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The Service-Disabled Veteran-Owned Small Businesses (SDVOSB) contracting program is a program that increases the chances of small businesses to win government contracts when certified as service-disabled veteran owned businesses. Businesses owned by a spouse or a caregiver of a physically or mentally impaired veteran may also get assistance under this program. The Small Business Administration (SBA) is charged with the responsibility of resolving disputes that may arise incase a competitor challenges the SDVOSB for a government contract (Government Accountability Office (GAO), 2010, p. 2).
Even though a small business certified as an SDVOSB business has greater chances of winning government contracts compared to other firms, the SDVOSB set-aside rules, unlike the SDVOSB sole source, provide some exceptions. These rules include the Javits-Wagner-O’Day organizations, the Federal Prison Firms, the existing IDIQ contracts, Federal supply schedule Firms, Commissary sales and the requirements under the 8(a) of the program (GAO, 2010, p. 1).
The SDVOSB Sole source has raised concerns over accountability, as there is no set standard for all SDVOSBs to qualify. In addition, besides the SBA, several federal agencies control various aspects of the SDVOSB program making the monitoring of these SDVOSB difficult. For an SDVOSB justification, noncompetitive procedures are used as specified by the Simplified Acquisition Threshold, which means that contracts may not be awarded on merit. The award of government contracts under the sole source justification to a qualified SDVOSB is largely unfair.
Federal Set-Aside Program
Normally, the Federal government reserves a certain proportion of its total contracts used for the procurement of services and property for small business groups (Miller, 2010). The government achieves this by “setting aside” or reserving the procurement (total small business set-asides) or certain aspects of the procurement to small businesses (partial small business set-asides). This does not mean that a particular small firm will automatically qualify for the contract. Rather, it means that only the businesses that fall under the small business category can compete for the contract. The SDVOSB sole source contracts do not allow competition among the small businesses as the contract is awarded to the bidding small firm that is qualified.
Additionally, the Federal government is required to procure services or goods at reasonable and competitive prices. Normally, the contracts are “set aside” when more than one small firm bid for the contract (Miller, 2010). Under these circumstances, the market prices, the delivery and quality are reviewed in competitive terms. In this context, a “fair market price” is the reasonable price taking into account the quality and delivery of the services, not the least price. However, the sole source contracting does not consider this, as contracts are not issued competitively.
Types of SDVOSBs
The SDVOSB justification is of two types: the SDVOSB Sole source and the SDVOSB set-aside justification. Service-disabled veterans refer to servicemen or veterans with a disability incurred during military service. Three conditions justify the use of SDVOSB Sole source (GAO, 2010, p. 5).
- If the Contracting Officer (CO) establishes that, the SDVOSB involves a contractor with a high-performance record.
- The CO determines that there are no expectations that more SDVOSB will tender offers for the same contracting opportunity.
- Finally, the value of the contract or the award price will not go beyond $5 million (including options) for a manufacturing contract opportunity as specified by North American Industry Classification System (NAICS) or $3 million for other contracting opportunities (GAO, 2010, p. 5).
In addition, contract should be of a fair price. The award of the contract depends on the CO’s determination that, there are no more SDVOSB interested in the same contract. This limits competition, which should be central to public procurement and contracting.
To utilize the SDVOSB sole source justification, proprietors of small businesses are required to conduct market research, publish their findings and negotiate for the contract. The Simplified Acquisition Threshold provides noncompetitive procedures for sole source justification. This means that the award of the contract is not based on competition, which makes it difficult to award the contract to a deserving and qualified small firm.
On the other hand, the SDVOSB Set-Aside justification is used when the CO has determined that more than two small businesses owned or controlled by more than two service-disabled veterans will tender their offers for the contract at a fair market price. For the business owners to use the SDVOSB set-aside justification, they are required to carry out market research, and make public their findings and their SDVOSB status. The contract for SDVOSB set-aside justification is given based on competition between more than two small firms that fall under SDVOSB.
However, if the CO receives only one offer, he/she can award the contract provided the price is fair and reasonable. If the CO receives no offers, he/she is required to cancel the tender and compete afresh under the small business set-aside justification. Clearly, the SDVOSB set-aside justification, unlike the sole source, encourages competition that ensures that only qualified offers at reasonable prices are awarded the contract.
Small Business Types and the Sole Source Contracts
For small businesses, only SDVOSBs enjoy restricted competitions under the sole contracts. Veteran-Owned Small Business (VOSB), with at least 51% stock owned by one or more veteran servicemen is ineligible for sole source contracts. However, the FAR, unconditionally, requires SDVOSBs to subcontract services from the VOSBs (GAO, 2010, p. 6). It requires that all contracts valued at $ 100,000 or more be awarded on a competitive basis to VOSBs subcontractors. This denies qualified VOSBs from competing directly with SDVOSBs for federal contracts.
Women owned small Business (WOSB), which includes small businesses with at least 51% stock owned by one or more women are ineligible for the sole source-type contracts. However, the FAR encourages the SDVOSBs to engage the WOSBs as subcontractors. Thus, women-owned small business and small businesses owned by disadvantaged people are denied the opportunity to compete for federal contracts based on efficiency of performance.
Besides the restricted competition, which may compromise the quality of goods and delivery of services by the SDVOSBs, the SDVOSBs are prone to fraud and mismanagement. Investigations by GAO revealed that firms ineligible for the SDVOSB sole source contracts received over $ 100 million in 2008 (Miller, 2010). Other ten firms, which self-certified themselves as SDVOSB, got $5 million through the sole source contracting by November 2009. The SBA states that, in 2008, the VOSBs received 13.8 billion with 6.4 billion going to service-disabled small firms. Additionally, the army increased the SDVOB contracting from 516M to 2,895M between 2005 and 2010. The lack of a monitoring mechanism especially for sole source contracting raises concerns regarding fraud and mismanagement.
Sole source contracting is a preserve for SDVOSBs, which means that they are protected from competition from other qualified small firms including the VOSBs and WOSBs. In contrast, the set aside contracting allows many small firms to compete for the contracts. The limited competition under sole source competition may compromise service delivery or quality. Thus, sole source programs are unfair as other qualified small firms in other categories are excluded from competing with SDVOSBs for the contract.
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GAO. (2010). Department Of Veterans Affairs: Preliminary Observations on Issues Related To Contracting Opportunities For Veteran-Owned Small Businesses, Gao-10-673t. Washington, D.C.: GAO.
Miller, J. (2010). New Rules for SDVOSBS and What they mean to you. Web.