Examining Contractor Performance and Government Management of Retroactive Pay for Retired Veterans with Disabilities

Wednesday, July 16, 2008
11:30 a.m.
2154 Rayburn
Washington, D.C. 20515

Congress enacted new benefits in 2003 and 2004 for veterans disabled by service-related and combat-related injuries. The benefit entitled eligible disabled veterans to receive both military retired and VA disability pay concurrently. Previously, military retired pay was reduced by the amount of VA disability pay a disabled veteran received.

Many disabled veterans became eligible for retroactive pay pursuant to the new entitlements due to changes in their disability status. Defense Finance and Accounting Service (DFAS) estimated that a total of 217,294 disabled veterans were potentially eligible for retroactive payments. But there were significant delays in the delivery of the VA Retro payment. In their report “Die or Give Up Trying,” the Majority Staff of the Domestic Policy Subcommittee found:

•The Department of Defense waited two years after enactment of the law to hold its first formal meeting on implementing the new benefit.
•It took at total of five and one-half years to review the claims of just 133,057 veterans who became eligible when Congress changed the law.
•Up to 8,763 disabled veterans died before their cases were reviewed for VA Retro eligibility.
•DFAS gave a no bid, Cost Plus contract to Lockheed. Lockheed’s performance proved to be deficient, but DFAS was unable to assess penalties because the contract did not permit it.
•Unable to do more than exhort Lockheed to do better, DFAS cut back on its own Quality Control. Essentially, the Government let Lockheed monitor itself. DFAS suspended its own rigorous, independent verification of calculation made by Lockheed, and instead outsourced quality assurance to Lockheed.
•In doing this, DFAS effectively bypassed GAO regulations on statistical sampling in federal quality-control procedures.
•Lockheed applied a weaker standard to quality assurance than the standard mandated by GAO.
•DFAS also used federal workers to supplement Lockheed’s workforce. This is highly unusual, since there is a prohibition on assigning federal workers to tasks that the Government has contracted out to a private company.
•While these measures had the effect of clearing the backlog of cases waiting for review, it did so at the expense of accuracy.
•Up to 60,051 payments to veterans were issued after a suspension of quality control measures went into effect on March 1, 2008.
•At least 28,283 veterans were denied retroactive pay based on determinations made wholly without quality assurance review.
•Those denials were made by Lockheed technicians who received all of six weeks training.

This hearing will examine the conditions that produced these findings, and assess the Government’s management of the program.

Witnesses for the hearing include:

Mr. Zack E. Gaddy, Director, Defense Finance and Accounting Service
Mr. Joseph Cipriano, President, Lockheed Martin Business Process Solutions
Mr. Gordon Heddell, Acting Inspector General, U.S. Department of Defense Office of the Inspector General
Mr. Pierre Sprey, Independent Statistics Expert