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Joint Hearing Highlights Challenges Facing Service-Disabled Veteran-Owned Small Businesses

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Washington, March 19, 2013 | comments

WASHINGTON, D.C. – The Small Business Subcommittee on Contracting and Workforce, under the chairmanship of Rep. Richard Hanna (R-NY), today conducted a joint subcommittee hearing with the Committee on Veterans’ Affairs Subcommittee on Oversight and Investigations. The joint hearing highlighted challenges facing small businesses owned and controlled by service-disabled veterans seeking federal contracts using both the Small Business Administration (SBA) and Department of Veterans Affairs contracting programs. 

The Subcommittees heard testimony regarding the statutory, regulatory and interpretive differences in the two programs and how these differences affect veterans. 

“We have an obligation to both the taxpayers and our veteran small business owners to ensure that these programs are efficient and transparent,” said Chairman Hanna (R-NY). “Our service-disabled veterans have given much to this country. Recent GAO reports have highlighted problems with both the VA and SBA systems, and many believe that legislation is required to create programs that have clear requirements. The bottom line is that a legitimate small firm may qualify under one program but not the other. They need one clear set of rules to live by.”

Materials for the hearing are posted on the House Small Business Committee’s website HERE.

Notable Witness Quotes:

William Shear, Director, Financial Markets and Community Investment, U.S. Government Accountability Office, Washington, D.C., said, “Going forward, any unilateral changes to VA’s verification policies and procedures could make aligning small business contracting programs more difficult. VA officials told us that the tension between competing calls for VA to ease its requirements and to be consistent with the government-wide SDVOSB and 8(a) programs would be a major consideration as VA continued making changes to its regulations, particularly in light of the potential for expanding VA’s program government-wide. Accordingly, the officials said that they were consulting with SBA as they developed changes to VA’s verification program regulation.” “VA’s program for awarding contracts to service-disabled and other veteran-owned small businesses remains vulnerable to the fraud and abuse that could result in contracts being awarded to ineligible firms.”

Davy Leghorn, Assistant Director National Economic Division, American Legion, Washington, D.C., said, “SBA and VA need to work closer together to minimize the inconsistencies in the decisions being made.  Currently, VA’s Office of General Counsel (OGC) makes the final determinations; OGC does not utilize SBA’s case laws in their decisions nor do they publish their decision.  SBA has the legal expertise, 60 years of long-standing experience, ample base of precedential case law that can be applied to future rulings.  VA does not. Further, SBA’s Office of Hearings and Appeals (OHA) has a 15-day turnover rate for final decisions on appellate claims and OHA does so with substantially less resources.  Comparatively, it currently takes VA’s OGC over 130 days to render a decision on appellate claims.  In the realm of appeals, there is added value for VA to fall back on SBA’s expertise and case laws.  The American Legion would impress upon the Committee that increasing SBA’s role in the appellate process would ensure more consistency in the final decisions being made.”

Marc Goldschmitt, PMP, DEO, Goldschmitt and Associates, Reston, Virginia, said, “Today, however, I comment as a Service Disabled Veteran Owned Small Business owner. In this capacity I, like so many of my fellow veterans, have been personally affected by CVE’s handling of the Verification process.  CVE extreme interpretations preclude use of best business practices and apply little or no business sense or reality.  By forcing me to align my business model with what they think is right, my ability as a small business to do what is right and what is needed to build capacity and capability is artificially limited.  This reduces my competitiveness.”  “CVE's "risk avoidance" approach has crippled legitimate veteran owned businesses while doing little to prevent fraud. CVE's website lists four successful prosecutions over a two year period. My understanding is that these prosecutions resulted from veteran community self policing, not CVE referrals. Over this same timeframe I estimate more than 4500 legitimate business have been denied.”

Joseph Wynn, VET-Force, Washington, DC, said, “Over the past 2 years, the VA has reported that of the more than 20,000 veteran business owners that have applied for verification through CVE, only 5,520 are now approved.  From previous Congressional hearings, GAO reports, and statements from the VA Small Business Director, we have been told that less than 2% of those denied were for reasons of fraud or intentional misrepresentation.  Instead, the greatest percentage of denials were due to CVE's narrow interpretation of the regulation's sections pertaining to ownership and control.”  “[M]any VOBs/SDVOBs do not fully understand how they can be legally allowed to do business with other federal agencies but not with the VA.  Representatives of the VA have now taken the position that their VA regulations are nearly identical to the SBA's regulations. If that in fact is true, then V A's interpretation of the rules must be much different than SBA's or either SBA is not doing it right. In the past 3 years, no other small business preference program participants (8a, Hubzone, WOSB, SDB) have exhibited public dissatisfaction to the extent where there have been repeated Congressional hearings, GAO reports and IG investigations of those programs.”

 A. John Shoraka, Associate Administrator, Office of Government Contracting and Business Development, U.S. Small Business Administration, Washington, D.C., said, “As you know, veteran owned businesses are integral to our nation’s economy and its ongoing recovery. Veterans own about 2.4 million – or nine percent – of all businesses, large and small, in the U.S. These businesses generate about $1.2 trillion in receipts and employ nearly six million Americans. One key factor of the veteran small business economy is government contracting, where SBA and its SDVOSB program play a critical role.” “[A]lthough the regulations are similar, SBA’s determinations are made on a case-by-case, fact specific basis.  Each application is reviewed on the totality of the circumstances presented by the applicant firm.  Consequently, there are very few instances where there is only one factor contributing to the denial of a firm’s program eligibility.  As a result, it is inappropriate to presume there is only one clear, bright line interpretation of a regulation as it applies to every potential applicant firm, and every potential set of factors.”

Tom Leney, Executive Director, Veterans and Small Business Programs, U.S. Department of Veterans Affairs, Washington, D.C., said, “Since its inception, the VA Verification program has faced challenges balancing the need to prevent ineligible firms from taking improper advantage of VA’s “Veterans First” program, while making it easier and faster for legitimate Veteran-owned small businesses (VOSB) and service-disabled Veteran-owned small businesses (SDVOSB) to gain greater access to VA procurement opportunities.  VA has made substantial progress on both fronts in our effort to implement 38 Code of Federal Regulations (CFR) Part 74, the regulation governing verification.  As we improved the verification process we realized that most of the remaining issues were associated with the rule itself.”  “[O]ur tentative conclusion is that there are only a few differences in the regulation and interpretation of [the SBA and VA regulations] and we are fully committed to working with SBA and conducting stakeholder outreach to help address these differences.”

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