PAVED WITH GOOD INTENTIONS: OBSTACLES TO MEETING FEDERAL CONTRACTING GOALS FOR SERVICE-DISABLED...

PAVED WITH GOOD INTENTIONS: OBSTACLES TO MEETING FEDERAL CONTRACTING GOALSFOR SERVICE-DISABLED VETERAN-OWNED SMALL BUSINESSESAuthor(s): Paul ShermanSource: Public Contract Law Journal, Vol. 36, No. 1 (Fall 2006), pp. 125-138Published by: American Bar AssociationStable URL: http://www.jstor.org/stable/25755396 .

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PAVED WITH GOOD INTENTIONS: OBSTACLES TO MEETING FEDERAL CONTRACTING GOALS FOR SERVICE-DISABLED VETERAN-OWNED SMALL BUSINESSES

Paul Sherman

I. Introduction. 125 II. The History of Veterans' Entrepreneurship Benefits. 126

A. Early Statutes. 126 B. SBA Programs. 127 C. The California Program. 128

III. Veterans Entrepreneurship and Small Business Development Act of 1999. 129 A. Provisions. 129 B. Early Concerns with the Act. 129

IV. Performance Under the Act from 1999 to 2004. 131 A. Possible Causes of Underperformance. 131 B. The Veterans Benefit Act of 2003. 133

V. Ongoing Concerns and New Risks after 2003 . 134 A. Ongoing Integrity Concerns. 134 B. Anticompetitive Effects. 135

VI. Further Revisions or Alternative Programs?. 135 A. Revising the Current Law. 136 B. Nonprocurement Solutions. 136

VII. Conclusion. 137

"[G]ood intentions may do as much harm as malevolence if they lack understanding."1

I. INTRODUCTION

At a time when the United States is actively engaged in overseas military

operations, the efficiency of programs designed to assist those who will in

1. Albert Camus, The Plague 131 (Stuart Gilbert trans., Vintage Books 1991) (1947).

PaulM. Sherman ([email protected]) is associate director of the Center for Competitive Politics in Arlington, Virginia. He received hisJ.D. degree with honors from The

George Washington University Law School in May 2006. This paper placed second in the Section

of Public Contract Laws 2005 Annual Writing Competition (Division I?Law Students).

125



126 Public Contract Law Journal Vol. 36, No. 1 Fall 2006

evitably leave their military service having suffered debilitating injuries de serves a hard look. This note analyzes one such program: the service-disabled veteran-owned small business (SDVOSB) procurement goal established by the passage of the Veterans Entrepreneurship and Small Business Develop

ment Act of 1999 (the Act).2 Thus far, the Act has received little scholarly attention. This is unfortunate,

because, while the Act undoubtedly was passed with the best of intentions, it faces numerous obstacles and raises a host of concerns related to the use of the procurement process to achieve broader social goals. The brave men and

women of our armed forces deserve more than the Act has to offer in its

present state.

This note begins with a brief examination of the history of legislative sup port for veterans in the United States through the passage of the Act, focusing on the increasing dissatisfaction with veterans' business benefits that led to the passage of the Act. Part III continues with an analysis of government performance following the passage of the Act and leading up to the passage of the Veterans Benefit Act of 2003 (the 2003 Amendments).

In Part IV, this note examines challenges not addressed by the 2003 Amendments and new challenges arising from the 2003 Amendments them selves. Finally, this note concludes by considering what revisions, if any, might be necessary to make the Act a success. This note also will consider whether the Act is the best vehicle for providing assistance to the service-disabled veteran community or whether the fundamental goals of the Act might be better served by other policies.

II. THE HISTORY OF VETERANS' ENTREPRENEURSHIP BENEFITS

The United States has long recognized an obligation to provide economic assistance to its military veterans. The earliest example may be the veterans benefit packages created by the Continental Congress during the Revolution

ary War.3 Much of the legislation in this area has focused on assisting veterans in reentering the workforce and starting small businesses. Notable early and

mid twentieth century examples of such legislation include the Vocational Rehabilitation Act of 19184 and later the landmark Servicemen's Readjust ment Act of 1944, popularly known as the "G.I. Bill of Rights" or simply the "G.I. Bill."5

A. Early Statutes

The Vocational Rehabilitation Act of 1918, also known as the Smith-Sears

Act, created, among other things, the Federal Board for Vocational Education

2. Veterans Entrepreneurship and Small Business Development Act of 1999, Pub. L. No. 106

50, 113 Stat. 233. 3. U.S. Dep't of Veteran's Affairs, History of the Department of Veterans Affairs?

Part I (2006), htxp://wwwl.va.gov/opa/fe^ 4. Vocational Rehabilitation Act, Pub. L. No. 65-178, 40 Stat. 617 (1918). 5. Servicemen's Readjustment Act of 1944, Pub. L. No. 78-346, 58 Stat. 284.



Paved with Good Intentions 127

empowered to provide veterans with vocational training and monthly com

pensation.6 This law was extended the following year to include payment for related travel and incidental expenses.7

The first G.I. Bill,8 besides offering its well-known educational benefits,9 also sought to bolster veteran entrepreneurship in the wake of World War II

by creating a guaranteed loan program for small businesses to be administered

through the Veteran's Administration (VA).10 The program appears to have been popular.11 In 1952 the program was extended to include veterans of the Korean conflict.12

B. SB A Programs Not long after the passage of the Korean G.I. Bill, however, the popularity

of the VA loan program began to decline. This decline began the following year and coincided with the creation of the Small Business Administration

(SBA).13 "Although no historical evidence exists to suggest that there was a formal agreement between the two agencies that the SBA would take over

lending services to veterans, the result was that the SBA's programs appear to have been more attractive to veterans and they naturally chose the SBA's

lending programs over VA's."14 In 1974, only two VA business loans were

guaranteed.15 That same year, due to the lack of participation in the VA pro gram, Congress repealed VA's business loan guarantee authority.16

With responsibility for the administration of veterans' entrepreneurship benefits shifting from the VA to the SBA, it is perhaps no coincidence that the same year that saw the repeal of VA's loan guaranty authority also saw the

passage of the Small Business Act of 1974.17 That law contained a requirement that the SBA provide "special consideration for veterans of the United States

military service and the survivors of their immediate families."18 Despite being armed with a congressional mandate, the extent to which the SBA exercised this authority is unclear. It would seem, however, that veterans viewed the

agency as generally unresponsive to their concerns.19

6. Vocational Rehabilitation Act, Pub. L. No. 65-178, ? 2, 40 Stat. 617-18. 7. Act of Feb. 26, 1919, ch, 46, 40 Stat. 1179. 8. Since the passage of the Servicemen's Readjustment Act in 1944, a number of other vet

erans' benefits laws have been passed genetically referred to as "G.I. Bills." 9. Servicemen's Readjustment Act of 1944, Pub. L. No. 78-346, 58 Stat. at 287-91.

10. Id. at 291-93. 11. "42,000 business loans to veterans were guaranteed by the VA in 1951." Veterans Entre

preneurship and Small Business Development Act of1999: Hearing on H.R. 1568 Before the H. Comm. on Small Business, 106th Cong. 61 (1999) [hereinafter Hearings] (statement of Anthony L. Bas

kerville, Deputy National Service Director for Employment, Disabled American Veterans). 12. Veterans' Readjustment Assistance Act of 1952, 82 Pub. L. No. 550, 66 Stat. 663.

13. The Small Business Administration was created by the Small Business Act of 1953, Pub. L. No. 83-163, 67 Stat. 230, 232.

14. Hearings, supra note 11, at 61 (statement of Anthony L. Baskerville). 15. Id. 16. Veterans Housing Act of 1974, Pub. L. No. 93-569, 88 Stat. 1863, 1866.

17. Act of Jan. 2, 1974, Pub. L. No. 93-237, 87 Stat. 1023. 18. Id. ? 8 (codified at 15 U.S.C. ? 633(b)(1)). 19. See, e.g., Hearings, supra note 11, at 61 (statement of Anthony L. Baskerville) ("[W]e believe

veterans ... have not received the attention from the SBA they deserve.").




The SBA ultimately responded to these concerns by forming the "Veterans Affairs Task Force for Entrepreneurship" in 1998.20 The task force examined all of the SBA programs to determine ways to improve the SBA's ability to

assist veterans.21 It then made several recommendations that it considered

"high priority," including (1) legislation to allow guaranteed loans to veterans

who had certified service-connected disabilities or who were POWs;22 (2) a

program of comprehensive outreach to assist disabled veterans, including business training and management assistance, employment and relocation

counseling, and dissemination of information on veterans' benefits and vet

erans' entidements as required by Tide VII;23 (3) a company designed to ad dress veterans' issues regarding small business;24 and (4) regulations that include service-disabled veteran-owned businesses as a "socially and economically dis

advantaged business group" to be solicited for all federal contracts and sub contracts in a documented outreach program.25

C. The California Program The fourth recommendation, affirmative efforts to solicit contracts from

SDVOSBs, was not entirely novel. Nearly a decade prior to the SBA's creation of the task force, California created the Disabled Veteran Business Enterprise (DVBE) Participation Program26 "to acknowledge disabled veterans for their service and to further DVBE participation in state contracting, promote com

petition and encourage greater economic opportunity."27 The California pro gram sets a DVBE participation goal of at least 3 percent of the total contract dollars expended each year by an awarding department.28 Each state agency has the discretion to select its own method for attaining the 3 percent goal.29 However, agencies also are required to make annual reports to both the gov ernor and the state legislature detailing their total DVBE contracting partic ipation.30 Agencies that fail to meet the 3 percent goal are required to explain the reasons for their shortfall and also must provide an implementation plan for future DVBE participation improvement.31 In addition to the obligations placed on state agencies, the DVBE program requires prime contractors to either achieve the 3 percent goal or, failing that, demonstrate a "good faith effort" to achieve the goal.32

20. 145 Cong. Rec. E1831 (1998) (statement of Rep. Talent). 21. Id. 22. Id. 23. Id. 24. Id. atE1832. 25. Id. 26. 1989 Cal. Stat. 1207. 27. About the DVBE Participation Program, http://www.pd.dgs.ca.gov/dvbe/default.htm(last

updated May 4, 2006). 28. Cal. Pub. Cont. Code ? 10115.13 (West 2004). 29. Id. ? 10115.3(b). 30. Id.? 10115.5(a). 31. Id. ? 10115.5(b). 32. Id. ? 10115.2(a)-(b).




III. VETERANS ENTREPRENEURSHIP AND SMALL BUSINESS DEVELOPMENT ACT OF 1999

Both the report and the California model proved to be influential. The

year following the report's release saw the drafting of the "Veterans Entre

preneurship and Small Business Development Act of 1999,"33 one of the latest efforts to compensate veterans and bolster veteran entrepreneurship and busi ness development. Citing the vital contributions made by veterans to the small business community and Congress's poor performance in assisting veterans,

particularly service-disabled veterans, in forming and expanding small busi

nesses,34 the Act implemented a number of SBA recommendations and drew

heavily from the California model.

A. Provisions

The Act contained a number of provisions creating or extending loan bene fits for veterans generally and service-disabled veterans specifically.35 It also created business education resources for veterans, requiring the SBA admin istrator to work with the Service Corps of Retired Executives (SCORE) to

provide access for veterans to information about entrepreneurship counseling and training36 and establishing the National Veterans Business Development Corporation (NVBDC) to "expand the provision of and improve access to technical assistance regarding entrepreneurship for veterans."37

Finally, and of primary concern for this note, Tide V of the Act amended the Small Business Act to establish a governmentwide goal for participation by small business concerns owned and controlled by service-disabled veter ans38 at not less than 3 percent of the total value of all prime contract and subcontract awards for each fiscal year.39 Additionally, the Act required agen cies to make annual reports to the SBA detailing the extent of participation by SDVOSBs and to provide "appropriate justifications" for any failure to meet the 3 percent goal.40 The SBA, in turn, would be required to compile the reports and submit them to both the president and Congress.41

B. Early Concerns with the Act

Very few criticisms were leveled against the Act in committee. None were critical of the Act's intent. Only one member of Congress appears to have

33. Veterans Entrepreneurship and Small Business Development Act of 1999, Pub. L. No.

106-50, 113 Stat. 233. 34. Id. ? 101. 35. Id. ?401. 36. Id. ? 301(a)(1). 37. Id. ? 202(a). 38. Id. ? 502. In general, the term "small business concern owned and controlled by service

disabled veterans" means a small business concern at least 51 percent owned by service-disabled veterans. 15 U.S.C. ? 632(q)(2) (2000).

39. Veterans Entrepreneurship and Small Business Development Act ? 502(a)(2) (codified at 15 U.S.C. ? 644(g)(1)). 40. Id. ? 601(a) (codified at 15 U.S.C. ? 644(h)(1)). 41. Id. ? 601(b) (codified at 15 U.S.C. ? 644(h)(2)).




expressed any concerns about the legislation. While she expressed strong sup port for the intent of the legislation, Congresswoman Nydia M. Velazquez suggested that the Committee "look at how [the 3 percent goal would] effect

the overall 23% procurement goal for small business contracting."42 There were some who expressed concern that the proposed act didn't go

far enough in assisting veterans. The American Legion, which had some

sharply worded criticisms of the SBA's existing veteran-assistance efforts,43

suggested that, if the bill were to be effective, it also must authorize the nec

essary funding for the establishment of the NVBDC.44 The American Legion also shared the SBA's concerns about the ability of the Office of Veterans Assistance to handle additional responsibilities under the proposed bill with out additional staffing or funding.45

The SBA voiced the strongest criticisms. First, the SBA felt that portions of the Act were duplicative of existing SBA efforts to assist veterans. Section 201 of the Act would create an "Office of Veterans Business Development" (OVBD) that would report to the administrator of the SBA.46 The SBA noted, however, that it already had an "Office of Veterans Affairs" (OVA) that os

tensibly served a similar function.47 Furthermore, that office's efforts were

coordinated with those of the Offices of Small Business Development Cen

ters, Women's Business Ownership, Native Americans, and the Service Core of Retired Executives.48 The SBA was concerned that removing the Veterans Office from the group and having it report direcdy to the administrator would hurt the office because the SBA "would lose the opportunity to lev

erage the positive aspects of one program to satisfy the unique needs of another program."49

Most significandy, the SBA opposed section 502 of the Act, which estab lished the 3 percent procurement goal.50 The SBA noted that procurements awarded to veterans generally, and service-disabled veterans specifically, were not tracked by federal agencies.51 The SBA suggested that before any specific procurement goals or steps to meeting those goals were established, it was

critical that Congress and federal agencies develop "an approach to identify service-disabled veteran-owned small business participation in the procure

42. Hearings, supra note 11, at 2 (statement of Congresswoman Nydia M. Velazquez). Con

gresswoman Velazquez is currently the ranking Democrat on the House Small Business Committee. 43. Id. at 76 (statement of Emil W. Naschinski): "[D]uring the last decade SBA has made it

luminously clear that veterans are not an agency priority. That blatant lack of respect for the intent of Congress is an absolute disgrace."

44. Id. 45. Id. 46. Id. at 55-63. (statement of Betsy Myer, Associate Deputy Administrator for Entrepreneurial

Development and Director of Small Business Welfare to Work, Small Business Administration). 47. Id. 48. Id. 49. Id. 50. Id. 51. Id.




ment process."52 The SBA also expressed concern about its ability to meet its additional responsibilities under the Act with its already thinly spread bud

get.53 Although the SBA's response to the legislation could be viewed cynically as a response to what it viewed as legislative encroachment on its "turf," a number of the SBA's concerns appear to have been remarkably prescient.

These concerns notwithstanding, on August 5,1999, the Act was presented to the Senate.54 The measure was offered for unanimous consent and passed

without objection.55 That same day, the Act, as amended, was presented to the House, which agreed to the Senate amendment, again by unanimous con sent.56 On August 11, 1999, the Act was presented to President Clinton, who

signed the measure into law six days later.57

IV. PERFORMANCE UNDER THE ACT FROM 1999 TO 2004

Unfortunately, the Act was not the panacea that Congress or the veteran

community had hoped for. Because agencies did not monitor their percentage of contract awards made to SDVOSBs prior to the passage of the Act, it is unclear if contract awards to SDVOSBs increased significandy afterwards.

What is clear, however, is that agencies had significant trouble meeting the 3 percent goal.

In FY 2001, agencies awarded a combined 0.22 percent of contract dollars to SDVOSBs.58 In FY 2002, that percentage fell to only 0.12 percent (or 1/ 25th of the 3 percent procurement goal).59 In fact, between the passage of the Act and its amendment in 2003, only four agencies ever met or exceeded the 3 percent goal: the Rail-Road Retirement Board, the Consumer Product

Safety Commission, the Federal Trade Commission, and the National Foun dation for the Arts and Humanities.60 These four agencies account for only a small percentage of total federal procurements.61

A. Possible Causes of Underperformance A number of explanations exist for why the Act was initially so unsuccessful.

First, there appears to be a significant gap between the number of SDVOSBs

52. Id. 53. Id. 54. 145 Cong. Rec. S10,520 (1999). 55. Id. at S10,522. 56. 145 Cong. Rec. H7467 (1999). 57. Statement on Signing the Veterans Entrepreneurship and Small Business Development

Act of 1999, 1999 Pub. Papers 1453 (Aug. 17, 1999). 58. Eagle Eye Publishers, Inc., Characteristics of Federal Government Procurement

Spending with Veteran-Owned Businesses FY 2000-FY 2003 (3Q) 1 (2004) [hereinafter

Characteristics], available at http://www.sba.gov/advo/research/rs239tot.pdf. 59. Id. 60. Id. 61. In FY 2002, the only year in which all four agencies surpassed the 3 percent goal, the

Department of Defense awarded $149,522,116 in contracts to SDVOSBs (0.09 percent of its

total procurement budget), nearly 100 times the dollar amount awarded by all four agencies combined ($1,512,000)./</.




predicted by census data and the number recorded in federal databases. Based on the Census Bureau's 1992 Characteristics of Business Owners (CBO) survey, the estimated number of SDVOSBs in the United States is between 310,000 and 410,000.62 However, a search of the Central Contractor Registration (CCR) system indicated that, of 198,732 small businesses registered, only 4,714 (or 2.3 percent) were categorized as SDVOSBs.63 Interestingly, while

only a small number of SDVOSBs are registered, SDVOSBs appear more

likely to be registered than small businesses generally. In 2003, there were an

estimated 22,659,000 small businesses in the United States.64 The 198,732

registered in the CCR system represent approximately 0.88 percent of this amount. By contrast, the 4,714 SDVOSBs registered in the CCR system rep resented between 1.15 and 1.52 percent of the estimated total number of

SDVOSBs, suggesting that SDVOSBs are approximately 30 to 70 percent more likely to be registered in the CCR system than small businesses gen

erally.65 These data call into question the empirical basis for the 3 percent goal, suggesting that the goal may have been chosen more out of a desire to create parity between the SDVOSB program and other existing programs than out of any strong evidence regarding SDVOSBs' share of the market.66

Compounding this problem, federal contracting with veteran-owned busi nesses generally tends to occur among a relatively small number of repeat players. On the government side, the Department of Defense, the General Services Administration, and the Department of Veterans Affairs together accounted for 76.2 percent of total veteran owned business (VOB) spending between FY 2000 and FY 2003.67 Ten federal agencies accounted for 93.1

percent of veteran-owned business spending.68 On the contractor side, ten veteran-owned contractors accounted for 11.7 percent of total veteran-owned business procurement.69 One hundred VOBs (approximately 0.7 percent of all VOBs, by one estimate) accounted for 42.8 percent of VOB procurement.70 It seems at least plausible that the entrenchment of a small number of suc cessful SDVOSBs might prevent other SDVOSBs from establishing them selves in the federal marketplace.

Second, for reasons that are not entirely clear, the data between FY 2000 and the third quarter of FY 2003 indicate that, on average, contract awards

62. Small Bus. Admin., Evaluating Veteran Business Owner Data 3 (2004), available at

http://www.sba.gov/advo/research/rs244tot.pdf. 63. 69 Fed. Reg. 25,274, 25,275 (May 5, 2004). 64. Office of Advocacy, Small Bus. Admin., Small Business Profile: United States 1

(2004). 65. Range calculated using census estimates of 310,000 to 410,000 SDVOSBs nationwide. 66. Two years before passage of the Act, Congress established an identical 3 percent goal for

the HUBZone Empowerment Contracting Program. Small Business Reauthorization Act of

1997, Pub. L. No. 105-135, 111 Stat. 2592. See discussion infra notes 74-76. 67. Characteristics, supra note 58, at 11. 68. Id. at 13. 69. Id. at 21. 70. Id.




to SDVOSBs were for significantly lower dollar amounts than those awarded to other small businesses. Over that three-and-three-quarter-year period, a total of 111,322 small federal contractors received a reported $190.5 billion,

averaging $456,334 annually in federal prime contract revenue.71 During that same period, SDVOSBs averaged only $141,122 in prime contract awards

annually, less than one-third the average amount going to small firms gen erally.72 In FY 2002, it would have taken approximately 53,000 average-sized awards to meet the 3 percent goal.73

Finally, while the Act set a goal of 3 percent, it contained no direct mech anisms by which SDVOSBs could be given preference in procurements. This was in sharp contrast with the HUBZone program,74 which also allowed for both limited competition75 and sole sourcing.76 The Act contained no similar

provisions and, as a result, SDVOSBs were still required to succeed or fail in a system of full and open competition.

Even if enough SDVOSBs did exist to meet 3 percent of the federal gov ernment's procurement needs, it is hardly surprising that the Act was not a

rousing success in light of these obstacles. While its goals were more specific than the vague "special consideration" requirement that had previously been

placed on the SBA,77 the Act seemed destined for similarly lackluster results.

B. The Veterans Benefit Act of2003 In an effort to strengthen the legislation, Congress amended it with the

"Veterans Benefit Act of 2003."78 The most notable revisions made by the 2003 law created mechanisms by which agencies could sidestep traditional

requirements of "full and open competition" in order to meet the 3 percent

goal.79

First, the revisions created the opportunity for sole source awards to SDVOSBs.80 In order for an SDVOSB to receive a contract award on a sole source basis, a contracting officer must find both that the SDVOSB is "re

sponsible" and that there is not a reasonable expectation that two or more

71. Id. at 9. 72. Id. 73. Total federal procurement in FY 2002 was $249,359,914,364 (3 percent of which equals

approximately $7.5 billion). Id. 74. The HUBZone (Historically Underutilized Business Zone) program was designed to

"[create] jobs in urban and rural communities by providing Federal contracting preferences to

small businesses" that operate in and employ staff who live in government-designated HUB

Zones. HUBzone-Frequendy Asked Questions, https://ewebl.sba.gov/hubzone/internet/general/ faqs.cfm.

75. FAR 19.1305. 76. FAR 19.1306. 77. See supra note 18 and accompanying text.

78. Veterans Benefit Act of 2003, Pub. L. No. 108-183, 117 Stat. 2651. 79. "Full and open competition, when used with respect to a contract action, means that all

responsible sources are permitted to compete." FAR 2.101.

80. Veterans Benefit Act of 2003, Pub. L. No. 108-183, ? 36(a), 117Stat. at 2662 (codified at

15U.S.C. 657f(a)).




SDVOSBs will submit offers for the contracting opportunity.81 Additionally, the contracting opportunity may not be for more than $5 million, in the case of a manufacturing contract, or $3 million for any other contract.82 Finally, the contracting officer must determine that the contract can be awarded at a

fair price.83 Second, the revisions allowed for restricted competition, under which only

SDVOSBs may compete in a procurement. In order for a contract to be set aside for competition among SDVOSBs, the contracting officer must have a

reasonable expectation that at least two SDVOSBs will submit offers and that the award can be made at a fair market price.84

These revisions brought the SDVOSB program to some level of parity with the HUBZone program, at least in terms of the newly created capacity to give direct preference to SDVOSBs in procurements. But while these re visions to the Act addressed one of the major obstacles to meeting the 3 per cent procurement goal, that of the ordinary requirement of full and open competition, many obstacles remain.

V. ONGOING CONCERNS AND NEW RISKS AFTER 2003

The largest issue that remains unresolved in the aftermath of the 2003 amendments is the continuing dearth of empirical data regarding the precise number of SDVOSBs in existence and, more importandy, their identities. This ongoing information gap serves as an obstacle to meeting the Act's pro curement goals in at least two ways. First, it makes it difficult for contracting officers to actively seek out SDVOSBs to meet their agencies' needs. Even

contracting officers who truly desire to solicit goods or services from SDVOSBs will be stymied in their efforts if they are constrained by the data currendy available. This remains true in spite of the additional tools provided to con

tracting officers by the 2003 amendments. It is simply not possible for a con

tracting officer to meaningfully exercise the authority to award contracts on a sole source basis if the identity of the contractor who would perform the work remains a mystery. Additionally, the contracting officer's ability to set aside contracts for competition among SDVOSBs is frustrated to the extent that the paucity of data currendy available makes it more difficult for a con

tracting officer to have a reasonable expectation that two or more SDVOSBs will submit offers.

A. Ongoing Integrity Concerns

While it does not direcdy affect efforts to meet the 3 percent goal, the self certification of SDVOSBs, an issue not addressed by the 2003 amendments,

81. Id. ? 36(a)(1) (codified at 15 U.S.C. ? 657f(a)(l)). General standards for responsibility are laid out in FAR 9.104-1.

82. Id. ? 36(a)(2), 117 Stat. at 2662 (codified at 15 U.S.C. ? 657f(a)(2)). 83. Id. ? 36(a)(3) (codified at 15 U.S.C. ? 657f(a)(3)). 84. Id. ? 36(b) (codified at 15 U.S.C. ? 657f(b)).




continues to pose a threat to the program's integrity. Currently, small business owners wishing to contract as SDVOSBs need not seek agency certification. The obvious advantage of self-certification is that it allows for contractors to enter the SDVOSB program quickly and with little cost to the government in terms of oversight. It is not wholly without cost, however, because, at a

minimum, "self-certification opens the door to abuse."85 Notably, the SDVOSB

system of self-certification is in sharp contrast with the requirements for small

disadvantaged businesses (SBDs) and HUBZone contractors, both of which must obtain certification in order to obtain contract preferences.86 To the extent that the self-certification system is abused and that abuse remains un

detected, agency reports of contracts with SDVOSBs become falsely inflated and the goal of assisting service-disabled veterans is direcdy undermined.

B. Anticompetitive Effects There is also a more fundamental concern, one that seems not to have

been considered leading up to the passage of the Act or its amendment. Sole

sourcing and set asides, by their very nature, limit competition, one of the fundamental principles underlying the procurement process.87 By implement ing a scheme that sidesteps traditional procurement requirements in an at

tempt to more efficiendy redistribute wealth to a socially disadvantaged group, the 2003 amendments interfere direcdy with market competition and all of the benefits that are thought to flow from such competition. It is dangerous to presume, in every instance, that these benefits are worth trading away. At a minimum, they should be kept in mind when considering whether a program of this nature is desirable.

VI. FURTHER REVISIONS OR ALTERNATIVE PROGRAMS?

There are a number of ways in which the program might be bolstered.

Continuing the trend started with the 2003 amendments, one might amend the permissive language of the set aside and sole-sourcing regulations to make these practices mandatory.88 This solution, notwithstanding potential conflicts

85. Excellence in Action: Government Support of Disabled Veteran-Owned Businesses: Hearing Before the Subcomm. on Benefits of the Comm. on Veterans Affairs and the Subcomm. on Workforce, Empow erment, and Government Programs of the House Comm. on Small Business, 108th Cong. 23 (2004) [hereinafter 2004 Hearings] (statement of Steven L. Schooner, co-director, Government Pro curement Law Program, George Washington University Law School), available at http://docs

.law.gwu.edu/facweb/sschooner/Smallbiz-Vets.pdf. 86. See FAR 19.304(a) (SDB certification requirement), 19.1303 (HUBZone certification

requirement). 87. See, e.g., Small Business Act of 1953, Pub. L. No. 83-163, 67 Stat. 230, 232 ("The essence

of the American economic system of private enterprise is free competition. [This] competition is basic not only to the economic well-being but to the security of this Nation.").

88. FAR 19.1405(a) reads: "The contracting officer may set-aside acquisitions exceeding the

micro-purchase threshold for competition restricted to service-disabled veteran-owned small business concerns ..(emphasis added). FAR 19.1406 reads: "A contracting officer may award contracts to service-disabled veteran-owned small business concerns on a sole source basis ..."

(emphasis added).




it might cause with other programs,89 has a certain appeal, based no doubt in the immediacy of the "solution" it provides. Despite its appeal, however, this solution seems to put the cart before the horse; what is most urgendy needed is not more regulation, but more information available to both contracting officers and SDVOSBs. The critical lack of information regarding the number and identities of SDVOSBs remains the single largest obstacle to meeting the 3 percent goal and does not appear likely to resolve itself. If the government desires to meet the 3 percent goal, it must, at an absolute minimum, invest more resources in efforts to identify qualifying SDVOSBs.

A. Revising the Current Law

The benefits of closing this information gap are threefold. First, it enables

contracting officers who wish to contract with SDVOSBs to determine more

accurately whether sole-sourcing or set-aside procedures may be appropriate. Second, it creates greater accountability, because it eliminates one of the best excuses for not contracting with SDVOSBs: not knowing who or where they are. Finally, greater information will help to answer the empirical question of whether or not the 3 percent goal is a realistic one. Without a firmer grasp on the size of the SDVOSB universe, the number capable of providing goods or services the government is interested in buying, and the number of con tractors within that subset who desire to do business with the Federal Gov

ernment, it is difficult, if not impossible, to know whether or not the 3 percent procurement goal should be maintained or revised. If there are not enough SDVOSBs to provide the approximately $9 billion in goods and services nec

essary to meet the 3 percent goal, no revision of the Act, short of lowering the goal, will make the goal achievable.

B. Nonprocurement Solutions

Of course, any discussion of methods by which the SDVOSB program can be improved presumes that the program is worth continuing and improving. The question that one must consider is this: whether or not the public pro curement system is the best vehicle for assisting service-disabled veterans.

When considered in light of this question, the program seems almost par adoxical. To the extent that the SDVOSB program assists service-disabled veterans who are already the owners of successful small businesses, it arguably provides assistance to the least-needy members of the service-disabled veteran

community. Indeed, the program appears considerably more likely to reward

already successful SDVOSBs, further exacerbating entrenchment concerns,

89. The HUBZone program set-aside provision, FAR 19.1305(a), reads: "A participating agency contracting officer shall set aside acquisitions exceeding the simplified acquisition thresh old for competition restricted to HUBZone small business concerns ..." (emphasis added). Any legislation amending the SDVOSB program language to make set-asides mandatory should ad dress this potential conflict.




than to create significant opportunities for new SDVOSBs.90 Additionally, it is worth remembering that the SDVOSB program is only capable of assisting SDVOSBs that produce goods and services that the government wishes to

buy, excluding a potentially significant percentage of service-disabled veteran

entrepreneurs from its benefits. All of this is not to suggest that the program cannot be a useful means of assisting new SDVOSBs, but merely to point out that it does not appear to be a particularly efficient means of doing so.

Given the numerous challenges, threats, and inefficiencies yet to be ad

dressed, it seems worth considering alternatives to the SDVOSB program. In

particular, it is worth considering the principle that animated the Smith-Sears Act and the G.I. Bill: provide individual veterans with the tools they need to succeed in the open market. Set asides and sole sourcing only marginally serve this goal. Both seem more likely to allow a small percentage of SDVOSBs to flourish within a zone of artificially created competitiveness. Furthermore, the potential to be awarded contracts on a sole-source or limited-competition basis incentivizes SDVOSBs that grow strong enough to effectively compete without these benefits to continue to rely on them. Perhaps more perversely, the artificiality of the competitiveness created by the program may harm

weaker SDVOSBs by causing them to overestimate their own abilities, setting them up for failure later on.91

Strengthened small business loan programs and enhanced educational bene fits are both alternative solutions with proven track records. Increasing aware ness of, and access to, veterans' business development centers is another. These and similar programs focus on service-disabled veterans as individuals, with the goal of providing them with the education, skills, and opportunity to compete and flourish in the open market. Additionally, they pose none of the risks of limited competition. By ensuring that the tools necessary for com

petitiveness in the market are widely dispersed among service-disabled vet

erans, these programs would tend to enhance market efficiency in public pro curement, to the benefit of taxpayers as well as veterans.

VII. CONCLUSION

This note set out to analyze both the history of the SDVOSB program and the challenges that have prevented it from achieving significant success.

The Veterans Entrepreneurship and Small Business Development Act of 1999

and the Veterans Benefits Act of 2003 are among the latest in legislation that

recognizes a continuing commitment to our nation's service-disabled veter ans. Legislative efforts to assist these veterans have ranged in success from

90. As one commentator noted: "Experience suggests that ... the chief beneficiaries of ag

gressive goals are robust small-to-midsize firms, many of which diligently avoid formal growth

by subcontracting or outsourcing tasks." 2004 Hearings, supra note 85, at 23 (statement of Steven L. Schooner).

91. Failure to complete a government contract "can prove potentially fatal, a professional death knell" for a small business in the government marketplace." Id.




the outstanding triumph of the G.I. Bill to the arguable failure of the "special consideration,, provisions of the Small Business Act of 1974. It is unclear where the SDVOSB program will eventually fall on that continuum, but it seems to be drifting toward the latter. Greater effort needs to be invested in

identifying qualified SDVOSBs. Despite contracting officers, best intentions, the 3 percent goal will remain elusive as long as the number of qualified SDVOSBs remains unknown.

Suggestions for saving the Act presume that the Act is worth saving. In

light of the numerous threats it poses to the integrity of the procurement system, this presumption may not be warranted. There remains an inherent threat whenever contracting officers are allowed to sidestep the requirements of full and open competition. We should remain open to the question of whether or not the federal procurement system is really the best vehicle for

compensating those who have sacrificed their bodies in the service of their

country. That goal is more important than any arbitrarily established pro curement goal and, should the two be in conflict, it is the procurement goal that must yield. Having sacrificed more than many Americans can imagine, our nation's service-disabled veterans deserve more than good intentions backed up by ineffective policy. One way or another, they deserve a system that works.



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