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By Nick Wakeman

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Nick Wakeman

The next big contracting scandal

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In the past few years, the government contracting industry has weathered its share of scandals.

From accusations of questionable behavior by contractors in Iraq and Afghanistan to front-page exposés of cozy relationships between contractors and customers, the industry’s reputation has suffered.

Most recently, the industry has drawn fire over allegations that at least one large business was using small businesses as fronts to funnel money to itself. (See our recent coverage of GTSI Corp.’s suspension and reinstatement by the Small Business Administration.)

Another scandal is brewing because of the proliferation of small companies owned by service-disabled veterans and procurements geared specifically for these businesses.

The potential controversy will be driven by unintended consequences of a well-intentioned law. The scandal will be born not of lawbreaking but of bending the spirit of the law.

The problems flow from two factors at the heart of how the program operates. First is the question of how you determine who is a disabled veteran. And the second is the self-certification process SBA uses.

It is on those two points that I think the system is woefully inadequate and sets itself up for embarrassment and ridicule.

If I’m reading the laws governing the program correctly, you pretty much only need to have served in a war zone to qualify. Here is question and answer No. 4 from SBA’s frequently asked questions document:

Q: “Is there a minimum disability rating to participate in the SDVOSB program?"
A: "No, there is no minimum disability rating. A veteran with a 0 to 100 percent disability rating is eligible to self-represent as a Service-Disabled Veteran for Federal contracting purposes.”

Zero, huh? That’s not much of a disability. (Read a clarification on this comment.)

The “self-represent” portion is also problematic. The program works on the honor system, and although the majority will operate honorably, there is a lot of room for abuse. The Government Accountability Office has hit on this point in a couple reports as well.

In SBA’s defense, officials do explain how a business owner can verify that he or she is disabled. But the requirement is only to have this documentation on hand in case an agency asks for verification.

The law creating this category of small business was passed in 1999, but it wasn’t until 2003 that a set-aside program was designed to direct business to those companies. Since then, there has been an explosion of companies with the “service-disabled veteran-owned” label as existing companies added the designation and new companies launched to take advantage of the new program.

Large procurements with price tags in the billions have been launched, such as the General Services Administration’s VETS contract.

When the dollars signs get big, the pressure increases to push the envelope, especially in this highly competitive government market.

I'm all for helping veterans, but when I look at this, I see conditions ripe for abuse, both intentional and inadvertent. It’s just a matter of time before the next scandal hits.

Posted by Nick Wakeman on Oct 22, 2010 at 9:43 AM

Reader Comments

Mon, Nov 1, 2010 Lance Winslow Palm Desert, CA

The SBA's bidding advantages are a real sore spot with me, it goes against everything we stand for in this Great Nation. Everyone should compete and let the market decide, NO Special Deals for Anyone. And if we get rid of the special deals, we can get rid of the SBA and all that political correctness too, it is unethical to proceed with all these programs, and often the SBA is involved in anti-disciminatory endeavors, which violates the very purpose of freedom and liberty. I am appalled at how that agency has grown so bureaucratic and out of control. The examples in this article are the tip of the iceberg! Dismantle that agency - save the taxpayers some real money.

Wed, Oct 27, 2010 Linda Joy Adams OK

Remember: Congress passed laws that govt contractors aren't subject to internal audits, nor investigations of wrongdoing and no criminal prosecutions as OIG's not allowed to investigate, etc. So First order of business, is for Congress to amend the False Claims Act so that these can occur. Most monies aren't recovered under False Claims as it costs a law firm @2 1/2 million to bring suit and so only those most blatant thefts in the billions will ever get filed. Then Congress would again have authority to have real oversight; which they don't now. They can't demand answers either. Congress! get busy! Linda Joy Adams

Wed, Oct 27, 2010 Barry VA

Let's put this in a broader context. When government decides that a certain defined class gets preferential treatment, it is wading into the very dangerous area of picking winners and losers. I think there is a difference between something like the GI Bill under which veterans are helped to improve themselves, and giving firms owned by "disabled" veterans non-competitive business. The latter invites abuse in the same way that 8a, HUBZone, SDB and woman-owned programs do. In many of these programs, merely finding a figurehead to get certified allows businesses to receive preferential treatment that is the antithesis of what the program was intended to accomplish. For my money, after 30 years of government contracting, much of it as a small firm owner competing with favored firms, all of these should be discontinued.

Wed, Oct 27, 2010

A 40% service disabled veteran responds. Mr. Wakeman asserts that veterans may be dishonest and may lack ethics and integrity. He presumes that some firms will portray themselves as service disabled veteran owned, when in fact they are not. Since Mr. Wakeman seems informed and knowledgeable I must assume he, himself, is a veteran and he is a service disabled veteran. Remember the metaphor it takes one to know one. However, if Mr. Wakeman is not a service disabled veterance, I conclude that he has an opinion without any foundation. And we all know what opinions are.

Tue, Oct 26, 2010 Jim G

This article is interesting, but he leaves out some very important information. The VA has been assigned the role of verifying SDVOSB businesses. While self ceritfication is currently the norm, by 2012 all SDVOSBs must be certified by the VA and listed in their registry. Several states are moving to use the VA certificatin already.The problem is actually becoming the time it takes to get certified. It took me 18 months to get the cert and I have to repeat the process every 12 months (sort of means I am behind the minute I reapply). They need to fix that to make the information and certification timely. And by the way 0% disability means that they know something is likely to go wrong and it simply hasn't manifested itself yet (Exposure to things like Agent Orange would be an example)

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