INTEGRITY INDEPENDENCE EXCELLENCE

U.S. Department of Defense
Report No. DODIG-2020-063
FEBRUARY 18, 2020
Audit of DoD Service-Disabled
Veteran-Owned Small Business
Contract Awards
i

Audit of DoD Service-Disabled Veteran-Owned Small
Business Contract Awards
Objective




Background































February 18, 2020


























Finding





 



Background (cont’d)
ii

Audit of DoD Service-Disabled Veteran-Owned Small
Business Contract Awards



 

























Recommendations

 





 






 


 




 





Finding (cont’d)
iii

Audit of DoD Service-Disabled Veteran-Owned Small
Business Contract Awards
Management Comments
and Our Response





















iv
Recommendations Table
Management
Recommendations
Unresolved
Recommendations
Resolved
Recommendations
Closed
Office of Small Business Programs
1.a, 1.b, 1.c, 1.d,
1.e, 1.f, 1.g, 1.h,
1.i, 1.j
None None
Please provide Management Comments by March 18, 2020.
Note: The following categories are used to describe agency management’s comments to individual recommendations.
• Unresolved – Management has not agreed to implement the recommendation or has not proposed actions that
will address the recommendation.
• Resolved – Management agreed to implement the recommendation or has proposed actions that will address the
underlying finding that generated the recommendation.
• Closed – OIG verified that the agreed upon corrective actions were implemented.
v







 






















INSPECTOR GENERAL
DEPARTMENT OF DEFENSE
4800 MARK CENTER DRIVE
ALEXANDRIA, VIRGINIA 22350-1500
vi
Contents
Introduction





Finding. DoD Awarded SDVOSB Contracts
to Ineligible Contractors





 


Appendix
 



 

 
Management Comments
 
Acronyms and Abbreviations 
Introduction
1
Introduction
Objective



Background
Service-Disabled Veteran-Owned Small Business Program
























1
Executive Order 13360, “Providing Opportunities for Service-Disabled Veteran Businesses to Increase Their Federal
Contracting and Subcontracting,” October 26, 2004.
2
13 CFR sec. 125.8 (2011).
3
Public Law 85-536, “Small Business Act,” as amended, December 23, 2016.
4
Federal Acquisition Regulation (FAR) 6.206, “Set-asides for service-disabled veteran-owned small business concerns,”
January 13, 2017.
5
13 CFR sec. 121.105, states that a business concern can be an individual proprietorship, partnership, limited liability
company, corporation, joint venture, association, trust or cooperative organized for profit, with a place of business
located in the United States, and which operates primarily within the United States.
Introduction
2
Office of Small Business Programs



















Defense Pricing and Contracting




Small Business Administration






Requirements for SDVOSBs




6
13 CFR sec. 125.9 (2011).
Introduction
3









Requirements for SDVOSB Subcontracting












Contractors Self-Represent SDVOSB Status to the DoD















7
13 CFR sec. 125.6 (2011).
8
FAR 19.1403, “Status as a service-disabled veteran-owned small business concern,” January 13, 2017.
9
FAR 13.102, “Source list,” July 2, 2015.
10
FAR 4.11, “System for Award Management,” October 26, 2018.
Introduction
4
Department of Veterans Affairs Verification Program


















Department of Veterans Affairs Beneficiary Records
















Prior Audit on DoD Contractor SDVOSB Status



11
Public Law 109-461, “The Veterans Benefits, Health Care, and Information Technology Act of 2006,” December 22, 2006.
12
38 CFR sec. 74 (2018).
13 CFR sec. 125 (2011).
13
Name of the VA system is Compensation, Pension, Education, and Vocational Rehabilitation and Employment
Records – VA.
Introduction
5

















Review of Internal Controls











14
DoD Instruction 5010.40, “Managers’ Internal Control Program Procedures,” May 30, 2013.
Finding
6
Finding
DoD Awarded SDVOSB Contracts to Ineligible Contractors




 












 
















15
13 CFR sec. 125 (2011).
The $827.8 million is comprised of 27 contracts total dollar values which includes not to exceed dollar values for
multiple award contracts and contract ceiling amounts.
16
FAR Subpart 13.1, “Procedures”, July 2, 2015.
17
13 CFR sec. 125.6 (2011).
Finding
7











DoD Process for Awarding Contracts is Not Adequate
to Ensure Awards to Eligible Contractors
















DoD Contractors Did Not Meet SDVOSB Status Requirements






18
The $876.8 million comes from 1) the $827.8 million in contracts awarded to contractors that did not have a
service-disabled veteran as the owner or highest ranking officer in the company or whose publically available
information and contracting documentation did not support that the contractor met the requirements for SDVOSB
status and 2) $49 million addressed in the SBA section of the report where we identified a contract that the DoD
awarded after the SBA determined a contractor was other than small, which does not allow the contractor to qualify
for the socioeconomic set aside programs.
19
13 CFR sec. 125.15 and 125.6 (2011).
20
FAR 13.102, “Source list,” July 2, 2015.
21
13 CFR sec. 125.15 (2011).
The DoD awarded $876.8 million
in contracts to contractors that
are not eligible for the SDVOSB
set-aside program.
Finding
8












Contractor A
















Contractor B









22
13 CFR sec. 125 (2011).
Contractor B received three SDVOSB
contracts, valued at $209.6 million.
However, evidence did not exist
to support that a service-disabled
veteran was the majority owner
and highest ranking officer.
Finding
9































and
and






23
The Dynamic Small Business Service (DSBS) is a tool contracting officers use to identify potential small business
contractors for upcoming contracting opportunities.
Finding
10
Contractor C























DoD Contractors Denied SDVOSB Status by the Department
of Veterans Affairs














24
38 CFR sec. 74 (2018).
Finding
11












DoD Needs Additional Controls to Verify SDVOSB Status Before
Awarding Contracts

























25
13 CFR sec. 125 (2011).
The DoD relies on the contractor
to self-certify its status in SAM, but
there are no requirements for
contracting personnel to further
verify the service-disabled
veteran status.
Finding
12







SDVOSB Subcontracting Limitations













Contractor D












26
13 CFR sec. 125.6 (2011).
In the case of a contract for services (except construction), the SDVOSB must spend at least 50 percent of the cost
of contract performance incurred for personnel on their employees or employees of other SDVOSBs. In the case of
a contract for general construction or special trade contractors, the SDVOSB must spend at least 15 or 25 percent,
respectively, of the cost of contract performance incurred for personnel on their employees or employees of other
SDVOSBs. Lastly, in the case of a contract for procurement of supplies or products, the CFR requires the SDVOSB prime
contractor or other SDVOSBs to perform at least 50 percent of the cost of manufacturing the supplies or products
(not including the cost of materials).
Finding
13






















Contractor E


















27
13 CFR sec. 125.15 (2011).
Contractor E received
four SDVOSB contracts,
valued at $19.7 million,
that did not comply with
subcontracting limitations.
Finding
14





DoD Needs Additional Controls to Track Subcontracting
Percentages For SDVOSB Compliance











DoD Contractors Determined Ineligible by SBA



















28
13 CFR sec. 125.24 (2011).
29
13 CFR sec. 125 (2011), states that any interested party can protest the award of an SDVOSB contract on size or
status within 5 business days after notification of the apparent successful offeror or after bid opening. The SBA must
review the information provided in a protest and make a determination. The protested concern, the protester, or
the contracting officer may appeal the SBA’s decision to the Office of Hearing and Appeals, who will then make a final
determination.
Finding
15



Contractor F


































30
To be eligible for Women-Owned Small Business status, a business must be a small business, be at least 51 percent
owned and controlled by women who are U.S. Citizens, and have women manage day-to-day operations and make
long-term decisions.
Contractor F still claimed
SDVOSB status in SAM and
SBA’s DSBS despite receiving
notification from the SBA that
it is not an eligible SDVOSB.
Finding
16











Contractor G






















Contractor H




31
13 CFR sec. 127.200 (2019).
Finding
17

















DoD Needs Additional Procedures to Communicate
SBA Determinations





















32
13 CFR sec. 125.25 (2011).
33
FAR 13.102, “Source list,” July 2, 2015.
The DoD may continue to
award contracts to contractors
that the SBA determined to
be ineligible because of the
lack of controls related to
communicating protest results.
Finding
18

























Conclusion














34
13 CFR sec. 125.27(g) (2011).
One of our sample contractors
was able to keep its SDVOSB
status based on a technicality
of timeliness despite SBA’s
evidence that it did not meet
eligibility requirements.
Finding
19




Recommendations, Management Comments,
and Our Response
Recommendation 1
We recommend that the DoD Office of Small Business Programs Director:
a. Conduct a review, in coordination with the Military Departments and
Defense agencies, of all 17 contractors that received DoD Service-Disabled
Veteran-Owned Small Business set-aside or sole-source contracts but
were denied Service-Disabled Veteran-Owned Small Business status by
the Department of Veterans Affairs Center for Verification and Evaluation
to determine if they meet the requirements for Service-Disabled
Veteran-Owned Small Business status. Based on the review, the Director
should take action, as appropriate, against any contractors found to have
misrepresented their Service-Disabled Veteran-Owned Small Business
status to the DoD to obtain contracts by coordinating with the applicable
contracting officer to protest, through the Small Business Administration,
any contractors that appear to be ineligible.
b. Conduct a review, in coordination with the Military Departments and
Defense agencies, of all 16 contractors in our sample that received
DoD Service-Disabled Veteran-Owned Small Business contracts that
we determined to be ineligible Service-Disabled Veteran-Owned Small
Businesses to determine if they meet the eligibility requirements. Based
on the review, the Director should take action, as appropriate, against
any contractors found to have misrepresented their Service-Disabled
Veteran-Owned Small Business status to the DoD to obtain set-aside and
sole-source contracts by coordinating with the applicable contracting
officer to protest, through the Small Business Administration, any
contractors that appear to be ineligible.
c. Implement procedures, in coordination with Defense Pricing and
Contracting, to require contractors to submit documentation to support
the owner and highest ranking officer is a service-disabled veteran when
submitting proposals for Service-Disabled Veteran-Owned Small Business
set-aside and sole-source contracts. Additionally, the procedures should
require contractors to submit documentation supporting that they
meet the Service-Disabled Veteran-Owned Small Business requirements
for majority ownership and management and control of the long-term
decisions and daily business operations.
Finding
20
d. Implement procedures, in coordination with Defense Pricing and
Contracting, for the Services’ Small Business Offices to periodically
review contractors that have obtained Service-Disabled Veteran-Owned
Small Business contracts, where eligibility was not verified at the time
of award, to determine if those contractors meet the Service-Disabled
Veteran-Owned Small Business eligibility requirements, and coordinate
with the applicable contracting officer to protest, through the Small
Business Administration, any contractors that appear to be ineligible.
e. Implement procedures, in coordination with Defense Pricing and
Contracting, requiring contracting personnel to track and monitor the
amounts Service-Disabled Veteran-Owned Small Businesses pay to joint
venture partners that are not Service-Disabled Veteran-Owned Small
Businesses throughout contract performance to ensure that contractors
do not exceed the required net profit limitations, as defined by the Code
of Federal Regulation.
f. Implement procedures, in coordination with Defense Pricing and
Contracting, requiring contracting personnel to track and monitor the
amounts Service-Disabled Veteran-Owned Small Businesses spend on
subcontractors that are not Service-Disabled Veteran-Owned Small
Businesses throughout contract performance to ensure that contractors
do not exceed the required limitations, as defined by the Code of
Federal Regulation.
g. Conduct a review of all socio-economic contracting programs that require
contractors to self-certify their status and, as appropriate, implement
procedures, in coordination with Defense Pricing and Contracting,
requiring contractors to submit documentation to support that they meet
the applicable eligibility requirements, including ownership and control,
before receiving set-aside and sole-source contracts.
h. Coordinate with Defense Pricing and Contracting, the General Services
Administration, and the Small Business Administration to implement
procedures to ensure that contractors update the System for Award
Management after the Small Business Administration determines the
contractors are ineligible for Service-Disabled Veteran-Owned Small
Business contracts.
i. Coordinate with Defense Pricing and Contacting and the Small Business
Administration to implement procedures to ensure protest results
are communicated to contracting personnel DoD-wide when the
Small Business Administration determines a contractor is not eligible
for Service-Disabled Veteran-Owned Small Business set-aside or
sole-source contracts.
Finding
21
j. Reinforce existing procedures, in coordination with Defense Pricing
and Contracting, to ensure contracting officers are aware of the protest
procedures and their responsibilities.
DoD Office of Small Business Programs Comments

















Our Response




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


Appendix
24
Appendix
Scope and Methodology















Contractor Self-Representations of SDVOSB Status

















35
We selected a total of 30 sample contractors; however, during our review we identified that one contractor was no
longer in business and the contract actions included in our sample were not related to our scope of active DoD contracts
during FYs 2017 and 2018. Therefore, we removed the contractor from the sample, resulting in a total of 29 sample
contractors reviewed.
Appendix
25













 

 
 

 
 

 
 
 
 

 
 
 

Use of Computer-Processed Data





36
13 CFR Part 125 (2011)
Appendix
26










Use of Technical Assistance




Prior Coverage



GAO














Appendix
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












Management Comments
28
Management Comments
Office of Small Business Programs
29
Acronyms and Abbreviations
Acronyms and Abbreviations
Acronym Definition
CFR Code of Federal Regulations
CVE Center for Verification and Evaluation
DSBS Dynamic Small Business Search
FAR Federal Acquisition Regulation
OHA Office of Hearings and Appeals
OSBP Office of Small Business Programs
SAM System for Award Management
SBA Small Business Administration
SDVOSB Service-Disabled Veteran-Owned Small Business
VA Department of Veterans Affairs
Whistleblower Protection

Whistleblower Protection safeguards DoD employees against
retaliation for protected disclosures that expose possible waste, fraud,
and abuse in government programs. For more information, please visit
the Whistleblower webpage at http://www.dodig.mil/Components/
Administrative-Investigations/Whistleblower-Reprisal-Investigations/
Whisteblower-Reprisal/ or contact the Whistleblower Protection
Coordinator at Whistleblowerprotectioncoordinat[email protected]
For more information about DoD OIG
reports or activities, please contact us:
Congressional Liaison
703.604.8324
Media Contact
public.aff[email protected]; 703.604.8324
DoD OIG Mailing Lists
www.dodig.mil/Mailing-Lists/
Twitter
www.twitter.com/DoD_IG
DoD Hotline
www.dodig.mil/hotline
DEPARTMENT OF DEFENSE │ OFFICE OF INSPECTOR GENERAL


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