An effort by the House Small Business Committee to transfer verification of small business veteran businesses to the Small Business Administration is laudable – but could go further.
At issue is the fact that the Veterans Affairs Department alone of all federal agencies requires independent verification of veteran-owned small business status before being willing to enter into a set-aside contract with such a business.
Other agencies rely on VOSB (and service-disabled veteran owned small business, or SDVOSB) self-certification. The SBA already verifies the status of HUBZone businesses, as well, obviously, businesses in its 8(a) program. As bill (H.R. 2882) authors rightly say, the SBA has the expertise for making verification decisions as well as the infrastructure for handling appeals. The VA’s lack of that expertise and infrastructure, as well as the high cost the department racks up in its verification program (bill authors say the SBA could do it at around a fifth of the $33 million annual cost) is the main driver behind transferring VOSB verification to SBA. What the bill wouldn’t change is the standard of self-certification as valid in other departments’ set-aside programs.
It’s true that self-certification comes loaded with potential criminal and civil penalties for any business owner who would make a false representation, but watchdogs at the Government Accountability Office and agency inspectors general have long noted the potential for fraud and abuse. The Defense Department OIG found in 2012 that the Pentagon may have awarded $340.3 million to contractors “that potentially misstated their SDVOSB status.”
Admittedly, the requirements for determining what exactly constitutes a VOSB, or SDVOSB, aren’t intuitive, so intentional fraud need not be the root of every misrepresentation. Most people understand that to be a “veteran-owned business,” the owner must have a majority stake in the firm – but don’t understand that the veteran must also be in control of the company. That means that a business 51 percent owned by a veteran with a non-vet business partner who has a 50 percent say in the business decisions is not in fact, for federal purposes, a VOSB. The veteran in this case lacks full control, since his decisions require the consent of the partner.
But the fact remains that there are also plenty of cynical manipulators who directly, or indirectly through joint ventures, seek to use veterans as figureheads – “rent a vet,” as the practice is derisively known.
What’s needed, in other words, is full independent verification VOSBs who seek to do business with any federal agency, not just the Veterans Affairs Department.