March 14 (Bloomberg) -- The U.S. Department of Veterans Affairs has rejected almost two-thirds of veterans seeking special contracts, snubbing some of them because they live in community property states or did emergency work in Haiti.
The VA says it has turned away about 4,700 of the more than 7,200 companies requesting preferential status as veteran-owned businesses since it began a verification process last year. Veterans say they are baffled by the explanations, including the agency’s concerns about laws in California and eight other “community property” states where a spouse might be entitled to half a veteran owner’s share in a business.
Kevin Treiber was rejected in February, when the VA told him he wasn’t eligible because the Department of Health and Human Services had paid him for two weeks of work helping Haiti earthquake victims in 2010. Technically, that made him a government employee, the VA said. He was reinstated today.
“I am happy to be reinstated, but extremely disappointed that this entire incident happened,” said Treiber, 40, a disabled Army veteran and nurse who owns TDY Medical Staffing Inc. of Lower Makefield, Pennsylvania. “My hope is that VA will improve this process and make attempts to become more veteran friendly. I hope that other veterans who own businesses won’t have to be subjected to this sort of stress and aggravation.”
His business has missed out on bidding for at least $1 million in contracts since he was rejected in February, Treiber said. He also lost the chance to participate in a small business mentorship program because his company lacked the agency’s verification, he said in a March 14 e-mail.
“I feel like I’ve been arguing with a machine for the past month,” said Treiber, who says he suffered joint injuries after serving in Saudi Arabia during the Gulf War.
The reversal occurred after VA lawyers reviewed additional information about Treiber’s federal government work and deemed him a “special government employee,” said Jo Schuda, an agency spokeswoman. His company is now eligible to compete for VA contracts reserved for disabled veterans unless the work is tied to his “activity” with the disaster medical assistance team organized by the health department, she said in an e-mail.
Other federal agencies operate on an honor system, allowing disabled veteran owners to pledge that they manage and control their businesses.
The VA had the same requirement until October 2010, when President Barack Obama signed a law requiring the agency to verify ownership and management of companies seeking special contracts reserved for veterans. Companies had until March 21, 2011, to submit documentation proving their eligibility.
The crackdown came after the Government Accountability Office, Congress’s investigative arm, reported in October 2009 that 10 ineligible companies received about $100 million in contracts for disabled veterans through fraud or abuse from fiscal 2003 through July 2009. Six of the companies had received VA contracts, according to the report.
The VA’s inspector general estimated last July that the department awards as much as $500 million in contracts a year to companies ineligible for status as a small business owned by a veteran or disabled veteran.
“It seems like the pendulum has swung maybe a little too far in the other direction at this point,” said Jonathan Williams, a partner at the Washington law firm PilieroMazza, which specializes in government contracting. “It’s deny first and ask questions later.”
The VA should work more with small businesses early in the process, helping them avoid snags that may lead to rejection, Williams said in an interview. He said the agency doesn’t seem to do a lot of “back and forth” with most applicants to point out issues that might be easily corrected.
Married veterans living in community states, for example, might need to have their spouses fill out paperwork, he said. That’s because the VA’s website contends that a spouse may own half the veteran’s share of a business in those states, making it impossible for the veteran to be considered a majority owner unless the spouse relinquishes ownership.
“It’s really troubling for a lot of these firms that are not fronts, they’re not frauds, but they might not have all their t’s crossed in some documents,” Williams said.
The agency has “verification assistance briefs” on its website that help small business owners avoid pitfalls, said Schuda, the VA spokeswoman. Those briefs include one on the issue with community property laws in Arizona, California, Texas, Nevada, New Mexico, Washington, Louisiana, Wisconsin and Idaho.
“The high rejection rate is due to the fact that the business model of many companies does not fit the eligibility criteria for the program,” Schuda said in an e-mail.
“The vast majority of those who are denied are not fraudulent; they simply are not eligible,” she said. “It is a business decision each owner must make if he or she wants to do business with VA -- that is, ensure that the company conforms to the eligibility criteria.”
More than 1,000 businesses rejected during the past year after seeking veteran-owned status have filed appeals with the agency, Schuda said.
The VA is unique in that it sets aside contracts for small businesses owned by all veterans. Other federal agencies focus on disabled veterans.
The VA awarded $3.5 billion to all veteran-owned businesses, mostly to those with disabilities, in the fiscal year ended last Sept. 30, according to February testimony by Tom Leney, director of the agency’s Office of Small and Disadvantaged Business Utilization.
Bill Hoover, a disabled veteran who owns a wireless communications company in Oxnard, California, says he received a rejection letter from the VA in October. The agency said his marriage and California residence might affect the ownership status of his namesake business, Hoover Enterprises Inc.
“I said, ‘What do you want me to do, divorce her?’” Hoover, 61, said in an interview. “It’s just another damn bureaucratic situation where they are supposed to be helping us veterans, but instead they are making it harder.”
Hoover, who says he suffers from joint and back injuries after serving in the Marines and Navy from 1970 to 1990, has appealed the decision.
The agency’s response has been too strict, costing legitimate business owners access to millions of dollars in contract revenue, said Lisa Wolford, a Marine Corps veteran and owner of Bellevue, Nebraska-based Client/Server Software Solutions Inc., a technology services vendor.
Wolford’s 160-person company was booted from the program last August, when she received a letter from the VA saying it wasn’t able to verify control of the company because her ownership was linked to a trust that included her two children as beneficiaries.
She asked the agency to reconsider the decision and received a second denial in October.
In January, Wolford filed a lawsuit against the VA in U.S. District Court in Washington and was reinstated soon after, she said. Her company missed out on competing for at least $20 million in contract work during the roughly five months it was excluded, she said.
“This was very, very harmful to my company, my employees, because we undoubtedly lost contracts because of it,” Wolford said in an interview.
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