VA spent $5 million on wasteful contract that went to pal of agency executive

The Golden Horseshoe is a weekly designation from Just the News intended to highlight egregious examples of wasteful taxpayer spending by the government. The ward is named for the horseshoe-shaped toilet seats for military airplanes that cost the Pentagon a whopping $640 each back in the 1980s. 

This week, our award is going to the Department of Veteran Affairs for awarding a $5 million contract to a company whose owners, according to a report by the department's Office of Inspector General (OIG), had a personal relationship with Peter Shelby, the VA’s then-assistant secretary for human resources and administration. The contract “resulted entirely in waste,” the OIG determined.

In February 2018, the recently appointed Shelby awarded a one-year contract to a service-disabled veteran-owned small business. The small business, which remains unnamed in the IG report, was supposed to provide leadership and development trainings, in addition to talent assessment services that could be employed for hiring and promotion decisions.

However, the VA purchased services from the company far in excess of what could actually be used. Over the course of the year-long contract, the VA used only 232 of the 17,000 training licenses it had paid for. Not only that, but the talent assessment software that the government had procured for $1.2 million could not be used at all because the information technology that it relied upon to function did not meet the privacy and security standard required by federal regulations.

The entire $5 million spent by the VA was effectively wasted as a result of actions described by the VA Inspector General report, detailed below.

On June 5, 2017, when Shelby had been sworn into his position but did not yet have any official duties, he sent an email to the owner of the small business that said, “please be patient, my friend,” explaining that he needed to “get structures and authorities aligned” before starting work on the contract assignment.

Later, when asked about his relationship with the small business owner, Shelby told OIG investigators that he did not know the owner prior to his appointment. However, several months before Shelby joined the VA, "the Small Business Owner sent an email to then VA Secretary David Shulkin recommending Mr. Shelby for the assistant secretary position.”

Generally, when awarding a government contract, agencies scope the market to assess price and quality of services to fairly award the contract based on merit. In this case, Shelby insisted that his department assign the contract based on a sole-sourcing process, which is when the government selects one company to assign business to without competitive bidding. 

At first, members of the human resources and administration office were skeptical and pushed back against Shelby's sole-sourcing request, knowing that it was an unusual and ethically questionable move. 

On Jan. 10, 2018, the department's senior procurement executive wrote an email warning: “We must compete this requirement. It appears he is attempting to push for a sole-source award to a firm of his choice, when there are multiple firms who can provide these services. I don’t have to tell you this can be very unstable ground to walk on, as it could potentially lead to ill effects for him personally and the Department if we do not compete.”

That same executive had earlier, in a separate email, stated "when a political appointee insists that a contract go sole-source to a named supplier, I always suspect potential improprieties." 

Despite the poor optics that his staff pointed out to him, Shelby was "insistent and intimidating in communicating his request that the contract be awarded to the Small Business," according to the report. One contracting officer described him as “completely unprofessional and just yelling and ranting and raving that he had to have this company.”

All executive branch employees are subject to the Standards of Ethical Conduct for Employees of the Executive Branch, which prohibit using their official positions “for the private gain of friends, relatives or persons with whom the employee is affiliated in a nongovernmental capacity.” According to the evidence detailed in the report, Shelby violated executive branch ethics rules by awarding a grossly exorbitant, sole-sourced contract to his friend and then lying about their relationship.

Shelby also directed his subordinates to act in a way that provided a financial benefit to his friend, which is an additional violation of the ethics standards.

In July 2018, Shelby resigned after learning that he had been recommended for possible removal from his position, evidently for reasons unrelated to this contract.

Just the News requested comment on this article from Shelby. He had not responded as of publication deadline.