Barry McVay's FEDERAL CONTRACTS DISPATCH
DATE: March 15, 2000
FROM: Barry McVay, CPCM
SUBJECT: Department of Defense; Contracts for Professional, Administrative, and Management Support Services
SOURCE: Department of Defense Inspector General (DODIG) Report No. D-2000-100, March 10, 2000
AGENCIES: Department of Defense (DOD)
SYNOPSIS: In an audit conducted by the DODIG to evaluate procurement procedures for professional, administrative, and management support services, the DODIG found that every one of 105 contract actions had problems or violations, and that the 15 contracting activities and program offices "did not adequately manage the award and administration of the 105 contract actions."
EDITOR'S NOTE: DODIG Report No. D-2000-100 is available on the Internet at http://www.dodig.osd.mil/audit/reports/00100sum.htm or from the Secondary Reports Distribution Unit of the Analysis, Planning and Technical Support Directorate at 703-604-8937 or fax: 703-604-8932.
SUPPLEMENTAL INFORMATION: From 1992 through 1999, DOD procurement of services increased from $39.9 billion to $51.8 billion, and the largest sub-category of contracts for services was for professional, administrative, and management support services, valued at $10.3 billion, an increase of 54% between 1992 and 1999. To evaluate procurement procedures for professional, administrative, and management support services, and management control programs, the DODIG selected 46 contracts (valued at $6.6 billion) and 59 task orders (valued at $142 million), consisting of 21 fixed-price actions and 84 cost-reimbursement actions, from 15 contracting activities and program offices, all dated in Fiscal Year 1997 or Fiscal Year 1998. These 105 actions included services of more than 104 million labor hours, or 50,230 staff years.
The DODIG found that every contract action suffered from one or more of the following problems (most had several problems):
- Non-use of prior history to define requirements (58 of 84, or 69%)
- Inadequate government cost estimates (81 of 105, or 77%)
- Cursory technical reviews (60 of 105, or 57%)
- Inadequate competition (63 of 105, or 60%)
- Failure to award multiple-award contracts (7 of 38, or 18%)
- Inadequate price negotiation memorandums (71 of 105, or 68%)
- Inadequate contract surveillance (56 of 84, or 67%)
- Lack of cost control (21 of 84, or 25%)
One of the primary reasons for this is the 50% reduction of the DOD acquisition workforce between FY90 and FY99 (from 460,516 to 230,556), with no corresponding reduction in workload (DODIG Report No. D-2000-088, DOD Acquisition Workforce Reduction Trends and Impacts). The DODIG also concluded that the acquisition workforce was inadequately trained, and that DOD procurement system controls have material weaknesses.
The report provides many examples of the problems found:
- When Army contracting officials could only identify $5.8 million of fixed-price costs against $8 million in funding, the Air Force program office instructed the Army contracting office to "expend all funding available...the Army shall increase the T&M [time-and-materials] effort by any difference between the total funding provided and firm fixed price efforts realized through negotiations." There was nothing in the files to show rates, hours, or even labor categories.
- The Army awarded a sole source cost-plus-fixed fee contract to Raytheon Corporation for engineering services related to the HAWK missile system, despite the fact that the Army had, at the time of award, more than 39 years of Raytheon engineering services history -- the HAWK was initially fielded in 1958.
- The Navy did much the same. It awarded a cost-plus-fixed-fee contract to EG&G despite the fact the Navy had 25 years of EG&G's historical data on the project. The contracting officials' justification was "the intent was to utilize the same contract type as the original effort."
- Under a $9 million sole source contract, the Air Force gave the evaluator less than one day to perform an evaluation.
- An Army Corps of Engineer contracting officer awarded 30 task orders as directed by the program office rather than competing them among the other multiple award contractors.
- An Air Force price negotiation memorandum for a $225,000 task order did not address the fact that 97% of the funds had been incurred prior to the award of the task order.
- Under a task order, the Army paid 15% more than the contractor proposed without providing any explanation.
- The Navy guaranteed a contractor under a cost-plus-award-fee contract 70% of the award fee even for minimally acceptable work.
- Any Army non-competitive task order grew from $19,871 to $642,199 because of changes in scope and adding furniture and other material to the task.
- The documentation in an $1.3 million Air Force sole source task force indicates the contracting officer does not understand the Truth in Negotiations Act ("Truth in Negotiations Act (TINA) threshold for mandatory cost and pricing data apply, however because this is a Cost Plus Award Fee Task Order no cost and pricing data is needed at this time. Subject Order will be audited for TINA related by DCAA [Defense Contract Audit Agency] after contract completion.").
- None of the 25 personnel interviewed by the DODIG had received training specifically on service contracts.
The DODIG made the following recommendations:
- That the Deputy Under Secretary of Defense (Acquisition Reform):
- Develop training on planning and defining requirements for contracts for professional, administrative, and management support services
- Train contracting and program personnel in the award and administration of contracts for support services
- Emphasize in the training the need to avoid the kinds of deficiencies noted in the report
- That the Senior Acquisition Executives for the Army, Navy, and Air Force:
- Establish centers of excellence with trained and experienced personnel that can be used by acquisition personnel when procuring services
- Make all acquisition personnel aware of the problems identified in the report
- Develop a time-phased plan with goals and performance measures to determine improvements in the acquisition of professional, administrative, and management support services
- Convert repetitive, cost-reimbursable contracts or portions of contracts, to fixed-price
- Convert contracts for services that exceed the statutory requirements to multiple-award contracts
The Army and the Navy have concurred with the findings and most of the recommendations. However, the Air Force and the Under Secretary of Defense (Acquisition Reform) have not responded. The DODIG has requested their comments by May 10, 2000.
FOR FURTHER INFORMATION CONTACT: Barry McVay at 703-451-5953 or by e-mail to BarryMcVay@FedGovContracts.com.
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