IG: DOD errs in verifying small businesses' status

The Defense Department awarded more than $340 million to ineligible companies instead of to service-disabled veterans, according to a new report.

Throughout DOD, defense officials awarded six contracts worth approximately $1.9 million to ineligible companies and 27 contracts worth $340.3 million to contractors that potentially misstated their status as a service-disabled veteran-owned small businesses (SDVOSBs), according to a report released March 2 by the DOD inspector general.

DOD’s Office of Small Business Programs’ policy did not require adequate verification of contractor status before awarding set-aside and sole-source contracts, the report states.

In response to the IG’s report, John Caporal, deputy director of the Air Force’s small business programs, took issue with the IG's assessment of the contracts that the Air Force awarded. Caporal rebutted the IG’s statements about contracts and contractors, showing point by point that the Air Force’s contracting officers checked the companies' status in the Central Contractor Registration and followed other regulations.

In addition, he wrote on Jan. 5 that, among other things, the IG measured the Air Force’s contracting processes and procedures to the Veterans Affairs Department. That evaluation “as you know, is not applicable to other than the VA,” he wrote.

The IG also reported that DOD employees in the small-business office also incorrectly coded 137 contracts, as SDVOSBs. Those contracts were worth roughly $1.3 billion. The employees also didn’t ensure the contract reports reflected the correct socio-economic status of companies.

The IG said it’s the duty of the contracting officer to input the information correctly into the Federal Procurement Data System (FPDS), adding that human error was the most prevalent factor for the wrong codes and socio-economic statuses.

The IG recommended that managers establish a process to verify companies’ status. For the specific contracts already awarded, commanding officers should investigate whether contractors lied about their status and take necessary steps laid out in the contract.

“Doing this could put $254.7 million to better use by ensuring eligible SDVOSBs receive the intended benefits,” the IG wrote in the report.

Finally, DOD officials should also reevaluate the process for validating data going into FPDS.