this. SBA’s 8(a) 

program is the only other place where we see this; SBA enforces 

a 12 month waiting period for reapplication on firms that have 

been denied. 13 CFR 121 and 13 CFR 125 are the only regulations 

VA needs to align 38 CFR 74 with. 

4. One statutory difference between the VA and SBA programs deals with the treatment of surviving spouses. If we 

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were to try to reconcile these programs, how do you think 

we should address surviving spouses of service-disabled veterans? 

The American Legion has a resolution on this specific issue. The 

American Legion advocates for regulatory changes that would in effect make it so that if any disabled veteran who owns a certified 

service-disabled veteran-owned business dies, (regardless of his/her 

disability at the time), their business inherited by their spouse/dependent will retain the service-disabled veteran-owned business 

status in conjunction with Public Law 109–461. 

The American Legion supports that if any servicemember, to include those who were in the National Guard or Reserve, is killed 

in action and owns at least 51 percent of a business prior to his/ 

her death, the business bequeathed to their spouse/dependents 

must be granted service-disabled veteran-owned business status for 

reason of preference in federal contracts. 

The American Legion supports any administrative or legislative 

effort that will improve and increase the benefits bequeathed to the 

veteran’s spouses or dependents upon a veteran business owner’s 

death. 

Attached is a copy of our resolution. 

5. I understand that being verified by VA is increasingly 

important—not only is it required for VA contracts, but 

other agencies seem to be placing importance on 

verification, even though the statute doesn’t require it. For 

example, FAA’s regulations now require VA verification, and 

an Air Force contract recently required VA verification. I 

understand that other agencies see it as a credential, and 

that prime contractors and states are now also requiring VA 

verification. Please address the challenge that poses to 

firms that operate under SBA’s government-wide program? 

Because of the self-certifying nature of SBA’s SDVOSB program, 

contracting officers from the various agencies are wary of awarding 

contracts to self-proclaimed SDVOSB. Entrance into the 8(a) program requires documentation of ownership and control on the front 

end, hence in the contracting officer’s mind, there is less change 

that an 8(a) certified firm is a fraudulent firm. VA verification program was to provide this certification and assurance for the contracting officers. There are not enough resources at SBA for them 

to check first like VA is doing, but SBA’s SDVOSB self-certification 

program is self policing though status protests. In the past, DOD 

and VA have been scrutinized by Congress and the press for the 

number of fraudulent SDVOSB firms they awarded contracts to, 

this is why with the advent of VA verification, agencies are starting asking if firms are verified by CVE. 

6. During the March 19 hearing, Tom Leney stated ‘‘I think 

that this program that the VA has established has created 

a gold standard.’’ Do you believe this is correct? If not, in 

what sense is it incorrect? 

While The American Legion does not believe VA verification is 

the ‘‘gold standard’’ we understand why other agencies do. ConSBREP-219 with DISTILLER

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tracting officers are risk averse, their jobs are to award contracts 

to the lowest bidder with the capabilities to finish the job and meet 

SBA’s small business goaling. When they give a fraudulent firm a 

contract, they have not done their jobs. A firm having gone though 

the verification process adds a level of security for the contracting 

officer. This is why and how the VA verification program has become a ‘‘gold standard.’’ 

7. At the same time, Mr. Leney stated ‘‘In the federal government, when people know that a firm has been verified by 

the VA, they can take it to the bank. And the results, this 

is real money to real vets, and it is a program that benefits 

veterans.’’ This seems to suggest that VA expects its certification to be given deference at agencies other than VA, despite the fact that the governmentwide program does not require VA certification. Is VA doing enough to make it clear 

to other agencies that the VA certification is to be used for 

VA contracts only? 

This is a common misconception held by many in the small business community that has been exacerbated by contracting officers 

in other agencies who ask if SDVOSB firms are VA verified. VA 

verification is not for ALL VA contracts, technically, VA 

verification are for those firms who are seeking to participate in 

VA’s Vet First Program. A self-certified SDVOSB can still do business with VA outside of the Vet First Program. 

VA is definitely not doing enough to let the agencies know about 

this. Two years ago at an American Legion Small Business Training Program, Mr. Leney stated that he authorized a memorandum 

telling the agencies not to require VA verification in SDVOSB set 

asides. Afterwards, when our SDVOSBs continue to run into the 

same problems with the agencies, we reached out to CVE for a copy 

of this memorandum so our SDVOSBs can provide a copy to the 

contracting officers. CVE refused to produce or share this memorandum and further refused to be quoted. 

8. What effect does the lengthy and inadequate appeals 

process currently in place at VA have on small businesses’ 

ability to compete for contracts? 

Many times, VA comes in contact with SDVOSBs when they are 

subcontractors and identify them as small businesses that have the 

requisite experience and are likely candidates for set-aside contracts. The firms are encouraged to enter the verification process 

while simultaneously bidding for VA contracts. The lengthy process 

is most damaging for these firms who know they can walk onto 

some lucrative contract if only the timing was right and to firms 

that have their status stripped after an inspection. During the period that they are removed from the vetbiz vendor list, they cannot 

be awarded set-aside contracts, bid on set-aside contracts. If they 

attempt to do business with another agency, they’d have to explain 

how their status is in arbitration, which of course would be a cause 

of concern for any diligent contracting officer. 

9. VA’s request for reconsideration takes 147 days and 

isn’t heard by administrative judges, whereas SBA’s appeals 

process takes 15 days and does result in a published deciSBREP-219 with DISTILLER

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sion from an administrative judge. The following questions 

relate to that disparity: 

a. How do you think the appellate process should 

function? 

b. Would published decisions be an improvement? 

c. Is there a reason to use administrative judges who 

are independent of the verification process? 

a) With any federal appellate process, there should be an unbiased body separate from the office that conducted the initial examination. Take Veterans’ Benefits Administration’s appellate process 

for example, a claim for benefits denied at the Regional Office is 

appealed to the Board of Veterans Appeals, where VA attorneys 

and Veterans Law Judges (VLJs) removed from the Regional Office 

make decisions based off a de novo review of the evidence of record. 

Right now, the same entity that conducts the examination also 

handles the R4R process. Again, we reiterate, we know R4R is not 

a formal appeal process, however, absent a real appeals process, 

this is as close as we get. So ideally, the model of VA’s BVA is the 

way an administrative appellate process should function. We see 

SBA’s OHA as a comparable body to VA’s BVA. OHA has an outstanding track record, they have the expertise and their decisions 

are based off their case laws. 

b) Published decisions hold the agency accountable. When decisions are made behind closed doors, the stakeholders have no oversight over the process or legal reasoning that went behind a denial. 

Published decisions at the administrative level are not precedence 

setting and decisions are made by a case-by-case basis, but having 

access to published decisions allows the stakeholders to better assist applicants and preemptively address issues the administrative 

Judges will latch on to. 

c) Yes, an appellate process should require a de novo review of 

the evidence of record, having the same entity review their colleague’s work defeats the purpose of a de novo review. 

10. If 48 percent of VA’s requests for reconsideration are 

granted, does that indicate a problem with the initial determination process? 

The course of our testimony outlines what we believe to be wrong 

with the initial application process. The high percentage of grants 

from the R4R stems from the fact that veteran owners can still provide additional records and alter the evidence of record. The veteran is more willing to alter the business plan when he is faced 

with a six month bar from reapplication when he is forced to accept 

the denial at the end of R4R. R4R is not a formal appeals process; 

we merely refer to it as such because it is as close as VA got to 

having an actual appeals process. We believe the high initial denial 

rate is a better indicator of problems with the initial determination 

process. 

11. When VA published the current rule governing 

verification, it stated ‘‘VA estimates the cost to an individual 

business to be less than $100.00 for 70–75 percent of the 

businesses seeking verification, and the average cost to the 

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entire population of veterans seeking to become verified is 

less than $325.00 on average.’’ 76 Fed. Reg. 3022 (2011). Does 

that comport with your experience? 

From experience, it takes any given firm a minimum of 3–4 

hours to collect the paperwork, save it and proceed with up loading 

documents on the Vetbiz website. Business executives that would 

be responsible for completing this process, according to the Bureau 

of Labor Statistics, earn at least $95/hr. The American Legion fails 

to see how VA can claim that it takes less than $100 for a firm 

to get verified unless the CEOs are earning $25/hr on average. 

The American Legion has not kept track of the general cost of 

veterans seeking to become verified. However, the veterans that 

we’ve had worked with that needed to have their bylaws scanned 

by a lawyer usually spends $1200 (this is on the lower end). Again 

this is the price when a counselor has sat down and made most of 

the changes already and has submitted it back to the veteran and 

the veteran goes and seeks legal counsel for good measure. Many 

of the mid to large cap businesses we work with usually have legal 

counsel on retention. There’s no way we can accurately capture 

how much is being spent on verification for firms with legal counsel 

on retention. We can only state that for the small capacity business 

that have been denied and are going through a R4R or resubmitting their application, it is much more then what VA reports when 

legal fees are factored in. Further, The American Legion does not 

charge for verification counseling, but some of the other counselors 

do and they do charge more than $100 to review documents. 

12. VA recently announced that it would add a pilot predetermination program that would occur before the initial 

verification program. While few would disagree that the 

program could stand streamlining, some have suggested 

that this will simply add a third hoop for our veterans to 

jump through. Is this a reasonable concern? 

The American Legion and other VSOs have always advocated for 

more human interaction in the application process. VA has always 

responded that they do not have the staff and resources to contact 

every veteran if a problem occurs. So in the past we’ve used a ‘‘letter of explanation’’ system to provide the contextualization or 

human element in a process that is so document driven. However, 

as CVE continued to grow, they now have resources they can allocate for this interaction. We recognize that adding this may be a 

delay from getting an application through to the examination 

phase; however, this is one of those processes that has always been 

needed, there was just not enough resources in the past. By adding 

this process to the front end, we can hopefully alleviate some of the 

processes on the back end when a veteran decides to undergo a request for reconsideration. 

13. Each time VA reorganizes its verification process, it 

seems to add employees and spend more money, with little 

improvement for our veterans. Please provide your 

thoughts on what the pre-determination program will mean 

in terms of costs and staff. 

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As previously stated we advocated for more human interaction. 

A significant amount of flexibility is necessary to allow entrepreneurship to occur. It is our hopes that veterans can explain and 

contextualize documents so their application can progress through 

the process without stoppages. What would really be helpful is if 

the person that is working with the veteran is the examiner or at 

least on the examination team as well that way they can mitigate 

some of the miscommunication problems with documentation and 

transferring of the veteran’s intent from one team to the next. 

There is great hope in this new program to do what it intends to 

do. While we understand that direct communication could be a 

time consuming task, we’re not sure what cost or whether new staff 

is necessary to accomplish this. 

14. There is consensus that contracts intended for servicedisabled veteran-owned small businesses should go only to 

service-disabled veteran-owned small businesses. The following questions address the prevention of fraud. 

a. VA has said that of the firms found not to qualify; 

only about 2% are turned down for reasons of fraud. 

That means 98% are turned down for structural reasons. 

What does that say about the program? 

b. SBA’s self-certification model has been criticized for 

leaving the door open to fraud. Is that the case, and how 

can we improve that process? 

c. Does the timing of VA’s verification pose challenges? Specifically, since VA’s program looks primarily 

at a company before the company is bidding on a contract, does it leave open the door to a verified company 

getting a contract, and then just passing the work 

through to another company? 

a) The fact that 98 percent of the firms are turned down for 

structural reasons means that the requirements are too stringent. 

Why is it that general legal documents that make good business 

sense that you can pull off of the a website is not good enough for 

VA? It’s because VA’s regulatory control requirements do not make 

‘‘good business sense’’ but this is the price for admittance into VA’s 

Vet First Program. The large cap small businesses have legal counsel and contracting experts on hand to adjust their documents to 

get past the VA examiners, they go through the process swimmingly because they have the resources to obfuscate their real 

business model from VA examiners. The small cap small businesses who can’t afford legal staff and pull their business documents off the web are the ones being denied. For the most part, 

these folks don’t even understand quorums, board of directors or 

voting requirements. 

b) SBA’s self certification program does open the door to fraud 

but so does VA’s document driven process as we previously mentioned. The veterans’ small business community is very active and 

is self-policing via status protests. Though a fraudulent firm might 

abscond with a contract one time, it would be nearly impossible for 

them to do it again. 

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c) VA does not just look at a company before the company bids 

on a contract. There are scheduled and unannounced site-visits 

that should make a firm conform to the business model they submitted for verification purposes. In the coming year, VA will toe a 

hard line against those who fail inspection and who are currently 

on VA contracts and refer them for disbarment. CVE may not have 

the resources to conduct as many site-visits as they would like, but 

it is with the hope that the threat of site-visits will hold the firms 

in the vendor pages in check. 

15. Mr. Leghorn, I was interested to read in your testimony that you take issue with the six month waiting period 

required before a service-disabled veteran can reapply for 

verification at VA. Do you think this waiting period is intended to prevent fraud, or does it serve another purpose? 

There are no statutory provisions that require a punitive waiting 

period after a denial. The only place we see this is in the 8(a) program. We believe this is VA trying to create a hybrid using SBA’s 

SDVOSB and 8(a) program. A 12 month waiting period was instituted in the 8(a) program because a company must be afforded a 

reasonable amount of time to restructure their business to resubmit their application. 12 months was set as an appropriate amount 

of time for non-compliant companies to work with counselors at the 

SBDCs to become compliant and stay in the 8(a) program. Again 

we believe VA should not be taking anything from 8(a) programs 

except the underlining attitude in the way the 8(a) program is administered. If 98 percent of the veterans trying to get in the Vet 

First Program are not malicious and are just ignorant of VA’s 

stringent requirements, then we should not be punishing them 

with a 6 month penalty for corrections or deletions in their bylaws 

that takes a merely a day to accomplish. VA should allow these 

firms to resubmit as many times as they want until they get their 

business models right. 

We understand that there is the R4R process that allows the 

owner to submit additional evidence and many do get verified after 

going through this process. However, the owner is faced with an 

147 day wait to get through the R4R or he can accept the denial 

and wait 6 months (180 days). As it stands, there is no ways of maneuvering around a substantial waiting period created by VA. If 

the 6 month penalty is removed, then perhaps fewer applications 

will enter the R4R process, thereby relieving the backlog on the 

back end. 

16. Mr. Leghorn, your testimony also raised an interesting 

point about VA taking SBA decisions and turning them into 

bright line rules. Can you expound on that issue? 

VA has undergone a tremendous effort to root out fraud. They’ve 

reviewed OHA’s decisions and set brightline rulings based off of 

OHA’s denials. However, SBA’s rulings incorporate into them a review of the totality of circumstances. VA claims that they do this 

but recent Federal Court of Claims decisions do not reflect that 

they do. Take KWV Inc. v United States for instance, VA ruled that 

a veteran owner removed from his business 6 months a year could 

not control his business. OHA had a similar case that set the preceSBREP-219 with DISTILLER

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dence. However, in the OHA case, time zones and the fact that the 

owner had two other businesses came into play. OHA went out of 

their way to discuss that distance alone was not the deciding factor. Again, SBA made their ruling based off of a totality of circumstances; whereas VA honed in on OHA’s reason for denial but 

not the circumstances in their ruling against KWV. The veteran 

owner of KWV was able to demonstrate that he kept in constant 

communication with his project managers and that because he was 

in the same time zone he was able to communication during business hours. The Federal Court overturned VA’s decision and restored KWV’s status. 

17. Mr. Leghorn, I understand that The American Legion 

is concerned with the growth of the Center for Veterans Entrepreneurship at VA. Would you give us some additional 

background on this, and talk about whether this has translated into better service for our veterans? 

The American Legion is very concerned with the growth of yet 

another VA claims process. As federal agencies, state government 

and even those in the private sector start asking for VA verification 

status, more and more small businesses are submitting applications to CVE. We do not want to see more internal processes grow 

out of the agency’s guise of being more ‘‘thorough’’ or ‘‘streamlining 

the process.’’ Good intentions can sometimes cause multiple lines 

where applications can get backlogged. The American Legion has 

seen this first hand with other VA claims processes. We do not 

wish this to happen to CVE and the verification process. 

18. As Congresswoman Herrera Beutler mentioned her 

opening statement, a copy of which is attached, there is a 

veteran business owner in her district who has been attempting to get certified with VA for almost four years. He 

has a ratings letter issued by the VA indicating he has a 

service connected disability, but is still not officially recognized by the Department of Veteran Affairs as a SDVOB. 

Then, after years of sending in information, he received a 

letter in January requesting more information on his operating agreement. The letter, in a very vague way, indicated 

the operating agreement between him and his partner was 

an issue, but gave no suggestions or guidance on how to correct the problem. I understand the VA has said of the firms 

founds not to qualify, only about 2% are turned down for 

reasons of fraud. That means 98% are turned down for 

structural reasons. What does that say about the program? 

Are you satisfied with the effectiveness, efficiency, and accuracy of the VA’s certification process? 

While The American Legion understands that this is absolutely 

frustrating, we have to look at this from the Agency’s perspective 

as well. There are major legal issues associated with employees of 

CVE give legal advice. They can alert veterans to where there 

might be problems, but they cannot be liable for giving legal advice. This is why VA began the verification assistance program 

which includes verification counseling from a third party. The 

American Legion has a counselor on staff, whose information is 

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listed on the Vetbiz website, who can help veterans amend their 

bylaws to get them compliant to the current interpretation of the 

regulations. The veterans should have been referred to a counselor. 

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MARC GOLDSCHMITT RESPONSES TO QUESTIONS FOR THE RECORD

FROM

SUBCOMMITTEE ON CONTRACTING AND WORKFORCE, COMMITTEE ON

SMALL BUSINESS

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS, COMMITTEE ON

VETERANS’ AFFAIRS

HEARING: ‘‘CONSISTENTLY INCONSISTENT: CHALLENGES FOR

SERVICE-DISABLED VETERAN-OWNED

SMALL BUSINESSES,’’ MARCH 19, 2013. 

SUBMITTED APRIL 6, 2013 

Questions for the Record - Marc Goldschmitt 

If you had to provide one particulary egregious example of VA 

failing to certify a firm, what would it be? 

Picking the most egregious example of VA failing to verify a 

firm requires evaluation and weighting of factors including: 

• The emotional cost to the veteran and family members 

• The financial cost to the veteran and family members 

• The financial cost, including lost opportunities, to the 

veteran’s business 

• The precedence and impact of the decision, action or 

lack of action on the veteran community and businesses. 

My written testimony contained eight (8) examples of companies 

that, for different reasons, could qualify for this distinction. Of 

those eight, I consider XSIG the most egregious. XSIG’s experience 

with the verification process included lost documentation, incomplete documentation review and, most significantly, a threat of 

prosecution. 

XSIG is a Maryland based security company. Organized as a ‘‘CCorporation,’’ XSIG has compliant By Laws as evidenced by its 8(a) 

certification. At the time of initial verification application, XSIG 

had a non-veteran minority owner. CVE demanded that XSIG submit an Operating Agreement which was neither required nor appropriate. After prolonged discussions, the owner downloaded an 

Operating Agreement from the internet, which he submitted. Prior 

to CVE evaluation, the minority owner resigned all corporate offices and relinquished all ownership making the SDV a 100% 

owner. CVE was property notified of the changes. CVE denied 

XSIG based upon the Operating Agreement even though the findings were no longer relevant based upon the ownership change. 

The owner sought CVE help in correcting this error and was told 

that he had to admit that the Operating Agreement that he submitted was incorrect. The owner was later notified, in writing, that 

he was lucky that he was not being prosecuted because he had submitted false information. 

2. What suggestions for aligning regulations between VA and 

SBA are most necessary? 

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SBA interpretations recognize that many, if not all, standard 

have shades of gray. CVE is searching for a bright line for all 

standards where they can say there is a black and white yes or no. 

CVE’s ‘‘bright line for everything’’ approach is unrealistic and ignores business reality, case law and unique ‘‘fact patterns’’ that differentiate and define a business’ true ownership and control 

metrics. VA must accept a ‘‘shades of gray’’ approach and 

work collaboratively with SBA to minimize the band where 

there are shades of gray and to provide objective metrics and 

standards that are predictable and repeatable. This will provide a 

basis to realistically evaluate and align SBA and VA regulations. 

3. Do you think that VA should be relying, in part, on SBA’s 8(a) 

regulations as the basis for it verification program? 

No. VA should rely on SBA’s SDVOSB regulations as the 

basis for its verification program. The 8(a) program is a business development program and has requirements well beyond the 

scope of ownership and control. VA should eliminate the adjudicative costs incurred for reviewing the non-applicable sections of the 

8(a) regulation and bring the verification program into a more affordable range for veterans and the taxpayers. 

4. One statutory difference between the VA and SBA programs 

deals with the treatment of surviving spouses. If we were to try to 

reconcile these programs, how do you think we should address surviving spouses of service-disabled veterans? 

A more generalized approach of business continuity 

should be addressed. The veteran’s family and employees—frequently veterans themselves—should not be further traumatized by 

rendering the business unable to continue or compete. A reasonable 

period of between 3 and 5 years should be provided for the survivors to transition the business for sale, dissolution or continuance 

as a small business. This should include exercising of current contract options and continuation of veteran or service disabled veteran owned small business status. 

5. I understand that being verified by VA is increasingly important—not only is it required for VA contracts, but other agencies 

seem to be placing importance on verification, even though the 

statute doesn’t require it. For example, FAA’s regeulations now require VA verification, and an Air Force contract recently required 

VA verification. I understand that other agencies see it as a credential, and that prime contractors and states are now also requiring VA verification. Please address the challenge that poses to 

firms that operate under SBA’s governmentwide program? 

When VA began verification, firms that were verified received 

lapel pins and were authorized to display the Verified Logo. These 

firms began using verification as a differentiator Government-wide. 

This encouraged other Government agencies and large prime contractors to give unwarranted deference to VA verifications as a 

means of due diligence. The result has been that real veterans are 

unfairly being denied opportunities at other agencies as both prime 

and subcontractors. 

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6. During the March 19 hearing, Tom Leney stated ‘‘I think that 

this program that the VA has established has created a gold standard.’’ Do you believe this is correct? If not, in what sense is it incorrect? 

That is not correct. A gold standard is a model of excellence; 

a paragon. It is the supreme example of something against which 

others are judged or measured. Key metrics for establishing a gold 

standard for an adjudication process would include timeliness, 

trust, confidence, cost effectiveness, program effectiveness, predictability, repeatability, risk management, risk mitigation and emulation by similar organizations. A ‘‘gold standard’’ program would 

be envied and copied by other organizations and should be a declaration by stakeholders and other organizations performing similar adjudication functions, not a self-certification process. 

7. At the same time, Mr. Leney stated ‘‘In the federal government, when people know that a firm has been verified by the VA, 

they can take it to the bank. And the results, this is real money 

to real vets, and it is a program that benefits veterans.’’ This seems 

to suggest that VA expects its certification to be given deference at 

agencies other than VA, despite the fact that the government-wide 

program does not require VA certification. Is VA doing enough to 

make it clear to other agencies that the VA certification is to be 

used for VA contracts only? 

No. VA is not doing enough to make it clear to other agencies that verifications are for VA acquisitions only. As noted 

in question 5, real veterans needlessly suffer real economic losses 

and impact. By continuing to use language such as ‘‘Gold Standard’’ and ‘‘Take it to the bank,’’ in public statements and forums, 

VA actively promotes and encourages the use of verification by outside agencies and prime contractors. 

When VA began verification, firms that were verified received 

lapel pins and were authorized to display the Verified Logo. These 

firms began using verification as a differentiator Government-wide. 

This encouraged other Government agencies and large prime contractors to give unwarranted deference to VA verifications as a 

means of due diligence. The result has been that real veterans are 

unfairly being denied opportunities at other agencies as both prime 

and subcontractors. 

8. What effect does the lengthy and inadequate appeals process 

currently in place at VA have on small businesses’ ability to compete for contracts? 

The lengthy appeals process delays the small businesses’ ability to bid and win proposals. This has several 

lasting impacts: 

• For small businesses with limited operating capital, 

the owner(s) may not have the economic capacity to continue operations. While the specific impact will vary by 

company this always means loss of jobs and income. 

• Time to market will be delayed. This is a very subtle 

but major impact on the small business. As the business 

gains capacity and capability to bid, win and perform conSBREP-219 with DISTILLER

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tract work, it achieves growth. Delaying the start of this 

process results in significant reductions in total revenue. 

Due to Federal buying cycles, a 6 month delay can be the 

equivalent of moving out one fiscal year. Consequently a 

company that has successive years’ revenues of $100k, 

$500K and $1 Million would have total revenues of $1.6 

Million. A 6–12 month delay would result in total revenue 

over the sam eperiod of only $600K—a $1 Million dollar 

reduction. This revenue is un-recoverable and the company 

will see continued significant revenue reductions over the 

subsequent years. This is illustrated in the following 

graphic. The darker area (red) represents cumulative revenues after a 1 year delay. The lighter (blue) area represents the significant ($1 Million) in increased revenue 

achieved with zero delay. It also represents lost revenue 

due to the delay in ‘‘Time to Market.’’ 

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9. VA’s request for reconsideration takes 147 days and isn’t 

heard by administrative judges, whereas SBA’s appeals process 

takes 15 days and does result in a published decision from an administrative judge. The following questions relate to that disparity: 

a. How do you think the appellate process should function? 

The appellate process should review the verification case 

file for errors in law or fact as adjudicated by VA. As noted 

in recent Court of Federal Claims cases, this would require 

that the administrative judge assure that VA findings are 

traceable to and properly reference regulation and that 

those interpretations are consistent with case law and published VA standards. 

b. Would published decisions be an improvement? 

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Yes. Published decisions are essential. The Veteran community and stakeholders deserve the baseline of authority, traceability 

and acceptability of published decisions. 

Traceability of findings to regulation and law is essential. Published decisions from Administrative Law Judges would provide 

that traceability and increase the veteran stakeholders’ acceptance 

of and confidence in VA’s verification program. 

Currently, VA publishes ‘‘Verification Assistance Briefs (VAB)’’ 

that contain excerpts from denial letters. There are problems with 

some of these VABs. For example in the Joint Venture VAB, the 

first excerpt from a denial letter references terms in the findings 

that are not included in either 38 CFR 74 or 13 CFR 121 regarding 

SDVOSB JVs. One VAB introduces the new term ‘‘Full time Control’’ which does not have any regulatory reference or definition. 

A disclaimer included in CVE’s Verification Assistance Briefs further highlights the need for published administrative law decisions. 

This disclaimer is ‘‘This information has been provided by CVE for 

general informational purposes and should not be construed as providing legal advice. You should contact your attorney to obtain advice with respect to any particular issue or problem. In addition, 

CVE makes no representation as to the accuracy or whether the 

above information is currently up-to-date. (emphasis added) All applicants must read the applicable regulations and determine how 

best to meet these requirements. The VAB’s do not constitute legal 

notice or replace the regulations.’’ 

c. Is there a reason to use administrative judges who are 

independent of the verification process? 

Yes. The current process has unpredictable outcomes. 

Administrative judges who are independent of the 

verification process are essential to assuring that the 

verification standards and processes converge to repeatable, predictable outcomes that are consistent with statute 

and regulation(s). 

10. If 48 percent of VA’s requests for reconsideration are granted, 

does that indicate a problem with the initial determination process? 

A 48 percent R4R approval rate indicates that there may be significant benefit to implementing and expanding the planned pre-determination process. 

Of greater significance is the 52% denial rate of denial for R4R 

applicants. As described in question 14, the extremely low rate of 

fradulent companies means that annually between 1200 and 1500 

legitimate companies are being denied. VA should take on a 

proactive advocate role and redirect funds and effort to providing 

earlier assistance to companies seeking verification. 

Currently non-profit Verification Assistance Partners (VAPs) 

support some of the efforts to assist companies prepare documentation for the verification process. Verification Assistance Counselors 

providing this assistance are doing so as a collateral duty. This limits the availability of support. Providing grant funding to the 

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non-profits currently engaged as Verification Assistance 

Partners will allow those organizations to deploy full time 

verification assistance counselors which will result in higher initial verification rates, a significantly reduced CVE 

budget requirement and faster verification cycle times. 

11. When VA published the current rule governing verification, 

it stated ‘‘VA estimates the cost to an individual business to be less 

than $100.00 for 70–75 percent of the businesses seeking 

verification, and the average cost to the entire population of veterans seeking to become verified is less than $325.00 on average.’’ 

76 Fed. Reg. 3022 (2011). Does that comport with your experience? 

That does not comport with my experience. Prior to implementation of PL 11–275, average costs for initial verification exceeded $5,000.00 and $7,500 if the company appealed. My experience is that, post PL 111–275 implementation that the costs to 

small businesses to prepare and submit verification paperwork is 

in the thousands or tens of thousands of dollars and that these 

costs are increasing. In addition the verification program has significant indirect and hidden costs to veteran businesses. 

All small businesses working with the Federal Government face 

significant challenges for start-up, growth and, often, sustainment. 

Congress’ intent to increase opportunities for veteran businesses is 

undermined when excessive business resources are expended on 

non-value added exercises. 

From the verification program’s inception, costs were frequently 

anecdotal. Identifying the true costs and benefits to businesses of 

VA’s verification program is important for Congress and the veteran community to measure the success of the Veterans First program. Quantification of true costs and benefits is also essential to 

determine how effectively VA is allocating resources for their 

verification processes. Question 15 addresses this issue in more detail. 

In early CY 2011, Bob Hesser and I, for the VET Force, conducted a survey that included cost estimates from businesses that 

had completed the verification process. The survey sought to quantify costs that companies incurred in preparing and submitting documentation required by VA. Companies reported a wide variance 

of costs from under $1000 to over $50,000. We reviewed ‘‘outliers’’ 

such as the $50,000 claim and determined them to be valid. These 

costs only included direct costs such as labor and legal fees. The 

average direct cost was in excess of $5,000. For companies that requested reconsideration, the average cost was in excess of $7,500. 

Costs to the veteran community and VA for verification processing are rapidly increasing. Additional information is needed to 

quantify the efficacy of the evolving verification processes and provide feedback to VA to eliminate, or at least minimize, non-value 

added activites. 

• Since the VET Force survey, the intensity and complexity of the verification process have grown significantly, 

which can dramatically increase the direct costs for 

verification and Requests for Reconsideration. I expect 

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these average costs to more than double with potential increases of an order of magnitude for many companies. 

• Since implementation of PL 111–275 the lengthy 

verification processes have precluded companies from competing for Veterans First opportunities. This has associated direct and indirect cost implications. 

• The ‘‘Fast Track’’ program had erroneous and/or avoidable denials that cost real veteran businesses, real dollars 

for real programs where they were the best value to the 

VA. The avoidable denials refer to businesses that had received incomplete findings and/or had been in the CVE 

‘‘black hole’’ for as long as two years or more, during which 

time deficiencies could have been fully corrected. 

The most significant costs, however, are the costs of lost 

revenue due to ‘‘Time to Market’’ impacts as discussed in my 

response to question 8. 

12. VA recently announced that it would add a pilot pre-determination program that would occur before the initial verification 

program. While few would disagree that the program could stand 

streamlining, some have suggested that this will simply add a third 

hoop for our veterans to jump through. Is this a reasonable concern? 

The pre-determination program moves the hoop for some companies that would otherwise be denied. For those companies, it replaces a 147 day Request for Reconsideration period with a five day 

process that will allow these companies to receive their verification 

decisions four to six months earlier. In these cases, companies that 

benefit from the pre-determination process will realize significant 

increased revenue potential due to the ‘‘Time to Market’’ impact addressed in responses to questions 8 and 12. This will ultimately result in significant benefit the veteran community. 

The overall impact to verification outcomes where approximately 

20% to 25% of applicant companies are ultimately denied is unclear. These companies are provided a 30 day ‘‘second chance’’ window but are not successful in overcoming VA identified deficiencies. 

This low success rate in a 30 day window raises concerns for how 

effective the pre-determination process will be with its five day 

window. 

Recent changes in VA interpretations such as Transfer Restrictions will skew statistics making it difficult to distinguish between 

improvements due to pre-determination and changes in interpretations. As VA moves forward with its pilot pre-determination, it will 

be beneficial to identify if pre-determination activities could be 

moved earlier in the process and if additional items could be included in the pre-determination process. More importantly, the 

pilot pre-determination program could provide important information for the value of shifting VA’s verification program from an adversarial ‘‘Gotcha’’ philosophy to a more collaborative ‘‘Get to Yes’’ 

approach. 

13. Each time VA reorganizes its verification process, it seems to 

add employees and spend more money, with little improvement for 

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our veterans. Please provide your thoughts on what the pre-determination program will mean in terms of costs and staff. 

The pre-determination program will increase workloan demands 

and will therefore increase costs and staff requirements required 

for initial verifications. VA states that Requests for Reconsiderations (R4R) are handled through VA’s Office of General Counsel, 

therefore, I assume, the probable decrease in the number of R4R’s 

will have little or no impact on CVE costs and staffing. I estimate 

that CVE cost and staffing will increase by 5% to 10%. This presumes a continued rate of 5,900 cases per year with approximately 

20% (1200 cases) eligible for pre-determination and use of CVE’s 

current multiple level review processes for the pre-determination 

reviews. Using historical denial and final denial rates, this also 

means that each year, the veteran community will continue to experience final denials for approximately 1200 legitimate companies. 

Hopefully, the pilot pre-determination effort will demonstrate that 

structured dialog with applicant companies will result in: 

• better understanding of the requirements, 

• better understanding of the standards, 

• fewer initial and final denials and 

• evidence that earlier, more frequent dialogue and collaborative efforts will result in dramatically lower program 

costs and significantly improved outcomes. 

14. There is consensus that contracts intended for service-disabled veteran-owned small businesses should go only to service-disabled veteran-owned small businesses. The following questions address the prevention of fraud. 

a. VA has said that of the firms found not to qualify; only 

about 2% are turned down for reasons of fraud. That means 

98% are turned down for structural reasons. What does that 

say about the program? 

The 2% appears to be too high by several orders of 

magnitude. This implies that the program is using 

arbitrary statistics in an attempt to justify its significant program costs and extreme interpretations. 

According to recent testimony, in FY 2012, VA adjudicated 

5,900 companies. An unspecified number of cases are referred to the Office of Inspector General (OIG) and VA has 

not provided statistics on the number of referred companies or the number of companies investigated and found to 

be fraudulent. The only available reference is from VA’s 

website which lists only four identified cases that cover a 

two year period. This represents a statistic that is closer 

to 0.02% (two one hundredth’s of one percent). 

b. SBA’s self-certification model has been criticized for leaving the door open to fraud. Is that the case, and how can we 

improve that process? 

Where there is money involved, there will be fraud. The 

Veteran Community has been ‘‘self-policing’’ since the beginning of the program and this has resulted in numerous 

successful protests, indictments and convictions. Many of 

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these ‘‘bad actors’’ continue to self-certify and may receive 

continued contract wins. 

A simple solution is to have the ‘‘Service Disabled Veteran Owned Small Business’’ declaration field in the System for Awards Management (SAM) managed by SBA. 

Any firm found to be ‘‘Other than SDVOSB’’ by SBA would 

have its SDVOSB designation changed by SBA until the 

company could demonstrate that it is fully compliant with 

13 CFR 125. This would capture the benefits of self-certification while eliminating many of the objections to self-certification. 

c. Does the timing of VA’s verification pose challenges? Specifically, since VA’s program looks primarily at a company before the company is bidding on a contract, does it leave open 

the door to a verified company getting a contract, and then just 

passing the work through to another company? 

The timing of VA’s verification may pose minor challenges. Typically, successful small businesses will invest 

resources in developing customer relationships at the 

Prime and Agency levels. This provides strategic visibility 

to the Agency and prime requirements, which would include sufficient lead-time to prepare for and receive VA 

verification. 

Some businesses new to the Government space or new 

to VA may be in a position to participate in teams bidding 

near term opportunities. If the prime needs specific, 

unique corporate capabilities, the small business can still 

participate in the bid as a small business. 

Challenges arise when Prime contractors are assembling 

teams 12–18 months before anticipated RFP release. Frequently, these primes will only accept companies that have 

already received verification and will solidify the team before an applicant can go through the verification process. 

15. In your testimony, you refer to VA’s approach as risk-avoidance. Can you explain what you mean? If VA were to back away 

from this approach, it could mean that potentially unqualified 

firms would be verified. When do you consider this an acceptable 

risk? 

It is an acceptable risk now. 

Risk avoidance is a risk management technique that seeks to 

eliminate any possibility of risk through hazard prevention, or the 

discontinuation of activities determined to entail any level of risk. 

It is often used in extreme situations where the risk exposure creates an extraordinary liability potential. 

In the context of VA verification, risk avoidance means that VA 

is willing to preclude any possibility of a non-veteran company at 

the potential expense of excluding many legitimate businesses. 

This carries a high cost to VA perform verification, a high cost to 

industry to prepare for verification, a high cost to industry in lost 

revenue and opportunities. The current verification process has not 

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identified sufficient numbers of fraudulent companies to justify the 

additional cost. This VA business model is not sustainable or affordable for either VA or industry. 

Veteran community self-policing and penalties for misrepresentation will help reduce and minimize this risk. VA stakeholder feedback is required to validate the acceptability of this risk. 

16. As a verification assistance counselor who helps aid servicedisabled veteran small business owners through the VA verification 

process, can you explain the process to becoming a verification assistance counselor and why they are needed? 

No. As a verification counselor, I review the company profile, 

ownership, governance, management and operations with business 

owners. The processes and rational for the processes is evolving 

and are not relevant to the role that the verification assistance 

counselor plays. A verification assistance counselor assists a company in preparing and evaluating documentation required for submission to CVE. This requires that the verification assistance counselor be knowledgeable of the standards and criteria that CVE uses 

to examine and evaluate documentation and address governance 

issues in the documentation that may not meet either regulatory 

requirements or CVE interpretations. 

17. Further, in light of your training, you’ve become intimately 

acquainted with why the VA requires certain materials in order to 

get certified and your testimony brings out concerns you have with 

this, specifically that some of it may be unprotected or excessive. 

Can you elaborate on these concerns? 

Excessive 

VA training for counselors focuses on the process steps and describes how documentation goes through multiple levels of review. 

The training does not discuss in sufficient detail how or why specific documents are required or used. Training briefly reviews how 

documentation is stored and accessed for review. 

Training material refers to the documentation that is required. 

This information is published on the VA/CVE website at https:// 

www.vip.vetbiz.gov/Public/Register/DocumentList.aspx. On this 

page, users can view CVE documentation requirements for six different types of business organizations. These lists contain excess 

documentation requirements. In addition, several of these lists are 

incorrect. Areas where the lists are incorrect overlap excessive documentation requests. 

Examples of excessive requests 

• Limited Liability Companies, Sole Proprietorships, 

Limited Liability Partnerships and General partnerships 

Æ are precluded by state laws from issuing stock, 

yet CVE lists stock certificates and stock registers as 

requirements for documentation submission. 

Æ Do not have By Laws, they have Operating Agreements, yet CVE requires both Operating Agreements 

and ByLaws 

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Æ Cannot have shareholders and therefore cannot 

have shareholder agreements, yet CVE requires submission. 

• Personal income taxes including 1040 and K–1’s are 

redundant and invasive. Information required for determination of corporate distributions, an indicator of relative 

ownership percentages, is contained in the corporate return with its K–1’s. For a sole proprietorship, all distributions are on Schedule C of the 1040 which by default 

would indicate that the veteran owns 100%. For purposes 

of determination and ownerhsip 

• Affiliation documentation. Affiliation is a size determination issue which is outside of the authority of PL 109– 

461. When CVE finds a possible ‘‘affiliation’’ CVE requires 

corporate income taxes and personal income tax documentation from all owners of all ‘‘affiliated compares. Affiliation through common ownership or management requires taht an entity—in this case the veteran—control 

both companies. Lack of understanding of these SBA regulations and misapplication of the terminology and concept 

of affiliation has created excessive demands for documentation 

Examples of data protection issues 

• Continued concerns of lost documentation 

• Lack of ‘‘Need to Know’’ 

• Traceability to who accessed a document and how it 

was used. 

• Availability of Payroll data. As we look at 

18. Your testimony illuminates concerns that other agencies, although they are not supposed to; have begun using CVE certification as a standard. How often have you seen this occurring? 

I have directly observed this at several small business conferences and matchmaking events. Daily, I read one or more postings on social collaboration sites and forums that address this concern. 

19. Mr. Goldschmitt, you recommended have the Office of Hearings and Appeals hear all service-disabled veteran appeals. What 

do you think are the advantages of unifying the appeals process? 

Unifying the appeals process will provide checks and balances 

similar to the separation of powers within the Executive, Legislative and Judicial branches. A unified appeals process will facilitate 

the convergence of interpretations of common SBA SDVOSB and 

VA verification requirements. It will provide an opportunity to utilize SBA’s history of case law and the subtleties that occur with different ‘‘fact patterns.’’ It will assist the Veteran Community is establishing viable business models that allow common business 

practices that support practical governance, investment, financing, 

human resources and other factors that foster growth and profitability. 

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20 Mr. Goldschmitt, you recommended aligning the regulations 

that SBA and VA rely upon. Even if we use exactly the same 

words, how would we insure that we have the same interpretations? 

Interpretations are based upon statute, regulation, policy, knowledge and experience. The training and experience of VA adjudicators and SBA adjudicators will vary between agencies as well as 

within agencies. Using the same words, will provide a basis for establishing consistent interpretations. Common training and case 

law will facilitate the convergence of interpretations and provide an 

understanding of the nuances associates with different fact patterns. 

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Subcommittee on Contracting and Workforce, Committee 

on Small Business 

Subcommittee on Oversight and Investigations, Committee on Veterans’ Affairs 

Hearing: ‘‘Consistently Inconsistent: Challenges for Service-Disabled Veteran-Owned Small Businesses,’’ March 19, 

2013. 

Questions for the Record - Jonathan Williams 

1. If you had to provide one particularly egregious example of the VA failing to certify a firm, what would it be? 

We had one case that involved multiple rounds of denials, reconsideration requests, and back-and-forth with the VA OGC. The 

issues were not particularly complex, but it took over one year to 

resolve and several thousand dollars for the company. 

2. What suggestions for aligning regulations between the 

VA and the SBA are most necessary? 

• The VA and the SBA should permit reasonable transfer restrictions on veteran ownership 

• The VA should not require SDVOSB joint ventures to be 

separately verified by the CVE—perhaps simply review the 

joint venture agreement within a certain amount of time prior 

to contract award, similar to how the SBA handles approval of 

8(a) joint ventures. 8(a) firms do not have to go through a second 8(a) application process for the joint venture. They just 

submit the joint venture approval paperwork within 20 days of 

when the award is expected to be made. 

• The VA’s rules should be scrubbed to remove rights to decide affiliation/size issues without going to the SBA, and to remove the provision that allows the VA to use the principal of 

control through affiliation to find that a veteran does not control his business. The SBA’s OHA found in its Dooley Mack decision that control in the context of affiliation is different than 

veteran control, and OHA specifically rejected the SBA’s use of 

the precise language that is in the VA’s regulations that mixes 

the two control concepts. 

• The VA’s regulations require the veteran to be the highest 

compensated, while the SBA’s SDVOSB rules do not. The same 

is true for the VA’s requirement to have a veteran as the fulltime manager of the company, which is not found in the SBA’s 

rules. 

• The SBA has published its standard operating procedures 

(‘‘SOP’’) for the 8(a) Program, which is a useful tool for firms 

and practitioners to understand the inner workings of the 8(a) 

Program. A similar SOP for the VA’s SDVOSB program would 

help to lessen the confusion many firms experience in seeking 

to understand and use the program. 

• The VA could offer an appeal process similar to what is 

currently available through the SBA, or the VA could simply 

use the SBA’s appeal process as is envisioned in the VA’s rules 

but has not been realized due to the lack of the interagency 

agreement 

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• The VA could specify a certain time period during which 

contract awards will not be terminated while the veteran has 

an opportunity to challenge an adverse finding as to his 

SDVOSB eligibility. 

3. Do you think that the VA should be relying, in part, on 

the SBA’s 8(a) regulations as the basis for its verification 

program? 

I don’t think it is necessarily wrong for the VA to pattern its 

rules after some of the 8(a) rules if the agency believes this is the 

best way to establish and enforce its views on program eligibility. 

I do not see a statutory conflict with the VA doing this. However, 

from a practical standpoint, the VA’s cherry-picking of some regulations from the SBA’s SDVOSB rules, and others from the SBA’s 

8(a) rules, has created a lot of confusion because it gives veterans 

two sets of similar, but different, rules with which to comply. 

4. One statutory difference between the VA and the SBA 

programs deals with the treatment of surviving spouses. If 

we were to try to reconcile these programs, how do you 

think we should address surviving spouses of service-disabled veterans? 

This seems like a nice benefit or advantage of the VA program, 

but I am not sure how often it is used. I never have seen it used. 

5. I understand that being verified by the VA is increasingly important—not only is it required for VA contracts, 

but other agencies seem to be placing importance on 

verification, even though the statute doesn’t require it. For 

example, FAA’s regulations now require VA verification, and 

an Air Force contract recently required VA verification. I 

understand that other agencies see it as a credential, and 

that prime contractors and states are now also requiring VA 

verification. Please address the challenge that poses to 

firms that operate under the SBA’s government-wide program. 

Firms are forced to protest when these regulations are mistakenly put into RFPs, which costs them money, slows down the procurement process, and clogs the protest system. In addition, firms 

may lose out on work with primes that require CVE certification, 

when the primes could rely on self-certification. 

6. During the March 19 hearing, Tom Leney stated ‘‘I think 

that this program that the VA has established has created 

a gold standard.’’ Do you believe this is correct? If not, in 

what sense is it incorrect? 

No, I do not believe this is correct. As our testimony and answers 

reflect, and as Mr. Leney acknowledged during his testimony, there 

continue to be a number of shortcomings in the program that are 

making it too difficult for legitimate SDVOSBs to benefit from the 

program as intended. 

7. At the same time, Mr. Leney stated ‘‘In the federal government, when people know that a firm has been verified by 

the VA, they can take it to the bank. And the results, this 

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is real money to real vets, and it is a program that benefits 

veterans.’’ This seems to suggest that the VA expects its certification to be given deference at agencies other than the 

VA, despite the fact that the government-wide program does 

not require VA certification. Is the VA doing enough to 

make it clear to other agencies that VA certification is to be 

used for VA contracts only? 

I do not know what the VA is doing in this regard, but the anecdotal evidence from my fellow panel members and my clients suggests that the VA is not doing enough. Many other agencies and 

prime contractors believe CVE verification is necessary when it is, 

in fact, inapplicable. 

8. What effect does the lengthy and inadequate appeals 

process currently in place at the VA have on small businesses’ ability to compete for contracts? 

While in limbo, small businesses lose or cannot win contracts, so 

this has a big impact. Many firms have lost contracts because of 

easily correctable issues in their corporate records or because of administrative errors. Currently, VA contracting officers are not required to wait for a decision on a pending reconsideration request 

or appeal before moving on from an initial award decision. Some 

SDVOSBs have been successful in preserving a contract award 

after an adverse eligibility ruling because they had the resources 

to file for an injunction or the contacts with the right people within 

the VA. But for too many SDVOSBs, the contract is lost. 

9. The VA’s request for reconsideration takes 147 days and 

isn’t heard by administrative judges, whereas the SBA’s appeals process takes 15 days and does result in a published 

decision from an administrative judge. The following questions relate to that disparity: 

a. How do you think the appellate process should 

function? 

The appellate process should function similar to OHA— 

quicker, with a review by an Administrative Judge, and a public decision. 

b. Would published decisions be an improvement? 

Yes. Currently, in terms of the legal effect of the VA’s decisions, there is no precedential value to the VA’s rulings. And 

because the VA’s decisions are not publicized, there is no informational or instructive value, either. Conversely, OHA decisions can set precedent for the SBA and are instructive for 

firms in understanding how the SBA is applying its rules and 

how to maintain eligibility. If the VA published its decisions, 

veterans and their representatives would be much more knowledgeable about the VA’s interpretations, regulations, precedent, and guideposts. 

c. Is there a reason to use administrative judges who 

are independent of the verification process? 

Yes, the review is independent so, if nothing else, it gives the 

appearance of being unbiased and a fresh perspective. 

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10. If 48 percent of the VA’s requests for reconsideration 

are granted, does that indicate a problem with the initial 

determination process? 

Yes. This is a symptom of the ‘‘deny first, ask questions later’’ 

approach. Since 2011, over 60% of our reconsiderations were based 

on easily correctable issues in the veterans’ corporate records. 

11. When the VA published the current rule governing 

verification, it stated ‘‘VA estimates the cost to an individual 

business to be less than $100.00 for 70–75 percent of the 

businesses seeking verification, and the average cost to the 

entire population of veterans seeking to become verified is 

less than $325.00 on average.’’ 76 Fed. Reg. 3022 (2011). Does 

that comport with your experience? 

No. The cost for an attorney to prepare the corporate records required to go through the VA’s certification will vary depending on 

the complexity of the corporation, the number of owners, and what 

they are trying to accomplish. But in almost all cases, you are talking about an amount in the thousands of dollars, not hundreds. 

12. The VA recently announced that it would add a pilot 

pre-determination program that would occur before the initial verification program. While few would disagree that the 

program could stand streamlining, some have suggested 

that this will simply add a third hoop for our veterans to 

jump through. Is this a reasonable concern? 

This is a legitimate concern, and proof will be in the pudding, 

but on balance I like the idea of the pre-determination program because it has the potential to avoid unnecessary reconsideration requests, which should in turn speed up the reconsideration process. 

The sooner veterans can cut to the chase about perceived issues in 

the application and have change to correct them, the better. 

13. Each time the VA reorganizes its verification process, 

it seems to add employees and spend more money, with little improvement for our veterans. Please provide your 

thoughts on what the pre-determination program will mean 

in terms of costs and staff. 

I do not have any insights on this, other than I would imagine 

that to do it right, the pre-determination stage will require some 

additional costs. But I would think the VA could accomplish this 

with its existing workforce by having them devote more time upfront to flagging these issues. 

14. There is consensus that contracts intended for servicedisabled veteran-owned small businesses should go only to 

service-disabled veteran-owned small businesses. The following questions address the prevention fraud. 

a. The VA has said that, of the firms found not to qualify, only about 2% are turned down for reasons of fraud. 

That means 98% are turned down for structural reasons. 

What does that say about the program? 

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That the pendulum has swung too far in the direction of creating barriers to entry, and we are too focused on keeping veterans out at the expense of trying to help them get in. 

b. The SBA’s self-certification model has been criticized for leaving the door open to fraud. Is that the case, 

and how can we improve the process? 

That is the perception, but I am not sure it is reality. I am 

not sure a flawed application process is any better than selfcertification at preventing fraud. Perhaps something like the 

WOSB program would be a more manageable middle ground. 

The WOSB program is neither a complete self-certification nor 

upfront verification program. 

c. Does the timing of the VA’s verification pose challenges? Specifically, since the VA’s program looks primarily at a company before the company is bidding on 

a contract, does it leave open the door to a verified company getting a contract, and then just passing the work 

through to another company? 

VAAR 852.219–10 specifies subcontract limitations similar to 

FAR/SBA rules. This is the mechanism through which the VA 

should hold firms accountable for performance of work requirements. Once the firm is verified, I think the focus shifts to the 

contracting departments since compliance with the limitations 

on subcontracting is a matter of contract administration. I 

have seen more performance of work audits on our clients’ contracts, but this remains an area that generally does not seem 

to get much focus, at the VA and other agencies. 

15. The following questions relate to the recent Court of 

Federal Claims decision in Miles Construction, LLC v. 

United States, No. 12–597C (Fed. Cl. 2013). As I understand 

it, before Miles, the VA had a blanket prohibition on transfer restrictions, while the SBA’s Office of Hearings and Appeals prohibited some transfer restrictions and allowed others depending on the wording of the agreements. When 

Miles challenged the VA’s rule, the VA tried to argue the Office of Hearings and Appeals’ cases, and the court rejected 

this argument. Now we have a case where the VA will have 

a blanket rule permitting transfer restrictions, while the 

SBA will still have its case-by-case basis for assessing these 

agreements. 

a. First, can you think of cases where transfer restrictions should be found to lead to the loss of control? 

Yes, such as when the transfer restrictions give the minority 

partner too much control or are onerous or non-customary (e.g., 

the transfer restrictions at issue in the OHA decision, International Logistics, which gave the minority owners the right of 

first refusal to buy the veteran’s stock at a price well below fair 

market value). 

b. Second, since the SBA’s rules on transfer restrictions also apply to whether a firm is a small business, 

aren’t we risking a situation where the VA will find that 

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a firm qualifies, only to potentially have the SBA find 

that the firm is no longer small? 

That seems like a somewhat remote possibility, but in theory, yes, you could have the SBA find affiliation based on a 

transfer restriction that gives a minority owner negative control, yet the VA would apparently no longer care about the 

transfer restriction in terms of SDVOSB eligibility. 

c. Third, does the Court of Federal Claims’ decision illustrate the problem of using different statutory and 

regulatory schemes for these two programs? 

Yes, absolutely! Two inconsistent results. 

d. Finally, I believe the Miles case also speaks to the 

lack of due process provided to service-disabled veteran 

businesses under the Administrative Procedures Act. 

Could you address that as well? 

The VA’s protest rules are very bare-bonded and I do not 

think they were intended to last this long. They clearly envision that the SBA would handle all size and SDVOSB appeals, 

once an interagency agreement was reached. But we are still 

waiting for the interagency agreement. In the meantime, the 

VA’s rules provide some basic provisions for handling SDVOSB 

eligibility protests, but they are not as well thought out as the 

SBA’s rules. So, there are gaps such as the one that the judge 

discussed in Miles that led to due process concerns. If the VA 

is not going to turn over the protest handling to the SBA under 

the interagency agreement as envisioned, the VA’s protest 

rules should be improved. 

16. In your testimony, you recommend that the SBA handle all size and affiliation inquires. I think if you ask the 

VA, it will say that it is already deferring to the SBA on 

these issues. Do you think that is the case? 

Net in my experience, no. Their rules allow them to deny applications for size issues and to find the veteran does not control based 

on affiliation. A VA rule allows the CVE to deny an application if 

the CVE determines that a concern does not qualify as small, even 

if the SBA has not issues a size ruling for that firm (38 C.F.R. 

§ 74.13(d)). Under this rule, a firm whose application is denied because of a size ruling by the CVE may subsequently request a formal size determination from the SBA, but the firm would have to 

file a new application with the CVE after receiving a size determination from the SBA. In this way, the CVE is able to perform 

size analyses that should be left to the SBA. 

In fact, OHA has found that the standard for veteran control 

under the SBA’s SDVOSB regulations is not the same as the standard for control under the SBA’s small business affiliation rules. In 

DooleyMack Gov’t Contracting, LLC, SBA No. VET–159 (2009), the 

SBA had concluded that a veteran did not control his company because ‘‘business relationships exist which cause such dependence 

that [the veteran] cannot exercise independent business judgment 

without economic risk.’’ This SBA conclusion, which OHA rejected, 

is nearly identical to the VA’s regulation at 38 C.F.R. § 74.4(i)(4). 

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OHA overturned the SBA’s analysis because the judge found that 

the SBA had confused the affiliation control principles under 13 

C.F.R. § 121.103 with the veteran control principles under 13 

C.F.R. § 125.10. That same confusion is evidenced in 38 C.F.R. 

§ 74.4(i)(4), which ostensibly addresses veteran control but reads 

like an SBA affiliation rule from 13 C.F.R. § 121.103. 

17. You also mentioned that the SBA and the VA treat 

joint ventures differently. Can you explain how that plays 

out, and why it matters? 

The SBA does not require approval of the joint venture, while the 

VA requires the joint venture to go through its own verification 

process. Joint ventures are not supposed to be ongoing entities; 

they are supposed to be limited ventures formed for a particular 

contract. This is almost impossible to do when you have to get the 

joint venture verified through the CVE since the process usually 

takes several months. By the time you get your joint venture 

through the CVE, the contract opportunity would have already 

come and gone. As a result, we have only ever handled one or two 

SDVOSB joint ventures at the VA, and in one case it was for an 

ongoing joint venture. The VA’s approach forces firms to have ongoing joint ventures that are a potential ground for affiliation under 

the SBA’s rules. And the VA’s approach makes it too difficult to use 

a joint venture, so many veterans are missing out on this useful 

tool. 

18. In your testimony, you recommend consolidating the 

two regulatory schemes into one with regulations and appeal process similar to that which is currently available at 

the SBA. How would you envision that happening? 

I think you would look to merge the two sets of rules into one, 

keeping some parts of both, but using the SBA’s rules as the starting point. The CVE could continue to verify firms using the new 

consolidated rules, at least until it could be figured out how to get 

the entire program under one roof. By using the SBA’s rules as the 

starting point, there would be a clear appellate process for veterans. 

19. Mr. Williams, how can the VA streamline the application process through the Center for Veterans Enterprise 

(CVE) to make it less burdensome and duplicative for veterans? 

Try to issue only one denial letter covering all reasons for denial, 

so firms will not have to endure multiple rounds of reconsideration. 

Work more with veterans through steps like the new initial screening stage to allow the veterans to fix issues and become eligible 

without having to go back to square one. Figure out a better way 

to ensure that correspondence reaches veterans so they do not get 

terminated from the program without having an opportunity to respond. Extend the re-verification timeline by another year, or consider eliminating it all together. Once a firm gets into the 8(a) program, it must make some annual showings, but it is not required 

to essentially re-apply every year or two years like the VA’s reverification process. Firms are obligated to notify the VA about 

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apply every couple of years. Also, counsel the onsite investigators 

and the CVE reviewers not to make veterans feel like they are 

guilty until proven innocent. 

20. Mr. Williams, in your testimony you state how the VA 

uses a ‘‘deny first and ask questions later’’ approach to the 

application process. In your experience, how many veterans 

would you say, approximately, become dejected and simply 

cease their pursuit of contracts they should rightfully have 

the opportunity to pursue? 

I worked with one firm that gave up on the process, one firm 

that almost gave up when their reconsideration requests dragged 

on for over one year, and I am currently working with a firm that 

is close to giving up based on some very poor experiences with an 

onsite investigator. Given these anecdotal experiences, I would 

have to assume there are a significant number of veterans who 

have abandoned the program and contract opportunities because it 

is too difficult to get into and stay in the program. 

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SBREP-219 with DISTILLER


Insert offset folio 140 here 80170.0050

April 9, 2013 

The Honorable Richard Hanna 

Chairman 

The Honorable Grace Meng 

Ranking Member 

Subcommittee on Contracting and \/\I(\rWtnrt'A 

Committee on Small Business 

House of Representatives 

The Honorable Mike Coffman 

Chairman 

The Honorable Ann 

Ranking Member 

Subcommittee on r\",e",iM'" 

Committee on Veterans' 

House of Representatives 

On March 19, 2013, I testified in the joint hearing on the Department ofVelerans 

Affairs' program for veteran,owned small businesses before your 

committees. This letter responds to I provide answers to 

questions for the record from the 

work associated with January 2013 

have this letter or 

William Shear 

Director 

Financial Markets 

Enclosure 

VA's Verification 

Need impfOvemenl. 

System for VA:s Verificalion PfOgtam 
141 

1GAO, Veteran-Owned Small Businesses: Planning and Data System for VA’s Verification Program Need Improvement, GAO–13–95 (Jan. 14, 2013). 

Enclosure 

Subcommittee on Contracting and Workforce, Committee 

on Small Business 

Subcommittee on Oversight and Investigations, Committee on Veterans’ Affairs 

Hearing: ‘‘Consistently Inconsistent: Challenges for 

Service-Disabled Veteran-Owned Small Businesses,’’ March 

19, 2013 

Responses to Questions for the Record 

William B. Shear, Director 

Financial Markets and Community Investment, 

Government Accountability Office 

1. Your written statement focused on your January 14th 

report on the VA verification program. However, it’s my understanding that the scope of this report changed over time. 

Can you tell us about that evolution, and why it was necessary? 

When we began our work in February 2012, we initially considered reviewing a sample of applications for verification to assess 

how consistently the Department of Veterans Affairs (VA) applied 

its guidelines and the timeliness of the verification process. However, because VA introduced significant changes to its procedures 

and operations in 2012, we determined that evaluating VA’s compliance with its past procedures would be of limited value and that 

testing the effectiveness of verification procedures that were still 

evolving would be premature. We also found that the verification 

program’s data system did not provide the information that we 

would need to analyze the timeliness of the verification process. As 

a result, we focused instead on issues related to planning for and 

designing the verification program and on changes in the program’s 

management and operations. 

2. GAO stated that VA had 28 employees and 174 contractors assigned to verification. What have been the resulting 

challenges from relying so heavily on contractors? 

While we did not look specifically at the challenges from relying 

so heavily on contractors, our work identified three key issues facing the verification program related to its use of contractors. First, 

we reported in January 2013 that the verification program’s data 

system did not meet VA’s needs for assigning and monitoring the 

progress of applications.1 As a result, the contractor that initially 

examines applications relied on a separate workflow management 

system, which is inefficient and increases the risk that data will 

not be completely or accurately recorded across systems. Second, 

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2GAO–13–95. 

3GAO, Small Business Administration: Additional Actions Are Needed to Certify and Monitor 

HUBZone Businesses and Assess Program Results, GAO–08–643 (Washington, D.C.: June 17, 

2008). 

VA initially did not have a standardized approach to training 

verification program employees and contractors. To help address 

this challenge, VA began taking steps in December 2011 to improve 

training, such as hiring the first training officer for the verification 

program and revising the training program. VA’s initial strategic 

plan for the verification program identified improving training as 

an ongoing focus for 2013. Third, while VA began taking some 

steps in 2012 to improve its oversight of the quality of the work 

produced by some its contractors, the agency lacked metrics that it 

could use to monitor the quality and consistency of work produced 

by the contractors that perform examinations and site visits. 

3. GAO staTed that VA had made a number of changes intended to improve the verification program since December 

2011. But it also stated that before VA could expand operations for a government-wide program, it would need to 

demonstrate that the recent changes have resulted in operational improvements and that its new efforts to educate applicants have been effective. Why weren’t you able to determine whether the recent changes have been effective? 

During the period of our study—February 2012 to January 

2013—the changes that VA introduced beginning in December 2011 

were still being implemented or had not been in place long enough 

for us to evaluate their results. However, as we reported in January 2013, VA could strengthen its efforts to improve its management and oversight of its verification program by taking additional 

actions.2 First, in its initial strategic plan, VA had not established 

quality and outcome measures that it could use to assess the 

verification program’s performance over time. Second, the program’s data system lacked data fields and reporting capabilities 

that VA needed to monitor program trends and staff performance. 

By developing performance measures and addressing the shortcomings in its data system, VA would be in a better position to assess the effectiveness of its recent changes to the verification process and to determine whether additional actions are needed. 

4. GAO has done previous reports on both SBA’s and VA’s 

certification and verification programs, and both indicated 

problems with fraud. Could you tell us more about the challenges you found? 

The Small Business Administration (SBA) and VA have taken 

various actions in response to deficiencies we identified in their certification and verification programs, but both continue to face challenges in establishing internal controls that provide reasonable assurance against program fraud and abuse. For example, in June 

2008, we reported that the mechanisms SBA used to certify and 

monitor HUBZone frims provided limited assurance that only eligible firms participate in the program.3 We found that SBA verified 

information reported by firms at application or during recertification only in limited instances. We also found that SBA was not 

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4GAO, Small Business Administration: Undercover Tests Show HUBZone Program Remains 

Vulnerable to Fraud and Abuse, GAO–10–759 (Washington, D.C.: June 25, 2010). 5See, for example, GAO, 8(a) Program: Fourteen Ineligible Firms Received $325 Million in 

Sole-Source and Set-Aside Contracts, GAO–10–425 (Washington, D.C.: Mar. 30, 2010) and GAO, 

Service-Disabled Veteran-Owned Small Business Program: Fraud Prevention Controls Needed to 

Improve Program Integrity, GAO–10–740T (Washington, D.C.; May 24, 2010). 6GAO, Veteran-Owned Small Businesses: Planning and Data System for VA’s Verification Program Need Improvement, GAO–13–425T (Mar. 19, 2013). 

following its policy of recertifying all firms every 3 years. In a subsequent report, we noted that weaknesses in SBA’s eligibility review process for the HUBZone program allowed bogus firms to be 

certified based on fradulent information.4 Specifically, our testing 

revealed that SBA did not adequately authenticate self-reported information—especially as it pertained to information regarding 

whether a firm’s principal office location met program requirements. 

We also identified weakenesses in SBA’s 8(a) program and VA’s 

service-disabled veteran-owned small business program that allowed ineligible firms to participate in those programs.5 For example, we found that SBA relied heavily on self-reported information 

from 8(a) program applicants during the initial certification and 

annual reviews, particularly in evaluating an individual’s adjusted 

net worth and total assets, with limited data validation performed 

after firms entered the program. As I noted in my March 2013 

statement, VA has instituted a number of significant changes to its 

verificationn process to improve and address program weakenesses 

but continues to face challenges in its efforts to establish a stable 

and efficient program to verify firms on a timely and consistent 

basis.6 These challenges are directly related to shortcomings in 

strategic planning and data systems for the verification program. 

One of the fundamental challenges that both SBA and VA face is 

balancing the inherent tension between the need to establish effective internal controls to prevent ineligible firms from participating 

in their programs and the goal of facilitating access to federal contracting opportunities for the intended targets of these programs. 

5. Mr. Shear, as we go forward, what aspects do you consider crucial to a successful verification program? 

Based on our evaluation of VA’s verification program, we recommended that VA (1) continue to develop, refine, and implement 

a formal strategic plan to provide a comprehensive framework to 

guid, integrate, and monitor the verification program’s activities 

over time (including incorporating longer-term goals, objectives, 

and outcome measures for the verification program and sharing the 

plan with key stakeholders); and (2) integrate its efforts to modify 

or replace the verification program’s data system with the broader 

strategic planning effort to ensure that the new system not only 

addresses the short-term needs of the program but also can be 

readilky adapted to meet long-term needs. In both our audit work 

and our recommendations, we focused on strategic planning because VA did not have a stable process in place that would have 

enabled the agency or us to test how well the process was working. 

Therefore, beyond taking actions to put a stable process in place— 

such as actions needed to obtain an effective data system, which 

is a major challenge itself—VA needs to develop effective ways to 

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monitor the verification program’s activities over time. In particular, VA will need to collect information that reflects the quality 

of verifications carried out by its staff and contractors so it can test 

how well a new process is working. In doing so, VA would put itself 

in a better position to manage any tradeoffs between providing reasonable assurance that only eligible firms are verified and that all 

eligible firms are verified on a timely and consistent basis. 

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Subcommittee on Contracting and Workforce, Committee on 

Small Business 

Subcommittee on Oversight and Investigations, Committee 

on Veterans’ Affairs 

Hearing: ‘‘Consistently Inconsistent: Challenges for ServiceDisabled Veteran-Owned Small Businesses,’’ March 19, 2013. 

Questions for the Record - John Shoraka, Associate Administrator, Government Contracting and Business Development, U.S. Small Business Administration 

1. In the letter from Mr. Shoraka included on page 56 of 

the Government Accountability Office (GAO) Report, Veteran-Owned Small Businesses: Planning and Data System 

for VA’s Verification Program Need Improvement (2013) 

(GAO–13–95), Mr. Shoraka states that there are statutory, 

procedural and interpretive differences between the Small 

Business Administration (SBA) government wide contracting program for service-disabled veteran-owned small 

businesses (SDVOSBs) and the Department of Veterans Affairs (VA) SDVOSB program. Specifically, the letter cites the 

disparate treatment of surviving spouses as the statutory 

difference between the program; the protest process as the 

procedural difference between the programs; and concludes 

that ‘‘while it is true that the wording of the regulations is 

similar, there are some key differences in interpretations.’’ 

Please enumerate and explain: 

a. Any other statutory differences between the programs; 

A key statutory difference between the VA program and the 

SBA program is that the VA program is a statutorily required 

verification program, whereas the SBA program permits selfcertification. Additional statutory differences include the VA 

allows eligibility for firms owned and controlled by surviving 

spouses and the VA has a VetFirst contracting preference. 

b. Any differences between 13 C.F.R. §§ 125.8–125.29 

and 38 C.F.R. § 74; 

The differences between the rules are outlined in the attached chart. 

c. Any differences between 13 C.F.R. § 124 and 38 

C.F.R. § 74; 

See above referenced chart. 

d. Any interpretative differences between the VA and 

SBA programs, including which differences SBA considers key. 

It is difficult to summarize the interpretive differences between the VA and SBA programs because we are not aware of 

situations where the exact same firm was found to be eligible 

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under one program and not eligible under the other program. 

Each case is different. An example of a known difference in interpretation is how the VA handles restrictions on sale and 

transfer of ownership. Prior to the Miles decision, the VA appeared to not allow any restrictions on sale or transfer. As a 

result of Miles, the VA may now allow any and all restrictions 

on sale and transfer. In contrast, SBA examines restrictions on 

sale and transfer as one component of control eligibility requirements, along with other factors. SBA makes a determination as to whether the Veteran owns and controls the firm 

based on a review of the totality of circumstances for the applicant firm. It is difficult to say which restrictions are allowed 

and which are not, because restrictions vary from case to case. 

Over time, SBA’s decisions are reviewed on appeal and SBA 

has published appeal decisions that the public can use as guidance. 

2. GAO was told by SBA officials that there were not any 

major differences in the VA and SBA regulatory eligibility 

requirements or the interpretation of these regulations. 

However, in SBA’s official comments, Mr. Shoraka stated 

that there were key differences in how the agencies interpreted the regulations. Does this highlight a disconnect between what is happening on the ground and what management sees as policy? 

The key difference between the SBA program and the VA program is the fact that the SBA program is a protest-based self-certification program and the VA program is a front-end certification 

program. This difference is significant from the perspective of the 

public, as the timing of documentation requests, eligibility process, 

and options for recourse are very different when the VA and SBA 

programs are compared. However, the regulations for each program 

are very similar. As we have already highlighted above, there are 

statutory differences (e.g., surviving spouse) and differences in interpretation in specific fact scenarios (e.g., restrictions on sale and 

transfer). Procedurally, at SBA a protest decision may be appealed 

to another office where an Administrative Judge reviews the decision on a clear error of fact or law standard. 

3. How could collaboration between SBA and VA prior to 

the implementation of VA’s program aided the process and 

prevented the problems that currently exist? 

I cannot speak to the degree of collaboration between SBA and 

VA during the period VA was developing their program, as the program was established prior to my time at SBA. There can be differences in interpretation within the same agency. Certainly, there 

can be differences in interpretation between two agencies. The purpose of both programs is to ensure that the benefits of the programs flows to the intended beneficiaries. 

4. What does SBA believe are the advantages of SBA’s appeal process to the Office of Hearings and Appeals? 

Key advantages of an independent appellate review process include: published opinions; established precedent; and a transparent 

process overseen by an impartial third party. These benefits lend 

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credibility not only to the appeal decision, but also the original decision. 

5. In his written testimony, Mr. Shoraka emphasized that 

SBA’s cases are made on a case-by-case, fact-specific basis, 

so there is rarely one factor contributing to a firm’s denial. 

What do you see as the advantages of such a system? Do you 

think VA is attempting to adopt ‘‘bright line’’ tests? Do you 

think such tests are in keeping with the SBA’s rules and 

regulations interpreting the Small Business Act? 

The goal of both programs is to determine whether the Veteran 

owns and controls the firm. Making these determinations involves 

a thorough process that may require the analysis of voluminous 

documentation, which may include articles of incorporation, bylaws, tax returns, bank statements, loan arrangements, leases, financial statements, resumes, licenses, etc. It is difficult to draft 

rules to address each specific ownership and control scenario, 

which is SBA’s basis for a case-by-case approach for determinations. 

6. What role did SBA play in the preparation and issuance 

of VA’s VAB ‘‘Applicant Must Meet Small Business Definition?’’ 

I am not aware of any role as the program was established before 

my time at SBA. However, the VA recognizes that only SBA can 

determine size in connection with a specific government contract. 

SBA has authority to render size determinations in connection with 

another agency’s programs (13 CFR 121.901). 

7. Both statutes state that a firm’s status as a service-disabled veteran is to be determined by VA’s definitions, but 

that whether a firm is a small business should be based on 

the Small Business Act. Thus, if the VA is applying SBA’s 

rules differently than SBA, isn’t VA usurping SBA’s authority? 

Only SBA can determine size, absent specific statutory authority 

to the contrary. The VA recognizes that only SBA can determine 

size for a specific government contract. Only the VA can address 

whether it is issuing size decisions and denying access to its program based on size. 

8. What is the educational or professional background of 

the SBA employees who perform the program certification 

for the 8(a) program? 

The skills required to perform program certifications for the 8(a) 

program are broad based and include such abilities as critical 

thinking, financial analysis capability, strategic thinking, understanding of organizational structures, government contracts etc. 

These skills can be obtained in a variety of professions and are 

commonly found in business curriculums and legal curriculums at 

the higher education level, therefore the SBA employees that perform this function largely have legal and graduate level business 

backgrounds. 

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9. In VA’s verification program, the ratio of federal employees to contractors is as high as 1 to 24. How does VA’s 

reliance on contractors compare with SBA’s approach to 

verification in other programs? 

HUBZone: SBA does not currently rely on contractor support for 

the purposes related to the HUBZone certification process. SBA 

currently has a staff of 20 Federal employees that are responsible 

for initial certification and continuing eligibility reviews of 

HUBZone firms. 

The HUBZone office had contractor support prior to FY2013. It 

is difficult to make comparisons of ratios of contractor staff to federal staff between the HUBZone program and the VA program, as 

we do not fully know the ways the VA contractor staff support the 

VA federal staff. 

During the period of contractor support of the HUBZone office, 

the contractors specifically managed complex administrative functions and staffed a HelpDesk. In 2009, following a critical change 

in the business process of reviewing HUBZone initial applications, 

the HUBZone program hired contractors to assist with the processing of initial applications. These contractors were hired to supplement the existing federal staff in performing a more rigorous 

level of eligibility review to include full documentation. Additionally, the HUBZone program underwent a reengineering of their 

certification process. After the application process transitioned to 

the new workflow, the program discontinued use of contractors. In 

FY 2013, the HUBZone office increased the total number of Federal 

staff to 20 engaged in the review process. This was a direct result 

of cost savings analysis and in-source justification performed by the 

agency based on the use of contractors from 2009–2011. 

8(a) Business Development: SBA does not rely on contractor support for the purposes related to the 8(a) eligibility review process. 

SBA currently has a staff of eighteen employees that are responsible for certification of new applicants into the 8(a) program. 

10. In order to reduce fraud and abuse in the system, Administrator Mills has previously testified that SBA would 

work with the VA to get an SDVOSB certification process in 

place for SBA’s program. However, we have yet to see any 

concrete steps taken towards this goal. What steps the SBA 

has taken in process and when we can expect to see a credible certification process in place this program? 

In previous testimony, Administrator Mills referenced the collaboration between SBA and VA in several areas to improve alignment of the SBA and VA programs. The SBA has collaborated with 

VA to help identify best practices in mitigating fraud, waste and 

abuse in government contracting programs. We have provided VA 

with insight into our processes and procedures for mitigating fraud, 

waste, and abuse and have shared insight into the development of 

data systems that support programmatic efficiency. 

11. What steps has SBA taken to educate agencies government-wide about the differences between the VA’s and SBA’s 

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programs, specifically the difference of eligibility requirements for contract award? 

Contracting officers should understand that the SBA SDVOSB 

Program is intended for government-wide procurement from 

SDVOSBs, whereas the VA Program is intended for firms seeking 

to do business with the VA. SBA is collaborating with the Office 

of Federal Procurement Policy to issue reminders via an acquisition 

alert regarding the differences in the requirements of the programs. Additionally, SBA has created modules for contracting officers at SBA’s online government contracting learning portal, the 

Government Contracting Classroom (www.sba.gov/gcclassroom). 

We are seeking to cross post or incorporate these courses into the 

courses available to contracting officers via the Federal Acquisition 

Institute (FAI) and Defense Acquisition University (DAU). 

12. What steps has SBA taken to ensure that SDVOSB’s are 

not prevented from competing on an SDVOSB contract outside of the VA solely because they are not certified through 

the CVE program? 

When SBA is alerted to this scenario, we inform the contracting 

officer that CVE certification is not required in order to compete for 

an SDVO set-aside under the Small Business Act. There are published OHA decisions which we share with agencies. The Federal 

Acquisition Regulation (FAR) is clear that the SDVO program is a 

self-certification program. See FAR 19.1307, 19.1403, 52.219–1, 

52.219–27. 

13. If the underlying statutory differences between the 

SBA and VA program were resolved, would the program be 

able to function using the same regulations for eligibility 

purposes? 

Yes, but that does not mean the VA or SBA would not apply 

those regulations differently to a specific fact situation. 

14. At the hearing, Mr. Leney stated that SBA would 

charge VA $1 million to verify 40 SDVOSBs. What was the 

basis of these numbers? Based on the costs of running the 

8(a) Business Development Program and the HUBZone Program, what does SBA estimate it would cost to manage VA’s 

verification program? 

I cannot speak for the basis of Mr. Leney’s numbers, but negotiations between the SBA and VA focused on SBA processing protests 

and appeals, not certification. We would need additional information such as SBVOSBs application volume, recertification efforts 

and program size to forecast the cost to manage VA’s verification 

program. 

15. At one time, SBA and VA negotiated to have SBA manage VA’s verification process. What became of those negotiations? 

SBA and the VA entered into discussions pertaining to processing protests and appeals, not certification. The agencies were 

unable to reach agreement on compensation, and no further discussions are scheduled. 

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16. VA’s procurement regulations (48 C.F.R. § 819.307) state 

that ‘‘For acquisitions under the authority of subpart 819.70, 

upon execution of an interagency agreement between VA 

and the SBA pursuant to the Economy Act (31 U.S.C. 1535), 

regarding service-disabled veteran-owned or veteran-owned 

small business status, contracting officers shall forward all 

status protests to the Director, Office of Government Contracting (D/GC), U.S. Small Business Administration (ATTN: 

VAAR Part 819 SDVOSB/VOSB Small Business Status Protests), 409 3rd Street, SW., Washington, DC 20416, for disposition.’’ This regulation was promulgated December 8, 

2009. However, it is clear based upon the recent Court of 

Federal Claims decisions that no such interagency agreement has been executed. What is the status of this interagency agreement? 

See above response to question 15. 

17. Likewise, 48 C.F.R. § 819.307 states that ‘‘Except for 

ownership and control issues to be determined in accordance with 38 CFR part 74, protests shall follow the procedures set forth in FAR 19.307 for both service-disabled veteran-owned and veteran-owned small business status.’’ However, pursuant to Section 3(a)(1) of the Small Business Act, 

ownership and control are two of the three statutory requirements for qualifying as a small business (‘‘a small business concern . . . shall be deemed to be one which is independently owned and operated and which is not dominant 

in its field of operation’’). As Section 3(a)(2) states, standards and interpretations of these factors are vested in the 

Administrator for purposes of the Small Business Act or any 

other Act. Therefore, how is VA permitted to make independent determinations regarding ownership and control? 

Ownership and control for size is different than ownership and 

control for status. When SBA conducts a formal size determination 

it is trying to determine whether a firm is affiliated with another 

firm and if that affiliation would render the firm in question other 

than small. When SBA reviews a firm for SDVO status, it is seeking to determine whether the Veteran owns and controls the firm. 

Consequently, a firm may be found to be ineligible under one program but eligible under the other. 

18. When SBA admits a firm to the 8(a) program, SBA has 

verified that the firm is a small business owned and controlled by a socially and economically disadvantaged individual. In making that determination, does SBA look at 

whether the firm is itself a small business, or only whether 

the ownership and control of the firm is by a qualifying individual? 

When making a determination of 8(a) BD program eligibility, 

SBA evaluates an applicant pursuant to the relevant provisions set 

forth in 13 CFR § 124. These regulations stipulate that to be eligible to participate in the 8(a) BD program the applicant concern 

must be small and must be at least 51% unconditionally owned and 

controlled by a socially and economically disadvantaged individual 

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or individuals. Therefore, in conducting its eligibility analysis SBA 

determines whether the applicant concern is a small business in 

the primary industry in which it is seeking certification and whether the concern is at least 51% unconditionally owned and controlled 

by socially and economically disadvantaged individuals. Additionally, an 8(a) participant’s size can always be protested in connection with any competitive 8(a) set-aside or other competitive setaside procurement. 

19. SBA’s SDVOSB self-certification process has been criticized as leaving the door open for fraud. Please comment on 

this criticism, and on the relative merits of contract-specific 

protests versus general certifications. Is the SBA undertaking efforts to put additional checks and balances in place 

to make the SBA’s SDVOB certification less vulnerable to 

fraud? 

There is a risk of fraud in any government contracting program, 

including those where certification is required. There are significant costs to certifying all firms that may be interested in winning 

a government contract versus reviewing the limited number of 

firms that have been awarded a government contract on a protest 

basis. This trade-off must be considered when making a determination as to whether funds and resources will be made available for 

a full certification program. Firms and individuals that misrepresent their status may be subject to civil and criminal penalties, as 

well as debarment and suspension from government contracting. 

SBA has debarred or suspended more firms from government contracting in the past 4 years than it did in the previous 10 years, 

and individuals have been convicted and sentenced to prison for 

misrepresentations in connection with SBA’s programs. 

20. Please describe SBA’s interactions with VA regarding 

SDVOSB verifications, and assess of how much the agency 

has contributed to progress made by VA in developing processes and a data system for verification. 

SBA and the VA have met to discuss the regulations for the various programs, and the differences in interpretation. SBA and the 

VA have also met to discuss the 8(a) Business Development Program’s business processes, regulations and information about IT requirements. Most recently SBA involved VA in usability testing of 

some of the workflows supporting business processes associated 

with the 8(a) and HubZone programs. 

21. Please provide information on the staffing levels, costs, 

and caseloads associated with each of SBA’s certification 

programs. 

• HUBZone: 

Æ FY13 HZ = 20 FTEs - of these 11 are 100% dedicated to 

evaluating initial and continuing eligibility actions; 2 provide 

Admin Support to the initial and continuing unit; 3 dedicate 

75% of their time towards evaluations; and 1 provides 25% 

management support towards the evaluation unit. 3 provide 

program management and leadership guidance and to include 

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various infrastructure elements such as website, maps, marketing, etc. 

Æ Annual case load averages approx. 5,000 actions (includes: 

initial apps, material changes, re-certifications, program examinations, protests, proposed decertification, and decertification actions) 

• 8(a) Business Development 

Æ FY13 BD = 27 Headquarter FTEs - of these 14 are 100% 

dedicated to evaluating initial and continuing eligibility determinations; 5 provide Admin Support and perform screenings 

for the initial application unit and the continuing eligibility 

unit; and 5 provide 100% management support, program management and leadership guidance to include various infrastructure elements such as website, marketing, etc. District Office 

staff are leveraged to perform annual reviews of program participants consistent with the Small Business Act. 

Æ Annual case load averages approx. 11,500 actions (includes: initial apps, continuing eligibility reviews, early graduations, voluntary withdrawals, terminations, changes of ownership etc.) 

22. SBA uses a 3 year recertification cycle for HUBZone 

firms. How did SBA decide that three years was the appropriate time frame? 

In 2004, SBA amended 13 CFR 126.500 concerning continued eligibility in the HUBZone program. Before 2004, a qualified 

HUBZone SBC recertified annually. SBA believed that such an annual recertification was burdensome to SBCs and changed the 

timeframe to every three years. SBA considered that the program 

examination process and protest mechanism effectively eliminate 

concerns that SBCs are not eligible. SBA also believed that three 

years was a reasonable period of time to give effect to a HUBZone 

certification. 

Additionally, HUBZone regulations and the FAR require that a 

firm must be a qualified HUBZone SBC both at the time of its initial offer and at the time of award in order to be eligible for a 

HUBZone contract. The HUBZone offeror must provide to the Contracting Officer a copy of notice required by 13 CFR 126.501 if material changes occur before contract award that could affect its 

HUBZone eligibility. In other words, the offeror for a HUBZone 

contract is required to notify the Contracting Officer if it is not in 

compliance with HUBZone eligibility criteria. The HUBZone regulations also provide a protest mechanism in connection with awards 

of HUBZone contracts (13 CFR Subpart H - Protests). Through a 

robust recertification process, requirements of notification of material changes, and the protest process. the HUBZone program mitigates instances of firms misrepresenting their status. 

23. Please explain the differences in the application process for the 8(a) program and the VA’s SDVOSB program, 

with special emphasis on factors only required for one program or the other. 

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While the processes for both certification programs are somewhat 

similar there are some noteworthy differences. The application 

process for VA’s SDVOSB is comprised of five distinct phases, Initiation, Examination, Evaluation, Determination, and Reconsideration, while the SBA process has three phases, Screening, Processing and Reconsideration. The three phased approach by SBA is 

driven by statute. During the SBA’s process applicants are allowed 

to provide additional supporting documents and/or explanations as 

the process is considered iterative while the SDVOSB application 

once submitted cannot be changed. When a reconsideration request 

is submitted as a part of the SDVOSB application process new information can be submitted by the applicant at that time. The 8(a) 

program incorporates administrative procedures where applicants 

can request review by an Administrative Law Judge when declined 

under certain conditions while the SDVOSB does not. 

24. While the recent Court of Federal Claims decision in 

Miles Construction, LLC v. United States, No. 12–597C (Fed. 

Cl. 2013) is not binding on SBA, it does speak to the SBA’s 

position on transfer restrictions. Does SBA anticipate revisiting its regulations or policies in light of the Miles decision? 

Decisions of the Court of Federal Claims apply to the facts of 

those cases and do not bind other Judges on the Court of Federal 

Claims. While the Court discussed some of SBA’s decisions, it did 

not rule on the merits of those decisions. The facts in the SBA decisions that the Court discussed are distinguishable from the facts in 

the Miles decision. SBA will continue to review each specific factual 

scenario when making its decisions, and does not intend to change 

its regulations based on Miles. 

25. Are the SBA and VA planning to align their certification processes to eliminate confusion for veterans when 

certifying as a SDVOB? 

Congress created two separate programs: a government-wide 

self-certification protest-based program based on the Small Business Act, and a VetFirst program specific to the VA that requires 

certification by the VA. The VA has tried to align its regulations 

to SBA’s regulations to the extent possible. There will always be 

the potential for differences of interpretation based on specific factual scenarios, but both agencies attempt to ensure that the benefits of the programs flow to the intended beneficiaries. 

26. Mr. Shoraka, based upon your experience, what would 

you say the VA needs to do to improve the way it certifies 

veteran businesses? 

I believe that the VA’s recent announcement of a screening process to assist applicants when they first submit materials will help 

veterans develop a better understanding of the VA verification 

process. Additionally, a transparent and independent appellate review process would provide firms with a clear path for recourse. 

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Subcommittee on Contracting and Workforce, Committee on Small Business 

Subcommittee on Oversight and Investigations, Committee on Veterans' Affairs 

Hearing: "Consistently Inconsistent: Challenges for Service-Disabled VeteranOwned Small Businesses" 

March 19, 2013 

Questions for the Record - Tom Leney, Department of Veterans Affairs 

1. The Small Business Act defines a small business concern as "one which is 

independently owned and operated and which is not dominant in its field of 

operation" and the SBA Administrator is to use those factors to establish 

"detailed definitions or standards by which a business concern may be 

determined to be a small business concern for the purposes" of the Small 

Business Act or any other Act. This establishes that ownership and 

control are two of the three key concepts relevant to determining whether a 

firm is a small business. The third factor is addressed through the size 

standards. While the size standards themselves are simple enough to 

assess and know when they should be referred to SBA, the ownership and 

control issues are more difficult and go to the heart of all SBA 

determinations. However, Mr. Leney testified "we do not do size 

determinations in the VA. Our policy is all size determinations are referred 

to the SBA . " we do not determine size. We look at ownership and 

control." Does VA, as required by the Small Business Act, refer questions 

of ownership and control to SBA, or does VA make ownership and control 

determinations itself? 

VA Response: SBA size determinations primarily address the business revenue 

or number of employees of the concern consistent with the applicable small 

business size standard. SBA size determinations also can address affiliation. 

For example, if two concems are affiliates of one another, that can lead to 

combining the revenues of the two firms for purposes of the size determination. 

Concems and entities are affiliates of each other when one controls or has the 

power to control the other, or a third party or parties controls or has the power to 

control both. It does not matter whether control is exercised, so long as the 

power to control exists. 13 CFR § 121.1 03(a). Even SBA has a separate 

regulatory provision addressing ownership and control for service-disabled 

Veteran-owned small businesses (SDVOSB) status with respect to the 

government-wide SDVOSB program established by 15 U.S.C. § 657f. See 13 

CFR § 125.9 and § 125.10. In accordance with 38 U.S.C. 8127(f)(4), the 

Department of Veterans Affairs (VA) is charged with maintaining a database of 

Veteran small businesses and determining whether the small business concern 

is owned and controlled by veterans or a veteran with a service-connected 

disability. VA's Center for Veterans Enterprise (CVE) examines a number of 

required documents to determine if an applicant is compliant with the ownership 

and control portions of 38 Code of Federal Regulations (C.F.R.) Part 74. A 

certain amount of overlap exists on the control issue. However, the simple fact 
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remains that SBA makes size determinations and VA makes veteran-owned 

small business status determinations. The two agencies may differ on a 

particular finding of control due to the vagaries of their respective regulations. 

SBA intemally differs sometimes on a finding of control with respect to SDVOSB 

size and status determinations because of regulatory differences. 

2. VA has compared its verification process with the SBA's 8(a) business 

development process. However, for SBA to certify a firm as an 8(a) 

participant, SBA must concurrently determine that the firm is a small 

business as part of the determination as to who owns an controls the firm, 

and whether the ownership and control are vested in a socially and 

economically disadvantaged individual. How does VA address this dual 

line of inquiries? 

VA Response: Unlike the 8(a) program, the VA verification program is not a 

business development program, so business development counseling is not a part of 

the process. However, the two programs share the same responsibility of 

determining ownership and control of the business. The VA verification program 

confirms that the owner is a Veteran or service-disabled Veteran and then confirms 

that the business is owned and controlled by the eligible Veteran. If VA's 

examination identifies that the applicant may not be a small business, the application 

is referred to SBA for a size determination. Before VA begins to examine the 

business for ownership and control, a determination is made on the Veteran status 

of all owners. This is done by checking the Beneficiary Identification and Records 

Locator Subsystem (BIRLS) to check that the owner is a Veteran, the character of 

service must be other than dishonorable, and if the Veteran has a service-connected 

disability, if claimed on the VA Form 0877 application. If the Veteran is not in the 

BIRLS system, CVE contacts the Veteran and asks for the DD-214 and the 

Department of Defense disability rating documentation, if Service-Disabled VeteranOwned Small Business (SDVOSB) status is claimed. 

When CVE examines the documentation for ownership and control, they also look at 

the company's financial information, as well as the Online Representations and 

Certifications Application profile to ensure that the firm is small in at least one of its 

listed North American Industry Classification System (NAICS) codes from the 

Vendor Information Pages (VIP) profile. If the firm's revenues indicate that the firm 

may be other than small in all of the listed NAICS codes, CVE makes a referral to 

SBA for a size determination. 

3. VA's procurement regulations (48 C.F.R. § 819.307) state that "For 

acquisitions under the authority of subpart 819.70, upon execution of an 

interagency agreement between VA and the SBA pursuant to the Economy 

Act (31 U.S.C. 1535), regarding service-disabled veteran-owned or veteranowned small business status, contracting officers shall forward all status 

protests to the Director, Office of Government Contracting (D/GC), U.S. 

Small Business Administration (ATTN: VAAR Part 819 SDVOSBNOSB 
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Small Business Status Protests), 409 3rd Street, SW., Washington, DC 

20416, for disposition." This regulation was promulgated December 8, 

2009. What is the status of this interagency agreement? 

VA Response: VA and SBA drafted an interagency agreement in November 2010 

for Veteran-Owned Small Business (VOSB)/SDVOSB status protests to be 

performed by SBA, but the agreement was never finalized due to a determination 

that using SBA would be more costly than performing the status protests within VA. 

At that time, VA was averaging about 40 protests per year. SBA gave VA a quote of 

$1,049,308 to perform status protests for fiscal year (FY) 2011. In FY 2011, the 

Verification Act (Public Law 111-275, Section 104) had just been passed as an 

unfunded mandate. VA needed to implement the law in the most cost effective 

fashion and determined that continuing to process the 40 protests per year within VA 

would be more cost effective than paying SBA to do this work. 

The cost of continuing the adjudicating of status protests within VA is approximately 

$198,277 per year, based on 60 protests submitted each year. 

4. The recent Court of Federal Claims decision in Miles Construction, LLC v. 

United States, No. 12-597C (Fed. CI. 2013) found that the appeals process 

currently provided by VA to violate the Administrative Procedures Act. 

How does VA intend to address or modify its practices? 

VA Response: Going forward, VA shall provide the protested party the opportunity 

to respond to any issues independently raised by VA during a status protest prior to 

making a final determination. 

5. While the Miles decision addressed appeals at the time of contract award, 

during the hearing Mr. Leney stated "our request for reconsideration is not 

an appeal process. If [SDVOSBs] need to appeal, they come to me and say, 

'We think a mistake has been made.' Our Office of General Counsel makes 

a determination was a mistake made? If we determine, and in less than 2 

percent of the cases was there a mistake, we then allow them to do what I 

call a Second Chance Program." Mr. Leney later clarified that as "a point of 

fact. The Office of General Counsel does not handle appeals. The Office of 

General Counsel, we utilize in our request for reconsideration. And I want 

to be very clear that that is not an appeals process. That is a second 

chance process. Actually, appeals come to me." If initial decisions and 

appeals are being made by the same body, does VA believe that this 

appellate process meets the requirements of the Administrative 

Procedures Act? 

VA Response: VA's verification and status protest processes were promulgated 

pursuant to notice and comment rulemaking in the Federal Register; therefore, VA 

regulations meet the requirements of the Administrative Procedures Act. If the 

question is directed towards verification of initial determinations and Requests for 
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Reconsideration being decided by Director, CVE, this is similar to SSA's 8(a) 

Program. See 13 CFR § 124.204 and § 124.205. 

6. Why does VA not publish its appellate decisions? Mr. Leney stated, "I have 

no objection to making the results of those appeals public." When will VA 

begin to make its appeals public? 

VA Response: As stated in question 5, the Request for Reconsideration is not an 

appeal, and there is no provision for appeals for VA VOSS status protests. Appeals 

occur only in response to a Notice of Verified Status Cancellation (38 CFR § 

74.22(e)). VA has no objection to publishing the final administrative determination 

provided in response to request for consideration, subject to any restrictions 

associated with Federal information security and privacy laws and regulations, and 

will begin doing so as soon as practicable. 

7. In Morton v. Ruiz, 415 U.S. 199 (1974), the Supreme Court stated thatthe 

"Administrative Procedure Act was adopted to provide, inter alia, that 

administrative policies affecting individual rights and obligations be 

promulgated pursuant to certain stated procedures so as to avoid the 

inherently arbitrary nature of unpublished ad hoc determinations." Does 

VA believe its current appellate process meets that requirement? 

VA Response: VA's verification and status protest regulations were promulgated 

pursuant to notice and comment rulemaking in the Federal Register. As set forth in 

that rulemaking, we believe the current process meets all APA requirements. 

8. In the letter from John Shoraka included on page 56 of the Government 

Accountability Office (GAO) Report, Veteran-Owned Small Businesses: 

Planning and Data System for VA's Verification Program Need 

Improvement (2013) (GAO-13-95), SBA states that there are statutory, 

procedural and interpretive differences between the Small Business 

Administration (SBA) government wide contracting program for servicedisabled veteran-owned small businesses and the Department of Veterans 

Affairs (VA) SDVOSB program. Specifically, the letter cites the disparate 

treatment of surviving spouses as the statutory difference between the 

programs; the protest process as the procedural difference between the 

programs; and concludes that "while it is true that the wording of the 

regulations is similar, there are some key differences in interpretations." 

First, do you agree with this assessment? Second, please enumerate and 

explain: 

a. Any other statutory differences between the programs; 

b. Any differences between 13 C.F.R. §§ 125.8 -125.29 and 38 C.F.R. § 

74; 

c. Any differences between 13 C.F.R. § 124 and 38 C.F.R. § 74; 
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d. Any interpretative differences between the VA and SBA programs, 

including which differences VA considers key; and 

e. Why SBA's Office of Hearings and Appeals believes that SBA would 

have decided the following cases differently than V A, and how these 

differences are being reconciled: 

i. Size Appeal of Chu & Gassman, Inc., SBA No. SIZ-5394 (2012); 

ii. Size Appeal of Chu & Gassman, Inc., SBA No. SIZ-5344 (2012); 

iii. Size Appeal of EarthCare Solutions, Inc., SBA No. SIZ-5183 

(2011); 

iv. Size Appeal of Specialized Veterans, LLC, SBA No. SIZ-5138 

(2010); 

v. Size Appeal of A1 Procurement, LLC, SBA No. SIZ-5121 (2010); 

vi. Size Appeal of J.M. Waller Associates, Inc., SBA No. SIZ-5108 

(2010); 

vii. Size Appeal of DoolevMack Government Contracting, LLC, 

SBA No. SIZ-5086 (2009); 

viii. Size Appeal of DooleyMack Government Contracting, LLC, 

SBA No. SIZ-5085 (2009); 

ix. Size Appeal of Blue Cord Construction, Inc., SBA No. SIZ-5077 

(2009); 

x. Size Appeal of Taylor Consultants, Inc., SBA No. SIZ-5049 

(2009); 

xi. Size Appeal of Heritage of America, LLC, SBA No. SIZ-5017 

(2008); 

xii. Size Appeal of Mission Solutions, Inc., SBA No. SIZ-4828 

(2006); 

xiii. Size Appeal of B & M Construction, Inc., SBA No. SIZ-4805 

(2006); and 

xiv. Size Appeal of Catapult Technology, Ltd., SBA No. SIZ-4795 

(2006). 

VA Response: VA largely follows equivalent interpretations of SBA SDVOSB status 

determinations with limited differences. A second statutory difference is that VA's 

38 United States Code (U.S.C.) § 8127 program creates set-aside authority for 

VOSBs in addition to SDVOSBs. Also, VA's statute establishes priority for 

SDVOSBs and then VOSBs over other small business set-aside programs. With 

respect to the list of cases presented, these are all size appeals cases. 

Determinations of small business size are the exclusive province of the SBA, 

15 U.S.C. § 632(a)(2), therefore, VA would not make a different determination since 

it refers all size determinations to the SBA. 

9. Does VA recognize their SDVOB certification process is problematic? Are 

you concerned that because certification is so stringent, it is keeping 

legitimate businesses from being able to compete for VA contracts? Is it a 

priority of VA's to streamline and expedite this process, as well as make it 

more user-friendly? 
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VA Response: The rigorous nature of the program has greatly reduced the risk of 

ineligible firms taking advantage of an important benefit Congress created for VOSB, 

a concern expressed by the House Veterans' Affairs Committee, VA's Office of 

Inspector General, and the Government Accountability Office (GAO). To reduce 

processing times, VA thoroughly examined the verification process and made 

dramatic changes to streamline the process, decreasing initial application 

processing from over 130 days in July 2011 to fewer than 40 days in February 2013, 

against a regulatory processing target of 60 days. VA seeks continual improvement 

in the program to make it easier for VOSBs to become eligible while preventing 

ineligible firms from taking advantage of Veterans First contracts. Examples of this 

are the launch of the Pre-Determination Findings (PDF) program and the elimination 

of transfer restrictions as a reason for denial of an application. In addition, our 

Verification Assistance Program seeks to educate Veteran business owners on what 

is required in the regulation for their business to be compliant prior to the submission 

of an application. VA believes that a better prepared applicant, along with giving 

Veterans the opportunity to address issues with their documentation that would 

make their firm ineligible, prior to initial determination, will enable both reduced 

application times and a reduction in the number of applications denied. As the PDF 

program will not fully launch until May 1, VA does not have data to show its impact. 

To date, however, the VA Verification Assistance Program has increased the 

approval rate on initial applications from 58 percent at the end of FY 2012 to 72 

percent in February 2013. 

Currently, less than one-third of the verified firms in VIP do business with VA, yet VA 

spends more of its procurement dollars with VOSBs than the rest of the civilian 

agencies combined. In FY 2012, VA spent $3.8 billion (22 percent) with VOSBs, 

and over 19 percent with SDVOSBs. A thorough analysis of the ownership and 

control portions of VA and SBA regulations found that VA's requirements are no 

more stringent than SBA's requirements. The biggest difference is that per statute, 

VA does an examination of the business rather than relying on self-certification. 

10.As Congresswoman Herrera Beutler mentioned her opening statement, a 

copy of which is attached, there is a veteran business owner in her district 

who has been attempting to get certified with VA for almost four years. He 

has a rating's letter issued by the VA indicating he has a service connected 

disability, but is still not officially recognized by the Department of Veteran 

Affairs as a SDVOB. Then, after years of sending in information, he 

received a letter in January requesting more information on his operating 

agreement. The letter, in a very vague way indicated the operating 

agreement between him and his partner was an issue, but gave no 

suggestions or guidance on how to correct the problem. I understand the 

VA has said of the firms found not to qualify, only about 2% are turned 

down for reasons of fraud. That means 98% are turned down for structural 

reasons. What does that say about the program? Are you satisfied with 
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the effectiveness, efficiency, and accuracy of the VA's certification 

process? 

VA Response: The fact that the vast majority of applicants that are denied are due 

to not being compliant with the regulation rather than fraud shows that fraud may not 

be as prevalent in the SDVOSB program as has been speculated in reports and the 

media. It also indicates that the program is having a desirable deterrent effect on 

those who would consider misrepresenting their status. Metrics on the verification 

process show that it has a high degree of effectiveness, efficiency, and accuracy. 

The hurdle remains that VA must implement the regulation that exists now, and that 

regulation is not compatible with all business types or practices. For example, the 

current regulation makes it very difficult for businesses to obtain equity funding. VA 

recognizes this and has begun a process to rewrite the regulation. The Notice of 

Proposed Rule Making was published in the Federal Register May 13, 2013. VA 

began its outreach to stakeholders in mid-FY 2012, and has collected many 

suggestions worth consideration for the new rule. VA's intention is to gather as 

much input as possible from stakeholders to consider when drafting the rule. VA 

also intends to work closely with SBA on the rule change, since the current rules are 

essentially the same concerning ownership and control. We, therefore, need to 

ensure that unintended differences do not occur. 

11.Are the SBA and VA planning to align their certification processes to 

eliminate confusion for veterans when certifying as a SDVOB? 

VA Response: VA and SBA have been collaborating on aligning determinations for 

consistency between the programs. As VA's verification program was instituted by 

statute, the only way that VA verification process and SBA SDVOSB processes 

could be completely aligned would be to create a statute for government-wide 

verification or certification for SDVOSBs. 

12.Most of the work at the Center for Veterans Enterprise (CVE) is performed 

by contractors. What kind of qualifications, in terms of educational 

background or past job experience, must these staffers have in order to be 

hired for this job? 

VA Response: It is important to note that the contractors supporting the 

verification program operate under the oversight and quality control of Federal 

employees during every phase of eVE operations. All determinations are made 

by Federal staff. 

Our Federal staff have the following credentials: 

Percent w/audit background 60% 

Percent w/lnspector General experience 33% 

Percent w/Law degree or legal experience 33% 

Percent w/Business degree 53% 
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Percent who were/are business owners 40% 

CVE has established contractor parameters that focus recruitment of contractors 

on those personnel with business and legal education and experience, as well as 

those with experience with bank examinations, financial audits, or previous 

Inspector General experience. 

13. The ratio of federal employees to contractors is as high as 1 to 24. In some 

departments such as verification special actions and legal subject matter 

expert, the system is completely reliant on contractors. With discretionary 

spending accounts being cut as a result of sequester, shouldn't VA 

become less reliant on their contractors? 

VA Response: Contractors supplement Federal staff. The use of contractors 

has enabled CVE to ramp up its operations and to reduce processing time 

significantly. Replacing contractors with Federal staff would result in a less 

flexible response to changes and increases in verification requirements. CVE 

focus has been on ensuring that the processes and standards are clear and that 

all staff are competent to perform their function, regardless of type of staff. VA is 

grateful for the work of the Administration and Congress that exempts VA from 

sequestration. Although we are exempt from sequestration, our everyday 

process of finding ways we can operate more effectively and efficiently continues 

so that we can get the most value out of every taxpayer dollar. 

In order to process the volume of applications received in an efficient and 

accurate manner, VA must rely on the ability to quickly obtain the expertise for 

the work via contractors. This also allows VA the ability to increase or decrease 

certain skill sets as the program matures without the extended time it takes to 

bring on additional Federal staff, and then to eliminate Federal positions if that 

skill set is no longer needed. 

a. There have been questions raised by many whether contractors 

should even be performing work of this nature as some have deemed 

it to be inherently governmental or, at the very least, a conflict of 

interest. How do you justify VA's use of contractors? 

VA Response: All verification determinations are made by Federal employees, 

as these are inherently governmental in nature. Contractors are used to perform 

clerical duties, process applications, and make recommendations that are 

reviewed by Federal employees in making an agency determination. 

b. What controls do you have in place to ensure that there is no 

improper use of applicant information by the contractors? 

VA Response: Not only are all contractors screened per VA directives prior to 

working for VA, they also are required to sign a non-disclosure agreement. VA 

monitors the activities of contractors to ensure that there is no improper use of 
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applicant information. Any improper use of applicant information is grounds for 

immediate dismissal. 

c. How does VA's reliance on contractors compare with SBA's 

approach to verification in other programs? 

VA Response: Although similar in their roles, the verification program run by VA 

differs from SBA's approach in application. SBA verification teams are regionally 

distributed and review business cases in their respective geographic areas. VA 

conducts its operations from the VA headquarters location in Washington, DC. 

Because the numbers of cases evaluated by SBA are orders of magnitude 

smaller than processed by VA, SBA relies entirely on Federal employees to 

review businesses. With a significantly larger number of cases and 

correspondingly larger workforce required, VA utilizes contract employees under 

the oversight and quality control of Government employees to conduct its 

verification operations. 

14. Given the law it seems that VA is acting outside of their authority as 

defined in Public Law 109-461 in making decisions regarding affiliations 

and sizes as they relate to a totality of circumstances regarding 

control. Can you please explain this? 

VA Response: VA acts wholly within the parameters of Title 38 and all 

applicable laws. VA makes no final determinations of size as those 

determinations are the exclusive province of SBA. Affiliation is a concept 

associated with size determinations. See 13 CFR 

§ 121.103. If during a verification examination an applicant firm's revenues 

indicate that the firm may be other than small in all of its listed NAICS codes, 

CVE makes a referral to SBA for a size determination. 

1S.CVE has about twenty-eight full-time equivalent federal employees and one 

hundred seventy-four contractors, with between $24 to $33 million dollars 

in funding coming from the supply fund. Why has VA not formalized a 

more appropriate and transparent funding methodology for CVE? 

VA Response: Funding the Office of Small and Disadvantaged Business 

Utilization (OSDBU) through the Supply Fund has always been an appropriate 

use of the funding source. OSDBU activities, including the verification program, 

directly support VA acquisition programs. The Supply Fund is a self-supporting 

revolving fund. It recovers its operating expenses through fees on approximately 

30 different products or services. The Fiscal Office is responsible for all 

elements of financial management of the Supply Fund, including financial 

reporting, budgeting, accounting operations and oversight, business line 

oversight, and financial services programs. The Supply Fund's inherent flexibility 

makes it possible to be responsive to increases in verification requirements. In 

addition, the Supply Fund has made it possible to quickly implement direction 
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received from VA senior leadership. The budget for CVE is transparent and VA 

has responded to all requests for information regarding budgets and spending. 

16. CVE collects a lot of information outside of its original mandate. How is it 

protecting this personally identifiable data? 

VA Response: CVE does not collect information outside of its mandate. Any 

information, including Personal Identifiable Information (PII) collected is for the 

purpose of verification. PII is maintained in the Office of Management and 

Budget approved system of records (VetBiz Registry). This system of records is 

managed by VA's Office of Information Technology in accordance with all 

Federal information security and privacy policies. Additionally, all PII and 

sensitive information is handled on a need to know basis. 

17. When will CVE's updated system be operational so as to provide relevant, 

reliable information to run and control its operations? Is CVE tying this 

effort to long range goals? 

VA Response: A contract award to provide design and development of the 

Veterans Enterprise Management System (VEMS), formerly Next Generation 

Verification Case Management System, is projected for May 2013. The first 

increment release is scheduled for deployment into operation in mid-November 

2013. The upgrade is part of the OSDBU Strategic Plan. 

18.Given that GAO's report that stated "VA's guidance for applicants did not 

always adequately explain how they interpreted some of the subjective 

eligibility standards in its regulations, such as the requirements that 

owners have good character." Is this enough evidence for CVE to realize 

that they must use 13 C.F.R. § 121 's interpretive language in Title 38? 

VA Response: 13 CFR Part 121 applies expressly to size determinations. By 

statute, SBA is the only agency authorized to make small business size 

determinations. 

19.00 you have mechanisms in place to ensure that errors in the application 

process with the Center for Veterans Enterprise (CVE) are identified? 

VA Response: CVE has robust and well-developed quality control mechanisms 

to identify errors within the application process. Under Federal employee 

supervision, a dedicated quality control team oversees every step of the 

application process and conducts monthly audits of policies and procedures to 

minimize error and identify anomalies. In addition, CVE has incorporated quality 

review check points throughout the verification process. Extensive metrics and 

measurements are analyzed to identify and highlight trends, process errors, or 

critical issues. These metrics, measurements, and trends are reviewed regularly 

by CVE and OSDBU leadership. Additionally, cases which present special 
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challenges, or where applicants request a reconsideration, are evaluated by VA's 

Office of General Counsel in order to provide a separate level of independent 

review. 

20. Why has the VA failed to implement a cohesive strategy when it comes to 

the verification program? 

VA Response: VA currently has a strategic plan for verification as part of the 

OSDBU strategic plan. This was recently culled from various strategic directives 

into a single document, and now expanded to cover a 5-year period. It is 

currently going through a concurrence process and will be publicly released once 

finalized and approved by VA senior leadership. VA has had a strategy for 

improving verification that established priorities and allocated resources to the 

immediate needs prior to longer term objectives. In order to respond to 

significant problems associated with the verification process and quality, the first 

steps in the strategy were to establish clearly defined procedures, put into place 

quality control checks, and add resources to meet immediate demand. 

Verification operations and processes were evaluated and completely overhauled 

to become efficient and accurate. With mission critical operations brought to a 

stable point, long-term planning for future contingencies has commenced. 

21.Mr. Leney stated during the hearing that he runs both the CVE and is the 

Director of the Office of Small and Disadvantaged Business Utilization 

(OSDBU) at VA. During the hearing, Chairman Hanna asked Mr. Leney how 

VA is complying with the Small Business Act, given that Section 15(k) of 

the Small Business Act specifically directs that the OSDBU Director "shall 

carry out exclusively the duties enumerated in this Act, and shall, while the 

Director, not hold any other title, position, or responsibility, except as 

necessary to carry out responsibilities under" Section 15(k). He further 

inquired as to how Mr. Leney may be the advocate for service-disabled 

veteran-owned small businesses at the same time that he is tasked with 

verification. Mr. Leney responded: "I can do both because the act of 

verifying veteran-owned small businesses enabled 5,400 veteran-owned 

small businesses to participate in a program that has distributed more than 

$3.8 billion in procurement dollars to veteran-owned small businesses. So 

I think that this program that the VA has established has created a gold 

standard. In the federal government, when people know that a firm has 

been verified by the VA, they can take it to the bank. And the results, this 

is real money to real vets, and it is a program that benefits veterans. And 

there are 5,400 firms in this program that get those benefits. So I 

personally do not have any issue with a conflict of interest because we are 

helping vets." Chairman Hanna then asked Mr. Leney to show the 

Committees where in the statute it is permitted, and Mr. Leney committed 

to provide a complete answer for the record. Therefore: 
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a. Please provide any statutory language that permits the VA OSDBU 

Director to also serve as the manager of the eVE. 

VA Response: VA has unique legislation in support of meeting VOSB and 

SDVOSB procurement goals as required under section 644(a) and (g) of titie 15. 

This legislation is found in section 8127 of title 38. CVE is one component of 

OSDBU. The Executive Director is not the manager of CVE. CVE is managed by 

the Director, CVE, a GS-15 supervisory position, who reports to Executive Director, 

Office of Small and Disadvantaged Business Utilization, SES position. 

The Executive Director, OSDBU, implements and executes all of the functions and 

duties of the office under section 644 and 637 of title 15 of the United States Code 

with respect to VA. Included in these duties are: developing strategies to assure 

that a fair proportion of the total purchases and contracts for property and services 

for VA in each industry category are placed with small-business concerns pursuant 

to sections 637(d)(1) and 644(a)(3), reporting on goal achievement for all socioeconomic categories, contract bundling reviews, subcontracting plan reviews, 

training for small business owners and acquisition professionals, as well as small 

business support functions as directed in Public Law 106-50. One avenue to 

increase the number of awards to small businesses, specifically SDVOSBNOSBs, is 

the verification program established by 38 U.S.C. § 8127. 

b. Please explain why Mr. Leney is capable of managing the day to day 

operations of two different enterprises, but eVE will not allow SDVs 

to own and control two SDVOSBs. 

VA Response: Mr. Leney manages a single office: OSDBU. CVE is an 

organization within OSDBU. The Director, CVE, manages the day to day operations 

of CVE. The placement of CVE within OSDBU is not a conflict of interest, in that VA 

verification provides firms with access to opportunities that would not be available to 

them if they were not verified. As such, this is an avenue that VA uses to increase 

awards to VOSBs that is borne out in VA's contracting accomplishments. VA 

awards more contract dollars to SDVOSBs than the rest of the civilian agencies 

combined. 

When the final rule for verification was published on January 19, 2011, the 

requirement that a Veteran could have only a single business verified at a time was 

eliminated. There is no restriction on owning multiple VOSBs. 

c. By stating that "when people know that a firm has been verified by 

the VA, they can take it to the bank," is Mr. Leney suggesting that 

agencies other than VA should be relying on VA verification? 

VA Response: Mr. Leney was not suggesting that agencies other than VA should 

be relying on VA SDVOSB Verification. He was addressing the quality of the 

verification process at VA and referring to anecdotal evidence that shows that 
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contracting officers feel that VA SDVOSB verification is a factor in reducing the risk 

of contracting with SDVOSB. 

22. During the hearing, Mr. Leney stated that SBA would charge VA $1 million 

to verify 40 SDVOSBs. Please provide the basis for this amount, including 

any communications from SBA reflecting this proposal. 

VA Response: The basis for the $1 million charge was the quote received from 

SBA to process VOSB status protests for FY 2011. That charge was based on an 

estimated 40 status protests per year. When VA processes a status protest, they 

use the same examination procedures as a verification examination. In essence, 

40 status protests are equivalent to 40 verification examinations. 

23. Does V A agree with the characterization of its verification processes as 

"bright line" tests versus SBA's fact specific findings? 

VA Response: VA reviews the specific facts associated with each case, as does 

SBA. It also seeks to ensure consistency in its determinations by establishing clear 

parameters for eligibility that can be followed by all evaluators. Due to the large 

volume of applications processed each year, it is important to keep determinations 

consistent and eliminate as much subjectivity as possible. However, that does not 

diminish the requirement in the VA program to examine the specific facts of each 

individual application. 

24. Mr. Leney mentioned in his testimony that VA has tried to assist veterans 

by creation of the veterans self assessment tool and the verification 

assistance briefs (VABs). 

a. Mr. Leney stated that there are 17 VABs on the VA's website. 

However, a screenshot of the VA's website (attached) lists only 15 

V ABs. Please provide copies of the other two V ABs and instructions 

on where they are located on the VA website. 

VA Response: Mr. Leney misstated the number. He meant to say 15 VABs. 

b. In the Miles decision, the government argued that the court should 

not rely on the V ABs since OSDBU did not rely upon the VABs. 

However, in the statement to the Committee, VA appears to be 

stating that SDVOSBs should rely upon the VABs. Does VA see 

these statements as confusing to SDVOSBs, or in any way 

contradictory? 

VA Response: As the VA's Web site states, VABs have been provided "to assist 

applicants in obtaining verification for the Veterans First Program." More 

specifically, the VABs were developed in response to stakeholder requests that VA 
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provide assistance to applicants in understanding the regulation. They do not 

replace the regulation. 

c. What role did SBA play in the preparation and issuance of VA's VAB 

"Applicant Must Meet Small Business Definition?" 

VA Response: None. SSA has sole jurisdiction in determining size. VA refers 

applicants to SSA on size issues. 

25. When VA published the final rule governing verification, it stated, "This 

final rule would generally be small business neutral as it applies only to 

applying for verified status in the VetBiz.gov Vendor Information Pages 

(VIP) database. The overall impact of the final rule will be of benefit to small 

businesses owned by veterans or service-disabled veterans. VA estimates 

the cost to an individual business to be less than $100.00 for 70-75 percent 

of the businesses seeking verification, and the average cost to the entire 

population of veterans seeking to become verified is less than $325.00 on 

average. A related rule describes the effect that verified businesses will 

have in the Department's acquisition regulation. This impact is discussed 

in the proposed rule modifying the VA Acquisition Regulation which was 

published in the Federal Register at 73 FR 49141 on August 20, 2008. On 

this basis, the Secretary hereby certifies that the adoption of this final rule 

will not have a significant economic impact on a substantial number of 

small entities as they are defined in the Regulatory Flexibility Act, 5 U.S.C. 

601-612. Therefore, under 5 U.S.C. 605(b), this regulation is exempt from 

the initial and final regulatory flexibility analysis requirements of sections 

603 and 604." 76 Fed. Reg. 3022 (2011). The following questions apply to 

that statement. 

a. How did VA determine that the cost to an individual business 

applying for verification to be less than $100? Does VA still believe 

this statement is correct? 

VA Response: The rules referred to in the question were both published prior to 

the passage of the Verification Act. At that time, the application submission 

requirements for verification were only the VA Form 0877 and to keep certain 

required business documents listed in the regulation on file in the company's 

office. The verification examination was generally comprised of verifying the 

Veteran's status in SIRLS, ensuring that the company or individual owners were 

not on the Excluded Parties List and the examination of publicly available 

documentation, such as business licenses and other documents filed with the 

state. VA did not examine the required documentation unless the publicly 

available documentation was insufficient to make a determination (VA made the 

assumption at that time that the required documentation supported Veteran's 

claim that the firm is in compliance with the regulation). 
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The cost estimate was based on the fact that VA believed that any business 

competing for Federal contracts would be an established business with its 

paperwork in order, and that there would be virtually no cost associated with 

applying. 

There is no cost to apply for verification. VA has developed partnerships with 

Veterans Service Organizations (VSO) and other non-profits to provide 

counseling services for Veterans applying for verification. VA understands that 

some of these organizations are charging a fee to recoup their costs for providing 

this service. Veterans who choose to use a private attorney or a for-profit 

organization to ensure that their documentation is compliant with the regulation 

may have substantially higher costs associated with preparing their application. 

b. How did VA determine that the average cost to the entire population 

of veterans seeking to become verified is less than $325.00 on 

average? Does V A still believe this statement is correct? 

VA Response: 

VA does not charge a fee for verification. VA only requests documents that 

already exist in a business. Under these parameters, VA has no reason to 

believe that costs to apply exceed $325. VA has developed partnerships with 

VSOs and other non-profits to provide counseling services for Veterans applying 

for verification. VA understands that some of these organizations are charging a 

fee to recoup their costs for providing this service. Veterans who choose to use 

a private attorney or a for-profit organization to ensure that their documentation is 

compliant with the regulation may have substantially higher costs associated with 

preparing their application. Use of counselors or attorneys is not required to 

become verified, and thousands of firms have been successfully verified without 

such assistance. The use of VABs and the self-assessment tool are at no cost to 

the applicant. 

c. VA has stated that it is revisiting the verification regulations. 

Considering that all affected entities are small businesses, even if 

most small businesses are not veteran-owned, will VA agree to 

honor the spirit of the Regulatory Flexibility Act (RFA) and conduct 

initial and final regulatory analyses? 

VA Response: VA will adhere to all applicable legal requirements with respect 

to promulgation of regulations. 

d. Rather than issuing VABs, will VA issue a small entity compliance 

guide, as these guides would give legal protections to small 

businesses that rely upon them? 
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VA Response: The VABs are only one facet of the larger Verification Assistance 

Program. This program also consists of a Pre-application workshop, a selfassessment tool on the VetBiz.gov Web site, and a partnership with several nonprofit organizations to provide counseling services to Veterans applying for 

verification. VA cannot answer the question without a detailed analysis of the 

utilization of a "small entity compliance guide." 

26. What feedback have you received from applicants and veterans groups, to 

what extent do you track the feedback, and how have you used the 

feedback to make improvements in your procedures? 

VA Response: VA has received extensive feedback from stakeholders 

concerning our procedures. Stakeholder feedback has been used to identify and 

make changes to the verification process. These changes have reduced 

average processing time from more than 130 days to less than 40 days for initial 

applications, without compromising the quality or accuracy of the determinations. 

VA has also received many suggestions for changes to the regulation as part of 

our outreach efforts. VA has used this feedback to consider changes to the 

regulation, but has initiated a formal rule change process to ensure that all legal 

requirements of changing a Federal regulation are followed. 

27. As VA continues to collaborate with SBA in its efforts to develop a new 

data system, what attributes of the data system SBA is currently 

developing hold the most promise for providing a model for completion of 

a VA data system? Could SBA's data system largely serve VA's 

verification needs? 

VA Response: OSDBU requested an Information Exchange Meeting (IEM) with 

SBA to understand what level of collaboration will be most effective. OSDBU 

sent SBA an agenda for the IEM and is waiting for SBA to confirm the date, time, 

and location. 

28. The Secretary of the Department of Veterans Affairs created a task force to 

examine VA's verification program in June 2012, and it was initially 

charged with reporting back within 60 days. When can we expect to see a 

final report from the Task Force? What is delaying its completion? On a 

related note, GAO stated that you did not provide an initial strategic 

planning document until late October 2012 - Would you attribute 

completion of this initial strategic planning document to the demands of 

the Task Force? In other words, would you be even further behind if the 

Task Force had not been created to intervene in the process? 

VA Response: The Task Force briefed its initial report to the Office of the 

Secretary in November 2012. In response to that, the Office of the Secretary 

recommended that the Task Force continue to monitor the verification program 

and to review the revised strategic plan. Recommendations from the Task Force 
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report were incorporated into the OSDBU Strategic Plan, and the Task Force has 

reviewed the revised plan, and its recommendations have been incorporated into 

the plan being submitted to the Office of the Secretary. 

OSDBU did not have a consolidated, long-term strategic plan that addressed a 

5- year outlook prior to the interactions with GAO. However, strategic planning 

documents have existed since July 2011. These strategic planning documents 

were merged and used as the basis for a comprehensive strategic plan. The 

new strategic plan was supplemented with the recommendations from the Task 

Force. 

The continued development of the OSDBU strategic plan cannot be attributed to 

the Task Force. The extension of the strategic plan from 2 years to 5 years 

resulted both from interactions with GAO, and improvements in the ability to 

address the short-term requirements. The various activities performed by 

OSDBU, including verification, are so closely linked that it would be impractical to 

create a strategic plan for verification only, without consideration of the other 

activities within OSDBU. 
177 

Opening Statement of Congresswoman Herrera Beutler 

Consistently Inconsistent: Challenges for Service-Disabled 

Veteran-Owned Small Businesses 

Tuesday, March 19 

Statement 

I think we all agree we need to prevent contracts intended for 

service-disabled veteran-owned small businesses (SDVOSB) from 

going to firms that don’t qualify for the program. However, both 

the VA and SBA SDVOSB certification processes are flawed. SBA’s 

self-certification is quick and has the advantage of allowing nearly 

13,000 SDVOSBs to almost immediately begin competing for contracts. It also provides for a timely and transparent process for 

stakeholders to protest if they believe the firm does not qualify for 

the program. While it is an efficient program, it may not be as effective as the VA at preventing fraudulent companies from taking 

advantage of the program. 

On the other hand, VA’s verification process takes an average of 

85 days for the initial verification process and 147 days on appeal. 

In addition, VA’s SDVOSB program has 4,102 SDVOSB currently 

certified, but VA uses over 200 FTEs and spends $33 million per 

year to run the program. It’s not clear that adding more employees 

and providing additional funding are the answers—but it’s clear 

that a fix is needed. 

Unfortunately, both of these programs are vulnerable to fraud. 

This is a shame, because our nation needs this program to assist 

our veteran business owners. I am pleased this hearing is addressing this important issue today. 

I have heard from a number of Service-Disabled Veteran Owned 

Small Businesses in my district on this issue. They are frustrated 

with the overly-burdensome VA certification process. Some are also 

confused by the inconsistency between the two program; they are 

certified as a SDVOSB through SBA, but not through VA. Often, 

it is not until they are interested in competing for a VA contract, 

they realize they are ineligible. 

What complicates this matter is that small businesses are working with limited resources. One veteran owned business in my district began the process to get certified by VA almost four years ago. 

He has completed many transactions while growing this business— 

he’s taken out many loans, a million dollar credit line, 5 to 10 million in bonding aggregate, etc. Never before has he had to go 

through the time- and resource-consuming process of providing this 

level of detail about his financial status and personal information. 

He has been forced to start the entire registration process over 

multiple times to address minor problems, and has repeatedly been 

forced to provide additional information. There is no leeway on timing and if he has questions, he’s received little to no guidance or 

assistance. 

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178 

I am very pleased VA is taking a real serious stance in order to 

stop companies from illegally obtaining contracts by falsely claiming the SDVOB status. I support accountability measures and hope 

there are severe repercussions for those who are caught abusing 

the system. On the other hand, however, the process for certifying 

with the VA must be streamlined and shortened. While the process 

should be effectively keeping out fraudulent applicants, unfortunately in its current form it is keeping out legitimate Service-Disabled Veteran Owned Small Businesses. This needs to change. 

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179 

NINETY-FOURTH NATIONAL CONVENTION 

OF 

THE AMERICAN LEGION 

Indianapolis, Indiana 

August 28, 29, 30, 2012 

Resolution No. 323: The Status of Service-Disabled VeteranOwned Business after the Death of the Veteran Owner 

Origin: Convention Committee on Other Economic 

Matters 

Submitted by: Convention Committee on Other Economic 

Matters 

WHEREAS, Public Law No. 109–461 passed in December 2006 

created additional benefits for surviving spouses who inherit service-disabled veteran-owned businesses; and 

WHEREAS, The intent of the law was to ensure that a business 

owned by a veteran that received contracts based on the servicedisabled veteran-owned business status did not suffer because the 

veteran died; and 

WHEREAS, Spouses are able to retain the service-disabled veteran-owned business status for up to 10 years if the veteran owned 

at least 51 percent of the company before their death; and 

WHEREAS, The law passed in December 2006 only took into account the veteran who returned disabled; consequently, it left a 

large gap in those servicemembers who owned businesses who were 

killed in the line of duty; and 

WHEREAS, Public Law 109–461, in its treatment of businesses 

after death of veteran-owner, neglected to take into account Reservists and National Guard members who owned businesses before 

their activation; and 

WHEREAS, Public Law 109–461 only transfers service-disabled 

veteran-owned business status to the surviving spouse of a veteran 

who acquires ownership rights in a small business if the death of 

a veteran causes a small business to be less than 51 percent-owned 

by one or more veterans; and 

WHEREAS, The transfer of status in the period beginning on the 

date on which the veteran dies, only applies to a surviving spouse 

of a veteran with a service-connected disability rated as 100 percent disabling or a surviving spouse of a veteran who dies as a result of a service-connected disability; now, therefore, be it 

RESOLVED, By The American Legion in National Convention assembled in Indianapolis, Indiana, August 28, 29, 30, 

2012, That The American Legion support amending Public 

Law 109–461 to read that if any disabled veteran who owns 

a certified service-disabled veteran-owned business dies, 

(regardless of his/her disability at the time), their business 

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180 

disabled veteran-owned business status in conjunction with 

Public Law 109–461; and, be it further 

RESOLVED, That The American Legion supports that if 

any servicemember, to include those who were mobilized in 

the National Guard or Reserve, is killed in action and owns 

at least 51 percent of a business prior to his/her death, the 

business bequeathed to their spouses/dependents must be 

granted service-disabled veteran-owned business status for 

reason of preference in federal contracts; and, be it finally 

RESOLVED, That The American Legion supports any administrative or legislative effort that will improve and increase the benefits bequeathed to the veteran’s spouses or 

dependents upon a veteran business owner’s death. 

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181 

OPENING STATEMENT

CHAIRMAN MIKE COFFMAN

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

‘‘CONSISTENTLY INCONSISTENT: CHALLENGES FOR SERVICE-DISABLED

VETERAN-OWNED SMALL BUSINESSES’’ 

MARCH 19, 2013 

Thank You, Chairman Hanna, for yielding, and thank you also 

to your subcommittee for holding this joint hearing. 

The problems with VA’s SDVOSB certification program are, 

sadly, not new ones. The Veterans’ Affairs Committee had several 

subcommittee hearings during the last Congress on the issue, but 

improvements within the program seem to be slow in coming. 

My subcommittee continues to frequently hear from SDVOSBs 

and their advocates regarding what should be a straightforward 

process for veterans attempting to do business with VA. While the 

verification process at CVE has improved and helped weed out 

some bad actors, it is abundantly clear that there’s still a long road 

ahead. 

One topic discussed at length in the 112th Congress was VA’s 

definition of ownership and control of a small business. Despite the 

Committee’s bringing this problem to VA’s attention, VA’s definitions retain some key differences from the Small Business Administration, and the effect of these differences has been a self-induced 

backlog of legitimate companies attempting to get certified through 

CVE and do business with VA. 

The fact that VA’s different interpretations of what constitutes 

ownership mean that an individual could be recognized as a veteran small business owner with one government agency but not 

with VA should raise everyone’s eyebrows. However, that’s the reality that some veterans face today, including service-disabled veterans. SBA has had commonsense requirements for what constitutes an SDVOSB in place for a long time. While VA’s intent 

may be in the right place, its regulatory and interpretive actions 

have put many eligible veterans at a disadvantage. 

We still need to get this right. If we are going to enable our veterans who sacrificed for this country to do business with the federal government, and if VA is going to set the standard for recognizing the commitment of these same veterans, then a straightforward, common-sense process needs to be in place. 

It is my sincere hope that, down the road, we are not still discussing the same issues. The time for conversation is past, and it 

is time to take action, fix the problems, and move on. I understand 

that the system will never be perfect, nor is there one simple answer. However, after all the years that have passed since this program was set up, and the resources that have been added to CVE, 

it is reasonable to expect that we would be further along than we 

are today. 

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I yield back. 

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183 

1 U.S. Small Business Administration, 2007 Survey of Business Owners - Veteran-Owned 

Firms, http://www.census.gov/econ/sbo/getsof.html?07veteran 2 U.S. Small Business Administration, Summary Statistics for Veteran-Owned Firms by State: 

2007, http://www2.census.gov/econ/sbo/07/final/tables/vet—table1.pdf 

Honorable Jackie Walorski 

HVAC ONI Hearing - ‘‘Consistently Inconsistent: Challenges for Service-Disabled Veteran-Owned Small Businesses’’ 

Mr. Chairman, it’s an honor to serve on this committee. 

I thank you for holding this hearing on such an important 

issue for our veterans. As our service members transition 

into civilian life, we must remain steadfast in our commitment to provide these soldiers with the necessary skills for 

employment. For the entrepreneurial-minded soldiers, we 

must work to remove redundant and archaic bureaucratic 

barriers. 

Members of the military are disciplined, determined, and 

are known for their ability to lead. These attributes are critical in the world of business, and, as a result, it is not surprising that veterans operated over 2.4 million nonfarm 

businesses accounting for 9.0 percent of all nonfarm businesses in the United States in 2007.1 Hoosier veterans 

owned approximately 46,000 firms in this same period.2

We know what veterans are capable of, but that is not 

why we are here today. The Veterans Administration has 

done great work in improving its ability to assist and equip 

veterans in terms of establishing and growing a business; 

however, there is still room for improvement. 

I look forward to working with my colleagues and our 

panelists, today, to identify the issues which confront service-disabled veteran-owned small businesses. 

Thank you. 

Æ 

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