More Work Needed to Put “Veterans First” in Contracting

The Veterans First program was established in 2006 and requires VA to give contracting preference to veteran-owned small businesses.  At the same time, the program puts limitations on the use of subcontractors. A 2016 Supreme Court decision, commonly referred to as the Kingdomware decision, clarified interpretations of these limitations. These clarifications made it necessary for VA to change implementation of the Veterans First program. GAO was asked to review VA’s implementation of Veterans First since the Supreme Court decision, including assessing any changes in procurement obligations to veteran-owned small businesses, challenges VA has encountered in implementing policies, and VA oversight of contractor compliance with subcontracting limitations.

In 2016, the Supreme Court ruled on a case between Kingdomware Technologies, Inc. and United States, concluding that VA must restrict competition to veteran-owned small businesses “if the contracting officer reasonably expects that at least two such businesses will submit offers and the award can be made at a fair and reasonable price that offers best value to the United States.” This contracting requirement is now called the VA Rule of Two.

GAO’s assessment found that since FY 2014, the percentage of contract obligations set aside for veteran-owned small businesses has increased from 15.5% to 25.8% in FY 2017.  However, a significant number of contracting officers interviewed by GAO expressed challenges in determining the second criterion of the Rule of Two, fair and reasonable price determinations, when making a set-aside decision. Although VA has provided and offered training, GAO concluded that “more targeted training would provide VA with greater assurance that its contracting officers have the knowledge and skills necessary to implement the policy.” GAO also found limited oversight of VA contractor compliance for subcontracting restrictions.

GAO made the following six recommendations:

• VA’s Director of the Office of Acquisition and Logistics, in consultation with Office of Small Disadvantaged Business Utilization, should take measures to ensure that VA contracting staff adhere to the requirements for documenting the required Vendor Information Pages searches in contract files.
• VA’s Director of the Office of Acquisition and Logistics should direct the VA Acquisition Academy to provide more targeted training for the more challenging components of implementing the Veterans First policy, such as making fair and reasonable price determinations.
• The Secretary of Veterans Affairs should, in consultation with VA’s Office of Human Resources and Administration, and the Director of VA’s Office of Acquisition and Logistics, assess whether training on the Veterans First policy should be designated as mandatory and take appropriate action based on the assessment results.
• VA’s Director of the Office of Acquisition and Logistics should establish a mechanism to ensure that mandatory clauses relating to subcontracting limitations are consistently incorporated in all contracts that are set aside for Small Disadvantaged/Veteran-Owned Small Businesses.
• VA’s Director of the Office of Acquisition and Logistics should conduct a fraud risk assessment for the Veterans First program.
• VA’s Director of the Office of Acquisition and Logistics should direct the Risk Management and Compliance Service to share, through guidance, training, or other methods, subcontracting limitation risks and monitoring practices with contracting officers and their management.

Since the 2016 Supreme Court decision, procurement opportunities and resulting contract spending has increased for veteran-owned small businesses at VA.  Look for this trend to continue as VA refines its training and processes surrounding the Veterans First program.