More than $1 billion in government contracts meant for small businesses owned by disabled veterans have been reclassified over the last 10 years by the Department of Veterans Affairs so that the work — almost $150 million to date — could be given to non-veteran companies, a News21 analysis shows.
The reallocation is the consequence of increased enforcement measures and more stringent qualifications imposed by the VA after it discovered that it had awarded millions of dollars in contracts to companies that fraudulently claimed to be owned by veterans. Veterans are now required to submit a battery of paperwork in which the smallest flaw could result in disqualification.
Tom Leney, executive director of Small and Veteran Business Programs at the VA, said he wasn't sure how the more than 700 contracts were reclassified.
Since congressional passage of the Veterans Benefit Act of 2003, which mandated that each government agency set aside at least 3 percent of contracts for service-disabled veteran-owned small businesses, the VA has set aside the largest percentage of contracts of any government agency — setting aside nearly 20 percent of contract dollars last year. The contracts range from information technology to construction to janitorial work done for the VA.
Advocates for veteran-owned businesses, who had previously been primarily concerned about contract fraud, are now focused on the paperwork obstacles facing legitimate veteran-owned businesses applying for VA contracts.
“Unfortunately, the complaints from the veteran community have now shifted from contract awards going to misrepresented firms to the onerous and unpredictable verification process itself,” said Scott Denniston, executive director of the National Veterans Small Business Coalition, in congressional testimony last year. “We understand the need … to ensure only eligible veterans receive the benefits of the ‘Veterans First’ contracting program but we strongly disagree with VA’s punishing legitimate veteran small-business owners. It does not appear to us that VA had anyone involved in writing the rules who understands how small businesses operate in the digital age.”
In order to qualify for contracts set aside by the VA to service-disabled veterans, a business owner must submit a battery of paperwork, ranging from company organizational documents to the resumes of all the key personnel.
Robert Doyle, a sergeant first class in the Army during a tour in Iraq, returned in late 2007 as a 100 percent service-disabled veteran. For his actions, he received a Bronze Star for “heroic or meritorious achievement or service” in combat.
Doyle started a business doing welding and offering plow services in 2012 out of his home in Massachusetts.
“The military teaches you to be an entrepreneur,” said the veteran who served for 14 years in the Army. “They teach you how to make important decisions. They teach you to be self-sufficient. I’m just embracing what I’ve been taught.”
To start contracting, Doyle needed two things: to be verified as a veteran-owned business by the VA and the money to get his business off the ground.
Doyle got the verification, but only after waiting seven months after submitting an application. And even that was not the end of the process. Despite being verified, Doyle said that he can neither apply for nor receive set-aside contracts because the unique code his company was given to identify it was incorrect. As a result, he may have to go back through the process again.
In order to get verified by the VA to receive veteran business set-asides, a veteran must work 40 hours a week at the business — unrealistic for many, considering the business won’t have any federal contracts before they get verified.
“On the one hand, many veterans cannot afford to quit their day jobs, and give up their paychecks, until their SDVOSB (Service Disabled Veteran-Owned Small Business) firms win their first contracts,” said Steven Koprince, a Kansas lawyer who has written books on small business contracts. “On the other hand, these veterans cannot, in many cases, qualify for SDVOSB verification unless they leave their day jobs because of the full-time requirement. In my mind, this conundrum unnecessarily discourages some otherwise qualified veterans from entering the federal contracting arena.”
In addition, the VA is required to verify the veteran status of applicants, as well as any service-connected disabilities by querying its own databases.
In recent years, the government has had some success in uncovering companies accused of posing as veteran-owned. In 2011, a Georgia man was indicted on fraud charges for posing as a SDVOSB. Last year, an Illinois man was charged with defrauding the government. Just a few months ago, two Rochester, N.Y., brothers were accused of the same thing.
Construction company owner David Gorski of Massachusetts, for example, raked in more than $159 million in VA contracts set aside for service-disabled veterans in just a few years. But Gorski was disqualified and indicted last year because, as it turns out, he wasn’t a service-disabled veteran.
He wasn’t even a veteran.
Despite these efforts, fraudulent companies have still been able to get into the system. In October 2011, the Government Accountability Office issued 13 recommendations for the VA to improve its fraud-prevention program. In March 2013, William Shear, director of Financial Markets and Community Investment at the GAO, testified that the VA had not fully implemented seven of those recommendations.
“Without implementing these recommendations, 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,” he said.
While the VA has implemented some new strategies for verification of veteran-owned small businesses, experts say they have created barriers for legitimate companies.
Koprince says the process involves a great deal of paperwork and even some of the best-prepared companies can run into trouble.
“The documents that need to be submitted are a minefield,” Koprince said. “If a lawyer isn’t fully versed in the process, it’s easy for them to trip up.”
Most of the companies that get denied aren’t fraudulent, according to Koprince. They just filled out the paperwork wrong or forgot to submit certain documents.
The VA reported in July that the average wait time in 2013 to be verified as a veteran-owned business was 37 days. The agency claimed to have approved more than 93 percent of those applying, up from 72 percent one month earlier.
The improvements, Leney said, are due to a new program by the VA that gives veterans a chance to fix small errors in their applications before a determination is made.
But the appeals process for applicants who are denied was slower than the previous year. The VA reported it has taken an average of more than three months this year for denied firms to have their appeals fully processed, in addition to the initial 37 days.
About half of the firms that go through the appeals process get approved. In many cases, the application was either missing documents or had other errors.
In February 2011, James McDonnell, a Navy veteran who lives in Northern Virginia, submitted forms seeking classification as a Service Disabled Veteran Owned Small Business. After 15 months, he was verified by the VA. In that time, he faced a plethora of hurdles including the submission of upwards of 300 documents. This allowed him to see what he called the “broken process” of veteran business verification by the agency.
McDonnell called it “ironic” that while agencies such as the departments of Homeland Security, Defense, State and Education “are expanding their support of veteran-owned small businesses, the one agency that is funded specifically to assist veterans is making it difficult to run a business,” in a 2012 letter to the House Committee on Veterans’ Affairs.
“The VA should be assisting veterans and their companies with becoming registered in this program instead of focusing on punishing small business by using the weight of their bureaucracy as a hammer,” he wrote.
The VA allows some qualified businesses to participate in a mentor-protege program where new businesses are paired with experienced contractors in an effort to help the new veteran business get into the contracting world. Another program helps veterans who want to start businesses get the money to get off the ground if they have a feasible plan to do so.
If a veteran-owned small business needs some funds to get off the ground, the VA program can help pay for things including training in how to run a small business, materials required for daily operations and business license fees. Doyle, the veteran who started a welding and snowplow business last year, found this program by searching the Internet. Most veterans aren’t even told the program exists, Doyle said.
“Out of the millions of veterans out there, nobody knows about this,” said Doyle, who found out about the program by stumbling upon it online. “When you apply for Vocational Rehabilitation and Employment services, they don’t talk about this in the initial briefing. If you don’t know about it you’ll never hear about it.”
Doyle said his company received portions of the $97,000 in start-up help from the VA in July, almost a year after being initially approved. But he said that for months the VA didn’t know from which account to buy his supplies.
“They don’t know who’s going to cut the check,” Doyle said a couple months ago. “The VA has no idea how to access this money.”
He has received some of the supplies, but due to a lack of contact by the VA, he doesn’t know when or if the rest will arrive.
The experience left Doyle frustrated.
“I’ve been in the self-employment track for a year,” Doyle said in June. “Every single night in Iraq we wrote a check that was cashable to the enemy for our lives. So why can’t they just get me the check they’ve already promised me?”