[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]




 
                    ACQUISITION DEFICIENCIES AT THE
                  U.S. DEPARTMENT OF VETERANS AFFAIRS

=======================================================================

                                HEARING

                               before the

              SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

                                 of the

                     COMMITTEE ON VETERANS' AFFAIRS
                     U.S. HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                           December 16, 2009

                               __________

                           Serial No. 111-54

                               __________

       Printed for the use of the Committee on Veterans' Affairs



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                     COMMITTEE ON VETERANS' AFFAIRS

                    BOB FILNER, California, Chairman

CORRINE BROWN, Florida               STEVE BUYER, Indiana, Ranking
VIC SNYDER, Arkansas                 CLIFF STEARNS, Florida
MICHAEL H. MICHAUD, Maine            JERRY MORAN, Kansas
STEPHANIE HERSETH SANDLIN, South     HENRY E. BROWN, Jr., South 
Dakota                               Carolina
HARRY E. MITCHELL, Arizona           JEFF MILLER, Florida
JOHN J. HALL, New York               JOHN BOOZMAN, Arkansas
DEBORAH L. HALVORSON, Illinois       BRIAN P. BILBRAY, California
THOMAS S.P. PERRIELLO, Virginia      DOUG LAMBORN, Colorado
HARRY TEAGUE, New Mexico             GUS M. BILIRAKIS, Florida
CIRO D. RODRIGUEZ, Texas             VERN BUCHANAN, Florida
JOE DONNELLY, Indiana                DAVID P. ROE, Tennessee
JERRY McNERNEY, California
ZACHARY T. SPACE, Ohio
TIMOTHY J. WALZ, Minnesota
JOHN H. ADLER, New Jersey
ANN KIRKPATRICK, Arizona
GLENN C. NYE, Virginia

                   Malcom A. Shorter, Staff Director

                                 ______

              Subcommittee on Oversight and Investigations

                  HARRY E. MITCHELL, Arizona, Chairman

ZACHARY T. SPACE, Ohio               DAVID P. ROE, Tennessee, Ranking
TIMOTHY J. WALZ, Minnesota           CLIFF STEARNS, Florida
JOHN H. ADLER, New Jersey            BRIAN P. BILBRAY, California
JOHN J. HALL, New York

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
hearing records of the Committee on Veterans' Affairs are also 
published in electronic form. The printed hearing record remains the 
official version. Because electronic submissions are used to prepare 
both printed and electronic versions of the hearing record, the process 
of converting between various electronic formats may introduce 
unintentional errors or omissions. Such occurrences are inherent in the 
current publication process and should diminish as the process is 
further refined.


                            C O N T E N T S

                               __________

                           December 16, 2009

                                                                   Page
Acquisition Deficiencies at the U.S. Department of Veterans 
  Affairs........................................................     1

                           OPENING STATEMENTS

Chairman Harry E. Mitchell.......................................     1
    Prepared statement of Chairman Mitchell......................    51
Hon. David P. Roe, Ranking Republican Member.....................     2
    Prepared statement of Congressman Roe........................    51
Hon. Timothy J. Walz, prepared statement of......................    52
Hon. Steve Buyer.................................................     3
    Prepared statement of Congressman Buyer......................    52

                               WITNESSES

U.S. Government Accountability Office:
    Kay L. Daly, Director, Financial Management and Assurance....    24
        Prepared statement of Ms. Daly...........................    68
    Gregory D. Kutz, Managing Director, Forensic Audits and 
      Special Investigations.....................................    25
        Prepared statement of Mr. Kutz...........................    76
U.S. Department of Veterans Affairs:
    Maureen T. Regan, Counselor to the Inspector General, Office 
      of Inspector General.......................................    26
        Prepared statement of Ms. Regan..........................    91
    Glenn D. Haggstrom, Executive Director, Office of 
      Acquisition, Logistics, and Construction...................    39
        Prepared statement of Mr. Haggstrom......................    97

                                 ______

MicroTech, LLC, Vienna, VA, Anthony R. Jimenez, President and 
  Chief Executive Officer........................................    10
    Prepared statement of Mr. Jimenez............................    62
National Veteran Owned Business Association, Scott F. Denniston, 
  Director of Programs, and President, Scott Group of Virginia, 
  LLC, Chantilly, VA.............................................     8
    Prepared statement of Mr. Denniston..........................    60
Project On Government Oversight, Scott H. Amey, Esq., General 
  Counsel........................................................     6
    Prepared statement of Mr. Amey...............................    53
Veterans' Entrepreneurship Task Force (VET-Force), Robert G. 
  Hesser, 1st Co-Chairman, and President and Chief Executive 
  Officer, Vetrepreneur, LLC, Herndon, VA........................    12
    Prepared statement of Mr. Hesser.............................    66

                       SUBMISSIONS FOR THE RECORD

Stearns, Hon. Cliff, a Representative in Congress from the State 
  of Florida, statement..........................................   100

                   MATERIAL SUBMITTED FOR THE RECORD

Witness Comments on H.R. 4221, the ``Department of Veterans 
    Affairs Acquisition Improvement Act of 2009'':
    Scott H. Amey, General Counsel, Project On Government 
      Oversight, to Hon. Harry E. Mitchell, Chairman, and Hon. 
      David P. Roe, Ranking Republican Member, Subcommittee on 
      Oversight and Investigations, letter dated February 12, 
      2010.......................................................   101
    Comments on H.R. 4221 by the National Veteran-Owned Business 
      Association (NaVOBA).......................................   102
    Comments on H.R. 4221 from Anthony Jimenez, President and 
      Chief Executive Officer, MicroTech, LLC....................   103
    Bob Hesser, 1st Vice Chair, Veterans' Entrepreneurship Task 
      Force (VET-Force), Silver Spring, MD, to Diane Kirkland, 
      Printing Clerk, Committee on Veterans' Affairs, letter 
      dated February 18, 2010, and attached comments.............   104
Post-Hearing Questions and Responses for the Record:

    Hon. Harry E. Mitchell, Chairman, and Hon. David P. Roe, 
      Ranking Republican Member, Subcommittee on Oversight and 
      Investigations, Committee on Veterans' Affairs, to Hon. 
      Eric K. Shinseki, Secretary, U.S. Department of Veterans 
      Affairs, letter dated January 11, 2010, and VA responses...   119


                    ACQUISITION DEFICIENCIES AT THE
                  U.S. DEPARTMENT OF VETERANS AFFAIRS

                              ----------                              


                      WEDNESDAY, DECEMBER 16, 2009

             U.S. House of Representatives,
                    Committee on Veterans' Affairs,
              Subcommittee on Oversight and Investigations,
                                                    Washington, DC.

    The Subcommittee met, pursuant to notice, at 10:05 a.m., in 
Room 334, Cannon House Office Building, Hon. Harry E. Mitchell 
[Chairman of the Subcommittee] presiding.
    Present: Representatives Mitchell, Space, Walz, Adler, and 
Roe.
    Also Present: Representative Buyer.

             OPENING STATEMENT OF CHAIRMAN MITCHELL

    Mr. Mitchell. Welcome to the December 16, 2009, 
Subcommittee on Oversight and Investigations hearing. Today's 
hearing is on Acquisition Deficiencies at the U.S. Department 
of Veterans Affairs (VA).
    This hearing will come to order. I ask unanimous consent 
that all Members have 5 legislative days to revise and extend 
their remarks and that statements may be entered into the 
record. Hearing no objection, so ordered.
    I would like to thank everyone for attending today's 
hearing and especially thank our witnesses for testifying 
today.
    We are here to examine the VA acquisition system and 
procurement structure. Our hearing will hopefully determine the 
extent of the reform needed in order to ensure that the 
acquisition process within the VA is one that is fair, fiscally 
responsible, and effective, most importantly, serves veterans.
    We all know that the acquisition system within the VA has 
failed to develop a process that is both transparent and 
fiscally responsible. One recent report produced by the U.S. 
Government Accountability Office (GAO) revealed that network 
and medical center staff within the Veterans Health 
Administration (VHA) failed to use the Federal Supply Schedule 
(FSS) due to a lack of information and the proper tools needed 
to use the FSS.
    This resulted in lost savings of almost $8.2 million a year 
or $41 million over 5 years. This is simply unacceptable.
    Several VA Office of Inspector General (OIG) and GAO 
reports have detailed major deficiencies within the procurement 
process at the VA, citing prolific material weaknesses, and how 
disabled veteran-owned small businesses (VOSBs) are being 
cheated out of millions of dollars in contract opportunities 
each year due to a lack of sufficient oversight.
    Just last month, the GAO released a report on the Service-
Disabled Veterans-Owned Small Business (SDVOSB) Program showing 
a fragmented structure within the VA and a lack of oversight of 
companies claiming service-disabled veterans-owned small 
business status.
    Fraud and abuse has allowed ineligible firms to improperly 
receive millions of dollars in set-side and sole-source 
contracts, potentially denying legitimate service-disabled 
veterans and their businesses the benefits of the veteran and 
small business program.
    With the ineffective oversight and lack of effective fraud 
prevention controls, these ineligible firms have received 
almost $100 million in contracts over the years.
    There is no secret that there are major deficiencies in the 
VA's procurement process and to blame are a number of things, 
including a lack of centralized acquisition structure, self-
policing policies in place that allow fraud and abuse, and 
continuous material weaknesses.
    Although I remain fairly optimistic that reform of this 
system can be accomplished, legislation to fix these problems 
may be necessary along with change in policy and procedures.
    I am grateful that the GAO, as well as service-disabled 
veteran-owned small business owners and entrepreneurs, are here 
today to shed light on issues such as these.
    [The prepared statement of Chairman Mitchell appears on p. 
51.]
    Mr. Mitchell. Before I recognize the Ranking Member for his 
remarks, I would like to swear in our witnesses. And I would 
ask that all witnesses that are going to testify today please 
stand and raise their right hand.
    [Witnesses sworn.]
    Mr. Mitchell. Thank you.
    I now recognize Dr. Roe for opening remarks.

             OPENING STATEMENT OF HON. DAVID P. ROE

    Mr. Roe. Thank you, Mr. Chairman, for yielding.
    Today's hearing entitled, Acquisition Deficiencies at the 
U.S. Department of Veterans Affairs is important to the 
Subcommittee as we move forward to assist the Department in 
guiding it through to better management of its procurement and 
acquisition processes.
    The Department of Veterans Affairs is one of the largest 
procurement and supply agencies in the Federal Government. Its 
annual expenditures are more than $14.1 billion for supplies 
and services, including construction, drugs, medical supplies, 
and equipment.
    Information technology (IT) equipment and services and 
other critical patient care items must be procured and 
distributed to the VA's health care facilities in what is the 
largest health care delivery system in the country.
    Over the past 12 years, the VA and the Office of Inspector 
General have detailed what can be considered the existence of 
serious long-term severe systemic procurement problems within 
the VA.
    Last Congress, this Subcommittee held a hearing on 
miscellaneous obligations, which highlighted how difficult it 
is to track expenditures at the VA without proper oversight and 
guidance.
    From reading the hearing report of that hearing, it was 
apparent the frustration felt by all Members present with the 
brokenness of the acquisition process within the VA. I 
understand that the Department followed this hearing by 
providing its acquisition workforce with new rules and 
procedures regarding the use of miscellaneous obligations.
    I will be interested to hear from the Department how well 
these new rules are being implemented. I hope that there is 
improvement in tracking these expenditures since the last 
hearing.
    Additionally, the Government Accountability Office issued a 
report showing fraud and abuse within the Service-Disabled 
Veteran-Owned Small Business Program. The findings are 
extremely disturbing.
    And I look forward to testimony from GAO relating to this 
report and to see if they have any further recommendations to 
fix these fraudulent practices and make certain that 
contracting officials who knowingly allow this are held 
accountable.
    I was pleased to join Ranking Member Buyer last week in 
introducing H.R. 4221, the ``Department of Veterans Affairs 
Acquisition Improvement Act of 2009.'' I understand that Mr. 
Buyer will discuss his bill further this morning and look 
forward to working with him and other Members of this Committee 
to help Secretary Shinseki fix the acquisition process at the 
Department of Veterans Affairs.
    Holding this hearing is an important step in the right 
direction. Moving forward legislatively will also be an 
additional step we can take, and look forward to working with 
you, Mr. Chairman, in this effort.
    And one final comment. With unemployment at 10 percent and 
not going down, small businesses around this country failing, 
it is absolutely imperative that we as an organization spend 
the taxpayers' funds wisely with people losing faith in our 
government when they see this kind of waste. And I think it is 
imperative that we show the way for businesses around this 
country. And I think it is unacceptable what I have read in 
this report last evening.
    And I yield back my time.
    [The prepared statement of Congressman Roe appears on p. 
51.]
    Mr. Mitchell. Thank you.
    Votes have been called. If Mr. Walz and Mr. Buyer want to 
wait until we get back?
    Mr. Buyer. First of all, I would ask unanimous consent that 
I may participate in the Subcommittee hearing.
    Mr. Mitchell. So ordered.
    Mr. Buyer. All right. And, Mr. Walz, do you have an opening 
statement?
    Mr. Walz. No. I will just submit it for the record.
    [The prepared statement of Congressman Walz appears on 
p.52.]
    Mr. Buyer. Okay.
    Mr. Mitchell. You may go ahead.
    Mr. Buyer. How much time do we have left for votes?
    Mr. Mitchell. Eleven minutes and 54 seconds.

             OPENING STATEMENT OF HON. STEVE BUYER

    Mr. Buyer. All right. I will go ahead and start.
    I want to thank you, Mr. Chairman, for yielding.
    I want to thank both of you, Chairman Mitchell and Dr. Roe, 
for your leadership here.
    And, Sergeant Major, thanks for being here.
    This is going to be a pretty important hearing, helping to 
lay out a foundation. Both of these GAO reports, if you had a 
chance to look at them, have some disturbing facts in them. So 
I appreciate all of you for holding this hearing on acquisition 
reform.
    Years ago, when I was Chairman of this Subcommittee, we 
reviewed a number of issues relating to acquisition at the 
Department of Veterans Affairs, including the VA's own Task 
Force on Acquisition Reform.
    What came out of the hearings we held and the 
investigations conducted by VA's own Inspector General's Office 
and the Government Accountability Office and VA's Procurement 
Reform Task Force ordered by then Secretary Principi in 2001 
was a strong sense that the acquisition procedures at the VA 
were broken, fragmented, and disorganized.
    Ranking Member Roe, in his opening statement, alluded to 
the hearing that you held last Congress on July 31st, 2008, on 
miscellaneous obligations. That hearing only served to further 
emphasize the fact that without proper oversight, funds that 
could be used to better serve our Nation's veterans were being 
wasted on broken procurement practices with little or no 
oversight review.
    The frustration of all the Members on both sides of the 
aisle at the hearing was loud and clear. It was obvious that 
action was needed then to address the problems of acquisition 
at the VA.
    To its credit, the VA commissioned an $800,000 plus 
PricewaterhouseCoopers' study to see how dysfunctional and 
broken the acquisition process was at the VA. This study 
offered three options.
    I believe the VA selected the option that would create the 
least push back from the bureaucracy, and sent to the last 
Congress a legislative proposal that would create an Assistant 
Secretary of Acquisition, but it did not provide any further 
direction or solution to respond to the universal complaint 
throughout the VA that glaciers move faster than its own 
contracting process.
    So I started working on legislation to change the way the 
VA conducts its acquisition business. My staff and I spoke with 
industry experts, the GAO, VA OIG to formulate a way to fix 
broken acquisition services at the VA in order to create better 
accountability.
    I have also discussed this issue several times with 
Secretary Shinseki who has acknowledged that it is imperative 
for the VA to change its procurement system to expedite the 
many transformational ways the VA does business.
    And I have shared a draft of this bill with him, and I look 
forward to working not only with him but also with Chairman 
Mitchell and Chairman Filner and any other Members of the 
Committee that would like to.
    Last week, I was joined by several Members of the 
Committee, in particular Dr. Roe, in the introduction of H.R. 
4221, the ``Department of Veterans Affairs Acquisition 
Improvement Act of 2009.''
    And I welcome any input, Chairman Mitchell, that you may 
have or, Sergeant Major. I am completely open to ideas as we 
proceed not only for myself but also recommendations that we 
are going to receive from the OIG and the GAO and working with 
the Administration.
    The only way that we were successful and way ahead to 
centralize the IT from a decentralized model was we had 
unanimous support of this Committee. And I think in order for 
us to be successful on an acquisition model, we have to do the 
same thing. I think it has to be replicated to do that. This is 
not going to be an easy task. This is going to be very 
challenging.
    The Administration drafted a bill introduced last Congress 
by Senator Akaka. This new bill creates a new Assistant 
Secretary position, the Assistant Secretary for Acquisition, 
Construction, and Asset Management, who will serve as the Chief 
Acquisition Officer for the Department of Veterans Affairs.
    Our bill also builds the acquisition workforce structure 
through the use of Deputy Assistant Secretaries to align the 
VA's business lines and principal Deputy Assistant Secretary.
    The bill further requires the Secretary to establish and 
maintain a comprehensive Department-wide acquisition program, 
which the Secretary will develop, implement, and enforce a 
streamlined approach to entering into contracts in purchasing 
goods and services.
    The legislation would thereby provide better oversight and 
accountability for procurement at the Department of Veterans 
Affairs.
    One of the key points that came out of the Industry 
Acquisition Roundtable that I held on October 27th was the 
strong need for a well-trained workforce. This legislation 
would provide the direction needed to put in place and keep a 
workforce that is knowledgeable and able to provide acquisition 
and contracting services to the Department.
    The bill also recognizes the VA's separate and 
dysfunctional procurement construction and asset management 
processes into distinct entities with contracting expertise.
    Mr. Chairman, H.R. 4221 is the first step to provide a 
centralized oversight and policy for contracting and 
acquisition within the Department by streamlining the business 
operations under an Assistant Secretary.
    It is my hope that we can work together to improve the bill 
and create an acquisition model that can eventually be followed 
by other agencies because VA's acquisition problems are, in 
fact, governmentwide.
    With that, I yield back.
    [The prepared statement of Congressman Buyer appears on    
p. 52.]
    Mr. Mitchell. Thank you.
    At this time, we will have a break. There are four votes. 
So how long will that take? You are the veteran. Thirty 
minutes? Okay. We will reconvene in about 30 minutes.
    Thank you.
    [Recess.]
    Mr. Mitchell. We will reconvene the hearing. It is my 
understanding in the next hour, there is probably another vote.
    At this time, I would like to welcome Panel One to the 
witness table. Joining us for our first panel is Scott Amey, 
General Counsel for the Project On Government Oversight (POGO); 
Scott Denniston, President of the Scott Group of Virginia; Tony 
Jimenez, President and Chief Executive Officer of MicroTech; 
and Bob Hesser, President and Chief Executive Officer of 
Vetre----
    Mr. Hesser. Vetrepreneur.
    Mr. Mitchell. There, Vetrepreneur. There it is. As well as 
Members of the Veterans' Entrepreneurship Task Force or VET-
Force.
    I ask that all witnesses stay within 5 minutes of their 
opening remarks. Your complete statements will be made part of 
the hearing record. We will begin with Mr. Amey.

STATEMENTS OF SCOTT H. AMEY, ESQ., GENERAL COUNSEL, PROJECT ON 
  GOVERNMENT OVERSIGHT; SCOTT F. DENNISTON, PRESIDENT, SCOTT 
    GROUP OF VIRGINIA, LLC, CHANTILLY, VA, AND DIRECTOR OF 
PROGRAMS, NATIONAL VETERAN OWNED BUSINESS ASSOCIATION; ANTHONY 
 R. JIMENEZ, PRESIDENT AND CHIEF EXECUTIVE OFFICER, MICROTECH, 
  LLC, VIENNA, VA; AND ROBERT G. HESSER, PRESIDENT AND CHIEF 
 EXECUTIVE OFFICER, VETREPRENEUR, LLC, HERNDON, VA, AND 1ST CO-
  CHAIRMAN, VETERANS' ENTREPRENEURSHIP TASK FORCE (VET-FORCE)

                STATEMENT OF SCOTT H. AMEY, ESQ.

    Mr. Amey. Good morning. Thank you, Chairman Mitchell and 
Ranking Member Roe, for inviting me to testify.
    I am Scott Amey, General Counsel of the Project on 
Government Oversight, also known as POGO.
    Throughout its 28-year history, POGO has worked to remedy 
waste, fraud, and abuse in government spending in order to 
achieve a more effective, accountable, open, and ethical 
Federal Government.
    POGO has a keen interest in government contracting matters, 
and I am pleased to share POGO's thoughts with the Subcommittee 
today. I am very pleased that the Subcommittee is holding 
today's hearing.
    The VA ranked fifth with approximately $14.6 billion in 
contract awards in fiscal year 2009 and has a complex mission 
that requires the procurement of pharmaceuticals, medical 
supplies and equipment, as well as building construction, 
maintenance, and repair services.
    Many events over the past 15 years have called into 
question the effectiveness of the Federal acquisition and 
contracting system.
    Federal spending has grown tremendously, exceeding $530 
billion in both fiscal year 2008 and 2009. Oversight of Federal 
spending has decreased. The acquisition workforce has been 
stretched thin and been supplemented by contractors. Spending 
on services now outpaces goods and stimulus spending is adding 
to an already complex system. In short, poor contracting 
planning, management, and oversight decisions are placing 
taxpayer dollars and sometimes lives at risk.
    On a positive note, interest in improvements in Federal 
acquisition and contracting systems has grown significantly in 
recent years as Congress, and now the White House, are paying 
more attention. Multiple executive orders and memos have come 
out from the White House mandating that agencies minimize 
contracting risk and maximize the value of the goods and 
services procured each year.
    Many contracting experts and government officials blame the 
inadequate size and training of the acquisition workforce for 
all of today's problems. POGO agrees that the workforce is an 
issue, but we believe that additional problems deserve equal 
attention. These problems are inadequate competition, deficient 
accountability, lack of transparency, and risky contracting 
vehicles.
    My testimony today will focus in on 20 different 
recommendations which have been provided in my written 
testimony, but I will just highlight a few of those today.
    Although I will point out some positives and negatives in 
VA contracting, I will defer to today's other panelists to 
highlight specific failures and ways to improve VA acquisition 
and contracting systems.
    And as already has been mentioned, multiple GAO reports 
have come out, including one that detailed overruns and delays 
in VA construction projects.
    As far as inadequate competition, competition in 
contracting is essential to getting the best products and 
services at the most practical prices. The government needs to 
reverse the philosophy of quantity over quality. Acquisition is 
now about speed and competition is oftentimes considered a 
burden. That is a recipe for waste, fraud, and abuse.
    VA's competition numbers are unknown. According to Federal 
data in 2008, full or limited competition procedures were used 
21 percent of the time. Sole-source contracts totaled nearly 21 
percent of the acquisition dollars spent. The actual 
competition numbers is unknown because according to 
usaspending.gov, 54 percent of the dollars awarded, nearly $8 
billion, were listed as not identified as far as their 
competition category. This Committee might want to inquire 
about VA's actual extent of competition in its contracts.
    VA stimulus contracting is faring a little better. VA 
programs received approximately $1.4 billion in Recovery Act 
funds with $543 million paid out thus far. And according to 
GAO, those have been competed approximately 94 percent of the 
time.
    Government wide, agencies must do more to ensure that full 
and open competition involving multiple bidders is the rule, 
not the exception. Agencies also need to debundle or break 
apart contracts to try to lure contractors both large and small 
into the system. Doing that might also reduce the multiple 
layers of subcontracting that we have seen in recent years.
    Deficient accountability, Congress should not underestimate 
the value of accountability and oversight. The VA OIG's pre-
award and post-award oversight have potentially saved the 
Agency $165 million in fiscal year 2009. A question for this 
Subcommittee is, how much of those potential dollars were 
actually recovered.
    The Committee has already touched on the set-asides for 
veteran-owned businesses as well as for service-disabled 
veteran-owned small businesses, so I will not touch on that.
    Additionally, I would like to recommend that this 
Subcommittee investigate service contracts and the high number 
of unemployed veterans who are out there. In the VA Human 
Resource or contract planning, if it is based on tailoring 
service contracts to contractors rather than former 
servicemembers, the Agency is doing a major disservice to the 
vets and that has created a problem and a higher rate of 
unemployment for returning vets.
    POGO also believes that contracting laws should require 
contractors to provide cost or pricing data to the Government 
for nearly all contracts and allow all contracting actions, 
including task and delivery orders, to be subject to bid 
protest.
    My additional testimony touches on lack of transparency and 
risky contracting vehicles, specifically cost reimbursement, 
commercial items, and time and material labor hour contracts, 
but that has all been submitted in my written comments.
    Thank you for inviting me to testify today. I look forward 
to working with this Subcommittee further to explore how the 
Government and the VA can improve Federal contract spending. 
Thank you.
    [The prepared statement of Mr. Amey appears on p. 53.]
    Mr. Mitchell. Thank you.
    And our next speaker, Mr. Denniston.

                STATEMENT OF SCOTT F. DENNISTON

    Mr. Denniston. Thank you. Chairman Mitchell, Ranking Member 
Roe, Committee Members and staff, thank you for the opportunity 
to testify today on the Department of Veterans Affairs 
Acquisition Program.
    I am Scott Denniston, President of Scott Group of Virginia, 
representing one of my clients, the National Veteran Owned 
Business Association (NaVOBA) and its over 2,000 veteran small 
business owners around the country.
    Within the past week, I have been contacted by a veteran-
owned business in Arizona providing vinyl banners to the VA's 
Vocational Rehabilitation Service. Shipment to 58 Regional 
Offices was completed in October 2009.
    The veteran is unable to be paid as VA regulations require 
a receiving report be completed. The veteran business owner 
when inquiring as to being paid is bounced between the 
contracting office and the Program Office as to who is 
responsible for completing the receiving report.
    All the veteran knows is he has fulfilled the contract 
requirements and now suffers. The interest the veteran is 
paying for operating capital will negate all profit that he 
expected to earn on the contract. He stated he will never do 
business with the VA again.
    And interestingly enough, just Monday, I received an update 
from this veteran who said that over the weekend, he sent an e-
mail to General Shinseki asking for some assistance and on 
Monday morning, he received over 20 calls from VA staff who 
said they needed to report back to the Secretary by the close 
of business as to why he cannot get the receiving report done. 
Bottom line, though, he still has not received payment.
    Another veteran doing business with VA is frustrated as he 
is currently working on two contracts with expiration dates of 
December 31st, 2009. The two contracts represent approximately 
$6 million a year in revenue. To date, he has not been told 
whether VA intends to exercise any of the options. As you can 
imagine, this causes great angst for the firm and its 
employees. Will they have a job come January 1st?
    When the business owner inquires to the contracting office, 
he is told the contracts have been transferred to another 
contracting office. When he inquires to the new contracting 
office, he is told there is no contracting officer assigned and 
no knowledge of who the Program Office is.
    When the veteran business owner inquires to VA's Central 
Office, he is told that the policy is to notify contractors 
within 60 days of expiration of VA's intent. Nice policy, but 
who follows it and where does the veteran small business owner 
go for assistance?
    Another common practice at VA, which frustrates veteran 
small business owners, is VA's practice of advertising a 
request for proposal (RFP), having vendors incur substantial 
cost to submit proposals to VA, then VA cancels the opportunity 
and procures through an existing contract vehicle or enters 
into agreement with another Federal agency to award a contract 
for the same services.
    The small businesses who submit the original offer did so 
in vane as now, because the VA's change of mind, they cannot 
bid on the opportunity.
    NaVOBA members continue to be concerned about VA's overly 
restrictive interpretation of Public Law 109-461, commonly 
referred to as the Veterans First Contracting Program.
    NaVOBA believes the provisions of P.L. 109-461 require VA 
to provide a preference to service-disabled veteran and 
veteran-owned small businesses for all goods and services the 
VA purchases. VA interprets the law's provisions to apply only 
to open market acquisitions.
    As you know, VA spends a large percentage of its 
acquisition dollars using the Federal supply schedules. 
Therefore, service-disabled vets and veteran-owned small 
businesses are not provided a preference on much of what VA 
procures.
    This in addition to VA's efforts to eliminate distributors 
and resellers from VA's Federal supply schedules, as well as 
VA's efforts to consolidate contracting opportunities under the 
guise of strategic sourcing makes selling to VA difficult for 
veteran-owned small businesses.
    NaVOBA understands the Federal supply schedule is the 
preferred method of doing business, but we also believe that VA 
has responsibility to provide maximum practical opportunity to 
veterans on everything the VA buys.
    On August 13th, 2009, VA Deputy Secretary Scott Gould 
hosted a supplier relation transformation forum. The Deputy 
Secretary is to be commended for hosting this event. The 
purpose was to hear from large and small vendors to the VA on 
what issues and impediments exist in doing business with VA. 
The forum was attended by over 100 people representing 82 
vendors from most industries doing business with the VA.
    There were many common themes that were expressed during 
that conference, all of which are in my testimony.
    A suggestion NaVOBA would like to have VA consider is that 
the vendor community today is dynamic, enterprising, and 
inventive. VA cannot in the normal course of operating maintain 
ongoing operations and also evaluate new technologies and 
opportunities to use new products and services to improve care 
to veterans.
    The vendor community is frustrated as VA is reluctant to 
change. The VA is in our opinion missing opportunities as there 
is no mechanism to test new products in the VA environment.
    We propose the VA establish an organization independent of 
day-to-day operations to test new products and services through 
trials, test programs, and field demonstrations to more rapidly 
bring technologies and solutions to VA's operation. Such an 
organization could pay huge dividends in caring for our 
Nation's veterans.
    In summary, the VA must be more sensitive to the needs and 
concerns of the veteran community, especially the veteran small 
business community. Every VA employee should work in a small 
business for a period of time and understand the impact of 
their decisions and inactions on cash flow, retention of 
employees, bank's lines of credits, and the myriad of issues 
facing veteran entrepreneurs on a daily basis.
    Again, I would like to thank the Committee for this 
opportunity to testify and look forward to answering any 
questions.
    [The prepared statement of Mr. Denniston appears on p. 60.]
    Mr. Mitchell. Thank you.
    Mr. Jimenez.

                STATEMENT OF ANTHONY R. JIMENEZ

    Mr. Jimenez. Good morning, Chairman Mitchell, Ranking 
Minority Member Roe, and Subcommittee Members. I greatly 
appreciate the opportunity to testify at this hearing regarding 
acquisition deficiencies at the Department of Veterans Affairs, 
and I am honored to represent other veteran-owned and service-
disabled veteran-owned small business owners.
    My name is Tony Jimenez and I am the President and Chief 
Executive Officer of MicroTech. MicroTech is a minority-owned 
and a certified and verified service-disabled veteran-owned 
small business. We are also a certified 8(a) small business and 
we provide information technology, systems solutions, design, 
installation of telecommunications and video telecommunications 
systems, as well as product solutions and consulting services.
    I retired from the Army in 2003 after serving 24 years on 
active duty and started MicroTech in 2004. Today I employ over 
400 great Americans in an era of layoffs and job cutbacks. 
MicroTech has become a powerful job creation engine and force 
for economic development in my community, in my State of 
Virginia, and in a number of other locations across the Nation.
    This year, MicroTech was named America's number one fastest 
growing Hispanic-owned business. And just last week, our 
success was celebrated during the NASDAQ Closing Bell ceremony.
    Since I first testified before Congress in 2006, MicroTech 
has grown 3,000 percent in gross revenue and is now a prime 
contractor on over 100 Federal projects and 14 indefinite 
delivery/indefinite quantities (IDIQs), blank purchase 
agreements (BPAs), and Government wide acquisition contracts 
(GWAC) contract vehicles and we are the prime on all 14 of 
those.
    MicroTech manages over a half a million IT government users 
daily and provides products and solutions to over 30 government 
agencies along with every branch of the military. We have 
repeatedly been recognized by trade groups, industry 
publications, diversity organizations as a leading small 
business that has notably succeeded at supporting the business 
of government.
    MicroTech's exponential growth has led to recognition in a 
number of different areas, including the Deloitte Tech Fast 
500. We were the number one communications and networking small 
business in the metropolitan area of Washington and Baltimore. 
We are the number one unified communications specialist 
according to CRN Magazine, the number one 8(a) business 
according to Washington Technology Magazine, and we are a 
Washington Business Journal fast growing company.
    Like most veterans who retire from active duty, initially I 
had no idea what I was going to do when I retired and I knew I 
wanted to remain close to the fight and continue in some way to 
serve my country, but I was not exactly sure how to do that.
    As an owner of a business that manages large-scale Federal 
projects, I now have the opportunity to use my unique military 
skills and expertise to help the Government reach its goals as 
well as my ability to continue to work closely with veterans 
and provide jobs to veterans.
    My small business targets contracting opportunities based 
not only on our core competency but also on my opportunity to 
hire veterans, to hire service-disabled veterans, and to hire 
wounded warriors, and, more importantly, to give them jobs and 
perform the work, giving them a chance at a viable second 
career.
    The unfortunate thing is that in the short 5 years I have 
been doing business with the Federal Government, I have 
discovered that opportunities for veteran-owned businesses and 
service-disabled veteran-owned businesses have been extremely 
hard to find. They are not abundant and they are definitely not 
as abundant as I assumed they would be.
    In the last few years, I have noticed that the emphasis on 
increasing government contract opportunities for service-
disabled veterans is improving, but we have still got a long 
way to go.
    Our experience with the Department of Veterans Affairs 
regarding the 3-percent rule actually has been very positive. 
We believe that VA exceeds its service-disabled veteran small 
business prime contracting goals and will continue to do so and 
that they reflect a commitment from the top and across the 
Agency to do the right thing for veterans.
    VA awarded 15 percent of its fiscal 2008 contract dollars 
to veteran-owned small businesses and 12 percent to service-
disabled veteran-owned small businesses.
    On December 8, the VA displayed their special commitment to 
veterans by finalizing a new set-aside contract program focused 
on veteran-owned small businesses, offering them a substantial 
advantage in VA business contract procurement.
    Veteran-owned businesses and even prime contractors that 
propose using veteran-owned firms or subcontractors now receive 
special VA preference.
    As the rest of the Government has failed to make the 3-
percent rule a priority, there are currently no penalties to 
failing to meet Executive Order 13360 and very few incentives 
for meeting or exceeding the established standard. This lack of 
oversight makes it extremely difficult for agencies to realize 
the advantage of contracting with veteran-owned businesses and 
service-disabled veteran-owned small businesses.
    There needs to be a significant improvement made to correct 
the systemic problems in current procurement systems and to add 
incentives for achieving the 3-percent goal. And I recommend 
the following steps:
    I believe that contract bundling adversely impacts 
competition and hurts small business. The standard procedures 
for contract bundling require agencies to provide 
justifications for bundling decisions and have the decisions 
reviewed at higher levels.
    Consolidate contracts so that small businesses can share in 
the benefits of bundling. And one of the things I have talked 
about in the past is that we as a small business have found 
that we have the ability to manage large contracts provided we 
partner with the right large contracting organization to large 
systems integrators.
    However, many of the contracts that are presently being 
procured for do not provide an opportunity for a small business 
to be, for lack of a better term, the general contractor for 
the large opportunities.
    We believe that placing more orders under small business 
GWACs would also be a success, particularly those like VETS, 
which is the Veteran Technology Service governmentwide 
acquisition contract, and the NASA SEWP contract, the NASA 
Solutions for Enterprise-Wide Procurement. Those are two 
excellent examples of contract vehicles that offer multiple 
award contracts with highly qualified service-disabled veteran-
owned small businesses.
    And I believe the VA has done an outstanding job of using 
those GWACs. Obviously it could be improved.
    I also encourage the Small Business Administration (SBA) to 
proceed under the proposed rule making of RIN 3245 AF70. Thank 
you.
    [The prepared statement of Mr. Jimenez appears on p. 62.]
    Mr. Mitchell. Thank you.
    Mr. Hesser.
    [Witness sworn.]
    Mr. Mitchell. Thank you.

                 STATEMENT OF ROBERT G. HESSER

    Mr. Hesser. I wanted to make sure I was legal when I am 
talking.
    Good morning, Chairman Mitchell, Ranking Member Roe, other 
Members of the Subcommittee, fellow veterans, and guests.
    Let me first thank you for the opportunity to come before 
you today to share views on VA acquisition deficiencies and how 
this Subcommittee can help to increase contracting 
opportunities for veteran and service-disabled veteran-owned 
businesses.
    I am the 1st Co-Chair of the Veterans' Entrepreneurship 
Task Force known as the VET-Force. My testimony today is mine 
and the VET-Force.
    My Navy active duty was many years ago. With 22\1/2\ years, 
I was unexpectedly transferred to the disability retirement 
list as a Master Chief. I was given a check and sent home. At 
that time, I could not work a full workday. This has happened 
to thousands of veterans. The VET-Force and its members want 
this practice stopped.
    Public Law 106-50 and subsequent legislation and rule 
making has significantly improved the veterans procurement 
program. This testimony is aimed at the Veterans Administration 
and number one out of five areas is the Center for Veterans 
Enterprise (CVE).
    CVE personnel are responsible for tasks that require 
tenfold the assets they now have. Many of their tasks cannot be 
completed in a timely fashion because they do not have the 
authority to complete them. In other words, they are frequently 
micro managed.
    Twelve thousand veteran-owned companies desiring 
verification are waiting their turn. CVE was verifying 200 each 
month. I do not know what the recent figure is, but there is a 
lot to go.
    Contracting officers in the VA: Not all contracting 
officers are required to follow regulations and rules. I mean 
that because the Veterans Integrated Service Networks (VISNs), 
every VISN is different. They are not always given authority 
commensurate to their responsibility.
    Appropriations and budgets: CVE is a nonappropriated 
organization and exists only by the grace of the VA supply 
fund. CVE needs its own line item and significant increase of 
available funds.
    VA General Counsel (GC): The VA has not complied with 
Public Law 109-461. The date of enactment was supposed to be 
180 days and we are within 6 days of it being 3 years. And it 
does not look like they are going to go anywhere and get it 
done because they still have to get an agreement between the VA 
and SBA and that is not getting anywhere.
    It is General Counsel's responsibility to ensure 
regulations are followed in a timely and accurate manner. The 
result of their ignoring 108-183, 109-461, and Executive Order 
13360 is apathy and confusion throughout the VA acquisition 
community. Every VISN is different.
    General Counsel's inaction has caused in some areas within 
the VA acquisition community derogatory feelings toward the 
VOSB Procurement Program. Lack of firm direction has been and 
is still today creating road blocks.
    Vocational rehabilitation and employment, we have to have 
more counselors and money for them to operate. Our wounded 
warriors are now coming home and when they want to be self-
employed, we send them to CVE. They have not had any 
counseling. So we need to hit that area as well.
    Passage of the original concept of Public Law 109-461 was 
highly supported by the VET-Force and most veteran supporters. 
It is still supported by the VET-Force. The law is written for 
the VA.
    One requirement is that the VETBIZ database be expanded 
using both VA and the U.S. Department of Defense (DoD) data. It 
also requires the VA to make VETBIZ available to the entire 
Federal Government to view the registrants within the database. 
It also states the VA will verify all VOSBs and SDVOSBs prior 
to awarding a Veterans Affairs contract.
    Public Law 109-461 does not say that the VA's application 
of their 38 CFR 74 regulation was to be Federal Government 
wide. That was not the original idea. As we understand of the 
Congressional staff and everybody else, it is ``try the VA 
first.''
    Both Public Law 106-50 and 183 direct non-VA contracting 
officers to accept self-certification. The Federal acquisition 
regulations (FARs) also require all contracting officers to 
practice due diligence prior to an award. Only those desiring 
VA contracts are to be verified by CVE.
    VA's present procedure is to verify the company and issue 
them a verification pin. The VA then enters in that company's 
profile that they are verified.
    When a VA contracting officer wants the award contracted 
SDVOB who is in a VETBIZ queue for VA verification, the 
contracting officer simply calls CVE and they rush it through. 
That is very good.
    However, when an SDVOB in the VETBIZ queue submits a 
response to a non-VA, say Department of Labor, SDVOB set-aside 
request for proposal by a contracting officer who uses VETBIZ, 
the company not verified will unjustly be considered as not 
qualified to bid.
    The VET-Force has recommended to the VA CVE that all VA 
verifications remain accessible only to VA acquisition 
personnel. The VA CVE has not accepted this recommendation. Not 
doing so is sabotaging the Service-Disabled Veteran-Owned 
Program.
    The first step was the VA only. Then we were going to move 
off. The second step should have been all the way. We know of 
cases where a source went out from one Department, one other 
Agency. She got twenty applications, she went on the VetBiz Web 
site and found eight of them who had been verified. The only 
people who got a request for quotation (RFQ) were those eight 
people. That is wrong. Self-certification is the only thing to 
require until we get this ball rolling properly.
    Thank you, sir.
    [The prepared statement of Mr. Hesser appears on p. 66.]
    Mr. Mitchell. Thank you.
    And I thank all of you for your testimony.
    I have a couple questions, first of Mr. Amey.
    There have been several discussions within the Subcommittee 
about the threat resellers and pass-through entities play in 
procuring Government waste and abuse.
    Do you think this concern is justifiable and what should 
the VA be doing to mitigate this risk?
    Mr. Amey. It is very justifiable. And I believe last year 
in the Defense Authorization Bill, if it was not in the 2009 
Bill, it was in the 2008 bill, tried to handle that issue with 
trying to limit pass-throughs, that if there is not value added 
through a subcontract, and I do not know exactly how they are 
going to monitor value added in that case, but at that point, 
then the subcontract opportunity should not be awarded.
    I believe that is only DoD. So they are the types of 
improvements that we need to expand Government wide to hit all 
agencies to prevent pass-throughs and prevent someone from 
adding very little value added, but at the same time reaping 
profits from that procurement.
    Mr. Mitchell. Thank you.
    And this question is for Mr. Denniston.
    Why do you think the VA has a practice of advertising a 
request for proposal and then have vendors incur all, as you 
mentioned, all the substantial costs to submit the proposal 
only to have the VA cancel the opportunity and procure through 
an existing contract vehicle? It just does not make too much 
sense.
    Mr. Denniston. My feeling on that, sir, is that there needs 
to be better acquisition planning. And the VA to their credit 
about a year and a half ago established a process called the 
integrated product teams, IPTs, where the goal was to get the 
program people, the contracting people, the small business 
people, and the General Counsel people together to actually 
plan acquisitions and know what the statement of work should 
be, what VA's needs are.
    I think if that process was followed, I think we would not 
have the situations that we have got now where RFPs are 
requested and then canceled.
    Mr. Mitchell. So there is a policy?
    Mr. Denniston. There is a policy in place.
    Mr. Mitchell [continuing]. To start following that?
    Mr. Denniston. I think it needs to be followed more 
strictly, yes.
    Mr. Mitchell. Thank you.
    And, Mr. Hesser, in your testimony, you discussed the 
displeasure with the VA's General Counsel Office. Specifically 
you mentioned inaction on the GC's part and the derogatory 
feelings toward the VOSB, and the SDVOSB procurement programs.
    Can you elaborate on why you feel that these derogatory 
feelings are there toward the veterans and their businesses?
    Mr. Hesser. I think first at VET-Force, we deal only with 
procurement, so we are supported by all the other 
organizations. So we get a lot of information. And if somebody 
has a hard time, they will call us. And sometimes it's not too 
good because it takes a lot of my time.
    But we have a case where a very senior individual in the 
Veterans Administration has told a client who is a vet who is 
trying to get business there, well, the contracting officers do 
not like you. And the program, they do not like this program, 
so do not waste your time literally. And I would be willing to 
share that, but I do not think it should be done publicly.
    We have other cases where the service-disabled veteran has 
tried to go in, this was maybe as long as 5 or 6 months ago, 
and tried to sell a product that they did not manufacture. They 
represented the company, but they used that product to make 
their business services, et cetera. And they were told that, 
no, we want to deal directly with the manufacturer. We do not 
want to deal with the dealer.
    Now, most of that has been cleared up because several 
organizations went in there screaming. But that is strictly 
against the law, but they do it anyhow.
    General Counsel has in many cases made policy directions 
that are not there. They came out with 38 CFR 74 and it was 
supposed to be their rule of thumb of going. Now General 
Counsel is aware of it. CVE is, in fact, saying that you cannot 
be a service-disabled veteran-owned small business on a part-
time basis because you are not fully in control of it.
    Like most veterans start in their house. Of course they 
work for somebody else to make some money and then work their 
way into the business.
    They also say that you cannot own two businesses. And there 
are cases where we have individuals do that. We have one 
individual who has two companies because one is very highly 
tech with doctors and master's degrees and one is not. They are 
general services, secretaries, et cetera, he provides. He has 
two separate cost differences there for his labor, so he has to 
have two. He has been doing it for years.
    The General Counsel sticks their head in places and they 
allow things to happen that they should not be doing. The law 
is the law. A rule is a rule. And to make that law, rule and 
everybody tries to follow by it and they do not do it. And, 
yes, we have some cases we will be happy to discuss.
    Mr. Mitchell. Thank you.
    Dr. Roe.
    Mr. Roe. Thank you, Mr. Chairman.
    And thank you all for testifying and thank you all for your 
service to our country.
    And I just have a couple of comments to start with and then 
some questions.
    I guess the problem I am having with this is that we have 
hardworking American citizens out there every day, veterans 
included, and we have disabled veteran businesses, and we have 
other veteran businesses.
    And my job back home in Tennessee before I came here was 
Mayor of our city, the largest city in our district. And I know 
it is not a lot of money for Washington, but over the last 6 
years, we managed about $1 billion, a little short of $1.5 
billion.
    And we would have projects, and we are talking about $100 
million water and sewer projects. We are talking about building 
tens of millions of dollars for schools, roads, all the things 
that local Governments do. It was a very transparent, clear 
process about how the taxpayers got value for their tax 
dollars.
    If we had an RFP or we had a contract, it was a sealed bid 
and the lowest bidder meeting all the specifications of that 
project got the project. It was a fairly quick process. And I 
would think that the VA, we know the rules for the veteran-
owned small businesses and the disabled veteran businesses, and 
they should have every access to that business.
    Master Chief, I agree with you completely. It ought to be 
transparent. It ought to be easy to do. So that is one of the 
parts as I read this material last night that was disconcerting 
to me was that there seems to be a lot of at least, I will not 
say fraud and abuse, I will say inefficiencies in this system 
that is wasting a lot of money and is incredibly slow to get 
done.
    And I think this bill that Congressman Buyer has, and I am 
a cosponsor, will address some of these things. And I would 
suggest that other Members here take a very close look at it, 
to have someone who is responsible.
    As you said, these veterans are getting the run-around. 
They are running in a circle. They go here and they are told to 
go there and they are told to go there and finally they just 
quit.
    And I am sure, Mr. Jimenez, you have probably faced that in 
your business and I am sure you will share some of that 
frustration with us.
    And, Mr. Amey, on page three of your, on the POGO, on page 
three of your written testimony, you stated that 54 percent of 
the contract dollars were listed as not identified.
    And are these miscellaneous obligations or are these 
additional obligations that have not been categorized into some 
form or does anybody know where the money is?
    Mr. Amey. I hope someone knows. But you do not know. 
Federal procurement data has always had major data errors in 
it. You do not know if it is just a problem with the 
acquisition workforce with not pulling down the right pull-down 
screen in data entry or if they do not know what type of 
competition it really was. And that is the problem.
    That is the first time in going through a lot of 
procurement data that I have ever seen half of the pie chart 
that has been filled in black with unknown amount. And, you 
know, when it is $8 billion, that is a lot of amount to kind of 
have unknown. And it is something that we need to get down to 
the bottom of.
    And that is why the full and open competition number is 
low. You know, in the normal Federal Government, that number 
averages about 60 or close to 70 percent. Here it is in the 
twenties. You know, I am not saying that there is all kinds of 
waste, fraud, and abuse going on----
    Mr. Roe. Right.
    Mr. Amey [continuing]. As far as the extent of competition 
goes, but without even knowing. And in the data, it is kind of 
funny because it says like searching for the answer or 
something like that. Like it is very user friendly, like 
public, you know, language in it, but that was the same 
information and tag line they had for the 2008 data as well as 
the new 2009 data. So it does not seem as if they have righted 
the ship.
    Mr. Roe. I can assure you in my business that I ran, which 
was a medical practice, that there was not any miscellaneous 
obligation and I did know where the money was going. And I 
think most businesses know because either--if they do not know, 
as Mr. Jimenez will tell you, you do not have a business. You 
go out of business.
    Mr. Jimenez, what criteria did MicroTech have to fulfill in 
order to become certified and verified as a service-disabled 
veterans-owned small business? I would like to hear that.
    Mr. Jimenez. Sir, I do not recall the number of the form, 
but we filled out a form. All the partners had to sign. All the 
partners then submitted it along with the documentation 
required which I believe was proof of 51 percent ownership or 
more by myself, as well as day-to-day control by myself, as 
well as my service-disabled veteran status, as well as the 
other documents required. And it was submitted. It was not a 
smooth process initially.
    In fact, at the time, Mr. Denniston was still employed by 
the VA and we were hoping we got it done early and we were 
hoping it would come back. And they were actually very thorough 
and came back and asked some additional questions and gave us 
some additional guidance and we got it in.
    And we did not experience the problems that other folks are 
experiencing. But I suspect it was because we were one of the 
early ones and we heard about it and we got out and got it 
done.
    Mr. Roe. How long a period of time was that?
    Mr. Jimenez. It probably took us about 2 months.
    Mr. Roe. Okay. Thanks very much.
    I yield back my time.
    Mr. Mitchell. Thank you.
    Mr. Walz.
    Mr. Walz. Thank you, Mr. Chairman and Ranking Member.
    And thank you all for being here and sharing and help us 
understand this.
    Twofold responsibilities, and I do not think there is 
probably anything more important that we do here, looking out 
for the taxpayer dollars and making sure that every dollar that 
is allocated for our veterans ends up with our veterans.
    So this problem at the end of the day ends up being any 
misspent dollars one less that is going to the care or to 
creating jobs for those veterans. So this is a really, really 
important issue.
    Mr. Amey, in your written testimony, you talked about a 
call for a comprehensive review of the VA procurement system. 
One of the things I found in my short amount of time here in 3 
years is we do a lot of those.
    And I just have a list here of studies on procurement and 
acquisition over the last couple of years, an audit of VA 
medical center procurement of medical prosthetics, audit of 
Veterans Health Administration (VHA) major construction 
contract, evaluation of Veterans Benefits Administration of 
vocational rehabilitation contracts, audit of veterans' 
procurement of desk-top computer models, on and on and on and 
on.
    What makes you and especially us believe that we have 
learned anything from this if we are still here today?
    Mr. Amey. Well, I think it is a matter of the procurement 
system has changed dramatically throughout the years. The 
dollars spent have dramatically increased. You know, you have 
gone from an agency in fiscal year 2000 that was about $3 
billion to now over $14 billion in 9 fiscal years. So that 
increase far exceeds the Federal contract dollar increase that 
has gone from $200 billion to $530 billion in that same time 
frame.
    At the same time, through tweaks in the contracting system, 
there has been new contracting vehicles and mechanisms that 
have been thrown at the contracting officers and the 
acquisition workforce overall, program staff that have changed 
as well.
    Services now outpace goods. So when you factor all those 
things in, the procurement system and acquisition continually 
changes. And at that point, we need to know what we are buying 
and how we are buying it. They are the two big questions.
    And at that point, if there are things that we are 
outsourcing as far as services go, that may change from the 
previous studies that have been done that we need to take a 
look at now.
    Mr. Walz. And I am going to go further in here. You talk 
about reversing the VA trend toward contracting out services to 
direct hiring a little bit. You talk about that.
    I want to know what role in this that I am very, very 
appreciative of and they are going to speak here in a little 
bit, it may go to them, the Office of the Inspector General, it 
seems to me that we saw a systematic reduction of OIG staff and 
budgeting at the same time we saw outsourcing of contracts at 
the same time we saw lost dollars.
    So my question in this is, is, yes, the VA can do better, 
but there is a partnership in inefficiency that works to the 
private sector also. Can you address that?
    Mr. Amey. Certainly. Yeah. I think contractors have a role 
in this as well. I think it ends up being, you know, the 
agencies, the program staff, the acquisition staff, then it is 
the administrators of the contracts, the oversight staff of the 
contracts, but it is the contractors as well.
    A good contractor is going to say, hey, there is 
inefficiency, there is waste. We could do this better. And I do 
not know if those incentives are always built into either the 
contracts or in the business models for them to come forward 
with that type of information.
    Mr. Walz. But you think some of this could stay in-house--
--
    Mr. Amey. Certainly.
    Mr. Walz [continuing]. To be more efficient?
    Mr. Amey. Certainly. And that is where I do not know at 
what level, but I think the Department of Defense is doing it 
right now, the Department of Homeland Security is doing an 
audit of all its service contracts to see what have we 
outsourced as far as the service go and should we bring those 
in-house. It may or may not be----
    Mr. Walz. But we do not know where we are saving money. 
There has been some outsourcing that has absolutely saved us 
money it would be your opinion and some that has not?
    Mr. Amey. Certainly. I am not saying that we cannot 
outsource, you know, certain services. But at some point, we 
have to take an audit of those services that we have outsourced 
and say can we do this cheaper in-house, does it fringe on an 
inherently governmental function that we want performed by a 
Government employee rather than a contractor employee and, 
therefore, bring those in-house. At that point, these are the 
contractors that----
    Mr. Walz. That is what I was going to say. I want to make 
sure that these folks, Mr. Jimenez, and thank you for your 
service, all of you, but this is the type of story we want to 
hear. We want to make it as easy as possible. We want to make 
sure you are providing the right services. We want to make sure 
you have competed out there and won rightfully so.
    If we study this and we increase the oversight through the 
OIG, you are convinced we can do this better and not add your 
study to the list, to page four?
    Mr. Amey. I think it would be a mix. I think it would be a 
mixture of studying what is currently taking place, what we are 
contracting for, how we are contracting for it to make sure we 
are doing it as efficiently as possible and, if not, bring some 
of those jobs in-house, you know, hire contractors to do some 
of those jobs. It is going to be a mixture of all of them.
    Mr. Walz. Okay. I yield back, Mr. Chairman.
    Mr. Mitchell. Thank you.
    Mr. Buyer.
    Mr. Buyer. Thank you very much.
    Sergeant Major, there is a reason we love you. There is no 
reason you should not be on this legislation. Okay?
    Mr. Walz. We will talk.
    Mr. Buyer. So you are going to have to tell me why you are 
not on it. We will do that at the next vote, okay, because you 
cannot do that type of statement and you cannot do that line of 
questioning without embracing what is in this bill. So if there 
are some things that you are looking for, please, we will 
develop your thoughts further, okay, because you were right on.
    One of the questions I have, have any of you seen the 
legislation that has been introduced? Have you seen it?
    Mr. Amey. No.
    Mr. Buyer. No?
    Mr. Amey. Not in detail.
    Mr. Buyer. Well, I will tell you what. We will make sure we 
get it to you. And for the record, if you can submit your 
responses to it or if you have other recommendations.
    [The witnesses provided responses to Mr. Buyer's request 
for comments on H.R. 4221, the ``Department of Veterans Affairs 
Acquisition Improvement Act of 2009,'' which appear on p. 101.]
    Mr. Buyer. In response to the Chairman's opening question, 
Mr. Amey, you made comments about the resellers and actions 
that DoD had taken. We attempt to cover that.
    Back in 2006 when we passed the law and creation of the 
database and we go into the verification process, you know, it 
is our hope, we always do this, sometimes we create our 
legislation and we want departments and agencies then to 
develop it further.
    Sometimes our constituents will ask how come you just 
introduced a 2,000 page bill. And it is because sometimes we 
express our intent, but if we really want to, we tell them 
exactly how to do it.
    And so sometimes we sort of back off and so when we talk 
about putting together a database and for a verification 
system, we assume, you know, that actually that verification is 
going to be done in a manner and we do not assume that it is 
going to be self-verification.
    I mean, we get involved in this stuff all the time, so I do 
not want to be too hard on the VA. I mean, we get in really 
nasty battles here in Congress on verifications for immigration 
issues and qualification of benefits and whether they should 
show an ID or not an ID.
    So, Mr. Jimenez, I appreciate you talking about what you 
had to go through, but obviously something is not working here.
    So, number one, we have got the verification issue and we 
are going to address that further in the legislation. The other 
is on resellers.
    And we have actually put it into the language that the 
Secretary may not include in the database a small business 
concern that is the vendor of a commercial item unless the 
concern is the manufacturer or a regular dealer of the item. 
And then I give some discretion to the Secretary specifically 
that provides for waivers for such requirement.
    What is your initial reaction to that?
    Mr. Amey. Well, first, I spend a lot of time making public 
comments to Federal regulations and as they trickle down 
through the regulatory process, they do not always meet the 
intent or the mandate that Congress, you know, had in the 
actual bill and the legislation, the law. So it is not the 
first time that I have heard this.
    It sounds from what I have heard like a worthwhile 
provision. Too many times I am contacted by third, fourth, and 
fifth tier subcontractors that are doing something for a prime 
and it raises many legal issues, who you hold accountable if 
you are not getting paid, you know, what type of service are 
you offering, what is the value added, the debundling question 
that, you know, I had mentioned in my testimony and someone 
else on the panel had mentioned. Can we break those contracts 
apart to try to go to those contractors right off the bat 
rather than having them delegated to a third or fourth tier 
subcontractor?
    So at that point, it sounds like it is a worthwhile 
provision that will cut out some red tape and it will also 
provide better benefit probably to the Government.
    Mr. Buyer. Mr. Denniston, in your testimony on page three, 
you mention about the 54 percent of the contract dollars were 
listed as not identified.
    Mr. Denniston. That was----
    Mr. Buyer. Oh, I am sorry. Was that you?
    Mr. Amey. That was in my testimony.
    Mr. Buyer. Okay. I am sorry. Are those miscellaneous 
obligations?
    Mr. Amey. I do no know. All it is is a list of contract, 
extent of competition, so it is not by goods or services being 
provided. It was only by was it full and open competition, 
limited competition, sole source, one bid, follow-on contract.
    So to me, it is very high, 54 percent. I have never seen 
that pie chart configured in that method. And it would be 
something that I think people would want to get down to the 
bottom to is how is that actually done. It seemed odd that for 
2 fiscal years, the VA has a very high percentage of unknown in 
its extent of competition listing.
    Mr. Buyer. How will the VA be successful to break the game, 
the procurement game that is done in this town, that I will 
just find a front, I will find someone who is a minority 
service-disabled veteran and I will get a bid on that contract 
and I am going to use them as the front for the bid and I am 
the sub and we do the pass-through? And it is a game, a 
procurement game that goes on in this town. And when that 
happens--sir?
    Audience. Bar him.
    Mr. Buyer. Who said that? I welcome your recommendation.
    Let me ask the panel, though. Give me some ideas here on 
how we end this game in this town because we are squeezing out 
legitimate business concerns when that happens. Yes?
    Mr. Jimenez. Sir, I would like to address this. My name is 
Tony Jimenez.
    I think what you need to do, sir, is you need to insist 
that the contracting officer do due diligence. I mean, if a 
contracting officer gets a contract and signs a contract and 
never talks to the contractor, never explores the viability of 
a contractor to make the determination whether this is a one 
person, what we like to affectionately call trunk slammers, 
shame on the Agency for allowing that contracting officer to do 
that. That is working in a vacuum and not being able to 
actually attest to the fact that this is a bona fide company.
    And we were approached, and I had a discussion prior to 
sitting down at the panel about the exact same thing, we were 
approached and continue to be approached to do just that. And 
the problem with doing just that is I am in business to be in 
business. I am not in business to make money and take it and go 
retire. I am already retired.
    What I am in business to do is to hire veterans, to hire 
service-disabled veterans, to create jobs, and to build a 
business that can be a legacy for other service-disabled 
veterans.
    And when you find companies that are willing to do that, 
and Mr. Hesser and a number of other organizations are out 
there to assist in identifying quality businesses, it is then a 
requirement of the contracting officer and being a former 
Government contracting officer to make sure that you are giving 
a contract to somebody that can do what they say they can do 
and not pass it through.
    The contracting officers in many instances unfortunately do 
not look past the signature. They do not do the due diligence 
required to ensure that the contract that they are giving to a 
contractor is, in fact, a viable contract between the Federal 
Government and somebody that can accomplish the work.
    And we write a lot of legislation and we do a lot of things 
and I think right now we have got more than enough legislation. 
The problem is there is nobody enforcing it. Nobody is saying 
shame on you, do not do that, go to jail, shame on you, do not 
do that, you are out of business, shame on you, go to jail, go 
be debarred, cannot compete anymore. We continue to come up 
with more legislation and more ways, but nobody is enforcing 
them. Nobody is saying enough.
    We have now got the GAO report that says guys are out there 
passing themselves off as service-disabled veterans. Everybody 
goes, ah, but then nothing is done.
    Mr. Buyer. Right. Yes.
    Mr. Amey. And if I may, it does end up being a market 
research question. I go to a lot of conferences where 
businesses tell how they procure goods and services and we 
always talk about best practices and stealing best practices 
from the private sector. And that is one where they do do their 
due diligence. That is where they have more requirements as far 
as down select and getting attractive contractors in, getting 
bids in, doing the market research that they need to do.
    The Federal regulations say contracts are supposed to be 
awarded to responsible contractors only. Well, that is having 
the proper finances, the skill, performance. One of those 
factors is also a satisfactory record of integrity and business 
ethics.
    Well, until last year and it is forthcoming, there was no 
benchmark to make a determination as far as responsibility for 
a contractor's level of performance, integrity, and business 
ethics. There is soon to be a Federal database, but it will not 
be publicly available.
    And, unfortunately, the two gentlemen in the front may be 
able to see it, but no one else or no other Members will. It is 
going to only be seen by Chairmen and Ranking Members with 
jurisdiction to be able to even see the type of data that is in 
that integrity and performance database.
    Mr. Buyer. Well, when you bring up business integrity or 
ethics, if, in fact, the business community recognizes that the 
VA itself is not going to enforce nor bar particular businesses 
or blacklist them and no one is going to know, then it opens 
the door for the unscrupulous ones. And it is kind of what is 
happening here in this town. I do not want to say that is the 
standard, but we all sort of know.
    I mean, how many lobbying firms are out there in this town 
who make money off of, well, okay, if you want to bid in this 
particular contract, let me set you up with this particular 
company because, you know, they will go ahead and make the bids 
for you. And it is a procurement game.
    And when I look at that, and it has really bothered me 
inside, it has bothered me because it really squeezes out, Mr. 
Chairman, the legitimate disabled veterans who want a business 
enterprise.
    And legislatively, and that is why I want to work with 
everyone on the Committee, if we can sort of break that, we can 
break that mold and allow the VA to make sure that these 
contracts are awarded to the right person, to the right 
business entities, and let us stop this game that is being done 
in this town, I think we will make leaps and bounds of 
improvements.
    I yield back.
    Mr. Mitchell. Thank you.
    And I want to thank again the panel for coming and sharing 
your information and your insight.
    Before I dismiss you, I would like to extend our deepest 
sympathies to Joe Wynn who joins us in the audience today for 
his recent loss. Joe Wynn was going to be a part of the panel 
if one of the other panelists could not show up.
    As a strong advocate for veterans and veteran small 
business owners, his advocacy through the years has provided 
the Committee with insight on how we can improve the lives of 
our Nation's veterans. Joe has worked tirelessly over the years 
on behalf of millions of veterans and has been a strong voice 
in the veterans service organizaton advocate community.
    Thank you for your hard work and we look forward to working 
with you in the new year. I know that everyone was with you in 
spirit during the funeral service at St. George Episcopal 
Church. Please accept our condolences in the loss of your 
mother who was laid to rest yesterday at Lincoln Memorial 
Cemetery. And thank you very much.
    And this panel is excused.
    I welcome Panel Two to the witness table. And for our 
second panel, we will hear from Kay Daly, Director of Financial 
Management and Assurance at the U.S. Government Accountability 
Office; Greg Kutz, Managing Director of Forensic Audits and 
Special Investigations, U.S. Government Accountability Office; 
and Maureen Regan, Counselor to the Inspector General, Office 
of Inspector General, U.S. Department of Veterans Affairs; 
accompanied by Belinda Finn, Assistant Inspector General for 
Audits and Evaluations.
    And, again, I would like to remind all those who are 
speaking if they could keep it within the 5 minutes because we 
are going to be interrupted back and forth for votes.
    First I would like to recognize Ms. Daly.

 STATEMENTS OF KAY L. DALY, DIRECTOR, FINANCIAL MANAGEMENT AND 
 ASSURANCE, U.S. GOVERNMENT ACCOUNTABILITY OFFICE; GREGORY D. 
     KUTZ, MANAGING DIRECTOR, FORENSIC AUDITS AND SPECIAL 
  INVESTIGATIONS, U.S. GOVERNMENT ACCOUNTABILITY OFFICE; AND 
MAUREEN T. REGAN, COUNSELOR TO THE INSPECTOR GENERAL, OFFICE OF 
    INSPECTOR GENERAL, U.S. DEPARTMENT OF VETERANS AFFAIRS; 
ACCOMPANIED BY BELINDA J. FINN, ASSISTANT INSPECTOR GENERAL FOR 
    AUDITS AND EVALUATIONS, OFFICE OF GENERAL COUNSEL, U.S. 
                 DEPARTMENT OF VETERANS AFFAIRS

                    STATEMENT OF KAY L. DALY

    Ms. Daly. Thank you, Chairman and Members of the 
Subcommittee. I would like to thank you for the opportunity to 
discuss the Veterans Health Administration's use of 
miscellaneous obligations.
    My testimony today summarizes the results of our September 
2008 report that focused on how VA used miscellaneous 
obligations during fiscal year 2007 and whether VA's policies 
and procedures provided adequate controls over their use. I 
will also discuss the status of VA's actions to implement the 
recommendations contained in our report.
    On the first topic, VHA recorded over $6.7 billion in 
miscellaneous obligations during fiscal year 2007. These 
miscellaneous obligations were used for a variety of mission-
related goods and services, things such as fee-based medical 
services, drugs, medicines, hospital supplies, transportation 
of veterans to and from medical centers, and logistical support 
for VA's medical centers nationwide, including rent and 
utilities.
    The results of our audit work over fiscal year 2007 
miscellaneous obligations found that VA's policies and 
procedures did not provide adequate controls over the use of 
them. Without effectively designed controls, VA is at increased 
risk of fraud, waste, and abuse, including the risk of 
unauthorized procurements, overpayments for services, and 
conversion of Government assets for personal use without 
detection.
    Specifically, although existing policies required 
contracting officials to review miscellaneous obligations, 
there was no guidance as to how such reviews should be carried 
out and documented.
    With regard to segregation of duties, the policies and 
procedures for miscellaneous obligations did not prevent one 
individual from being able to perform multiple roles in 
authorizing and executing miscellaneous obligations.
    Finally, regarding documentation, VA's guidance did not 
require key pieces of information to be included on the 
authorization form.
    These systemic design control flaws were confirmed in 42 
case studies we conducted at three locations. Our case studies 
demonstrated that there was a lack of documented oversight by 
contracting officials in all of the 42 case studies we 
examined. Inadequate segregation of duties occurred in 30 of 
the 42 case studies and supporting documentation was not 
complete in many of these cases.
    For example, crucial descriptive information was not 
included in the purpose field for eight of the case studies. 
The vendor name was blank for 20 of the case studies and the 
contract number was not provided in 16 of the case studies.
    Without basic controls over the billions of dollars in 
VHA's miscellaneous obligations, VA is at significant risk of 
fraud, waste, and abuse. Effectively designed internal controls 
act as the first line of defense in preventing and detecting 
fraud and help ensure that an agency can effectively meet its 
missions and goals, comply with laws and regulations, and 
provide reliable financial information on its programs.
    VA has issued new guidance on the use of miscellaneous 
obligations in January 2009 aimed at addressing our 
recommendations. VA's actions are an important step. However, 
full and effective implementation of these new policies and 
procedures will be even more important.
    We have not yet fully evaluated the extent to which VA's 
new policies and procedures are in place and operating as 
intended.
    Chairman Mitchell and other Members of the Subcommittee, 
this completes my prepared statement and I would like to thank 
you for holding this hearing today. It is important that 
hearings such as this be held to shed important light on these 
topics and to help address the problems that are there.
    I would be glad to answer any questions you or other 
Members have at this time.
    [The prepared statement of Ms. Daly appears on p. 68.]
    Mr. Mitchell. Thank you.
    Mr. Kutz.

                  STATEMENT OF GREGORY D. KUTZ

    Mr. Kutz. Mr. Chairman and Members of the Subcommittee, 
thank you for the opportunity to discuss the Service-Disabled 
Veteran-Owned Small Business Program.
    This program honors service-disabled veterans for their 
incredible service and sacrifice by providing contracting 
opportunities.
    Today's testimony highlights the results of our 
investigation into allegations of fraud and abuse in this 
program. My testimony has two parts. First I will discuss cases 
of fraud and abuse and, second, I will discuss fraud prevention 
controls.
    First we received over 100 allegations of fraud and abuse 
in this program. I will note that we stopped counting when we 
hit 100. From these allegations, we investigated ten cases 
which often included a number of affiliated firms and joint 
ventures. These ten case studies received $100 million of 
service-disabled sole-source and set-aside contracts using 
various fraudulent schemes.
    Two key program eligibility requirements include, first, 
the firm's day-to-day operations must be controlled by the 
service-disabled veteran owner and, second, the firm must 
perform 15 to 50 percent of the work itself.
    Cases that clearly did not meet these requirements include, 
first, a firm that subcontracted 100 percent of its work at a 
VA hospital to an international corporation headquartered in 
Denmark with annual revenues of $12 billion.
    Second, a construction firm with no assets and no employees 
passing through VA contracts to ineligible firms. The owner of 
this shell company lived 80 miles away and managed a restaurant 
in another city.
    And, third, a firm whose owner was a full-time employee for 
the State of New Jersey. His shell company serves as a pass-
through for five ineligible firms located at the shell company 
address.
    [Slide]
    Mr. Kutz. What is discouraging about many of these cases is 
the contracting officials are actively involved. For example, 
the monitor shows the VA hospital in Palo Alto, California, 
where 100 percent of a $6 million contract for janitorial 
services was subcontracted to the Denmark firm that I just 
described.
    The monitor also shows a picture that we took 2 weeks ago 
of one of the vans with a Denmark firm logo parked at the 
hospital. It is clear that in pass-through cases like this, 
contracting officials know exactly who is performing the 
service.
    Moving on to my second point, there are no effective fraud 
prevention controls in place for this program. For the most 
part, this has been a self-certification program. As was 
mentioned, the Veterans Administration is in the process of 
setting up a process to validate the eligibility of firms 
looking to do business with the VA. However, two of the fraud 
cases that we investigated have been certified through this 
process.
    [Slide]
    Mr. Kutz. The monitor shows a screen shot for one of the 
certified firms in VA's database. Notice the VA seal of 
approval. This is actually the California firm that I just 
described. Contrary to program requirements, this is a shell 
company that passes through work to ineligible firms across the 
country. We found despite having only five employees, they have 
received 33 service-disabled sole-source and set-aside 
contracts for over $7 million.
    In conclusion, for just ten cases, we identified $100 
million of fraud and abuse. This multi-billion dollar small 
business program has no controls and no consequences for the 
few that are caught cheating. Unfortunately, the victims of 
this fraud are legitimate service-disabled veterans that play 
by the rules.
    I look forward to working with this Subcommittee and VA to 
eliminate fraud and abuse from this important program. Mr. 
Chairman, that ends my statement and I look forward to your 
questions.
    [The prepared statement of Mr. Kutz, and referenced slides, 
appear on p. 76.]
    Mr. Mitchell. Thank you.
    Ms. Regan.

                 STATEMENT OF MAUREEN T. REGAN

    Ms. Regan. Thank you. Mr. Chairman, Members of the 
Subcommittee, on behalf of the Inspector General, I would like 
to thank you for the opportunity to testify on the findings of 
the Inspector General relating to the VA's procurement 
processes.
    I am accompanied today by Belinda Finn. She is our 
Assistant Inspector General for Audits and Evaluations.
    As you are aware, procurement is and has been one of VA's 
major management challenges. We believe the nature and broad 
spectrum of our work on procurement provides us with a unique 
nationwide perspective on VA's practices.
    For example, from an operational standpoint, our oversight 
of VA's procurement activities is through our audits, 
investigations, reviews, and inspections. These can be 
proactive or they can be reactive from complaints through our 
hotline, Congressional inquiries, and other referrals.
    In addition, our operational work over the last 5 fiscal 
years had 35 reports addressing some procurement issue and 
resulted in a cost savings or potential cost savings of $112 
million. I think also during the last 6 years, we did specific 
reviews of procurement failures showing that VA lost over $650 
million from failed procurements.
    In addition, under a memorandum of understanding with the 
Department, we have an Office of Contract Review. This group is 
responsible for conducting pre- and post-award reviews of 
contracts awarded by VA's National Acquisition Center or other 
entities under the direction of the Office of Acquisition, 
Logistics, and Construction. And these would all be 
noncompetitive contracts.
    We also conduct pre-award reviews of proposals for health 
care resource contracts to be awarded on a sole-source basis to 
VA affiliated universities and medical centers. In the past 5 
fiscal years, we have issued 424 reports to contracting 
officers under the memorandum of understanding.
    Our pre-award reviews have identified $1.54 billion in 
potential cost savings if a contracting entity negotiates what 
is recommended as a fair and reasonable price. Of this amount, 
$166 million related specifically to health care resource 
contracts awarded by VA medical facilities.
    Our post-award reviews have resulted in the collection of 
more than $115 million which has been deposited in VA's supply 
fund.
    Across the board, our work has identified systemic issues 
that caused or contributed to procurement failures, 
overpayments, and misuse of funds. These systemic issues 
include poor acquisition planning, poorly written contracts, 
inadequate competition, inadequate price reasonableness 
determinations, and poor contract administration.
    We believe the decentralized organizational structure for 
procurement and activities in VA as well as inadequate 
oversight and accountability are primary factors contributing 
to the systemic problems.
    As we have testified in previous hearings, VA procurement 
is so decentralized that on a system-wide basis, VA cannot 
identify what it bought, who it bought it from, whether the 
products or services were received, or whether the prices paid 
were fair and reasonable.
    Data systems such as VA's electronic contract management 
system and the Federal procurement data system should provide 
accurate information relating to procurements. However, we have 
found through our work that both systems contain inaccurate, 
incomplete information and cannot be relied upon.
    Because we do not have a reliable system-wide inventory of 
contracts, we have had to develop techniques in order to 
identify contracts for our reviews. For example, if we are 
looking at how many contracts were awarded to a particular 
vendor, we may actually have to--we have actually had to go to 
each medical facility to be included in our review and ask them 
to produce the contract. Even then, we are not sure that we 
have an accurate accounting or that we have all the documents 
in those contracts.
    If we have a review going on about a specific type of 
product or a specific service and how much did VA buy of that 
product, we actually have to go to the vendors with a subpoena 
and ask the vendors to provide us with sales transaction 
information. We cannot get that information from VA.
    We have identified the procurement process as three steps 
involving three groups of individuals. There is the planning, 
there is the solicitation, negotiation, and award, and there is 
contract administration. The three groups responsible for this 
are the Program Office, the contracting entity, and legal 
counsel. We found problems at all steps in the process and by 
all three individuals and these problems have led to contract 
failures.
    We recognize that VA has and is taking action to improve 
its procurement activities. For example, the recently 
established Acquisition Academy in Frederick, Maryland, 
provides training needed to develop a more robust acquisition 
workforce.
    The Technology Acquisition Center in New Jersey will 
consolidate VA's IT acquisitions and will provide the staff 
with the training and expertise needed to conduct complex IT 
acquisitions.
    Overall, there is minimal oversight of VA procurement 
activities, particularly at the facility level. Oversight is 
necessary to identify both deficiencies and best practices.
    As noted, the Department has with the memorandum of 
understanding, we conduct oversight over the large contracts 
awarded by the National Acquisition Center. One of the effects 
of the oversight is a deterrent to industry.
    Over the last 5 years, out of 164 post-award reviews that 
were conducted, 97 or 56 percent were the result of vendor 
voluntary disclosures. You would not have these disclosures if 
we did not have an oversight program where we go out and look 
at it on our own initiative.
    We also believe that ineffective oversight resulted in or 
could have prevented some of the criminal conduct and our 
criminal investigations. We had 254 criminal investigations 
with 110 arrests during this time period. A lot of that could 
have been prevented with effective oversight.
    This concludes my oral statement and Ms. Finn and I would 
be happy to answer any questions.
    [The prepared statement of Ms. Regan appears on p. 91.]
    Mr. Mitchell. Thank you very much, all of you. Very 
revealing here.
    The first question I have of Ms. Daly is, you stated in 
your testimony that VA has designated new policies and 
procedures to address the recommendations in your report and 
miscellaneous obligations.
    In your opinion, has the VA taken adequate steps to address 
those recommendations?
    Ms. Daly. Mr. Chairman, I think VA has taken the important 
first steps by issuing policies and procedures aimed at 
addressing this. I am concerned in that some of the system 
patches and other steps they have taken are not as effective as 
they could because--let me give you an example of that.
    VA has put in a patch that identifies whether or not 
someone with incompatible duties are performing those duties 
instead of putting in a patch that prevents that person from 
performing it.
    To make it simple, they are doing it so that they detect a 
problem instead of preventing a problem. And I think that there 
could be other ways they could try to address that.
    Mr. Mitchell. I think you mentioned they put in some 
policies or procedures. That is just about what Mr. Buyer said. 
We have passed laws, but if there is no follow-up or 
accountability, what good is a policy or procedure if no one is 
doing it.
    Mr. Kutz, one of the key things you have brought to our 
attention today was the report, which you prior issued a report 
by fraud of the SDVOSB Federal contractors and potential 
involvement of Federal contracting officials.
    How vulnerable is this program to fraud and kickbacks and 
collusion with Federal contracting officials?
    Mr. Kutz. It is very vulnerable. For the ten cases we had, 
we have no specific allegations of that. But when you look at 
some of these cases, the actual contracting officials were well 
aware of what was going on in the beginning and, in fact, in 
some cases, there is evidence they helped arrange the front 
company to pass the work through.
    So given that these front companies are taking a cut and 
then passing through work to large businesses, is there an 
opportunity for the contracting officials to get a cut of that 
money? Absolutely.
    Mr. Mitchell. And how widespread do you feel this is within 
this program?
    Mr. Kutz. I cannot really say except that we did get over 
100 allegations. We are continuing to get allegations. There 
was a hearing we had on the Small Business Committee several 
weeks ago and now you are having this hearing. We will probably 
get a new batch of allegations coming in after your hearing 
today. So indications are the ten cases we have are just the 
tip of the iceberg.
    Mr. Mitchell. And the ten cases that you did investigate 
with the $100 million of services, since you have finished your 
investigation, is there any indication that these firms are 
continuing to receive Federal contracts?
    Mr. Kutz. Yes. Not only that, they are getting service-
disabled sole-source and set-aside contracts. And, in fact, it 
appears in the last month that the company that was the front 
for the furniture transaction at MacDill Air Force Base was 
certified by VA through their process that we have described 
today.
    Mr. Mitchell. So they are still operating?
    Mr. Kutz. Yes.
    Mr. Mitchell. You also mentioned that the SDVOSB firm that 
has no employees or assets, received a $900,000 contract for 
the furniture design in Tampa.
    Has this firm been certified or verified by the VA for 
eligibility?
    [Slide]
    Mr. Kutz. Yes. In fact, I want to show you the firm 
actually. On the right, there is the firm. It is the 
individual's house. He is a full-time employee at MacDill Air 
Force Base. So hard to believe he can control the operations 
when he is at MacDill. And that picture on the left is actually 
the mailbox and this is the firm that it appears was certified 
by VA in the last month or so.
    Mr. Mitchell. Can you tell me, this transaction was 
referred to as a double pass-through, what do you mean by 
double pass-through?
    [Slide]
    Mr. Kutz. If you look at the picture, I have a slide that 
kind of shows this that we have used, there are two companies 
that were middle companies that took a cut of this $900,000 
contract. The first one was the one that I just showed you that 
was the individual's house. He worked at MacDill Air Force 
Base.
    The second company was a furniture dealer that his wife 
worked at. They passed it through both of those companies who 
each took a cut. And then the final company that got this was 
the furniture manufacturer that you see on the far right there.
    So there are two companies that took a cut before the 
actual company that did the work took it. So that would be 
something we would call a double pass-through here.
    Mr. Mitchell. Looking at this and the person who in this 
particular case, do you think this employee has a potential 
conflict with the MacDill Air Force Base?
    Mr. Kutz. Yes, I would say so. And we have referred that 
case to the Air Force Office of Special Investigations to look 
at. Like I said, he worked full-time at MacDill Air Force Base. 
He knew people in the procurement community. They knew who he 
was. And it was very clear it was a front company to pass 
through work to the furniture installer and dealer.
    Mr. Mitchell. Let me ask, because this person got the bid, 
did you know of any work that other people who bid on this, 
were there other people who bid on this that did not get it?
    Mr. Kutz. Yes. And, in fact, they filed a protest.
    Mr. Mitchell. I still have some time.
    Ms. Regan, in your opinion, what are the three biggest 
problems with the VA's acquisition process?
    Mr. Buyer. Mr. Chairman?
    Mr. Mitchell. Yes?
    Mr. Buyer. I am sorry. Do we know the result of the 
protest?
    Mr. Mitchell. No.
    Mr. Buyer. Is it all right if we ask that?
    Mr. Mitchell. Yes, sure.
    Mr. Kutz. It was ultimately withdrawn, but it was initially 
protested.
    Mr. Buyer. All right. Thank you. Thank you.
    I am sorry, Mr. Chairman.
    Mr. Mitchell. No, no.
    Mr. Buyer. I thought it was important to know.
    Mr. Mitchell. Ms. Regan, what are the three biggest 
problems with the VA's acquisition process?
    Ms. Regan. In the process itself, there are problems at 
each step in the process. Poor acquisition planning; the 
purchasing entity does not know what they want. They do not 
want to define their needs.
    We see a lot of open-ended contracts. Just give me labor 
hours and I will order off the contracts. I think that was one 
of the problems with the computer incident reporting 
capability, the CIRC contract.
    One part of it was IDIQ, indefinite delivery, indefinite 
quantity, and they ordered 10 years worth of services against 
it in 2 years. So they ran out of money. They do not know what 
they want. They do not like to plan a lot of times for what 
they want.
    The second biggest problem in the process that we see is 
probably in contract administration and that is either that 
contracts that do not set any type of performance standards, 
just pay, when an invoice comes in.
    You also have people who are not trained in contract 
administration. They pay an invoice without looking for 
delivery of services, without looking to see if the rates are 
correct, without looking if the invoice matches the contract.
    I think all of this gets into the fact that there is no 
oversight at all, especially at the field activities with the 
regular contracting, and the decentralization contributes to 
that.
    Mr. Mitchell. Could you tell me, how much support do you 
think the people in the field get from the General Counsel?
    Ms. Regan. Up until recently, there were very few General 
Counsel people out in the field. I think there were five 
working mostly with protests and claims. But on day-to-day 
activities, there was no review of proposals and they were not 
involved in negotiations.
    Now, they have hired some additional attorneys through the 
supply fund to provide those services, so they are getting more 
support now than they were in the past.
    But I know on our pre-awards working with some of the 
facilities, they would be going into negotiations and did not 
know how to develop a negotiation strategy. They are going into 
negotiation with the universities bringing attorneys and 
contract officers are going in by themselves. It is not 
balanced that way. They need that kind of legal support and 
somebody that is involved in assisting them.
    Mr. Mitchell. And my last question to you, do you get 
complaints from contracting officers and, if so, what is the 
biggest complaint you get?
    Ms. Regan. The one we have heard probably the most in the 
past year is they are being pressured to award contracts when 
they do not feel that it is in the best interest of the 
Government.
    Mr. Mitchell. Thank you.
    Mr. Roe.
    Mr. Roe. Well, as a former Mayor and a doctor and a 
politician, I did not think I could be made speechless by 
anybody, but you all have done that. I mean, I have never heard 
any such testimony since I have been here. And I guess a couple 
things I want to pursue on this.
    Ms. Regan, first, you astonished me when you said we did 
not know what we were buying, we did not know what we paid for 
it, and there were no consequences to any of this. And then 
when you found out what you paid for, you went to the vendor, 
and many of them who are honest vendors, I might add, but you 
went to them to confirm what the VA should have confirmed. It 
is like asking the fox in the henhouse have you eaten the 
chicken.
    And so, I mean how do you even respond to that? I am 
flabbergasted when I heard what you said.
    Ms. Regan. It has been very difficult from our perspective 
to do our work in looking at contracting because a lot of it is 
hidden. You cannot find it.
    We reported in our report on the Replacement Scheduling 
Activity that some contracts avoid oversight and become 
invisible to the Department because VA is going to other 
agencies to contract for them. So those contracts are not seen.
    We noted one contract where nobody in the VA could even 
give us a copy of the contract. We were told we had to write a 
letter to General Services Administration to get a copy.
    So there is just no visibility. It is very difficult. It 
creates additional work we have to do to look at contracts. We 
have done work-arounds, but we are not always sure we have all 
the right information or all accurate information when we do 
our reviews.
    Mr. Roe. Well, are there an inadequate number of 
contracting people at the VA? Is that where they have so much 
to do, they just, you know, sign them and go? Is that the 
problem?
    Ms. Regan. No. It is so decentralized that information is 
not maintained in a centralized database that gives you the 
visibility.
    For example, the Electronic Contract Management System 
should be keeping track of what contracts have been awarded 
since, I believe, 2007, but our audit of that system showed 
people were not using it.
    Also, a lot of purchases do not fit the requirements of 
what is required to be entered into that system. So in looking 
at the Federal Procurement Data System, we found that that is 
inaccurate. I believe the prior panel mentioned that also in 
following up. So there is no place you can go to in VA and get 
accurate data or complete data on procurements.
    Mr. Roe. Well, I have another couple of questions, Mr. 
Chairman.
    One, Mr. Kutz, you got into this a little bit and peeled 
this onion back a little bit, but you stated that you picked 
ten of the hundred and all ten of them you found. And you just, 
I guess, at random picked those ten companies?
    Mr. Kutz. No, not necessarily random. Probably based on the 
allegations. Some of the allegations were more specific than 
others. So when we assess allegations, we would take the more 
credible allegations, one where there might have been some 
documented evidence or some credibility. So I would not say 
they were a random sample from the 100.
    Mr. Roe. Okay. Would you just name the ten companies? Would 
you mind doing that?
    Mr. Kutz. Certainly. I can name them. In our report and in 
our testimony to you, they are numbered case numbers one 
through ten. And I will list the name of the company and the 
location of the company if that would meet your request there.
    Mr. Roe. Yes, it would.
    Mr. Kutz. Case number one is C. Martin Co. in north Las 
Vegas, Nevada.
    Number two is Corners Construction in Chico, California.
    Number three is Teamus Construction Co. in Carnegie, 
Pennsylvania.
    Number four is Sullivan International Group, Inc. in San 
Diego, California.
    Number five is Ron Jon Rentals, Inc. in Barstow, 
California, and their predecessor company, which is no longer a 
service-disabled veteran company, is DAV Prime, Inc., from 
Peoria, Illinois.
    Case six is called Veterans Construction Associates in 
Burlington, New Jersey.
    Case seven is McDonald Roofing and Construction, Inc., in 
Emmett, Idaho.
    Case eight is B&J Multi-Service Corps in Leominster, 
Massachusetts.
    Case nine is GMT Mechanical in Grantville, Georgia.
    And case ten that I showed you on the monitor is FF&E 
Office Solutions in Tampa, Florida, near MacDill Air Force 
Base.
    Mr. Roe. It sounds like it is coast to coast, border to 
border.
    Mr. Kutz. Correct. And the allegations were across the 
country also.
    Mr. Roe. And these particular contracts that are awarded 
that are either double pass-throughs or pass-throughs probably 
are preventing legitimate veteran-owned, disabled veteran-owned 
or veteran-owed businesses from getting this contract or 
getting these contracts. Am I correct or not?
    Mr. Kutz. Not only that. And I think the first panel 
discussed that you are talking about jobs for veterans also. 
How many veterans do you think the international company from 
Denmark hired?
    And if it had been a legitimate service-disabled veteran-
owned small business, veterans hire veterans. So I think you 
are talking about not only the company and the owner of 
legitimate firms being impacted here, but veterans' job are at 
stake also.
    Mr. Roe. So basically what this company did, this $6 
million contract to this foreign company, somebody just got a 
cut on the front end and they just paid basically a finder's 
fee----
    Mr. Kutz. Correct.
    Mr. Roe [continuing]. Of this business?
    Mr. Kutz. Yes.
    Mr. Roe. That is what happened?
    Mr. Kutz. That is how it worked.
    Mr. Roe. How prevalent is that, do you think?
    Mr. Kutz. Well, in these cases, it is very prevalent. And 
some of the other allegations from the hundred plus that we 
have received, that appears to be what is going on.
    I mean, some people refer it as rent-a-vet. There are 
various ways it is described, but it is still just having a 
front company, somebody taking a cut, and then most of the 
money going to an ineligible firm, oftentimes large business.
    And if you think about the contracting officer, like let us 
use the VA hospital case, they knew that this ISS Corp. from 
Denmark was one of the world's best janitorial services 
contractor. So they are getting the work done the way they 
want, but they are not giving the work to a legitimate service-
disabled company.
    Mr. Roe. Thank you, Mr. Chairman. I yield back.
    Mr. Mitchell. Mr. Buyer.
    Mr. Buyer. Thank you very much.
    I want to follow your line of questioning on that, on the 
Denmark firm. The SDVOSB company that was awarded that bid, 
what was the name of that company?
    Mr. Kutz. Corners Construction in Chico, California, and 
the hospital was in Palo Alto, California.
    Mr. Buyer. Corners Construction, were they certified for 
eligibility by the VA?
    Mr. Kutz. No.
    Mr. Buyer. Wow.
    Mr. Kutz. Oh, they have. I am sorry. Yes, they have been. 
Yes. That is one of the two. The two that have been are Corners 
and FF&E. I am sorry.
    Mr. Buyer. So only two out of the ten were certified?
    Mr. Kutz. Two of the ten have been certified and three 
others are in the database awaiting certification, correct. So, 
yes, Corners is one. I am sorry.
    Mr. Buyer. Did you guys hear that?
    Mr. Mitchell. No. Repeat that.
    Mr. Buyer. Of the ten cases that he examined, only two of 
them had SDVOSB certifications. Only two out of the ten.
    Mr. Kutz. From the Veterans Administration. They all self-
certified that they were service-disabled veteran-owned small 
businesses. That is the difference. The two went through the VA 
process based on the bill you issued in 2006 that requires VA 
to set up this process. So two have gone through the process 
the gentleman on the first panel said his company has gone 
through.
    Mr. Buyer. This goes back to that issue of how are we going 
to do this enforcement and accountability function. Obviously 
the self-verification is not working.
    This Corners Construction, what was their primary line of 
business?
    Mr. Kutz. Construction.
    Mr. Buyer. Not janitorial services?
    Mr. Kutz. Not janitorial. And keep in mind, I said they had 
five employees, including the two owners, and they have 33 
contracts across the country. So it is very clear what is going 
on here.
    Mr. Buyer. They are pretty talented.
    Mr. Kutz. Yes. They are talented at getting the work, 
certainly.
    Mr. Buyer. Now, how could a contracting officer not know 
that the firm was going to subcontract?
    Mr. Kutz. I suppose there are some cases where they would 
not know. But in most of these cases, we believe they not only 
knew, but they helped arrange the transaction and they were 
involved in some of these cases in these transactions. And, 
again----
    Mr. Buyer. All right. Are you making a specific allegation 
of collusion?
    Mr. Kutz. Well, it depends. I mean, their incentive is to 
get the going requirements. Your Committee is getting reports 
that 12 percent of VA contracting went to service-disabled 
veteran-owned small businesses.
    So the company from Denmark, that contract for $6 million, 
that all counted in those numbers that you get and those 
percentages you get. And those are not what you are thinking 
that they are.
    Mr. Buyer. You know, I just, I do not know, 15, 20 minutes 
ago, I just turned to my staff and I asked them how much are we 
driving part of the problem when we set these benchmarks. And 
years ago when we sent these benchmarks, the budgets were not 
even close to the way they are today.
    So the more we increase these billions of dollars into the 
pipeline, the more it begins to drive and incentivize 
individuals to make sure they either meet or exceed their goals 
and they will figure out some type of way to do it because 
maybe at the end of the day, because they get a 10 or 12 
percent award of those contracts, I may get a bonus at the end 
of the day.
    Mr. Kutz. Right. And that is the incentive system we have 
seen and there does not seem to be a lot of incentive for them 
to actually build integrity into this program. And that is what 
you are talking about today.
    Mr. Buyer. So any of your allegations with regard to 
collusion is not necessarily that the contracting officers 
themselves are getting any forms of kickbacks to them, it is 
they are doing everything possible and imaginable to hit goals 
within the system?
    Mr. Kutz. Yes. And getting someone who they believe can do 
the work. And, again, if you have a choice between a new 
service-disabled entrepreneur company and a $12 billion 
international firm with a proven track record, from the 
standpoint of getting the work done, you are probably going to 
pick the big company.
    Mr. Buyer. Let us talk about the issue of enforcement and 
disbarment. What have you seen about how aggressive, if any, 
the VA has been with regard to taking action against particular 
companies?
    Mr. Kutz. Well, I will speak governmentwide. We are not 
aware of any suspensions, debarments, or prosecutions related 
to misrepresentations for service-disabled veterans unless the 
OIG has some specific examples. We have not seen any specific 
examples of anyone that has had any consequences for this.
    Mr. Buyer. Okay. I am speechless. My mouth is just 
completely wide open. I am stunned.
    What about a particular company that has been found to be 
fraudulent? Do they remain on the list? Do they continue to 
participate in the Federal contracting procurement?
    Mr. Kutz. Well, I would not say fraud. Some of these have 
gone through a bid protest process at SBA. And SBA determined 
that they were ineligible, but no one followed through with 
suspension, debarment, prosecution, or any consequences.
    So the closest we have to a prosecution would be someone 
that went through a bid protest and the Small Business 
Administration said you are not eligible and nothing happened.
    Mr. Buyer. So the VA does not blacklist?
    Mr. Kutz. No one has blacklisted any of these companies we 
are aware of for this----
    Mr. Buyer. How about OIG? Can you verify that?
    Ms. Regan. Not as far as I know. The Debarment Committee 
had only received one referral, but that went back to the 
Program Office. But there have not been any debarments under 
section 8127 that I am aware of.
    Mr. Buyer. Wow.
    Mr. Kutz. Now, we have referred all of our cases to the 
relevant agencies, including the Veterans OIG along with the 
Defense Department and SBA, et cetera. So our cases are now out 
there and we understand criminal investigators are in the field 
looking at a bunch of these cases.
    Mr. Buyer. The VA is sitting there. They are going to be 
testifying coming up.
    But can you help explain, since you have got teams that 
have done these investigations, help break this down to me? I 
am a common-sense kind of guy, I hope, and I just cannot figure 
it out. Why would we not be disbarring bad actors from 
procurement?
    Mr. Kutz. Well, we should be. And it is to protect the 
government. I will give you an example of one of the cases we 
have where the individual lied about being a service-disabled 
veteran. They were not even a service-disabled veteran and they 
got $7.5 million of Federal Emergency Management Agency (FEMA) 
contracts. In that particular case, we also found in a separate 
investigation we did several years ago that they lied about 
trailer inspections and maintenance they were doing on trailers 
for FEMA in Louisiana and Mississippi.
    And so when you get to the integrity issue, the purpose of 
the suspension and debarment is to protect the government. And 
so these people that will lie to us about this program are 
potentially going to over bill us. They are potentially going 
to do other things fraudulently. And so that is why we believe 
it is important.
    But I agree with you. You are speaking to the choir here. 
If you do not make poster children out of some of these people, 
no one will take you seriously for program integrity and 
enforcement here.
    Mr. Mitchell. Mr. Buyer, let me ask one quick question.
    Mr. Buyer. Absolutely.
    Mr. Mitchell. Do we need to pass legislation for that? Is 
there something already that says if you people lie or do these 
things or misrepresent, does there need to be a law? Why cannot 
the SBA or whoever it is that said you are not qualified, where 
does the ball drop? What needs to be done then?
    Mr. Kutz. Well, if I read your legislation correctly, 
Public Law 109-461, you already require it for VA that if 
someone misrepresents themselves to the Veterans 
Administration, they are to be debarred. So you have already 
written a law, I believe.
    Mr. Mitchell. It is already there? It is just not being 
enforced?
    Ms. Regan. I believe there may be in section 8127, there is 
a provision that if they misrepresented, then the Secretary of 
VA can debar a vendor from VA contracts for a reasonable period 
of time.
    I think there is some confusion about whether or not the 
standard in the law or statute is the same standard that you 
have in FAR Part 9 debarment, from government procurement, 
which I think has a much higher standard than 
misrepresentation.
    I think the issue that the Agency has been dealing with 
right now is it a FAR debarment or is it a nonprocurement, or 
noncontract debarment such as you would have for eligibility to 
participate in a program.
    So there are differences in the statutes and which rules 
apply to this type of debarment. Under FAR debarment, you are 
debarred to protect the Government's interest, also it may be a 
short period of time.
    Section 8127 debarment is a little bit broader in that 
sense. So I think there are some legal problems about who has 
what responsibility and what rules apply to the debarment 
process.
    Mr. Mitchell. I think that certainly needs to be cleared 
up. But also you mentioned, Mr. Kutz, the person who did the 
FEMA trailers, twice he was caught.
    Mr. Kutz. Right.
    Mr. Mitchell. And nothing has happened to him.
    Mr. Kutz. They are still out there doing business with the 
government as far as we can tell.
    Mr. Mitchell. That is just not a VA problem.
    Mr. Kutz. No. This is a governmentwide issue. Our look was 
governmentwide. It happens that six of our ten case studied 
were doing business with the Veterans Administration. But we 
have seen this as going on across the government.
    Mr. Mitchell. Thank you.
    Mr. Buyer. Now, Mr. Chairman, you are on the right vein 
when you talked about the functionality of accountability also 
has synergies with enforcement.
    So if the VA is not going to do these things or if, in 
fact, the General Counsel has particular concerns, let me go 
back to my first appeal, I would love to work with you. I will 
help create a complete disbarment section and we will work with 
the General Counsel, the VA and let us write the procedures. I 
mean, I do not know how far you want to take this. But I think 
what is this testimony here is unconscionable. It is 
outrageous.
    We all get upset. Remember when the veterans came back and 
some veterans were pinning on medals and we got upset and said, 
well, those were not medals that you earned in battle and so we 
passed a law called the Stolen Valor? What is the difference? 
What is the difference here if someone steps forward and claims 
they are a disabled veteran so they can get contracts and 
squeezing out the legitimate disabled veterans? That is stolen 
valor. This is pretty outrageous.
    I want to thank you for doing this kind of hearing and I 
want to thank all of you for your good work and for your teams. 
Please pass that word on to your teams for the good work that 
you are doing here on behalf of a lot of veterans and on behalf 
of our country.
    Ms. Daly, the issue on miscellaneous obligations, now, this 
is one, Mr. Chairman, we should not have to go with specificity 
and write this type of thing. I mean, she already has outlined 
this. She has already worked.
    You know, the VA, my gosh, you know, the VA says here we 
agree, we agree with the GAO's recommend--you know, every time 
you guys go out and do your work, the VA goes we agree. Enough 
is enough.
    And the fact that you said in all of the 42 obligations 
that you reviewed, you found no documentation of approval by 
contracting officials, none, none. You know, and I love how you 
wrote this about without proper segregation of duties, risk of 
errors, improper transactions, and fraud, it just increases. So 
the segregation of those duties and responsibilities is pretty 
important.
    But, Mr. Chairman, you are absolutely right. We should not 
have to do this.
    Mr. Mitchell. No.
    Mr. Buyer. We should not have to do this. And this is 
exactly something that the Administration should be doing.
    I yield back.
    Mr. Mitchell. Thank you.
    And I want to thank all of you for what you are doing as 
Mr. Buyer said.
    Votes have been called for again. There are four votes. We 
will recess this hearing for another 30 to 40 minutes and come 
back and hear the last panel.
    Thank you.
    [Recess.]
    Mr. Mitchell. The Subcommittee will continue its hearing.
    Joining us on the third panel is Glenn Haggstrom, Executive 
Director of the Office of Acquisition, Logistics, and 
Construction, U.S. Department of Veterans Affairs. He is 
accompanied by Jan Frye, Deputy Assistant Secretary for 
Acquisition and Logistics; Ed Murray, Deputy Assistant 
Secretary for Finance, Office of Management; Craig Robinson, 
Executive Director of the National Acquisition Center; 
Frederick Downs, Jr., Chief Procurement and Logistics Officer, 
Veterans Health Administration; and David Canada, Senior 
Procurement Analyst for the Center for Small Business 
Utilization, Office of Small and Disadvantaged Business 
Utilization (OSDBU).
    I thank you all for being here, and we will start with you, 
Mr. Haggstrom.

STATEMENT OF GLENN D. HAGGSTROM, EXECUTIVE DIRECTOR, OFFICE OF 
 ACQUISITION, LOGISTICS, AND CONSTRUCTION, U.S. DEPARTMENT OF 
VETERANS AFFAIRS; ACCOMPANIED BY JAN R. FRYE, DEPUTY ASSISTANT 
SECRETARY FOR ACQUISITION AND LOGISTICS, OFFICE OF ACQUISITION, 
   LOGISTICS, AND CONSTRUCTION, U.S. DEPARTMENT OF VETERANS 
  AFFAIRS; ED MURRAY, DEPUTY ASSISTANT SECRETARY FOR FINANCE, 
  OFFICE OF MANAGEMENT, U.S. DEPARTMENT OF VETERANS AFFAIRS; 
   CRAIG ROBINSON, EXECUTIVE DIRECTOR, NATIONAL ACQUISITION 
 CENTER, U.S. DEPARTMENT OF VETERANS AFFAIRS; FREDERICK DOWNS, 
 JR., CHIEF PROCUREMENT AND LOGISTICS OFFICER, VETERANS HEALTH 
  ADMINISTRATION, U.S. DEPARTMENT OF VETERANS AFFAIRS; DAVID 
 CANADA, SENIOR PROCUREMENT ANALYST, CENTER FOR SMALL BUSINESS 
    UTILIZATION, OFFICE OF SMALL AND DISADVANTAGED BUSINESS 
        UTILIZATION, U.S. DEPARTMENT OF VETERANS AFFAIRS

    Mr. Haggstrom. Mr. Chairman, Ranking Member Roe, and 
Members of the Subcommittee, thank you for today's opportunity 
to update and discuss with you acquisition operations at the 
Department of Veterans Affairs.
    Today I am accompanied by Mr. Jan Frye, VA's Deputy 
Assistant Secretary for Acquisition and Logistics; Mr. Ed 
Murray, Deputy Assistant Secretary for Finance, Office of 
Management; Mr. Craig Robinson, Executive Director of VA 
National Acquisition Center; Mr. Frederick Downs, Jr., Chief 
Procurement and Logistics Officer for the Veterans Health 
Administration; and Mr. David Canada, Senior Procurement 
Analyst, Office of Small and Disadvantaged Business 
Utilization.
    As VA's Acting Chief Acquisition Officer, I believe there 
is much good news to report and we will start today by 
highlighting several of VA's many accomplishments this past 
year.
    VA continues to transform and improve its acquisition 
operations by increasing centralized decision-making and 
decentralized execution in VHA.
    A study of the Department's contracting offices and 
processes will be completed this coming February and is likely 
to result in further centralization of contracting authorities 
under the Office of Acquisition, Logistics, and Construction.
    Mindful of the role private industry plays and as part of 
VA's transformation to a 21st century organization, we 
established the Supplier Transformation Initiative. And under 
the American Recovery and Reinvestment Act of 2009, over 70 
percent of VA's facility-related stimulus dollars have been 
spent with veteran-owned small businesses.
    VA made great strides in the last year to recruit and 
retain a professional acquisition workforce by establishing the 
VA Acquisition Academy which several HVAC staff members have 
visited, growing the contract specialist workforce to over 
1,400 full-time employees, and we will begin an Acquisition 
Core Development Program in 2010.
    We established the VA Technology Acquisition Center to 
provide dedicated contracting support to the Office of 
Information and Technology (OI&T) and developed an acquisition 
process to support OI&T's program management accountability 
system.
    We have introduced a procurement governance process 
establishing the VA Senior Procurement Council and as part of 
VA's acquisition transformation, implemented other positive 
steps to create and maintain an effective, integrated, 
department-wide management capability.
    In 2009, VA began conducting acquisition assessments under 
the Office of Management and Budget's (OMB's) Circular A123, 
Management, Accountability, and Control, and established a 
requirement for the use of integrated product teams and 
contract review boards to minimize contracting risks.
    There is an indication our changes have made a difference. 
In fiscal year 2009, 220 protests were lodged against VA. All 
but one of these protests has been decided and only one was 
sustained. These numbers are especially impressive given VA 
conducted over 230,000 acquisition transactions in fiscal year 
2009.
    VA remains the Federal leader in contracting with veteran-
owned small businesses. The veteran's first contracting program 
final rule was published in the Federal Register on Tuesday, 
December 8, 2009.
    Tentative data for fiscal year 2009 shows VA spent over 
$2.7 billion with all veteran-owned small businesses. Nearly 
$2.3 billion of that amount was spent with service-disabled 
veteran-owned small businesses.
    This represents over 19 percent and 16 percent of total VA 
dollars reported in the Federal procurement data system and 
exceeded VA's goals for these programs of seven percent and 10 
percent respectively.
    Last, Mr. Chairman, I mentioned at the beginning of my 
testimony I serve as VA's acting Chief Acquisition Officer. VA 
has sought to establish an Assistant Secretary for Acquisition, 
Logistics, and Construction, but has been unsuccessful in this 
endeavor. Establishment of this Assistant Secretary position is 
the cornerstone of our efforts to continue transformation of 
the acquisition culture at VA and provide focused political 
leadership in this important area.
    Such action would embrace the spirit and intent of the 
Services Acquisition Reform Act of 2003, which requires the 
appointment of a noncareer Chief Acquisition Officer. Your 
support in establishing this Assistant Secretary position is 
essential to the long-term success of VA's acquisition 
operations.
    Mr. Chairman, we appreciate the opportunity to discuss VA's 
acquisition operations with you. My colleagues and I are 
available for your questions.
    [The prepared statement of Mr. Haggstrom appears on p. 97.]
    Mr. Mitchell. Thank you very much.
    I just have to very quickly let you know that we have just 
been called for votes. There are two votes. And we will have to 
continue this hearing right after that which will hopefully be 
15, 20 minutes.
    So this hearing is recessed.
    [Recess.]
    Mr. Mitchell. The Subcommittee will reconvene the hearing.
    Mr. Haggstrom, I have just a couple questions. You know, 
prior to the testimony you heard this morning, was the VA aware 
of the misrepresentations and the fraud and the abuse that the 
SDVOSB in its contracting program, were you aware of that at 
all?
    Mr. Haggstrom. Mr. Chairman, I did read through the GAO 
report if that is what you are referring to.
    Mr. Mitchell. No. Let me put it this way. Did you know 
before the GAO report even came out? Were you unaware of any of 
this happening until the GAO report came out?
    Mr. Haggstrom. I cannot say that I particularly was 
appraised of any specific instances because up to this last 
summer when we started putting verification contracts in place 
for OSDBU to go out and begin the verification process, it was 
a self-declaring program where the veterans themselves said 
this is my eligibility. And so we relied to a great extent on 
the self-declaration process of what the veterans had told us.
    Mr. Mitchell. Can you explain how the VA certified a firm, 
and maybe you just did, their eligibility that has no 
employees, no assets, and no legitimate business location?
    Mr. Haggstrom. Sir, if I could refer that to Mr. David 
Canada. He is part of the OSDBU Office, which is responsible 
for the certification process within the Department.
    Mr. Mitchell. Who is ultimately responsible for all this? 
You?
    Mr. Haggstrom. The Secretary is, sir.
    Mr. Mitchell. The Secretary?
    Mr. Haggstrom. Yes.
    Mr. Mitchell. Okay.
    Mr. Canada. Well, sir, I think what I would like to do is 
take the specifics back so we can research it on these specific 
firms that were identified today.
    Mr. Mitchell. So you were not aware of any of this 
happening either until this report?
    Mr. Canada. Well, these specific instances, no. I mean, I 
do know that there have been some cases made in the past of 
different firms at the Center for Veterans Enterprise that they 
had been removed from this database.
    Mr. Mitchell. So I assume the next question I am going to 
ask will be the same answer. You know, can you explain how the 
VA certified a construction firm with only five employees as 
eligible with a firm that received over 30 contracts in 9 
States, including a $7 million contract for janitorial 
services? I assume the answer is the same, you did not know 
anything about it and you are going to study it?
    Mr. Canada. Well, these particular cases, we would like to 
go back and study them, yes, sir.
    [The VA subsequently provided the following information:]

          VA's Center for Veterans Enterprise (CVE) conducts its 
        verification program according to statutory criteria specified 
        in Title 38, United States Code, section 8127(f)(4). This 
        provision requires VA to verify that small business concerns 
        listed in the database are owned and controlled by Veterans, 
        and that Veteran owners asserting a service-connected 
        disability are in fact service-disabled.
          To carry out this requirement, VA regulations define and 
        authorize collection of information to document direct and 
        unconditional ownership (38 CFR Sec. 74.3), control of day-to-
        day management and long-term planning (Sec. 74.4) and Veteran 
        and service-disabled Veteran status of applicants (Sec. 74.25).
          Not having employees and operating out of the owner's home 
        are not, in themselves, grounds for questioning a firm's 
        legitimacy as a service-disabled or Veteran-owned small 
        business (SDVOSB or VOSB). The vast majority of small 
        businesses have no employees and are operated solely by their 
        owners. In its 2002 Survey of Business Owners (the most recent 
        available), the Census Bureau found that 12.7 million (75.5 
        percent) of the 16.7 million businesses responding to the 
        survey had no employees. About half of the respondents 
        indicated they were home-based, and largely fell into four 
        industries: professional, scientific, and technical services 
        (19 percent); construction (16 percent); retail trade (11 
        percent); and other services, such as personal services, and 
        repair and maintenance (10 percent). These tend to be the 
        smallest of small businesses; as the Census Bureau reported, 
        64.7 percent of businesses with less than $5,000 in annual 
        receipts were home-based. More information on the 2002 Survey 
        may be found at http://www.census.gov/econ/sbo/02/cbsof.html.
          Accordingly, VA's verification program does not authorize VA 
        to withhold verification from a firm solely on the grounds that 
        the firm is a home-based, owner-operated firm. Such a 
        requirement would exclude the vast majority of small firms from 
        Government contracting opportunities. Whether such firms have 
        the capability to perform any specific contract is another 
        matter--one that the contracting officer examines as part of 
        evaluating offers in response to a specific solicitation. The 
        solicitation describes the Government's requirements on a 
        particular contract, and the offeror's capabilities must be 
        evaluated in light of whether it has the capabilities to 
        fulfill those requirements. An owner in a home-based business 
        may be able to provide expert consulting for the Government on 
        technical matters within the owner's expertise; the same firm 
        likely cannot construct a multi-million dollar VA Medical 
        Center. This is a determination that will vary from contract to 
        contract and is not a determination that can be made, or even 
        known, at the time a firm seeks verification from CVE.
          Of the 10 businesses identified in the GAO report, only two 
        of those submitted an application (VA Form 0877) for VA's 
        Verification program. Below, we have outlined the steps in 
        these two cases.
          Corners Construction (Case 2) initially applied for 
        Verification on December 2, 2008. Using the Beneficiary 
        Identification Records Locator Subsystem (BIRLS), CVE confirmed 
        that one of the two owners was an eligible service-disabled 
        Veteran. The VA Form 0877 stated that she owned 51 percent of 
        the firm and that the second owner was a non-Veteran and owned 
        49 percent of the firm. VA CVE conducted a full verification 
        examination and determined that the service-disabled Veteran 
        owner was not controlling and managing the firm, but the non-
        Veteran minority owner was really controlling the firm. This 
        decision was made after reviewing the firm's General 
        Partnership Agreement which indicated that the minority 
        business owner, a non-Veteran, provided the ``capital 
        investment and the credit for the business.'' This violates the 
        requirement that the business be controlled by one or more 
        service-disabled Veterans.
          On December 16, 2008, VA CVE dispatched a letter to the 
        service-disabled Veteran owner notifying her that the firm, 
        Corners Construction, did not meet the requirements for 
        inclusion in the Verification program and the application was 
        denied. On December 31, 2008, VA CVE received a timely request 
        for reconsideration of the denial from Corners Construction. In 
        the request for reconsideration, Corners Construction 
        satisfied, in written documentation, all the discrepancies 
        noted in the initial denial letter. Prior to the decision to 
        approve Corners Construction, the file and details of the 
        request for reconsideration were reviewed by VA's Office of 
        General Counsel (OGC) for compliance with our regulatory 
        guidelines. OGC agreed that Corners Construction corrected its 
        deficiencies and the business was approved.
          However, this business is now past the 1-year verification 
        period and is no longer verified. They have submitted a 
        Verification renewal application and VA CVE has conducted an 
        on-site examination for this business as part of its 
        Verification examination. CVE is also reviewing a SBA status 
        protest decision dated March 26, 2010, that determined that 
        Corners Construction does not qualify as a SDVOSB because the 
        Veteran does not exercise required ``control'' of the concern. 
        They will not be put back in the database until it is proven 
        that they are in full compliance.
          It is possible, even though a verified business meets the 
        criteria for eligibility as far as Veteran status, ownership, 
        and control for the VA Verification program, they may not meet 
        other contract requirements. The nature of the fraud GAO 
        identified regarding Corners Construction is an example of a 
        contractor's failure to conform to contract requirements (i.e., 
        performance fraud). The contractor agreed, in the terms of the 
        contract, that at least 50 percent of the cost of personnel for 
        contract performance work would be incurred by the firm's own 
        employees or those of another SDVOSB. This requirement is a 
        clause in the contract, similar to that in the Federal 
        Acquisition Regulation (FAR), at 52.219-27(c)(1). This 
        information is submitted by the contractor when it submits its 
        contract proposal, and is reviewed during the technical 
        evaluation of that proposal.
          During contract performance, the commitment is monitored by 
        the contracting activity's daily oversight of the contractor's 
        work. When the contracting officers became aware of these 
        concerns, they assessed each contract to determine the 
        ramifications of early termination. A determination was made 
        that it would be in the best interest of the Medical Centers to 
        allow Corners to fulfill the current performance period; 
        however, no option years would be exercised.
          The fraud cited by GAO in this case was performance fraud.
          FF&E Office Solutions, Inc., (Case 10) initially applied for 
        Verification on April 23, 2009. Using the Beneficiary 
        Identification Records Locator Subsystem (BIRLS), CVE confirmed 
        that one of the two owners was an eligible service-disabled 
        Veteran. The VA Form 0877 stated that he owned 95 percent of 
        the firm and that the second owner was a non-Veteran and owned 
        5 of the firm. VA CVE conducted a full verification examination 
        and determined that the service-disabled Veteran owned business 
        met the requirements for inclusion in the Verification program 
        and the application was approved on August 5, 2009.
          The fraud cited by GAO in this case was performance fraud.

    Mr. Mitchell. And Mr. Haggstrom. In your testimony, you 
state that the VA is setting records for spending in veteran-
owned small businesses and that the VA awarded 11.76 percent of 
its contract dollars to SDVOSB and all of this.
    Have you validated any of this? I know you have said this. 
Has anybody validated what you just told us?
    Mr. Haggstrom. These are validated, sir, not only through 
the Small Business Administration on what we do, but also 
through FPDS, the Federal procurement data system, which is the 
enterprise data system for procurement actions in the Federal 
Government.
    Mr. Mitchell. Do you think we need to pass any more laws to 
keep this from happening?
    Mr. Haggstrom. Sir, I believe that what we have with P.L. 
109-461 and the processes that we are attempting to put in 
place right now are adequate. We do have to do the due 
diligence and the backup to ensure that what we are looking at 
is the correct thing and will, in fact, validate the fact that 
the veteran is the majority owner of the firm, that they have 
the day-to-day operations, and that they are employing the 
correct percentage of veterans whether it be in a services area 
or construction area in order to do that work and not have it 
just as a pass-through. I believe they are in place to do that.
    Mr. Mitchell. You know, in panel number two, they talked 
about the person who had the FEMA trailers. Twice, you know, he 
was ineligible twice and he is still on the list.
    Do you audit any of this stuff at all?
    Mr. Haggstrom. Sir, I was not aware of that particular 
example. I cannot speak on behalf of FEMA and how their 
contracting shop handled that. I can only try to speak on 
behalf of VA and what we would do in that particular 
circumstance.
    Mr. Mitchell. Mr. Murray, in Ms. Daly's testimony, she was 
talking about all the miscellaneous obligations. And some of 
that were obligations like cars, furniture, scientific 
equipment.
    Are there problems continuing to put all this kind of stuff 
in miscellaneous?
    Mr. Murray. To answer your question, sir, the Chief 
Financial Officer (CFO) organization put a number of controls 
in place after the GAO report was issued that contain very 
strong policies signed by our Deputy Secretary requiring four 
levels of separations of duties to approve a miscellaneous 
obligation.
    We also have audit organizations reviewing the use of 
miscellaneous obligations in the field. Our management quality 
assurance service under the CFO and VHA's fiscal quality 
assurance managers group are reviewing miscellaneous 
obligations and have reported those results to GAO as well as 
to VA management. During field facility visits, we make 
recommendations for corrective actions.
    In addition, through our financial management system 
starting in this fiscal year 2010, we can identify which 
obligations are related to a purchase order and which 
obligations are related to a 1358. We have also provided 
compliance reports to facilities so they can look at 
separations of duties themselves to make sure they have certain 
required fields like contract number, vendor, and purpose 
filled out when they do issue a 1358.
    We believe as Ms. Daly said, we are moving very strongly to 
implement detective controls, but, believe there is more work 
to be done.
    Mr. Mitchell. Now, just one question about that. All of 
these sound very good and I think after looking at the GAO 
report, you think that that is the right thing to do. But all 
of you have been with the VA for a while.
    And did it ever occur to you that these were things that 
should be in place before or does somebody have to come in and 
look over your shoulder? You do not have to answer that.
    One last question because I have gone over my time. What is 
the biggest, and this is to Mr. Robinson, what is the biggest 
complaint you hear from veteran small and disabled business 
owners?
    Mr. Robinson. Generally, I think despite what we do as it 
relates to outreach and our willingness and ability to award 
those businesses, there is always the feeling that we can do 
more. I think that is definitely a feeling that comes from the 
veteran-owned businesses and from the service organizations 
that represent those businesses.
    Mr. Mitchell. Thank you.
    Mr. Roe.
    Mr. Roe. Thank you, Mr. Chairman.
    I want to just start by asking a couple of questions to 
anyone here. When these benchmarks of a certain percent of 
seven or 10 percent of VA owned and disabled veterans, is there 
any financial incentive for the people at the VA to meet those 
benchmarks?
    Mr. Haggstrom. No, sir, there is not.
    Mr. Roe. It is not for, you know, for a bonus or is that 
when the VISN is looking at you? I know you have certain 
criteria you have to meet when you are bonused money because we 
have been over those bonuses in the past. And is this any part 
of the bonus criteria?
    Mr. Haggstrom. As far as I know, these are not of, in part 
currently, of the performance work plans that are put in place 
for employees. There has been some discussion about putting 
something like this in place so that our employees understand 
what our goals are for our socioeconomic targets. But as far as 
an incentive or does their bonus depend on this, not to my 
knowledge.
    Mr. Roe. Okay. Well, the reason I ask the question is that 
when you have seven to 10 percent, in the seven to 10 percent 
are people who should never have gotten the contracts to begin 
with.
    These are people, we just heard in the previous testimony 
an hour or so ago about literally hundreds of businesses and 
contracts that may have kept eligible veterans out. So that 
goes into the seven or 10 percent that you have presented to 
us.
    So how do you know that information that you have given us 
is accurate when it had not been audited?
    Mr. Haggstrom. The only way I can address that, sir, is 
because of where we were in terms of the self-certification 
process up to this past summer where we have started the actual 
verifications is that we rely on those individual firms for 
that self-certification and that is what our data mining is 
based on.
    Mr. Roe. So basically it was just self-verifying is what it 
amounted to?
    Mr. Haggstrom. That is correct.
    Mr. Roe. So you think the guy down there in the house and 
his wife that was doing the furniture, the double deal, was 
going to self-certify that he was out of compliance? I do not 
think so.
    Mr. Haggstrom. Well, certainly I would agree with you.
    Mr. Roe. And that is what I am saying is this data, I 
cannot, I mean, I cannot--not that I am saying I cannot. The 
numbers are what they are. I just think they may be inaccurate 
because of the self-verification that we have had.
    Now, maybe since you have started verifying, we will get 
some better data. But, anyway, on to something else.
    What happens and why when we found out that these folks 
have not been the businesspeople that they should have been to 
qualify for this, why are they still on the list? Why are they 
still doing business with the Federal Government?
    Mr. Haggstrom. Well, with regard to what the gentleman from 
GAO talked about this morning, that was the first time that I 
have ever heard the names of those vendors. We have read the 
report, but in the report, I did not recall seeing any of 
those, the names of the vendor where we could go out and 
investigate. And we will go out and investigate if, in fact, VA 
has done business with them and they----
    Mr. Roe. Well, VA has done business with them. I mean, we 
just heard testimony with the names of the companies. The VA 
certainly has done business with them. And you will not know 
because we do not know how many should not be doing business 
with the VA.
    I do not know whether you share my frustration or not. And 
none of these businesses have been turned down. And if they 
are, what is the penalty? I mean, this is like I have got a 
free rein to rob the bank and there is no penalty for it. I can 
just come back to the bank again next year.
    Mr. Haggstrom. In the rule that was published this past 
week in December, there are provisions that the Secretary may 
take in order to preclude businesses that misrepresent 
themselves as an SDVOSB or a VOB to be removed from that and 
not be able to do business with VA.
    Mr. Roe. Since last summer when you all started doing a 
little bit better monitoring, did you ask the GAO for these 
names of companies or did you not know about that?
    Mr. Haggstrom. I did not know. The report was just 
published in November as far as I know.
    Mr. Roe. So today was the first time you knew anything 
about it?
    Mr. Haggstrom. Today was the first time I had heard the 
names of the companies out there.
    Mr. Roe. Okay. But you did know before?
    Mr. Haggstrom. I did know of the report.
    Mr. Roe. Okay. But----
    Mr. Buyer. Will the gentleman yield?
    Mr. Roe. Yes, I will yield.
    Mr. Buyer. Did you ever bother to ask the GAO for the names 
of the companies?
    Mr. Haggstrom. Sir, we have been trying to get those names 
for the past several days and were unsuccessful in getting 
those names.
    Mr. Roe. Why were you unsuccessful?
    Mr. Haggstrom. Sir, my staff has been trying to find the 
contact for those and we were unsuccessful in getting anybody 
to be able to provide us the specific names of the companies 
that were referenced in those ten examples.
    Mr. Roe. I think after today, we ought to be able to do 
that.
    Mr. Haggstrom. And we will. And we will work with our 
General Counsel on that.
    Mr. Roe. I will yield back my time, Mr. Chairman.
    Mr. Mitchell. Mr. Buyer.
    Mr. Buyer. I am going to reask a question that was just 
asked in a different manner. So you said that bonuses are not 
taken or, actually, if contracting officers exceed the 3-
percent threshold that that in no way takes into account 
whether they receive a bonus or not.
    What happens to contracting officers that do not meet their 
3 percent? Maybe they blew it off and were only at one or 2 
percent. What happens in their reviews then?
    Mr. Haggstrom. Sir, I cannot answer that because of the way 
the individual performance work plans are crafted by the 
respective Administration and those supervisors.
    But I would think it would be a fair indication, even 
though there may be some anomalies here because of the self-
certification, when you look at a 16 and a 19 percent, which is 
well above the Federal mandate of 3 percent and above the 
Secretary's established goals of seven and 10 percent, there is 
a conscious effort on our contracting officers to, in fact, go 
out and seek veteran-owned business and service-disabled owned 
businesses to do business with.
    Mr. Buyer. You cannot cheerlead numbers. If the numbers are 
embellished because contracts go to illegitimate companies, do 
not cheerlead the numbers. Maybe that is part of the leadership 
that is going to be required within the VA. That is not what 
our intent is. That is not Congressional intent. That should 
not be the intent of even the VA.
    The intent should be how do we get contracts to legitimate 
disabled veteran-owned companies. That is what we want to do. 
This pass-through, this scheme, these frauds that are going on, 
none of us want that. You guys do not want that either. There 
is no way. You guys have invested too much of your lives to 
care for veterans for you to really want that.
    Mr. Canada, let me ask you, who is your boss?
    Mr. Canada. Gail Wegner, sir.
    Mr. Buyer. Where is she?
    Mr. Canada. My understanding is she had an urgent family 
issue to deal with today.
    Mr. Buyer. You know what we call that in Congress? You are 
the sacrificial lamb today. That is all right. You do not have 
to answer. I think you are. So I get to ask you the tough 
questions, huh?
    So based on the GAO report, give me your personal opinion, 
so you do not get in trouble with your boss, okay, would you 
agree that the lack of an active verification program that 
relies solely on self-verification is allowing businesses that 
do not meet the requirements of Public Law 109-461 to take 
contracts away from legitimate, qualified disabled veteran-
owned small businesses?
    Mr. Canada. Well, certainly that has happened in some 
cases. Businesses in the VA's vendor information page database 
self-represent, may self-represent their status just as they do 
in the Government central contractor registration database and 
the online reps and certs database.
    As the GAO report identified, self-representation of status 
does create opportunity for fraud for unscrupulous contractors. 
The VA has a unique procurement authority that enables us to 
officially verify ownership and control of veteran-owned small 
businesses seeking to sell to the VA and to our large prime 
contractors.
    The VA has initiated the official verification program in 
May 2008. On December 8, 2009, the VA revised its acquisition 
regulation to inform the public that verification will become a 
requirement on January 1, 2012.
    Mr. Buyer. 2012?
    Mr. Canada. Yes, sir.
    Mr. Buyer. 2012?
    Mr. Canada. Yes, sir.
    Mr. Buyer. Which means we are going to rely on self-
verification for the next couple of years? Is that what that 
means?
    Mr. Canada. Well, firms can request the verification. It is 
not going to become mandatory until that date. They have 
contractor----
    Mr. Buyer. Which means in the field, in the field, these 
companies that have been scheming and doing fraudulent 
practices will continue to do this on a self-verification 
process through 2012 even though you sat here today and learned 
and have read the GAO and OIG's testimony and read the reports?
    Mr. Canada. Well, certainly those companies identified will 
be looked at at this point.
    Mr. Buyer. Okay. Great. We could send the GAO back out. We 
could send the OIG back out. And guess what? They are going to 
give you another 20. They are going to give you another 30.
    This is about getting off the heels and on your toes. This 
is an awareness now that there are frauds and schemes that are 
actually happening today. So from my perspective, and I do not 
want to speak for my colleagues here, I do not think we are 
going to be very satisfied with 2012. This ought to be an 
immediate change in a system. Yes, no?
    Mr. Canada. Well, there is a logistical issue of backlog 
and catching up and the contractor support is really part of 
the reason it could not be immediate.
    Mr. Buyer. I do not get it. I do not understand why it 
cannot be immediate.
    Mr. Canada. There is a process to do the verifications, man 
hours and site visits and processes that they go through.
    Mr. Buyer. If you need a pass, okay, if you need a pass 
from us, if you need a pass from the Secretary on some 3-
percent requirement, we would be more than happy to give you a 
pass until you can actually implement a system that prevents 
the schemes and the frauds from occurring because we know that 
the payoff in the end is going to be best practices.
    Would you agree with that?
    Mr. Canada. Yes, sir.
    Mr. Buyer. I must be missing something here, Mr. Chairman. 
My gut here is that 2012 is not an acceptable time frame here. 
That is just my read on this.
    Gentlemen, you have the reports. You have got the GAO. I 
think we have to move out smartly. And I assure you I do not 
want to be beating you up. We just recognize these are programs 
that have been created. People are gaming the system out there 
and we want to correct this as soon as possible. And I think 
that is going to be the position that we should be taking.
    And, Mr. Chairman, I applaud your questions. This is going 
to be one of these issues whereby how prescriptive do we need 
to be.
    And we would like to meet you in the middle. He asked you a 
very legitimate question. What can you do administratively 
through the executive function of Government that you do not 
need for us, quote, to legislate? This may be a moment where 
you need to turn to your General Counsel's Office and say what 
changes, if any, are necessary legislatively. If we can do this 
in-house, then proceed smartly, move out. I mean, that is what 
you have in your military background.
    And, Mr. Chairman, that might be exactly where we are. We 
want to be able to meet you in the middle here so we can have 
the best contracting procurement system because we know that 
this is--if this is what is happening here, we know this has 
got to be happening on our 8(a) and other types of set-aside 
programs.
    With that, I will yield back.
    Mr. Mitchell. Thank you.
    You know, one of the things that bothers me is that what 
these people have been doing, they actually have been stealing. 
They are getting money that they were not entitled to. And they 
are doing this all under our noses. That is the frustrating 
thing. Not that we did not get service for our dollar, the 
cleaning out there. But they were not entitled to that. And 
there are all these people out there getting money that were 
not entitled to it and it was not going to who it should have 
gone to.
    One of the things that I have found being here, that making 
laws, of course, is the main function of Congress, but I have 
found that right up there, right next to it oversight and 
making sure that the laws that we do pass are being carried out 
in the way that we intended.
    And I can assure you this is not the last hearing. I would 
expect, and I think the Ranking Member would also expect that 
when we come back, we will see a whole different approach to 
this than what we have seen today.
    If there is nothing else--
    Mr. Buyer. May I?
    Mr. Mitchell. Yes.
    Mr. Buyer. I do not know all of you on the panel. Mr. 
Downs, Mr. Frye, I have worked with you in the past. And, you 
know, I have got legislation out there. I have spoken with the 
Secretary and I want to work with the VA on how we make this 
right.
    And I know you guys from the past. We want to fix this in a 
manner that makes it accountable. We can address the 
miscellaneous accounts issues. And I know that the Secretary 
has signed off on the GAO report.
    But I really at a very personal level, gentlemen, you know, 
let us have a meeting of the minds here between our legislative 
package and what you believe you can do through the executive 
function and let us get this done. Let us do it right. That is 
my personal appeal to you.
    I yield.
    Mr. Mitchell. Mr. Roe.
    Mr. Roe. Just to comment. There are six of you all sitting 
there and there is not one of you out there that wants this 
going on the way it is. I absolutely believe that. And I think 
you want it done. There is a law out there. You want it done 
right. I know good and well that is a fact.
    And I think what Mr. Buyer and what the Chairman is saying 
is that we want to see that happen because we do want to see 
the resources get to the people and ultimately we want the 
services to the veterans that we are here to serve.
    And sometimes if we are losing resources to people who are 
doing it fraudulently, then those resources are not only being 
taken from the taxpayers who are paying the bill but they are 
also not getting to the intended veteran that we want to serve.
    And as I said, I know you all are professional people and 
you have served this country honorably in many ways. And I want 
to see you put those assets and resources into making sure this 
is done right.
    This is embarrassing. When I go home and see the VA in my 
own district, I mean, it is not 2 minutes from my house where 
the VA is; it will be embarrassing to tell people the story if 
I am asked this in our local media.
    I mean, there is a lot of skill sitting right out in front 
of me right now. I know that. Let us put those years of 
experience and skill together for making this right and getting 
the resources to where it needs to be.
    I thank you for being here today and exposing this, but 
this is a shock to me to see actually how bad this process is. 
And I agree with Congressman Buyer. I do not think we need to 
wait 2 years.
    And I also appreciate that from reading this material last 
night that manpower may be an issue as you pointed out, and I 
think that may be where we have understaffed something. And I 
notice the amount of money that you save for the amount of 
money you spend in oversight is considerable. I think $38 to 
$50 to $1.
    So I would encourage you to do that, and I thank you for 
being here.
    And, Mr. Chairman, the rest of the Committee, and the staff 
especially, let us not forget what time of the year it is. 
Merry Christmas to everyone.
    Mr. Mitchell. That concludes this hearing.
    [Whereupon, at 2:36 p.m., the Subcommittee was adjourned.]



                            A P P E N D I X

                              ----------                              


        Prepared Statement of Hon. Harry E. Mitchell, Chairman,
              Subcommittee on Oversight and Investigations

    I would like to thank everyone for attending today's Oversight and 
Investigations Subcommittee hearing entitled, Acquisition Deficiencies 
at the U.S. Department of Veterans Affairs. Thank you especially to our 
witnesses for testifying today.
    We are here to examine the U.S. Department of Veterans Affairs 
acquisition system and procurement structure. Our hearing will 
hopefully determine the extent of the reform needed in order to ensure 
that the acquisition process within the VA is one that is fair, 
fiscally responsible, and effective. And, most importantly, serves 
veterans.
    We all know that the acquisition system within the Department of 
Veterans Affairs has failed to develop a process that is both 
transparent and fiscally responsible. One recent report, produced by 
the U.S. Government Accountability Office revealed that Network and 
Medical Center staff within the Veterans Health Administration failed 
to use the Federal Supply Schedule or FSS, due to a lack of information 
and the proper tools needed to use the FSS. This resulted in a lost 
savings of almost $8.2 million a year or $41 million over 5 years. This 
is simply unacceptable.
    Several VA Office of Inspector General and Government 
Accountability reports have detailed major deficiencies within the 
procurement process at the VA, citing prolific material weaknesses, and 
how Small Disabled Veteran Owned Businesses are being cheated out of 
millions of dollars in contract opportunities each year due to a lack 
of sufficient oversight. Just last month, the GAO released a report on 
the Service-Disabled Veterans-Owned Small Business Program showing a 
fragmented structure within the VA, and a lack of oversight of 
companies claiming Service-Disabled Veterans-Owned Small Business 
status. Fraud and abuse has allowed ineligible firms to improperly 
receive millions of dollars in set-aside and sole-source contracts, 
potentially denying legitimate service-disabled veterans and their 
businesses the benefits of the veteran small business program. With the 
ineffective oversight and lack of effective fraud prevention controls, 
these ineligible firms have received almost $100 million of contracts 
over the years.
    It is no secret that there are major deficiencies within VA's 
procurement process, and to blame are a number of things, including a 
lack of a centralized acquisition structure, self policing policies in 
place that allow fraud and abuse, and continuous material weaknesses. 
Although I remain fairly optimistic that reform of this system can be 
accomplished, legislation to fix these problems may be necessary, along 
with change in policy and procedures. I am grateful that the GAO as 
well as Service-Disabled Veteran-Owned Small Business owners and 
entrepreneurs are here today to shed light on issues such as these.


                                 
  Prepared Statement of Hon. David P. Roe, Ranking Republican Member,
              Subcommittee on Oversight and Investigations

    Mr. Chairman, thank you for yielding.
    Today's hearing, entitled ``Acquisition Deficiencies at the U.S. 
Department of Veterans Affairs'' is important to this Subcommittee, as 
it will help us as we move forward to assist the Department in guiding 
it through to better management of its procurement and acquisition 
processes.
    The Department of Veterans Affairs (VA) is one of the largest 
procurement and supply agencies in the Federal Government. Its annual 
expenditures are more than $14.1 billion for supplies and services, 
including construction. Drugs, medical supplies and equipment, IT 
equipment and services, and other critical patient care items must be 
procured and distributed to VA's health care facilities in what is the 
largest health care delivery system in the country. Over the past 12 
years, the VA and the Office of Inspector General have detailed what 
can be considered the existence of serious long-term severe systemic 
procurement problems within the VA.
    Last Congress, this Subcommittee held a hearing on Miscellaneous 
Obligations which highlighted how difficult it is to track expenditures 
at the VA without proper oversight and guidance. From reading the 
hearing report from that hearing, it was apparent the frustration felt 
by all Members present with the brokenness of the acquisition process 
within the VA. I understand that the Department followed this hearing 
by providing its acquisition workforce with new rules and procedures 
regarding the use of Miscellaneous Obligations. I will be interested to 
hear from the Department how well these new rules are being 
implemented. I hope that there is improvement in tracking these 
expenditures since the last hearing.
    Additionally, the Government Accountability Office (GAO) issued a 
report showing ``fraud and abuse'' within the Service-Disabled Veteran-
Owned Small Business program. The findings are extremely disturbing, 
and I look forward to the testimony from GAO relating to this report, 
and to see if they have any further recommendations to fix these 
fraudulent practices, and make certain that contracting officials who 
knowingly allow this are held accountable.
    I was pleased to join with Ranking Member Buyer last week in 
introducing H.R. 4221, the Department of Veterans Affairs Acquisition 
Reform Act of 2009. I understand that Mr. Buyer will discuss his bill 
further this morning, and look forward to working with him and other 
Members of this Committee to help Secretary Shinseki fix the 
acquisition process at the Department of Veterans Affairs. Holding this 
hearing is an important step in this direction. Moving forward 
legislatively will also be an additional step we can take, and I look 
forward to working with you, Mr. Chairman in this effort.
    Again, thank you for holding this hearing, and I yield back my 
time.


                                 
               Prepared Statement of Hon. Timothy J. Walz

    Chairman Mitchell, Ranking Member Roe; Members of the Subcommittee; 
thank you for calling this hearing today; thanks also to our witnesses 
from the Department of Veterans Affairs, the Government Accountability 
Office, and the private sector from being here today to share their 
insight and experience on this issue.
    I realize that this is not the first time this body has met to 
discuss the issue of VA procurement, and unfortunately, I do not suffer 
under the illusion that it will be the last.
    Given the scope of the problem, which is literally in the billions 
of dollars, I think it is clear that this is an issue which requires 
extraordinary measures to address--certainly well beyond those that 
have been attemted over the course of the previous decade during which 
this has been acknowledged problem. To that end, I appreciate the work 
the proposal that Ranking Member Buyer has put forward, and I look 
forward to working with him to advance that idea.
    For the most part, we come at the issue of procurement reform from 
the good governance angle: we want to fulfill our duties as stewards of 
the taxpayers' money, and we want the government to effectively deliver 
the services that it is our democratic responsibility to deliver.
    But more importantly, we need to remember that every dollar 
mismanaged or misspent by the Department of Veterans Affairs is a 
dollar that will not be spent treating a service-related injury, 
providing benefits to surviving spouses and children, or ensuring a 
deceased veteran receives a proper burial.
    So I look forward to hearing from our witnesses about my progress 
that has been made in the area of procurement reform, and with that I 
yield back my time.


                                 
                 Prepared Statement of Hon. Steve Buyer

    Thank you for yielding me time, Mr. Chairman.
    I appreciate the Subcommittee on Oversight and Investigations 
holding this important hearing on acquisition reform. When I was 
Chairman of this Subcommittee, we reviewed a number of issues relating 
to acquisition at the Department of Veterans Affairs, including the 
VA's own Task Force on Acquisition Reform. What came out of the 
hearings we held and the investigations conducted by the VA's own 
Inspector General's office, the General Accounting Office and VA's 
Procurement Reform Task Force ordered by Secretary Principe in 2001, 
was the strong sense that acquisition procedures at the VA were broken, 
fragmented and disorganized.
    Ranking Member Roe in his opening statement alluded to the hearing 
you held last Congress on July 31, 2008, on Miscellaneous Obligations. 
That hearing only served to further emphasize the fact that without 
proper oversight, funds that could be used to better serve our Nation's 
veterans were being wasted on broken procurement practices with little 
or no oversight review. The frustration of all the Members on both 
sides of the aisle at that hearing was loud and clear, and it was 
obvious that action was needed then to address the problems of 
acquisition at the VA.
    To its credit, VA commissioned an $800,000 plus Price Waterhouse 
Cooper study to see how dysfunctional and broken the acquisition 
process was at the VA. This study offered three options. The VA 
selected the option that would create the least push back from the 
bureaucracy, and sent to last Congress a legislative proposal that 
would create an Assistant Secretary of Acquisition, but it did not 
provide any further direction or solution to respond to the universal 
complaint throughout the VA that glaciers move faster than its 
contracting process.
    So, I started working on legislation to change the way VA conducts 
its acquisition business. My staff and I spoke with industry experts, 
GAO and VA IG to formulate a way to fix broken acquisition services at 
the VA in order to create better accountability. I also discussed this 
issue with Secretary Shinseki who acknowledged that it was imperative 
for VA to change its procurement system to expedite the many 
transformational ways VA does business, and I shared a draft of the 
bill with him.
    Last week, I was joined by several other Members of this Committee 
in the introduction of H.R. 4221, the Department of Veterans Affairs 
Acquisition Improvement Act of 2009. Like the administration drafted 
bill introduced last Congress by Senator Akaka, this new bill creates a 
new Assistant Secretary position, the Assistant Secretary for 
Acquisition, Construction and Asset Management, who will serve as the 
Chief Acquisition Officer for the Department of Veterans Affairs. Our 
bill also builds the Acquisition workforce structure through the use of 
Deputy Assistant Secretaries aligned to VA's business lines, and a 
Principal Deputy Assistant Secretary.
    The bill further requires the Secretary to establish and maintain a 
comprehensive Department-wide acquisition program under which the 
Secretary will develop, implement, and enforce a streamlined approach 
to entering into contracts and purchasing goods and services. The 
legislation would thereby provide better oversight and accountability 
for procurement at the Department of Veterans Affairs.
    One of the key points that came out of the Industry Acquisition 
Roundtable I held on October 27th was the strong need for a well-
trained acquisition workforce. This legislation would provide the 
direction needed to put in place and keep a workforce that is 
knowledgeable and able to provide acquisition and contracting services 
to the Department. The bill also reorganizes VA's disparate and 
dysfunctional procurement, construction and asset management processes 
into distinct entities with contracting expertise.
    Mr. Chairman, H.R. 4221 is a first step to provide a centralized 
oversight and policy for contracting and acquisition within the 
Department by streamlining the business operations under an Assistant 
Secretary. It is my hope that we can work together to improve this 
bill, and create an acquisition model that can eventually be followed 
by other agencies, because VA's acquisition problems are in fact 
governmentwide.


                                 
       Prepared Statement of Scott H. Amey, Esq. General Counsel,
                    Project On Government Oversight

    Thank you for inviting me to testify today. I am the General 
Counsel of the Project On Government Oversight, also known as POGO.\1\ 
POGO was founded in 1981 by Pentagon whistleblowers who were concerned 
about weapons that did not work and wasteful spending. Throughout its 
28-year history, POGO has worked to remedy waste, fraud, and abuse in 
Government spending in order to achieve a more effective, accountable, 
open, and ethical Federal Government. POGO has a keen interest in 
Government contracting matters, and I am pleased to share POGO's 
thoughts with the Subcommittee today.
---------------------------------------------------------------------------
    \1\ For additional information about POGO, please visit 
www.pogo.org.
---------------------------------------------------------------------------
    Many events over the past fifteen years have called into question 
the effectiveness of the Federal contracting system and highlighted how 
drastically the contracting landscape has changed. Contract spending 
has grown tremendously, exceeding $530 billion in fiscal years 2008 and 
2009; \2\ oversight has decreased; the acquisition workforce has been 
stretched thin and been supplemented by contractors; and spending on 
services now outpaces spending on goods. This new emphasis on services 
has also increased the risk of waste, fraud, and abuse in contracts, as 
it is more difficult to assess value on services than on goods. Some 
acquisition reforms have significantly reduced contract oversight, 
making it difficult for Government investigators and auditors to 
identify and recover wasteful or fraudulent spending. These reforms 
have also created contracting vehicles that often place public funds at 
risk.\3\ In short, poor contracting decisions are placing taxpayer 
dollars--and sometimes lives--at risk.
---------------------------------------------------------------------------
    \2\ FPDS-NG, Trending Analysis Report for the Last 5 Years, no date 
provided. http://www.fpdsng.com/downloads/top_requests/
FPDSNG5YearViewOnTotals.xls.
    FPDS-NG, List of Agencies Submitting Data to FPDS-NG, December 10, 
2009.
    http://www.fpdsng.com/downloads/agency_data_submit_list.htm.
    \3\ The Federal Acquisition Streamlining Act 1994 (FASA) (Public 
Law 103-355), the Federal Acquisition Reform Act 1996 (FARA) (Public 
Law 104-106), and the Services Acquisition Reform Act of 2003 (SARA) 
(Public Law 108-136) have removed taxpayer protections.
---------------------------------------------------------------------------
    On a positive note, interest in improving the Federal contracting 
system has grown significantly in recent years. Congress created the 
Commission on Wartime Contracting in Iraq and Afghanistan, which 
recently released an interim report that discovered many Government and 
contractor contracting processes.\4\ Additionally, the Senate and House 
have created Committees to dig deep into the contracting weeds.\5\ 
These moves follow efforts in the two most recent National Defense 
Authorization acts to improve Federal contracting.\6\
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    \4\ According to the Commission on Wartime Contracting in Iraq and 
Afghanistan, approximately $830 billion dollars has been spent since 
2001 to fund U.S. operations in Iraq and Afghanistan. Commission on 
Wartime Contracting in Iraq and Afghanistan, At What Cost? Contingency 
Contracting In Iraq and Afghanistan, June 2009, p. 1.
    http://www.wartimecontracting.gov/docs/
CWC_Interim_Report_At_What_Cost_06-10-09.pdf.
    \5\ The Senate Committee on Homeland Security and Governmental 
Affairs created the Ad Hoc Subcommittee on Contracting Oversight. The 
House Armed Services Committee created the Panel on Defense Acquisition 
Reform.
    \6\ The 2008 and 2009 National Defense Authorization acts include 
many contract-related provisions. See Pub. Laws 110-181 (January 28, 
2008) and 110-417 (October 14, 2008).
---------------------------------------------------------------------------
    The contract oversight bug has also hit President Obama's 
administration. In his first 100 days in office, President Obama issued 
a contracting memorandum outlining the Government's obligation to 
contract wisely by increasing competition and eliminating wasteful 
spending.\7\ The President's budget also mentions concerns with risky 
contract types, wasteful spending, and contracts awarded without full 
and open competition.\8\ Subsequent contracting and acquisition 
workforce memoranda have been issued by the Office of Management and 
Budget.\9\
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    \7\ Memorandum for the Heads of Executive Departments and Agencies, 
Subject: Government Contracting, March 4, 2009. http://
www.whitehouse.gov/the_press_office/Memorandum-for-the-Heads-of-
Executive-Departments-and-Agencies-Subject-Government/. See Jesse Lee, 
The White House Blog, ``Priorities--Not Lining the Pockets of 
Contractors,'' March 04, 2009.
    http://www.whitehouse.gov/blog/09/03/04/priorities_not-lining-the-
Pockets-of-Contractors/.
    \8\ Office of Management and Budget, A New Era of Responsibility: 
Renewing America's Promise, pp. 35, 38-39, 2009. http://
www.whitehouse.gov/omb/assets/fy2010_new_era/
A_New_Era_of_Responsibility2.pdf.
    \9\ OMB, Increasing Competition and Structuring Contracts for the 
Best Results, October 27, 2009.
    http://www.whitehouse.gov/omb/assets/procurement_gov_contracting/
increasing_competition_10272009.pdf.
    OMB, Acquisition Workforce Development Strategic Plan for Civilian 
Agencies--FY 2010-2014, October 27, 2009.
    http://www.whitehouse.gov/omb/assets/procurement_workforce/
AWF_Plan_10272009.pdf.
    OMB, Improving Government Acquisition, July 29, 2009.
    http://www.whitehouse.gov/omb/assets/memoranda_fy2009/m-09-25.pdf.
    OMB, Improving the Use of Contractor Performance Information, July 
29, 2009.
    http://www.whitehouse.gov/omb/assets/procurement/
improving_use_of_contractor_perf_info.pdf.
    OMB, Managing the Multi-Sector Workforce, July 29, 2009.
    http://www.whitehouse.gov/omb/assets/memoranda_fy2009/m-09-26.pdf.
---------------------------------------------------------------------------
    So far, Congress and the President seem to be well on their way to 
implementing contracting improvements. On May 22, the President signed 
the ``Weapons Systems Acquisition Reform Act of 2009,'' which he 
described as ``a bill that will eliminate some of the waste and 
inefficiency in our defense projects--reforms that will better protect 
our Nation, better protect our troops, and may save taxpayers tens of 
billions of dollars.'' \10\ Additional contract-related legislation 
moved through the Senate and the House and was signed by the President 
in the National Defense Authorization Act for FY 2010.\11\
---------------------------------------------------------------------------
    \10\ The White House, Office of the Press Secretary, Remarks by the 
President at Signing of the Weapons Systems Acquisition Reform Act, May 
22, 2009.
    http://www.whitehouse.gov/the_press_office/Remarks-by-the-
President-at-signing-of-the-Weapons-Systems-Acquisition-Reform-Act/.
    \11\ Public Law No: 111-84, Sec. Sec. 810-848, October 28, 2009.
---------------------------------------------------------------------------
    Despite all of those actions, there are more improvements that are 
needed. In addition to the $530 billion spent on contracts, agencies 
and their stretched staffs now awarding hundreds of billions more in 
Stimulus funds, which is a recipe for waste, fraud, and abuse.
    Numerous Government Accountability Office (GAO) and Inspector 
General (IG) reports highlight contracting deficiencies and recommend 
ways to correct them.\12\ These reports have found that contract 
planning, requirements definitions, contract types used, 
administration, and oversight is deficient. These are the leading 
reasons management of Federal contracts at several agencies remains on 
GAO's ``high risk'' list.\13\
---------------------------------------------------------------------------
    \12\ GAO, Defense Acquisitions: Actions Needed to Ensure Value for 
Service Contracts, GAO-09-643T, April 23, 2009. http://www.gao.gov/
new.items/d09643t.pdf. Treasury IG for Tax Administration, Current 
Practices Might Be Preventing Use of the Most Advantageous Contractual 
Methods to Acquire Goods and Services, 2009-10-037, February 10, 2009. 
http://www.treas.gov/tigta/auditreports/2009reports/200910037fr.html.
    \13\ GAO, High-Risk Series, GAO-09-271, pp. 77-84, January 2009. 
http://www.gao.gov/new.items/d09271.pdf.
---------------------------------------------------------------------------
    Industry has also criticized the current system. The Grant Thornton 
consulting firm's 14th Annual Government Contractor Survey, released in 
January 2009,\14\ showed that cost reimbursable contracts are used more 
frequently than fixed price contracts. Cost-reimbursable contracts have 
also been a subject of concern for both the White House and Members of 
Congress, and the survey stated that it ``is difficult to equate the 
high use of cost-reimbursable contracts with the notion that the 
Government is attempting to use more commercial processes to streamline 
Federal procurement.'' \15\
---------------------------------------------------------------------------
    \14\ Grant Thornton, 14th Annual Government Contractor Industry 
Highlights Book--Industry survey highlights 2008, January 26, 2009. 
(Hereinafter Grant Thornton Report). http://www.grantthornton.com/
staticfiles//GTCom/files/Industries/Government%20contractor/
14th_Gov_Con_Highlights_011409small.pdf. Grant Thornton is an 
international consulting company that provides services to public and 
private clients.
    \15\ Grant Thornton Report, at p. 8.

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Veterans Affairs Procurement Summary

    Veterans Affairs (VA) is an agency that has seen its share of 
growth in contract spending. VA contract jumped to $14.6 billion in FY 
2008 from $3.9 billion in FY 2000--the last year complete contract data 
is available.\16\ VA's contract portfolio is as follows:
---------------------------------------------------------------------------
    \16\ USAspending.gov, Contracts from Dept. of Veterans Affairs FY 
2000-2009, as of December 10, 2009. (Hereinafter VA FY 2000-2009).
    http://www.usaspending.gov/fpds/fpds.php?sortby=u&maj_agency_
    cat=36&reptype=r&database=fpds&fiscal_year=&detail=-
1&datype=T&submit=GO.

        1.  Extent of actual competition is unknown because 54 percent 
        (nearly $8 billion) of the contract dollars were listed as 
        ``Not identified.'' \17\
---------------------------------------------------------------------------
    \17\ VA FY 2008.
---------------------------------------------------------------------------
        2.  Full or limited competition was used for 21 percent of the 
        dollars award. \18\
---------------------------------------------------------------------------
    \18\ VA FY 2008. The 21 percent figure includes full and open 
competition, one-bid offers, and awards based on limited competition.
---------------------------------------------------------------------------
        3.  Sole source contracts totaled nearly 12 percent (nearly 
        $1.7 billion).\19\
---------------------------------------------------------------------------
    \19\ VA FY 2008.
---------------------------------------------------------------------------
        4.  Fixed price contracts account for over 98 percent of the 
        amount spent ($14.3 billion).\20\
---------------------------------------------------------------------------
    \20\ VA FY 2008.
---------------------------------------------------------------------------
        5.  VA programs received a total of $1.4 billion in Recovery 
        Act funding, with $543 million ``paid out'' as of December 4, 
        2009.\21\
---------------------------------------------------------------------------
    \21\ Office of Inspector General Department of Veterans Affairs, 
Semiannual Report to Congress April 1, 2009-September 30, 2009, 
November 30, 2009, p. 61. (Hereinafter VA OIG Report). http://
www4.va.gov/oig/pubs/VAOIG-SAR-2009-2.pdf.
    Recovery.gov, Agency Reported Data--Veterans Affairs, as of 
December 11, 2009.
    http://www.recovery.gov/Transparency/agency/reporting/
agency_reporting1.aspx?agency_code=36.
---------------------------------------------------------------------------
        6.  Recovery Act contracts were competed 94 percent of the 
        time.\22\
---------------------------------------------------------------------------
    \22\ GAO, Recovery Act: Contract Oversight Activities of the 
Recovery Accountability and Transparency Board and Observations on 
Contract Spending in Selected States, November 30, 2009, p. 4.
    http://www.gao.gov/new.items/d10216r.pdf.
---------------------------------------------------------------------------
        7.  Small business contract dollars were approximately 35 
        percent (nearly $5 billion).\23\
---------------------------------------------------------------------------
    \23\ Small Business Administration, FY2008 Official Goaling Report, 
no date provided.
    http://www.sba.gov/idc/groups/public/documents/sba_homepage/
fy2008official_goaling_report.html.
    SBA Department of Veterans Affairs Grade Report, 2008.
    http://www.sba.gov/idc/groups/public/documents/sba_homepage/
goals_08_va.pdf.
---------------------------------------------------------------------------
        8.  Pre-award and post-award oversight potentially saved the VA 
        over $165 million in FY 2009.\24\
---------------------------------------------------------------------------
    \24\ VA OIG Report, p. 37.

    That data remains relatively consistent to VA's contracting history 
from 2000 to 2008--with the aggregate totals decreasing in the ``not 
identified'' competition category (36 percent), increasing in 
competitive contracts (nearly 40 percent), and slightly increasing in 
noncompetitive contact awards (13 percent).\25\ Remaining constant was 
VA's 98 percent figure for fixed price contracts.\26\
---------------------------------------------------------------------------
    \25\ VA FY 2000-2009.
    \26\ VA FY 2000-2009.
---------------------------------------------------------------------------
    Despite the large figure of contract awards where competition was 
not identified, the data overall paints a relatively positive picture 
of VA contracting. However, there are some VA contracting areas that 
are in need of oversight and improvement.
    First, VA's contract award total has increased from $3.9 billion to 
$14.6 billion since 2000. That spending increase outpaces the 
Government-wide figures ($200 billion in FY 2000 to $537 billion in FY 
2008). Simply stated, VA is increasingly spending a lot of taxpayer 
dollars on contracts for goods and services and a comprehensive review 
should be conducted to ensure taxpayer dollars are being spent 
wisely.\27\
---------------------------------------------------------------------------
    \27\ Many other Federal agencies, including Defense and Homeland 
Security, are looking at their service contracts, examining the 
services procured and the cost of hiring contractors. A review should 
pay close attention to inherently Governmental functions and certain 
services and actions that are not considered to be inherently 
Governmental functions may approach being in that category. See FAR 
Subpart 7.503.
    https://www.acquisition.gov/far/current/html/
Subpart%207_5.html#wp1078202.
---------------------------------------------------------------------------
    Second, according to a recent GAO report,\28\ lax oversight 
controls and fraud related to Service-Disabled Veteran-Owned Small 
Business (SDVOSB) and Veteran-Owned Small Businesses (VOSB) contracts 
allowed ineligible firms to improperly receive approximately $100 
million in SDVOSB contracts, and an additional $300 million in 
contracts set aside for other small businesses.\29\ Because there are 
no requirements for improper contract awards, many of those contractors 
were allowed to continue their work.\30\ The Small Business Association 
(SBA), awarding agencies,\31\ and the VA verification process were all 
blamed for the problem.\32\
---------------------------------------------------------------------------
    \28\ GAO, Service-Disabled Veteran-Owned Small Business Program--
Case Studies Show Fraud and Abuse Allowed Ineligible Firms to Obtain 
Millions of Dollars in Contracts GAO-10-108, November 19, 2009.
    http://www.gao.gov/new.items/d10108.pdf.
    \29\ GAO, Statement of Gregory D. Kutz, Managing Director Forensic 
Audits and Special Investigations Before the House Committee on Small 
Business, Service-Disabled Veteran-Owned Small Business Program--Case 
Studies Show Fraud and Abuse Allowed Ineligible Firms to Obtain 
Millions of Dollars in Contracts GAO-10-255T, November 19, 2009, pp. 1, 
3, and 9. (Hereinafter GAO-10-255T).
    http://www.gao.gov/new.items/d10255t.pdf.
    \30\ GAO-10-255T, p. 3.
    \31\ According to the GAO, ``VA exceeded its prime contracting 
goals for SDVOSBs and VOSBs in fiscal years 2007 and 2008.'' GAO, 
Department of Veterans Affairs Contracting with Veteran-Owned Small 
Businesses, March 19, 2009, p. 3.
    http://www.gao.gov/new.items/d09391r.pdf.
    \32\ GAO-10-255T, pp. 9-11.
---------------------------------------------------------------------------
    Third, the Subcommittee might want to inquire about the frequency 
of VA outsourcing efforts.
    If VA human resource planning is tailored to hiring service 
contractors rather than servicemembers, the agency is doing a major 
disservice to the one constituency that it was created to assist--a 
group who is struggling in the private sector. To help highlight my 
concern, please consider the following employment statistics. 
Currently, national unemployment figures run about 10 percent,\33\ but 
the figure for returning servicemembers is approximately 12 percent and 
18 percent for servicemembers who left the military in the past 3 
years.\34\ Responding to those elevated rates, President Obama issued 
an Executive Order intended to ``enhance recruitment of and promote 
employment opportunities for veterans within the executive branch.'' 
\35\ VA should be doing its best to assist qualified servicemembers 
find jobs with the agency rather than hiring contractor employees.
---------------------------------------------------------------------------
    \33\ U.S. Bureau of Labor Statistics, Employment Situation Summary, 
December 4, 2009.
    http://www.bls.gov/news.release/empsit.nr0.htm.
    \34\ American Federation of Government Employees, VA Outsourcing 
Threatens Employment Opportunities For Veterans, November 30, 2009.
    http://www.afge.org/
Index.cfm?Page=PressReleases&PressReleaseID=1080.
    \35\ 74 Federal Register No. 218, Executive Order 13518, Employment 
of Veterans in the Federal Government, November 9, 2009, p. 58533.
    http://edocket.access.gpo.gov/2009/pdf/E9-27441.pdf.

---------------------------------------------------------------------------
Big Picture Contracting Concerns

    Many contracting experts and Government officials blame the 
inadequate size and training of the acquisition workforce for today's 
problems in the contracting system. POGO agrees that workforce 
reduction is a major problem, but we believe additional problems 
deserve equal attention. These problems are:

        1.  Inadequate Competition
        2.  Deficient Accountability
        3.  Lack of Transparency
        4.  Risky Contracting Vehicles

    I will discuss all of these issues in detail, and provide realistic 
recommendations that will improve the way Federal contracts are 
awarded, monitored, and reviewed. I will defer to today's other 
panelists to recommend specific ways to improve contract award, 
administration, project management, and contract oversight within the 
VA.
Inadequate Competition
    To better evaluate goods and services, and to get the best value 
for taxpayers, the Government must encourage genuine competition. At 
first glance, it may seem that Federal agencies frequently award 
contracts competitively. For example, the Department of Defense (DoD) 
claims that 64 percent of its contract obligations were competitive in 
2008,\36\ and Federal contracting data shows that the Department of 
Homeland Security competes approximately 70 percent of its 
contracts.\37\ These numbers, however, do not tell the entire story. 
The ``competitive'' label includes contracts awarded through less than 
full and open competition, including competitions within a selected 
pool of contractors, offers on which only a single bid was received, or 
a follow-on contract to a previously competed action.
---------------------------------------------------------------------------
    \36\ Shay D. Assad, Director Defense Procurement & Acquisition 
Policy, to the Office of Federal Procurement Policy, March 4, 2009.
    http://www.acq.osd.mil/dpap/cpic/cp/docs/
dodfy2008competitionreport.pdf.
    USAspending.gov DoD summary for FY 2008.
    http://www.usaspending.gov/fpds/
fpds.php?sortby=u&maj_agency_cat=97&reptype=r&
    database=fpds&fiscal_year=2008&detail=-1&datype=T&submit=GO.
    \37\ USAspending.gov reports 70.4 percent of DHS contracts were 
subject to competition in 2008.
    http://www.usaspending.gov/fpds/fpds.php?sortby=u&maj_agency_
    cat=70&reptype=r&database=fpds&fiscal_year=2008&detail=-
1&datype=T&submit=GO.
---------------------------------------------------------------------------
    The 110th Congress limited the length of certain noncompetitive 
contracts and mandated competitive procedures at the task and delivery 
level,\38\ but the Government must do more to ensure that full and open 
competition involving multiple bidders is the rule, not the exception. 
Consequently, to accurately track or evaluate competition, the 
definition of ``competitive bidding'' should be revised to apply only 
to contracts on which more than one bid was received.
---------------------------------------------------------------------------
    \38\ Pub. Law 110-181, Sec. 843, January 28, 2008. http://
frwebgate.access.gpo.gov/cgi-bin/
getdoc.cgi?dbname=110_cong_public_laws&docid=f:publ181.110.pdf.
    Pub. Law 110-417, Sec.862, October 14, 2008. http://
frwebgate.access.gpo.gov/cgi-bin/
getdoc.cgi?dbname=110_cong_public_laws&docid=f:publ417.110.pdf.
---------------------------------------------------------------------------
    In addition to redefining competition, Federal agencies must:

        1.  Reverse the philosophy of quantity over quality. 
        Acquisition is now about speed, making competition a burden; 
        this is a recipe for waste, fraud, and abuse.
        2.  Debundle contract requirements in order to invite more 
        contractors to the table. Contracts that lump together multiple 
        goods and services exclude smaller businesses that could 
        successfully provide one good or service, but are incapable of 
        managing massive multi-part contracts. Breaking apart multi-
        supply or service contracts reduce the multiple layers of 
        subcontracting which can drive up costs while adding little 
        value.\39\
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    \39\ The 2009 Defense Authorization bill directed DoD to minimize 
the excessive use of multiple layers of subcontractors that add no or 
negligible value to a contract. Pub. Law 110-417, Sec. 866, October 14, 
2008.
    http://frwebgate.access.gpo.gov/cgi-bin/
getdoc.cgi?dbname=110_cong_public_laws&docid=f:publ417.110.pdf.
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        3.  Update USAspending.gov to include a searchable, sortable, 
        and user-friendly centralized database of all contracts and 
        delivery/task orders awarded without full and open competition, 
        including all sole-source awards. The database would enhance 
        the requirement created by the National Defense Authorization 
        Act of 2008 to disclose justification and approval documents 
        for noncompetitive contracts.\40\
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    \40\ Pub. Law 110-181, Sec. 844, January 28, 2008. http://
frwebgate.access.gpo.gov/cgi-bin/
getdoc.cgi?dbname=110_cong_public_laws&docid=f:publ181.110.pdf. On 
January 15, 2009, a Federal Register notice was issued creating an 
interim rule and requesting public comment on the proposed public 
database of justification and approval documents for noncompetitive 
contracts. 74 Fed. Reg. 2731. http://edocket.access.gpo.gov/2009/pdf/
E9-555.pdf.
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        4.  Ensure that waivers of competition requirements for task 
        and delivery orders issued under multiple-award contracts or 
        the Federal supply schedule program are granted 
        infrequently.\41\
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    \41\ See GAO, Contract Management: Guidance Needed to Promote 
Competition for Defense Task Orders, GAO-04-874, July 30, 2004. http://
www.gao.gov/new.items/d04874.pdf.
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        5.  Increase emphasis on sealed bidding to receive the lowest 
        prices.\42\
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    \42\ Sealed bidding is a method of contracting that employs 
competitive bids and the contract is then awarded by the agency to the 
low bidder who is determined to be responsive to the Government's 
requirements. FAR Subpart 6.4 and Part 14.
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        6.  Use reverse auctions more frequently. In a Department of 
        Energy reverse auction for pagers, two companies' submitted 
        initial bids for $43 and $51 per pager. At the close of 
        bidding, the Government awarded the contract at the low price 
        of $38 per pager.\43\
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    \43\ Steve Sandoval, LANL NewsBulletin, ``Reverse auctions save Lab 
money,'' January 23, 2007.
    http://www.lanl.gov/news/index.php/fuseaction/nb.story/story_id/
9654.

    Why is competition in contracting important? In a nutshell, genuine 
competition between contractors means the Government gets the best 
quality goods and services at the best price. Competition also prevents 
waste, fraud, and abuse because contractors know they must perform at a 
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high level or risk being replaced.

Deficient Accountability

    Through the years, the Government has placed a premium on speeding 
up the contracting process and cutting red tape. Those policies led to 
downsizing the acquisition workforce and gutting the oversight 
community. When considering the large-scale increase in procurement 
spending during the past decade, the contracting and oversight 
communities lack sufficient resources to watch the money as it goes out 
the door.
    Many acquisition reforms also eliminated essential taxpayer 
protections. For example, one ``reform''--commercial item contracting--
made it so Federal contracting officials now lack the cost or pricing 
data necessary to ensure that the Government is getting the best value. 
Commercial item contracts, which prevent Government negotiators and 
auditors from examining a contractor's cost or pricing data, might make 
sense when buying computers, office supplies, or landscaping services, 
but has been exploited in some cases, such as the C-130J cargo planes 
procured by the Air Force. Because the C-130J was determined to be a 
commercial item, Government auditors were not allowed to have access to 
have cost or pricing data. After Senator McCain forced the Air Force to 
convert the contract back to a traditional contracting vehicle, the 
taxpayers saved $168 million.\44\
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    \44\ Secretary of the Air Force, Office of Public Affairs, Press 
Release (051006), Officials announce C-130J contract conversion, 
October 25, 2006.
    http://www.af.mil/information/transcripts/story.asp?id=123029927.
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    Contract oversight provides great benefits to taxpayers. According 
to the Veterans Affairs Office Of Inspector General, ``OIG audits, 
investigations, and other reviews identified over $2.3 billion in 
monetary benefits, for a return of $59 for every dollar expended on OIG 
oversight'' for the 2nd half of the FY 2009 and $38 for entire fiscal 
year.\45\
---------------------------------------------------------------------------
    \45\ VA OIG Report, pp. 1 and 5.

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POGO believes that Congress should:

        1.  Appropriate money to agencies to end their reliance on the 
        industrial funding fees collected from other agencies for 
        orders placed on interagency contracts. This system creates a 
        perverse incentive to keep costs or prices high. In other 
        words, agencies might not be seeking the best prices because 
        program revenue would be lost.
        2.  Require contractors to provide cost or pricing data to the 
        Government for all contracts, except those where the actual 
        goods or services being provided are sold in substantial 
        quantities in the commercial marketplace.
        3.  Provide enforcement tools needed to prevent, detect, and 
        remedy waste, fraud, and abuse in Federal spending, including 
        more frequent pre-award and post-award audits to prevent 
        defective pricing.\46\
---------------------------------------------------------------------------
    \46\ National Procurement Fraud Task Force, Legislation Committee, 
Procurement Fraud: Legislative and Regulatory Reform Proposals, June 9, 
2008. (Hereinafter Fraud White Paper). http://pogoarchives.org/m/co/
npftflc-white-paper-20080609.pdf.
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        4.  Eliminate the Right to Financial Privacy Act requirement 
        requiring IGs to notify contractors prior to obtaining the 
        companies' financial records. This requirement ``tips off'' 
        contractors and can harm the Government's ability to 
        investigate Federal contracts.\47\
---------------------------------------------------------------------------
    \47\ Fraud White Paper, pp. 4-5.
---------------------------------------------------------------------------
        5.  Realize that audits are worth the investment. On average, 
        all IGs appointed by the President return $9.49 for each dollar 
        appropriated to their budgets--which is low in comparison to 
        the VA oversight returns.\48\
---------------------------------------------------------------------------
    \48\ GAO, Inspector General--Actions Needed to Improve Audit 
Coverage of NASA, GAO-09-88, p. 5, December 2008. http://www.gao.gov/
new.items/d0988.pdf.
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        6.  Enhance the acquisition workforce through improvements in 
        hiring, pay, training, and retention.
        7.  Require comprehensive agency reviews of outsourcing 
        practices, especially for contract-related management and 
        consulting service contracts.\49\
---------------------------------------------------------------------------
    \49\ Alice Lipowicz, Federal Computer Week, DHS draws flak for 
review of services contracts, June 5, 2009. http://fcw.com/articles/
2009/06/08/news-dhs-contracts.aspx.
---------------------------------------------------------------------------
        8.  Pass the Contracting and Tax Accountability Act of 2009 
        (H.R. 572) prohibiting Federal contracts from being awarded to 
        contractors that have an outstanding tax liability.\50\
---------------------------------------------------------------------------
    \50\ http://frwebgate.access.gpo.gov/cgi-bin/
getdoc.cgi?dbname=111_cong_bills&docid=f:h572ih.txt.pdf.
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        9.  Hold agencies and contractors accountable when small 
        business contracts are diverted to large corporations and when 
        set-aside dollars don't reach their legally intended 
        targets.\51\
---------------------------------------------------------------------------
    \51\ Department of the Interior, Office of the Inspector General, 
Interior Misstated Achievement of Small Business Goals by including 
Fortune 500 Companies, W-EV-MOI-0003-2008, July 2008.
    http://www.doioig.gov/upload/2008-G-0024.pdf.
    Carol D. Leonnig, Washington Post, ``Agencies Counted Big Firms As 
Small,'' A1, October 22, 2008. http://www.washingtonpost.com/wp-dyn/
content/article/2008/10/21/AR2008102102989_pf.html.

    Through the years, measures to ensure Government and contractor 
accountability have been viewed as burdensome and unnecessary. This 
attitude needs to be replaced with one recognizing that accountability 
measures are essential to protecting taxpayers, and should be seen as 
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an acceptable cost of doing business with the Federal Government.

Lack of Transparency

    To regain public faith in the contracting system, the Government 
must provide the public with open access to information on the 
contracting process, including contractor data and contracting 
officers' decisions and justifications.
    The following actions should be taken to provide the public with 
contracting information:

        1.  USAspending.gov should become the one-stop shop for 
        Government officials and the public for all spending 
        information. This includes actual copies of each contract, 
        delivery or task order, modification, amendment, other 
        transaction agreement, grant, and lease. Additionally, 
        proposals, solicitations, award decisions and justifications 
        (including all documents related to contracts awarded with less 
        than full and open competition and single-bid contract awards), 
        audits, performance and responsibility data, and other related 
        Government reports should be incorporated into USAspending.gov.
        2.  To better track the blended Federal Government workforce, 
        Congress should require the Government to account for the 
        number of contractor employees working for the Government using 
        a process similar to FAIR Act inventories of Government 
        employees filed by Federal agencies.

Risky Contracting Vehicles

    As previously mentioned in my testimony, POGO is concerned with the 
Government's acceptance of limited competition in contracting as well 
as its over-reliance on cost-reimbursement, time and material 
contracts, and commercial item contracts--although as I mentioned 
previously, the vast majority of VA contracts are awarded on a fixed 
price basis, which bodes well for taxpayers. POGO realizes that there 
are benefits to these vehicles in certain circumstances, but we are not 
alone in voicing concerns about how these contract vehicles are used in 
practice.
    POGO has concerns with the Government placing taxpayer dollars at 
risk by over-designating many items and services as commercial. The 
changes to procurement law and regulation during the past fifteen years 
have been most stark in this area. Designating an item or service as 
commercial when there is no actual commercial marketplace places the 
Government at risk because the Government doesn't have access to cost 
or pricing data that is essential for ensuring the contract is fair and 
reasonable. The Government's failure or inability to obtain cost or 
pricing data has been nothing short of shocking, and has invited 
outright price gouging of the public fisc.
    POGO believes that risky contracts can work in practice, but only 
if additional oversight protections are added, including:

        1.  For commercial item contracts, goods or services should be 
        considered to be ``commercial'' only if there are substantial 
        sales of the actual goods or services (not some sort of close 
        ``analog'') to the general public. Otherwise, the goods or 
        services should not be eligible for this favored contracting 
        treatment.
        2.  The Truth in Negotiations Act (TINA) should be 
        substantially revised to restore it to the common-sense 
        requirements that were in place prior to the ``acquisition 
        reform'' era. Specifically, all contract awards over $500,000, 
        except those where the goods or services are sold in 
        substantial quantities to the general public in the commercial 
        marketplace, should be subject to TINA. This small step would 
        result in enormous improvements in contract pricing, 
        negotiation, and accountability, and save taxpayers billions of 
        dollars per year.
        3.  All contracting opportunities in excess of $100,000 - 
        including task or delivery orders, and regardless of whether 
        the action is subject to full and open competition, award 
        against a GSA Federal Supply Schedule or an agency Government 
        Wide Acquisition Contract, or any other type of contacting 
        vehicle - should be required to be publicly announced for a 
        reasonable period prior to award, unless public exigency or 
        national security considerations dictate otherwise.
        4.  All contracting actions, including task and delivery 
        orders, should be subject to the bid protest process at the 
        GAO. While POGO recognizes that many will decry this 
        recommendation as adding ``red tape'' to the process, we 
        believe it is the only meaningful way to ensure that 
        contractors are treated on an even playing field, and that the 
        public can be confident in agency contract award decisions.

    Thank you for inviting me to testify today. I look forward to 
working with the Subcommittee to further explore how the Government 
should improve the Federal contracting system to better protect 
taxpayers and welcome any questions.


                                 
          Prepared Statement of Scott F. Denniston, President,
       Scott Group of Virginia, LLC, Chantilly, VA, and Director
        of Programs, National Veteran Owned Business Association

    Chairman Mitchell, Ranking Member Roe, Committee Members and staff. 
Thank you for the opportunity to testify today on the Department of 
Veterans Affairs acquisition program. I am Scott Denniston, President 
of the Scott Group of Virginia, LLC, representing one of my clients, 
The National Veteran Owned Business Association and its over 2,000 
veteran small business owners across the country. I would ask that my 
formal testimony be submitted for the record.
    Your letter of invitation asked me to discuss ``Acquisition 
Deficiencies at the U.S. Department of Veterans Affairs''. I will 
respond to your invitation through the experiences of veteran owned 
small businesses in dealing with the vast bureaucracy of the VA.
    Within the past week I was contacted by a veteran owned small 
business in Arizona providing vinyl banners to VA's Vocational 
Rehabilitation Service. Shipment to 58 regional offices was completed 
October 20, 2009. The veteran is unable to be paid as VA regulations 
require a ``receiving report'' be completed. The veteran business owner 
when inquiring as to being paid is bounced between the contracting 
officer and the program officer as to who is responsible for completing 
the receiving report. All the veteran knows is he fulfilled the 
contract requirements and now suffers. The interest the veteran is 
paying for operating capital will negate all profit that he expected to 
earn on the contract. He has stated he will never do business with VA 
again if this is the way they treat their vendors.
    Another veteran doing business with VA is frustrated as he is 
currently working on 2 contracts with expiration dates of December 31, 
2009. The two contracts represent approximately $6 million per year in 
revenue. To date he has not been told whether VA intends to exercise 
the options. As you can imagine this causes great angst for the firm 
and its employees. Will they have jobs on January 1st? When the 
business owner inquires of the contracting office he is told the 
contracts have been ``transferred'' to another contracting office. When 
he inquires of the new contracting office he is told there is no 
contracting officer assigned and no knowledge of who the program office 
is. When the veteran business owner inquires to VA's Central Office he 
is told the policy is to notify contractors within 60 days of 
expiration of VA's intent. Nice policy but who follows it and where 
does a veteran small business owner go for assistance?
    Another common practice at VA which frustrates veteran small 
business owners is VA's practice of advertizing an RFP, having vendors 
incur substantial costs to submit proposals then VA cancels the 
opportunity and procures through an existing contract vehicle or enters 
into an agreement with another Federal agency to award a contract for 
the same services. The small businesses who submitted the original 
offers did so in vain as now, because of VA's ``change of mind'', they 
cannot bid on the opportunity.
    NaVOBA Members continue to be concerned about VA's overly 
restrictive interpretation of Public Law 109-461, commonly referred to 
as the ``Veterans First Contracting Program.'' NAVOBA believes the 
provisions of PL109-461 require VA to provide a preference to service 
disabled veteran and veteran owned small businesses for all goods and 
services VA purchases. VA interprets the law's provisions to apply only 
to ``open market'' acquisitions. As you know VA spends a large 
percentage of its acquisition dollars using the Federal Supply 
Schedules, therefore service disabled veteran and veteran owned small 
businesses are not provided a preference for much of what VA purchases. 
This in addition to VA's efforts to eliminate distributors and 
resellers from VA's Federal Supply Schedules as well as VA's efforts to 
consolidate contracting opportunities under the guise of ``Strategic 
Sourcing'' makes selling to VA difficult for a veteran owned small 
business. NaVOBA understands that FSS is the preferred method of 
purchasing in the Federal Government but we also believe PL 109-461 
gives VA responsibility to provide maximum practicable opportunity to 
service disabled and veteran owned small businesses first! If a veteran 
owned business can supply the same product with the same terms and 
conditions VA can get using FSS, VA should buy from the veteran. Why 
should VA buy from a large foreign firm using FSS when an American 
veteran owned small business can provide the same product?
    As I testified before the Subcommittee on Economic Opportunity on 
April 23, 2009, our members tell us the biggest impediments to doing 
business with VA are access to decisionmakers to present capabilities, 
access to timely information on upcoming contract opportunities, 
inconsistent implementation of the provisions of PL 109-461, VA's 
administration of the Federal Supply Schedules regarding distributors, 
and VA's use of contract vehicles such as prime vendor and 
standardization opportunities.
    On August 13, 2009, VA Deputy Secretary Scott Gould hosted a 
``Supplier Relationship Transformation Forum''. The Deputy Secretary is 
to be commended for hosting this event. The purpose was to hear from 
large and small vendors to the VA on what issues and impediments exist 
in doing business with VA. The forum was attended by over 100 people 
representing 82 vendors from most industries doing business with VA. 
There were several common themes expressed:

     1.  Participants were generally frustrated, and hopeful but 
skeptical that change will occur.
     2.  Vendors perceive the acquisition process to be unclear, not 
applied in a standardized manner and not communicated well.
     3.  VA does a poor job of matching contract types and terms and 
conditions to the acquisitions.
     4.   Similar contracts are managed differently within and across 
programs.
     5.  Many contracts are not launched with kickoff meetings; none 
end with closeouts. Few contain a discovery period, but many require 
project plans, work breakdown structures, etc. within 5 to 10 days of 
award.
     6.  VA is often unclear and unfamiliar with what it is procuring-
unclear requirements, cut and paste solicitations, expired dates in 
solicitations, Questions & Answers that do not clarify, independent 
Government cost estimates that are very soft, etc.
     7.  Contracting officers and contracting officers technical 
representatives are often risk adverse and say no to possible solutions 
without considering them.
     8.  Contractors broker communications and problem solving between 
VA COs, COTRs and project managers.
     9.  Partnering means sharing risks, but VA puts all risk on the 
contractor.
    10.  In reality, best value means lowest cost. VA wants contractor 
``A'' teams but will only pay for ``B'' or ``C'' teams.
    11.  Contract mods--even no cost period of performance extensions 
can take months to complete, putting contractors and projects at risk.

    This list comes from the Executive Summary of the forum prepared by 
Ambit Group, LLC for VA, and is very consistent with comments expressed 
by NaVOBA Members.
    The vendor community today is dynamic, enterprising and inventive. 
VA cannot as a normal course of operating maintain ongoing operations 
and also evaluate new technologies and opportunities to use new 
products and services to improve care to veterans. The vendor community 
is frustrated as VA is reluctant to change. VA is, in our opinion, 
missing opportunities as there is no mechanism to test new products in 
the VA environment. We propose VA establish an organization, 
independent of day to day operations, to test new products and services 
through trials, test programs, field demonstrations to more rapidly 
bring new technologies and solutions to VA operations. Such an 
organization could pay huge dividends in caring for our Nation's 
veterans.
    In summary, VA must be more sensitive to the needs/concerns of the 
vendor community, especially the veteran owned small business 
community. Every VA employee should work in a small business for a 
while and understand the impact of their decisions and inactions on 
cash flow, retention of employees, bank lines of credit, and the myriad 
of issues faced by veteran entrepreneurs on a daily basis.
    I would like to thank the Committee once again for holding this 
important hearing and I'm happy to answer any questions.


                                 
        Prepared Statement of Anthony R. Jimenez, President and
          Chief Executive Officer, MicroTech, LLC, Vienna, VA

    Good Afternoon Chairman Mitchell, Ranking Minority Member Roe, and 
Subcommittee Members. I greatly appreciate the opportunity to testify 
at this hearing regarding Acquisition Deficiencies at the Department of 
Veterans' Affairs (VA), and I am honored to represent other Veteran-
Owned and Service-Disabled Veteran-Owned Small Business Owners.
    My name is Anthony (Tony) Jimenez and I am the President and Chief 
Executive Officer of MicroTech. MicroTech is a Minority-Owned, 
certified and verified Service-Disabled Veteran-Owned Small Business 
(SDVOSB), and certified 8(a) Small Business providing Information 
Technology Systems and Services, Strategic Solutions, Audio-Visual 
Telecommunications Design and Installation, Product Solutions, and 
Consulting Services.

MicroTech Success

    I retired from the Army in 2003 after serving 24 years on active 
duty and started MicroTech in 2004. Today I employ over 400 great 
Americans--and in an era of lay-offs and job cutbacks--MicroTech has 
become a powerful job creation engine and force for economic 
development in my community, in the state of Virginia, and in a number 
of other locations across the nation. This year, MicroTech was named 
America's Number One Fastest-Growing Hispanic-Owned Business, and just 
last week our success was celebrated during the NASDAQ Closing Bell 
ceremony.
    Since the first time I testified before Congress in 2006, MicroTech 
has grown almost 3000 percent in gross revenue and is now the Prime 
Contractor on over 100 Federal projects and 14 Contract Vehicles. 
MicroTech manages over half-a-million Government IT users daily and 
provides products and solutions to more-than-30 Government Agencies, 
along with every military branch.
    MicroTech has been repeatedly recognized by trade groups, industry 
publications, and diversity organizations as a leading Small Business 
that has notably succeeded at supporting the Business of Government. 
MicroTech's exponential growth has led to recognition this year that 
includes the prestigious Inc. 500; Washington Business Journal's Third 
Fastest Growing Co. in the region; the Deloitte Tech Fast 500 Number 
One Communications-Networking Small Business in the Washington Metro 
Area; CRN Magazine's Number One ``Unified Communications Solutions 
Specialist;'' Washington Technology's Number One Information Technology 
8(a) Business; and as a DiversityBusiness.com Top 25 Disabled Veteran 
Owned Business.

Veteran Running a Business

    Like most of the Veterans who retire from active duty, initially I 
had no idea what I wanted to do when I left the military. However, I 
knew I wanted to remain close to the fight and continue, in some way, 
to serve my country.
    I told BusinessWeek earlier this year in the article, ``What I 
Learned in the Trenches,'' that there is a misperception that people in 
the military have been trained to shoot and win battles, but when it 
comes to business savvy, they don't have any. What many don't realize 
is that running a military unit is just like running a business.
    As an owner of a business that manages large-scale Federal 
projects, I have the opportunity to use my unique military skills and 
expertise to help the Government reach its goals, as well as the 
ability to work with and provide jobs for other Veterans.
    My small business targets contracting opportunities based not only 
on our core competencies, but also on the opportunity to hire Veterans 
and Wounded Warriors to perform the work; giving them a chance at a 
viable second career. However, in the short 5 years MicroTech has been 
doing business with the Federal Government, unfortunately I discovered 
that opportunities for Veteran-Owned Small Businesses (VOSB) and 
SDVOSBs were hard to find and not as abundant as I assumed they would 
be. In the last few years, though, the emphasis on increasing 
Government contracting opportunities for SDVOSBs is improving but still 
has a ways to go.
    It's been 5 years since President Bush issued Executive Order 13360 
requiring Federal agencies to provide 3 percent of all contracting 
opportunities to SDVOSBs. Fewer than a handful have achieved that 
annual goal, notably the Environmental Protection Agency, the GSA, the 
Department of Labor, and the VA.

Small Business Opportunities are Improving

    Through mostly the efforts of the Small Business Administration and 
the four agencies mentioned, small business opportunities overall are 
growing. In Fiscal Year 2008, small businesses won a record $93.3 
billion in Federal prime contracts, an increase of almost $10 billion 
from 2007. SDVOSB contracts increased to about one-half (1.49 percent) 
of the 3 percent goal, from the one-third (1.01 percent) mark a year 
earlier, and won $6.4 billion in Federal contracts from the lower FY 
2007 mark of $3.8 billion.
    Along with those gains, the Obama Administration's American 
Recovery and Reinvestment Act is playing a role in increasing Federal 
contracting share to SDVOSBs; they have received 4 percent of Recovery 
contracting dollars, so far. The current administration has ``walked 
the walk,'' and proven their commitment to Federal contracting 
opportunities for Small Business.

MicroTech and the VA

    MicroTech's experience with the Department of Veteran Affairs (VA) 
regarding the 3 percent rule has been very positive. The VA exceeded 
its SDVOSB prime contracting goals in the last two fiscal years, 
reflecting a commitment at the top and a broad across-the-agency effort 
to ``do the right thing.''
    Veteran-Owned Small Businesses seem to enjoy greater success at the 
VA than non-veteran owned. This is happening because of the superlative 
efforts of the Veteran's Affairs Committee and others. In addition, the 
VA, as one expects, wants to take care of our Nation's Veterans, so it 
makes sense that the VA strongly supports set-aside opportunities. The 
VA keeps their ``eyes on the prize,'' and works hard to ensure Veteran-
Owned Small Businesses get their fair share of competitive contracts.

Three Percent Rule Recommendations

    As for the rest of the Government that has failed to make the 3 
percent rule a priority, there are currently no penalties for failing 
to meet EO 13360, and very few incentives for meeting or exceeding the 
established standard. This lack of oversight makes it extremely 
difficult for agencies to realize the advantages of contracting with a 
Veteran-Owned Small Business. There needs to be significant 
improvements made to correct systemic problems in the current 
procurement system and to add incentives in achieving the 3 percent 
goal. I recommend the following steps be taken in all agencies, 
government-wide:

Revise Contract Bundling

    Contract Bundling adversely impacts competition and hurts all small 
businesses. According to VET-Force's reporting of a Rand Corp. 2008 
study, for every 100 bundled contracts, Small Business loses 60 
contracts. The study is quoted as claiming, ``More than one-half of all 
DoD prime contract spending is on bundled contracts.''
    The standard procedures for Contract Bundling require agencies to 
provide justification for bundling decisions and have the decisions 
reviewed at higher levels. The problem with this is that the decision 
is often made in a vacuum and the affected small businesses have no 
means to object. In most of these cases, the small businesses are not 
even aware that the decision is being made. Instead, they don't 
discover that their contract has been bundled with a larger requirement 
until just before the RFP is released. By then, it is too late to do 
anything except determine how to stay involved in the competitive bid. 
Supporters say that Contract Bundling saves money. While Contract 
Bundling may save Contracting Officers time and effort and reduce 
Government overhead, those dollar savings are often offset by the 
higher costs associated with doing business with larger organizations.

Consolidate Contracts so Small Businesses Share Benefits of Bundling

    This tactic allows the Government to continue to take advantage of 
cost savings, price reductions, quality improvements, reduced 
acquisition cycle times, and better terms and conditions for both 
parties. Make a fair portion of these bundled contracts specifically 
Small Business opportunities, and don't assume that because it has been 
bundled, it has to be large business-focused. In most cases, making the 
opportunity SDVOSB-focused will lead to the very same team as if it was 
a full and open opportunity.

Place Orders under a Small Business GWAC

    The Veteran Technology Services (VETS) Government-wide Acquisition 
Contract (GWAC) and the NASA Solutions for Enterprise-Wide Procurement 
(SEWP) GWAC are two excellent examples of Contract Vehicles that offer 
multiple award contracts with highly qualified SDVOSBs. The VA has done 
an outstanding job of using both of these GWACs; another outstanding 
example of their commitment to SDVOSBs. This approach should be 
duplicated throughout the Government.

Solicit Quotes for Federal Supply Service Orders only from Small 
        Business (or Socioeconomic Small Business Groups)

    Small Business set aside programs are rarely used under the GSA 
Federal Supply Schedule, this most widely used contracting vehicle in 
the Federal Government. This is due to a common perception that set-
asides are not allowed under the schedule program. The use of set-
asides as part of the GSA schedule program should be encouraged.

Create a Small Business Participation Enforcement Team

    Consider taking a portion of the savings realized through Contract 
Bundling to implement a Small Business Plan Enforcement Team that 
enforces small business participation in accordance with the Request 
for Proposal (RFP).

Establish a Mentor-Protege Program at SBA for Veteran-Owned Small 
        Business

    A Mentor-Protege program administered by the SBA that mirrors the 
current 8(a) program would be a boon to SVDOSBs and allow them some of 
the additional advantages that 8(a) companies currently enjoy.
    In order to raise capital for the Protege firm, the Mentor could 
own an equity interest of up to 40 percent in the Protege firm. A 
Protege firm could still qualify for other assistance as a Small 
Business, including SBA financial assistance. And no determination of 
affiliation or control would be found between a Protege firm and its 
Mentor based on the Mentor-Protege agreement or any assistance provided 
pursuant to the agreement.

Better FAR Enforcement

    The Federal Acquisition Regulation (FAR) already includes 
provisions intended to help Small Business in the event that bundling 
occurs. Unfortunately, the FAR does not include enforcement mechanisms, 
nor does it include a reward or punishment system. If the FAR or Code 
of Federal Regulations (CFR) were to include mandatory enforcement, it 
would go a long way toward assisting Small Business. When it comes to 
FAR requirements for Contract Bundling, they are a good start, but fail 
to follow through with the most important aspect of the system. Bundled 
contracts are often made so complex that small businesses are precluded 
from competing for them.

How to Better Highlight SDVOSBs

Address VA Contracting Concerns and How to Improve the Process

    Contracting with the VA can be extremely difficult for small 
businesses, requiring them to not only understand VA-specific 
contracting and complex procurement requirements, but also to 
understand the VA organization and culture. At MicroTech, we must 
constantly educate our customers about public policy like the 
``Veterans First Contracting Program,'' and other initiatives that are 
designed to help Veteran-Owned Small Business grow. We also have to 
emphasize that there are enough capable SDVOSBs that have the 
experience and resources to adequately and competently fulfill Federal 
contracts. There are many contracting officers at the VA that genuinely 
want to do business with a Veteran-Owned Small Business; unfortunately 
policies and regulations designed to make it easier to do business with 
Veterans are either not clearly promoted, or not understood.

GAO SDVOSB Fraud Report

    The October 2009, GAO report on the SDVOSB Program (Case Studies 
Show Fraud and Abuse Allowed; Ineligible Firms to Obtain Millions of 
Dollars in Contracts) is a telling indictment of the fraud in the 
program highlighting test cases of ineligible and uncertified 
businesses that are giving legitimate SDVOSBs a black eye.
    The enforcement issues are clear. For example, the SBA is only 
allowed to investigate suspected SDVOSB fraud if a formal protest is 
filed questioning the bid process. Even if the SBA finds that a 
contract was awarded to a fraudulent company, they are not required to 
restart the bidding process. And because no documentation proving 
eligibility is required, the SBA has no proven way to confirm status.
    In 2008, more than 15,000 Veteran-Owned Businesses were registered 
in the Central Contracting Register (CCR), a requirement to do business 
with the Federal Government. The CCR collects, validates, stores and 
disseminates data in support of agency acquisition missions. 
Unfortunately the CCR does not call for proof that companies are 
legitimate Veteran-Owned Businesses.

SDVOSB Enforcement Recommendations

    Additional requirements are needed to prove legitimate SDVOSB 
status. Take the handcuffs off the SBA and allow them to rigidly 
enforce eligibility. The GAO recommended that the SBA work to develop 
penalties that would prohibit companies from obtaining Federal work if 
they are found to knowingly misrepresent their status as a Veteran-
Owned Small Business. It also urged the VA to expand its database of 
validated Veteran-Owned Small Businesses, so that the SBA and other 
Federal contracting officials across the Government can access it to 
verify eligibility.
    I applaud Representative Hall for his recent decisive action on the 
issue, and back his reported recommendations of completing the VetBiz 
database for a truer, more comprehensive picture of all qualified small 
businesses; to insist on more SDVOSB qualifying documentation; and to 
share the database with the rest of the Government.

SUMMARY

How to Help Veteran-Owned Small Business Grow

    I have often heard people in Washington say that we don't need any 
more laws; we just need to enforce the ones we have. In order to 
sustain or further increase the VA's ability to contract with VOSBs and 
SDVOSBs, it will require vigilance, clearer guidance, improved 
oversight, and effective enforcement. More will also need to be done to 
educate procurement officials about requirements and about the 
Government's desire to contract with Veteran-Owned Businesses. We need 
to do more to get the word out and to let others know procurements that 
provide opportunities to Veteran-Owned Businesses have the support of 
the VA leadership, the House and the Senate, and President Obama. I 
would also ask that you carry the message you're hearing today to the 
other Committees you serve on, and do everything you can to help 
educate others in Washington who don't recognize the value and 
importance of Veteran Entrepreneurs.
    Mr. Chairman and Distinguished Committee Members--I appreciate the 
time you and the other Members of the Subcommittee on Oversight and 
Investigations have spent on this and other critical topics affecting 
Veteran Entrepreneurship. Pride means a lot to our Nation's Veterans. 
We're proud to have served the Nation in wartime, and proud that we can 
continue to serve our country through supporting the Government's 
goals. I speak for all Veteran Entrepreneurs when I say thank you for 
insisting on a level Playing Field for those who have sacrificed so 
much, and for recognizing their value to Federal Government service. 
This concludes my testimony. I would be happy to answer any questions 
you may have.

                                 
         Prepared Statement of Robert G. Hesser, President and
      Chief Executive Officer, Vetrepreneur, LLC, Herndon, VA, and
   1st Co-Chairman, Veterans' Entrepreneurship Task Force (VET-Force)

                           EXECUTIVE SUMMARY

    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, sections 502 and 503 of this legislation, authorized 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 (SDVOSB's) and Veteran Owned Small Businesses (VOSB's) 
first and second, respectively, in satisfying VA's acquisition 
requirements.
    In so doing, it required that certain conditions be met. All 
SDVOSB's and VOSB's, must register in the VA's Vendor Information Pages 
(VIP), aka Veterans Small Business Database, available at 
www.VetBiz.gov. To be eligible for award of a contract exclusively 
within the Department of Veterans Affairs and be `VERIFIED' by the VA's 
Center for Veterans Enterprise (CVE). Once registered in the database, 
the veterans' status, ownership, and control would be verified and 
penalties would be assessed for misrepresentation.
    Unfortunately, after more than 2 years, VA's acquisition officials, 
their General Counsel, and/or the Office of Management and Budget still 
have not come to an agreement to publish the regulations to fully 
implement the portion of the law that pertains to VA contracting for 
veteran business owners. Last week, December 8, 2009, the VA issued the 
Request for Comments on section 819.307 of the Final Rule 48 CFR 819. 
Comments are due January 7, 2010. The result is that veteran and 
service-disabled veteran business owners are continuing to be deprived 
of millions of dollars in contracting opportunities that could benefit 
them, their families, and their communities.
    There are thousands of capable and qualified veteran and service 
disabled veteran owned businesses registered in the VA's Veteran Small 
Business Database. Yet, we often hear from contracting officers and 
Large Primes that they cannot be found. Veteran business owners 
represent America. They are all races, Black, White, Hispanic, Asian, 
Jewish, they are Male, Female, Old, and Young.
    VA must fully implement The Veterans Benefits, Health Care, and 
Information Technology Act of 2006 now and implement it correctly.

                    INTRODUCTION (Verbal Testimony):

    Good Morning Chairman Mitchell, Ranking Member Roe, other Members 
of this Subcommittee, fellow veterans, and guests.
    Let me first thank you for the opportunity to come before you today 
to share views on the Department of Veterans Affairs' (VA) 
``Acquisition Deficiencies'' and how this Subcommittee can help to 
increase contracting opportunities for Veteran and Service-Disabled 
Veteran-Owned Businesses. I am the 1st Co-Chairman of the Veterans 
Entrepreneurship Task Force known as the VET-Force. My testimony today 
is mine; not the VET-Force.
    My Navy active duty was many years ago. With 22 1/2 years, I was 
unexpectedly transferred to the Disability Retirement List as a Master 
Chief (E9). I was given a check and sent home. At that time, I could 
not work a full workday. This has happened to thousands of veterans. 
The VET-Force and its Members want this practice stopped. PL 106-50 and 
subsequent legislation/Rule making has significantly improved the 
Veteran's Procurement Program.
    This testimony concerns five points:

        1.  Center for Veterans Enterprise (CVE)

                a.  CVE personnel are responsible for tasks that 
                require 10-fold the assets they now have.
                b.  Many of their tasks cannot be completed in a timely 
                fashion because they do not have the authority to 
                complete them. In other words, they are frequently 
                micro-managed.
                c.  12,000 Veteran owned companies desiring 
                ``verification'' are waiting their turn. CVE was 
                verifying 200 each month. I do not know the recent 
                figure.

        2.  Contracting Officers

                a.  Not all contracting officers are required to follow 
                regulations and rules.
                b.  They are not always given authority commensurate to 
                responsibility.

        3.  Appropriations and Budgets

                a.  CVE is a non appropriated organization and it 
                exists only by the grace of the VA Supply Fund.
                b.  CVE needs its own Line Item and a significant 
                increase of available funds.

        4.  VA General Counsel

                a.  The VA has not complied with the PL 109-461. The 
                date of enactment was to be 180 days after Dec 22, 
                2006--the date of the Act. Today, 6 days short of 3 
                years, the Act has yet to be completely implemented.
                b.  All requirements might not ever be implemented 
                because there is a requirement that VA and SBA execute 
                an interagency agreement pursuant to the Economy Act. 
                Negotiations of this interagency agreement have not yet 
                been finalized.
                c.  It is General Counsel's responsibility to ensure 
                regulations are followed in a timely and accurate 
                manner. The result of their ignoring PL 108-183, 109-
                461, and Executive Order 13-360 is apathy and confusion 
                throughout the VA acquisition community.
                d.  General Counsel's inaction has caused, in some 
                areas within the VA Acquisition Community, derogatory 
                feelings toward the VOSB/SDVOSB procurement program. 
                Lack of firm direction has been and is still today 
                creating roadblocks.

        5.  Vocational Rehabilitation & Employment (VR&E) program and 
        CVE

                a.  A significant funds increase is needed for VR&E 
                because CVE cannot assist service-connected disabled-
                veterans without the VR&E Counseling occurring before 
                the Veteran goes to CVE.

    Passage of the original concept of PL 109-461 was highly supported 
by the VET-Force and most Veteran supporters. It is still supported by 
the VET-Force. The law is written for the VA. One requirement is that 
the VETBIZ VIP data base be expanded using both VA and DoD data. It 
also requires the VA to make VETBIZ VIP available to the entire Federal 
Government to view the registrants within the data base. It also states 
that the VA will verify all VOSB's and SDVOSB's prior to awarding a 
Veteran Affairs contract. PL 109-461 does not say that the VA's 
application of their 38 CFR 74 regulations was to be Federal Government 
wide. Both, PL 106-50 or 108-183 direct non-VA contracting officers to 
accept self-certification. The Federal Acquisition Regulations also 
require all contracting officers to practice due diligence prior to 
award. Only those desiring VA contracts are to be verified by CVE. VA's 
present procedure is to verify a company and issue them a Verification 
Pin. The VA then enters in that company's profile that they are 
VERIFIED. When a VA contracting officer wants to award a contract to a 
SDVOSB who is in the VETBIZ que for VA verification the contracting 
officer contacts the CVE and the verification is rushed. However, when 
a SDVOSB in the VETBIZ que submits a response to a ``NON-VA'' SDVOSB 
set-aside Request for Proposal by a contracting officer who uses 
VETBIZ, the company not verified will unjustly be considered as not 
qualified to bid. The VET-Force has recommended to the VA CVE that all 
VA CVE verifications remain accessible to only VA acquisition 
personnel. The VA CVE has not accepted this recommendation. Not doing 
so is sabotaging the Service-Disabled Veteran-Owned Small Business 
procurement program.
    The first step was the VA only. The second step should be all the 
Federal Government.


                                 
 Prepared Statement of Kay L. Daly, Director, Financial Management and
            Assurance, U.S. Government Accountability Office
          Veterans Health Administration: Inadequate Controls
           Over Miscellaneous Obligations Increase Risk Over
                        Procurement Transactions
                             GAO Highlights

Why GAO Did This Study

    In September 2008, GAO reported internal control weaknesses over 
the Veterans Health Administration's (VHA) use of miscellaneous 
obligations to record estimates of obligations to be incurred at a 
future date. GAO was asked to testify on its previously reported 
findings that focused on (1) how VHA used miscellaneous obligations, 
and (2) the extent to which the Department of Veterans Affairs' (VA) 
related policies and procedures were adequately designed. GAO also 
obtained an update on the status of VA's activities to improve controls 
over its use of miscellaneous obligations.
    GAO's testimony is primarily a summary of its prior report (GAO-08-
976), and also includes follow-up work to obtain information on the 
status of VA's efforts to implement our prior recommendations.

What GAO Recommends

    In its September 2008 report, GAO made four recommendations to VA 
to develop and implement policies and procedures to improve internal 
control. VA agreed with GAO's recommendations and has since taken 
action to develop the recommended policies and procedures. GAO will 
monitor the effectiveness of VA's implementation of these new policies 
and procedures.

What GAO Found
    In September 2008, GAO reported that VHA recorded over $6.9 billion 
of miscellaneous obligations for the procurement of mission-related 
goods and services in fiscal year 2007. VHA officials stated that 
miscellaneous obligations were used to facilitate payment for goods and 
services when the quantities and delivery dates are not known. 
According to VHA data, almost $3.8 billion (55.1 percent) of VHA's 
miscellaneous obligations was for fee-based medical services for 
veterans and another $1.4 billion (20.4 percent) was for drugs and 
medicines. The remainder funded, among other things, state homes for 
the care of disabled veterans, transportation of veterans to and from 
medical centers for treatment, and logistical support and facility 
maintenance for VHA medical centers nationwide.
    In 2008, GAO found that VA policies and procedures were not 
designed to provide adequate controls over the authorization and use of 
miscellaneous obligations with respect to oversight by contracting 
officials, segregation of duties, and supporting documentation for the 
obligation of funds. Collectively, these control design flaws increased 
the risk of fraud, waste, and abuse. These control design flaws were 
confirmed in GAO's case studies at VHA medical centers in Pittsburgh, 
Pennsylvania; Cheyenne, Wyoming; and Kansas City, Missouri. For 
example, in all of the 42 obligations reviewed, GAO found no documented 
approval by contracting officials. The systems used did not have a 
mechanism for contracting officials to electronically document their 
review of miscellaneous obligations and no manual documentation 
procedures had been developed. Furthermore, in 30 of the 42 obligations 
reviewed, one official performed two or more of the following 
functions: requesting, creating, approving or obligating funds for the 
miscellaneous obligation, or certifying delivery of goods and services 
and approving payment. Without proper segregation of duties, risk of 
errors, improper transactions, and fraud increases. Last, GAO found a 
lack of adequate supporting documentation at the three medical centers 
we visited. In 8 of 42 instances, GAO could not determine the nature, 
timing, or the extent of the goods or services being procured from the 
description in the purpose field. As a result, GAO could not confirm 
that these miscellaneous obligations were for bona fide needs or that 
the invoices reflected a legitimate use of Federal funds.
    In January 2009, VA issued volume II, chapter 6 of VA Financial 
Policies and Procedures--Miscellaneous Obligations which outlines 
detailed policies and procedures aimed at addressing the deficiencies 
GAO identified in the September 2008 report. Full and effective 
implementation of this new guidance will be critical to reducing the 
Government's risks associated with VA's use of miscellaneous 
obligations. GAO has not yet evaluated the extent to which these new 
policies have been fully and effectively implemented.
                               __________
    Mr. Chairman and Members of the Subcommittee:
    I am pleased to be here today to discuss the findings from our 
prior work on the Veterans Health Administration's (VHA)--a component 
of the Department of Veterans Affairs' (VA)--use of miscellaneous 
obligations,\1\ and steps VA is taking to address our prior 
recommendations. VHA provides a broad range of primary health care, 
specialized health care, and related medical and social support 
services through a network of more than 1,200 medical facilities. In 
carrying out its responsibilities, VHA uses ``miscellaneous 
obligations'' to obligate, or administratively reserve estimated funds 
against appropriations for the procurement of a variety of goods and 
services for which specific quantities and time frames are uncertain. 
VHA officials said that they have been using miscellaneous obligations 
for over 60 years to record estimates of obligations to be incurred at 
a later time.\2\ According to VA policy,\3\ miscellaneous obligations 
can be used to record estimated obligations to facilitate the 
procurement of a variety of goods and services, including fee-based 
medical and nursing services and beneficiary travel.
---------------------------------------------------------------------------
    \1\ An obligation is a definite commitment that creates a legal 
liability of the Government for the payment of goods and services 
ordered or received, or a legal duty on the part of the United States 
that could mature into a legal liability by virtue of actions on the 
part of the other party beyond the control of the United States. 
Payment may be made immediately or in the future.
    \2\ A Office of Finance Directive, VA Controller Policy MP-4, part 
V, chapter 3, section A, paragraph 3A.01 Types of Obligations and 
Methods of Recording states in pertinent part that ``it will be noted 
that in many instances an estimated miscellaneous obligation (VA Form 
4-1358) is authorized for use to record estimated monthly obligations 
to be incurred for activities which are to be specifically authorized 
during the month by the issuance of individual orders, authorization 
requests, etc. These documents will be identified by the issuing 
officer with the pertinent estimated obligation and will be posted by 
the accounting section to such estimated obligation.''
    \3\ VA Office of Finance Directive, VA Controller Policy MP-4, part 
V, chapter 3, section A, paragraph 3A.02 Estimated Miscellaneous 
Obligation or Change in Obligation (VA Form 4-1358).
---------------------------------------------------------------------------
    The large dollar amount of procurements recorded as miscellaneous 
obligations in fiscal year 2007--$6.9 billion--raised questions about 
whether proper controls were in place over the authorization and use of 
those funds. In September 2008 we reported \4\ that improvements were 
needed in VHA's design of controls over miscellaneous obligations.
---------------------------------------------------------------------------
    \4\ GAO, Veterans Health Administration: Improvements Needed in 
Design of Controls over Miscellaneous Obligations, GAO-08-976 
(Washington, D.C.: Sept. 11, 2008).
---------------------------------------------------------------------------
    My testimony today summarizes the findings of our September 2008 
report that are most relevant to the subject of today's hearing. 
Specifically, I will focus on our findings concerning (1) how VHA used 
miscellaneous obligations during fiscal year 2007, and (2) the extent 
to which VA's policies and procedures were designed to provide adequate 
controls over their authorization and use. I will also discuss the 
results of our limited review of the status of VA's actions to 
implement our recommendations.
    To achieve the first objective, we obtained and analyzed a copy of 
VHA's Integrated Funds Distribution, Control Point Activity, Accounting 
and Procurement (IFCAP) database of miscellaneous obligations.\5\ 
According to VA, the IFCAP database provided the best available data on 
VHA miscellaneous obligations created in fiscal year 2007. We 
determined that the IFCAP data were sufficiently reliable for the 
purposes of our report based on (1) testing various required data 
elements, (2) performing walkthroughs of the system, and (3) tracing 
selected transactions from source documents to the database. To achieve 
the second objective, we compared VA policies and procedures governing 
the use of miscellaneous obligations with Federal appropriations law 
\6\ and internal control standards,\7\ interviewed VHA officials in 
Denver, Colorado, and Washington, D.C., and conducted three case 
studies at VHA medical centers in Cheyenne, Wyoming; Kansas City, 
Missouri; and Pittsburgh, Pennsylvania. As part of the case studies, we 
interviewed VHA financial management and procurement officials, and 
reviewed a nongeneralizable sample of miscellaneous obligations to 
provide more detailed data on the extent and nature of any control 
design deficiencies. We did not review VHA's procurement or service 
authorization processes. Additional details on our scope, methodology, 
and findings are included in our September 2008 report.\8\ To assess 
the status of our prior recommendations, we reviewed volume II, chapter 
6 of VA Financial Policies and Procedures--Miscellaneous Obligations 
(dated January 2009) which outlines detailed policies and procedures 
aimed at addressing the deficiencies we identified in our September 
2008 report. We have not tested whether or to what extent VA has 
effectively implemented these policies and procedures.
---------------------------------------------------------------------------
    \5\ IFCAP is used to create miscellaneous obligations at VA and 
serves as a feeder system for VA's Financial Management System, the 
department's financial reporting system of record used to generate VA 
financial statements and other reports.
    \6\ GAO, Principles of Federal Appropriations Law third ed vol II, 
GAO-06-382SP (Washington, D.C.: February 1, 2006).
    \7\ GAO, Standards for Internal Control in the Federal Government, 
GAO/AIMD-00-21.3.1 (Washington, D.C.: November 1999).
    \8\ GAO-08-976.
---------------------------------------------------------------------------
    We conducted the work for the September 2008 report on which this 
testimony was based from November 2007 through July 2008 in accordance 
with generally accepted Government auditing standards. Those standards 
require that we plan and perform the audit to obtain sufficient, 
appropriate evidence to provide a reasonable basis for our findings and 
conclusions based on our audit objectives. We believe that the evidence 
obtained provides a reasonable basis for our findings and conclusions 
based on our audit objectives. We also conducted a limited review of 
VA's actions to address our recommendations intended to improve its use 
of miscellaneous obligations.

Miscellaneous Obligations Used Extensively for Mission-Related 
        Activities in Fiscal Year 2007

    In fiscal year 2007, VHA used miscellaneous obligations to record 
over $6.9 billion against its appropriations for the procurement of 
mission-related goods and services at 129 VHA stations throughout the 
country.\9\ As shown in figure 1, $3.8 billion of this total (55.1 
percent) was for fee-based medical and dental services for veterans, 
and another $1.4 billion (20.4 percent) was for drugs, medicines, and 
hospital supplies. The remainder covered, among other things, state 
homes for the care of disabled veterans,\10\ transportation of veterans 
to and from medical centers for treatment, and logistical support and 
facility maintenance for VHA medical centers nationwide.
---------------------------------------------------------------------------
    \9\ The IFCAP database of miscellaneous obligations included 129 
VHA stations. A VHA station may include more than one medical center 
and is located in one of VHA's 21 Veterans Integrated Service Networks 
(VISN). A VISN oversees the operations of the VHA stations (various 
medical centers and treatment facilities) within its assigned 
geographic area.
    \10\ State veterans homes are established by individual states and 
approved by VA for the care of disabled veterans. The homes include 
facilities for domiciliary nursing home care and adult day health care.

---------------------------------------------------------------------------
Figure 1: VHA Miscellaneous Obligations for Fiscal Year 2007

[GRAPHIC] [TIFF OMITTED] T4421.001

    Source: GAO analysis of VHA data

    VHA officials said they used miscellaneous obligations to 
administratively reserve estimated funds required to facilitate the 
payments for goods and services for which specific quantities and time 
frames were uncertain. Specifically, a miscellaneous obligation can be 
created for an estimated amount and then modified as specific 
quantities are needed or specific delivery dates are set. In contrast, 
when a purchase order is used to obligate funds, the obligated amount 
cannot be changed without a modification of the purchase order. 
According to VHA officials, the need to prepare numerous modifications 
to purchase orders could place an undue burden on the limited 
contracting personnel available at individual centers and could also 
require additional work on the part of fiscal services personnel. 
Therefore, VHA officials view the use of miscellaneous obligations as 
having the benefit of reduced workload.
    Another cited benefit was that miscellaneous obligations simplify 
the procurement process when no underlying contract or purchase order 
exists. For example, providing medical care on a fee-basis to veterans 
outside of VHA medical centers may involve the services of thousands of 
private physicians nationwide. Attempting to negotiate a separate 
agreement or contract with each of these individuals would be a 
difficult task for VHA's contracting staff. Under the policies and 
procedures in place during fiscal year 2007, VHA centers could use 
miscellaneous obligations as umbrella authorizations for fee-based 
medical services performed by a number of different physicians. In 
effect, in cases for which there is no preexisting contract, the 
miscellaneous obligation form becomes the record of an obligation.\11\
---------------------------------------------------------------------------
    \11\ VA officials said that this practice is consistent with 38 
C.F.R. 17.52, which provides that infrequently used services, such as 
fee-basis services, may be initiated using individual authorizations. 
They said that individual authorizations for fee-basis care are not 
subject to procurement regulations, and that procurement regulations 
apply when the need for like medical services from the same medical 
provider is frequent enough to warrant the use of standard acquisition 
processes.

Deficiencies in Design of Controls over Miscellaneous Obligations 
---------------------------------------------------------------------------
        Increase the Risk of Fraud, Waste, and Abuse

    In September 2008, we reported that VA policies and procedures were 
not designed to provide adequate controls over the use of miscellaneous 
obligations. The use of miscellaneous obligations carries inherent risk 
due to a lack of a negotiated contract. Without effectively designed 
mitigating controls, the use of miscellaneous obligations may also 
expose VHA to increased risk of fraud, waste, and abuse. VHA did not 
have effective basic internal controls nor mitigating controls with 
respect to oversight by contracting officials, segregation of duties, 
and supporting documentation for recording the obligation of funds. Our 
Standards for Internal Control in the Federal Government \12\ state 
that agency management is responsible for developing detailed policies 
and procedures for internal control suitable for its agency's 
operations and ensuring that they provide for adequate monitoring by 
management, segregation of duties, and supporting documentation for the 
need to acquire specific goods in the quantities purchased. We 
identified control design flaws in each of these areas, and we 
confirmed that these weaknesses existed in our case studies of VA 
fiscal year 2007 transactions at Pittsburgh, Cheyenne, and Kansas City, 
as shown below in table 1. Collectively, these control design flaws 
increase the risk of unauthorized procurements, overpayments for 
services rendered, and the conversion of VHA assets for personal use 
without detection.
---------------------------------------------------------------------------
    \12\ GAO/AIMD-00-21.3.1.

Table 1: Summary of Case-Study Results

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                              Inadequate supporting documentation
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                     No documented
                                   Number of      Dollar value of     approval by       Inadequate        Incomplete      Blank vendor    Blank contract
           Station                obligations       obligations       contracting     segregation of       purpose           field           field c
                                   reviewed          reviewed          officials         duties a       description b
--------------------------------------------------------------------------------------------------------------------------------------------------------
Pittsburgh                     14..............  $6,694,853......  14..............  9...............  3..............  6..............  3
--------------------------------------------------------------------------------------------------------------------------------------------------------
Cheyenne                       11                $2,076,648        11                11                1                6                4
--------------------------------------------------------------------------------------------------------------------------------------------------------
Kansas City d                  17                $27,274,395       17                10                4                8                9
--------------------------------------------------------------------------------------------------------------------------------------------------------
    Total....................  42                $36,045,896       42                30                8                20               16
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: GAO analysis of VHA data.
a In 30 of the 42 obligations we reviewed, one official performed two or more of the following functions: requesting, creating, approving, or obligating
  funds for the original miscellaneous obligations, or certifying delivery of goods and services and approving payment.
b In 8 of 42 instances, we could not determine the nature, timing, or the extent of the goods or services being procured from the description in the
  purpose field without reference to supporting invoices.
c In these instances, we confirmed that contracts existed, but no contract number was listed on the miscellaneous obligation document.
d Includes facilities located in Kansas City, Kansas; Wichita, Kansas; Columbia, Missouri; and eastern Kansas.


Inadequate Oversight of Miscellaneous Obligations

    The 42 miscellaneous obligations we reviewed at three VHA stations 
had no evidence of approval by contracting officials. The systems used 
did not have a mechanism for contracting officials to electronically 
document their review of miscellaneous obligations, and no manual 
documentation procedures had been developed.\13\ Furthermore, none of 
the three sites we visited had procedures in place to document review 
of the miscellaneous obligations by the appropriate contracting 
authorities. As a result, VHA lacks assurance that miscellaneous 
obligations are being reviewed and that related policies are being 
followed. Effective oversight and review by trained, qualified 
officials is a key factor in helping to assure that funds are used for 
their intended purposes, in accordance with laws, while minimizing the 
risk for fraud, waste, or abuse. Without control procedures to help 
ensure that contracting personnel review and approve miscellaneous 
obligations prior to their creation, VHA is at risk that procurements 
do not have the necessary safeguards.
---------------------------------------------------------------------------
    \13\ To help minimize the use of miscellaneous obligations, VA 
policy (VA Office of Finance Bulletin 06GA1.05) entitled Revision to 
MP-4, Part V, Chapter 3, section A, Paragraph 3A.02--Estimated 
Miscellaneous Obligation or Change in Obligation (VA Form 4-1358) 
(Sept. 29, 2006) stated that miscellaneous obligations would not be 
used as obligation control documents unless the contracting authority 
for a station had determined that purchase orders or contracts would 
not be required. VA policy also required a review of miscellaneous 
obligations by contracting officials to help ensure proper use in 
accordance with Federal acquisition regulations, but did not address 
the intended extent and nature of these reviews or how the reviews 
should be documented.
---------------------------------------------------------------------------
    For example, in our case study at the VA Pittsburgh Medical Center, 
we found 12 miscellaneous obligations, totaling about $673,000, used to 
pay for laboratory services provided by the University of Pittsburgh 
Medical Center (UPMC). The Chief of Acquisition and Materiel Management 
for the VA Pittsburgh Medical Center stated that she was not aware of 
the UPMC's laboratory testing service procurements and would review 
these testing services to determine whether a contract should have been 
established for these procurements. Subsequently, she stated that VISN 
4--the Veterans Integrated Service Network (VISN) that oversees the 
operations of the VA Pittsburgh Medical Center--would revise procedures 
to procure laboratory testing services through purchase orders backed 
by reviewed and competitively awarded contracts, instead of funding 
them through miscellaneous obligations.
    In the absence of review by contracting officials, controls were 
not designed to prevent miscellaneous obligations from being used for 
unauthorized purposes, or for assets that could be readily converted to 
personal use. Our analysis of the IFCAP database for fiscal year 2007 
identified 145 miscellaneous obligations for over $30.2 million that 
were used for procurement of such items as passenger vehicles; 
furniture and fixtures; office equipment; and medical, dental, and 
scientific equipment. Although VA's miscellaneous obligation policy did 
not address this issue, VA officials stated that acquisition of such 
assets should be done by contracting rather than through miscellaneous 
obligations. Without adequate controls to review miscellaneous 
obligations and prevent them from being used for the acquisition of 
such assets, it is possible that VHA may be exposing the agency to 
unnecessary risks by using miscellaneous obligations to fund the 
acquisitions of goods or services that should have been obtained under 
contract with conventional controls built in.

Inadequate Segregation of Duties

    VA policies and procedures and IFCAP's control design allowed a 
single official to perform multiple key roles in the process of 
creating and executing miscellaneous obligations. Control point 
officials were authorized to create, edit, and approve requests for 
miscellaneous obligations. In addition, these same individuals could 
certify the delivery of goods and services and approve payment. Similar 
weaknesses have been reported by agency auditors as well.\14\ Federal 
internal control standards provide that for an effectively designed 
control system, key duties and responsibilities need to be divided or 
segregated among different people to reduce the risk of error or 
fraud.\15\ These controls should include separating the 
responsibilities for authorizing transactions, processing and recording 
them, reviewing the transactions, and accepting any acquired assets. 
Without proper segregation of duties, risk of errors, improper 
transactions, and fraud increases. The lack of segregation could allow 
for improper expenditures to occur without detection.
---------------------------------------------------------------------------
    \14\ Department of Veterans Affairs, Office of Inspector General, 
Audit of Alleged Mismanagement of Government Funds at the VA Boston 
Healthcare System, Report No. 06-00931-139 (Washington, D.C.: May 31, 
2007); Grant Thornton, Department of Veterans Affairs, OMB Circular A-
123, Appendix A--Findings and Recommendations Report (Procurement 
Management) (July 18, 2007).
    \15\ GAO/AIMD-00-21.3.1.
---------------------------------------------------------------------------
    Our case studies showed inadequate segregation of key duties in 30 
of the 42 obligations we reviewed. In these instances, controls were 
not designed to prevent one official from performing two or more of the 
following key functions:

          requesting the miscellaneous obligation,
          approving the miscellaneous obligation,
          recording the obligation of funds, or
          certifying delivery of goods and services and 
        approving payment.

    For example, in one case in Pittsburgh, one official requested and 
approved a miscellaneous obligation of over $140,000 for medical 
services and then certified receipt and approved payment for at least 
$43,000 of those services. In another case in Cheyenne, we found one 
miscellaneous obligation for utilities where one official requested, 
approved, and certified receipt and approved payment of over $103,000 
in services. Such weak control design could enable a VHA employee to 
convert VHA assets to his or her personal use, without detection.

Lack of Adequate Supporting Documentation

    Control design flaws in VA's policies and procedures resulted in 
several instances of insufficient documentation to determine whether 
the miscellaneous obligations we reviewed as part of our case-study 
analysis represented a bona fide need. Specifically, VA policies and 
procedures were not sufficiently detailed to require the type of 
information needed such as purpose, vendor, and contract number that 
would provide crucial supporting documentation for the obligation. 
Internal control standards provide that transactions should be clearly 
documented and all documentation and records should be properly managed 
and maintained.\16\ Adequate documentation is essential to support an 
effective funds control system; is crucial in helping to ensure that a 
procurement represents a bona fide need; and reduces the risk of fraud, 
waste, and abuse. When a legal obligation is recorded, it must be 
supported by adequate documentary evidence of the liability.\17\ An 
agency should use its best estimate to reserve an amount for future 
obligation when the amount of the Government's final liability is 
undefined. Further, the basis for the estimated liability and the 
computation must be documented.
---------------------------------------------------------------------------
    \16\ GAO/AIMD-00-21.3.1.
    \17\ 31 U.S.C. Sec. 1501(a).
---------------------------------------------------------------------------
    We found that 8 of the 42 miscellaneous obligations had 
insufficient data to determine whether the miscellaneous obligation 
represented a bona fide need. This level of documentation was not 
sufficient for an independent reviewer to determine what items were 
procured and whether the appropriate budget object code was charged. As 
a result of these deficiencies, in several cases we had to rely on 
invoices to determine the probable purpose of the miscellaneous 
obligation and whether it represented a bona fide need.
    For example, in Kansas City, we found one miscellaneous obligation 
for over $1.3 million whose purpose was listed as ``To obligate funds 
for the Oct 06 payment,'' while the associated invoices showed that the 
miscellaneous obligation was used to cover the services of medical 
resident staff. In Pittsburgh, we found a miscellaneous obligation for 
over $45,000 whose purpose was listed as ``LABCORP 5/1-5/31/07,'' while 
the associated invoices showed that the obligation was for laboratory 
testing services. Without procedures calling for more definitive 
descriptions of the purpose, we could not confirm that these 
miscellaneous obligations were for bona fide needs or that the invoices 
reflected a legitimate use of Federal funds. Other instances of 
inadequate supporting documentation we found during our case-study 
analysis included the absence of vendor names for 20 of the 42 
miscellaneous obligations, and missing contract numbers for 16 of the 
42 miscellaneous obligations.
    Inadequate control requirements for supporting documentation and 
completing data fields concerning the purpose of the obligation, vendor 
information, and contract numbers can hinder oversight by senior VA 
management officials. The Deputy Assistant Secretary for Logistics and 
Acquisition \18\ said that he and other VHA officials use the IFCAP 
database to monitor the extent and nature of miscellaneous obligations 
nationwide, including analyzing the number and dollar amounts of 
miscellaneous obligations and identifying the types of goods and 
services procured using miscellaneous obligations. He told us that he 
was concerned with the extent and nature of the use of miscellaneous 
obligations at VA, that he lacked adequate oversight or control over 
procurements made through miscellaneous obligations, and that he often 
did not know what was being bought or whom it was being bought from. 
Our analysis of the IFCAP database found that over 88,000 (69 percent) 
of 127,070 miscellaneous obligations did not include vendor 
information, accounting for over $5 billion of the $6.9 billion in 
recorded miscellaneous obligations in fiscal year 2007. Similarly, the 
IFCAP database did not contain a description of what was purchased or 
information on the quantities purchased. As a result, important 
management information was not available to senior VA procurement 
officials.
---------------------------------------------------------------------------
    \18\ This official acts as VA's Senior Procurement Executive and 
oversees the development and implementation of policies and procedures 
for department-wide acquisition and logistics programs supporting all 
VA facilities.

VA Has Made Improvements in Its Policies and Procedures, but 
---------------------------------------------------------------------------
        Implementation Has Not Been Assessed

    Our September 2008 report included four recommendations to VA to 
develop and implement policies and procedures intended to improve 
overall control. These recommendations focused on the need to better 
ensure adequate oversight of miscellaneous obligations by contracting 
officials; segregation of duties from initiation through receipt of the 
resulting goods and services; maintaining supporting documentation for 
miscellaneous obligations; and establishing an oversight mechanism to 
ensure control policies and procedures are fully and effectively 
implemented. In comments on a draft of that report, VA concurred with 
our recommendations and has since taken action to develop policies and 
procedures to address them. Specifically, in January 2009, VA issued 
volume II, chapter 6 of VA Financial Policies and Procedures--
Miscellaneous Obligations which outlines detailed policies and 
procedures aimed at addressing the deficiencies we identified in our 
September 2008 report.
    Key aspects of the policies and procedures VA developed in response 
to our four recommendations were the following:

          Oversight of miscellaneous obligations by contracting 
        officials--VA issued procedures regarding the review of 
        miscellaneous obligations by contracting officials. 
        Specifically, the request and approval of miscellaneous 
        obligations by contracting officials are to be reviewed by the 
        Head of Contracting Activity or delegated to the Local Head of 
        Contracting Activity. In addition, the obligation document will 
        be returned to the initiating office if the miscellaneous 
        obligation is not appropriately signed off by the Head of 
        Contracting Activity.
          Segregation of duties--VA issued procedures that 
        require that no one official may control all key aspects of a 
        transaction or event. Specifically, no one official may perform 
        more than one of the following key functions: requesting the 
        miscellaneous obligation; approving the miscellaneous 
        obligation; recording the obligation of funds; or certifying 
        the delivery of goods and services or approving payment.
          Supporting documentation for miscellaneous 
        obligations--New procedures require completion of the purpose, 
        vendor, and contract number fields on VA Form 1358, Estimated 
        Miscellaneous Obligation or Change in Obligation. The 
        procedures permit that a new miscellaneous obligation can only 
        be processed if the appropriate information is recorded in the 
        purpose, vendor, and contract field. The purpose field must be 
        specific, contain adequate references, and note the period of 
        performance; the vendor name and address must be provided, 
        except in the case of multiple vendors; and the contract number 
        must be included on the miscellaneous obligation document.
          Oversight mechanism to ensure control policies and 
        procedures are fully and effectively implemented--VA developed 
        procedures requiring oversight to help ensure the new policies 
        and procedures are followed. For example, each facility is now 
        responsible for performing independent oversight of the 
        authorization and use of miscellaneous obligations. In 
        addition, facility reviews must be performed quarterly, at a 
        minimum, and should include all new miscellaneous obligations 
        or changes to existing miscellaneous obligations that occurred 
        in the previous quarter. The facility may use sampling to 
        conduct the quarterly reviews. Further, the results of the 
        independent reviews are to be documented and recommendations 
        tracked by facility officials.

         VA actions taken to develop policies and procedures intended 
        to address the deficiencies found in our September 2008 report 
        represent an important first step. However, full and effective 
        implementation of VA's new policies and procedures will be even 
        more important. We have not yet fully evaluated the extent to 
        which VA's new policies and procedures are in place and 
        operating as intended. Further, VA's ability to fully and 
        effectively address the deficiencies identified in our 
        September 2008 report concerning miscellaneous obligations may 
        be adversely affected by continuing financial system weaknesses 
        reported by agency auditors. Specifically, one of the 
        weaknesses we reported on in November 2009 \19\ was that VA 
        lacked a system to track obligations and purchases by vendors, 
        resulting in VA relying on those vendors to supply operational 
        sales data on medical center purchases. Consequently, this type 
        of deficiency exposes VA to continued risk of errors in 
        financial information and reporting, potentially impacting 
        actions VA has made in developing policies and procedures 
        intended to increase accountability and controls over its use 
        of miscellaneous obligations.
---------------------------------------------------------------------------
    \19\ GAO, Department of Veterans Affairs: Improvements Needed in 
Corrective Action Plans to Remediate Financial Reporting Material 
Weaknesses, GAO-10-65 (Washington, D.C.: Nov. 16, 2009).

    In summary, our September 2008 report demonstrated that without 
basic controls in place over billions of dollars in miscellaneous 
obligations, VA is at significant risk of fraud, waste, and abuse. 
Effectively designed internal controls serve as the first line of 
defense for preventing and detecting fraud, and they help ensure that 
an agency effectively and efficiently meets its missions, goals, and 
objectives; complies with laws and regulations; and is able to provide 
reliable financial and other information concerning its programs, 
operations, and activities. VA management has made progress to reduce 
the risks associated with the authorization and use of miscellaneous 
obligations by developing policies and procedures that improve overall 
control design over miscellaneous obligations. However, full and 
effective implementation of this new guidance will be critical to 
reducing the Government's risks associated with VA's use of 
miscellaneous obligations.
    Mr. Chairman and Ranking Member Roe, this concludes my prepared 
statement. I would be happy to respond to any questions you or other 
Members of the Subcommittee may have at this time.

GAO Contact and Staff Acknowledgments

    For further information about this testimony, please contact Kay L. 
Daly, Director, Financial Management and Assurance at (202) 512-9095, 
or [email protected]. Contact points for our Offices of Congressional 
Relations and Public Affairs may be found on the last page of this 
testimony. Major contributors to this testimony included Glenn Slocum, 
Assistant Director; Carla Lewis, Assistant Director; Richard Cambosos; 
Debra Cottrell; Francine DelVecchio; Daniel Egan; W. Stephen Lowrey; 
Robert Sharpe; and George Warnock.


                                 
   Prepared Statement of Gregory D. Kutz, Managing Director, Forensic
   Audits and Special Investigations, U.S. Government Accountability 
                                 Office
         Service-Disabled Veteran-Owned Small Business Program:
          Case Studies Show Fraud and Abuse Allowed Ineligible
            Firms to Obtain Millions of Dollars in Contracts
                             GAO Highlights

Why GAO Did This Study

    The Service-Disabled Veteran-Owned Small Business (SDVOSB) program 
is intended to provide Federal contracting opportunities to qualified 
firms. In fiscal year 2008, the Small Business Administration (SBA) 
reported $6.5 billion in Governmentwide sole-source, set-aside, and 
other SDVOSB contract awards. Given the amount of Federal contract 
dollars being awarded to SDVOSB firms, GAO was asked to determine (1) 
whether cases of fraud and abuse exist within the SDVOSB program and 
(2) whether the program has effective fraud prevention controls in 
place.
    To identify whether cases exist, GAO reviewed SDVOSB contract 
awards and protests since 2003 and complaints sent to GAO's fraud 
hotline. GAO defined case-study firms as one or more affiliated firms 
that were awarded one or more SDVOSB contracts. To assess fraud 
prevention controls, GAO reviewed laws and regulations and conducted 
interviews with SBA and Department of Veterans Affairs (VA) officials. 
GAO did not attempt to project the extent of fraud and abuse in the 
program. In addition, GAO did not attempt to assess the overall 
effectiveness of VA's validation process to prevent or address fraud 
and abuse in VA SDVOSB contracts.

What GAO Found

    GAO found that the SDVOSB program is vulnerable to fraud and abuse, 
which could result in legitimate service-disabled veterans' firms 
losing contracts to ineligible firms. The 10 case-study firms that GAO 
investigated received approximately $100 million in SDVOSB sole-source 
and set-aside contracts through fraud, abuse of the program, or both. 
For example, contracts for Hurricane Katrina trailer maintenance were 
awarded to a firm whose owner was not a service-disabled veteran. GAO 
also found that SDVOSB companies were used as pass-throughs for large, 
sometimes multinational corporations. In another case a full-time 
Federal contract employee at MacDill Air Force Base set up a SDVOSB 
company that passed a $900,000 furniture contract on to a company where 
his wife worked, which passed the work to a furniture manufacturer that 
actually delivered and installed the furniture. The table below 
provides details on 3 of the 10 cases, all of which included fraud and 
abuse related to VA sole source or set aside SDVOSB contracts.


                Details of Three Ineligible SDVOSB Cases
------------------------------------------------------------------------
      Industry             Award--agencies                Notes
------------------------------------------------------------------------
Construction,        $39.4 million--VA           SBA determined the firm
 maintenance, and                                 was ineligible because
 repair                                           a non-service-disabled
                                                  veteran manages daily
                                                  operations.

                                                 Service-disabled
                                                  veteran owned and
                                                  managed a restaurant
                                                  in another city 80
                                                  miles away when the
                                                  contract was awarded.

                                                 Despite being
                                                  ineligible, VA allowed
                                                  the firm to continue
                                                  multiple SDVOSB
                                                  contracts.
------------------------------------------------------------------------
Construction and     $5 million--VA, U.S. Fish   Firm is ineligible
 janitorial           and Wildlife Service,       because it
 services             Agricultural Research       subcontracts 100
                      Service, and U.S. Forest    percent of the work to
                      Service                     non-SDVOSB firms.

                                                 Our investigation found
                                                  that the SDVOSB firm
                                                  utilizes employees
                                                  from a large non-
                                                  SDVOSB foreign-based
                                                  corporation, which
                                                  reported almost $12
                                                  billion in annual
                                                  revenue in 2008, to
                                                  perform contracts.

                                                 Firm is currently
                                                  listed in VA database
                                                  of verified SDVOSB
                                                  firms.
------------------------------------------------------------------------
Construction,        $8.1 million--VA            Firm is ineligible
 maintenance, and                                 because the service-
 medical equipment                                disabled veteran owner
                                                  is a full time New
                                                  Jersey state employee
                                                  and does not manage
                                                  day-to-day operations.

                                                 Our investigation found
                                                  that the firm's 49
                                                  percent non-service-
                                                  disabled veteran owner
                                                  owns five additional
                                                  construction firms at
                                                  the same address as
                                                  the SDVOSB firm
                                                  receiving contracts.
------------------------------------------------------------------------
Source: GAO analysis of FPDS-NG, ORCA, CCR, and contractor data and
  interviews.

    GAO found that the government does not have effective fraud 
prevention controls in place for the SDVOSB program. However, in 
response to the Veterans Benefits, Health Care, and Information 
Technology Act of 2006, VA is developing a certification processes for 
SDVOSB firms, but currently the certification will only be used for 
contracting by VA. VA officials stated that the certification process 
could include reviews of documents, validation of the owner's service-
disabled veteran status, and potential site visits to SDVOSB firms. To 
be effective, VA's processes will need to include preventive controls, 
detection and monitoring of validated firms, and investigations and 
prosecutions of those found to be abusing the program. In a report GAO 
issued in October 2009, GAO suggested Congress consider providing VA 
with additional authority necessary to expand its SDVOSB verification 
process governmentwide.
                               __________
    Mr. Chairman and Members of the Subcommittee:
    The Small Business Administration (SBA), which, along with Federal 
procuring agencies, administers the Service-Disabled Veteran-Owned 
Small Business (SDVOSB) program, reported in fiscal year 2008 that $6.5 
billion \1\ in Federal contracts were awarded to firms that self-
certified themselves as SDVOSBs. Government contracts to SDVOSBs 
accounted for only 1.5 percent of all Government contract dollars paid 
in fiscal year 2008. Since the SDVOSB program began, the Government has 
not met its annual mandated goal of 3 percent.\2\ However, in fiscal 
year 2008 the Department of Veterans Affairs' (VA) SDVOSB contracts 
accounted for $1.7 billion, or 12 percent, of all VA small business 
eligible contracting dollars. In addition to SBA's statutory authority 
over administration of the SDVOSB program, several other Government 
agencies have separate authority over issues related to the SDVOSB 
program. The Veterans Benefits, Health Care, and Information Technology 
Act \3\ requires VA, among other things, to maintain a database of 
SDVOSBs and Veteran-Owned Small Businesses (VOSB) so contractor 
eligibility can be verified on VA SDVOSB and VOSB contracts. In 
addition, the Office of Federal Procurement Policy (OFPP), within the 
Office of Management and Budget, provides overall direction for 
Governmentwide procurement policies, regulations, and procedures to 
promote economy, efficiency, and effectiveness in the acquisition 
processes. The office's primary focus is on the Federal Acquisition 
Regulation (FAR), the Governmentwide regulation governing agency 
acquisitions of goods and services, including SDVOSB set-aside and 
sole-source contract actions.
---------------------------------------------------------------------------
    \1\ SBA calculates its SDVOSB total by including all dollars 
awarded to SDVOSBs, not just those received through set-aside or sole-
source contracts.
    \2\ SBA's Small Business Procurement Scorecards report the annual 
percentage share of SDVOSB awards.
    \3\ Veterans Benefits, Heath Care, and Information Technology Act 
of 2006, Pub. L. No. 109-461, 120 Stat. 3433 (2006).
---------------------------------------------------------------------------
    My statement summarizes our report issued in October 2009.\4\ This 
testimony discusses (1) whether cases of fraud and abuse exist within 
the SDVOSB program and (2) whether the program has effective fraud 
prevention controls in place.
---------------------------------------------------------------------------
    \4\ GAO, Service-Disabled Veteran-Owned Small Business Program: 
Case Studies Show Fraud and Abuse Allowed Ineligible Firms to Obtain 
Millions of Dollars in Contracts, GAO-10-108 (Washington, D.C.: Oct. 
23, 2009).
---------------------------------------------------------------------------
    To identify examples of firms that received SDVOSB contracts 
through fraudulent or abusive eligibility misrepresentations, we 
reviewed SDVOSB contract awards and protests filed with SBA since the 
program's inception in 2003. We also reviewed allegations of fraud and 
abuse sent to our fraud hotline, FraudNET. In addition, we posted 
inquiries on our Web page and on several veteran advocacy group Web 
pages and in newsletters seeking information on fraud or abuse of the 
SDVOSB program. We received over 100 allegations of fraud and abuse in 
the SDVOSB program. From these sources, we selected 10 cases for 
further investigation based on a variety of factors, including facts 
and evidence provided in protests and allegations, whether a firm 
received multiple SDVOSB contracts, and whether a firm received other 
non-SDVOSB contracts. To investigate these case studies, we interviewed 
firm owners and managers and reviewed relevant documentation, such as 
business filings and tax returns, to determine if SDVOSB eligibility 
requirements had been met. We also analyzed data from the Federal 
Procurement Data System--Next Generation (FPDS-NG) for 2003 through 
2009 \5\ to identify SDVOSB contracts received by the firms since the 
program's inception. Furthermore, we reviewed certifications made by 
firms, such as certifications about a firm's size, SDVOSB status, and 
line of business, in the Federal Government's Online Representations 
and Certifications Application (ORCA).\6\ To determine whether the 
program has effective fraud prevention controls in place, we reviewed 
relevant laws and regulations governing the SDVOSB program. We also 
interviewed agency officials about their responsibility for the program 
and controls currently in place to prevent or detect fraud and abuse. 
We did not attempt to project the extent of fraud and abuse in the 
program. In addition, we did not attempt to assess the overall 
effectiveness of VA's validation process to prevent or address fraud 
and abuse in VA SDVOSB contracts. Additional details on our scope and 
methodology can be found in our report issued in October 2009.\7\
---------------------------------------------------------------------------
    \5\ FPDS-NG is the central repository for capturing information on 
Federal procurement actions. Dollar amounts reported by Federal 
agencies to FPDS-NG represent the net amounts of funds obligated and 
deobligated as a result of procurement actions. Because we did not 
obtain disbursement data, we were unable to identify the actual amounts 
received by firms.
    \6\ ORCA was established as part of the Business Partner Network, 
an element of the Integrated Acquisition Environment, which was 
implemented by the Office of Management and Budget's OFPP and the Chief 
Acquisition Officers Council. ORCA is the primary Government repository 
for contractor-submitted representations and certifications required 
for conducting business with the Government.
    \7\ GAO-10-108.
---------------------------------------------------------------------------
    We conducted our audit work and investigation from October 2008 
through December 2009 in accordance with U.S. generally accepted 
Government auditing standards. Those standards require that we plan and 
perform the audit to obtain sufficient, appropriate evidence to provide 
a reasonable basis for our findings and conclusions based on our audit 
objectives. We believe that the evidence obtained provides a reasonable 
basis for our findings and conclusions based on our objectives. We 
performed our investigative work in accordance with the standards 
prescribed by the Council of the Inspectors General on Integrity and 
Efficiency.

Ineligible Firms Obtain Millions of Dollars in SDVOSB Contracts

    Fraud and abuse in the SDVOSB program allowed ineligible firms to 
improperly receive millions of dollars in set-aside and sole-source 
SDVOSB contracts, potentially denying legitimate service-disabled 
veterans and their firms the benefits of this program. We identified 10 
case-study examples of firms that did not meet SDVOSB program 
eligibility requirements but received approximately $100 million in 
SDVOSB contracts, and over $300 million in additional 8(a), HUBZone, 
and non-SDVOSB Federal Government contracts. Six of these 10 case 
studies were awarded one or more sole-source or set-aside SDVOSB 
contracts by VA. For example, 1 firm was awarded a $3.5 million 
contract by VA for janitorial services at a VA hospital, but 
subcontracted 100 percent of the work to an international firm. SBA 
found 4 of the 10 firms, including 2 firms that were awarded VA 
contracts, ineligible for the SDVOSB program through the agency's bid 
protest process.\8\ Nevertheless, because there are no requirements to 
terminate contracts when firms are found ineligible, several 
contracting agencies allowed the ineligible firms to continue their 
work. In addition to the 4 firms SBA found to be ineligible, we 
identified 6 other case-study firms that were not eligible for the 
SDVOSB program. The misrepresentations case-study firms made included a 
firm whose owner was not a service-disabled veteran, a serviced-
disabled veteran who did not control the firm's day-to-day operations, 
a service-disabled veteran who was a full-time Federal contract 
employee at MacDill Air Force Base, and firms that served as ``pass-
throughs'' for large and sometimes foreign-based corporations. In the 
case of a pass-through, a firm or joint venture lists a service-
disabled veteran as the majority owner, but contrary to program 
requirements, all work is performed and managed by a non-service-
disabled person or a separate firm.
---------------------------------------------------------------------------
    \8\ 15 U.S.C. Sec. 631 et seq., 13 C.F.R. Parts 125 and 134.
---------------------------------------------------------------------------
    Federal regulations set requirements for a small business to 
qualify as an SDVOSB. Specifically, SDVOSB eligibility regulations 
mandate that a firm must be a small business \9\ and at least 51 \10\ 
percent owned by one or more service-disabled veterans \11\ who control 
the management \12\ and daily business operations of the firm. In 
addition, SDVOSB regulations also place restrictions on the amount of 
work that can be subcontracted. Specifically, regulations require the 
SDVOSB to incur a mandatory percentage of the cost of the contract 
performance that can range from 15 percent to 50 percent, depending on 
the type of goods or services. The FAR requires each prospective 
contractor to update ORCA to state whether the firm qualifies as an 
SDVOSB under specific North American Industry Classification System 
codes. Pursuant to 15 U.S.C. Sec. 657 f(d), firms that knowingly make 
false statements or misrepresentations in certifying SDVOSB status are 
subject to penalties. Of the 10 cases we identify, all 10 of them 
represented to be SDVOSBs in the Central Contractor Registration 
(CCR).\13\ Table 1 provides details on our 10 case-study firms that 
fraudulently or abusively misrepresented material facts related to 
their eligibility for the SDVOSB program. We have referred all 10 firms 
to appropriate agencies for further investigation and consideration for 
removal from the program.
---------------------------------------------------------------------------
    \9\ The criteria for a small business are defined in 13 C.F.R. Part 
121.
    \10\ For any publicly owned business, not less than 51 percent of 
the stock must be owned by one or more service-disabled veterans.
    \11\ The term ``veteran'' means a person who served in the active 
military, naval, or air service, and who was discharged or released 
there from under conditions other than dishonorable. 38 U.S.C. 
Sec. 101(2). Service-disabled means, with respect to disability, that 
such disability was incurred or aggravated in line of duty in the 
active military, naval, or air service.
    \12\ In the case of a veteran with permanent and severe disability, 
the spouse or permanent caregiver of such veteran may control the 
business.
    \13\ CCR is the primary contractor registrant database for the U.S. 
Federal Government. CCR collects, validates, stores, and disseminates 
data in support of agency acquisition missions.


                                        Table 1: Case-Study Firm Details
----------------------------------------------------------------------------------------------------------------
                                                   SDVOSB contracts a for years
     Case            Industry and location           2003-2009,b and awarding              Case details
                                                             agencies
----------------------------------------------------------------------------------------------------------------
         1               Maintenance/repair      $7.5 million--Federal Emergency   Firm is ineligible
                                     North Las VegasManagement Agency (FEMA)      because majority owner is not
                                                                                  a service-disabled veteran.


                                                                                   Firm's ineligibility
                                                                                  was determined by SBA during a
                                                                                   bid protest in June 2007.


                                                                                       After the SBA
                                                                                  protest, in July of 2007 FEMA
                                                                                      sent the firm a letter
                                                                                  providing it approximately 30
                                                                                  days to vacate SDVOSB contract
                                                                                                     awards.


                                                                                   Company continues to
                                                                                  receive tens of millions in
                                                                                       non-SDVOSB contracts.


                                                                                   SBA determined that
                                                                                    the firm was ineligible;
                                                                                  however, the firm has not been
                                                                                  suspended or debarred from
                                                                                  receiving Federal contracts.
----------------------------------------------------------------------------------------------------------------
         2      Construction and janitorial      $5 million--VA, U.S. Fish and     Firm is ineligible
                                   services      Wildlife Service, Agricultural   because it does not perform
                              Chico, Calif.       Research Service, and U.S.      any work and subcontracts 100
                                                              Forest Service      percent of the work to non-
                                                                                               SDVOSB firms.


                                                                                  Our investigation
                                                                                  found that the firm employs
                                                                                  three full-time workers and
                                                                                  performs SDVOSB contract work
                                                                                  with employees from a large
                                                                                         international-based
                                                                                   corporation that reported
                                                                                  almost $12 billion in annual
                                                                                            revenue in 2008.


                                                                                   Firm received over 20
                                                                                  SDVOSB contracts since 2008.


                                                                                   Firm is currently
                                                                                  listed in VA's database of
                                                                                      verified SDVSOB firms.
----------------------------------------------------------------------------------------------------------------
         3      Construction/maintenance/repair            $39.4 million--VA       Firm is ineligible
                              Carnegie, Pa.                                       because a non-service-disabled
                                                                                  veteran manages and controls
                                                                                  the firm's daily operations.


                                                                                   Firm's ineligibility
                                                                                  was determined by SBA during a
                                                                                                bid protest.


                                                                                   Despite the firm's
                                                                                  being determined ineligible,
                                                                                      VA allowed the firm to
                                                                                    continue multiple SDVOSB
                                                                                  contracts because there are no
                                                                                  requirements for agencies to
                                                                                  terminate contracts awarded to
                                                                                           ineligible firms.


                                                                                        A non-SDVOSB
                                                                                  construction company, located
                                                                                  at the same address, manages
                                                                                     and performs the SDVOSB
                                                                                              contract work.


                                                                                    Service-disabled
                                                                                  veteran owned and managed a
                                                                                  restaurant in another city
                                                                                  over 80 miles away when the
                                                                                       contract was awarded.


                                                                                   SBA determined that
                                                                                    the firm was ineligible;
                                                                                  however, the firm has not been
                                                                                  suspended or debarred from
                                                                                  receiving Federal contracts.
----------------------------------------------------------------------------------------------------------------
         4      Construction/environmental/      $12.2 million--Environmental      Firm is ineligible
                defense technology/maintenance    Protection Agency and FEMA       because it is not a small
                          San Diego, Calif.                                                        business.


                                                                                   Our investigation
                                                                                     determined that Federal
                                                                                     agencies have obligated
                                                                                  approximately $171 million for
                                                                                  payment to the firm during
                                                                                  fiscal years 2003 to 2009,
                                                                                  exceeding SBA size standards
                                                                                  for average annual receipts.


                                                                                        Firm is also
                                                                                   ineligible because it has
                                                                                  formed at least five SDVOSB
                                                                                  joint ventures, violating SBA
                                                                                        joint-venture rules.


                                                                                       Firm uses the
                                                                                  employees from the large firm
                                                                                    in the joint ventures to
                                                                                  perform the SDVOSB contract
                                                                                                       work.
----------------------------------------------------------------------------------------------------------------
         5          Septic tank and related              $200,000--U.S. Army       Firm and its SDVOSB
                services/facilities support                                       joint ventures are ineligible
                services/rental and leasing                                       for the program because a non-
                                   services                                       SDVOSB firm performs the work.
                               Austin, Tex.

                                                                                   Firm and first joint
                                                                                     venture were determined
                                                                                  ineligible during an SBA bid
                                                                                                    protest.


                                                                                       After the SBA
                                                                                  determination, the non-SDVOSB
                                                                                  firm used another SDVOSB joint
                                                                                  venture to continue to receive
                                                                                           SDVOSB contracts.


                                                                                   Over $5 million in
                                                                                  Federal contracts has been
                                                                                  obligated to the firm and its
                                                                                  SDVOSB joint ventures since
                                                                                  SBA ruled the firm and its
                                                                                  first SDVOSB joint venture
                                                                                  ineligible for the program.


                                                                                    Service-disabled
                                                                                  veteran used to qualify for
                                                                                  current contracts lives over
                                                                                   1,800 miles from contract
                                                                                       performance location.


                                                                                   SBA determined that
                                                                                    the firm was ineligible;
                                                                                  however, the firm has not been
                                                                                  suspended or debarred from
                                                                                  receiving Federal contracts.
----------------------------------------------------------------------------------------------------------------
         6      Construction/maintenance/repair/            $8.1 million--VA       Firm is ineligible
                medical and surgical equipment                                    because the service-disabled
                           Burlington, N.J.                                       veteran owner is a full-time
                                                                                  New Jersey state employee and
                                                                                  does not manage the firm's day-
                                                                                          to-day operations.


                                                                                   Our investigation
                                                                                  also found that the firm's 49
                                                                                  percent owner, who is not a
                                                                                  service-disabled veteran, owns
                                                                                  five additional non-SDVOSB
                                                                                  construction firms at the same
                                                                                  address as the SDVOSB firm
                                                                                        receiving contracts.


                                                                                     SBA bid protest
                                                                                  initially determined that the
                                                                                  SDVOSB firm was ineligible
                                                                                  because the service-disabled
                                                                                  veteran did not own at least
                                                                                  51 percent of the firm. SBA
                                                                                  later reversed its decision
                                                                                     when the firm submitted
                                                                                          revised paperwork.
----------------------------------------------------------------------------------------------------------------
         7             Construction/roofing         $3.9 million--VA, Public       Firm is ineligible
                               Boise, Idaho      Buildings Service, and U.S.      because a non-service-disabled
                                                                        Army      veteran manages and controls
                                                                                  the firm's daily operations.


                                                                                   Our investigation
                                                                                     found that the service-
                                                                                      disabled veteran is an
                                                                                        employee of the firm
                                                                                  performing the contract work.


                                                                                   Joint venture was
                                                                                  established as a pass-through
                                                                                  for a non-SDVOSB roofing firm.


                                                                                   SDVOSB joint venture
                                                                                   and non-SDVOSB firm share
                                                                                  employees and adjust payrolls
                                                                                  to meet program percentage of
                                                                                          work requirements.


                                                                                    Service-disabled
                                                                                    veteran received only 26
                                                                                  percent of the joint venture's
                                                                                                    profits.
----------------------------------------------------------------------------------------------------------------
         8      Construction/specialty trade     $13.8 million--VA, U.S. Coast     Firm is ineligible
                                contracting         Guard, U.S. Army, Public      because a non-service-disabled
                                           LeominBuildings Service, and National  veteran manages and controls
                                                                Park Service      the firm's daily operations.


                                                                                          During our
                                                                                  investigation, firm executives
                                                                                  admitted that the service-
                                                                                     disabled veteran is not
                                                                                        involved with SDVOSB
                                                                                     construction contracts.


                                                                                    Service-disabled
                                                                                   veteran is an information
                                                                                   technology specialist who
                                                                                  currently works from home on
                                                                                    nongovernment contracts.


                                                                                     All the company
                                                                                  construction contracts are
                                                                                  managed by the non-service-
                                                                                  disabled partner of the firm.


                                                                                   The service-disabled
                                                                                  veteran does not receive a
                                                                                  salary from the company and
                                                                                   received less in Internal
                                                                                        Revenue Service 1099
                                                                                   distributions than the 10
                                                                                  percent minority owner of the
                                                                                                       firm.


                                                                                   Ten percent minority
                                                                                  owner of the SDVOSB firm is
                                                                                  also the president of another
                                                                                  construction company located
                                                                                  at the same address as the
                                                                                                SDVOSB firm.
----------------------------------------------------------------------------------------------------------------
         9       Construction/ maintenance/      $2.8 million--VA, U.S. Coast      Firm is ineligible
                                     repair             Guard, Department of      because a non-service-disabled
                                           LuthersAgriculture, and U.S. Army      veteran manages and controls
                                                                                       the firm's day-to-day
                                                                                  operations and because the
                                                                                  SDVOSB firm is a pass-through
                                                                                      for a non-SDVOSB firm.


                                                                                   Firm was determined
                                                                                  ineligible through an SBA bid
                                                                                                    protest.


                                                                                   Through interviews
                                                                                  and our review of documents
                                                                                   submitted by the firm, we
                                                                                  found that the SDVOSB firm
                                                                                  only has four employees and
                                                                                  the owner of a non-SDVOSB firm
                                                                                  is responsible for day-to-day
                                                                                        operations of SDVOSB
                                                                                                  contracts.


                                                                                     The SDVOSB firm
                                                                                  submitted 10 joint-venture
                                                                                  bids within a 5-month period,
                                                                                  violating Federal regulations.


                                                                                   After being found
                                                                                  ineligible by SBA, the firm
                                                                                        continued to receive
                                                                                  approximately $1.8 million in
                                                                                       new SDVOSB contracts.


                                                                                   SBA determined that
                                                                                    the firm was ineligible;
                                                                                  however, the firm has not been
                                                                                  suspended or debarred from
                                                                                  receiving Federal contracts.
----------------------------------------------------------------------------------------------------------------
        10      Furniture/merchant wholesaler       $900,000--U.S. Air Force       Firm is ineligible
                                Tampa, Fla.                                       because it does not perform
                                                                                  any work; it subcontracts 100
                                                                                  percent of the work to non-
                                                                                               SDVOSB firms.


                                                                                   Our investigation
                                                                                  found that the firm's service-
                                                                                  disabled veteran owner works
                                                                                  full-time as a Department of
                                                                                  Defense contract employee at
                                                                                  MacDill Air Force Base--the
                                                                                  same location as the contract
                                                                                                      award.


                                                                                   SDVOSB firm served as
                                                                                  a pass-through to a company
                                                                                  where the service-disabled
                                                                                  veteran's wife works, which
                                                                                  passed the work to a furniture
                                                                                  manufacturer that designed,
                                                                                  delivered, and installed the
                                                                                                  furniture.


                                                                                        Manufacturer
                                                                                  performed planning, design,
                                                                                  and installation of contracted
                                                                                                      goods.


                                                                                   This manufacturer is
                                                                                  also on the General Services
                                                                                  Administration schedule and
                                                                                     could have provided the
                                                                                       contracted goods at a
                                                                                  significantly lower price.


                                                                                   The firm's physical
                                                                                  address is the owner's home
                                                                                  and its mailing address is a
                                                                                       mailbox rental store.


                                                                                   Contracting officials
                                                                                  at MacDill Air Force Base were
                                                                                   aware of the pass-through
                                                                                   structure of the firm and
                                                                                  approved the award knowing
                                                                                   that the SDVOSB would not
                                                                                        perform the required
                                                                                         percentage of work.


                                                                                   Firm is currently
                                                                                  listed in VA's database of
                                                                                      verified SDVSOB firms.
----------------------------------------------------------------------------------------------------------------
Source: GAO analysis of FPDS-NG, ORCA, CCR, and contractor data and interviews.
a Obligation amounts are rounded to the nearest $100,000.
b Year 2009 amounts are through July 2009.

VA Plans to Develop Fraud Prevention Controls for VA SDVOSB Contractors

    We found that the Federal Government does not have an effective 
fraud prevention system in place for the SDVOSB program. The 10 case 
studies discussed above show the impact of the significant control 
weaknesses in the Governmentwide SDVOSB program, which allowed 
ineligible firms to receive millions in SDVOSB contracts. The lack of 
effective fraud prevention controls by SBA and agencies awarding 
contracts allowed these ineligible firms to receive approximately $100 
million of sole-source or set-aside SDVOSB contracts over the last 
several years. Recently, VA has taken steps to develop a validation 
program for contracts it awards to SDVOSBs and VOSBs. According to VA 
officials, these controls are being developed to validate eligibility 
for awarding VA contracts only. However, currently the VA validation 
program is not fully implemented.
    A well-designed fraud prevention system should consist of three 
crucial elements: (1) up front preventive controls, (2) detection and 
monitoring, and (3) investigations and prosecutions. For the SDVOSB 
program this would mean (1) front-end controls over program eligibility 
prior to contract award, (2) fraud detection and monitoring of firms 
already receiving SDVOSB contracts, and (3) the aggressive pursuit and 
prosecution of individuals committing fraud, including suspension and 
debarment and, if appropriate, termination of the contract. In 
addition, agency officials should also use ``lessons learned'' from 
detection and monitoring controls and investigations and prosecutions 
to design more effective preventive controls.
    VA's proposed validation program is encouraging in that it attempts 
to address at least the first of the three essential elements of a 
fraud prevention framework. The Veterans Benefits, Health Care, and 
Information Technology Act \14\--which took effect in June 2007--
requires VA, among other things, to maintain a database of SDVOSBs and 
VOSBs so that contractor eligibility can be verified. It also requires 
VA to determine whether SDVOSBs and VOSBs are indeed owned and 
controlled by veterans or service-disabled veterans in order to bid on 
and receive VA contracts. Last, it requires that VA set-aside and sole-
source awards be made only to firms that have had their eligibility 
verified. At the time the act took effect, VA already maintained an 
online database, VetBiz Vendor Information Pages, referred to as VA's 
VetBiz database, in which nearly 16,500 firms had self-certified as 
SDVOSBs or VOSBs. While not yet fully implemented,\15\ VA's planned 
validation program includes steps to verify a firm's eligibility for 
the program, including validating the service-disabled status claimed 
by an owner and his/her control of day-to-day operations. The VA 
program also includes plans for document reviews and site visits to 
firms seeking VA certification as SDVOSBs or VOSBs. Requiring 
submission of documents to demonstrate ownership and control of an 
SDVOSB has some value as a deterrent--ownership documents could have 
prevented instances demonstrated in our case studies where the service-
disabled veteran was receiving less than 51 percent of the profits. The 
most effective preventive controls involve the verification of 
information, such as verifying service-disabled status with VA's 
database and service-disabled veteran participation in the business 
through an unannounced site visit. Verification of service-disabled 
veteran status through VA's database could have prevented the most 
egregious example of fraud where the owner was not even a service-
disabled veteran. Although VA's proposed system was not intended for 
Governmentwide use, once the certification system is in place, all 
SDVOSBs wishing to do business with VA will eventually have to be 
certified.
---------------------------------------------------------------------------
    \14\ Veterans Benefits, Health Care, and Information Act of 2006, 
Pub. L. No. 109-461, 120 Stat. 3433 (2006).
    \15\ See GAO, Department of Veterans Affairs Contracting with 
Veteran-Owned Small Businesses, GAO-09-391R (Washington, D.C.: Mar. 19, 
2009).
---------------------------------------------------------------------------
    Although preventive controls are the most effective way to minimize 
fraud and abuse, to be effective, VA's process will need to include the 
remaining two elements of the fraud prevention model. The second 
element, monitoring and detection, involves actions such as data mining 
for fraudulent and suspicious applicants and evaluation of firms by 
contracting officers and program officials to provide reasonable 
assurance that contractors continue to meet program requirements. The 
final element of an effective fraud prevention system is the aggressive 
investigation and prosecution of individuals who commit fraud against 
the Federal Government. In a report we issued in October 2009, we 
suggested that Congress consider providing VA with the additional 
authority necessary to expand its SDVOSB eligibility verification 
process to all contractors seeking to bid on SDVOSB contracts 
Government wide. In addition, we recommended that the Administrator of 
SBA and the Secretary of Veterans Affairs coordinate with OFPP to 
explore the feasibility of requiring that all contractors that 
knowingly misrepresent their status as an SDVOSB be debarred for a 
reasonable period of time.
    VA generally agreed with our two recommendations. In its response, 
VA expressed that specific authority would be required for other 
agencies to be able to rely on the department's VetBiz database and 
exclude firms from acquisitions if not ``verified'' in this database. 
SBA's response, provided by the Associate Administrator for Government 
Contracting and Business Development, generally agreed with our 
recommendations; however, in its general observations and specific 
responses to our recommendations, SBA stated that it has limited 
responsibility for the SDVOSB program and questioned the efficacy of 
one of our recommendations. Specifically, SBA stated that agency 
contracting officers bear the primary responsibility for ensuring that 
only eligible SDVOSB firms perform SDVOSB set-aside and sole-source 
contracts. SBA also stated that it is only authorized to perform 
eligibility reviews in a bid protest situation, and contracting 
officers, not SBA, are responsible for taking appropriate action after 
a bid protest decision is made. The Associate Administrator maintained 
that SBA was under no legal obligation to create a protest process for 
the SDVOSB program, and that its only statutory obligation is to report 
on other agencies' success in meeting SDVOSB contracting goals. In 
addition, SBA expressed that it was not obligated to institute any type 
of fraud prevention controls within the SDVOSB program.
    Mr. Chairman, this concludes my statement. I would be pleased to 
answer any questions that you or other Members of the Subcommittee may 
have at this time.

Contacts and Acknowledgments

    For additional information about this testimony, please contact 
Gregory D. Kutz at (202) 512-6722 or [email protected]. Contact points for 
our Offices of Congressional Relations and Public Affairs may be found 
on the last page of this statement. Jonathan Meyer, Assistant Director; 
Gary Bianchi; Bruce Causseaux; Randy Cole; Victoria De Leon; Beth 
Faraguna; Ken Hill; John Ledford; Deanna Lee; Barbara Lewis; Vicki 
McClure; Andrew O'Connell; George Ogilvie; Gloria Proa; Barry Shillito; 
and Abby Volk made key contributions to this testimony.

GAO Slide Presentation

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           Prepared Statement of Maureen T. Regan, Counselor
         to the Inspector General, Office of Inspector General,
                  U.S. Department of Veterans Affairs
    Mr. Chairman and Members of the Subcommittee, thank you for this 
opportunity to testify on the findings of the Office of Inspector 
General (OIG) relating to VA procurement processes. I am accompanied 
today by Belinda Finn, Assistant Inspector General for Audits and 
Evaluations.

BACKGROUND

    Procurement is one of VA's major management challenges. Our 
oversight of VA's procurement activities is through audits, 
investigations, reviews, and inspections. In addition, the Office of 
Contract Review conducts pre- and post-award reviews of contracts 
awarded by VA's National Acquisition Center. These include Federal 
Supply Schedule (FSS) contracts for pharmaceuticals; medical and 
surgical supplies; health care services contracts; and national 
contracts for major medical equipment. The Office of Contract Review 
also conducts pre-award reviews of proposals for health care resources 
to be awarded to VA affiliated universities and medical centers on a 
sole-source basis. Our work provides us with a unique nationwide 
perspective on VA's procurement practices. A list of published reports 
from fiscal years 2004 through 2009 is attached to our testimony.
    In the past 5 fiscal years, the OIG has published more than 35 
reports relating to VA's procurement practices. These reports 
identified $112 million in better use of funds. Another 424 reports 
relating to pre and post-award reviews of FSS contracts awarded by VA's 
National Acquisition Center and pre-award reviews of health care 
resource contracts issued by VA medical facilities were issued directly 
to contracting officers during this time period and are not publically 
available because they contain proprietary information. The pre-award 
reviews identified $1.54 billion in potential cost savings if the 
contracting entity negotiated the recommended fair and reasonable 
prices. Of this amount, $166 million related to health care resource 
contracts awarded by VA medical facilities. The post-award reviews 
collected more than $115 million, which was deposited in VA's Supply 
Fund.
    During this same time period, we conducted 254 criminal 
investigations relating to procurement that resulted in the arrest of 
110 individuals.
    In addition, an audit of payments made under Veterans Health 
Administration's (VHA) non-VA outpatient fee care program estimated 
about $1.126 billion in overpayments and $260 million in underpayments 
over a 5-year period due to poor oversight and administration of claims 
for payment. The audit found systemic program weaknesses similar to 
those we have identified in VA's procurement processes. We found that 
VA medical facilities were not properly justifying and authorizing fee 
services for 80 percent of outpatient care payments. In addition, VA 
improperly paid 37 percent of fee claims by making duplicate payments, 
paying incorrect rates, and through other payment errors such as paying 
for the wrong quantity of services.
    Across the board, our audits, reviews, and investigations have 
identified systemic issues that caused or contributed to procurement 
failures, overpayments, and misuse of funds, including poor acquisition 
planning; poorly written contracts; inadequate competition; no price 
reasonableness determinations; and poor contract administration.
    We believe the decentralized organizational structure for 
procurement activities in VA as well as inadequate oversight and 
accountability are primary factors contributing to these problems. As 
we have previously testified, VA procurement is so decentralized that 
on a system-wide basis, VA cannot identify what it bought, who it 
bought it from, whether the products or services were received, or 
whether prices were fair and reasonable.
    Data systems such as VA's Electronic Contract Management System 
(eCMS) and the Federal Procurement Data System (FPDS), which should 
provide accurate information relating to procurements, contain 
inaccurate and incomplete data. Because of VA's lack of a system-wide 
inventory of contracts, we have had to develop techniques for 
identifying each universe of contracts for audits, investigations, and 
other reviews. For example, our audit of non-competitive clinical 
sharing agreements required that we contact each medical center 
selected for review to obtain their listing of agreements. Although we 
took steps to assess the information we received, we cannot be certain 
that we had a complete inventory of agreements for review. If an audit, 
investigation, or other review involves the purchase of items other 
than pharmaceuticals purchased through the pharmaceutical prime vendor 
program, we have to request VA sales data with line item visibility 
from the vendor as the information is not contained in any VA 
centralized database.

DEFICIENCIES IN THE PROCUREMENT PROCESS

    The procurement process involves at least three critical steps and 
three groups of individuals who must work together for a successful 
procurement. The three steps include planning, solicitation/
negotiation/award, and contract administration. The three groups of 
individuals involved in the process are the program office requiring 
the goods or services, the contracting entity, and the Office of 
General Counsel. Breakdown at any step in the process or by any of the 
three groups of individuals can result in the failure of the 
procurement. Through our oversight activities, we have identified 
breakdowns at all three steps in the procurement process and by each 
group of individuals involved in the process.

Procurement Planning

    Planning involves identifying requirements, identifying potential 
sources through market research, developing an Independent Government 
Cost Estimate, and developing a comprehensive statement of work that 
clearly defines the requirements, deliverables, and performance 
measures. Our reports on the failure of contracts for the development 
of the Core Financial and Logistics System (CoreFLS), the National 
Vietnam Veterans Longitudinal Study, the development of the Patient 
Financial Services System, the Centralized Incident Response Capability 
(CIRC), and the development of the Replacement Scheduling Application 
identified the inability of the responsible program offices to 
adequately identify and define their needs as a significant factor in 
the poor outcome. These failures resulted in losses to VA that exceeded 
$650 million. (Report Nos. 04-1371-177, 04-02330-212, 06-03285-73, 04-
03100-90, 09-01446-203.) Other reports that address deficiencies in 
procurement planning include the evaluation of sole-source health care 
resource contracts, a national audit of open market medical equipment 
and supply purchases, a national audit of the acquisition and 
management of selected surgical device implants, and the contract with 
the University of Texas Southwest Medical Center for Gulf War illness 
research. (Report Nos. 05-01318-85, 08-01519-172, 06-03677-221, and 09-
0175-164)
    The national audit of VHA open market medical equipment and supply 
purchases reported that VHA medical facility staff needed to plan 
medical equipment and supply purchases more effectively to reduce 
purchases on the open market and increase purchases through the FSS. 
Medical facility staff lacked the knowledge, information, and proper 
tools to effectively use the FSS. We estimated that VHA could reduce 
its supply costs by about $41 million over 5 years if it improved its 
acquisition planning and oversight processes and increased the use of 
the FSS to purchase medical equipment and supplies. (Report No. 08-
01519-172)
    Issues identified in these and other OIG reviews include the 
failure to develop complete and comprehensive statements of work 
containing specific deliverables and performance measures, which made 
them difficult to administer and ensure compliance. Our review of the 
Interagency Agreement between VA and the Department of Navy, Space and 
Naval Warfare Systems (SPAWAR), found that VA lacked qualified and 
experienced program personnel to plan and manage IT enterprise 
development. As a result, VA personnel were unable to develop the 
required statements of work and essentially abdicated responsibility 
for IT development to SPAWAR and ultimately to SPAWAR contractors. 
(Report No. 09-01213-142)

Solicitation/Negotiation/Award

    The solicitation, negotiation, and award process can involve the 
award of a new contract, a modification to a contract to add services 
or change terms and conditions, or the issuance of a task order or 
purchase order against an existing contract. One of the most frequent 
issues we have identified is the failure to comply with Federal laws 
and regulations requiring competition. As an example, our recent review 
of the contract awarded to develop the Replacement Scheduling 
Application showed that the contract was improperly modified at the 
direction of the program office to change the scope of work when it was 
determined that there was no commercial off-the-shelf product available 
for the program. (Report No. 09-01926-207) An audit of the use of 
expired funds and related contracting practices at the Boston 
Healthcare System, the subsequent national audit addressing the same 
issues, and our review of the CIRC contract also identified that 
contracts were improperly modified at the direction of program 
officials to add services that were outside the scope of the original 
statement of work. These improper cardinal changes to the contracts 
allowed VA medical facilities to noncompetitively obtain goods and 
services. (Report Nos. 06-03677-221, 08-00244-213, and 04-03100-90)
    In a report issued in February 2007, we found that VA conducted a 
procurement in the middle of the night on a weekend to obtain the 
services of forensic analysts to review electronic media relating to 
the theft of an employee's external hard drive containing information 
about 26 million veterans. This was done at the direction of the 
program office to avoid competition and steer the contract to the 
vendor preferred by the program office. A separate administrative 
investigation found that a contracting officer who expressed concern 
over the inappropriateness of the procurement was subject to 
retaliation by a former VA supervisor. Further, we found that the 
program office approved and authorized payment for additional work that 
was outside the scope of the task order without consulting with or 
notifying the contracting officer and authorized payment for travel 
expenses without verifying the charges. (Report No. 06-02238-84)
    Two reviews conducted in response to complaints received through 
the OIG Hotline identified the failure at facilities in Veterans 
Integrated Systems Network 7 to comply with Federal Acquisition 
Regulations (FAR) when purchasing services. Two of the purchases were 
off General Services Agency (GSA) FSS contracts. We found that a 
contract was awarded to a retired VA employee on a sole source basis 
without the justification required by FAR Part 6. In two others awards, 
the competition requirements in FAR Part 8.4 were not followed because 
the program office, not the contracting entity, negotiated the 
procurement. In one, the program officials identified and contacted the 
contractor, asked the contractor to hire a retired VA employee to 
perform the work, negotiated the hourly rates, wrote the task orders, 
and then submitted it to the purchasing agent for signature. In 
addition, we found that the task order was for services outside the 
scope of those on the vendor's FSS contract and the services were 
inherently Governmental in nature. (Report Nos. 08-02110-02 and 08-
01866-61)
    Another issue we have repeatedly identified is the failure to 
accurately assess price reasonableness. Our review of VA's contract 
with QTC Medical Services, Inc., to conduct disability rating 
examinations showed that VA failed to make a fair and reasonable price 
determination prior to award. We found indicators that VA may have paid 
more than fair and reasonable prices for the services provided. When an 
independent audit conducted at the request of the Veterans Benefits 
Administration and a subsequent review by the OIG Office of Contract 
Review identified overcharges, VA officials declined to recover $2.6 
million of the $6 million in overcharges. (Report No. 07-02280-104)
    Our national audit of VHA's Government purchase card practices 
examined more than 700 purchase card transactions. We found that for 
17.4 percent of the transactions examined, the cardholders did not 
maintain the documentation needed to confirm price reasonableness or 
ensure the most efficient use of funds. The results supported the need 
for VHA to strengthen controls to ensure cardholders maintain adequate 
documentation of the receipt of goods and services to ensure purchases 
are made for valid medical facility needs at reasonable prices. (Report 
No. 07-02796-203)
    Our review of the contract awarded to Dell for the lease of 
computers found that in addition to limiting competition, the price 
analysis was faulty and that it would have been more cost effective to 
purchase rather than lease the equipment. (Report No. 08-02213-138)
    Our report on FSS contracts awarded to resellers found that 
contracts and contract modifications adding products and increasing 
prices were awarded without obtaining the information necessary to 
determine price reasonableness. For 63 percent of 11,576 products added 
to four contracts via 28 modifications, the contracting officer failed 
to document that an adequate price reasonableness determination had 
been made. (Report No. 05-01670-04)
    Our 2005 report relating to our reviews of 72 proposals for sole-
source contracts awarded to affiliated institutions to purchase health 
care services found that VA was overpaying for services provided at the 
VA medical facility on a per procedure basis because VA was paying 100 
percent or more of the applicable Medicare part B rate, which consists 
of four components - practice expense, physician expense, malpractice 
insurance, and a geographic adjustment. The rate should have been 
reduced because VA was already incurring the costs associated with the 
practice expense component. (Report No. 05-01318-85) VA subsequently 
issued policy requiring that the practice expense be excluded from the 
Medicare rate when negotiating prices. However, a 2008 audit of the 
administration of these contracts found the policy was not followed. 
The audit concluded that exclusion of the practice expense component 
could result in a savings of $2.5 million annually. (Report No. 08-
00477-211)

Contract Administration

    Once a contract has been awarded or a purchase or task order issued 
against an existing contract, it must be administered. This process 
includes ensuring that the right product or service is delivered in a 
timely manner, at the agreed upon price, and in accordance with the 
terms and conditions of the contract. Contract administration is the 
responsibility of the contracting officer and/or the contracting 
officer's technical representative. When the contractor fails to 
perform, action must be taken in a timely manner to ensure compliance 
or the termination of the contract. We have identified numerous 
systemic problems in contract administration.
    A national audit of 58 contracts for health care resource clinical 
services awarded non-competitively to affiliated institutions showed 
that VA lacks reasonable assurance that it receives the services it 
paid for because of ineffective controls to monitor performance. We 
identified problems in all contracts in the sample reviewed and found 
that for 52 percent of the contracts, the vendor was overpaid. We 
estimated that by strengthening controls, VA could save $9.2 million 
annually. (Report No. 08-00244-213)
    During our recent reviews of contracts for primary medical services 
provided at VA Community Based Outpatient Clinics (CBOCs) we found that 
VA overpaid for the services because the Contracting Officer Technical 
Representatives (COTRs) were not properly administering the contracts. 
For example, we found that the COTRs were not disenrolling patients in 
a timely manner, reviewing invoices for accuracy and completeness 
before authorizing payment, and monitoring performance according to 
performance measurements in the contract. (Report Nos. 09-01446-233, 
09-01446-226, and 09-1446-37)
    A national audit of Consolidated Mail Outpatient Pharmacy (CMOP) 
contract management showed that poor monitoring controls during 
contract administration put VA at significant risk to overpay for 
services on contracts valued at $40.7 million. (Report No. 09-0026-143)
    In our review of the contract between VA and QTC for rating 
examinations, we found that neither the contracting officer nor the 
COTR identified the applicable Medicare Current Procedural Terminology 
(CPT) codes for laboratory and other tests that QTC was allowed to 
charge for under the contract. As a result, the COTR approved invoices 
for payment that included procedural codes created by QTC. In addition, 
neither the contracting officer nor the COTR ever calculated the actual 
price that QTC could charge for each CPT code. Notwithstanding the 
absence of this key information, the COTR approved the invoices for 
payment. (Report No. 07-02280-104) Our review of the CIRC contract 
found that VA paid the invoice every month without verifying 
deliverables. We also found that under the contract VA purchased almost 
$35 million in equipment but did not know whether the VA ever obtained 
possession of the equipment and, if so, where the equipment was 
located. (Report No. 04-03100-90)
    A national audit of VHA's Home Respiratory care program found that 
the program office, including the COTRs, lacked documentation to 
support purchases, and lacked invoices and delivery tickets to support 
certification for payment. We estimated that proper contract 
administration could reduce program costs by about $16.8 million over 5 
years. (Report No. 06-00801-30)
    We also have found that VA is reluctant to take appropriate and 
timely action when a contractor does not perform under the contract or 
does not comply with contract terms and conditions. For example, when 
Unisys consistently failed to submit deliverables for the Patient 
Financial Services System within the time frames established in the 
contract, it was almost 4 months before VA began any action to obtain 
compliance or terminate the contract for default. Despite the delay, 
the termination process was proceeding when the Office of General 
Counsel decided unilaterally that a termination for default was not 
feasible. Instead, VA terminated the contract for convenience, paid the 
contractor for the level of effort as of the date of termination, and 
took possession of the work that had been completed. We were told that 
a termination for convenience was necessary because it was VA's intent 
to obtain the work completed to date and contract with another vendor 
to finish the project. Shortly thereafter, VHA canceled the project, 
thus wasting the $30 million paid to Unisys. (Report No. 06-03285-73) 
Similarly, our review of the contract between VA and the University of 
Texas Southwest Medical Center for Gulf War illness research, showed 
that the contracting officer was precluded by internal and external 
forces from timely initiating the process to require compliance or 
terminate the contract for default when the contractor blatantly 
refused to comply with key terms and conditions of the contract. 
(Report No. 09-1075-164.)

CAUSATION

    Deficiencies in VA's procurement program are caused by a variety of 
factors, including:

Decentralization of the acquisition function and lack of oversight

    The vast majority of contracting officers and contract specialists 
work directly for the program office requesting the service. We have 
found that they experience undue pressure to comply with the desires of 
program office and/or facility management rather than complying with 
applicable laws and regulations. As a result, the interests of the 
Government are not protected.
    In addition, there is inadequate oversight of procurement within 
VA. This is due to the decentralization of the process and the failure 
of VA entities with dedicated contract specialists to establish an 
oversight program. VA has expended resources to conduct pre-award and 
post-award reviews of FSS contracts and pre-award reviews of health 
care resource contracts awarded sole-source to affiliated institutions. 
VA has also vigorously campaigned against efforts to remove contract 
provisions that would prohibit oversight of FSS contracts through pre-
award and post-award reviews. These reviews have not only resulted in 
significant dollar savings and recoveries as discussed above, but they 
have had a deterrent effect. Of the 164 post-award reviews conducted in 
the past 5 fiscal years, 97 (59 percent) were the result of voluntary 
disclosures.
    Effective oversight is difficult because there is no central 
database that captures contracting and purchasing information. For 
example, in 2007, the Office of Acquisition, Logistics and Construction 
(OAL&C) began requiring contracting entities to use eCMS for 
procurements over $25,000 to gain better oversight of VA procurements 
and to ensure better contracting. However, our audit of the system 
found that it was far from a complete inventory of acquisitions. We 
estimated that only 17 percent of procurement actions that were 
required to be recorded were recorded in VA's eCMS system and 30 
percent of VA procurement actions that were recorded in the FPDS were 
not recorded in eCMS records as required. We concluded that the reports 
generated by eCMS were unreliable and could not be used in making 
management decisions.
    We also have found that some procurements are made invisible to 
oversight by having other Government agencies do the procurement. This 
problem was identified in our review of the Interagency Agreement 
between VA and SPAWAR and in our report on the Replacement Scheduling 
Application. In the latter report, we found that GSA is awarding 
contracts on behalf of VA for IT related services. We found that these 
contracts did not appear in any VA system, that VA did not have a copy 
of the contract or task order, and the COTR was located at GSA even 
though the services were provided at a VA location.
    This lack of oversight within VA has been the common denominator in 
the criminal investigations involving procurement fraud we have 
conducted during the last 5 years. For example, until we arrested the 
third CMOP Director, VHA oversight of local CMOP contracts for supplies 
and services was non-existent. The former Director of the Dallas CMOP 
steered a $55 million services contract to a company and was arrested 
after he attempted to extort an ownership share of this company. The 
former Director and Associate Director of the Murfreesboro CMOP were 
arrested after we developed evidence that the pair had received 
$350,000 in kickbacksfrom supplies and services purchases without 
competition, including the purchase of 115,000 rolls of inferior 
quality red tape meant to secure controlled substance packages. The 
former Director of the Hines CMOP was arrested after we were notified 
by a supervisory contracting officer at the Great Lakes Acquisition 
Center of suspected collusion between this Director and a favored 
contractor who had been awarded $10 million in service and supply 
contracts non-competitively in the previous 10 years. Our investigation 
revealed that the Director had not only accepted gratuities in exchange 
for this favoritism but also knowingly allowed his Associate Director 
to operate a fraudulent 8A firm that received at least $7 million in 
sub-contracts for services from another company doing business with VA.
    We noted in our National audit of CMOP contract management that in 
response to criminal investigations involving the CMOP program, the 
National CMOP Office began centralizing all CMOP procurement at the 
CMOP in Leavenworth, Kansas. In addition, the authority over CMOP 
contracting officers transferred from the National CMOP Office to VA's 
National Acquisition Center. (Report No. 09-00026-143) We believe this 
centralization of the two functions in different offices will result in 
better procurements and decrease the potential for similar criminal 
activity.

Noncompliance with VA policies and regulations

    In addition to statutes and regulations, VA has established 
internal procurement policies. Our reviews have consistently found non-
compliance. For example, after a report on VHA's purchasing practices 
that we issued in 2002, VA convened the Procurement Reform Task Force 
to address the issues raised in the report. One result was a purchasing 
hierarchy that required VHA to purchase medical/surgical supplies and 
equipment and pharmaceuticals from VA-awarded national contracts, 
including FSS contracts, before entering into a local contract or 
purchasing products open market. In 2004, 2007, and again in 2009, we 
issued audit reports showing that VA facilities were not complying with 
the purchasing hierarchy yet could save significant amounts of money if 
they used national contracts and blanket purchase agreements instead of 
purchasing health care products on the open market. (Report Nos. 02-
01481-118, 06-03677-21, 08-01519-172)
    Similarly, in response to our 2005 report on sole-source contracts 
with medical schools and other affiliated institutions, VA Directive 
1663 established specific requirements for contracts awarded for health 
care services pursuant to 38 U.S.C. Sec. 8153. Our subsequent pre-award 
reviews of proposals for these contracts have found little compliance 
with the provisions of the policy. To gain better oversight of VA 
procurements and to ensure better contracting, in 2007, OAL&C issued 
policy requiring contracting entities to use eCMS for certain 
procurements. A recent audit found that the system was ineffective, in 
part, because VA personnel were not using the system as mandated. As a 
result, the reports generated by the system were unreliable and could 
not be used in making management decisions.

Lack of Training and Expertise

    In the last couple of years, VA has made a significant effort to 
recruit and train a strong acquisition workforce. However, we still 
find that contracting personnel lack training and expertise in the 
types of procurements they are asked to process. Contracting officers 
who do not understand the nature of the goods or services being 
procured and their relationship to the needs of the program office are 
unable to assist program officials in the planning, awarding, and 
administration of the contract. IT procurement is one example. As noted 
in our 2009 report on the failure of the contract for the Replacement 
Scheduling Application, the contracting officer had no experience or 
expertise in the award and administration of contracts for IT system 
development. To help resolve this problem relating to IT procurements, 
VA is in the process of consolidating IT procurements under OAL&C at a 
facility in Fort Monmouth, New Jersey. We have identified the same 
problem at VHA facilities with respect to the award and administration 
of contracts for health care resources. Our pre-award reviews and our 
audit of the administration of the sole-source contracts to affiliated 
institutions have identified that the contracting officers and COTRs 
lack training regarding the use of Medicare rates even though prices 
are based on Medicare rates.
    We also have found that program officials often do not have the 
training and expertise needed to define requirements, develop 
statements of work, or monitor contract performance. This results in 
poor contract development and administration. This problem was 
highlighted in our review of the Interagency Agreement with SPAWAR. We 
found that VA's Office of Enterprise Development had relinquished its 
authority and responsibility for IT program development to SPAWAR and 
SPAWAR contractors.
    Mr. Chairman, this concludes our statement and we would be pleased 
to answer any questions that you or other Members of the Subcommittee 
may have on these issues.


                                 
     Prepared Statement of Glenn D. Haggstrom, Executive Director,
          Office of Acquisition, Logistics, and Construction,
                  U.S. Department of Veterans Affairs

    Mr. Chairman, Ranking Member Roe, and Members of the Subcommittee, 
thank you for the opportunity to appear before you today to discuss and 
update you on acquisition operations at the Department of Veterans 
Affairs (VA). As VA's acting chief acquisition officer, I believe there 
is much good news to report. It is a privilege for me to represent the 
many dedicated and hardworking acquisition and logistics professionals 
throughout the Department who provide mission-critical support everyday 
to ensure quality care and benefit delivery for our Nation's most 
special citizens--Veterans. I am accompanied here today by Mr. Jan 
Frye, VA's Deputy Assistant Secretary for Acquisition and Logistics, 
who also serves as VA's senior procurement executive; Mr. Ed Murray, 
Deputy Assistant Secretary for Finance, Office of Management; Mr. Craig 
Robinson, Executive Director, VA National Acquisition Center; Mr. 
Frederick Downs, Jr., Chief Procurement and Logistics Officer for the 
Veterans Health Administration (VHA); and Mr. David Canada, Senior 
Procurement Analyst, Center for Small Business Utilization, Office of 
Small and Disadvantaged Business Utilization (OSDBU).
    I will start today by providing a brief update on VA's 
accomplishments under the American Recovery and Reinvestment Act (ARRA) 
of 2009. Transparency is the hallmark of VA's Recovery spending; all 
acquisition opportunities are advertised in the Federal Business 
Opportunities System. Through November 30, 2009, VA obligated 
approximately 32 percent of its non recurring maintenance stimulus 
funds for facilities projects and is on track to have 50 percent 
obligated by March 31, 2010. Over 95 percent of these contract awards 
were accomplished competitively, and over 70 percent of VA's Recovery 
contract dollars have been spent with Veteran-owned small businesses. 
VA's acquisition professionals have negotiated better prices than 
estimated, allowing VA to reallocate remaining funds to other needed 
projects. Using the Department's enterprise contract writing system for 
all contracting actions associated with facilities projects has given 
VA valuable insight on ways to improve measurement and quality control 
systems. Improvements affect cycle cost, data integrity, and automated 
tools used to track progress.
    VA continues to transform and improve its acquisition operations. 
Recommendations from a 2008 PricewaterhouseCoopers study of the VA 
acquisition program resulted in implementation this year of a new 
acquisition business model increasing centralized decision-making and 
decentralized execution. As a result of this study, VHA has realigned 
its acquisition staff under a centralized structure with four regional 
offices focused on the internal business process of running an 
acquisition organization, to include a focused approach to training and 
oversight. Further, this structure allows each Veterans Integrated 
Service Network (VISN) Contract Manager to drive organizational 
standardization, individual performance, and allows for direct 
responsibility and accountability through a professional certified 
workforce. A follow on study will be completed in February 2010 and is 
likely to result in further enhancements to the acquisition business 
model.
    Mindful of the innovation of private industry and as part of VA's 
transformation to a 21st century organization, VA recently established 
an innovative Supplier Transformation Relationship Initiative; for the 
first time ever, VA's supplier community is being treated as a critical 
component to VA's success. This initiative improves VA's acquisition 
process by establishing better and more transparent communications with 
vendors, which increases VA's access to industry's best practices and 
innovation. Dialog began in August 2009 with a subset of VA's industry 
partners at a VA-hosted forum to support this initiative, attended by 
140 individuals from more than 90 companies representing every 
material, service, and socioeconomic area of VA's contracting 
expenditures. Critical feedback was provided on the VA acquisition 
process and this initiative is further developing to expand the dialog 
to include more than 15,000 of VA's industry partners.
    VA made great strides in the last year to recruit and retain a 
professional acquisition workforce. The VA Acquisition Academy, the 
only Federal civilian agency acquisition academy, was established and 
represents a significant investment in growing, training and retaining 
the VA acquisition workforce. The academy comprises three schools: the 
Intern School, the Contracting Professional School, and the Program 
Management School. The academy has received extensive favorable press 
as well as Congressional and other Federal agency interest. The Office 
of Management and Budget's (OMB) Chief Acquisition Officer Council 
awarded the academy the 2009 Team Excellence Award for VA's efforts to 
recapitalize its acquisition workforce. Additionally, the Federal 
Acquisition Certification for Contracting rate for VA contracting 
officers has increased from 65 percent to over 93 percent, and use of 
the Acquisition Career Management System has increased from 30 percent 
to nearly 94 percent.
    In Fiscal Year 2010, VA will begin an ``Acquisition Corps 
Development Program.'' This program will develop transformational 
leaders in order to leverage best practices and executive leadership 
skills to develop business solutions optimizing VA's mission results. 
The goal of the Acquisition Corps Development Program is threefold:

          first, to develop a professional cadre of VA 
        acquisition experts to focus on the visible, highly complex and 
        enterprise-wide programs;
          second, to increase the bench strength to support 
        succession planning for critical and senior-level positions; 
        and
          third, to enhance retention of high performers by 
        feeding their desire to excel.

    We continue to grow VA's acquisition workforce to meet our ever-
increasing contracting workload. The GS-1102 contract specialist 
occupational series has increased by 45 percent since Fiscal Year (FY) 
2003, from 766 to 1,405 full time employees. Additionally, VA 
recognizes having trained program managers is critical to the overall 
acquisition life cycle, formulating an acquisition strategy, and taking 
responsibility for ensuring contract results in terms of cost, 
schedule, and performance. To this end, the VA Acquisition Academy's 
Program Management School developed a ``Boot Camp'' Program Management 
Course to train up to 10,000 individuals involved in managing the 
department's programs. Upon successful completion of the course, these 
individuals will be certified as FAC-P/PM level one program managers.
    Additional workforce increases associated with establishment of the 
VA Technology Acquisition Center (TAC) will further enhance our ability 
to support VA's transformation. The TAC, located in Eatontown, New 
Jersey, was established to provide exclusive contracting support to the 
Office of Information and Technology (OI&T). The TAC, a departmental 
strategic asset, will dramatically improve the operational 
effectiveness of VA's procurement. VA moved swiftly and creatively to 
capitalize on the opportunity presented by the closure of the Fort 
Monmouth Army Post, recruiting the highly skilled and experienced cadre 
of acquisition professionals from one of the Army's premier contracting 
activities.
    To support our acquisition professionals, VA deployed a fully 
operational electronic contract writing system. We also established a 
new program management office reporting directly to the Deputy 
Assistant Secretary for Acquisition and Logistics to support this 
system and other enterprise-wide acquisition systems to ensure VA 
exploits technology at every opportunity to support our acquisition 
operations.
    VA is conducting more competitive acquisitions. Our competition 
rate increased in 1 year from 49 percent to 72 percent, bringing VA in 
line with most of the Federal community.
    VA's OI&T instituted a Performance Management Accountability System 
(PMAS) that enhances the acquisition process. This system ensures 
deliverables on information technology contracts are received and 
reviewed incrementally, thereby forcing adherence to delivery and 
performance schedules. The contracting community is in lockstep with 
OI&T and has developed an acquisition model that fully supports the 
PMAS objectives.
    We have introduced a procurement governance process, establishing 
the VA Senior Procurement Council. This council will build on best 
practices across VA, leverage resources, and ensure consistency of 
service and response to needs. The council will share information and 
develop a common understanding of VA's strategic procurement needs, OMB 
regulations and actions to meet these needs and regulations, thereby 
synchronizing procurement to develop departmental solutions for 
improved acquisitions. The ultimate goal of the council is to remove 
procurement roadblocks so products and services can reach Veterans 
faster and with greater quality.
    As part of VA's acquisition transformation, VA instituted other 
positive steps to improve the effectiveness of its acquisition 
operations.
    In 2009, VA began conducting acquisition assessments under OMB 
Circular A-123. These assessments will provide VA's senior acquisition 
leadership insight and information about the operation contracting 
activities and business processes. Assessment results will provide 
early opportunities to correct identified deficiencies, processes and 
policies before they become unmanageable. The A-123 process also 
ensures compliance by monitoring findings and following-up on 
corrective actions.
    Also in 2009, VA established a requirement for the use of 
Integrated Product Teams (IPTs) for all acquisitions with estimated 
values of $5 million or greater. IPTs consist of subject matter experts 
from program offices, procurement, legal counsel and the Office of 
Small and Disadvantaged Business Utilization. These cross-functional 
teams work collaboratively to develop strategies and approaches to meet 
particular objectives and have been successful in streamlining the 
acquisition process.
    Contract Review Boards (CRBs) are now required for all acquisitions 
of $5 million or greater. CRBs minimize vulnerabilities leading to 
protests, disputes, claims and litigation against VA. CRBs ensure 
compliance with Federal and VA acquisition regulations, policies and 
procedures. They provide senior-level advice on contracting actions to 
support the contracting officer, and provide consistency of 
procurements across VA. CRBs also improve the knowledge of VA 
acquisition personnel as they embrace and implement good business 
practices.
    I spoke a moment ago of how CRBs minimize protests and would like 
to add VA has impressive statistics for protests. In Fiscal Year 2009, 
154 protests were lodged with the Government Accountability Office 
(GAO). All but three of these protests have been decided. Of the 151 
decided, only one protest was sustained by GAO. GAO denied 15 and 
dismissed 106, and 29 were withdrawn. A total of 21 agency-level 
protests were lodged with the Deputy Assistant Secretary for 
Acquisition and Logistics (VA's Senior Procurement Executive). Eight 
were denied, 10 dismissed and 3 withdrawn. Forty-five protests were 
lodged at the contracting officer level; 12 were denied, 31 dismissed 
and two withdrawn. These numbers are especially impressive given VA 
conducted over 230,000 acquisition transactions in Fiscal Year 2009.
    VA remains the Federal leader in contracting with Veteran-owned 
small businesses. The final rule formally amending VA's acquisition 
regulations to reflect VA's implementation of the ``Veterans First 
Contracting Program'' back on June 20, 2007, was published in the 
Federal Register on Tuesday, December 8, 2009. VA acquisition 
professionals continue to use the extraordinary and unprecedented 
contracting authorities granted VA under Public Law 109-461 
extensively, setting records for spending with Veteran-owned small 
businesses. Tentative data for FY 2009 show VA spent over $2.7 billion 
with all Veteran-owned small businesses, and nearly $2.3 billion of 
that amount was spent with service-disabled Veteran-owned small 
businesses. This represents over 19 percent and 16 percent, 
respectively, of total VA dollars reported in the Federal Procurement 
Data System. For FY 2008, the latest data officially certified by the 
Small Business Administration, VA awarded 11.76 percent of its contract 
dollars to service-disabled Veteran-owned small businesses, and 14.72 
percent to all Veteran-owned small businesses. These comfortably exceed 
VA's goals for these programs, of 7 percent and 10 percent 
respectively.
    VA has worked tirelessly to improve its acquisition operations. At 
this time there are no major outstanding GAO issues and management 
agreements are in place addressing all Office of Inspector General 
issues. But as proud as we are of the many improvements in VA's 
acquisition operations, we recognize the need for continuous 
improvement and will continue to work diligently to improve upon them 
and set a standard worthy of emulation throughout the Federal 
acquisition community and maintains the confidence of the American 
public and the Congress.
    Last Mr. Chairman, I mentioned at the beginning of my testimony I 
serve as VA's ``acting'' chief acquisition officer, having served in 
this capacity since October 2008. VA has sought to establish an 
Assistant Secretary for Acquisition, Logistics, and Construction, but 
has been unsuccessful in this endeavor. Establishment of this assistant 
secretary position is the cornerstone of our efforts to transform the 
acquisition culture at VA. This assistant secretary would provide the 
laser-focused critical political leadership in this important area, and 
allow VA to designate a chief acquisition officer. There are cogent and 
compelling reasons for establishing a new assistant secretary position. 
Considering the VA spend has increased by over 300 percent since FY 
2002, VA's acquisition programs have become increasingly complex and 
highly visible, as evidenced by this very hearing. Such action would 
embrace the spirit and intent of the Services Acquisition Reform Act of 
2003, which requires the appointment of a non-career chief acquisition 
officer. Your support in establishing this assistant secretary position 
is essential to the long-term success of transforming VA's acquisition 
operations.
    Mr. Chairman, we appreciate the opportunity to discuss VA's 
acquisition operations with you. My colleagues and I are available for 
your questions.


                                 
           Statement of Hon. Cliff Stearns, a Representative
                 in Congress from the State of Florida

    Thank you, Mr. Chairman.
    I appreciate the opportunity to be here this morning, and I thank 
the Chairman for holding this important hearing.
    Unfortunately, the Department of Veterans Affairs procurement 
system is broken. And the fact that the procurement process is broken 
is hardly a secret. Problems stemming from VA's fragmented and 
decentralized procurement system have been documented for over 10 
years, and the VA has openly acknowledged that there are serious 
deficiencies. These deficiencies have led to hundreds of millions of 
taxpayer dollars being wasted.
    In recognizing that VA needs to improve its procurement structure, 
a VA Procurement Reform Task Force was created, and in 2002 it issued a 
report that included 65 recommendations on how the VA could improve the 
efficiency and effectiveness of its procurement acquisition system. 
Despite the Task Force recommendations, very few issues with VA's 
procurement structure have actually been addressed.
    Several GAO reports have revealed significant weaknesses with the 
VA procurement process, and poor financial management oversight has 
been reported as a major material weakness since fiscal year 2005.
    The Inspector General of the VA has estimated that in 2004 alone, 
VA could have saved $1.4 billion over 5 years if the VA had improved 
procurement practices at its medical centers.
    Unfortunately though, the VA does not have its 152 hospitals and 
over a thousand outpatient clinics utilize a procurement system that 
ensures the VA is getting the best available price. This has resulted 
in $41 million over a period of 5 years being wasted. Overall, the VA 
IG has identified millions of dollars that could be put to better use 
if the VA were to reform its procurement process. This is a blatant 
abuse of taxpayer dollars and is particularly troubling given the 
current state of our economy and our rising national debt.
    Even more troubling is the fraud and abuse that is occurring as a 
result of VA's lack of oversight over companies claiming Service 
Disabled Veteran Owned Small Business (SDVOB) status. Due to VA's lack 
of oversight - a direct result of its fragmented acquisition structure 
- ineligible firms that have falsely claimed SDVOB status have been 
able to receive approximately $100 million of sole-source or set-aside 
SDVOB contracts. These companies are wrongfully taking job 
opportunities away from our Nation's service disabled veteran owned 
businesses and are getting away with it due to the fact there is no 
requirement to terminate these contracts even after they are found to 
be ineligible and the firms are allowed to self-certify themselves.
    Clearly Mr. Chairman, we are facing a major problem at the VA. 
Billions of dollars are at stake - these are taxpayer dollars-- and the 
VA Office of Acquisition, Logistics, and Construction is doing a poor 
job of overseeing acquisition contracts. Additionally, small veteran 
owned businesses are being cheated out of millions in Federal 
contracts.
    I look forward to hearing from the VA today on how they plan to 
reform their procurement process once and for all, and I hope the VA 
will also provide our Committee with an accurate dollar amount as to 
how much the VA spends on procurement annually.


                   MATERIAL SUBMITTED FOR THE RECORD

                                    Project On Government Oversight
                                                     Washington, DC
                                                  February 12, 2010

                Exposing Corruption Exploring Solutions

Chairman Harry E. Mitchell
House Committee on Veterans' Affairs
Subcommittee on Oversight and Investigations
335 Cannon House Office Building
Washington, DC 20515

Ranking Member David P. Roe
House Committee on Veterans' Affairs
Subcommittee on Oversight and Investigations
335 Cannon House Office Building
Washington, DC 20515

Dear Chairman Mitchell and Ranking Member Roe:

    The Project On Government Oversight (POGO) provides this supplement 
to the Subcommittee's December 16, 2009, hearing on ``Acquisition 
Deficiencies at the U.S. Department of Veterans Affairs.'' During that 
hearing, Representative Buyer asked panelists to comment or give 
recommendations regarding legislation that he introduced with 
Representative Roe, the ``Department of Veterans Affairs Acquisition 
Improvement Act of 2009'' (H.R. 4221). POGO supports the general intent 
of the bill, but defers to recommendations by the U.S. Department of 
Veterans Affairs acquisition staff and the Inspector General as to 
specific agency needs to improve contract spending and oversight.

    POGO provides specific comments regarding the following sections of 
the bill:

        1.  Section 2 of the bill includes the creation of an Assistant 
        Secretary for Acquisition, Construction, and Asset Management. 
        POGO believes that there might be some redundancy with the 
        existing Assistant Secretary of Procurement, and therefore the 
        VA should establish a clear mission for each of those positions 
        to avoid duplication of efforts.
        2.  Section 2 also establishes seven (7) Deputy Assistant 
        Secretary positions. POGO supports the creation of those 
        offices so long as the agency finds a need for all of them. The 
        legislative creation of more bureaucracy might have the 
        indirect consequence of burdening the system.
        3.  Section 3 assigns the newly created Assistant Secretary for 
        Acquisition, Construction, and Asset Management as the Chief 
        Acquisition Officer (CAO) with duties including managing and 
        monitoring VA missions, strategies, and contracting processes. 
        That assignment should benefit the agency and result in 
        improved acquisition and contracting policies and 
        accountability.
        4.  Section 4 mandates the establishment of a Department-wide 
        acquisition policy centralized under the newly created CAO. The 
        establishment of a comprehensive Department-wide acquisition 
        program should integrate many VA policies and result in 
        improved accountability. POGO warns, however, that streamlining 
        efforts in the past included the termination of many oversight 
        protections that have caused many of the contracting issues 
        that exist today. Speedy contracting without oversight is a 
        recipe for disaster.
        5.  Section 4(c) refers to the use of Federal Supply Schedule 
        65 or 66. The specific mention of those Supply Schedules in 
        legislation might create a problem down the road if there are 
        any modifications to the schedule system. The mentions of those 
        specific schedule numbers might be more appropriate in the 
        legislative history rather than the bill. The bill should 
        include a list of the goods or services included under those 
        schedules.
        6.  Section 5 provides authority to enter into certain personal 
        services contracts. Personal services contracts are those that 
        make ``contractor personnel appear to be, in effect, government 
        employees,'' FAR Subpart 2.101. Those contracts circumvent 
        Federal employment hiring processes and are permitted only when 
        authorized by law. The bill creates three (3) such carve-outs, 
        which runs afoul of the general prohibition against the use of 
        personal services contracts and as a result might place 
        critical functions in the hands of contractor employees rather 
        than public officials.
        7.  POGO strongly supports section 6 and its intent to ensure 
        that the VA has the authority to conduct pre- and post-award 
        audits on contracts using certain Federal supply schedules. In 
        addition, POGO would like to see oversight officials provided 
        with supplementary enforcement tools that are needed to 
        prevent, detect, and remedy waste, fraud, and abuse in VA 
        spending, including improved access to contractor cost or 
        pricing data. Furthermore, Congress needs to eliminate the 
        ``Right to Financial Privacy Act,'' which requires Inspectors 
        General to notify contractors prior to obtaining the companies' 
        financial records. This requirement ``tips off'' contractors 
        and harms the Government's ability to investigate Federal 
        contracts.
        8.  Section 7 proposes changes to VA's small business 
        contracting policies. POGO would recommend that any additions 
        involving commercial items or services be predicated on the 
        fact that those items or services should be considered 
        ``commercial'' only if there are substantial sales of the 
        actual goods or services to the general public. We have seen 
        many instances where goods or services have been called 
        ``commercial'' without a genuine commercial marketplace 
        existing.
        9.  POGO applauds section 7's mandate that certain small 
        business contractors be listed and verified prior to receiving 
        an award with less than full and open competition. We also 
        believe that the verification process should occur for any 
        contractor representing itself as a small business.

    Thank you for this opportunity to share POGO's views on the 
``Department of Veterans Affairs Acquisition Improvement Act of 2009.'' 
I would be pleased to answer any additional questions and to work with 
the Subcommittee in the future.
            Sincerely,

                                                      Scott H. Amey
                                                    General Counsel

                                 
 COMMENTS ON H.R. 4221 BY NATIONAL VETERAN-OWNED BUSINESS ASSOCIATION 
                                (NaVOBA)

    The National Veteran-Owned Business Association (NaVOBA) would like 
to thank the House Veterans' Affairs Committee for the opportunity to 
comment on H.R. 4221. Our comments are as follows:
    Section 2: NaVOBA fully supports the establishment of the position 
of Assistant Secretary of Veterans Affairs for Acquisition, 
Construction, and Asset Management. The importance of acquisition as 
evidenced by the growth of the acquisition budget, interest of the 
Congress in VA acquisition, and the complexity of VA's mission all 
require the elevation of the acquisition process in VA. We believe 
however, that this position should be responsible for oversight, policy 
development, compliance, and training of the acquisition workforce. We 
do not believe all acquisition functions must be centralized under this 
position. We firmly believe that acquisition, like IT, is a tool to be 
used by the service delivery units of VA to provide services and 
benefits to veterans. The people responsible for the delivery of 
veteran services should control the tools necessary to get the job 
done. Therefore, we do not support the establishment of the Deputy 
Assistant Secretary positions envisioned in Section 2 of the bill. We 
also believe the establishment of these positions is too prescriptive 
and limits the VA's ability to meet the needs of veterans.
    Section 3: There needs to be added to the responsibilities of the 
Chief Acquisition Officer: ``Establishment of Policies, Procedures, and 
Accountability for accomplishment of VA's small business contracting 
goals with emphasis on goals for contract awards to veteran and 
service-disabled veteran-owned small business.'' As contemplated in the 
bill, the Assistant Secretary for Acquisition, Construction, and Asset 
Management will be responsible for, and have acquisition officials 
reporting to him/her, therefore this person will have the most control 
over small business goal attainment and should therefore be held 
accountable.
    Section 4: There needs to be added to the ``elements'' of the 
``Department-wide acquisition policy'' an element addressing 
accomplishment of the small business contracting goals with emphasis on 
contract awards to veteran and service-disabled veteran-owned small 
businesses. As evidenced by various laws Congress has determined that 
contract awards to veteran and service-disabled veteran-owned small 
business is in this Nation's best interest. Therefore this goal 
warrants inclusion in VA's policies.
    Section 8129: The goal of this new section under ``Acquisition 
Requirements'' appears to be the standardization and centralization of 
VA health care acquisitions. This goal concerns NaVOBA and our members 
as VA traditionally has used similar goals as a way to exclude veteran 
and service-disabled veteran-owned small business from health care 
acquisitions. In those instances where veteran and service-disabled 
veteran-owned small business have been successful in winning 
standardized contract they have been severely impacted as VA has no 
mechanism in place to monitor compliance.
    We also believe this section will unreasonably tie VA's hands in 
providing world class health care to veterans given the process 
contemplated in the bill with the Secretary or Assistant Secretary for 
Acquisition, Construction and Asset Management substituting his/her 
knowledge for that of a medical doctor.
    Section 6 and Section 8130: The goal of these sections appears to 
be further restricting which firms are eligible to compete on Federal 
Supply Schedules and places additional requirements on such firms. As 
the Federal Supply Schedules are administered by the General Services 
Administration and historically have provided ``best value'' to the 
Government we question why the authors of this bill require contract 
clause requirements which GSA finds unnecessary and burdensome on small 
business. Federal Supply contracts are competitively awarded and orders 
against schedules are competitively awarded. Competition will drive 
``best value'' to the Government, not overly restrictive clauses.
    Section 7: NaVOBA fully supports the provisions requiring that 
veteran and service-disabled veteran-owned small businesses be listed 
in the data base maintained by the Secretary. In fact we believe ALL 
firms claiming to be veteran or service-disabled veteran-owned small 
business wishing to do business with the Federal Government must be 
verified by VA. We also support the provision requiring any vendor of a 
commercial item to be a manufacturer or regular dealer.

    We strongly object to the provision requiring the Secretary to 
specify the North American Industry Classification System (NAICs) code 
that VA may procure from such firm. This is overly restrictive and 
burdensome on the veteran small business community and is not required 
by any other special emphasis small business program in the Federal 
Government, except for the 8a Business Development Program. This 
Committee has maintained the intent of the veteran small business 
program is not business development but merely contract opportunity. 
Small business firms in their normal course of growth and development 
change NAICs depending on the opportunities and their strategic 
business plan. To require approval by the Secretary of any change is 
burdensome, unnecessary, and given VA's track record in verification 
could never be done in a timely manner.
    We thank the Committee for the opportunity to comment on the 
proposed legislation and look forward to discussions to improve the 
bill.

                                 
              Comments on H.R. 4221 from Anthony Jimenez,
          President and Chief Executive Officer MicroTech, LLC

    Concerning H.R. 4221 proposal, we have only one area to highlight. 
Our concern revolves around section 8127 (c)(a)(3). As we understand 
it, the intent of this paragraph is help SDVOSBs become a true value 
add to the products they sell and to keep large businesses from taking 
advantage of SDVOSBs by making them nothing more than a ``pass 
though''. The term ``regular dealer'' used in section 8127 (c)(a)(3) as 
defined in section 7(e)(5), does not do enough to eliminate that 
problem. In order for the small business to be a true value add, it 
needs to be authorized by the Original Equipment Manufacturer (OEM) and 
obtain all of the rights and responsibilities that go along with that 
authorization. This would also ensure that where the OEM sells 
exclusively through distribution channels the small business would be 
forced to go directly through the distributor (as opposed to another 
large business reseller), and would not be forced to act as a ``pass 
through'' for a large business. To that end, we recommend the following 
changes:

        38 section 8127 (c)(a)(3)
         Strike the words ``regular dealer'' and substitute with ``a 
        reseller authorized by the original equipment manufacturer and 
        purchased through authorized distribution channels.''
         This revision would then require the striking of section 
        7(e)(5) which is the definition of ``regular dealer''.

    Thanks again for the opportunity to participate in this effort and 
my sincere appreciation to CM Buyer and your team for working so hard 
to make things better for vets and small business. Please do not 
hesitate to call upon me.

                                 
                  Veterans' Entrepreneurship Task Force (VET-Force)
                                                  Silver Spring, MD
                                                  February 18, 2010
Diane Kirkland
Printing Clerk
Committee on Veterans' Affairs
335 Cannon HOB
Washington, DC 20515

    This file is the VET-Force response to your email request of 
January 27th requesting comments on the proposed H.R. 4221. We have 
sent two files. One is this letter called ``VET-FORCE Recommendations 
on H.R. 4221 2 18 2010 BH1.doc.'' The second is ``Attach 1 to VET-FORCE 
Recommendations on H.R. 4221 2 18 2010.doc'' Within Attachment 1 are 
the different documents of concern for H.R. 4221 IH. We did this so you 
and others have all documents.
    ``38 U.S.C. Sec 8127.doc'' as the basic document as of 1/5/2009.
    ``H.R. 4221 sec 8127.doc'' as the recommended changes to 38 U.S.C. 
Sec 8127.
    ``H.R. 4221 sec 8127 with recommended additions in RED.doc'' with 
recommended changes. These changes were originally in the past proposed 
H.R. 2300 by Congressman Buyer.
    ``38 U.S.C. Sec. 8127 with H.R. 4221 changes.doc'' Taking a look at 
the final section 8127 after the existing H.R. 4221 changes.
    ``38 U.S.C. Sec. 8127 with H.R. 4221 changes + H.R. 2300.doc'' 
Taking a look at the final section 8127 after the existing H.R. 4221 
changes and H.R. 2300 are incorporated.
    ``H.R. 4221 IH section 7 (d)(9) and 7(e)(5) Change.doc'' section 7 
(d)(9) is deleted. The definition of `regular dealer' is changed to our 
recommended definition of a person or firm marketing, selling, 
delivering and supporting products purchased by the Federal Government 
from a veteran-owned small business.
    We believe these documents will provide ample words to support our 
position on H.R. 4221. We want to thank Congressman Buyer for H.R. 4221 
and hope our recommended changes are taken into consideration. The VET-
Force can not support H.R. 4221 in its present form.
            Respectfully,

                                                         Bob Hesser
                                                  1st Vice-Chairman
                               __________
 Attachment One to VET-FORCE 12-16 HVAC Subcommittee Response to H.R. 
                                4221.doc
    38 U.S.C. Sec. 8127
                                                         01/05/2009
EXPCITE

    TITLE 38--VETERANS' BENEFITS
    PART VI--ACQUISITION AND DISPOSITION OF PROPERTY
    CHAPTER 81--ACQUISITION AND OPERATION OF HOSPITAL AND DOMICILIARY 
FACILITIES; PROCUREMENT AND SUPPLY; ENHANCED-USE LEASES OF REAL 
PROPERTY
    SUBCHAPTER II--PROCUREMENT AND SUPPLY

HEAD

     Sec. 8127. Small business concerns owned and controlled by 
veterans: contracting goals and preferences

STATUTE

    (a) Contracting Goals.--(1) In order to increase contracting 
opportunities for small business concerns owned and controlled by 
veterans and small business concerns owned and controlled by veterans 
with service-connected disabilities, the Secretary shall----

          (A) establish a goal for each fiscal year for participation 
        in Department contracts (including subcontracts) by small 
        business concerns owned and controlled by veterans who are not 
        veterans with service-connected disabilities in accordance with 
        paragraph (2); and
          (B) establish a goal for each fiscal year for participation 
        in Department contracts (including subcontracts) by small 
        business concerns owned and controlled by veterans with 
        service-connected disabilities in accordance with paragraph 
        (3).

    (2) The goal for a fiscal year for participation under paragraph 
(1)(A) shall be determined by the Secretary.
    (3) The goal for a fiscal year for participation under paragraph 
(1)(B) shall be not less than the Government-wide goal for that fiscal 
year for participation by small business concerns owned and controlled 
by veterans with service-connected disabilities under section 15(g)(1) 
of the Small Business Act (15 U.S.C. 644(g)(1)).
    (4) The Secretary shall establish a review mechanism to ensure 
that, in the case of a subcontract of a Department contract that is 
counted for purposes of meeting a goal established pursuant to this 
section, the subcontract was actually awarded to a business concern 
that may be counted for purposes of meeting that goal.

    (b) Use of Noncompetitive Procedures for Certain Small Contracts.--
For purposes of meeting the goals under subsection (a), and in 
accordance with this section, in entering into a contract with a small 
business concern owned and controlled by veterans for an amount less 
than the simplified acquisition threshold (as defined in section 4 of 
the Office of Federal Procurement Policy Act (41 U.S.C. 403)), a 
contracting officer of the Department may use procedures other than 
competitive procedures.
    (c) Sole Source Contracts for Contracts Above Simplified 
Acquisition Threshold.--For purposes of meeting the goals under 
subsection (a), and in accordance with this section, a contracting 
officer of the Department may award a contract to a small business 
concern owned and controlled by veterans using procedures other than 
competitive procedures if----

          (1) such concern is determined to be a responsible source 
        with respect to performance of such contract opportunity;
          (2) the anticipated award price of the contract (including 
        options) will exceed the simplified acquisition threshold (as 
        defined in section 4 of the Office of Federal Procurement 
        Policy Act (41 U.S.C. 403)) but will not exceed $5,000,000; and
          (3) in the estimation of the contracting officer, the 
        contract award can be made at a fair and reasonable price that 
        offers best value to the United States.

    (d) Use of Restricted Competition.--Except as provided in 
subsections (b) and (c), for purposes of meeting the goals under 
subsection (a), and in accordance with this section, a contracting 
officer of the Department shall award contracts on the basis of 
competition restricted to small business concerns owned and controlled 
by veterans if the contracting officer has a reasonable expectation 
that two or more small business concerns owned and controlled by 
veterans will submit offers and that the award can be made at a fair 
and reasonable price that offers best value to the United States.
    (e) Eligibility of Small Business Concerns.--A small business 
concern may be awarded a contract under this section only if the small 
business concern and the veteran owner of the small business concern 
are listed in the database of veteran-owned businesses maintained by 
the Secretary under subsection (f).
    (f) 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.

    (2) To be eligible for inclusion in the database, such a veteran 
shall submit to the Secretary such information as the Secretary may 
require with respect to the small business concern or the veteran.
    (3) Information maintained in the database shall be submitted on a 
voluntary basis by such veterans.
    (4) In maintaining the database, the Secretary shall carry out at 
least the following two verification functions:

          (A) Verification that each small business concern listed in 
        the database is owned and controlled by veterans.
          (B) In the case of a veteran who indicates a service-
        connected disability, verification of the service-disabled 
        status of such veteran.

    (5) The Secretary shall make the database available to all Federal 
departments and agencies and shall notify each such department and 
agency of the availability of the database.
    (6) If the Secretary determines that the public dissemination of 
certain types of information maintained in the database is 
inappropriate, the Secretary shall take such steps as are necessary to 
maintain such types of information in a secure and confidential manner.

    (g) Enforcement Penalties for Misrepresentation.--Any business 
concern that is determined by the Secretary to have misrepresented the 
status of that concern as a small business concern owned and controlled 
by veterans or as a small business concern owned and controlled by 
service-disabled veterans for purposes of this subsection shall be 
debarred from contracting with the Department for a reasonable period 
of time, as determined by the Secretary.
    (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.

    (2) The period referred to in paragraph (1) is the period beginning 
on the date on which the veteran dies and ending on the earliest of the 
following dates:

          (A) The date on which the surviving spouse remarries.
          (B) The date on which the surviving spouse relinquishes an 
        ownership interest in the small business concern.
          (C) The date that is 10 years after the date of the veteran's 
        death.

    (3) Paragraph (1) only applies to a surviving spouse of a veteran 
with a service-connected disability rated as 100 percent disabling or 
who dies as a result of a service-connected disability.

    (i) Priority for Contracting Preferences.--Preferences for awarding 
contracts to small business concerns shall be applied in the following 
order of priority:

          (1) Contracts awarded pursuant to subsection (b), (c), or (d) 
        to small business concerns owned and controlled by veterans 
        with service-connected disabilities.
          (2) Contracts awarded pursuant to subsection (b), (c), or (d) 
        to small business concerns owned and controlled by veterans 
        that are not covered by paragraph (1).
          (3) Contracts awarded pursuant to----

                  (A) section 8(a) of the Small Business Act (15 U.S.C. 
                637(a)); or
                  (B) section 31 of such Act (15 U.S.C. 657a).

          (4) Contracts awarded pursuant to any other small business 
        contracting preference.

    (j) Applicability of Requirements to Contracts.--(1) If after 
December 31, 2008, the Secretary enters into a contract, memorandum of 
understanding, agreement, or other arrangement with any Governmental 
entity to acquire goods or services, the Secretary shall include in 
such contract, memorandum, agreement, or other arrangement a 
requirement that the entity will comply, to the maximum extent 
feasible, with the provisions of this section in acquiring such goods 
or services.

    (2) Nothing in this subsection shall be construed to supersede or 
otherwise affect the authorities provided under the Small Business Act 
(15 U.S.C. 631 et seq.).

    (k) Annual Reports.--Not later than December 31 each year, the 
Secretary shall submit to Congress a report on small business 
contracting during the fiscal year ending in such year. Each report 
shall include, for the fiscal year covered by such report, the 
following:

          (1) The percentage of the total amount of all contracts 
        awarded by the Department during that fiscal year that were 
        awarded to small business concerns owned and controlled by 
        veterans.
          (2) The percentage of the total amount of all such contracts 
        awarded to small business concerns owned and controlled by 
        veterans with service-connected disabilities.
          (3)The percentage of the total amount of all contracts 
        awarded by each Administration of the Department during that 
        fiscal year that were awarded to small business concerns owned 
        and controlled by veterans.
          (4) The percentage of the total amount of all contracts 
        awarded by each such Administration during that fiscal year 
        that were awarded to small business concerns owned and 
        controlled by veterans with service-connected disabilities.

    (l) Definitions.--In this section:

    (1) The term ``small business concern'' has the meaning given that 
term under section 3 of the Small Business Act (15 U.S.C. 632).
    (2) The term ``small business concern owned and controlled by 
veterans'' means a small business concern----

          (A)(i) (A)(i) not less than 51 percent of which is owned by 
        one or more veterans or, in the case of a publicly owned 
        business, not less than 51 percent of the stock of which is 
        owned by one or more veterans; and

          (ii) the management and daily business operations of which 
        are controlled by one or more veterans; or

          (B) not less than 51 percent of which is owned by one or more 
        veterans with service-connected disabilities that are permanent 
        and total who are unable to manage the daily business 
        operations of such concern or, in the case of a publicly owned 
        business, not less than 51 percent of the stock of which is 
        owned by one or more such veterans.

SOURCE

    (Added Pub. L. 109-461, title V, Sec. 502(a)(1), Dec. 22, 2006, 120 
Stat. 3431; amended Pub. L. 110-389, title VIII, Sec. 806, Oct. 10, 
2008, 122 Stat. 4189.)

    REFTEXT

                           REFERENCES IN TEXT

    The Small Business Act, referred to in subsec. (j)(2), is Pub. L. 
85-536, Sec. 2(1 et seq.), July 18, 1958, 72 Stat. 384, which is 
classified generally to chapter 14A (Sec. 631 et seq.) of Title 15, 
Commerce and Trade. For complete classification of this Act to the 
Code, see Short Title note set out under section 631 of Title 15 and 
Tables.
MISC1

                               AMENDMENTS

    2008--Subsecs. (j) to (l). Pub. L. 110-389 added subsec. (j) and 
redesignated former subsecs. (j) and (k) as (k) and (l), respectively.

                             EFFECTIVE DATE

    Pub. L. 109-461, title V, Sec. 502(d), Dec. 22, 2006, 120 Stat. 
3435, provided that: ``This section [enacting this section and 
provisions set out as a note below] and the amendments made by this 
section shall take effect on the date that is 180 days after the date 
of the enactment of this Act [Dec. 22, 2006].''

                            TRANSITION RULE

    Pub. L. 109-461, title V, Sec. 502(b), Dec. 22, 2006, 120 Stat. 
3435, provided that: ``A small business concern that is listed in any 
small business database maintained by the Secretary of Veterans Affairs 
on the date of the enactment of this Act [Dec. 22, 2006] shall be 
presumed to be eligible for inclusion in the database under subsection 
(f) of section 8127 of title 38, United States Code, as added by 
subsection (a), during the period beginning on the effective date of 
that section [see Effective Date note above] and ending one year after 
such effective date. Such a small business concern may be removed from 
the database during that period if it is found not to be a small 
business concern owned and controlled by veterans (as defined in 
subsection (k) of such section).''
---------------------------------------------------------------------------

---------------------------------------------------------------------------
H.R. 4221 section 8127

    (a) Additional Requirement--section 8127(c) of title 38, United 
States Code, is amended----

          (1) in paragraph (2), by striking `and' at the end;
          (2) in paragraph (3), by striking the period and inserting 
        the following: `; and'; and
          (3) by adding at the end the following new paragraph:
          `(4) in the case of a contract for the purchase of a 
        commercial item, the vendor of the item is a manufacturer or a 
        regular dealer.'.

    (b) Complaint Process for Use of Restricted Competition--Subsection 
(d) of such section is amended----

          (1) by striking `Except as provided' and inserting `(1) 
        Except as provided'; and
          (2) by adding at the end the following new paragraph:

    `(2) Any complaint regarding the noncompliance of a contracting 
officer with this subsection shall be submitted to the Secretary.'.

    (c) Eligibility--Subsection (e) of such section is amended--

          (1) by striking `only if the small business concern and the 
        veteran' and all that follows and inserting `only if--'; and
          (2) by adding at the end the following new paragraphs:

          `(1) the small business concern and the veteran owner of the 
        small business concern are listed in the database of veteran-
        owned businesses maintained by the Secretary under subsection 
        (f);
          `(2) the Secretary has performed the verification functions 
        of the Secretary under paragraph (4) of such subsection with 
        respect to the small business concern; and
          `(3) the contract is only for the procurement of a good or 
        service with North American Industry Classification System code 
        specified by the Secretary under paragraph (9) of that 
        subsection for the small business concern.'.

    (d) Database--Subsection (f) of such section is amended by adding 
at the end the following new paragraphs:

          `(7) The Secretary may not include in the database a small 
        business concern that is the vendor of a commercial item unless 
        the concern is the manufacturer or regular dealer of the item, 
        unless the Secretary specifically provides for a waiver of such 
        requirement for such concern.
          `(8) The Secretary shall establish specific criteria to be 
        used in carrying out the verification functions under paragraph 
        (4), including criteria requiring specific documentation and 
        certifications from each small business concern proposed to be 
        included in the database.
          `(9) For each small business concern included in the 
        database, the Secretary shall specify the North American 
        Industry Classification System code or codes of the goods and 
        services that may be procured by the Department from such 
        concern.

    (e) Definitions--Subsection (l) of such section is amended by 
adding at the end the following new items:

          `(3) The term `commercial item' has the meaning given that 
        term in section 4(12) of the Office of Federal Procurement 
        Policy Act (41 U.S.C. 203(12)) as long as items and services 
        directly relating to the sale of such a commercial item are 
        offered to commercial customers.
          `(4) The term `management and daily business operations' 
        includes----

                  `(A) with respect to a contract for the provision of 
                services, the services to be performed by a contract 
                awarded under this section; and
                  `(B) with respect to a contract for the provision of 
                goods that are not manufactured by the small business 
                concern in question, the provision of services relating 
                directly to the sale of such goods.

        `(5) The term `regular dealer' with respect to any contract 
        means a person who owns, operates, or maintains a store, 
        warehouse, or other establishment in which the commodities or 
        goods of the general character described by the specifications 
        and required under the contract are bought, kept in stock, and 
        sold to the public in the usual course of business.'
                               __________
H.R. 4221 section 8127 with Recommendations in RED [Recommendations in 
        RED appear in Italics]

    (a) Additional Requirement--Section 8127(c) of title 38, United 
States Code, is amended----

          (1) in paragraph (2), by striking `and' at the end;
          (2) in paragraph (3), by striking the period and inserting 
        the following: `; and'; and
          (3) by adding at the end the following new paragraph:
          `(4) in the case of a contract for the purchase of a 
        commercial item, the vendor of the item is a manufacturer or a 
        regular dealer.'

    (b) Complaint Process for Use of Restricted Competition--Subsection 
(d) of such section is amended----

          (1) by striking `Except as provided' and inserting `(1) 
        Except as provided'; and
          (2) by adding at the end the following new paragraph:

    `(2) Any complaint regarding the noncompliance of a contracting 
officer with this subsection shall be submitted to the Secretary.'

    (c) Eligibility-Subsection (e) of such section is amended----

          (1) by striking `only if the small business concern and the 
        veteran' and all that follows and inserting `only if--'; and
          (2) by adding at the end the following new paragraphs:

          `(1) the small business concern and the veteran owner of the 
        small business concern are listed in the database of veteran-
        owned businesses maintained by the Secretary under subsection 
        (f);
          `(2) the Secretary has performed the verification functions 
        of the Secretary under paragraph (4) of such subsection with 
        respect to the small business concern; and
          `(3) the contract is only for the procurement of a good or 
        service with an North American Industry Classification System 
        code specified by the Secretary under paragraph (9) of that 
        subsection for the small business concern.'.

    (d) Database-Subsection (f) of such section is amended by adding at 
the end the following new paragraphs:

          `(7) The Secretary may not include in the database a small 
        business concern that is the vendor of a commercial item unless 
        the concern is the manufacturer or regular dealer of the item, 
        unless the Secretary specifically provides for a waiver of such 
        requirement for such concern.
          `(8) The Secretary shall establish specific criteria to be 
        used in carrying out the verification functions under paragraph 
        (4), including criteria requiring specific documentation and 
        certifications from each small business concern proposed to be 
        included in the database.
          `(9) For each small business concern included in the 
        database, the Secretary shall specify the North American 
        Industry Classification System code or codes of the goods and 
        services that may be procured by the Department from such 
        concern.
          `(10) Ownership and control by a veteran or veterans of more 
        than one small business concern shall not be grounds for 
        disqualification of any of such concerns from inclusion in the 
        database under this subsection.'

    (e) Definitions--Subsection (l) of such section is amended by 
adding at the end the following new items:

          `(3) The term `commercial item' has the meaning given that 
        term in section 4(12) of the Office of Federal Procurement 
        Policy Act (41 U.S.C. 203(12)) as long as items and services 
        directly relating to the sale of such a commercial item are 
        offered to commercial customers.
          `(4) The term `management and daily business operations' 
        includes----

                  `(A) with respect to a contract for the provision of 
                services, the services to be performed by a contract 
                awarded under this section; and
                  `(B) with respect to a contract for the provision of 
                goods that are not manufactured by the small business 
                concern in question, the provision of services relating 
                directly to the sale of such goods.

          `(5) The term `regular dealer' with respect to any contract 
        means a person who owns, operates, or maintains a store, 
        warehouse, or other establishment in which the commodities or 
        goods of the general character described by the specifications 
        and required under the contract are bought, kept in stock, and 
        sold to the public in the usual course of business.'.
          `(6) The term 'control of management and daily business 
        operations' with respect to a business concern means the 
        authority to make final decisions affecting financial, 
        operational, management policy, and employment issues, 
        irrespective of the number of hours worked by the individual 
        with such authority or the location of such individual with 
        respect to the business concern.'.

                               __________
38 U.S.C. Sec. 8127 with H.R. 4221 Proposed changes using Track 
        Changes----

    01/05/2009

EXPCITE

    TITLE 38--VETERANS' BENEFITS
    PART VI--ACQUISITION AND DISPOSITION OF PROPERTY
    CHAPTER 81--ACQUISITION AND OPERATION OF HOSPITAL AND DOMICILIARY 
FACILITIES; PROCUREMENT AND SUPPLY; ENHANCED-USE LEASES OF REAL 
PROPERTY
    SUBCHAPTER II--PROCUREMENT AND SUPPLY

HEAD

    Sec. 8127. Small business concerns owned and controlled by 
veterans: contracting goals and preferences

STATUTE

    (a) Contracting Goals.--(1) In order to increase contracting 
opportunities for small business concerns owned and controlled by 
veterans and small business concerns owned and controlled by veterans 
with service-connected disabilities, the Secretary shall----

          (A) establish a goal for each fiscal year for participation 
        in Department contracts (including subcontracts) by small 
        business concerns owned and controlled by veterans who are not 
        veterans with service-connected disabilities in accordance with 
        paragraph (2); and
          (B) establish a goal for each fiscal year for participation 
        in Department contracts (including subcontracts) by small 
        business concerns owned and controlled by veterans with 
        service-connected disabilities in accordance with paragraph 
        (3).

    (2) The goal for a fiscal year for participation under paragraph 
(1)(A) shall be determined by the Secretary.
    (3) The goal for a fiscal year for participation under paragraph 
(1)(B) shall be not less than the Government-wide goal for that fiscal 
year for participation by small business concerns owned and controlled 
by veterans with service-connected disabilities under section 15(g)(1) 
of the Small Business Act (15 U.S.C. 644(g)(1)).
    (4) The Secretary shall establish a review mechanism to ensure 
that, in the case of a subcontract of a Department contract that is 
counted for purposes of meeting a goal established pursuant to this 
section, the subcontract was actually awarded to a business concern 
that may be counted for purposes of meeting that goal.

    (b) Use of Noncompetitive Procedures for Certain Small Contracts.-- 
For purposes of meeting the goals under subsection (a), and in 
accordance with this section, in entering into a contract with a small 
business concern owned and controlled by veterans for an amount less 
than the simplified acquisition threshold (as defined in section 4 of 
the Office of Federal Procurement Policy Act (41 U.S.C. 403)), a 
contracting officer of the Department may use procedures other than 
competitive procedures.
    (c) Sole Source Contracts for Contracts Above Simplified 
Acquisition Threshold.-- For purposes of meeting the goals under 
subsection (a), and in accordance with this section, a contracting 
officer of the Department may award a contract to a small business 
concern owned and controlled by veterans using procedures other than 
competitive procedures if----

    (1) such concern is determined to be a responsible source with 
respect to performance of such contract opportunity;
    (2) the anticipated award price of the contract (including options) 
will exceed the simplified acquisition threshold (as defined in section 
4 of the Office of Federal Procurement Policy Act (41 U.S.C. 403)) but 
will not exceed $5,000,000; and
    (3) in the estimation of the contracting officer, the contract 
award can be made at a fair and reasonable price that offers best value 
to the United States.; and
    `(4) in the case of a contract for the purchase of a commercial 
item, the vendor of the item is a manufacturer or a regular dealer.

    (d) Use of Restricted Competition.--Except as provided (1) Except 
as provided in subsections (b) and (c), for purposes of meeting the 
goals under subsection (a), and in accordance with this section, a 
contracting officer of the Department shall award contracts on the 
basis of competition restricted to small business concerns owned and 
controlled by veterans if the contracting officer has a reasonable 
expectation that two or more small business concerns owned and 
controlled by veterans will submit offers and that the award can be 
made at a fair and reasonable price that offers best value to the 
United States..

    (2) Any complaint regarding the noncompliance of a contracting 
officer with this subsection shall be submitted to the Secretary.

    (e) Eligibility of Small Business Concerns.--A small business 
concern may be awarded a contract under this section only if the small 
business concern and the veteran only if----

          --owner of the small business
          --concern are listed in the database
          --of veteran-owned businesses
          --maintained by the Secretary under
          --subsection (f).

    (1) the small business concern and the veteran owner of the small 
business concern are listed in the database of veteran-owned businesses 
maintained by the Secretary under subsection (f);
    (2) the Secretary has performed the verification functions of the 
Secretary under paragraph (4) of such subsection with respect to the 
small business concern; and
    (3) the contract is only for the procurement of a good or service 
with a North American Industry Classification System code specified by 
the Secretary under paragraph (9) of that subsection for the small 
business concern.

    (f) 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.
    (7) The Secretary may not include in the database a small business 
concern that is the vendor of a commercial item unless the concern is 
the manufacturer or regular dealer of the item, unless the Secretary 
specifically provides for a waiver of such requirement for such 
concern.
    (8) The Secretary shall establish specific criteria to be used in 
carrying out the verification functions under paragraph (4), including 
criteria requiring specific documentation and certifications from each 
small business concern proposed to be included in the database.
    (9) For each small business concern included in the database, the 
Secretary shall specify the North American Industry Classification 
System code or codes of the goods and services that may be procured by 
the Department from such concern.

    (2) To be eligible for inclusion in the database, such a veteran 
shall submit to the Secretary such information as the Secretary may 
require with respect to the small business concern or the veteran.
    (3) Information maintained in the database shall be submitted on a 
voluntary basis by such veterans.
    (4) In maintaining the database, the Secretary shall carry out at 
least the following two verification functions:

          (A) Verification that each small business concern listed in 
        the database is owned and controlled by veterans.
          (B) In the case of a veteran who indicates a service-
        connected disability, verification of the service-disabled 
        status of such veteran.

    (5) The Secretary shall make the database available to all Federal 
departments and agencies and shall notify each such department and 
agency of the availability of the database.
    (6) If the Secretary determines that the public dissemination of 
certain types of information maintained in the database is 
inappropriate, the Secretary shall take such steps as are necessary to 
maintain such types of information in a secure and confidential manner.

    (g) Enforcement Penalties for Misrepresentation.--Any business 
concern that is determined by the Secretary to have misrepresented the 
status of that concern as a small business concern owned and controlled 
by veterans or as a small business concern owned and controlled by 
service-disabled veterans for purposes of this subsection shall be 
debarred from contracting with the Department for a reasonable period 
of time, as determined by the Secretary.
    (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.

    (2) The period referred to in paragraph (1) is the period beginning 
on the date on which the veteran dies and ending on the earliest of the 
following dates:

          (A) The date on which the surviving spouse remarries.
          (B) The date on which the surviving spouse relinquishes an 
        ownership interest in the small business concern.
          (C) The date that is 10 years after the date of the veteran's 
        death.

    (3) Paragraph (1) only applies to a surviving spouse of a veteran 
with a service-connected disability rated as 100 percent disabling or 
who dies as a result of a service-connected disability.

(i) Priority for Contracting Preferences.--Preferences for awarding 
contracts to small business concerns shall be applied in the following 
order of priority:

    (1) Contracts awarded pursuant to subsection (b), (c), or (d) to 
small business concerns owned and controlled by veterans with service-
connected disabilities.
    (2) Contracts awarded pursuant to subsection (b), (c), or (d) to 
small business concerns owned and controlled by veterans that are not 
covered by paragraph (1).
    (3) Contracts awarded pursuant to----

          (A) section 8(a) of the Small Business Act (15 U.S.C. 
        637(a)); or
          (B) section 31 of such Act (15 U.S.C. 657a).

    (4) Contracts awarded pursuant to any other small business 
contracting preference.

    (j) Applicability of Requirements to Contracts.--(1) If after 
December 31, 2008, the Secretary enters into a contract, memorandum of 
understanding, agreement, or other arrangement with any Governmental 
entity to acquire goods or services, the Secretary shall include in 
such contract, memorandum, agreement, or other arrangement a 
requirement that the entity will comply, to the maximum extent 
feasible, with the provisions of this section in acquiring such goods 
or services.

    (2) Nothing in this subsection shall be construed to supersede or 
otherwise affect the authorities provided under the Small Business Act 
(15 U.S.C. 631 et seq.).

    (k) Annual Reports.--Not later than December 31 each year, the 
Secretary shall submit to Congress a report on small business 
contracting during the fiscal year ending in such year. Each report 
shall include, for the fiscal year covered by such report, the 
following:

    (1) The percentage of the total amount of all contracts awarded by 
the Department during that fiscal year that were awarded to small 
business concerns owned and controlled by veterans.
    (2) The percentage of the total amount of all such contracts 
awarded to small business concerns owned and controlled by veterans 
with service-connected disabilities.
    (3) The percentage of the total amount of all contracts awarded by 
each Administration of the Department during that fiscal year that were 
awarded to small business concerns owned and controlled by veterans.
    (4) The percentage of the total amount of all contracts awarded by 
each such Administration during that fiscal year that were awarded to 
small business concerns owned and controlled by veterans with service-
connected disabilities.

(l) Definitions.--In this section:

    (1) The term ``small business concern'' has the meaning given that 
term under section 3 of the Small Business Act (15 U.S.C. 632).

    (2) The term ``small business concern owned and controlled by 
veterans'' means a small business concern----

          (A)(i) not less than 51 percent of which is owned by one or 
        more veterans or, in the case of a publicly owned business, not 
        less than 51 percent of the stock of which is owned by one or 
        more veterans; and

          (ii) the management and daily business operations of which 
        are controlled by one or more veterans; or

          (B) not less than 51 percent of which is owned by one or more 
        veterans with service-connected disabilities that are permanent 
        and total who are unable to manage the daily business 
        operations of such concern or, in the case of a publicly owned 
        business, not less than 51 percent of the stock of which is 
        owned by one or more such veterans.

    (3) The term `commercial item' has the meaning given that term in 
section 4(12) of the Office of Federal Procurement Policy Act (41 
U.S.C. 203(12)) as long as items and services directly relating to the 
sale of such a commercial item are offered to commercial customers.
    (4) The term `management and daily business operations' includes--
--

          (A) with respect to a contract for the provision of services, 
        the services to be performed by a contract awarded under this 
        section; and
          (B) with respect to a contract for the provision of goods 
        that are not manufactured by the small business concern in 
        question, the provision of services relating directly to the 
        sale of such goods.
     (5) The term `regular dealer' with respect to any contract means a 
person who owns, operates, or maintains a store, warehouse, or other 
establishment in which the commodities or goods of the general 
character described by the specifications and required under the 
contract are bought, kept in stock, and sold to the public in the usual 
course of business.

SOURCE

    (Added Pub. L. 109-461, title V, Sec. 502(a)(1), Dec. 22, 2006, 120 
Stat. 3431; amended Pub. L. 110-389, title VIII, Sec. 806, Oct. 10, 
2008, 122 Stat. 4189.)

    REFTEXT

                           REFERENCES IN TEXT

    The Small Business Act, referred to in subsec. (j)(2), is Pub. L. 
85-536, Sec. 2(1 et seq.), July 18, 1958, 72 Stat. 384, which is 
classified generally to chapter 14A (Sec. 631 et seq.) of Title 15, 
Commerce and Trade. For complete classification of this Act to the 
Code, see Short Title note set out under section 631 of Title 15 and 
Tables.


MISC1

                               AMENDMENTS

    2008--Subsecs. (j) to (l). Pub. L. 110-389 added subsec. (j) and 
redesignated former subsecs. (j) and (k) as (k) and (l), respectively.

                             EFFECTIVE DATE

    Pub. L. 109-461, title V, Sec. 502(d), Dec. 22, 2006, 120 Stat. 
3435, provided that: ``This section [enacting this section and 
provisions set out as a note below] and the amendments made by this 
section shall take effect on the date that is 180 days after the date 
of the enactment of this Act [Dec. 22, 2006].''

                            TRANSITION RULE

    Pub. L. 109-461, title V, Sec. 502(b), Dec. 22, 2006, 120 Stat. 
3435, provided that: ``A small business concern that is listed in any 
small business database maintained by the Secretary of Veterans Affairs 
on the date of the enactment of this Act [Dec. 22, 2006] shall be 
presumed to be eligible for inclusion in the database under subsection 
(f) of section 8127 of title 38, United States Code, as added by 
subsection (a), during the period beginning on the effective date of 
that section [see Effective Date note above] and ending 1 year after 
such effective date. Such a small business concern may be removed from 
the database during that period if it is found not to be a small 
business concern owned and controlled by veterans (as defined in 
subsection (k) of such section).''
                               __________
    38 U.S.C. Sec. 8127 with H.R. 4221 + H.R. 2300 Proposed changes 
Using Track Changes----
    01/05/2009
    TITLE 38--VETERANS' BENEFITS
    PART VI--ACQUISITION AND DISPOSITION OF PROPERTY
    CHAPTER 81--ACQUISITION AND OPERATION OF HOSPITAL AND DOMICILIARY 
FACILITIES; PROCUREMENT AND SUPPLY; ENHANCED-USE LEASES OF REAL 
PROPERTY
    SUBCHAPTER II--PROCUREMENT AND SUPPLY

HEAD

    Sec. 8127. Small business concerns owned and controlled by 
veterans: contracting goals and preferences

STATUTE

    (a) Contracting Goals.--(1) In order to increase contracting 
opportunities for small business concerns owned and controlled by 
veterans and small business concerns owned and controlled by veterans 
with service-connected disabilities, the Secretary shall----

          (A) establish a goal for each fiscal year for participation 
        in Department contracts (including subcontracts) by small 
        business concerns owned and controlled by veterans who are not 
        veterans with service-connected disabilities in accordance with 
        paragraph (2); and
          (B) establish a goal for each fiscal year for participation 
        in Department contracts (including subcontracts) by small 
        business concerns owned and controlled by veterans with 
        service-connected disabilities in accordance with paragraph 
        (3).

    (2) The goal for a fiscal year for participation under paragraph 
(1)(A) shall be determined by the Secretary.
    (3) The goal for a fiscal year for participation under paragraph 
(1)(B) shall be not less than the Government-wide goal for that fiscal 
year for participation by small business concerns owned and controlled 
by veterans with service-connected disabilities under section 15(g)(1) 
of the Small Business Act (15 U.S.C. 644(g)(1)).
    (4) The Secretary shall establish a review mechanism to ensure 
that, in the case of a subcontract of a Department contract that is 
counted for purposes of meeting a goal established pursuant to this 
section, the subcontract was actually awarded to a business concern 
that may be counted for purposes of meeting that goal.

    (b) Use of Noncompetitive Procedures for Certain Small Contracts.--
For purposes of meeting the goals under subsection (a), and in 
accordance with this section, in entering into a contract with a small 
business concern owned and controlled by veterans for an amount less 
than the simplified acquisition threshold (as defined in section 4 of 
the Office of Federal Procurement Policy Act (41 U.S.C. 403)), a 
contracting officer of the Department may use procedures other than 
competitive procedures.
    (c) Sole Source Contracts for Contracts Above Simplified 
Acquisition Threshold.--For purposes of meeting the goals under 
subsection (a), and in accordance with this section, a contracting 
officer of the Department may award a contract to a small business 
concern owned and controlled by veterans using procedures other than 
competitive procedures if----

    (1) such concern is determined to be a responsible source with 
respect to performance of such contract opportunity;
    (2) the anticipated award price of the contract (including options) 
will exceed the simplified acquisition threshold (as defined in section 
4 of the Office of Federal Procurement Policy Act (41 U.S.C. 403)) but 
will not exceed $5,000,000; and
    (3) in the estimation of the contracting officer, the contract 
award can be made at a fair and reasonable price that offers best value 
to the United States.; and
    `(4) in the case of a contract for the purchase of a commercial 
item, the vendor of the item is a manufacturer or a regular dealer.

    (d) Use of Restricted Competition.--Except as provided (1) Except 
as provided in subsections (b) and (c), for purposes of meeting the 
goals under subsection (a), and in accordance with this section, a 
contracting officer of the Department shall award contracts on the 
basis of competition restricted to small business concerns owned and 
controlled by veterans if the contracting officer has a reasonable 
expectation that two or more small business concerns owned and 
controlled by veterans will submit offers and that the award can be 
made at a fair and reasonable price that offers best value to the 
United States.

    `(2) Any complaint regarding the noncompliance of a contracting 
officer with this subsection shall be submitted to the Secretary.

    (e) Eligibility of Small Business Concerns.--A small business 
concern may be awarded a contract under this section only if the small 
business concern and the veteran only if----

          --owner of the small business
          --concern are listed in the database
          --of veteran-owned businesses
          --maintained by the Secretary under
          --subsection (f).

    (1) the small business concern and the veteran owner of the small 
business concern are listed in the database of veteran-owned businesses 
maintained by the Secretary under subsection (f);
    (2) the Secretary has performed the verification functions of the 
Secretary under paragraph (4) of such subsection with respect to the 
small business concern; and
    (3) the contract is only for the procurement of a good or service 
with an North American Industry Classification System code specified by 
the Secretary under paragraph (9) of that subsection for the small 
business concern.

    (f) 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.

    (7) The Secretary may not include in the database a small business 
concern that is the vendor of a commercial item unless the concern is 
the manufacturer or regular dealer of the item, unless the Secretary 
specifically provides for a waiver of such requirement for such 
concern.
    (8) The Secretary shall establish specific criteria to be used in 
carrying out the verification functions under paragraph (4), including 
criteria requiring specific documentation and certifications from each 
small business concern proposed to be included in the database.
    (9) For each small business concern included in the database, the 
Secretary shall specify the North American Industry Classification 
System code or codes of the goods and services that may be procured by 
the Department from such concern.
    `(10) Ownership and control by a veteran or veterans of more than 
one small business concern shall not be grounds for disqualification of 
any of such concerns from inclusion in the database under this 
subsection.'.

    (2) To be eligible for inclusion in the database, such a veteran 
shall submit to the Secretary such information as the Secretary may 
require with respect to the small business concern or the veteran.
    (3) Information maintained in the database shall be submitted on a 
voluntary basis by such veterans.
    (4) In maintaining the database, the Secretary shall carry out at 
least the following two verification functions:

          (A) Verification that each small business concern listed in 
        the database is owned and controlled by veterans.
          (B) In the case of a veteran who indicates a service-
        connected disability, verification of the service-disabled 
        status of such veteran.

    (5) The Secretary shall make the database available to all Federal 
departments and agencies and shall notify each such department and 
agency of the availability of the database.
    (6) If the Secretary determines that the public dissemination of 
certain types of information maintained in the database is 
inappropriate, the Secretary shall take such steps as are necessary to 
maintain such types of information in a secure and confidential manner.

    (g) Enforcement Penalties for Misrepresentation.--Any business 
concern that is determined by the Secretary to have misrepresented the 
status of that concern as a small business concern owned and controlled 
by veterans or as a small business concern owned and controlled by 
service-disabled veterans for purposes of this subsection shall be 
debarred from contracting with the Department for a reasonable period 
of time, as determined by the Secretary.
    (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.

    (2) The period referred to in paragraph (1) is the period beginning 
on the date on which the veteran dies and ending on the earliest of the 
following dates:

          (A) The date on which the surviving spouse remarries.
          (B) The date on which the surviving spouse relinquishes an 
        ownership interest in the small business concern.
          (C) The date that is 10 years after the date of the veteran's 
        death.

    (3) Paragraph (1) only applies to a surviving spouse of a veteran 
with a service-connected disability rated as 100 percent disabling or 
who dies as a result of a service-connected disability.

          (i) Priority for Contracting Preferences.--Preferences for 
        awarding contracts to small business concerns shall be applied 
        in the following order of priority:

    (1) Contracts awarded pursuant to subsection (b), (c), or (d) to 
small business concerns owned and controlled by veterans with service-
connected disabilities.
    (2) Contracts awarded pursuant to subsection (b), (c), or (d) to 
small business concerns owned and controlled by veterans that are not 
covered by paragraph (1).
    (3) Contracts awarded pursuant to----

          (A) section 8(a) of the Small Business Act (15 U.S.C. 
        637(a)); or
          (B) section 31 of such Act (15 U.S.C. 657a).

    (4) Contracts awarded pursuant to any other small business 
contracting preference.

    (j) Applicability of Requirements to Contracts.--(1) If after 
December 31, 2008, the Secretary enters into a contract, memorandum of 
understanding, agreement, or other arrangement with any Governmental 
entity to acquire goods or services, the Secretary shall include in 
such contract, memorandum, agreement, or other arrangement a 
requirement that the entity will comply, to the maximum extent 
feasible, with the provisions of this section in acquiring such goods 
or services.

    (2) Nothing in this subsection shall be construed to supersede or 
otherwise affect the authorities provided under the Small Business Act 
(15 U.S.C. 631 et seq.).

    (k) Annual Reports.--Not later than December 31 each year, the 
Secretary shall submit to Congress a report on small business 
contracting during the fiscal year ending in such year. Each report 
shall include, for the fiscal year covered by such report, the 
following:

    (1) The percentage of the total amount of all contracts awarded by 
the Department during that fiscal year that were awarded to small 
business concerns owned and controlled by veterans.
    (2) The percentage of the total amount of all such contracts 
awarded to small business concerns owned and controlled by veterans 
with service-connected disabilities.
    (3) The percentage of the total amount of all contracts awarded by 
each Administration of the Department during that fiscal year that were 
awarded to small business concerns owned and controlled by veterans.
    (4) The percentage of the total amount of all contracts awarded by 
each such Administration during that fiscal year that were awarded to 
small business concerns owned and controlled by veterans with service-
connected disabilities.

    (l) Definitions.--In this section:

    (1) The term ``small business concern'' has the meaning given that 
term under section 3 of the Small Business Act (15 U.S.C. 632).
    (2) The term ``small business concern owned and controlled by 
veterans'' means a small business concern----

          (A)(i) not less than 51 percent of which is owned by one or 
        more veterans or, in the case of a publicly owned business, not 
        less than 51 percent of the stock of which is owned by one or 
        more veterans; and

          (ii) the management and daily business operations of which 
        are controlled by one or more veterans; or
          (B) not less than 51 percent of which is owned by one or more 
        veterans with service-connected disabilities that are permanent 
        and total who are unable to manage the daily business 
        operations of such concern or, in the case of a publicly owned 
        business, not less than 51 percent of the stock of which is 
        owned by one or more such veterans.

    (3) The term `commercial item' has the meaning given that term in 
section 4(12) of the Office of Federal Procurement Policy Act (41 
U.S.C. 203(12)) as long as items and services directly relating to the 
sale of such a commercial item are offered to commercial customers.
    (4) The term `management and daily business operations' includes--
--

          (A) with respect to a contract for the provision of services, 
        the services to be performed by a contract awarded under this 
        section; and
          (B) with respect to a contract for the provision of goods 
        that are not manufactured by the small business concern in 
        question, the provision of services relating directly to the 
        sale of such goods.

    (5) The term `regular dealer' with respect to any contract means a 
person who owns, operates, or maintains a store, warehouse, or other 
establishment in which the commodities or goods of the general 
character described by the specifications and required under the 
contract are bought, kept in stock, and sold to the public in the usual 
course of business.
    `(6) The term `control of management and daily business operations' 
with respect to a business concern means the authority to make final 
decisions affecting financial, operational, management policy, and 
employment issues, irrespective of the number of hours worked by the 
individual with such authority or the location of such individual with 
respect to the business concern.'

SOURCE

    (Added Pub. L. 109-461, title V, Sec. 502(a)(1), Dec. 22, 2006, 120 
Stat. 3431; amended Pub. L. 110-389, title VIII, Sec. 806, Oct. 10, 
2008, 122 Stat. 4189.)

REFTEXT

                           REFERENCES IN TEXT

    The Small Business Act, referred to in subsec. (j)(2), is Pub. L. 
85-536, Sec. 2(1 et seq.), July 18, 1958, 72 Stat. 384, which is 
classified generally to chapter 14A (Sec. 631 et seq.) of Title 15, 
Commerce and Trade. For complete classification of this Act to the 
Code, see Short Title note set out under section 631 of Title 15 and 
Tables.

MISC1

                               AMENDMENTS

    2008--Subsecs. (j) to (l). Pub. L. 110-389 added subsec. (j) and 
redesignated former subsecs. (j) and (k) as (k) and (l), respectively.

                             EFFECTIVE DATE

    Pub. L. 109-461, title V, Sec. 502(d), Dec. 22, 2006, 120 Stat. 
3435, provided that: ``This section [enacting this section and 
provisions set out as a note below] and the amendments made by this 
section shall take effect on the date that is 180 days after the date 
of the enactment of this Act [Dec. 22, 2006].''

                            TRANSITION RULE

    Pub. L. 109-461, title V, Sec. 502(b), Dec. 22, 2006, 120 Stat. 
3435, provided that: ``A small business concern that is listed in any 
small business database maintained by the Secretary of Veterans Affairs 
on the date of the enactment of this Act [Dec. 22, 2006] shall be 
presumed to be eligible for inclusion in the database under subsection 
(f) of section 8127 of title 38, United States Code, as added by 
subsection (a), during the period beginning on the effective date of 
that section [see Effective Date note above] and ending 1 year after 
such effective date. Such a small business concern may be removed from 
the database during that period if it is found not to be a small 
business concern owned and controlled by veterans (as defined in 
subsection (k) of such section).''
                               __________
H.R. 4221 IH section 7 (d)(9) and (e)(5) Change.doc [Recommendations in 
        RED appear in Italics]

H.R. 4221 IH section 7 (d)(9) `(9) For each small business concern 
        included in the database, the Secretary shall specify the North 
        American Industry Classification System code or codes of the 
        goods and services that may be procured by the Department from 
        such concern.'
    H.R. 4221 IH section 7 (e)(5) `(5) The term `regular dealer' with 
respect to any contract means a person who owns, operates, or maintains 
a store, warehouse, or other establishment in which the commodities or 
goods of the general character described by the specifications and 
required under the contract are bought, kept in stock, and sold to the 
public in the usual course of business.'
    The above verbiage has been around for many years. Today, it is 
unrealistic and is not followed by contracting officers, manufacturers, 
wholesalers, distributors or dealers.

        1.  Internet has decreased purchase order, funding and 
        manufacturer/ distributor invoicing costs significantly because 
        products are touched only once between manufacturer and 
        customer or twice between manufacturer/ customer and 
        distributor.
        2.  Quality Assurance is lessened when another point of 
        shipment, storage, stocking point is added.
        3.  Small business bill of material/product costs are less 
        because shipping costs are borne only once to the customer.
        4.  When selling to the Federal Government, States exempt sales 
        tax and all States have mechanisms in place that takes into 
        consideration sales to the Federal Government based on a 
        contract. Most States levy sales tax when product is maintained 
        within a dealer's premises located within the dealer's State of 
        business.
        5.  GSA Schedule sales for product require F.O.B. (Freight On 
        Board) Destination on purchased product.

                  Manufacturers/distributors accept these GSA 
                Schedule requirements within their Letters of Supply 
                and price items to the Dealer accordingly.
                  It is advantageous to both the originating 
                point and the receiving point to have only one 
                shipment.
                  GSA Schedule buys almost always allow for 
                thirty days deliver After Receipt of Orders (ARO). 
                Small business competes with large business when the 
                Federal Government uses the GSA Schedule for purchasing 
                because FAR Part 8.404-1 exempts small business for 
                orders placed against Federal Supply Schedules 
                contracts. Adding additional shipping costs almost 
                always loses the bid for small business competing with 
                large business because large businesses ship direct 
                from manufacturers/distributors.
                  If veteran owned businesses are required to 
                meet the proposal in H.R. 4221 IH section 7(e)(5) they 
                will be unjustly put out of business.

    6.  Prior to 1996 there were at least 25 small business 
manufacturers of micro-computers. In 1997/1998 all were gone or were 
manufacturing niche products. More than 20 were gone by 1999. The 
reason was the price wars between the large microcomputer 
manufacturers. There was no way small business could compete. The SBA 
did not modify the non-manufacturer rule thus maintaining the 
requirement that small business sell only small business manufactured 
computers through an ``other than full-competition'' contract awarded 
through the Small Business Act. This forced small businesses into 
accumulating large expenses in order to get a GSA Schedule. The rule of 
only selling small business products does not apply to GSA Schedules. 
When those small businesses entered into contracts with the large 
business manufacturers to sell large business products the large 
business got an increased marketing staff because the small business 
GSA Schedule holders had very slim margins of profit and were 
controlled by the competition between the large manufacturers. Every 
large business discount to the Federal Government reduced the bottom 
line of small business. The only way the small business can compete 
with large business is to keep PRODUCT prices extremely low and create 
profit through special SERVICES provided with the dealer sales. This 
paragraph discusses only computers. These examples apply to the entire 
spectrum of product sales; e.g. furniture, automobiles, drugs, and 
office supplies. If VETERAN owned businesses are required to meet the 
proposal in H.R. 4221 IH section 7(e)(5) VETERANS will be unjustly put 
out of business.
    The recommended H.R. 4221 IH section 7(e)(5) is:

    `(5) The term `distributor, manufacturer representative, or dealer' 
with respect to any Federal veteran owned small business contract means 
a person who owns, operates, or maintains a business, warehouse, or 
other establishment in which the commodities or goods of the general 
character described by the specifications and required under the 
contract are bought and sold to the public in the usual course of 
business. A `wholesaler' meets the definition contained in this 
paragraph and has exclusive rights to market, within a given Federal 
Government territory, the goods of the applicable manufacturer or 
company.'

                                 
                                     Committee on Veterans' Affairs
                       Subcommittee on Oversight and Investigations
                                                     Washington, DC
                                                   January 11, 2010
Honorable Eric K. Shinseki
Secretary
U.S. Department of Veterans Affairs
810 Vermont Avenue, NW
Washington, DC 20420

Dear Secretary Shinseki:

    Thank you for the testimony of Glenn Haggstrom, Executive Director 
of the Office of Acquisition, Logistics and Construction, accompanied 
by Ed Murray, Deputy Assistant Secretary for Finance, Office of 
Management, U.S. Department of Veterans Affairs; Jan R. Frye, Deputy 
Assistant Secretary, Office of Acquisition, Logistics and Construction; 
Frederick Downs, Jr., Chief Procurement and Clinical Logistics Officer, 
Veterans Health Administration; Craig Robinson, Executive Director of 
the National Acquisition Center; and David Canada, Senior Procurement 
Analyst, Center for Small Business Utilization, Office of Small and 
Disadvantaged Business Utilization, U.S. Department of Veterans Affairs 
on the hearing entitled, ``Acquisition Deficiencies at the U.S. 
Department of Veterans Affairs.''
    Please provide answers to the following questions by Tuesday, 
February 23, 2010, to Todd Chambers, Legislative Assistant to the 
Subcommittee on Oversight and Investigations.

         1.  What is the Office of the General Counsel's role in 
        assisting you in VA acquisition operations?

                a.  The Subcommittee is concerned that the legal 
                opinions from the General Counsel's office, 
                specifically Group 5, in relation to contract and 
                acquisition issues are fragmented, piecemealed, and 
                does not provide adequate guidance. Are you satisfied 
                with the quality or value of the legal technical review 
                being released from the General Counsel's office 
                regarding VA acquisitions?
                b.  When was the last time the quality or value of this 
                group's legal technical review of its legal opinions 
                were evaluated for satisfaction from people requesting 
                its assistance in the field? What were the results of 
                that evaluation?

                  i. If one has not been conducted, when will VA 
                conduct one?

         2.  GAO's testimony noted that many miscellaneous obligations 
        did not include adequate information on the purpose, vendor, 
        and contract number--crucial information related to the 
        miscellaneous obligation. Does VA have system patches to now 
        require this type of information?

                a.  Are those patches working?
                b.  In your opinion, if GAO went out and reevaluated 
                this issue again, would GAO be satisfied with the 
                results and say ``problem solved?''

         3.  In your testimony, you state that VA is setting records 
        for spending with veteran-owned small businesses and that VA 
        awarded 11.76 percent of its contract dollars to SDVOSB and 
        14.72 percent to all VOSBs. Have you validated this data?
                a.  When was the last time VA conducted an audit on 
                this data?
         4.  What is VA's opinion on resellers or ``pass-through 
        entities'' in VA acquisition, the adverse impact they have on 
        the VA, and the role they play in wasting taxpayer dollars?
         5.  Annually, the VA reports to SBA the percentage of small 
        business contracting that the VA has awarded to SDVOSBs. After 
        being informed of GAO's testimony at this hearing and the 
        findings contained in its report issued in October 2009, do you 
        believe that the VA goal reports are an accurate account of the 
        small business contracts VA has awarded to SDVOSBs?
         6.  According to the VA OIG, the data systems such as VA's 
        Electronic Contract Management System (eCMS) and the Federal 
        Procurement Data System (FPDS), which should provide accurate 
        information relating to procurements, contain inaccurate and 
        incomplete data. How can VA allow inaccurate and incomplete 
        data to be included in eCMS and FPDS, what is VA's plan to 
        correct this, and who is being held accountable?
         7.  A 2004 GAO report stated that though VA had implemented 
        policies and procedures that required medical centers to 
        purchase medical products and services through VA's contract 
        programs, a VA OIG report found that medical centers continued 
        to make many less cost efficient purchases from local 
        suppliers. What specific procedures has VA implemented to 
        provide oversight and compliance?
         8.  During the July 31, 2008 hearing, VA testified that 
        starting in fiscal year 2009, the Office of Business Oversight 
        would be reviewing 70 to 80 stations with a special emphasis on 
        segregation of duties and how miscellaneous obligations are 
        handled. What were the findings of the review, and what actions 
        has VA taken to correct each deficiency found?

                a.  Please specify actions VA has taken to correct each 
                deficiency found?

         9.  VA published VA Financial Policies and Procedures, chapter 
        6, Miscellaneous Obligations, was previously known as the VA 
        Directive and Handbook 4533. This was supposed to address all 
        the egregious issues uncovered at last year's hearing on 
        Miscellaneous Obligations. Please inform the Committee on how 
        this new guidance has corrected the problems detailed during 
        the July 31, 2008 hearing.

                a.  Why did a recent audit show that 242 of 476 (51%) 
                miscellaneous obligations that were reviewed where not 
                in compliance with the Directive?
                b.  Why did 47 of 56 (84%) of miscellaneous obligations 
                requiring the Head of Contracting Authority (more 
                commonly known as the HCA) not go to the HCA for 
                approval as required?
                c.  Why did 13 of 47 (28%) miscellaneous obligations 
                for goods and services named in the directive were 
                invalid uses of miscellaneous obligations?

        10.  Since Public Law 109-461 was enacted on December 22, 2006, 
        what has VA done to put the verification program in place and 
        what kind of documentation must a business provide to VA in 
        order to be listed in the database.

                a.  How extensively are other Federal agencies 
                utilizing the database?

        11.  Based on the GAO report issued on November 19, 2009, it 
        appears there is a lack of an active verification program that 
        relies solely on self-verification is allowing businesses that 
        do not meet the requirements of PL 109-461 to take contracts 
        away from legitimate qualified disabled veteran-owned small 
        businesses. Please list all steps VA is taking to address this 
        issue?
        12.  Please describe, in detail, the process through which an 
        SDVOSB is certified by the VA, and how a contracting officer 
        determines that a business has been certified by the VA?
        13.  Last year, several of our Committee staff had the 
        opportunity to visit the Acquisition Academy in Frederick, 
        Maryland. While there, they had the opportunity to meet with 
        several attendees of the internship program. One of the 
        concerns our staff came back with was once these interns 
        graduated from the Academy, there was nothing to keep them from 
        leaving the VA for other opportunities within or outside of the 
        Federal Government.

                a.  What is VA doing to keep these highly trained 
                individuals at VA?
                b.  What is the annual cost of running the Academy?
                c.  How many individuals will be placed into the 
                acquisition workforce in 2010, 2011 and 2012?

        14.  Recently, minority and majority staff met with the acting 
        director of the Center for Veterans Enterprise. During that 
        meeting, Ms. Wegner stated that VA was allowing small 
        businesses to be listed on the VIP database without the veteran 
        or ownership and control status being verified by VA. Both 
        staff reminded her of previous conversations in which they made 
        Ms. Wegner aware that the law required VA to verify the 
        ownership and veteran's status before being listed. They also 
        explained that affixing a logo to a business to indicate a 
        business's status as verified was not sufficient to comply with 
        the law.

                a.  Are unverified businesses still listed in the 
                database?
                b.  If they are, when will VA remove them from the 
                database?

        15.  What is the status of the contract for assistance with 
        verifying ownership and control and what is the process by 
        which the contractor will accomplish that function and what 
        will be VA's role in that process?

    Thank you again for taking the time to answer these questions. The 
Committee looks forward to receiving your answers. If you have any 
questions concerning these questions, please contact Subcommittee on 
Oversight and Investigations Majority Staff Director, Martin Herbert, 
at (202) 225-3569 or the Subcommittee Minority Staff Director, Arthur 
Wu, at (202) 225-3527.

            Sincerely,





HARRY E. MITCHELL                             DAVID P. ROE
Chairman                                      Ranking Republican Member



                                 
                       Questions for the Record,
             The Honorable Harry E. Mitchell, Chairman, and
               The Honorable David P. Roe, Ranking Member
              Subcommittee on Oversight and Investigations
                  House Committee on Veterans' Affairs
  Acquisition Deficiencies at the U.S. Department of Veterans Affairs
                           December 16, 2009

    Question 1: What is the Office of the General Counsel's role in 
assisting you in VA acquisition operations?

    Question 1(a): The Subcommittee is concerned that the legal 
opinions from the General Counsel's office, specifically Group 5, in 
relation to contract and acquisition issues are fragmented, 
piecemealed, and does not provide adequate guidance. Are you satisfied 
with the quality or value of the legal technical review being released 
from the General Counsel's office regarding VA acquisitions?

    Response: Office of General Counsel (OGC) officials would like to 
meet with Subcommittee staff to better understand the nature and bases 
for the expressed concern. As is further detailed below in response to 
question 1.b., the first question is puzzling because surveys have 
shown consistently strong levels of client satisfaction with the legal 
assistance provided by Professional Staff Group V.
    There may be some misunderstanding underlying this question. 
``Technical review'' is a term of art referring not to reviews 
conducted by OGC, but rather by acquisition-program professionals. 
These are designed to ensure that procurements are conducted in 
accordance with prescribed policies. Once these technical reviews are 
conducted, OGC attorneys are frequently asked to perform legal 
evaluations of the matters and to suggest revisions/corrections of the 
proposed courses of action as necessary.
    We are also surprised by the question because OGC now has 
considerably greater legal resources to support departmental 
procurement activities than was the case just a few years ago, and 
client offices have voiced their deep appreciation. Over the 2006-2008 
time frame, OGC not only trained over twenty existing VA Regional 
Counsel attorneys in contract law, it also was permitted to hire (from 
the revolving Supply Fund) 22 attorneys to work in support of the 
supply system. While these attorneys report to Regional Counsels, Staff 
Group V coordinated their training and developed mentor-mentee 
relationships between them and its headquarters legal experts. Staff 
Group V itself is larger now than ever before, now totaling 35 staff 
attorneys who report to supervising attorneys under the management of a 
single Assistant General Counsel for purposes of ensuring coordination 
and consistency of advice. This staff is strategically located not only 
in VA Central Office (VACO) but also at the Austin Information 
Technology Center in Austin, Texas; the National Acquisition Center in 
Hines, Illinois; and the new Technology Acquisition Center in 
Eatontown, New Jersey. Client offices have been very pleased with the 
expanded availability of this legal expertise.

    Question 1(b): When was the last time the quality or value of this 
group's legal technical review of its legal opinions were evaluated for 
satisfaction from people requesting its assistance in the field? What 
were the results of that evaluation? If one has not been conducted, 
when will VA conduct one?

    Response: This question further suggests some underlying 
misunderstanding of OGC's role in the procurement process. 
Specifically, we do not understand what is meant by ``legal technical 
review of its legal opinions,'' and we reiterate our desire to meet 
with Subcommittee staff to better understand the concern that prompted 
the question.
    To the extent it is helpful, we can tell you that client 
satisfaction with the legal services provided by Staff Group V and all 
other OGC components is measured on a regular basis, most recently in 
2009. The cumulative client-satisfaction scores for Staff Group V have 
been strong. In 2009, they achieved an overall score of 4.29 on a scale 
of 5, with 5 being the highest possible satisfaction level. Scores for 
the immediately prior surveys, as conducted every other year, were also 
consistently high: 4.24 in 2007, 4.37 in 2005, and 4.39 in 2003. These 
surveys have proven useful in not only reinforcing our understanding of 
what we are doing well, but also allowing us to identify and focus 
efforts on areas of client concern.

    Question 2: GAO's testimony noted that many miscellaneous 
obligations did not include adequate information on the purpose, 
vendor, and contract number--crucial information related to the 
miscellaneous obligation. Does VA have system patches to now require 
this type of information?

    Response: A system patch was released in September 2009, which 
enables local management at facilities to have improved oversight over 
the use of miscellaneous obligations.
    This first patch (Patch PRC*5.1*131) to VA's Integrated Funds 
Distribution, Control Point Activity, Accounting, and Procurement 
(IFCAP) system provides two sets of functionality. The first enhances 
the reporting capabilities of the National Logistics Database. Reports 
are now available that identify those obligations that do not have the 
required procurement information and those that were created in 
violation of separation of duties policies so that management can take 
corrective action. The second functionality of the IT patch allows the 
financial system (FMS) to identify if a financial transaction 
originated as a ``Miscellaneous Obligation'' (VA Form 4-1358) or as a 
``Request, Turn-In and Receipt for Property or Services'' (Form 2237).
    Further development work on 4-1358 remediation caused a resource 
conflict with VA's Financial and Logistics Integrated Technology 
Enterprise (FLITE) system. FLITE is composed of the Integrated 
Financial Accounting System (IFAS) and the Strategic Asset Management 
(SAM) system. IFAS and SAM impact, and eventually will replace, the 
IFCAP system. In August 2009, VA determined the best use of limited 
IFCAP developers would be to re-direct these resources away from 
developing any additional interim IFCAP patches and toward developing 
and implementing the FLITE program, whose requirements fully address 
GAO's recommendations on miscellaneous obligations, and which will be 
the permanent system solution.
    Although the IT resources were re-directed to FLITE from any 
follow-up 4-1358 remediation work, mitigation processes and policies 
are in place from a management controls perspective.

    Question 2(a): Are those patches working?

    Response: Yes. The first patch is working as programmed. At present 
we are getting additional information from all IFCAP sites. This 
additional information allows us to prepare better management reports 
to ensure compliance of 4-1358's written policy. Reports that are 
currently being developed include showing if separation of duties and 
if a vendor has been attached to the procurement. These and other 
reports will continue to be developed and shared with the various 
program offices as they become available.

    Question 2(b): In your opinion, if GAO went out and reevaluated 
this issue again, would GAO be satisfied with the results and say 
``problem solved?''

    Response: Through the combination of the release of the national 
policy on the use of miscellaneous obligations and the release of the 
IFCAP system patch discussed in 2a, we expect to see significant 
improvements in audits beginning with FY 2010 data and that the problem 
identified by GAO will be addressed satisfactorily.

    Question 3: In your testimony, you state that VA is setting records 
for spending with veteran-owned small businesses and that VA awarded 
11.76% of its contract dollars to SDVOSB and 14.72 percent to all 
VOSBs. Have you validated this data?

    Question 3(a): When was the last time VA conducted an audit on this 
data?

    Response: VA is proud of its record with respect to service-
disabled Veteran-owned small business (SDVOSB) and Veteran-owned small 
business (VOSB) contracts, and is committed to meeting and exceeding 
our annual contracting goals with these categories of business. A part 
of that commitment is to ensure data accuracy when reporting agency 
contracting dollars in the Federal Procurement Data System-Next 
Generation (FPDS-NG). Effective Fiscal Year (FY) 2010, VA began an 
ongoing independent verification and validation (IV&V) initiative of 
agency data through the services of an IV&V contractor. The IV&V 
contractor samples and validates data quarterly and makes 
recommendations for adjustments to VA policies, procedures, and 
training to improve the accuracy of the data reported in FPDS-NG. Data 
pertaining to SDVOSBs and VOSBs is included in the IV&V reviews. Data 
accuracy is a key performance measurement indicator and will be 
reviewed quarterly by senior leadership in the Office of Acquisition, 
Logistics, and Construction.
    In addition, the data is certified by VA's Office of Small and 
Disadvantaged Business Utilization during the first quarter following 
the end of each fiscal year. The socio-economic data was last certified 
in November 2009.

    Question 4: What Is VA's opinion on resellers or ``pass-through 
entities'' in VA acquisition, the adverse impact they have on the VA, 
and the role they play in wasting taxpayer dollars?

    Response: Resellers are companies that buy goods or services with 
the intention of reselling them rather than using or consuming them. VA 
does not object to resellers participating in VA acquisitions, so long 
as they comply with applicable Federal law, policies, and requirements, 
including the Federal Acquisition Regulation and General Services 
Administration's Federal Supply Schedule program policies and 
requirements, such as limitations on the percentage of work on a 
SDVOSB/VOSB set-aside award that can be subcontracted to a non-SDVOSB/
VOSB firm. The Government has the obligation to determine price 
reasonableness in all contracts regardless of the business type (e.g., 
resellers, manufacturers, or wholesalers). Price reasonableness is 
determined by comparing the value of offered products or services 
relative to similar offerings in the commercial marketplace. VA seeks 
and awards contracts that are in the best interest of the Government 
and are fair and reasonably priced.

    Question 5: Annually, the VA reports to SBA the percentage of small 
business contracting that the VA has awarded to SDVOSBs. After being 
Informed of GAO's testimony at this hearing and the findings contained 
in its report issued in October 2009, do you believe that the VA goal 
reports are an accurate account of the small business contracts VA has 
awarded to SDVOSBs?

    Response: VA goal accomplishment reporting for SDVOSB and VOSB 
contracts is based upon the award data actually transmitted to FPDS-NG, 
which includes all contract awards over $25,000. VA data used in these 
reports is extracted from FPDS-NG which is the most accurate assessment 
tool available. This data will now be subject to sampling by VA's IV&V 
contractor further described in VA's response to Question No. 3, above.
    The issue does not address the legitimacy of the firms which have 
self-certified. This information will be verified through the full 
implementation of VA's Veteran's First program, which includes a vendor 
status verification program.

    Question 6: According to the VA OIG, the data systems such as VA's 
Electronic Contract Management System (eCMS) and the Federal 
Procurement Data System (FPDS), which should provide accurate 
information relating to procurements, contain inaccurate and incomplete 
data. How can VA allow inaccurate and incomplete data to be included in 
eCMS and FPDS, what is VA's plan to correct this, and who is being held 
accountable?

    Response: VA is committed to ensuring accurate and complete data 
records in its acquisition systems. The agency has taken steps to 
improve both the operational processes and the automated systems to 
address this issue. VA has developed features within the enterprise-
wide electronic contract management system (eCMS) to prohibit 
contracting officers from finalizing awards before records have been 
sent to FPDS-NG for awards over $25,000. In addition, VA Information 
Letters (IL) have been developed and issued addressing utilization and 
accuracy of FPDS-NG data. Specifically, Information Letter 049-07-09, 
``FPDS Data Verification and Validation,'' addresses data integrity and 
assigns accountability to each contracting officer as well as the 
office manager. This data is also included in the IV&V contractor's 
data sampling (see VA's response to Question No. 3).
    One root cause of inaccurate data in the acquisition systems is the 
existence of a knowledge gap within the acquisition workforce in fully 
understanding the system features of FPDS-NG and eCMS. In an effort to 
further reduce the occurrence of inaccurate data entry, VA is holding 
new and refresher training courses for both eCMS and FPDS-NG users. VA 
has also established a web-based central repository of detailed 
acquisition policies and procedures, which is accessible to all 
acquisition professionals to augment their classroom training. In 
addition, VA has appointed on-site experts in each administration and 
contracting office to provide training and oversight for eCMS and FPDS-
NG system use. VA's Office of Acquisition, Logistics and Construction 
will be accountable for eCMS and FPDS-NG program management and for 
ensuring data accuracy and completeness at the agency.

    Question 7: A 2004 GAO report stated that though VA had implemented 
policies and procedures that required medical centers to purchase 
medical products and services through VA's contract programs, a VA OIG 
report found that medical centers continued to make many less cost 
efficient purchases from local suppliers. What specific procedures has 
VA implemented to provide oversight and compliance?

    Response: VA contracting officers are required to purchase medical 
equipment and supplies from Federal Supply Schedule (FSS) contracts 
awarded by VA. This requirement to award contracts off of FSS is based 
upon a delegation of procurement authority from the General Services 
Administration (GSA) pursuant to the VA Acquisition Regulation. Also, 
VA hired Price Waterhouse Coopers (PWC) to complete a review of the 
existing acquisition structure, and to recommend an acquisition 
organization business model. As a result, the recommended regional 
model provides administration decision makers with more authority in 
executing strategic procurement programs, uses procurement oversight 
organizations resources effectively, and provides the best opportunity 
for stewardship responsibilities with mission focus.
    Under this model all acquisition workforce members (GS 1102 and 
acquisition related GS 1105 and GS 1106s) will report to the Network/
Program Contract Manager (NCM/PCM), the Service Area Officer (SAO), the 
Deputy Chief Procurement Officer (DCPO), and Chief Procurement and 
Logistics Officer.
    Implementation of the acquisition realignment process began the 
second quarter of FY 2009, and has been completed, with the exception 
of the realigning of the GS 1105 and GS 1106 workforce under the NCM, 
which will conclude September 2010.
    Each NCM has been authorized an additional Full-time Employee 
Equivalent (FTEE) for a Compliance Officer, and each SAO will be 
staffed with three Compliance Officers to ensure proper oversight.

    Question 8: During the July 31, 2008 hearing, VA testified that 
starting in fiscal year 2009, the Office of Business Oversight would be 
reviewing 70 to 80 stations with a special emphasis on segregation of 
duties and how miscellaneous obligations are handled. What were the 
findings of the review, and what actions has VA taken to correct each 
deficiency found?

    Response: In FY 2009, the Office of Business Oversight analyzed a 
total of 476 VA Form 4-1358s at 39 sites VA-wide. We found no fraud. We 
found instances of separation of duty violations, inadequate supporting 
documentation, VA Form 4-1358 not being submitted to the Head of 
Contracting Authority (HCA) as required and instances of invalid uses.

    Question 8(a): Please specify actions VA has taken to correct each 
deficiency found?

    Response: In FY 2009, the Office of Business Oversight issued 35 
recommendations for improving compliance with VA Form 4-1358 
procedures. All affected facilities submitted corrective action plans 
as required in response to the recommendations. Twenty-five 
recommendations have since been closed.

    Question 9: VA published VA Financial Policies and Procedures, 
Chapter 6, Miscellaneous Obligations, was previously known as the VA 
Directive and Handbook 4533. This was supposed to address all the 
egregious issues uncovered at last year's hearing on Miscellaneous 
Obligations. Please inform the Committee on how this new guidance has 
corrected the problems detailed during the July 31, 2008 hearing.

    Question 9(a): Why did a recent audit show that 242 of 476 (51%) 
miscellaneous obligations that were reviewed where not in compliance 
with the Directive?
    Question 9(b): Why did 47 of 56 (84%) of miscellaneous obligations 
requiring the Head of Contracting Authority (more commonly known as the 
RCA) not go to the HCA for approval as required?

    Question 9(c): Why did 13 of 47 (28%) miscellaneous obligations for 
goods and services named in the directive were invalid uses of 
miscellaneous obligations?

    Response: As stated in a recent Management Quality Assurance 
Service Report, the primary cause of the reported shortcomings was a 
``lack of knowledge or timely receipt of the initial policy issued in 
August 2008.'' VHA provided electronic distribution of national policy 
(all Administrations) to the VHA financial community in January 2009. 
VA anticipates significant improvement in subsequent reviews.

    Question 10: Since Public Law 109-461 was enacted on December 22, 
2006, what has VA done to put the verification program in place and 
what kind of documentation must a business provide to VA in order to be 
listed in the database?

    Response: VA leadership receives weekly reports, and VA has taken 
numerous steps to implement the program:

      Re-organized and expanded the Office of Small and 
Disadvantaged Business Utilization (OSDBU);
      Hired a Senior Executive Service official to manage the 
operations;
      Acquired contractor support to supplement full-time staff 
and provide advisory and assistance services to improve the program's 
efficiency, effectiveness and performance measures;
      Completed certification and accreditation of the Center 
for Veterans Enterprise's (CVE's) integrated electronic signature 
system in May 2009, culminating a 3-year period of research, planning 
and development;
      Formally trained CVE examiners in business operations 
through George Mason University's School of Public Policy;
      Purged 207 inactive business profiles from the database;
      Published an Interim Final regulation in the Federal 
Register informing the public of how VA will manage the Verification 
Program (see 38 CFR Part 74);
      Launched formal examination of ownership and control of 
applicant businesses on May 19, 2008;
      Completed awareness training for business owners through 
254 conferences and outreach activities since May 19, 2008;
      Supported 38,285 calls through CVE's Customer Interaction 
Center since May 19, 2008;
      Initiated on-site visits to applicants in October 2009 
after acquiring contractor support;
      Re-engineered the VetBiz.gov web portal to conform to 
VA's new transparency guidelines in November 2009; and
      Received 7,776 applications and completed action on 4,004 
(as of January 28, 2010).

    The database requires all owners to address five eligibility 
questions before they may be listed in the database. In addition, 
owners who apply for the Verification Program must submit VA Form 0877, 
authorizing VA to examine their individual eligibility status (Veteran, 
service-disabled Veteran, eligible surviving spouse) and agreeing to 
permit VA to examine business records. The listing of records that VA 
may examine is contained in 38 CFR 74.12.

    Question 10(a): How extensively are other Federal agencies 
utilizing the database?

    Response: The Vendor Information Pages (VIP) database is publicly 
available on the Internet. In Fiscal Year 2009, the database was 
visited 33,893,747 times. VA does not track individual visitor 
characteristics, so we are not able to more specifically answer the 
question. The Verification Program is applicable only to VA and to its 
prime contractors.

    Question 11: Based on the GAO report issued on November 19, 2009, 
it appears there is a lack of an active verification program that 
relies solely on self-verification is allowing businesses that do not 
meet the requirements of P.L. 109-461 to take contracts away from 
legitimate qualified disabled veteran-owned small businesses. Please 
list all steps VA is taking to address this issue.

    Response: P.L. 109-461 provides contracting advantages for service-
disabled and other Veteran-owned small businesses only when contracting 
with the VA. It does not extend to non-VA Federal agencies. Only 3 of 
the 10 examples provided in the GAO report relate to contracts with the 
VA.
    In May 2008, VA began to officially verify ownership and control of 
Veteran-owned small businesses. To develop a sufficient number of 
verified concerns eligible to receive set-aside and sole source 
contracts, businesses may self-represent their status until December 
31, 2011, in accordance with VA Acquisition Regulation (VAAR) Part 
804.1102. At the present time, any business that is registered in the 
VIP database--self-verified or not--that is putatively selected for a 
contract will first undergo a full verification before the contract 
will be awarded.

    Question 12: Please describe, in detail, the process through which 
an SDVOSB is certified by the VA, and how a contracting officer 
determines that a business has been certified by the VA.

    Response: The Attachment is a process flow chart which details the 
steps involved in verifying a SDVOSB. Once a business has been approved 
for verification, a ``Center for Veterans Enterprise (CVE)-- verified'' 
logo appears on the company's profile in the database. Until December 
31, 2011, VA contracting officers may award to any business that is 
listed in the VIP database. However, if a business is found to lack 
SDVOSB/VOSB status through a verification examination or a status 
protest, the firm will be removed from the VIP database.
    This process is intended to verify that small business concerns 
listed in the database are owned and controlled by Veterans, and that 
Veteran owners asserting a service-connected disability are in fact 
service-disabled. To carry out this requirement, VA collects 
information to document direct and unconditional ownership, control of 
day-to-day management and long-term planning, and Veteran and service-
disabled Veteran status of applicants. OSDBU would be pleased to brief 
Subcommittee staff on how this process achieves those objectives.

    Question 13: Last year, several of our Committee staff had the 
opportunity to visit the Acquisition Academy in Frederick, Maryland. 
While there, they had the opportunity to meet with several attendees of 
the internship program. One of the concerns our staff came back with 
was once these interns graduated from the Academy, there was nothing to 
keep them from leaving the VA for other opportunities within or outside 
of the Federal Government.

    Question 13(a): What is VA doing to keep these highly trained 
individuals at VA?

    Response: The Internship School's holistic training approach 
includes a number of activities intended to promote VA loyalty. VA 
integrates mission service activities throughout the program in an 
effort for interns to (1) gain a better understanding of the 
interrelation and significance of their positions to VA's mission, 
vision and core values; and (2) promote a connection and allegiance to 
VA by visiting VA medical centers and working with the Veterans they 
support. As part of the interns' leadership development, they are 
trained on the mechanisms by which junior personnel can effect change 
in organizations. VA is also implementing a change management strategy 
for VA contracting organizations to ensure the vision of the 
contracting professional as a ``trusted business advisor'' is accepted 
and its application widely understood throughout VA.
    In addition to these early measures promoting VA loyalty, the 
Academy is currently exploring various retention strategies as VA 
begins to transition the first intern class into the VA Workforce 
during the late summer/early fall 2010. Some of these strategies 
include: (1) student loan repayment; (2) retention incentives; or (3) 
relocation incentives. Implementation of these strategies would require 
a continuing service agreement (CSA). However, interns hired on 
Excepted Service Appointments are not authorized to enter into a CSA. 
To retain and continue the intern's employment with VA, the intern can 
be converted to Career-Conditional Appointment at which time a CSA 
could be applicable.

    Question 13(b): What is the annual cost of running the Academy?

    Response:

------------------------------------------------------------------------

------------------------------------------------------------------------
        VA Acquisition Academy Internship School
        FY 2009 and 2010 (projected) Operating Costs
------------------------------------------------------------------------
                  FY 2009
------------------------------------------------------------------------
*Personnel Services & Benefits                              $ 2,198,144
------------------------------------------------------------------------
Non-Personnel Costs                                           $ 934,391
------------------------------------------------------------------------
Total Operating Costs                                       $ 3,132,535
------------------------------------------------------------------------


------------------------------------------------------------------------

------------------------------------------------------------------------
        VA Acquisition Academy Internship School--Continued
        FY 2009 and 2010 (projected) Operating Costs
------------------------------------------------------------------------
                  FY 2010
------------------------------------------------------------------------
**Personnel Services & Benefits                             $ 4,131,489
------------------------------------------------------------------------
Non-Personnel Costs                                         $ 1,745,287
------------------------------------------------------------------------
Total Operating Costs                                       $ 5,876,776
------------------------------------------------------------------------
*FY 2009 Includes costs for Vice Chancellor, Asst. Vice Chancellor and 30
 Interns.
------------------------------------------------------------------------
**FY 2010 Includes costs for Vice Chancellor, Asst. Vice Chancellor and
 Interns.
------------------------------------------------------------------------

    Question 13(c): How many individuals will be placed into the 
acquisition workforce in 2010, 2011, and 2012?

    Response: Based on the size of the intern classes, VA estimates the 
following number of interns to be placed into the VA workforce.


------------------------------------------------------------------------
                                     Number of Interns Fused Into the VA
                Year                              Workforce
------------------------------------------------------------------------
                   2010                                   26
------------------------------------------------------------------------
                   2011                                   30
------------------------------------------------------------------------
                   2012                                   30
------------------------------------------------------------------------


    Question 14: Recently, minority and majority staff met with the 
acting director of the Center for Veterans Enterprise. During that 
meeting, Ms. Wegner stated that VA was allowing small businesses to be 
listed on the VIP database without the veteran or ownership and control 
status being verified by VA. Both staff reminded her of previous 
conversations in which they made Ms. Wegner aware that the law required 
VA to verify the ownership and veteran's status before, being listed. 
They also explained that affixing a logo to a business to indicate a 
business's status as verified was not sufficient to comply with the 
law.

    Question 14(a): Are unverified businesses still listed in the 
database?

    Response: There are two sets of businesses in the database: self-
representing businesses and those which have been officially verified 
for ownership and control by staff in the Center for Veterans 
Enterprise.

    Question 14(b): If they are, when will VA remove them from the 
database?

    Response: VAAR Part 804.1102 permits businesses to self-represent 
their status until December 31, 2011.

    Question 15: What is the status of the contract for assistance with 
verifying ownership and control and what is the process by which the 
contractor will accomplish that function and what will be VA's role in 
that process?

    Response: VA has two contracts for assistance with verifying 
ownership and control. The Verification Batch Processing Support 
Contract engages a support contractor to examine approximately 400-500 
applications per month. The Onsite Examinations Contract engages a 
support contractor to perform onsite examinations at the applicant's 
place of business. The Verification Batch Processing Support contractor 
also examines published business information in accordance with the 
CVE's approved Verification Guidelines. The Onsite Examination 
contractor conducts site visits in accordance with the Site Visit 
Protocol that was created under a third support contract for 
Verification Advisory and Assistance Services. VA's role is to review 
the results of the examinations performed by the contractors, request 
additional information when appropriate, and based on VA's review of 
all the information gathered, decide whether the applicant is a 
legitimate VOSB or SDVOSB in conformance to the provisions of the laws 
and regulations.
                               Attachment
   Implementation of VA's Veteran-Owned Small Business Verification 
                                Program

                      (Supplement to Question 12)
    The Verification process in its current state is laid out in the 
following flowchart (3 pages). This is a swim lane diagram that shows 
the responsibilities of each team and how they interconnect.

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