By: Paul Emanuelli

This article is an excerpt from the 2021 edition of The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.

In its February 2020 report entitled Audit of DoD Service-Disabled Veteran-Owned Small Business Contract Awards, the Inspector General of the U.S. Department of Defense (DoD) found significant implementation flaws in the implementation of a social procurement program, including weak eligibility verification practices, which led to millions of dollars of improperly set aside awards.

As the report stated, the “objective of this audit was to determine whether the DoD awarded service-disabled veteran-owned small business (SDVOSB) contracts to eligible contractors.” The Inspector General found a series of significant irregularities in related contract awards made to ineligible contractors:

We found that DoD contracting activities awarded SDVOSB contracts to ineligible contractors and did not implement procedures to ensure compliance with SDVOSB subcontracting requirements after award. Specifically, of the 29 contractors we reviewed, we determined that:
  • the DoD awarded 27 contracts, valued at $827.8 million, to 16 contractors that did not meet the requirements for SDVOSB status. This occurred because the DoD relied on contractors to self-certify as an SDVOSB and did not have additional controls in place for DoD contracting activities to verify the accuracy of those representations.
  • DoD contracting personnel also did not verify compliance with the SDVOSB subcontracting requirements for 6 contracts awarded to 3 contractors, valued at $164.7 million. This occurred because the OSBP did not have procedures in place for contracting personnel to track subcontracting amounts for compliance with the SDVOSB subcontracting limitations.

The Inspector General recommended an improved co-ordination of the social procurement program to better ensure compliance with applicable standards, including the bolstering of verification practices and the better co-ordination and communication of related procedures:

We recommend that the OSBP Director:
  • coordinate with the Military Departments and Defense agencies and review contractors we determined to be ineligible and contractors that were denied SDVOSB status by the VA Center for Verification and Evaluation, and take action, through the SBA, as necessary;
  • implement procedures, in coordination with the Defense Pricing and Contracting (DPC), to require contractors to submit documentation to support their SDVOSB status, as well as other socio‑economic statuses, prior to contract award, and perform periodic reviews of SDVOSB contractors;
  • implement procedures, in coordination with DPC, for contracting personnel to track subcontracting percentages required for SDVOSB contracts;
  • coordinate with DPC, the General Services Administration and the SBA and implement procedures to ensure that contractors update their SAM status if the SBA determines the contractors are ineligible; and
  • coordinate with DPC and the SBA and implement procedures to ensure protest results are communicated to contracting personnel DoD-wide, and reinforce procedures to ensure contracting personnel are aware of the protest procedures and their responsibilities.

As this report illustrates, notwithstanding the good intentions associated with social procurement policies, the implementation of those programs needs to comply with generally applicable procurement accountability standards so that spending decisions made in pursuit of social procurement objectives are made in a defensible manner. This case study serves as a useful wake-up call for public institutions across all jurisdictions that are thinking about implementing similar programs.