Former top VA executive steered $5M contract to friends, 'resulting entirely in waste,' watchdog reports

Abbie Bennett
July 10, 2020 - 1:07 pm
Department of Veterans Affairs.

Department of Veterans Affairs.

A top Department of Veterans Affairs executive improperly steered a $5 million contract to his personal friends, a federal watchdog said in a report released this week.

That contract resulted "entirely in waste," because VA "could not use" the services, investigators from the VA Office of the Inspector General (OIG) wrote in their report.

In 2017, Peter Shelby, who had been the assistant secretary for Human Resources and Administration at VA for four months, direct his senior staff to arrange to award a nearly $5 million contract to his friends' businesses, using special department authorities to award a contract without competition, the report said.

The one-year contract, awarded a few months later to a company and its subcontractor that provide leadership and development training, included services for talent assessment "used for evaluating candidates for hiring and promotion decisions," the report said. But by the time the contract ended in 2019, "it became evident that VA had purchased services far in excess of what it could use." 

VA used only about 1 percent, or 232 of the 17,000 one-year training licenses it bought for $3.8 million. For the $1.2 million spent on talent assessment services for hiring and promotions, VA "received no value whatsoever" because the services the company tried to provide relied on IT that "lacked privacy and security" required by federal regulations and "could not be used." 

The waste was the "direct result" of Shelby's "unethical conduct," OIG wrote. 

After Shelby suggested VA award the contract without competition, his staff told him department policy required soliciting proposals from other companies. Shelby "became insistent" that they award the contract to his friends' business and "disregard VA policy." 

Shelby "persistently pursued" using VA's statutory authority to award the contract to his friends' company, continually escalating his case for months, making "a series of confusing, vague and inaccurate statements about the uniqueness of the services provided" by his friends' business. Staff later agreed to proceed, as long as an agency attorney signed off on the justification. The attorney ultimately did. 

Investigators said they concluded Shelby "breached his ethical duties by misusing his official position to benefit two friends," the owner of the small business awarded the contract and a vice president of its primary subcontractor, Blanchard Training and Development Inc. The report said Shelby was close friends with the Blanchard VP for years. 

When investigators interviewed Shelby, he made "a series of confusing statements," according to the report. He said he didn't know the business owner before he worked at VA, though investigators found emails that showed the two discussing how to work together on VA leadership challenges months before Shelby was appointed.

Investigators said that the business owner recommended Shelby in an email to then-VA Secretary David Shulkin for the executive job. In later emails, Shelby wrote to the business owner and said they were "instrumental" in his appointment as assistant secretary, helping "open the door with VA" and thanking him for the endorsement. The business owner, subcontractor VP and Shelby all celebrated his appointment at a dinner in 2017. 

Investigators said the Head of Contracting Activity overseeing VA's contracts "was warned" about Shelby's insistence on awarding the contract to one particular business, but "OIG could identify no evidence that HCA or anyone else" asked Shelby about his relationship with the vendor. 

Shelby resigned in July 2018, "after learning that he had been recommended for possible removal, apparently for reasons unrelated to this contract," the report said. 

Investigators made several recommendations to prevent future incidents, and for VA "to consider whether any administrative action is warranted" against staff who "failed to properly safeguard taxpayer funds." VA leaders agreed with OIG's recommendations, saying it would review the contract "to determine what actions should be taken, if any, to recover funds or otherwise address the waste of VA funds. We anticipate completion of this action by July 21, 2020." 

OIG did not make recommendations related directly to Shelby, since he resigned. 

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Reach Abbie Bennett: abbie@connectingvets.com or @AbbieRBennett.

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