STATEMENT OF
KEITH PEDIGO
ASSOCIATE DEPUTY UNDER SECRETARY FOR
POLICY AND PROGRAM MANAGEMENT
VETERANS BENEFITS ADMINISTRATION
BEFORE THE
THE COMMITTEE ON VETERANS’ AFFAIRS
SUBCOMMITTEE ON ECONOMIC OPPORTUNITY

September 24, 2008

Good afternoon Chairwoman Herseth Sandlin, Ranking Member Boozman, and members of the Subcommittee.  I appreciate the opportunity to appear before you today to discuss the Department of Veterans Affairs (VA) strategy for implementation of the Post-9/11 GI Bill (chapter 33 of title 38, United States Code).  Accompanying me today is Mr. Keith Wilson, Director, Education Service and Mr. Stephen Warren, Principal Deputy Assistant Secretary for Office of Information and Technology.  My testimony will address the specific issues regarding implementation of the Post-9/11 GI Bill as requested by the Subcommittee.

The Post-9/11 GI Bill will provide veterans, servicemembers, and members of the National Guard and Selected Reserve with educational assistance, generally in the form of tuition and fees, a monthly housing allowance, and a books and supplies stipend, to assist them in reaching their educational or vocational goals.  This program will also assist in the readjustment to civilian life, support the armed services recruitment and retention efforts, and enhance the Nation’s competitiveness through the development of a more highly educated and productive workforce.

Reason for Contractor Support

Our strategy to implement the Post-9/11 GI Bill relies on contractor support to build upon and accelerate what we had developed as our longer term strategy to employ rules-based, industry-standard, technologies in the delivery of education benefits.  The chapter 33 program contains eligibility rules and benefit determinations that would work well with rules-based technology that requires minimal human intervention. 

We plan to award a contract for this support before the end of this month.  Pursuant to the contract, which includes potential penalties for failure to perform, the contractor will be accountable for providing timely and accurate education claims processing by completing original claims within 10 days, supplemental claims within 7 days, and achieving a 98 percent accuracy rate.  The technological solution and services provided will be under the close direction and oversight of Veterans Benefits Administration (VBA) employees. 

VA is seeking contractor support to implement the Post-9/11 GI Bill because we do not believe that we could deliver the systems necessary to administer the program within the time required utilizing our existing information technology (IT) resources.  Our focus is to pursue a path that we believe will provide the highest level of assurance that we can deliver this benefit by August 1, 2009.  VA’s existing IT systems, which do not include a capacity for rules-based claims processing, would require major modifications to accommodate the unique eligibility criteria and complex payment structure.  Modifying our existing system to the extent required for the new benefit is not a viable option, given its age and technical limitations.  Consequently, VA will need to develop a new payment system that includes the capability to exchange data with the Department of Defense (DoD), determine eligibility, automatically generate letters, streamline or automate payment calculations, generate payment transactions, and perform accounting functions.  VA has experienced difficulty in being able to deliver advanced technological solutions, especially ones that have a very short timeframe for development; in this case, 13 months.  The resources and technical experience necessary to deliver an IT solution before August 1, 2009, do not presently exist within VA.  Consequently, it was determined that the most prudent course of action was to use a contractor to harness the creativity, knowledge, and experience of business enterprises to assist in developing a solution.

When the Montgomery GI Bill (MGIB) was enacted in October 1984, individuals could begin using benefits after completing 24 months of active duty service that began after June 30, 1985.  Thus, VA had approximately 32 months to prepare to deliver benefits.  VA received 5,760 claims for MGIB benefits through 1988.  In contrast, the Post-9/11 GI Bill, with its far more complex payment requirements, allows VA 13 months to develop a payment system for what likely will be hundreds of thousands of claimants who will be immediately eligible for benefits August 1, 2009.

Impact of VA System Development

An in-house IT solution that addresses the unique provisions of the new program would require VA 24-36 months to develop.  Such a lengthy development phase would require VA to process claims largely through manual processing in the interim.  As part of the manual process, VA would need to utilize the legacy system that was used to deliver benefits for the Vietnam Era GI Bill (chapter 34), since the current benefits delivery system does not have functionality to make payments to schools as well as trainees.  The chapter 34 system has limited functionality, but does allow for entry of one-time payments.  VA would have to enter individual entries for each student for each monthly housing allowance, each tuition payment, and each book stipend.  Security controls exist for one-time manual payments so as to ensure program integrity.  Each one-time payment requires two distinct actions.   First, an employee manually enters the necessary fiscal information into the legacy system.  Second, another employee, an “Authorizer” reviews the prepared fiscal information to ensure correctness and then authorizes the action, which releases the payment.  This separation of duties is intended to limit the possibility of fraud and abuse, but also significantly increases the time and resources required to deliver benefits.

Currently VA releases approximately 400,000 payments each month.  VA anticipates a similar volume of monthly payments under the new program for the housing allowance.  Monthly payments, such as the housing allowance payable under this program, are paid at the end of the month after a student verifies his or her attendance.  This verification is to limit overpayment of benefits.  These student verifications normally occur the last week of the month.  Therefore, VA would have to manually process 400,000 housing allowance payments over a 7-day period at the end of each month.

VA estimates that processing benefits in this manner would require hiring up to 800 additional Education employees whose services would not be required once the new payment system was in place. 

Program Executive Office

To manage the development of the overall process for administering the Post-9/11 Gill Bill, VA has established a Program Executive Office within Education Service comprised of senior business-line managers, management analysts, individuals with program and project management experience, and administrative support.  This office will be responsible for coordination of all the projects within the VA comprehensive management plan to successfully implement the Post-9/11 GI Bill.

Management of Proposal Process

On July 17, 2008, on behalf of VA, the Office of Personnel Management (OPM) submitted an invitation to vendors under OPM’s Training and Management Assistance (TMA) contract to submit their capabilities/corporate qualifications based on VA’s statement of objectives.  The TMA contract allowed a streamlined acquisition process for VA to contract for services.  Ten vendors responded to OPM’s request for proposals.  After an amendment to VA’s requirements, OPM issued a solicitation for a task order competition to the 10 vendors on August 11, 2008.  Only four vendors elected to participate. 

At this point, VA’s General Counsel became aware that OPM’s General Counsel had serious concerns regarding OPM’s authority to conduct the acquisition.  Therefore, VA took control of the acquisition process.  Because of the compressed timeframe created by the legislation, VA determined that urgent and compelling reasons existed to seek proposals from limited sources.  Thus, VA solicited proposals from the same four vendors that had previously agreed to participate in a task order competition.  On August 29, 2008, VA issued the request for proposal solicitation.  VA is currently in the process of reviewing documents submitted in response to the solicitation.  VA anticipates awarding a contract this month.

Restructuring Education Service

Based on the implementation strategies being pursued, VA does not anticipate the loss of federal employment for any present employees associated with VA’s Education programs.  It is important to understand that the contractor will not have full responsibility over the administration of the Post-9/11 GI Bill.  Instead, the contractor will be responsible for development of the IT solution, and general administrative and data-entry functions.  The technological solution and services provided by the contractor will be accomplished under the close direction and oversight of Veterans Benefits Administration (VBA) employees.

VA will continue to require claims processing personnel to support the existing education benefit programs we administer and to process Post-9/11 GI Bill claims that cannot be processed automatically through the vendor’s solution.  We also anticipate increasing our compliance survey activities and oversight visits due to direct payment of tuition and fees to schools.  VA will utilize existing claims processing resources to address the increased compliance staffing needs.  VA employees will continue to staff and operate our nationwide customer call center in Muskogee, Oklahoma.  VA employees will also continue to respond to all on-line inquiries received through the VA website, including Post-9/11 GI Bill inquiries.

We anticipate reassigning any remaining affected employees to similar positions in the Compensation & Pension Program.  Such transfers may involve positions with similar duties.  Employees may also be reassigned to support other benefit programs within VA.  In any case, VA will provide affected employees with the training necessary to perform their new duties successfully.

Critical Milestones and Contingency Planning

To meet the effective date of August 1, 2009, VA will require delivery of critical services (milestones) by the vendor.  In addition, VA will require weekly progress meetings throughout development.  As soon as the contract is awarded, VA subject matter experts will work in collaboration with the vendor to document business requirements and process flows.  VBA Education Service is currently preparing detailed requirements which will be given to the selected contractor after contract award.

The first critical milestone will occur March 1, 2009, when the contractor will be required to demonstrate its IT solution capabilities.  At this time VA will begin testing the contractor’s program.  On May 1, 2009, after two months of testing and debugging, the system must be able to demonstrate to VA subject matter experts the ability to make correct eligibility and entitlement decisions based on service data and data pertaining to prior VA benefit usage.  VA has established June 1, 2009, as the critical date on which the contractor must be able to demonstrate the ability of the system to issue award letters, make full benefit payments, properly document accounting, and all other required functionality.  At this point, we anticipate the contractor will begin receiving applications and processing claims.  However, payments will not be generated.  Finally, on August 1, 2009 the system must be certified and fully operational.

Due to the short time frame to implement this program, VA is concurrently working on contingency plans.  Our main contingency plan is the same largely manual process discussed earlier in this testimony that we would have pursued had we chosen to build the system with existing VA IT resources.  The contingency plan requires modifications to the existing chapter 34 payment system and temporary additional staffing to assist in the manual data entry, eligibility determinations, and recordkeeping required until the automated system is up and running.  We are going forward with this plan so that in the event of vendor failure, we are ready to implement manual processing and deliver benefits August 1, 2009.

At the first critical milestone date of March 1, 2009, VA will determine if it is necessary to implement manual processing.  We intend to work very closely with the vendor in order to meet the statutory deadline for delivery of benefits to our nation’s veterans. 

Contractor Approach

            Since VA is presently in the process of evaluating the documents submitted in response to the request for proposals, we are not yet able to discuss the vendor’s approach due to acquisition rules.

Actions Required by DoD

Since eligibility for the Post-9/11 GI Bill is based on cumulative service, whereas the MGIB is based on service commitment, the data VA currently receives from DoD will have to be modified.  The Department of Defense, including the Defense Manpower Data Center, is working closely with VA to determine the data requirements and to establish an interface to exchange data for the Post-9/11 GI Bill program.  DoD will be required to provide VA with the data elements, such as active duty service periods, needed to make eligibility determinations.  Further, DoD will be required to provide those data elements in a format which is compatible with the IT solution being developed for optimum functionality of the rules-based system.

VA-DoD Agreements Required

            Under the existing benefit programs, VA has a long history of successful cooperation and partnership with DoD, and we fully expect that relationship to continue under the Post-9/11 GI Bill.

            To exchange Post-9/11 GI Bill data between VA and DoD, both agencies anticipate signing a memorandum of understanding, data-sharing agreement, and computer matching agreement.  These agreements cannot be implemented until some of the elements of the IT solution are available.

Madam Chairwoman, this concludes my statement.  I would be pleased to answer any questions you or any of the other members of the Subcommittee may have.