Red tape binds veteran business program

• Veterans Affairs program supposed to help retired or disabled veteran business owners
• In the past, many firms that weren't vet-owned fradulently won contracts
• Anti-fraud effort has cut the number of qualified contractors from around 18,000 to 6,250

DES MOINES -- Thousands of veteran-owned businesses have been disqualified from bidding on government construction projects -- costing U.S. taxpayers millions -- because stringent federal checks to guard against fraud are mired in bureaucracy, multiple contractors told The Des Moines Register.

In Iowa, the Register found examples where projects have cost taxpayers hundreds of thousands of dollars more because veteran-owned companies have been unable to compete in the government's bidding process.

"Throughout the country this is costing taxpayers millions of dollars," said Terry Winn, owner of Winn Construction, an Omaha, Neb.-based business that frequently works on government projects in Iowa. "It is red tape, and it's very burdensome."

The problems center on a U.S. Department of Veterans Affairs program that is supposed to give preference to retired or disabled veteran business owners when contracts are issued. The department spends about $3.5 billion each year in services provided by veteran-owned businesses.

Problems surfaced in recent years when the U.S. Government Accountability Office blew the whistle on thousands of businesses across the nation that had fraudulently won millions of dollars in contracts even though they weren't veteran-owned. In response, Congress passed a law in 2010 that gave federal veterans officials greater ability to conduct background searches to verify that businesses qualify for the program.

The new process has whittled the national list of contractors available to bid on the veterans projects from around 18,000 in 2010 to about 6,250 today, which some say is an indication that many qualified businesses are being excluded.

The issue has caught the attention of at least two Iowa congressmen -- a Republican and a Democrat -- and was the center of a recent congressional oversight hearing.

Winn, a Navy veteran, was unable to compete for veterans projects for about three months while he tried to navigate through paperwork. He said he was forced to turn away from competing for millions of dollars in projects during that time.

A retired Army veteran and the owner of Covenant Construction Services in Waukee, Iowa, hit the same roadblock. The new checks required Alan Sprinkle's business to provide more than 125 documents to federal veteran officials before Covenant Construction could be verified to compete in the program.

After bids on at least two projects were rejected, Sprinkle said he was left to lay off five people as he appealed the government's July 25 decision to bar him from bidding on projects. He credited Rep. Tom Latham, R-Iowa, and his staff for helping the company become recertified on Sept. 26, about a month earlier than he had anticipated.

Sprinkle said his business won't be profitable this year because of the hiccup. Sprinkle places the blame on federal rules that he believes are well intentioned but counterproductive.

"You think you're doing everything right, and I kept calling and said 'Hey, are there any other documents you need? Anything at all, we can get it,' " Sprinkle said of his communications with veterans officials reviewing the business' qualifications.

"And then I get an email that said we were disqualified immediately. It changes your whole viewpoint."

A House Veterans' Affairs subcommittee in August held an oversight hearing on the matter, concluding that the problems now extend beyond fraudulent representation highlighted several years ago to efficiency and time needed to approve qualified businesses to participate in the program.

"I want to know how and, equally important, when the VA will put in place the systems and policies that will shorten the time to be approved, decrease the level of effort needed to pass muster and finally, create a community of veteran-owned businesses that is reasonably free from unqualified companies," said Rep. Marlin Stutzman, R-Ind.

Iowa Rep. Bruce Braley of Waterloo is the top-ranking Democrat on the Veterans' Affairs Subcommittee on Economic Opportunity, which has investigated the matter.

"We need to find a balance between having a fair and timely system in place to certify businesses as veteran-owned, and at the same time making sure taxpayer funds are being used appropriately," Braley said.

The process of certifying businesses owned by veterans does take longer, but that's a result of laws passed by Congress and it's one to help protect legitimate veterans' businesses, said Thomas Leney, the executive director for small and veteran business programs at the U.S. Department of Veterans Affairs.

Leney said the process is nearly identical to one used by the U.S. Small Business Administration. Federal officials have not completed a "deep dive" into how much more projects have cost taxpayers because of contractors being excluded from the bid process, Leney said.

But, Leney said, he's seen no direct evidence that there's been "a material change in costs."

In previous years, thousands of businesses were able to self-verify that they were eligible to participate in the veterans business program. It's part of the reason roughly two-thirds of the contractors have been eliminated, Leney said.

"For those who say 'You guys are crazy, you've got this wild regulation and this extreme requirement,' I say there is one big difference: We look," Leney said. "And here is the good deal for veterans and why we take it so seriously: When someone is verified and they wear that logo, they are telling the world: 'You can count on me. I am the real deal.' "

Latham said the verification process is crucial but he also has concerns that it's unnecessarily cumbersome. When legitimate veteran-owned businesses are excluded, it not only hurts that business but could also become more costly for taxpayers, Latham said.

"That's the frustration a lot of these business have is that they've gone past the bid dates waiting for re-verification," Latham said. "Because the process has been very, very slow and cumbersome there are cases, I think, when we probably could have lower bids. We need to make sure the process is done in a proper way and in a timely way."