EPA/200/R-92-001
                                               June 1992
CONTRACTS MANAGEMENT AT EPA:

        MANAGING OUR MISSION




   Standing Committee Recommendations

      Standing Committee Staff Report
                                           R*cycl«d/Recydabl*
                                           Printed on paper thai contains
                                           at toast 50% recycled fiber

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                                        EPA 200-R-92-001
                                             JUNE 1992
CONTRACTS MANAGEMENT AT EPA:

        MANAGING OUR MISSION
Recommendations of the Standing Committee on
          Contracts Management
                   U.S. Environmental.Protection Agency

                   ^esUaS S«d, 12* Floor
                   Chicago, IL  60604-3590

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             UNITED STATES ENVIRONMENTAL PROTECTION AGENCY

                       WASHINGTON, D.C. 20460
                          JUN 3 0 1992
 Memorandum
 SUBJECT:  Recommendations of the Standing Committee on Contracts
           Management
 FROM:     Christian R. Holmes,  Chair
           Standing Committee «n Contract Management

 TO:       William K. Reilly
           Administrator



 EXECUTIVE  SUMMARY


      During its first three months, the Standing Committee has
 focused  on two objectives ~ first, to identify and where

 ident?f?4dt?nb^inTaCti°I? t0 correct wide-spread problems
 identified in the Inspector General's audit of  the  Computer
 Science  Corporation (CSC)  contract; and second,  to  identify and
 recommend  corrective actions for the root causes of the "EPA
no^h Jhe.recommendations of this Standing Committee call for
nothing less than a total overhaul  of EPA's $1.2 billion annual
contract program.  This overhaul will involve major re ?Sms?n
         PA c?ntracts with Private  companies that provided wide
         •?TXCeB to the Agency.  These reforms establish a
           JY ;2? dir«ction in the  way that EPA's 4, 000  project
 ov »    Ct °£flce?s manage EPA's  744 contracts and the 27 000
work assignments which are issued annually under these contracts
The urgency of these reforms is evident in Se fact that ?S?«
existing contracts have a potential value of $13 2  billion

     This Committee has taken a very critical look  at  EPA  *nn
proposes some  difficult steps to  end, once aid for  all   the






                                                       *
ttSiKss:               B^s^f*—

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                              - 2 -

Recent Steps to strengthen Contract Management

     In addition to the changes recommended by the.,sta;}drinjL„
Committee, it is important to note that much has already been
accomplished, and even more steps are being ^J^" «J" to
report is submitted.  The steps already completed or underway to
correct EPA's contract management Problems are reflective of the
new direction recommended by the Standing Committee; some of
these recent steps include:

o    The formation of this Standing Committee has engaged the
     Agency's leadership group in the most intensive, and far-
     reaching effort ever undertaken to strengthen contract
     management  in EPA.

o    A series of difficult decisions have been made  in  response
     to the  inspector General's  audit of the Agency's largest
     contract, a five-year information management contract with
     Computer Sciences  Corporation  (CSC) with a  potential value
     of $347 million.   Hard decisions have also  been made in
     response to other  IG  investigations, and more  are  coming.
     These  decisions  include  canceling contracts, restructuring
     one  of EPA's  largest  contracts to make  it more »anafeab,Je'
     phasing out contracts, and  replacing contractors with  EPA
     personnel to  ensure full protection of  particularly
      sensitive confidential business information (CBI).

 o    EPA  has committed additional resources  to  strengthen
      contract  management in FY 1992 and  FY  1993.  The Agency has
      earmarked an  additional  $3  million  for  new procurement staff
      in FY 1992, and is intent on allocating additional staff to
      procurement functions in our FY 1993  budget.   These
      resources will supplement increases being made in the number
      of EPA auditors in FY 1992  and 1993;  by the end of FY 1993,
      one out of every 40 EPA employees will work for the
      Inspector General.

 o    Major changes are being made in the Agency to strengthen
      accountability for contracts management; these changes
      include the recent designation of new,  high level officials,
      known  as Senior Procurement Officials (SPOs), who have far-
      ranging responsibilities to cut across traditional
      bureaucratic lines to ensure that contracts are well
      managed.   Additionally, EPA is reorganizing the Agency s
      office responsible for  finance and administration to ensure
      that  the leaders  of EPA's  contract management  function have
      the authority to  get the job  done.

  o    A commitment has  been made to change EPA's underlying
      culture, which  presently sees technical work  as paramount,
      and views  contract management as lesser work.  .In the
      future, we will strive  to  ensure that  EPA's culture is one

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                                - 3  -
       driven to protect both the environment and the taxpayer's
       dollars,   in an important  first  step,  over 85  % of EPA' s
       Senior Executives attended a  two-day training  program in
       contract  management  and ethics,  the largest gathering of SES
       members in EPA's history.   To forever  change the embedded
       attitudes responsible  for  "cutting corners" in contract
       management,  the Standing Committee is  calling  for the
       permanent establishment of the most comprehensive training
       program in the  history of  EPA.                     " awning

       We are  improving communications with the contractor
       community,  while at the  same  time, taking  steps  to ensure
       that we maintain an "arms  length" relationship with
       individual  firms  under contract to EPA.  Our goal  is  to
       ensure that both  EPA and the  contractor community share a
       common understanding and commitment to tight adherence to
       the highest standards of contract management,  in this
       regard, for the first time in EPA's history, we recently
       convened a two-day meeting with representatives of EPA's
       largest contractors and the Defense Contract Audit Agency to
      discuss plans for tightening up contract management
      generally, and control of indirect costs in particular.
      emDd^n ^ *6e? mad?'  and new tech*iques are being
      employed,  to eliminate frivolous charges being included in
      ?nn?nHC*0r "H*™"* costs*   These charges in the past have
      included such items as gold  watches and parties,  items that
      might previously have been deemed acceptable under Federal
      S3S  hi0nS'   EPA'  n°W and in the future,  is rejecting all
      such charges  as an  unacceptable use of  taxpayer's monly  and
      ar"e SS^S*?0"1;?1* tO disallow Payment when theSS it«£
      are detected  in indirect cost billings.
                                                    s  information
                             increasingly an information
         ™=    agen?Y Wlth  an ever increasing reliance on
        ^H    svs^ms, we deem it imperative that  we tighten
        on the security of these systems.  We are raising our
             ents for background checks on contractor personnel
             Aiding in new, improved methods to secure S°nne1'
               data in Agency computer systems.
Standing Committee Recommendations








paramount,  and views contracts management as lesser work.   The

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                              - 4 -
standing Committee recognizes that the American people and the
congresl expect, and have a right to demand  that we do both jobs
and do them well.  Our recommendations have been designed with
this in mind.

     The root causes of the "EPA culture" and the resulting,
persistent contract management problems are complex.  No single
measure will overcome this culture, but leadership *ȣ
accountability are the essential ingredients in any permanent
solution.  Thus, the Standing Committee's recommend^ions focus
on actions to, above all else, ensure personal and organizational
accountability for contract management decisions at all levels of
EPA.

     The Standing Committee has been aided enormously by a  staff
effort directed  by John Barker and carried out by a group of
exceptionally devoted professionals from across EPA.  A copy of
Se  star? reporHs  included as an attachment to this memorandum.
Drawing on the  staff analysis, and the experience of  ^members,
the  Standing Committee has identified seven key deficiencies in
EPA  contract management.  More specifically, we have  concluded
that contracts  management  in EPA  needs ma^or improvements  in.  (1)
the  organizational  standing of Agency procurement functions,  (2)
management accountability;  (3) resource  allocation;  (4) training,
 (5)  policy and  guidance;  (6) human resources development;  and  (7)
control  of contractor  cost and performance.

      Specific recommendations have been  developed addressing each
of these seven  areas.   These recommendations embrace nearly ail
of the suggestions put forward  by the staff, with two primary
 exceptions  discussed below.   In designing our  recommendations, we
have tried to strike a responsible balance between  the desire for
 immediate action on the one hand, and the reality that a serious,
 long term reform effort will require careful planning to set
 difficult but attainable goals and firm completion  dates.

      With this  in mind, the Standing Committee recommends the
 following specific actions to,  once and for all, eliminate EPA s
 persistent  "contract management problem:"

 1.   consolidate «nd alevate EPA's procurement functions.  EPA's
      contract,  grants, and suspension and debarment functions
      should be  consolidated under a new Deputy Assistant
      Administrator  (DAA) for Acquisition and Assistance
      Management, reporting to the Assistant Administrator  and
      Chief  Financial Officer.  Adding the new DAA position
      strengthens the organizational change previously announced
      in March  and then placed on hold pending Standing Committee
      review.   Work  on this reorganization is now underway, and
      will be completed within 90 days.  This change  will provide
      needed visibility  and accountability for procurement
       integrity and effectiveness at the highest levels of  EPA.

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                               - 5 -
      We gave serious consideration to a related organization
      proposal put forth by the Standing Committee staff.  We
      decided that the staff proposal, which called for
      establishment of a new Assistant Administrator,  would
      seriously delay, and thus dilute the impetus for, essential
      reforms.  We also felt that the staff proposal could weaken
      the Chief Financial Officer (CFO)  by separating fiscal
      control and procurement functions from operational control
      of the critical information systems and human resources
      functions .

 2'    Integrate program and contract management  accountabilitY-
      Congress and the American public want to know,  "Who is
      accountable?"  when contract management problems  arise.   If
      adopted,  our recommendations will  leave no doubt — we
      propose that three primary points  of  accountability be
      clearly defined and formalized within 90 days:

      o    Senior  Procurement Officials  (SPOs) in  each EPA proaram
          and  region.

      o    The  new DAA  for Acquisition Management  proposed above.

      o    EPA ^s CFO  and Assistant Administrator for
          Administration and Resources Management.

      EPA's CFO implementation plan, which assigns ultimate
     responsibility  for management integrity to the CFO,  should
     continue its current, aggressive implementation.  The SPO
     positions should be institutionalized within 90 days by an
     EPA Order, revised position descriptions, performance
     standards, and if appropriate,  delegations of authority
     Our detailed recommendations include steps to ensure that
     managers at all levels are accountable for both program and
     management performance.  We also plan to design and  if
     deemed appropriate, implement a pilot delegation of
     procurement authority to program officials.

3*    Allocate increased resources to contract management,  we
     endorse the decision to provide additional  resources to the
     procurement functions in FY 1992,  and we recommend that
     action  be taken immediately to  allocate additional resources
             "111?^ f^* W±thin the  EPA budget now Pending before
                £inaflv!  we urge that contract management be

                         '
    Develop a comprehensive procurement training and
                  proqram'  The Standing Committee is convinced
    w??L»i   J-Pr°greS? Can be made in Banging behavior
    without a firm commitment to comprehensive, mandatory
    procurement training at all levels.  To ensure that this

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                             - 6 -
    program receives the full-time, high level attention
    ?eouired for success, and reflects the real needs of EPA's
    programs, we recommend that, within the next 30 days, you
    de?ail a Senior Executive Service member from an EPA prog ram
    office to lead this effort over the next six to 12 "°nti»-
    At the end of that period, a decision can be made on how
    best to institutionalize this training program within EPA's
    human resource development program.  This program should
    draw on the very best procurement training ideas and
    programs available from the public and private sectors.
     Standing  Committee  that  EPA's procurement policy  and
     guidance, which  is  designed primarily  for procurement
     professionals, falls  short of providing  effective g^
     and support to the  much  larger  number  of program  staff  and
     managers  who set requirements,  staff technical  selection
     panels, and manage  contracts once they are  awa?;d«d;
     improvement in this area goes hand- in-hand  with H^er
     accountability;  to  ignore this  need would be to either  slow
     ?hTprocurement  function intolerably or  place EPA employees
     at great  risk.

6.   Revise EPA'a human  rwureea policies  and programs to
     r-gf leet the central role of  contract management in all  EPA
     programs. This  recommendation,  which  involves a series  of
     steps over the  next 6-18 months, is fundamental to permanent
     change in EPA.   In the short term, we  are  proposing
     mandatory insertion of procurement responsibilities in
     performance agreements and position descriptions; over the
     longer term, we recommend a top-to-bottom revamping of EPA's
     disciplinary system to ensure both equity and an "arms-
     length" approach to ensuring accountability.

7.   Move aggressively to improve controls on contractor costs
     «T,a performance.  The Standing Committee staff identified a
     number of  steps that should be taken to ensure that EPA is
     aggressively pursuing every possible means of controlling
     contractor costs and performance.  These range from new
     forms of contracts to requiring  independent government
     estimates  to more  aggressive use of our suspension and
     debarment  authority.  We endorse all  of the staff proposals,
     with  specific emphasis  on those  described  in the remainder
     of this  report.  In  carrying out these  recommendations, we
     recommend  that,  while working  closely with OMB,  the Agency
     seek  a leadership  role  in controlling indirect costs.

     The Standing Committee  believes that  these recommendations
 will dramatically improve EPA contract management.  At the  same
 time,  we wish to call to  your attention two  critical  points
 concerning where we  go  from  here — the importance  of achieving

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                              - 7 -

more integrity in the process of setting expectations for
environmental programs, and the need for detailed implementation
planning to ensure that these reforms are carried out.

     For over two decades, the Executive Branch and the Congress
have pursued deeply desired environmental gains through
increasingly prescriptive statutes that specify program outputs
and due dates in great detail.  Both parties to this process have
grown accustomed to proposing or acceding to unrealistic program
expectations that then cannot be revised without political
consequences.  EPA has not always been a helpless victim of this
process.  Motivated by the same desire for environmental
improvements that animates the other participants, the Agency has
sometimes been actively involved in setting what turn out to be
unrealistic requirements for itself.  It is important to note
that demanding statutes without appropriate resource levels do
not relieve EPA of its responsibility for allocating sufficient
resources to assure the integrity of contract management
functions.  So long as this situation prevails unchallenged,
however, there will be continuing pressure for EPA staff and
managers to cut corners to achieve program outputs.

Implementation Flan

     We will begin action on all recommendations immediately; we
also propose to begin work immediately on a detailed
implementation plan.  In fact, I will convene the Standing
Committee on Monday, July 6, to begin this work.

     Once completed (we estimate it will take 90 days to
prepare), the plan, in combination with this memorandum, will be
used by the Standing Committee to oversee and track
implementation.   We suggest that this plan also be provided to
the Congress with an invitation that they use it to hold EPA
accountable for completing the announced reforms in a timely way.
It is imperative that we set realistic deadlines; otherwise, we
will lose credibility with the Agency and the Congress.

     The balance of this memorandum presents our findings and
recommendations in five sections,  as follows:

     o    Background

     o    General Observations

     o    Needed Improvements

     o    Implementation of Recommended Improvements

     o    Conclusions

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                              - 8 -

A.   BACKGROUND

     In early March 1992, you established a Standing Committee on
Contract Management and appointed me chairperson.  Since our
initial meeting with you and the Deputy Administrator, the
Standing Committee has met numerous times and has received
briefings and a detailed report from the staff.

     Each Standing Committee member has given this effort the
highest priority and we are committed to continuing our oversight
over contract management until we have satisfied you that our
charge has been completely fulfilled.  We will submit quarterly
reports to you to keep you appraised of our progress.  This is
the first of our quarterly reports.

     In this quarterly report, we will provide you with our
general observations about the contract management issues facing
EPA, the specific areas that we have identified for attention and
improvement, and our recommendations as to how short-term and
long-term improvements can be implemented.

B.   GENERAL OBSERVATIONS

     Over the short three months that the Standing Committee has
been in existence, we feel that tremendous progress has been made
in our understanding of the substantial contract management
issues that are before us as managers and as an Agency.  Based
upon our collective understanding, we have made the following
general observations.

     First, as the Agency has received increased contract funding
over the past decade to meet its ever-expanding statutory
responsibilities, we have not comprehensively adjusted our
management controls over these increased contract resources to
ensure adequate accountability and to maintain an arm-length's
relationship with contractors.  There have been early warning
signals that we have chosen to view as isolated instances and not
interrelated requiring a more comprehensive, agencywide approach.

     In those instances where it has been necessary to have
contractors working in EPA facilities, a basic rule governing the
relationship between EPA employees and contractor employees was
not fully observed.  The basic rule is that contractor employees
are not to be used as if they are Federal employees.  Failure to
observe this rule has resulted in contractor employees performing
personal services under the continuous supervision of EPA
managers, performing work that is inherently governmental, or
having unauthorized access to information.

     It is important to note that this problem is twenty years in
the making.  During this period, EPA's statutory responsibilities
have expanded because of the passage of numerous environmental

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                              - 9 -

laws.  These have required EPA to promulgate regulations, develop
standards, issue permits, conduct research, clean up contaminated
sites, and conduct many other types of technical, scientific,
economic, and policy activities.  For many reasons, Congress and
the Executive Branch have chosen to support the increase in
workload due to the legislative requirements by increasing
contract resources to a much greater degree than the number of
Federal Government employees.  The result is that the ratio of
EPA employees to contract resources has decreased significantly,
with contract resources growing at 10 times the rate of EPA staff
over the past decade.  This has increased the demands on the
Agency's staff to effectively manage contractors.

     As we take on the task of improving contract management
within EPA, you need to be aware that a fundamental tension has
been created and is likely to continue for the foreseeable
future.  This tension occurs because of the type of work EPA
needs to do to meet the legislative goals and the need to use
contractors to carry out much of the work.  This does not absolve
the Agency and its employees and managers from effectively and
efficiently using contract resources but recognizes that
accomplishing it will be a constant challenge.

     Second, as it relates to contract management, the Agency has
operated under the paradigm that the Agency's environmental
mission is so important that contract management is secondary to
accomplishing it.  Contract management is generally viewed as a
bureaucratic burden that is not assigned a high priority.
Program managers and staff who are successful in increasing
program outputs are often promoted and rewarded as outstanding
employees even if contract management requirements are
circumvented.  The result is little contract accountability in
terms of contractor performance, costs, and quality.  We believe
that contract accountability can be improved only if this
underlying cultural attitude is eradicated.

     Third, we believe that lasting cultural change can only be
made by taking a comprehensive, agencywide approach directed
toward educating all employees, including managers at all levels,
that good contract management is a shared responsibility,
removing barriers beyond their control that impede quality
contract management, and instructing them on what is required.
We believe that the EPA workforce has integrity,  wants to follow
the rules, and recognizes that more accountability in contract
management is necessary.

     Fourth, improving the contract management practices that
have developed over the life of the Agency will take longer than
the three months that we have been focusing on this subject.  We
have a number of improvements that we are recommending that the
Agency implement.  We will start implementing all of these
improvements immediately.  We project that they will be completed

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                              -  10  -

within 90 days, within 180 days, or over 180 days.  The two day
contract management training that we provided to SES members
earlier this month was a good first step in raising their
awareness toward contract accountability.  We have also
initiated other contract reforms recently that will serve as the
foundation for the added improvements that we are recommending.
In addition, we believe that building upon our recent experiences
in addressing management issues in Superfund contracting, Clean
Air Act Amendment implementation, and strategic planning and
budgeting has served as a successful starting point for this
effort.

     Finally, laying the foundation for such an approach will
require the commitment of resources.   The Deputy Administrator
has recently reallocated resources in FY 1992 to begin an orderly
build-up of staffing levels in the Agency's central acquisition
management functions.  We fully endorse this reallocation.  As we
move toward developing our FY 1994 budget request, we need to
focus on resource requirements to maintain this effort.

C.   NEEDED IMPROVEMENTS

     There are three general areas that are in need of
improvements.  The three general areas are EPA contract
management/ contract systems, and contract processes.  These
three general areas have been identified from the staff report.
The staff report also identifies specific problems within each
general area.  Based upon our analysis of the staff report, we
believe that following specific improvements need to be made.

     In the general area of EPA contract management, we believe
that the following improvements are needed to address the
problems identified by the staff report.

     1.   Inherently governmental functions.

          a.   EPA needs to improve controls to ensure that
               contractors do not assume operational
               responsibility for functions that are inherently
               governmental in nature.

     2.   Personal services.

          a.   EPA needs to improve controls to prevent
               contractors from performing personal services.

     3.   Confidential and sensitive information.

          a.   EPA needs to improve controls to protect
               confidential and sensitive information from
               unauthorized access or disclosure.

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                              - 11 -

     4.   Conflicts of interest.

          a.   EPA needs to maintain an arms length relationship
               with its contractors, and strengthen personal and
               organizational COI strictures.

     5.   Loss of in-house expertise.

          a.   EPA needs to retain its technical expertise to
               review, evaluate, and oversee contractor
               performance.

     6.   EPA control of contractor performance.

          a.   EPA needs to improve controls over contractor
               performance.

     7.   EPA control of contractor costs.

          a.   EPA needs to improve controls over contractor
               direct and indirect costs and over government
               property provided to contractors.

     In the general area of EPA contract systems, we believe that
the following improvements are needed to address the problems
identified by the staff report.

     1.   Lack of management accountability.

          a.   EPA needs to improve overall management systems to
               support corrective actions to contract management
               problems.

          b.   EPA needs to change agency cultural attitudes
               toward accountability for contract management and
               administration.

          c.   EPA needs to clarify responsibilities and
               relationship of contract officers, project
               officers,  work assignment managers,  and delivery
               order project officers,  and  their supervisors,
               toward contractor performance and contract
               management.

          d.   EPA needs  to enforce accountability for corrective
               actions to audit and GAO recommendations.

     2.   Management Infrastructure.

          a.   EPA needs  to review the  organizational  placement
               of its business and financial functions to improve
               contract management and  accountability.

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                             - 12 -

          b.    EPA needs to review the organizational placement
               and reporting relationship of the Competition
               Advocate to ensure the Advocate's independence and
               ability to carry out assigned duties.

     3.    Allocation of resources.

          a.    EPA needs to conduct a more comprehensive and
               systematic analysis of what functions  the Agency
               should and should not contract out.

          b.    EPA needs to have senior management allocate more
               resources to increase accountability for and
               improve oversight over contract management.

          c.    EPA needs to use a more systematic and analytical
               approach to estimate and coordinate contract
               management budgetary needs and usage.

     4.    Poor use of human resources.

          a.    EPA needs to link strategic planning,  budgeting,
               and contracting to estimate workforce  requirements
               for contract management.

          b.    EPA needs to promote contract management
               responsibilities in recruiting, hiring,  training,
               awards and recognitions, and personnel management.

     5.    Inadequate involvement of legal counsel.

          a.    EPA needs to strengthen legal input into the
               Agency's contract management process and decision
               making.

          b.    EPA needs to increase access by regional offices
               and field labs to qualified legal advice on
               contract management matters.

     In the general area of contract processes, we believe that
the following improvements are needed to address the  problems
identified in the staff report.

     1.    Lack of clear guidance.

          a.    EPA needs to improve its contract management
               policy function through clear and uniform guidance
               that is developed in cooperation with  program
               customers and better communicated to users.

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                         -  13  -

2.   Management difficulties with cost-reimbursement
     contracts.

     a.   EPA needs to re-examine how contract types
          (other than cost-reimbursement contracts) that
          provide better accountability and cost controls
          can be used to meet the Agency's requirements.

     b.   EPA needs to better structure individual work
          assignments and delivery orders.

     c.   EPA needs to improve management controls over
          cost-reimbursement and award fee contracts to
          encourage better contractor performance, to
          evaluate contractor performance, and to protect
          against personal services.

3.   Inadequate training.

     a.   EPA needs to improve its contract training and
          awareness program for Agency managers and contract
          personnel to ensure quality contracts management,
          to meet the needs of users, and to promote
          understanding of contract rules and process.

4.   Poor cost estimation.

     a.   EPA needs to increase Agency expertise and improve
          guidance and supporting data on preparing
          independent government cost estimates for use in
          cost negotiations.

5.   Inadequate monitoring of contract cost and performance.

     a.   EPA needs to improve controls,  training, and
          accountability in reviewing and evaluating
          contractor invoices.

     b.   EPA needs to improve the monitoring of contractor
          performance so that timely evaluations can be
          given.

     c.   EPA needs to improve training and guidance on
          accounting for the disposition of government-
          furnished property provided to contractors.

6.   Problems with indirect costs.

     a.   EPA needs more aggressive methods to control
          indirect costs in terms of Government norms; and
          provide leadership where Government norms fail to
          adequately protect the public interest.

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                             - 14 -

          b.    EPA  needs to  ensure  that  contractors have
               sufficient  internal  controls  and adequate record-
               keeping to  eliminate excessive  or unallowable
               costs.

     7.    Sanctions.

          a.    EPA  needs to  promote better understanding of the
               use  of  sanctions such as  suspension and debarment
               that have been successfully used by the Agency to
               ensure  contractor integrity.

     8.    Lack of communication/coordination.

          a.    EPA  needs to  improve information sharing across
               the  Agency  and at all levels  about contracts,
               contractors,  subcontractors,  and contracting
               guidance with special emphasis  given to
               information sharing  among contracting officers,
               project officers, delivery order project officers,
               and  work assignment  managers.  The methods used
               should  include the full range of innovative
               techniques  applied elsewhere  in EPA, including
               hotlines, electronic bulletin boards, and a
               newsletter.

          b.    EPA  needs to  enhance coordination between OARM and
               OGC  on  important contracting  matters.

          c.    EPA  needs to  ensure  that  corrective actions in
               response to DIG or GAO audits are implemented in a
               timely  manner.

D.   IMPLEMENTATION OF RECOMMENDED  IMPROVEMENTS

     The improvements  enumerated above must  be integrated into a
comprehensive approach aimed toward substantially enhancing
agencywide contract management.  This will be  a difficult and
complex task.

     The staff report has  provided  us with a number of detailed
recommendations, and on the  whole,  the Standing Committee members
are in general agreement with the staff  proposals.  We fully
agree that we must increase  contract accountability at all levels
with the Agency, we must have better controls  over contractor
cost and performance,  and we must improve training, resource
materials, and personnel management.

     We especially endorse the staff recommendation to establish
a Quality Action Team to reduce lead times and paperwork costs,
improve the consistency of results, and develop reliable process
measurements for EPA's contract acquisition process.  The

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                              - 15 -

improvements to the contract acquisition process should reduce
the incentives to take short-cuts.  We also strongly endorse the
"Contracting Team" concept proposed by the staff to accomplish
life cycle management of contracts from award to closeout.

     The Standing Committee will begin immediately to implement
these, and all of the recommended improvements that are listed
below.  We project that these improvements will be completed
within 90 days, within 180 days, or over 180 days.  For those
improvements that will take longer than 180 days to complete, we
will develop an implementation plan within the next 90 days.  To
facilitate the development of this implementation plan, we will
focus our actions in the following seven initiatives.  The
projects described within each initiative form the core of each
initiative but are not intended to be all inclusive.

     The Standing Committee urges that, with two exceptions, all
specific proposals put forward by the staff be included in the
Agency's overall program to reform contract management.  The two
exceptions are those discussed above, establishment of a new
Assistant Administrator and Agencywide delegation of procurement
authorities, the latter pending design of a pilot test to
determine feasibility.  More specifically,  we recommend action
to:

     1.   Restructure EPA's central procurement functions to
          increase their visibility and accountability.

          a.   Consolidate the contracts,  grants,  and suspension
               and debarment functions in an office-level
               organization reporting to a new Deputy Assistant
               Administrator for Acquisition Management in OARM
               (within 90 days).

          b.   Establish a separate suspension and debarment
               staff within the new acquisition office apart from
               the contracts and grants functions  to provide for
               a more aggressive use of this authority in
               managing contractor performance (within 90 days).

          c.   Establish a separate acquisition policy,  training,
               and oversight unit within the new office to ensure
               that these critical functions compete successfully
               with contract acquisition and administration for
               resources and management attention  (within 90
               days).

          d.    Analyze the reporting relationships  between the
               new Acquisition Management office and the contract
               management functions in Research Triangle Park and
               Cincinnati to determine whether a direct reporting
               relationship would strengthen or weaken  management

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                        - 16 -

          accountability and support for these field
          acquisition units  (within 180 days).

     e.    Launch an Agency-level Quality Action team to
          improve the procurement process (within 90 days).

     f.    Establish "factory floor" contracting teams to
          plan,  implement,  and evaluate individual contracts
          (within 180 days).

2.   Integrate accountability for program results and
     contract management at strategic, operational, and
     project levels.

     a.    Institutionalize Senior Procurement Official
          position in EPA programs and regions by issuing
          formal guidance and delegations to define
          responsibilities and defining requirements for
          certification by OARM  (within 90 days).

     b.    Require internal vulnerability assessments using
          the checklist in Appendix L of the  staff report;
          require that all Agency senior managers use this
          checklist in their annual FMFIA process  (within
          180 days).

     c.   Strengthen management  tools such as the Federal
          Managers  Financial Integrity Act (FMFIA) process
          using the checklist developed by the  Standing
          Committee  (Appendix L  of the staff  report) to
          identify  more effectively contract  management
          vulnerabilities (within  180 days).

     d.   Require Contract  Management Plans for all major
          contracts; these  plans should specify program
          roles, responsibilities, and resources in managing
          the contract,  identify key vulnerabilities
          inherent  in the contract and describe provisions
          for dealing with  these,  and  establish milestones
          for key decisions and actions  (within 90  days).

      e.   Require  all offices to submit  an Annual
          Acquisition Plan  to define  contract needs,
          beginning in  FY 1993,  including,where appropriate,
          an A-76  analysis, a description of  how contracts
          will  be  managed,  special contracting needs  (e.g.,
          quick response services),  vulnerabilities (e.g.,
          handling of sensitive data),  supplier
          capabilities,  and internal capacity to manage
          contracts and other extramural support (within 180
          days).

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                         - 17 -

      f.    Develop  guidance defining  the  "Contracting Team"
           concept  and  applying  it  to all major  EPA
           procurements (over  180 days).

      g.    Design and implement, if appropriate,  a  pilot  test
           of more  extensive and formal delegation  of
           procurement  authority to one or more  program
           offices  and  regions to make program offices and
           regions  more accountable for contract management.
           (within  180  days).

      g.    Require  EPA  program and  regional strategic plans,
           annual budgets, and operating  plans to reflect
           formal workforce planning  and  justify the  proposed
           mix of intramural and extramural resources (over
           180 days).

3.   Allocate the  resources to ensure the efficiency and
      integrity of  EPA's acquisition management  functions.
     As noted above, the Deputy Administrator has
     reallocated resources in FY 1992 for these  functions.

     a.    Request  appropriate revisions  in EPA's FY  1993
           budget request now pending before Congress to
           increase staffing levels of the central
           acquisition functions, legal counsel support,   and
          program and regional contract management functions
           (within 90 days).

     b.   Give priority to acquisition management functions
           in EPA's FY 1994 budget request to ensuring
          appropriate staffing for acquisition management
          functions throughout EPA (over 180 days).

4.   Develop a comprehensive  training program,  that draws on
     the best available ideas and programs from government
     and private industry to  ensure that EPA personnel have
     the knowledge and  practical skills required for
     effective acquisition management.

     a.    Appoint  a SES-level employee with the training
          qualifications and  quality  management experience
          to lead  the development  of  this comprehensive
          training program (within  90 days).

     b.    Require  periodic certification  by the Agency's
          Procurement Executive  of  all Agency senior
          executives, managers and  staff  who perform
          acquisition management functions  to ensure that
          their  training and  performance  warrant their being

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                        - 18 -

          entrusted with  acquisition  responsibilities.
          Certification of  SES members  should  be  integrated
          with  the SES recertification  process (within  90
          days).

     c.    Require that all  employees  receive training in
          procurement integrity  by January 1993 as  part of
          the ethics  training program (within  180 days).

     d.    Establish a mandatory  orientation program in
          acquisition ethics and operating principles for
          all new EPA employees  that  is tailored  to EPA's
          specific requirements  (within 180 days).

     e.    Establish mandatory training, including periodic
          refresher courses, in  acquisition ethics, policies
          and management  methods for  all EPA project
          officers, managers and senior executives  (within
          180 days).

     f.    Develop a practical training course  that  instructs
          managers and project officers on how to manage
          contracts,  control costs, evaluate performance,
          encourage quality, and negotiate terms  (within 180
          days).

     g.    Upgrade EPA's  continuing education requirement for
          all procurement professionals in EPA (over 180
          days).

5.   Revamp EPA procurement guidance  documents and  policies
     to ensure  consistency across all EPA offices and
     provide more effective tools for contract managers and
     personnel  to carry out their responsibilities.

     a.    Provide an updated index of existing guidance
          documents issued by all headquarters offices,
          regional offices and field labs  (within 180 days).

     b.    Prepare cost estimate guides and develop
          corresponding data bases to assist with the
          development of valid independent governmental
          estimates  (over 180 days).

     c.   Eliminate inconsistencies in, and issue uniform
          guidance on,  management of contracts including the
          preparation of all procurement documents  (over 180
          days).

6.   Revise  EPA's human resources policies to provide
     appropriate, formal emphasis to acquisition management.

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                         - 19 -
      a.    Identify procurement responsibilities in
           recruiting materials and job announcements (within
           90 days).

      b.    Use performance agreements and evaluations to give
           emphasis  to contract management responsibilities
           (within 180 days).

      c.    Describe  acquisition management responsibilities
           in position descriptions (over 180 days).

      d.    Examine grade structure  and  award program  to  give
           appropriate recognition  to contract management
           responsibilities  (over 180 days).

      e.    Develop a career track for contract managers  in
           much the same way that the Agency has for
           scientists  and technical personnel (over 180
           days).

     e.    Evaluate EPA's disciplinary system to ensure
          tough, equitable, and consistent treatment of
          personnel who violate Agency rules and
          requirements (within 180 days).

7.   Adopt aggressive policies and programs to ensure
     effective contractor performance and rigorous control
     of contractor costs.

     a.   Use independent governmental estimates to analyze
          contractor costs (within 90 days).

     b.   Educate contract personnel on the use  of
          procurement sanctions including suspension  and
          debarment  to enforce contracts (within 180  days)
     c.
    e.
Use contract types other than cost-reimbursement
contracts where appropriate  (over 180 days).

Develop policy on allowable and unallowable
indirect costs (over 180 days).

Develop an integrated contract management
information system that meets the needs of both
EPA programs and the central acquisition
functions, that is linked to EPA's integrated
financial management system, and that is fully
operational by FY 1995 (over 180 days).
    f.   oee* amenamonro to EPA Acquisition Regulations
                          Federal Acquisition Regulation
                        cost rules (over 180 days).

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                             - 20 -
     Although we have been greatly assisted in our analysis by
the staff report, we have two areas of departure from the staff
recommendations.  First, the staff report recommends that OARM be
divided into two offices with each headed by an Assistant
Administrator requiring the Agency to seek an additional
presidential appointee confirmed by the U.S. Senate.  The
Standing Committee disagrees with this recommendation.  We
believe that the objectives that are intended to be accomplished
can be obtained more quickly by implementing the reorganization
outlined above.

     Second, the staff report recommends that administrative
contracting function which are currently in the Procurement and
Contracts Management Division of OARM be reassigned to the
headquarter program offices, regional offices, and field labs
reporting to the newly designated senior procurement  officials.
Under this approach, OARM would no  longer have direct
responsibility  for contract administration.  Although a number of
Standing Committee members believe  that giving headquarters
program offices, regional offices,  and field labs full contract
administration  responsible is worth pursuing, we are  all «i
agreement that  we need  first to understand  the scope  of contract
administration  duties to be transferred, how the contracting
officers will be insulated to be  able to carry out  contract
administration  duties unencumbered  from other pressures, and  the
mechanism to be used to resolve conflicts.

E.    CONCLUSION

      This  is the first  in a  series  of  reports we will provide you
 concerning  reforms  in  EPA contract  management.  As  we track
progress in implementing the reforms proposed  in  this report, you
may well conclude that further changes are required.   In the
meantime,  we have set a very ambitious challenge  before the
 Aaency.   Although we have had only three months to examine EPA s
 contract management, we believe that the necessary improvements
 can be successfully implemented within EPA.  We ^^^ed to
 making these substantial improvements a reality in EPA's contract
 management program.  We know that we have your full support in
 this effort and that we have the cooperation of all Agency
 offices and employees.

 Attachments

 cc:  Deputy Administrator
      Assistant Administrators
      Acting General Counsel
      Inspector General
      Associate Administrators
      Regional Administrators
      Standing  Committee Members
      Standing  Committee Staff Director

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                                   EPA 200-R-92-001
                                   JUNE 1992
CONTRACTS MANAGEMENT AT EPA:

        MANAGING OUR MISSION
  Staff Report of the Standing Committee on
         Contracts Management

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Staff Report of the Standing Committee on
        Contracts Management

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                                JUN 301992

MEMORANDUM

SUBJECT:   Transmittal of Staff Report
FROM:      John R. Barker, Director \
             Standing Committee on Contract Management Staff

TO:         Christian R. Holmes
             Assistant Administrator
             Office of Administration and Resources Management and
             Chairman, Standing Committee on Contracts Management
      I am pleased to present Contracts Management at EPA: Managing Our Mission, the
report of the Standing Committee on Contracts Management staff. This report is intended
to advise and assist the Committee in developing its recommendations to the Administrator
for changes in the EPA contracts management program.

      This report is part of EPA's commitment, made when the Committee was formed,
to conduct a thorough review of procurement and contracts management at EPA, to identify
major problems, and to recommend appropriate corrective action.

      The report is true to the charge given the staff, viz^, to undertake a searching, critical,
and comprehensive analysis of contracts management  at EPA.  It is an action-oriented
report; it focuses directly on contracts management problems, identifies root causes, and
recommends systemic solutions.

      It is important to note what the report is not.  The staffs charge was not to review
past improvements and accomplishments.  Therefore, the report forgoes the recitation of
all the many significant steps EPA has  taken in the last three years to improve contracts
management.  Similarly, the staff focused most on internal Agency barriers to quality
contracts management as opposed to external factors over which the Agency has less control.
Thus, for example, the report does not dwell on the systemic challenge presented by the
overall trend in government toward 1) using contractors, 2) restricting the size of the federal
workforce, and 3) expanding Congressional mandates (especially at EPA). Finally, while the
report uses experiences in other agencies in government as bench marks, the report has
eschewed the temptation to take solace from similar problems of sister agencies.
                                       111

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      The report should be viewed in the context of EPA's continued efforts to inculcate
quality management concepts and  practices throughout the Agency.   Total Quality
Management ("TQM") requires an honest, open approach to identifying opportunities for
improvements in EPA's management processes and the Agency's commitment to changes
where necessary.  This report reflects these continued efforts.  In keeping with TQM
principles, the staff went to the "front lines" of EPA, in Headquarters, Regions and field
locations to interview and conduct focus groups of managers and staff working in contracting
organizations day-to-day.   The  staff went to EPA's  internal  and external "customers"
(including contractors themselves). The focus groups brainstormed about what is right and
wrong with the current processes, causes and impacts of contracts problems, their vision of
the desired state of contracts management, and ideas and recommendations for achieving
that state.  The staff met with  officials of other  federal  agencies whose  contracts
management initiatives have improved administration and oversight. The staff also drew
upon the expertise and experience of the Federal Contracts Management Advisory Board,
whose members reviewed the analysis, options, and  recommendations of  the report.  All
these efforts focused on the cultural and institutional barriers that impede quality contracts
management and on the implementation of permanent, systemic changes.

      The interviews and focus groups characterized a pervasive "mission vs. management"
paradigm  among managers that gives specific media  program outputs high priority but
assigns a relatively low value to cross-cutting initiatives and key management functions like
contracts management. This cultural norm  may have worked well in the early years of
EPA's media program, when in-house Agency staff were hard pressed to produce regulations
and develop new programs to implement a barrage of environmental laws.  Today, EPA is
a highly leveraged Agency  focused increasingly on complex, cross-cutting  health and
environmental issues. The paradigm no longer works well.

      EPA historically has been, and continues to be, organized along single media lines,
according  to the divided mandate handed down by Congress.  EPA's mission has become
largely equated with peculiar, single-program outputs or products, iCj, permits issued, cases
filed, regulations promulgated, etc.  EPA displays the ability to manage effectively the
achievement of these single-program outputs.

      EPA finds cross-cutting processes and activities, i.e.. those processes and activities
involving more than one program or environmental media/statute, harder to manage. By
way  of example, the Agency has  recently put  considerable  effort into overcoming the
institutional impediments to multimedia enforcement, and recent Inspector General audits
have indicated  problems in the  way EPA does information resources management.
Contracts management is one of the Agency's most important cross-cutting  functions; EPA
has acknowledged the need to much improve its performance here.  Accordingly, contracts
management problems are in reality manifestations of general management problems in that
they reflect on EPA's difficulty with delivering outputs or performing functions that involve
more than one program or media office.
                                        IV

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      In the last three years, the Agency has sought to refocus itself so as to go beyond the
single media/program perspective.   Examples include emphasis on strategic  planning,
environmental indicators,  geographic initiatives,  and, as mentioned above,  multimedia
enforcement. (TQM has been a major tool in this effort.) Generally, EPA has  sought to
integrate the Agency's diverse programs to develop planned coordinated actions that will
produce  greater,  more meaningful  environmental  results.   By necessity, they  have
emphasized cross-cutting activities that will meld and focus the Agency's myriad single
media/program offices.

      Contracts (procurement and management)  is perhaps  the most critical of the cross-
cutting functions; contracts is how EPA gets much of its work done.  It is how EPA produces
many of its major products.  Without an effective contracts function, EPA's program
missions and our  broader Agency mission is threatened or  impaired.  EPA's structures,
systems, and processes must reflect the Agency's conviction that quality management is vital
to EPA's mission, and EPA managers must be accountable for carrying out that  mandate.
This report provides an opportunity to remove short-term barriers by aligning infrastructure
and accountability systems to carry out quality contracts management.  It also sets the stage
for  long-term  improvements,  moving  towards   a  comprehensive  national  contracts
management effort, involving all facets of the program-fiscal and human resources planning,
guidance, training, legal support, communications, and evaluation.

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IA

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                                   PREFACE

             The purpose of this Report is to communicate the findings and
      recommendations of the Standing Committee on Contracts Management's
      Staff (the "staff) concerning the process of procuring and managing
      contracts in the Agency.  The Report also provides the Agency's leadership
      with facts, analysis and recommendations necessary to make difficult
      decisions to change the way EPA perceives and manages its critical
      contracting functions.
             Management experts have told business  and government institutions
      that quality improvement and, perhaps, economic survival require "shifting
      their paradigms" — cultural ground rules — to reflect emerging social,
      economic and political realities and  to anticipate and take advantage of
      these trends.1  In developing this Report, the Committee's staff
      encountered a central EPA cultural  paradigm, revered as "conventional
      wisdom," which we believe is at the  heart of the contracts management
      problems identified by EPA's Office of the Inspector General (OIG) and
      strongly criticized by members of Congress.
             "Mission vs. Management" is  the most pervasive EPA paradigm
      encountered:  the unwritten cultural belief that the Agency's environmental
      mission is so important that how we manage our people and public funds is
      secondary to accomplishing it.  In this cultural view, the Agency's technical
      and scientific work itself is seen as paramount;  management and
      administrative people, programs and decisions are  not as important and are
      often viewed as bureaucratic obstructions to be circumvented.  This view
      applies to Agency management in general and to contracts management in
    Barker, Joel: Discovering the Future — The Business of Paradigms. Video: Peters, Tom and Nancy
Austin: A Passion for Excellence. 1985, Random House/Warner Books, New York, NY.
                                        Vll

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particular.  There is little management accountability; in the final analysis,
program managers and staff are rated, promoted and rewarded based on
program outputs.  Under this paradigm, the management choice is obvious:
managers will choose short-term program outputs over other
considerations.
      All organizations maintain their cultural values and beliefs through
formal and informal mechanisms — organizational structures and systems,
employee policies, reactions to crises, and signals leaders send by their
actions and decisions. Crucial aspects of EPA's contracts management
behavior reflect and communicate this "Mission vs. Management" attitude.
Outside the Agency, however, there are strong forces that expect EPA to
accomplish both.  The public and Congress expect the Agency to protect
the environment and public health, and they empower the Agency to make
appropriate scientific and technical judgments.  They also provide EPA's
resources and fully expect wise stewardship of public funds.  The Agency
has no mandate to cut corners  or circumvent the law.
      The pervasiveness of the old paradigm is documented throughout
this Report.  It consistently appears as a root cause of individual problems
and is, therefore,  the object of many of our recommendations.
      We  believe that the Agency's current way of thinking on contracts
management may threaten the  public trust; it warrants implementing the
recommendations contained in this Report and monitoring for continuous
improvement thereafter.  As difficult as cultural change may be, it is
absolutely imperative in this case.  EPA managers must change their
cultural disposition or continue to risk not only the  loss of their
professional reputation but also public confidence in the Agency.
      The new paradigm envisioned by line staff we spoke with would
recognize that the dichotomy between mission and quality contracts
                                 Vlll

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  management is a false one.  Quality contracts management is a necessary
  predicate if EPA is to fulfill the public trust to carry out its mission to
  protect human health and the environment. Agency leadership must
  effectively communicate this new way of thinking in every aspect of
  organizational behavior.  Furthermore, we believe that a true shift in the
  Agency's way of thinking will produce significant benefits in every other
  area of management in EPA and enable us better to serve the public with
  our highest quality work.
        The Committee's staff went to the front lines of the organization to
  ask questions about values, attitudes, and perceptions -- to ascertain the
 facts on EPA's contracts management process and culture.  The staff used
 open-ended brainstorming techniques with focus groups around the country
 to present people with an opportunity  to provide innovative and creative
 ideas about contracts management.  Unlike many other reports, this Report
 focuses on underlying causes and systemic solutions rather than on
 identifying problems or weaknesses of  individuals or specific organizations.
 This Report is not an audit or a prescription for a quick-fix to all problems.
 Where appropriate, we do specify action officials and due dates, but we
 recognize that many of the most salient recommendations will require
 many months and even years to achieve.
       We urge that Agency readers of this Report apply its contents to the
 broad perspective of Agency management.  We believe that deficiencies in
 contracts management are symptomatic of general problems in managing
 cross-cutting Agency functions.  Much of what is learned regarding
contracts management deficiencies apply equally to other aspects and
responsibilities of EPA management.
                                  IX

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                      EXECUTIVE SUMMARY

                          I.  BACKGROUND

       On March 4, 1992, EPA's Acting Assistant Administrator for
 Administration and Resources Management, Christian R. Holmes, testified
 before the Senate Subcommittee on Oversight and Investigations
 concerning the Agency's management of the Computer Sciences
 Corporation (CSC) contract.  Mr. Holmes expressed the Agency's
 commitment to "...resolve these fundamental questions about EPA's current
 procurement strategy...to conduct a thorough review...to determine whether
 it provides an  appropriate balance between program performance,
 administrative efficiency, and management controls." This Report is the
 result of that commitment.

                           II. APPROACH

       The Administrator organized the Standing Committee on Contracts
 Management (the Committee) and directed it to examine the problems
 with contracts management in EPA and develop comprehensive
 recommendations for improvement. In order to evaluate  contracts
 management, the Committee's staff considered all phases  of the contract
 process, from pre-award to closeout. The Committee's staff conducted a
wide-ranging inquiry into the factors and forces that affect quality contracts
management - internal, external and cultural -- using 'Total Quality
Management" (TQM) principles and practices.  The Committee's staff
conducted numerous interviews and organized focus groups in EPA
Headquarters, Regions, research laboratories and  field offices, and
                                XI

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obtained suggestions and comments from a contracts management hotline
and suggestion box. (See Appendix H.) In addition, the staff interviewed
key contracting officials of six federal agencies, former EPA officials and
representatives of contracting organizations. The Committee also
convened a Federal Contracts Management Advisory Board (FCMAB) for
the purpose of reviewing its analysis, options and decisions. (See Appendix
C.)

                       III.  RESULTS IN BRIEF

       The Committee staffs data-gathering efforts demonstrated that EPA
employees are genuinely committed to the success of EPA's mission.
However, a recurrent theme mentioned by those we interviewed and those
in the focus groups was  that cultural attitudes are an underlying cause of
problems uncovered in the contracts management area.  The Committee's
staff believes that contracts management problems are a symptom of the
general difficulties experienced by EPA in managing cross-cutting functions.
       Contracts management at EPA lacks: (1) management
accountability; (2) adequate planning; (3) adequate guidance; (4) adequate
training; (5) appropriate allocation of human and financial resources; (6)
contracting mechanisms which adequately protect EPA's interests; and (7)
adequate communication. These deficiencies are the result of an Agency-
wide culture that has under-valued good contracts management practices
and have in turn led to a number of specific problems in contracts
management.  These  include  improper use of contractors to perform
inherently governmental functions and personal services; improper access
by contractors to sensitive, and in some cases, confidential, information
 systems; conflicts of interest; loss of in-house EPA expertise to plan and
                                  Xll

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  oversee contracted activities, and incurrence of improper and excessive
  contract costs.
        The Committee's staff recommends a number of changes in
  structure, education, and accountability aimed at reforming the negative
  cultural attitude toward contracts management, as well as measures to curb
  abuses and strengthen areas of vulnerability.

                        IV.  PRINCIPAL FINDINGS

 A.  LOW PRIORITY OF CONTRACTS MANAGEMENT

        In order to implement its myriad statutory responsibilities, EPA has
 relied heavily on the services of the private sector.  The Agency's success
 depends to a large extent on the performance of its contractors. Award
 and management of contracts is therefore a matter of the highest
 importance. The underlying cause of the most significant deficiencies and
 vulnerabilities that the Committee's staff found in contracts management'
 is an Agency culture that does not accord sufficient value to contracts
 management.  The idea that quality contracts management is at odds with
 the Agency's mission to protect the environment has been allowed to
 flourish and is evidence of a lack of management responsibility.  The
 Committee's staff strongly rejects this dichotomy.  On the contrary, if the
 Agency is to be successful in its mission, managers must realize that
 aggressive and scrupulous contracts management is essential to assure that
   'Problems in the management of contracts that have already been awarded cannot be
TS HH°m procurement Pr°bLlems> whi'h occur earlier in the process. Consequently, this
Report addresses all phases of the procurement and contracts management process, from
planning and placement concerns at pre-award through to evaluations and audits after
award. The term "contracts management" is blended to encompass all of these activities
                                  Xlll

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resources are being applied as effectively as possible to achieve the
Agency's mission of protecting the public health and the environment.

B.  MAJOR CONTRACTING IMPROPRIETIES

      The Committee's staff has confirmed many of the findings of
previous studies by the General Accounting Office (GAO) and EPA's
Office of the Inspector General (OIG) of recurring improprieties in the
performance of EPA contracts including: improper use of contractors to
perform personal services and inherent governmental functions; improper
access by contractors to sensitive and confidential information; conflicts of
interest; loss of in-house expertise, and incurrence of improper and
excessive costs.
       Information developed by the Committee's staff through interviews
and focus groups indicates that these improprieties are the result of
systemic deficiencies in contracts management and to general difficulties in
managing cross-cutting functions in an organization set up along single
media and statutory lines. Many of the deficiencies, in turn, can be traced
to the low stature of contracts management in the Agency's culture.

 C.  UNDERLYING CAUSES OF CONTRACTS MANAGEMENT
     PROBLEMS

       This Report focuses on the following interrelated areas that  are the
 sources of and keys to the improvement of contracts management within
 the Agency.
                                  xiv

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 1.  Management Infrastructure

       a. Management Accountability - The current division of contracts
 management responsibilities  in the Agency allows managers to cut corners
 on contracts management.  Neither the program offices nor the
 Procurement and Contracts Management Division (PCMD) is exclusively
 held accountable for contracts management problems; each is able to
 blame the other for these problems.  Accountability and reward systems
 that value program outputs more highly than cross-cutting management
 functions also contribute substantially to this problem.
       b. Contracts Management Structure -- The Committee's staff has
 found that the roles and responsibilities of the employees engaged in actual
 contracts management work -- Contracting Officers (COs), Project Officers
 (POs), Work Assignment Managers (WAMs), and Delivery Order Project
 Officers  (DOPOs) - are not clearly understood. This has led to a diffusion
 of responsibility for various components of contracts management with the
 result that no one is ultimately responsible.
      c.  Visibility and Support of Contracts Management -- EPA
 contracts management suffers from a lack of visibility and functional
 support.  PCMD is the primary EPA organization responsible for contracts
 management.  It is one of six divisions within the Office of Administration
 (OA), which in turn is one of six program offices reporting to and
 competing for the attention of the Assistant Administrator for
Administration and Resources Management (OARM).  Thus, the AA's
attention to EPA's business functions is  necessarily diffused.  The status
and attention given to PCMD is not commensurate with the importance of
its function and impairs its ability to direct the management of EPA's
contracts.
                                 xv

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2. Resources

      Although EPA has relied on contractors to accomplish its
burgeoning workload, the number of EPA contracts management and
support personnel has not kept pace with this increasing dependence.
More importantly, EPA has not comprehensively and systematically
analyzed the functions it should and should not be contracting out. As a
result, contracts have been awarded that are vulnerable to abuse.
      In addition, EPA does not undertake the necessary workload and
workforce planning to determine the proper number and appropriate
qualifications of its contracts management workforce, including its
management, technical, financial, legal, administrative and support
components.  Thus, the Agency often places into contracts management
positions scientists, engineers or other professionals who are neither
interested in nor qualified to manage contracts and who are frustrated by
their inability to use their professional skills and training fully.  Moreover,
because contracts management is not generally recognized as an important
function at EPA, the Agency lacks a professional career ladder that
integrates the skills necessary to the contracting profession in EPA. Also,
contracts management is not adequately represented or acknowledged
within EPA's recognition and rewards system. As a result, technical staff
may come to view contracts management as a career liability.

3.  Inadequate Training and Guidance

       Too often, EPA's policy and guidance are inconsistent, not readily
 accessible, or simply unclear.  Some guidance documents are not  passed
 down through the chain-of-command and do not reach the front-line
                                  xvi

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 personnel who need them most.  In addition, contract managers do not
 receive adequate training in the fundamentals of government contracting.
 The Committee's staff found widespread dissatisfaction with the training,
 which is often described as too theoretical and unrelated to the practical
 aspects of day-to-day contracts management. As a result of deficiencies in
 training and guidance, many contract managers have been unable
 successfully to control contract performance and cost.

 4.  Lack of Planning

       Although  a number of different contract types are available to the
 Agency, each with particular advantages and disadvantages, EPA heavily
 emphasizes use of cost-reimbursement contracts.  This type of contract is
 weak in the area of cost control incentives and requires substantial time
 and resources to  manage properly.  In addition, without well-crafted,
 specific statements  of work in work assignments and delivery orders,  this
 type of contract is open to abuse in the area of personal services. While
 cost-reimbursement contracts have a legitimate role, the Agency has  not
 regularly and adequately evaluated alternative contract choices to
 determine if other types may be more appropriate or easier to manage.

 5.  Lack of Clarity on Allowable Costs

      Congress and OIG have questioned EPA regarding a wide variety of
 claimed indirect contractor costs, including Christmas parties and Rolex
watches. Under federal regulations, reasonable  employee morale costs are
allowable.  However, there is no clear policy,  either in regulations or  in
                                 xvn

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guidance, what costs are reasonable and has failed to exercise its discretion
to impose specific constraints.

                      V. RECOMMENDATIONS

      In order to achieve quality contracts management, EPA must change
its focus from mission accomplishment at virtually all costs to mission
accomplishment through quality contracts management. To accomplish
this, the Committee's staff recommends a number of systemic and process
changes. A chart summarizing those recommendations appears at the
conclusion of this Report.

A.  SYSTEMIC CHANGES

       These recommendations are designed to improve contracts
management by strengthening management accountability, organizational
structure, allocation of resources, and use of human resources.

 1.     Management Accountability

       In order to improve accountability, the Committee's staff
 recommends a restructuring of contract management responsibilities.
 Placement and contract administration functions would be separated; a
 central Procurement Division in Headquarters would be responsible for
 placement of national contracts. Administrative contracting officers would
 be placed in each program office, Region, and major EPA field site;
 accountability for contract administration would ultimately rest with a
 senior procurement official  (SPO) located in each of those offices.
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 However, Headquarters would continue to have oversight responsibility
 (including authority to veto contract extensions, option years and re-
 procurements) and would issue all CO warrants and terminate or limit
 warrants if contract mismanagement occurs.
        In addition, the number of levels in contract administration would
 be reduced to further focus accountability. The new organization is
 portrayed in Appendix F (Organizational Charts).  Restructuring of the
 roles and responsibilities of contract administration personnel would be
 accomplished through implementation plans developed by each Region and
 program office and approved by the Headquarters contracting office.
       To ensure the input of pertinent  expertise throughout the  contracts
 management process, the Committee's staff also recommends the formation
 of quality contracting teams for individual contracts.  These teams would
 include the Placement Contracting Officer (PCO), the Administrative
 Contracting Officer (ACO) and his or her technical representative, the
 program office manager, legal counsel, and a cost analyst.  The team will
 meet when appropriate during the procurement cycle and be available for
 consultation in their areas of specialization as the need arises.  Each major
 contract would have a contracts management plan that would assure that
 contract administration issues, including  planning for needed resources, are
 resolved among key stakeholders.
       While most of the Committee staffs recommendations aim to
 improve up-front quality, programmatic audits will remain essential. The
 Committee's staff recommends a number of structural changes and process
 improvements to the Agency's audit follow-up process in order to  ensure
 that effective corrective action is implemented in response to OIG and
GAO audits.
                                 xix

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2. Management Infrastructure

      As part of its effort to increase accountability and to ensure that
contracts management receives adequate attention from management at all
levels, the Committee's staff recommends a major reorganization in EPA's
management structure. We recommend that the Agency's two key business
functions - resource management and acquisition, and assistance -- become
the sole focus  of an Assistant Administrator-level office (to be known as
the Office of Acquisition, Assistance and Finance (OAAF)), headed by the
Chief Financial Officer. This management alignment would not only allow
for proper attention to contracts management but to money matters in
general, in line with the Chief Financial Officers' Act (CFOA).  This
innovative alignment would put EPA in the forefront of agencies
implementing this important legislation.  Rather than being merely a highly
specialized AA-ship created in response to a particular problem, we believe
the creation of OAAF would represent a strong Agency commitment to
perform effectively what is undoubtedly one of the most fundamental cross-
cutting/cross media activity in the Agency.  Other functions of the current
OARM would be consolidated in a new Office of Human Resources,
Facilities, and Information Management. (See Appendix F.)
       As shown in Appendix F, OAAF will consist of the Office of
 Acquisition and Assistance Management (OAAM) and the Office of the
 Comptroller.  A key unit within OAAM would be the Policy, Evaluation
 and Training  Division (PETD).  PETD should be a strong, centralized
 organization that would provide  strong, effective policy development and
 training. The Division's responsibilities would also include strategic
 planning on contracts management, workload models, workforce planning,
 development of quality performance measures, quality assurance and
                                   xx

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 quality control review, and maintenance of communications and
 information management systems for acquisition and assistance activities.
       Implementation of this reorganization is important to the success of
 most of the major systems and process recommendations in this Report.
 They should be spearheaded by an Assistant Administrator who has
 sufficient time, authority and resources to devote to comprehensive
 improvement of all EPA components necessary to quality contracts
 management.

 3. Allocation of Resources

       The Committee's staff believes that a systematic Agency-wide effort
 is required to determine which functions and projects should be performed
 by EPA personnel and which should be  contracted out. We recommend
 that the budget process be used to make these decisions. The ultimate
 decision should be based on consideration of issues such as inherently
 governmental functions, personal services, and cost effectiveness.
       The Agency currently does not have an accurate idea of what
 resources are required to execute its various functions, including contracts
 management.  The Committee's staff recommends revision and increased
 use of workload  models and  other tools to document time and resources
 allocated to contracts management.  Only if the Agency systematically
 assesses its needs can it intelligently request and allocate resources.

 4. Human  Resources

      The  Committee's staff believes it is essential that EPA attract and
retain qualified people in contracts management positions. Specific
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recommendations address workforce planning, recruiting, training, career
management, and rewards and recognition.  The Committee's staff also
recommends an expanded role for legal counsel in contracts management.

B.  CONTRACT PROCESSES

       The restructuring of EPA's business functions will establish the
necessary organizational foundation for major improvements to EPA's
contract processes.
       A strong management presence is required to exert the necessary
leadership for a comprehensive national contract management program.
The Committee's staff recommends that the policy division in the proposed
OAAM take the lead in major improvements in the clarity, accessibility,
 and content of Agency policy and guidance. The guidance would clarify
 Agency policy on such matters as control of contractor performance,
 avoidance of contractors performing inherently governmental functions and
 personal services, contractor conflicts of interest, and allowability of
 indirect costs.
        The new policy division would also be tasked with revitalizing the
 Agency's training programs in contracts management.  Training courses
 need to be upgraded and tailored to specific contract roles and
 responsibilities and should address matters such as choice of contract
 vehicle, conflicts of interest and other ethics issues, cost estimation, invoice
 review, and property management.
        The Report also contains a number of specific recommendations
  designed to increase control over contractor costs. Among the
  recommendations are increased use of independent governmental cost
  estimates, improved review of invoices, and clarification of allowable costs.
                                   xxn

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We also recommend enhanced use of sanctions against improper conduct
by contractors, and that the Agency consider imposing penalties and
interest for improper contractor claims that are paid and later disallowed.

C. TRACKING IMPLEMENTATION

      The Committee's staff recognizes that the comprehensive change
envisioned in this Report is difficult.  Its implementation will require
continued vigilance and validation. Accordingly, we recommend a
reporting mechanism to track implementation of the Report's
recommendations.
                               xxm

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XXIV

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                    TABLE OF CONTENTS
                                                         Page
MEMORANDUM            	m
PREFACE    	vij
EXECUTIVE SUMMARY   	xi
DIRECTORY OF ACRONYMS    	xxx
I.     INTRODUCTION   	1
II.    CONTRACTS MANAGEMENT PROBLEMS  	11
      A.     Inherently Governmental Functions  	11
      B.     Personal Services  	13
      C.     Confidential and Other Sensitive Information  	13
      D.     Conflicts of Interest   	14
      E.     Loss of In-House Expertise   	15
      F.     EPA Control of Contractor Performance  	16
      G.     EPA Control of Contracting Costs    	17
            1.    Indirect Costs
            2.    Direct Costs
            3.    Control Over Government Property
III.    UNDERLYING CAUSES    	19
      A.     Introduction      	19
      B.    EPA Management Systems     	19
            1.    Lack of Management Accountability
           2.    Management Infrastructure
                 a.    Organizational Placement of PCMD and the
                  Office of the Comptroller
                 b.    Placement of the Competition Advocate
           3.     Allocation of Resources
                             XXV

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                 a.    Use of Contractors vs. EPA Employees
                 b.    Adequacy of Resources for Contracts
                       Management
                 c.    Lack of Workload Modeling
           4.    Poor Use of Human Resources
           5.  Inadequate Involvement of Legal Counsel
     C.    Contract Processes	37
           1.    Lack of Clear Guidance
           2.    Management Difficulties with Cost-Reimbursement
                 Contracts
           3.    Inadequate Training
           4.    Poor Cost Estimation
           5.    Inadequate Monitoring of Contract Cost and
                 Performance
                  a.     Poor Review of Invoices
                  b.     Inadequate Monitoring of Performance
                  c.     Inadequate Monitoring of Government-
                        Furnished Property
            6.     Problems with  Indirect Costs
            7.     Sanctions
            8.     Lack of Communication/Coordination
IV.    RECOMMENDATIONS   	59
      A.    Introduction  	59
      B.    Management Systems    	<>1
            1.     Management Accountability
                  a.    Roles and Responsibilities
                  b.    "Contracting Team" Concept
                  c.    Role of the Senior Procurement Officer
                                XXVI

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             d.     Management Integrity Controls
             e.     Audit Follow-up
             f.     Case Studies
      2.     Management Infrastructure
             a.     Reorganization of OARM
             b.     Organization of the New OAAM
             c.     Placement of Competition Advocate
      3.     Allocation of Resources
             a.     Affirmative Use of the Budget Process for
                   Acquisition Decisions
             b.     Adequacy of Resources for Contracts
                   Management
      4.     Human Resources
             a.     Workforce Planning
             b.     Recruitment
             c.     Career Management
             d.     Rewards and Recognition
      5.     Involvement of Legal Counsel
C.    Contract Processes	84
      1.     Establishment and Dissemination of Policy and
             Guidance
             a.     Promote Clarity in Policy and Guidance
             b.     Establish Subject Matter of Needed Guidance
             c.   Amendments to EPAAR
      2. Long-Term Contract Planning
             a.     Integrated Planning
            b.     Planning Contract Type
            c.     Selection of Contract Type
                         XXVll

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                 d.    Award Fee Contracts
           3.    Training
                 a.    Training Staff Workload
                 b.    Improve Contracts Management Training -
                       General
                 c.    Develop Specific Contract Issue Training
           4.    Cost Estimation
           5.    Control of Contract Costs
           6.    Suspension and Debarment and other Additional
                 Controls
           7.    Control of Government Property
      D.   Tracking Implementation	106
      E.    Chronological Summary of Those Recommendations with
            Due Dates               		108

APPENDICES
A.    Administrator's Standing Committee on Contracts Management
      Committee Members and Observers
B.    Administrator's Standing Committee on Contracts Management
      Committee Staff
C.    Management Advisory Group Members
D.    List of Source Documents, Information and References
E.    Approach and Methodology
F.    Organizational Charts
G.    Designation of Senior Procurement Officer
H.    Suggestion Box and Hotline Summaries
I.    Problem Assessment Summary
J.    EPA Contract Leveraging
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K.    Contract Case Studies
     1.      OPPE
      2.     Duluth Lab
      3.     NCPD
      4.     PCMD
      5.     Waiver of Contract Requirement
      6.     FMFIA
L.   A Checklist for Managing Contracts in Furtherance of the Agency's
     Mission
                                xxix

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                       DIRECTORY OF ACRONYMS
AA
ACO
ADP
BD
CAAC
CB
CBI
CERCLA

CFO
CFOA
CFR
CLB
CMD
CO
COI
COTR
CSC
DCAA
DO
DOD
DOE
DOPO
EPAAR
FAR
FCMAB
FIFRA
FMD
FMFIA
FOIA
FTE
G&A
GAD
GAO
GFP
GSA
IG
IGE
IGF
IP
IQUE
JOFOC
Assistant Administrator
Administrative Contracting Officer
Automated Data Processing
Budget Division
Civilian Agency Acquisition Council
Compliance Branch
Confidential Business Information
Comprehensive Environmental Response, Compensation, and
Liability Act of 1980 (Superfund)
Chief Financial Officer
Chief Financial Officers' Act
Code of Federal Regulations
Contract Law  Branch
Contracts Management Division
Contracting Officer
Conflict of Interest
Contracting Officer's Technical  Representative
Computer Sciences Corporation
Defense Contract Audit Agency
Delivery Order
Department of Defense
Department of Energy
Delivery Order Project Officer
EPA Acquisition Regulations
Federal Acquisition Regulations
Federal Contract Management Advisory Board
Federal Insecticide, Fungicide, and Rodenticide Act
Financial Management Division
Federal Managers' Financial Integrity Act
Freedom of Information Act
Full-Time Equivalent
General and Administrative Expenses
Grants Administration Division
General Accounting Office
Government-Furnished Property
General Services Administration
Inspector General
Independent Government Estimate
Inherently Governmental Function
Implementation Plan
In-Plant Quality Evaluation Program
Justification for Other than Full and Open Competition
                                     XXX

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KSAs
LAN
M&O
MCC
NASA
NCPD
NCPS
OA
OAAF
OAAM
OARM
OC
OGC
OHRFIM
OHR
OIG
OIRM
OMB
OPM
OPPE
OPPTS
ORC
ORD
OSD
OSW
OSWER
OW
PAS
PCMD
PCO
PD
PEB
PETD
PO
PPAS
PPS
PSA
QAT
RA
RACF
RCRA
RMD
RTP
S&D
Knowledge, Skills, and Abilities
Local Area Network
Management and Organization Division
Management Control Coordinator
National Aeronautics and Space Administration
National Contracts Payment Division
National Contracts Payment System
Office of the Administrator
Office of Acquisition, Assistance and Finance
Office of Acquisition and Assistance Management
Office of Administration and Resources Management
Office of the Comptroller
Office of General Counsel
Office of Human Resources,  Facilities and Information Management
Office of Human Resources Management
Office of the Inspector General
Office of Information Resources Management
Office of Management and Budget
Office of Personnel Management
Office of Policy, Planning and Evaluation
Office of Pollution Prevention, Pesticides and Toxic Substances
Office of Regional Counsel
Office of Research and Development
Office of Suspension and Debarment
Office of Solid Waste
Office of Solid Waste and Emergency Response
Office of Water
Presidentially Appointed, Senate-Confirmed
Procurement and Contracts Management Division
Placement Contracting Officer
Procurement Division
Performance Evaluation Board
Policy, Evaluation and Training Division
Project Officer
Personal Property Accounting System
Procurement Policy Staff
Preliminary Site Analysis
Quality Action Team
Regional Administrator
Resource Access Control Facility
Resource Conservation and Recovery Act
Resource Management Division
Research Triangle Park, North Carolina
Suspension and Debarment
                                     xxx i

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S&E              Salaries and Expenses
SBA              Small Business Administration
SCCM            Standing Committee on Contracts Management
SES              Senior Executive Service
SOW             Statement of Work
SPO              Senior Procurement Officer
TQM             Total Quality Management
TSCA             Toxic Substances Control Act
TOSS             Technical and Operational Services Support Contract
TSS              Technical Support Services
VMR             Voluntary Management Reduction
WA               Work Assignment
WAM             Work Assignment Manager
                                   xxx ii

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                             I. INTRODUCTION

            This Report was precipitated by an audit of an EPA automated data
      processing (ADP) contract.1 While the audit generated substantial
      concern about EPA's management of that contract, it also made clear that
      contracts management at EPA suffered from pervasive and systemic
      deficiencies. Accordingly, the Administrator established the Standing
      Committee on Contracts Management (the Committee). The Committee
      consists of senior officials from EPA and other federal agencies (see
      Appendix A), supported by a multi-disciplinary staff from EPA
      Headquarters, Regions and the Department of Justice (see Appendix B).
      The Committee and its staff were directed to identify problems in EPA's
      contracts management process, to examine external, internal and  cultural
      barriers to improving that process, and to propose comprehensive and
      enduring corrective actions to improve and maintain quality and integrity in
      EPA contracts management.
            The Committee's staff approached its task as an opportunity to
      apply Total Quality Management (TQM) concepts and tools to analyze
      EPA's contracts management process.  After initially identifying a number
      of problems in the contracts management process, the Committee's staff set
      out to (i) identify potential barriers to improved quality and  (ii) recom-
      mend a range of near-term fixes and long-term opportunities for
      continuous improvement and problem prevention.
            The Committee's staff used a number of sources in  gathering the
      data for this Report. The staff began by examining recent reports prepared
    Office of Inspector General Report of Audit, EPA's Management of Computer Sciences Corporation
Contract Activities. Audit Report Number E1NME1-04-0169-2100295, March 31, 1992.

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by the OIG, GAO, and EPA concerning EPA contracts management, to
evaluate the effectiveness of the solutions adopted in response to the
problems identified (see Appendix D for Source Documents, Information
and References).  The Committee's staff found that some valid solutions
recommended in the past were not implemented for a variety of reasons.
Given the Agency's intensified commitment to correcting long-standing
contracts management problems, the Committee's staff recommends
reconsideration and thorough implementation of some of these solutions.
    The Committee's staff also examined "Problem Assessments" prepared
by each EPA Regional and  Headquarters office at the Administrator's
request.  The Problem Assessments addressed present and potential
problems in contracts management (see Appendix I for a detailed summary
of the Problem Assessments).
      In accordance with TQM Principles, the Committee's staff sought
the views of a significant cross-section of EPA personnel involved in
contracts management. In the course of individual interviews and focus
groups conducted in Headquarters, Regional offices and other EPA
facilities, the Committee's staff interacted with individuals closely
connected to the contracts management system, who  thus could provide
information indispensable to proper evaluation and improvement of this
system.  The focus groups gave front-line COs, POs, WAMs, and DOPOs
the opportunity to express freely their views on the contracts management
world they work in daily. The staff assimilated the focus group information
to identify relevant trends reflected in the Report.  In addition to the usual
data-gathering and analytical techniques, individual interviewees were
challenged to identify root causes  and to look outside the existing
paradigms and  culture for ideas to improve the contracts management
process.

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      To broaden the data-gathering effort to include all persons who
might have information or ideas on significant contracts management
problems, the Committee's staff instituted a hotline and suggestion box.
These mechanisms yielded over 200 suggestions and observations, which
were considered in developing this Report (see Appendix H).
      The Committee's staff interviewed contracting specialists at several
other federal agencies.  We attempted to determine whether these agencies
had experienced problems similar to EPA, and if so, what efforts to solve
those problems have been successful. We also met with staff of some
congressional committees that have shown an interest in contracts
management at EPA.  In addition, as a subsequent step to solicit external
quality guidance, the staff convened a Federal Contract Management
Advisory Board for the purpose of reviewing our analysis, options and
recommendations (see Appendix C).
      Finally, the Committee's  staff investigated or participated with
appropriate offices in the investigation of a number of incidents and issues
that reflect on contracts management and related problems at EPA.
Where pertinent, the results of these investigations appear as case studies
at the end of this  Report (see Appendix K) and are referenced in the
Report.  See Appendix E for a detailed account of the  approach and
methodology used in the preparation of this Report.

A. GENERAL MANAGEMENT ISSUES

      As the Committee's staff examined the  contracts management
problems, we found that past attempts to solve the problems had been only
partially successful.  The Committee's staff asked people involved in the

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contracts management processes why they believed there were contracts
management problems.
      A recurring theme in focus groups and interviews was that there was
a continuing tension between program outputs and quality contracting, and
that the problems in contracts merely reflected the lower priority assigned
to these management and administrative tasks.  It is apparent that
weaknesses in EPA's contracts management are in large part a function of
their cross-programmatic nature.  The Agency generally does a good job of
managing for program  outputs.  It does not do as well in managing areas
outside the scope of single program accomplishments. However, cross-
programmatic management has improved over the last few years.  The
Agency is learning how to better manage those areas where duties and
responsibilities lie in more than one  program.  The work of the
Committee's staff, its Report and recommendations are important
additional steps in this direction.
      The Agency's culture, organizational structure, leadership, and even
the oversight by Congress and the Office of Management  and Budget
(OMB), all tend to perpetuate a single-media approach to problems.  One
of the many congressional committees that oversees EPA's areas of
responsibility may focus on and question EPA about what the Agency is
accomplishing or what it needs in one area, such as the Clean Air Act.
Then a different congressional committee questions EPA  about another
issue. The Agency is so accustomed to looking at and solving problems in
specific areas that it has difficulty in effectively evaluating and acting upon
general multi-media and cross-media areas when problems occur.  EPA
frequently treats the symptoms and fails to understand their broader
underlying cause.

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        To understand the general management issue, it is necessary to
  examine the internal, external, and cultural factors influencing the Agency.
        The internal factors affecting management are organizational in
  nature and hark back to the Agency's formation. Departments from
  separate federal agencies were brought together in the EPA to provide a
  comprehensive approach to environmental protection.  For the most part,
  these separate departments continued to perform duties similar to those
  that they had previously performed. As Congress gave the Agency
  additional responsibilities, the Agency continued to organize along
  environmental media or statutory authority lines. This structure continues.
       The single-media method of organization enables the Agency to
 manage for specific program accomplishments but hinders the management
 of cross-cutting activities, such as long and short-term strategic planning,
 priority setting, routine evaluation  of systems and processes, human
 resources management, communications, information systems, legal
 counseling, and contracts management.  In addition, position in the
 organizational hierarchy is vital to  the authority and influence required to
 implement cross-cutting functions.
       The introduction of Total Quality Management, strategic planning,
 multimedia enforcement, geographic and other cross-media initiatives has
 raised managers' awareness of cross- program management problems and
 have enhanced EPA management's ability to deal with these problems.
 This Report recommends that the Agency focus that awareness and
 enhanced management ability on the problems of contracts management.
       The Committee's staff believes that a cultural  attitude that  holds
 contracts management in low esteem is the greatest factor inhibiting EPA's
ability to manage its contracts. The Agency culture considers contracts
management, like other cross-cutting functions, to be of secondary

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importance and, more often than not, obstacles preventing the speedy
accomplishment of program goals. Ironically, many other organizations
both inside and outside of government consider these types of management
activities to be crucial to accomplishing their goals.
      In EPA's culture  and structure, there is no single office or program
that can be held responsible for the management weaknesses.  It is a
situation where no one,  and yet everyone, is responsible. Management at
EPA constantly reinforces by its actions the cultural norm that the program
outputs are paramount.  The major awards that the Agency bestows on its
managers are most often based on outputs in one program-specific area
and not the overall quality of all the activities that an individual is
managing or on whether those activities conform to applicable rules,
regulations, policies and procedures.  There are so many definitions of
success that there may be severe deficiencies in one part of a manager's
program at the same time that he or she is being awarded or promoted
(see Appendix K, Case  Study 1).  This  reinforces the idea that individual
accomplishments or managing a single  function is the only measure of
success.
       EPA has grown rapidly over the last twenty years and has  evolved
from a small agency with a few thousand employees and only a few
 statutory responsibilities to a large agency with 17,000 employees and many
 statutory responsibilities.  The general  problem with multi-media and cross-
 cutting  functions indicates that EPA's management culture has not
 adapted to the growth and increasing complexity of the Agency.  The
 environmental problems that the Agency must address, the size of the
 budget, and the size of the Agency require management with the breadth
 and professionalism to  solve not only the specific media problems but also
 those problems that cut across media divisions, such as the geographic

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 enforcement initiatives and the toxic release reduction programs.  EPA
 management must recognize that there can be no tradeoff between sound
 management practices and program outputs; the Agency must accomplish
 both.
       The Agency is beginning to recognize the importance of this
 principle.  For example, most employees have received training in TQM
 and, in a cross-media environmental initiative, the Administrator has
 directed that each Region perform a risk assessment and begin to
 concentrate its enforcement and regulatory resources in those areas where
 there is the greatest risk.
       TQM teaches that there must be a continuing commitment made
 from the top down in order to make lasting changes in an organization. It
 also teaches that change is to be expected and an organization needs to
 conduct routine self-evaluations to determine which systems are working
 well and which ones should be improved.  EPA's managers have proven
 themselves to be bright, capable individuals; the challenge of this Report is
 that they apply their intelligence and creativity to  making those changes
 fundamental to ensuring quality contracts management.

              B. CONTRACTS MANAGEMENT ISSUES

      EPA's mission involves a diverse and wide-ranging scope of
responsibilities to protect human health and the environment.  To carry out
that mission, EPA depends heavily upon the services of contractors.
Accordingly, quality management and oversight of contractors is essential
to the implementation of the Agency's mission. Unfortunately, a number
of serious problems have plagued contracts management at EPA.  The
most highly controversial and damaging public perceptions  of the Agency's

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management of its contract resources are that:  1) EPA has let contractors
assume operation of critical functions that are inherent to the government;
2) contractors are improperly used to provide personal services; 3) EPA
has lost, or never acquired, the expertise required to oversee certain
contracted activities;  4) EPA does not adequately control contractor
performance and costs; 5) EPA has created management conditions that
allow certain EPA contractors, especially in information management
areas, improper access to confidential business and other sensitive
information; and 6) the Agency has not properly protected against real or
potential contractor conflicts of interest.2
       This Report is organized into three major substantive sections.
Section II sets forth the major  problems that have resulted from
deficiencies in EPA's contracts management processes. Section III
addresses the internal structures and processes that are underlying causes
of these problems. Section IV sets forth the recommendations for
institutional and process improvements designed to  resolve and avoid
problems in contracts management.
        The analytical results and recommendations of this Report strongly
 reflect the voice of the people who actually perform the work, as well as
 the intelligence, creativity and honesty of a broad range of managers and
 staff throughout the Agency.  Based on  this input from the front-line staff
 and their customers, the Committee's staff believes this Report has the
 potential of spurring the types of true cultural changes needed at EPA,
        Virtually all of the recommendations in this Report are aimed at
 changing cultural attitudes  and ensuring accountability in contracts
    2GAO/RCED, 92-45, "EPA Has Not Corrected Long Standing Contract Management
 Problems," October 1991. GAO/RCED, 89-57, "Superfund Contracts: EPA's Procedures for
 Preventing Conflicts of Interest Need Strengthening," February 1989.

                                    8

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 management.  Many are focused on elevating the stature of contracts
 management at EPA, and would require reorganization of basic
 management structures and reallocation of resources.  The need for better
 training and utilization of human resources is also a major theme.
 Although most of the recommendations are for changes in internal EPA
 processes and can be implemented within existing authority, a few may
 require modifications in federal regulations.
       Cultural change is a slow and difficult process.  This change will first
 and foremost require "buy-in" by the Agency into the Report and its
 recommendations. The Committee  staffs total quality approach in
 developing this Report is the first step to achieving acceptance. Second,
 EPA management must foster an ethic that permeates our responsibilities
 in contracts management activities.  Third, EPA management must commit
 itself to track the implementation of these recommendations. Without
 extensive follow-up and validation, the Agency is vulnerable to recurring
 and continued contracts management problems.  Finally, the current
 managerial culture of the Agency if left unchanged will gradually
 undermine all the best intentions for improvement, regardless of the initial
 appearance of commitment to its objectives.
      Significant change in EPA culture is the sine qua non for lasting
improvement in contracts management. Each EPA manager is personally
responsible for making this change a reality.

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10

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                  II.  CONTRACTS MANAGEMENT PROBLEMS

        The purpose of this Report is not to identify or to provide a list of EPA contracts
 management problems.  Most of those problems are already well identified in various
 OIG and GAO reports as well as other EPA internal management studies.  Problems are
 listed or categorized only to facilitate the analysis of root causes, which in turn will serve
 to document the need for and to support the solutions and recommendations of the
 Report.

                    A. INHERENTLY GOVERNMENTAL FUNCTIONS

        One of the  most highly controversial and damaging perceptions of the Agency's
 management of its contracts  is that EPA has allowed contractors to assume  operational
 responsibility for functions that are inherently governmental in nature (IGF).1  There
 have been allegations of contractors performing IGF at EPA, or at least creating that
 potential.2 Auditors have noted that EPA is highly "leveraged" with contractors, and
    ^he overall federal policy regarding IGFs is established by OMB's Circular No. A-76, Performance of
Commercial Actives. This circular requires that any and all governmental functions be performed in-
house, regardless of cost.
       The Circular defines a governmental function as one which is so intimately related to the public
interest as to mandate performance by government employees. These functions include those activities which
require either:  1) the exercise of discretion in applying government authority, or 2) the use of value
judgment in making decisions for the government. Despite this definition, it is often difficult to determine
precisely what an inherent governmental function is, and even GAO concluded that the boundaries are often
unclear. The distinctions become even less clear when drawing the line between performing governmental
functions which may not be contracted out, and "supporting or  ^fcrinp- the performance of those functions
       EPA has issued an Order that addresses this issue, and established Agency policy that prohibits
contracting for certain activities at EPA (EPA Order Number 1900.2, October 22, 1990). The Order
discusses 17 categones of activities for which contracting out is forbidden. In addition, the Order identifies
11 types of activities which, when performed under contracts may place EPA in a vulnerable or sensitive
position if adequate controls are not in place, and sets forth guidelines for these controls.

        A                               '       Maiwe.me.nt of Comnnfe.r .^nces Cornor.Hnn
        Actives, Audit Report Number E1NME1-04-0169-2100295, March 31, 1992.  -
                                           11

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that the high proportion of contractors to EPA employees and the expansion of the tasks
being contracted for creates the risk of contractors performing IGF (See Appendix K).
From our inquiry, it appears that some of the greatest risks occur in those areas where
contractors are co-located with EPA employees.3
       Some of the real risks attendant to the heavy use of contractors at EPA are the
loss of or failure to acquire or maintain governmental expertise, the loss of control, and
the loss of institutional memory.  These losses affect not only the Agency's ability to
effectively oversee contractor performance but also its ability to replace contractors with
skilled and knowledgeable federal employees.  These risks are heightened when
contractors are used to perform the sorts of tasks which go to the essence of EPA's
mission -- those  tasks most likely to be designated as IGFs.
       It appears that EPA uses contractors in areas where the public might expect to
find EPA employees (see Appendix H: Suggestion Box and Hotline Summaries), such as
in the main EPA library, the Public Information Center, on various hotlines (e.g., the
 Superfund and Resource Conservation and Recovery Act [RCRA]) and in program
 docket offices, to cite just a few examples.4 In addition, use of contractors to prepare
 draft guidance, regulations and other policy documents  can be troublesome and raise the
 need to set up extra controls to make sure the roles of the contractors are clear.  Use of
 contractors for these functions raises the issue of an appearance of contractors
 performing inherently governmental functions and may raise credibility problems for the
 Agency and conflict of interest concerns for the contractor.
     3Although on-site contractors present a significant risk of being perceived as EPA employees and of
  performing IGFs, locating contractors elsewhere is impractical for some tasks (e.g., working in a lab, washing
  equipment) or is less efficient.  The use of contractors for these kinds of tasks should be reevaluated, and if
  contractors are used, then strong safeguards must be put in place.
     4It should be noted that one of the elements  to be considered in determining whether it is appropriate to
  contract out an activity is "the likelihood that the public would perceive the function as one that should be
  performed by government personnel."  r.AOT Inherently Governmental Functions: Policy Letter. 56 FR 65279
  (December 16, 1991).
                                            12

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                              B.  PERSONAL SERVICES

       Another critical problem cited is that EPA frequently has administered contracts
 in such a manner that contractors have been engaged in personal services, in
 contravention of regulations.5 In these cases, the distinction between government and
 contractor employees is blurred, thus undermining effective management oversight of the
 contract.6  In addition, contract personnel performing personal services may exercise
 undue influence on EPA decisions, including the award of future contracts. Pervasive
 use  of personal services fosters the perception, if not the reality, that contractors are in
 charge of EPA.

            C. CONFIDENTIAL AND OTHER SENSITIVE INFORMATION

       Contractor-related problems with EPA's information systems include potential for
 loss of information (availability), potential for corruption of information  (integrity), and
 potential for unauthorized disclosure of confidential information (confidentiality) (see
 Appendix K, Case Study 3).  These problems were not widely acknowledged in either our
 field and Headquarters interviews or in the focus groups; however, several EPA offices
 did identify these as potential Agency contract vulnerabilities in response to the
 Administrator's March 10,  1992 memorandum (see Appendix I).  In addition, these
    CSC Audit (March 31, 1992).  The FAR prohibit the use of contractor personnel for "personal services"
except where specifically authorized by statute. The regulations define personal services as those which make
the "contractor personnel appear, in effect, [as] government employees." 48 CFR §37.101. The FAR further
state that an employer-employee relationship occurs when, as a result of the contract's terms or manner of
administration during performance, "contractor personnel are subject to relatively continuous supervision and
control of a government officer or employee." 48 CFR §37.104(c).

   federal law requires that government hiring (except where otherwise specified) be accomplished in
accordance with Civil Service law.  Thus, if contractor personnel perform and are treated as government
employees, the Civil Service laws are violated.

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problems were identified in OIG's most recent CSC Audit and in several other OIG and
GAO reports.7

                            D. CONFLICTS OF INTEREST

       Some of the Committee staffs interviews, focus groups and Agency problem
assessments identified conflict of interest  (COI) as a potential vulnerability .  The CSC
audit and past GAO reports also raised a number of concerns about COI.  The CSC
audit revealed that CSC personnel participated in the preparation of 20 out of 26
delivery orders reviewed by OIG.8  This practice creates the appearance that CSC
assigned itself work,  especially for complex delivery orders where EPA personnel did not
have the expertise necessary to monitor CSC's work properly.
       In the Superfund program, conflicts can arise when an EPA contractor has a past
or present business relationship with a  potentially responsible party, or where a
contractor recommends a cleanup method or technology for which he  or she  holds a
patent or is a likely party to conduct the  recommended cleanup.9 The GAO Report
raised concerns about EPA's reliance on  "self-reporting" by Superfund contractors to
identify potential COI problems. In October 1991,10 GAO issued a follow-up report
   7OIG Special Review (September 1991); CSC Audit, March 31, 1991.  According to OIG, EPA handles
essentially four types of confidential data:  1) confidential business information (CBI); 2) Privacy Act
information; 3) information for internal EPA use only, and, 4) enforcement-sensitive information. Unlike
CBI and Privacy Act information, there is no clear agreement regarding what constitutes the other two types
of "sensitive" or "confidential" information, and there is a distinct lack of Agency consensus regarding the
degree of vulnerability and inherent risk associated with some of EPA's information systems.
   8OIG Audit Report, CSC, March 31, 1992, page 16.
   9GAO RCED-89-57, Superfund Contracts: EPA Procedures for Preventing Conflicts of Interest Need
Strengthening (February 1989).
   10GAO/RCED-92-45: Superfund: EPA Has Not Corrected Long-Standing Contract Ma
Problems.
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that criticized EPA for failing to adequately address previously identified vulnerabilities,
including COI issues.

                        E.  LOSS OF IN-HOUSE EXPERTISE

       There is  a public perception, validated among some EPA managers, that the
Agency is losing the technical expertise to review and evaluate the performance of
Agency contractors.11  In general, EPA's heavy reliance on contractors increases the
risk of erosion of the Agency's technical capabilities; transfer of the institutional memory
from the  Agency to the contractors; and, ultimately, loss of public confidence (See
Appendix I:  Problem Assessments). Procurement and Contracts Management Division
(PCMD)  managers particularly expressed concern over the loss of contracting specialists,
often to other federal agencies. Each group believed that the possibility of replacing
these talents did exist but would result in reduced efficiency while new personnel are
learning the  EPA culture.
       The Agency may be particularly vulnerable to loss and  lack of expertise in the
area of database support.  OIG reports12 indicate that sufficient ADP expertise is not
available  to ensure proper monitoring and control of contractor activities. Agency
turnover and failure to recruit sophisticated skills in emerging ADP technologies can
erode the effect of the necessary "arm's length" relationship. Personal service
arrangements are also more  likely to occur if the Agency lacks in-house expertise to
oversee contractor performance properly.  The susceptibility to loss of in-house expertise
and thus control in the data  processing area is particularly troubling given the greater
potential  for COI and access to sensitive information, the very large contract dollars at
   ^Headquarters focus groups.

   12Contract Management: EPA Needs to Strengthen the Acquisition Process for ADP Support Services
Contracts, OIG Audit Report, March 1992: EPA's Management of Computer Sciences Corporation Contract
Activities. OIG Audit Report, March 31, 1992.

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risk, the history of incumbent advantage in key contracts in this area, and the open-
ended nature of contracts written to provide long-term flexibility in an area of rapid
technological change.

              F.  EPA CONTROL OF CONTRACTOR PERFORMANCE

      At a recent congressional hearing,13 the issue of whether EPA controls its
contractors figured prominently in the testimony. Illustrative of the control issue are the
allegations by EPA's Inspector General that CSC prepared some of its own delivery
orders.
      The concern is that EPA often does not assert adequate control over its
contractors.  As noted above,14 OIG has found examples of contractors defining their
own work specifications (scopes of work) and follow-on work. In essence, sometimes
contractors may be telling EPA what it should buy.
   13Senate Committee on Government Affairs, Hon. John Glenn, Chairman, March 2,1992.
   14See §D above (Conflicts of Interest).
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                   G. EPA CONTROL OF CONTRACTING COSTS

 1.  Indirect Costs

       The greatest controversy regarding indirect costs has involved contractor
 "employee morale" costs.15  Contractors have included as employee morale costs a
 variety of costs in bills submitted to EPA, including such items as Christmas parties,
 tickets to sporting events, Rolex watches and Tiffany clocks.  In addition to questionable
 employee morale charges, other types of inappropriate indirect charges have been
 found.16  The Agency has also been billed for indirect costs of questionable relevance
 and which give rise to a strong appearance of impropriety, such as the charges incurred
 by an  EPA contractor to hire a law firm to write comments on proposed corporate
 sentencing guidelines.17  Although the frequency of such abuses is unknown, the
 charging, review, audit and payment of indirect costs raise  a number of issues about the
 adequacy of the contracts management process at EPA.

 2.  Direct  Costs

       Numerous focus groups and interviews indicate that EPA's system for control of
 direct  costs by reviewing contractor invoices may not provide the desired incentives  or
 mechanisms for effective cost control or for preventing waste, fraud, and abuse.  Since
 contractor  invoices represent the contractor's claim for reimbursement of costs, proper
   15FAR §31.205-13.
    U.S. GAO, "Federally Sponsored Contracts; Unallowable and Questionable Indirect Costs Claimed by
CH2M Hill." Testimony before the Subcommittee on Oversight and Investigations, Committee on Energy
and Commerce, House of Representatives, March 19, 1992.

    Hearing, April 9, 1992. Subcommittee on Environmental Energy and Natural Resources, Committee
on Government Operations, House of Representatives, April 9, 1992.
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and thorough review by the Agency is of importance for effective cost payment.  The
control of direct costs is dictated by the requirements in the Statement of Work (SOW)
for Work Assignments (WAs) and Delivery Orders (DOs) of cost-reimbursable contracts.
Poorly written SOWs lead to poor estimates of cost.  When the Agency does not clearly
define its needs and costs, it is not in a position to monitor accurately and control
contractor charges.

3. Control Over Government Property

      EPA currently provides approximately $113 million worth of government
furnished property (GFP) to its contractors.18  OIG identified in its audit of CSC,19
several problems with respect to the management and control of such GFP. A
fundamental problem in property management is also discussed in the December 1991
letter to the President on EPA's compliance with the Federal Managers'  Financial
Integrity Act.  It identifies as a "material nonconformance," the need for reconciliation
between the Personal Property Accountability System and the Integrated Financial
Management System.  This problem has been listed in the letter since 1983 and
addresses  all property, both contract and non-contract.
      The Committee's staff examined these vulnerabilities and observed that potential
problems also exist with respect to the failure of EPA project managers to prepare
justifications for GFP; inherent difficulties in assembling an accurate inventory of all
GFP under the control of contractors; and failure to record within each contract, GFP
that is leased, purchased, or assigned.
   18Property Control System Report, dated May 6, 1992.
   19OIG Audit Report, CSC, Chapter 5, page 113 et al.
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                   III.  UNDERLYING CAUSES
                        A.  INTRODUCTION

      The Committee's staff finds that the problems set forth above are
the result of systemic deficiencies in contracts management at EPA.  Many
of the deficiencies, in turn, manifest the cultural problem of status and
attitude concerning cross-cutting functions in general and contracts
management in particular. This section of the Report describes the
underlying, interrelated causes of EPA's difficulties in contracts
management. These causes can be divided into two categories: (1)
management systems that pertain to management accountability,
organizational structure,  and the use of resources;  and (2) processes that
affect the actual implementation of contracts management. Although the
Committee's staff does recommend some changes specific to individual
improprieties, lasting reform is impossible if the Agency fails to address the
underlying causes. The Committee staffs recommendations for correcting
the Agency's contracts management problems are set forth in Section IV of
the Report.

                 B. EPA MANAGEMENT SYSTEMS

1. Lack of Management Accountability

      The Committee's staff found that problems in contracts management
are symptoms of a greater management problem within the Agency.
Because the Agency  has addressed only the symptoms of the problems and
not the underlying causes, past efforts have not resulted in permanent
improvement in contracts management.  A recurring theme voiced in our

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interviews and focus groups was that the current tension between program
outputs and quality contracts management raises questions about EPA's
ability to balance both properly. The problems in contracts management
reflect deeper and broader managerial issues.  This imbalance significantly
lessens the quality of management in general, and of contracts
management in particular (see Appendix K, Case Studies).
       The Agency is more focused on obtaining resources and projecting
activity outputs for program accomplishments than on accountability for
what was accomplished with the resources provided.1  Efforts to  link long-
term and short-term planning, resource utilization,  priority-setting outputs,
and efficiency in the Agency have been insufficient to ensure quality
contracts management. The Agency contract culture has encouraged
spending funds, and power is often equated to dollars spent.  No reward
exists for saving dollars, only for ensuring that budgets are spent by the end
of the year.2
       Contracting offices are not required to provide services according  to
measurable standards of quality and efficiency. There is no  top-down
accountability for how contracts are  used to achieve program outputs.
Program office managers do not view themselves as accountable and  are
therefore not aware of the consequences of their performance in contracts
management. In short, the perception is that program offices are charged
with handling substantive issues, and PCMD (and OARM-RTP and
OARM-Cincinnati) is responsible for the process or administrative issues.3
Program managers may not always be held accountable for follow-up  of
   Interview with a former EPA senior manager.
   Interviews and focus group with Regions and Headquarters.
   Problem assessments - Headquarters.
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 audit recommendations or Federal Managers' Financial Integrity Act
 (FMFIA) corrective actions, even though their performance agreements
 may contain standards for these activities (see Appendix K, Case Study 6).
 In fact, several interviewees confirmed the existence of low cultural regard
 for the contract function by expressing the view that EPA Headquarters
 was having a "knee-jerk" reaction to Congress, that the importance of good
 contracts management would fade, and that we will easily slip back into
 current practices.4
       Managers at all levels tend to react to immediate problems and
 issues but often fail to follow through and fully implement solutions after
 Congress or senior management have refocused their attention on other
 issues.  EPA managers often overlook* the value of strong business controls
 when striving for program performance. Focus groups of COs and POs
 stated that program managers feel free to pressure contract managers
 within their own organizations and in PCMD to take the quickest
 approach, even if it means cutting corners (see Appendix I). Program
 managers do not have to make and sign the actual contract decisions and
 are therefore not accountable for them.
      Many executives, managers and supervisors do not have any
 contracts management language in their performance agreements. They
 are not generally recognized or rewarded for their own or their
 organizations' overall accomplishments in contracts management; rather,
 they perceive awards as being given only for contracts management success
in a specific program or on a specific contract. In addition EPA has not
uniformly included in performance objectives critical job elements to
encourage good contracts management.
   Focus groups in Regions and Headquarters.

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      While the lack of accountability has its roots in the general cultural
attitude toward contracts management, the current EPA management
structure contributes to this problem.  EPA has built a system in which
PCMD is clearly responsible and accountable for good contracts
placement; but everyone, and yet no one, is responsible for good  contracts
administration. Under the current structure (see Appendix D for Source
Documents and Appendix F for current organizational structure), PCMD
places contracts and has COs for administration who are delegated legal
warrants; but program offices, who spend their funds through the contracts
mechanism, have responsibility for contract administration on a day-to-day
basis.
       Although program offices have contracts management
responsibilities, no single manager in a program office, field office, or
laboratory has full responsibility for effective management of contracts in
the organization.  As previously noted, the interviews, focus groups, Hotline
calls, and responses to the Suggestion Box (see Appendix H) indicated that
the roles and responsibilities of COs,  POs, WAMs, and DOPOs are not
clearly understood.  This confusion over who is responsible has diffused the
accountability for quality contracts management.
       EPA's organizational structures allow finger-pointing between the
program offices and PCMD.  The programs can say that the CO should
 have caught the problem; OARM can say that the program contract
 managers were not doing their jobs.  Unclear guidance from a variety of
 sources worsens the problem.
        Interviews and focus group participants repeatedly expressed
 concern and frustration with reporting relationships between the Regions,
 Research Triangle Park, Cincinnati, and Headquarters. In their opinion,
 these reporting relationships  contribute to consistency and accountability

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 problems. The Committee staffs recommendations on reorganizing the
 contracts management structure attempt to remedy this.
       In the current contracts management structure in EPA, COs are
 contracts professionals who are often overworked, geographically remote
 and inaccessible.  They are delegated legal authority to make final
 decisions to authorize or withhold payments but often perform their duties
 far from the actual contract work being done, sometimes in a perfunctory
 manner.  POs are often in an ambiguous role and carry out a mixture of
 administrative, financial and technical review tasks, but without the
 delegated authority to make final administrative decisions and sign official
 documents. WAMs and DOPOs are technical staff performing a mixture
 of administrative and technical tasks with no clear contracts role or
 authority.  There is some question about the value added at each of these
 levels in the current structure.
       PCMD requires that a WAM/PO/DOPO Designation Request
 Form accompany each work assignment submitted for processing. PCMD
 could not verify that each of 27,000 contract actions processed in 1991 was
 accompanied by one of these  forms because they are collected by
 individual COs and are not on a centralized database.  PCMD
 representatives did not know of a single instance in which the requested
 designation of a contract manager has ever been denied.5
      EPA institutional processes designed to detect and correct
 management problems have not been effective.6  One mechanism that is
 supposed to identify and correct management problems is the FMFIA
process. However, EPA managers and staff do not fully understand the
   5Headquarters interview.
   6CSC Audit.
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requirements of FMFIA. They are not properly trained in implementing
FMFIA, and thus do not use FMFIA tools to help monitor contracts
management practices.  During the Committee staffs review, many senior-
level managers said that EPA should have reported overall contracts
management as a material weakness in EPA's FY 1991 FMFIA Report.
However, this was not done - most likely because it is a cross-
programmatic issue for which no single office is accountable.  In November
1991, Assistant and Regional Administrators (or their representatives)
agreed to describe the overall contracts management issue as an area of
review during FY 1992. In addition, the  Agency does not have an early-
warning system that provides anonymity,  encourages bottom-up reporting,
and rewards its employees for raising issues of concern.
       Although audits  are no substitute  for front-end quality, they
constitute another mechanism can enforce accountability.7 The Agency
has an audit tracking system; however, existing mechanisms have not
ensured that effective corrective action is taken to remedy problems
identified in GAO or OIG audits.  In fact, audit follow-up has been
 declared a FMFIA "material weakness."  The Committee's staff is
 recommending organizational and other  changes to ensure that effective
 and substantive audit follow-ups occur.

 2. Management Infrastructure

 a. Organizational Placement of PCMD and the Office of the Comptroller
    7In most instances, either EPA's OIG or the Defense Contract Audit Agency (DCAA)
 performs post-award audits of EPA contracts, depending on which is designated as the
 cognizant auditing agency.  Significant audit backlogs in both of these agencies are external
 barriers to the quality of EPA's contracts management. The Committee staff makes no
 recommendation in this regard.
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       Billions of dollars each year flow through the Agency's business and
 financial organizations and systems that support EPA's mission.  Yet these
 crucial business and resource management functions are submerged in the
 current structure and compete with many other functions. This fosters a
 climate in which the Agency's business and financial functions cannot
 command equal priority with technical program functions.
       PCMD, the primary organization responsible for contracts
 management, is one of six divisions in the Office of Administration, which
 shares the attention of the Assistant Administrator for Administration and
 Resources Management with the Office of Human Resources Management
 (OHRM), the Office of Information Resources Management (OIRM), the
 Office of the Comptroller (OC), and the Offices of Administration and
 Resources Management at Research Triangle Park and Cincinnati (see
 Appendix F, Chart 1).
       OC is responsible for most of the Agency's other key business
 functions.  This office is responsible for the Agency-wide budget; resources
 management and financial management functions, including program
 analysis and planning; and budget formulation, preparation and execution.
 The Committee's staff is recommending significant organizational
 realignment to strengthen these key business functions for which PCMD
 and OC are now responsible.

 b. Placement of the Competition Advocate

      The Competition Advocate was  appointed in December of 1984
pursuant to Section 20 of the Federal Procurement Policy Act as codified
in the FAR Subpart 6.5.  The duties and responsibilities of EPA's
Competition Advocate include promoting full  and open competition by the

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Agency in the acquisition of supplies and services through review of
Agency contract operations and identifying the actions necessary to achieve
full and open competition.  This information is annually reported to the
Procurement Executive through a report of recommendations made by the
Competition Advocate.  The Competition Advocate's approval is required
for all Justifications for Other than Full and Open Competition (JOFOCs)
over $100,000.8
       Currently, the Agency's Procurement Executive is the Assistant
Administrator for OARM. The Assistant Administrator redelegated all of
his roles and responsibilities as the Procurement Executive through the
Office of Administration to the Director of PCMD.9
       Because  the Competition Advocate's mandate is to assure that
adequate competition in contracting occurs at EPA, he or she reviews
PCMD's policies and procedures relating to this issue. The Competition
Advocate should not report directly to the director  of the office being
 reviewed. Specific line authority of the Director of PCMD over the
 Competition Advocate potentially compromises the needed independence
 of the Advocate and impairs his ability to implement necessary changes
 and ensure full and fair competition in EPA contracting.  The Committee's
 staff recommends a change in the Competition Advocate's reporting
 relationship. (See Section IV B.2. below.)
         Director of PCMD must also approve JOFOCs in excess of $1 million.
               Manual General, Administrative and Miscellaneous, 1-2 Appointment of
        .
  Designated Agency Procurement Executive, 1200 TN-135, 2/4/86.

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 3. Allocation of Resources

 a. Use of Contractors vs. EPA Employees

        In the past two decades, EPA's mandate, including numerous
 statutorily imposed responsibilities, has expanded in direct response to the
 dramatic increase in awareness of and concern about environmental issues.
 At the same time, the Agency has come to rely increasingly on contractors
 to accomplish its mission. (See Appendix J.)
       The number of EPA contracts management personnel has not kept
 pace with the dramatic increase in the number and dollar value of
 contracts.10  More importantly, EPA has not undertaken a comprehensive
 and systematic analysis of what functions the Agency should and should not
 contract out. Nor has it carefully evaluated the appropriateness or
 resource implications of the use of various contract types for various
 functions. As a result, contracts have been awarded that carry a high
 degree of vulnerability to abuses such as: 1) the performance of personal
 services and IGFs, 2) improper access to sensitive information, 3) conflicts
 of interest, and 4) incurrence of improper and  excessive costs (see Section
 II above).
       Widespread sentiment within the Agency holds that EPA lacks
 sufficient FTEs to accomplish its mission and must rely on contractors to
perform tasks that would be more properly  assigned to EPA personnel.11
Excessive reliance on contractors may be exacerbated by the perception
that contract personnel can respond to rapidly changing assignments more
    CSC Report; interviews with Headquarters and Regional offices.
    Interviews and focus groups with Headquarters and Regional offices.

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quickly than civil service employees.12 On-site contracting, particularly at
EPA laboratories, has also been identified as a condition nurturing
personal service relationships.

b. Adequacy of Resources for Contracts Management

       The Agency mix of extramural and intramural resources has
occurred with little or no analysis and conscious decision-making by upper
level management.  Contract decisions are often made at the staff level
with little or no review.  Senior management has not required program
managers to provide them with an analysis, either proactively or reactively,
of their  decisions to contract out various functions.13 In short, senior
management has abdicated its decision-making authority to the staff
levels.14  For example, in the CSC context, indications  are that both the
decision on the required skills, education, and experience levels and the
decisions on the approximately 165 waivers of those requirements were
made without active senior management involvement.  See Appendix K ~
Case Study 5.  Apparently, even though some of these decisions went
through a paper review of different management levels, not a single senior
manager questioned or  changed them.
       The Agency culture has historically given low priority to contracts
 management.15  Although contractor support is crucial to achieving the
    12This perception is yet another indication of a need to improve management and
 accountability. One interviewee cited a cultural assumption at EPA that if we want to
 something done, we go to the contractors. See also, Appendix K, case study 2.
    Interviews and focus groups with Headquarters, Regions, and laboratories.

    "interview with senior EPA manager.
    ^Interview with former EPA senior manager.

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Agency's multi-faceted mission, managing these key resources is not seen
as a critically important function.  Contract placement is perceived as the
most important aspect of the contracts management process.  Historically,
the limited resources allocated for contracting were first used to fill
placement resource requirements, and the remainder was divided among
the various oversight functions. The lack of glamour and visibility
associated with contracting activities (compared to environmental
programs) makes it harder to get  contracts management the attention that
it deserves from either Congress or  the Administration in the annual
budget process.16
      Internally, OARM, which is responsible for analysis, preparation,
and recommendation  of the entire Agency budget (as well as various
administrative support services, including contracting), has not aggressively
sought additional resources for contracts management.  OARM culture
reportedly holds that OARM is above the fray and disdains "petty" resource
squabbles.17
      Ironically, many interviewees in EPA program offices argued for
increased resources for contracts management.  When a highly contract-
leveraged program office was asked where it would place a hypothetical
increase of 20 FTEs, the answer was, "Put them in the contracting offices."
      Many WAMs and DOPOs  cited a lack of time and FTEs to perform
their job as they think it should be done. Additionally, COs and
contracting specialists complain of insufficient resources, especially time to
manage contracts and contract actions properly.  The prevailing view is that
the Agency fails to provide adequate resources to manage contracts in
   1 Interviews with current and past EPA senior managers.
   17Interview with EPA senior manager.
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either the program offices or the contracting offices. One significant result
of the lack of resources is a "victim mentality" that allows one to blame
resources for contracts management problems and eschew personal
responsibility.18  The Committee's staff is recommending a number of
institutional process changes to ensure that senior managers are aware of
and involved in resource decisions.

c. Lack of Workload Modeling

      While it does appear that contracts management suffers from a lack
of resources and training (particularly in legal counsel and contract officer
ranks), workload model data for contracts management does not exist in
either contracting offices or program offices.  As a result, no one knows
with any degree of accuracy what resources are needed, since there is no
linkage  of these service costs to program outputs and no accountability on
the part of those who provide or those who utilize the services.  In effect,
OARM develops a contracts management budget to support the programs
without precisely knowing what other offices are doing, how many
resources are needed, or how to determine if the resources are being
properly allocated, used or misused.  A further result is that program
offices do not know what the costs of administration are, as those costs are
borne by OARM, and when faced with legislated deadlines and hammers
to achieve their programmatic outputs, the program offices may
underestimate administrative needs (both in time and personnel) and thus
do not have resources where they are needed.
    Regional and Headquarters interviews and focus groups.
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      The Committee's staff therefore recommends comprehensive
changes to the Agency's workforce planning systems to ensure that the
Agency has the requisite information to support its resource requests.

4. Poor Use of Human Resources

      The Committee's staff has found that the Agency generally does not
conduct comprehensive workforce planning. This lack of planning has far-
reaching effects. EPA does not use workforce planning to project skills
needs and employee turnover, in order to plan for recruitment, to estimate
training needs,  or to anticipate contracting  needs. In addition, EPA does
not link strategic planning, budget planning and acquisition planning with
workforce planning in general ~ especially  in the  contracts management
area.19 In the absence of these basic management tools, assignment of
contracts management responsibilities is often reactive: once funding is
acquired, managers assign contracts management  tasks as an afterthought.
       EPA's employment appeal is dependent upon the commitment to
public service of highly skilled and educated professionals.  The Agency
strives to hire the best scientists, engineers and other professionals that it
can. These people accept positions in the Agency believing that they will
be performing  scientific, engineering or related functions for EPA and will
be directly involved in the profession for which they have trained.  In
reality, however, once on the job, many of  these technical people find that
a major part of their responsibility is to manage a contract  and contractor
employees who will actually do the scientific or technical work.20
    19Interview with Former EPA senior manager.
    Interviews and focus groups with Headquarters and Regions.
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       In the past, EPA scientists performed more laboratory duties than
they currently do.21 Although the performance of these tasks has shifted
largely to contractors, EPA has continued to hire individuals with only a
scientific background to supervise the contractors and has provided very
little training or guidance on how to manage contracts.  Although technical
and scientific knowledge is invaluable in monitoring and assessing the
contractors' performance, the administrative and supervisory demands of
these positions are often at odds with the professional desires of those
hired to do the work. By denying this change  in environment, EPA places
highly qualified people in positions where they become frustrated by being
unable to use fully their professional skills and training.22
       Similarly, the Agency promotes and recruits technical, scientific and
legal personnel into the managerial pool, generally without ascertaining
whether these people are skilled in the managerial disciplines. The Agency
then fails to provide adequate and timely training for these individuals to
develop the necessary managerial skills. Contracts management  is not
generally recognized as a key managerial need or function in the EPA
Senior Executive Service (SES), managerial and supervisory position
descriptions, performance agreements, vacancy announcements, program
descriptions and other documentation. Often we promote our technical
superstars into supervisory and management positions to keep  them from
leaving the Agency.  The irony of this is that the excellent bench scientist
or the top-notch engineer or  attorney gives up the work he or she prepared
for academically and enjoys doing for a job that may be unfamiliar,
unmlfilling, and frustrating.  Conversely, EPA  lacks a professional career
   21Interviews with field locations.
   ^Responses to the suggestion box and focus groups.
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ladder or tracking system for employees interested in the contracting
profession, and contract managers do not have the same grade equivalent
as the scientists and engineers.
       Many supervisors and managers appear to perceive duties like
contracts management, program planning, human resources management,
budget, and the other administrative responsibilities associated with
management either as low priority or even as unwanted bureaucratic
nuisances.  This cultural attitude, which may be due in part to inadequate
training in contracts management and other management skills, is
communicated to the staff in many ways. Some EPA managers assign
contracts management to subordinate staff who may have little interest,
aptitude or training for the job. Since the overall EPA culture reinforces
and perpetuates this jaundiced view of managerial functions, the manager
can easily neglect or ignore these responsibilities.23
       For similar reasons, contracts management is not adequately
represented or acknowledged within EPA's recognition and rewards
system.24  Contracting accomplishments are underrated in terms of
difficulty and viewed as less critical to the mission of the organization than
scientific or technical program successes. In addition, many managers
neither understand nor value contracts management work.  Consequently,
program managers often do not give sufficient attention to contracts
management in the performance  agreements of their staffs and do not
 evaluate performance in this area consistently or carefully. As a result,
 technical staff may come to view contracts management as a career
    23Headquarters and Regional focus groups and interviews.
    "Id,
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 liability.25 Significant cost savings or outstanding management of large,
 complex contracts activities is rarely recognized and rewarded in technical
 program organizations. EPA's managerial training and development
 programs, such as the Individual Development Plan process, formal
 management assessment programs, and the SES Candidate program
 activities, do not sufficiently emphasize contracts management, given the
 magnitude of contracting within the Agency.

 5.  Inadequate Involvement of Legal Counsel

       The Agency's legal advice for contract matters is provided by the
 Office of General Counsel (OGC), Contracts Law Branch.  The Contracts
 Law Branch consists of seven contract attorneys. Three of these attorneys
 are located in Headquarters, two in Research Triangle Park (RTF), North
 Carolina and two in Cincinnati, Ohio.  Only the three Headquarters
 attorneys provide contract law advice on a full-time basis.  The contract
 attorneys provide legal support mainly to the COs located in these
 offices.26
       The many contracts entered into by the Agency are important  legal
 documents that set forth the legal rights and responsibilities of the Agency
 and the contractors.  The award, management and close-out of these
 contracts require frequent decision-making by the COs. Since these
 decisions often have considerable legal implications for the Agency, timely
 and comprehensive legal input into these decisions is crucial to proper
   ^Headquarters has 33 COs, RTF has 10 COs, Cincinnati has 14, and the Regions have
approximately 42. The laboratories do not have COs.
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contracts management. However, legal input into the Agency's contracts
management needs to be strengthened.
       In general, the following problems are caused by a shortage of
contract attorneys, lack of team spirit27 between OGC and PCMD, and
lack of a formal OGC concurrence role in most contract actions.
       Contracting staff in the Regional offices and field laboratories
cannot always obtain timely legal advice from OGC regarding post-award
contract issues.28  Although contracting staff in Headquarters, RTF and
Cincinnati are generally satisfied with their access to legal advice because
contract attorneys are located there, contracting staff in the Regional
offices and laboratories are often dissatisfied.  Contracting staff in these
offices report that the physical/geographic separation from OGC (lack of
face to face contact,  differing time zones and slow mail) contribute to their
inability to obtain legal advice.
       Contracting staff do not always seek legal  advice from OGC, even
when  such advice would be in the best interests of the Agency.29  Some
contracting staff want to avoid the delay, criticism and loss of control that
they associate with legal consultation.  Some contracting staff do not seek
legal advice unless specifically required by the Acquisition Handbook.
Indeed, OGC is usually not invited to important  PCMD meetings.30
       OGC sometimes takes a passive counseling role in post-award CO
decision-making,  even where legal assistance is specifically requested.31
    27Headquarters and Regional interviews.
    ^Regional interviews; Laboratory interviews.
    29Regional interviews; Headquarters interviews.
    30Headquarters interview.
    31OGC Problem Assessment; Headquarters interviews; Regional interviews.

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Some OGC personnel do not believe that OGC has the resources to
provide legal assistance on routine contracts management questions.32
OGC advice is often restrained because contract attorneys do not want to
make the CDs' decisions for them.33
       Contracting officers do not always  draft contracts that adequately
serve the needs of the Agency, and contract attorneys do not always
adequately review these contracts before their award.34 The COs do not
usually consult with OGC early in the contract drafting process.35  In
addition, the COs draft the contracts by extracting standard FAR, EPAAR
and other contract clauses from the Automated Procurement
Documentation System. This automated process may encourage the CO
and contract attorney to relax their drafting and review efforts.36
       OGC does not always appear at  meetings between the Agency and
its contractors, even though counsel for the  contractor is present.37
According to the general EPA custom, in order to protect the Agency's
legal interests, an Agency attorney generally attends  meetings where
outside counsel is present. In some instances, however, the contracting
   ^Regional interview.
   ^leadquarters interview.
   ^Headquarters interviews; Regional interviews.
     Contracting officers sometimes consult with OGC early in the contracting process if
the type of contract is non-routine, or where new contract language will be crafted.
However, since most Agency contracts are of the routine cost-reimbursement type,
contracting officers do not often seek early OGC input.
   ^leadquarters interview.
   ^Regional interviews; Headquarters interviews.

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 staff have not invited OGC to meetings at which the contractor's attorney
 is present, and in other instances, OGC has chosen not to attend.38
       PCMD has executed contracts without adequately addressing legal
 concerns raised by OGC.39  The EPA Acquisition Handbook provides
 that contract attorneys merely "review"  contract actions over SSOO.OOO,40
 rather than "concur" with or "approve" of such actions.  Thus, the
 Contracting  Officer may ultimately disregard the legal  comments.  The only
 area in the contracting process where OGC appears to have a formal
 concurrence role concerns bid protests.41

                      C. CONTRACT  PROCESSES

 1.  Lack of  Clear Guidance

       The Committee staffs interviews with key Agency managers and our
 focus groups across the Agency indicated that there is no singular
 authoritative source of policy and guidance on basic and topical matters
 concerning contracts management.  Existing guidance is not consistent,
 timely, or readily accessible, and does not reach the working level staff in a
 timely way.
          COs choose not to invite OGC since they believe that opposing counsel may
hinder the productivity of the meeting.
   ^Appendix K (Case Study 3); TOSS contract; TSS contract; Headquarters Interviews-
CSC Audit.
   ^Acquisition Handbook, Unit 5; Headquarters interviews.
     In contrast, for example, the General Services Administration Acquisition Regulation
System provides for legal written approval for legal sufficiency of many contract actions
See Part 501.670-4.

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      Contract managers complained about conflicting interpretations of
policy offered by different COs and admitted to "shopping around" among
COs to solicit an opinion best suited  to their needs. Contract managers
are not always certain whether the guidance they receive represents  1) a
CO's personal opinion,  2) a policy interpretation, or 3) official Agency
policy not subject to broad interpretation.42
      Many contract managers are not aware of the existence of the
Contracts Management Manual, which is intended to be the major
reference guide for contracts management, and those who are aware of its
existence complain that the basic  Manual and its updates are not readily
available, even when specifically requested.  The problems identified in the
CSC audit clearly indicate that contract managers are either unaware of or
ignore existing guidance.
       The concern is widespread that guidance documents are overly
theoretical in nature, lack relevance  to EPA or program-specific issues, and
do not provide practical advice on everyday contract issues that are  most
needed by the Agency's contract  managers.  For example, no  guidance
exists on how to manage resources successfully in a level-of-effort contract,
which is the contract vehicle EPA uses for a high percentage  of its contract
dollars.43
       Making changes to the Agency's three primary documentary  sources
of policy on contracts  ~ the Contracts Management Manual, the
Acquisition Handbook and particularly the EPAAR ~ can be very time
 consuming.  Certain changes to individual or broad classes of contracts
     42Focus groups and interviews.

    43Headquarters focus groups and interviews.
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 require EPAAR modifications, but such changes are often needed prior to
 the requisite amendment. Therefore, COs routinely request and are
 granted both individual and class deviations from EPAAR requirements.44
 These deviations are often used in lieu of EPAAR amendments.  The
 number of class EPAAR deviations indicate the extent to which the
 EPAAR's requirements apparently fail to meet today's contracting needs.
 Unit 23 of the Acquisition Handbook contains more than 22 existing class
 deviations, suggesting that the EPAAR falls far short of meeting these
 needs.45
       These three basic  documents are supplemented on an ad hoc basis
 by program offices to address program-specific issues or areas considered
 to be inadequately covered or completely overlooked in the basic
 documents themselves. Occasionally  program offices and PCMD's
 Procurement Policy Staff (PPS) coordinate the development of such
 program-specific guidance, but often guidance is developed and issued
 without PPS review.
       Finally, although guidance documents are routed  through formal
 distribution channels that include such highly placed  officials as AAs, RAs,
 and SPOs, these documents are not always passed down through the chain
 of command and do not always fall into the hands of those who most need
 them, i.e., POs, WAMs, and DOPOs.  The result is a significant risk of
 contracts mismanagement by front-line contract managers who  are either
ill-informed or misinformed.
       In the opinion of many contract managers, PCMD has not provided
timely  or adequate guidance and has failed to coordinate or cooperate with
    Focus groups in Headquarters offices; interviews and focus groups in Regions.
    Headquarters interview.
                                 39

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its program customers in developing needed guidance.46  Consequently,
many different offices have developed guidance to fill that void. With no
single office being held accountable, inconsistent and conflicting guidance
has been inevitable.
      In addition, the Agency has been too conservative in identifying
guidance of such significant and widespread impact that it deserves
EPAAR coverage. The result is delays in issuance of new guidance,
continued existence of obsolete guidance, and a general tendency for
proposed guidance that is tough on contractors to be watered down as a
result of industry comment.47 The Committee staffs organizational
recommendations address the issue of a strong national contracts
management policy function.

2.  Management Difficulties With Cost-Reimbursement Contracts

       A number of different types of contracts, each with particular
advantages and disadvantages, are available  to the Agency.48  While the
key to proper contracting is adequately and accurately specifying the
product, certain types of contracts are more appropriate in some situations
 than in others.  EPA has not used sufficient planning in its choices of
 contract vehicles.
      EPA has consistently favored large cost-reimbursement, term
 contracts with fixed fees or award fees rather than  fixed price or
     ^Headquarters and Regional focus groups and interviews.
    47Headquarters interviews and focus groups.
          Part 16.
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 completion contracts.49  Although these cost-reimbursement term
 contracts have afforded the Agency maximum flexibility in servicing
 program needs, they place  the risk of contractor performance on the
 Agency. Under these contracts, no adequate incentive is created for
 contractors to minimize costs.
       As presently administered, cost-reimbursement contracts require an
 inordinate amount of time  and resources for proper management
 administration and lack effective cost control incentives.  In order to
 manage cost-reimbursement contracts and independently assess the
 appropriateness of particular costs incurred, the Agency has had to create
 and pay for an expensive and extensive management and supervisory
 infrastructure. The expense of cost  contracts  is twofold.  First, the
 necessary oversight mechanism represents an  additional expense for the
 Agency, without which an incentive  to maximize reimbursable costs would
 exist.  This expense is borne by PCMD, rather than the program office that
 benefits from the flexibility of cost-reimbursement contracts. Second, since
 cost-reimbursement contracts require only "best efforts" and not the
 completion of specific tasks for a specific amount of money, they place
 almost the entire risk of completion of these tasks on the Agency. Absent
 unusual circumstances, the government must pay the cost for re-
 performance.
       Despite the obvious contracts management and cost-effectiveness
 drawbacks, the Agency's preference for cost-reimbursement contracts still
prevails. There are several  reasons for the Agency's heavy dependence on
    'Letter from Christian Holmes to Frank Hodsoll, Executive Associate Director, OMB;
GAO/T-RECD-89-8 "Sound Contract Management Needed at EPA," February 23, 1989;
Statement of Richard L. Hembra, Associate Director, GAO/RCED-85-12, "The EPA
Should Better Manage Its Use of Contractors," January 4, 1985; GAO/CED-82-36 "EPA
Use of Management Support Services," March 9, 1982.
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cost-reimbursement contracts.   First, the complexity and diversity of the
Agency's mission have fostered an Agency belief that it needs the most
flexible contract vehicle available.  Second, PCMD has encouraged the use
of large cost-reimbursement contracts because the resources necessary to
award and manage a single large contract are less than those required to
manage several contracts.50  Third, the Agency's overall budget from
Congress is heavily weighted in extramural dollars. FTEs have not been
sufficient to singlehandedly accomplish the Agency's mission without
utilizing contractors.
       The FAR tends to discourage the use of cost-reimbursement
contracts and encourages the use of fixed-price contracts, because fixed-
price contracts utilize the basic profit motive of private enterprise and thus
require less management by the procuring agency.51  Five specific
management problems have plagued cost-reimbursable term contracts at
EPA, illustrating the reason for the  predisposition against cost-
reimbursement contracts.
        First, cost-reimbursement contracts are susceptible to poorly
 structured individual work assignments (WAs) and delivery orders (DOs)
 which fail to elicit optimal contractor performance and require an excessive
 degree of continuing EPA direction. If a WAM or DOPO drafts an
 unclear or incomplete WA or DO, proper contractor performance is
 difficult to measure or enforce. Imprecise and overly broad SOWs
    50Headquarters interviews and focus groups.
    51FAR §16.103(b). According to FAR §16301-2, cost- reimbursement contracts are
 suitable for use only when uncertainties involved in contract performance do not permit
 costs to be estimated with sufficient accuracy to use a fixed price contract.  Thus, while the
 particular contract type chosen by the CO is generally a matter of negotiation and the
 exercise of sound judgment, COs should avoid the protracted use of cost-reimbursement
 contracts. FAR §16.103(a).
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 contribute to the need for excessive supervision and direction of
 contractors. Time pressures, lack of technical knowledge, a desire to have
 as broad a SOW as possible to avoid transaction costs and delays, or an
 unclear notion of what is wanted can all result in deficient SOWs. In some
 cases, perhaps because of lack of in-house expertise, Agency staff cede to
 the contractor their responsibility to prepare work assignments ~ an
 inherently governmental function.
       Second, the prohibition against the performance of personal services
 may be violated under cost-reimbursement contracts when work
 specifications are insufficient or unclear.  Informal instruction of
 contractors, which could result in the performance of personal services, is
 common when the written work assignment is inadequate.
       Third, Agency management has not documented or acknowledged
 the time and resources needed to manage cost-reimbursement contracts
 properly and thus has not factored adequate time into  staff workload
 requirements.  Because management places a higher priority on technical
 work to be performed by program staff than on their contracts
 management activities, staff are not motivated to spend time managing
contracts.52
      Fourth, cost-plus-award-fee contracts are traditionally used to
encourage better contractor performance. However, the award fee system
places time-consuming administrative burden on those managing the award
fee.  In particular, PO burdens of collating WAM contractor review forms
and convening the Performance Evaluation Board (PEB) for review of
   52Regional focus groups.
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information is burdensome, untimely and often poorly executed.53  As a
result, awards may not accurately reflect contractor performance and do
not provide timely feed-back.
       Finally, the sheer size of large national cost-reimbursement contracts
makes management and control of contractors a serious problem.

3.  Inadequate Training

       Many of the problems identified with contracts management at EPA
are the result of lack of experience, knowledge and training.54 Quality
training is essential to quality contracts management.  Interviewees have
repeatedly informed the Committee's staff of problems caused by
inexperienced or poorly trained contracts personnel.  Many contract
managers are neither trained in the fundamentals of government
contracting nor equipped with the skills they need to assume fiduciary
responsibilities over  public funds. This represents a significant financial
risk for the Agency and partially explains why a number of contracting
problems have developed.  In addition, until recently,  Agency managers
were not required to take contract training unless they have personal
responsibility for managing a contract.  The result was that often mid- and
    53GAO/RCED 92-45 "EPA Has Not Corrected Long-Standing Contract Management
 Problems," October 1991; GAO/RCED-88-182 "Superfund Contracts - EPA Needs to
 Control Contractor Costs," July 1988; GAO/T-RCED-89-8 "Sound Contract Management
 Needed at EPA," Statement of Richard L. Hembra, Associate Director, GAO, February
 1989; Regional interview and focus group.
    ^Superfund Contracts;  EPA Needs to Control Contractor Costs. GAO RCED 88-182,
 July 1988; Superfund: EPA Has Not Corrected Lopg-StanHJng Contract Management
 Problems. GAO RCED 92-45, October 1991. For example, problems can arise when EPA
 personnel do not understand the rules and are not aware of the situations that give rise to
 conflicts of interest. COI has not been emphasized sufficiently in EPA's training course on
 contract administration.
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senior-level managers did not understand the rules their subordinates must
follow or the limitations on their contracts management authority.55
       The interviewees were generally dissatisfied with the quality of the
training.56  The content of the Contract Administration course does not
fully equip EPA staff with the tools they need to assume their
responsibilities as contract managers.  Many of the courses for contract
specialists and technical personnel are provided by contractors, who lack
relevant EPA day-to-day contracting experience.  The course and
instructors do not emphasize the practical aspects of day-to-day contracts
management and the course material is overly theoretical. Contractor
instructors might also fail to emphasize all available sanctions that  can be
imposed on contractors. Courses are not adequately updated to reflect
changing requirements. The Agency pays insufficient attention to
modifying courses based on customer concerns and course evaluations.
Some technical staff feel that they are pressured to get the job done even if
this involves cutting corners with contracts.  The belief is widespread
among WAMs and DOPOs that managers are not only unwilling to support
them if their adherence to proper contracting procedures results in delayed
work products but that they may, in fact, be penalized for not stretching
the rules or violating them.57 These problems may result from managers'
insensitivity to contracts issues, which in turn may be  caused by insufficient
training.
       The Committee's staff is recommending a number of changes to  the
Agency's training process  to ensure quality contracts management.
    Headquarters and Regional focus groups.
    Headquarters and Regional interviews and focus groups.
   57Headquarters and Regional focus groups and interviews.

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 4.  Poor Cost Estimation

       EPA develops SOWs that require specific contractor performance.
 Independent government cost estimates (IGEs) must be made in advance
 of the issuance of work assignments to provide a reasonable basis for
 authorizing the work.58 The Agency has difficulty in preparing IGEs, due
 to the absence of good supportive data and guidance, including pricing
 techniques and current market costs, and the lack of qualified personnel.59
 Thus, until recently when IGEs have begun to be systematically developed
 in the Superfund program, EPA has relied on contractors to prepare cost
 estimates.  Contractors obviously have an incentive to inflate such
 estimates, or at best, err on the high side.
       Cost negotiations are critical at a WA or DO level. EPA's
 negotiations often appear to be arithmetic  calculations rather than detailed
justifications  of specific costs by activity.  Reliance on the expertise and
 goodwill of the contractor for cost estimation creates the possibility that
 the task will cost more than it should.  Contractors  are tempted to spend
 every penny available for a project, and often do so, since WAMs have a
 limited conception of the appropriate cost  of the job. An inexperienced
 WAM can easily accept whatever cost estimates are offered by the
 contractor.
       Little EPA guidance exists on cost-estimation. The Agency has not
 allocated adequate program resources to support development of IGEs.
The Agency is beginning to build databases containing costs of various
         §15.803(b).
    TiPA's failure to develop independent cost estimates has long concerned GAO. (EPA
Needs to Control Contractor Costs. July 1988; Superfund: EPA Has Not Corrected Long-
standing Contract Management Problems. October 1991).
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property and services procured by the government to assist in the
development of IGEs.60 The Committee's staff recommends additional
guidance, databases, and training to attain quality IGEs leading to better
control of contractor costs.

5. Inadequate Monitoring of Contract Cost and Performance

a. Poor Review of Invoices

       The level of financial risk to the government and thus the level of
financial monitoring necessary, varies with the type of contract.  Under
cost-reimbursement contracts the contractor is reimbursed for any costs
that are  reasonable, allowable, and allocable; therefore, there is little
incentive for the contractor to emphasize control of costs. As noted in the
Contract Administration course book:
       A time-and-materials, labor-hour, or fixed-rate indefinite-
       quantity for  services contract is of even more  concern, and
       the contractor has a direct incentive  not to control costs or
       perform efficiently, because every additional hour of labor
       charged will result in additional profit.

       Under cost-reimbursement type contracts,  the contractor is  required
to submit monthly reports on both technical progress and financial status.
Prior to  payment of invoices submitted by the contractor,  the PO for the
contract must review the invoices and certify that the claimed costs are
payable and that the government is receiving value commensurate with the
costs incurred.  A thorough review of the invoices requires a level of
        example, in the Superfund Program a database is being build through an
interagency effort involving EPA, the Department of Defense (DOD), and the Army Corps
of Engineers.

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familiarity with the activities occurring on each contract that a PO often
does not have.61 The PO may seek input from WAMs or DOPOs, who
are usually more knowledgeable about the specific activities expected of,
and performed by, the contractor during the performance period of the
invoice.  When such input is solicited, WAMs and DOPOs may review the
performance and financial information for  their individual WAs  or DOs
and report any deficiencies or questionable items to the PO.62 This
review should typically include an examination of labor hours, mix of labor
categories, equipment costs, travel, reproduction costs, charges by
subcontractors and consultants, and any other direct costs that may have
been incurred during the performance period covered by the invoice.
Sometimes, however, the POs conduct their reviews without such input.63
       POs are required by the National Contracts Payment Division to
approve invoices within 15 days of submission.  Consequently, the invoices
often receive only  a cursory review by either the PO or the WAM/DOPO
with no effective evaluation of the propriety of the claimed costs.64
       The CO for the contract has the  responsibility to review other
contract costs, such as overhead rates, rates for general and administrative
expenses (G&A), and other indirect costs.  These rates change infrequently
and are spot-checked randomly by the CO.65
       The Agency has not issued consistent directives on invoice review
that adequately specify procedures,  roles and responsibilities. Invoices do
    Headquarters, Regional, and laboratory focus groups.
   ^EPA, Contract Administration coursebook (November, 1991).
   "Headquarters and Regional focus groups.
    Regional focus groups, Headquarters interviews, and EPA senior manager.
         Contracts Management Manual, Project Officer's Handbook.

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not contain sufficient details to allow for adequate reviews. The system
imposes short time restrictions that encourage cursory reviews and
certifications.66

b. Inadequate Monitoring of Performance

       Many project managers reportedly do not adequately review
contractor progress reports. They do not adequately review the technical
or cost information they contain, and thereby lose an early opportunity to
detect and correct problems.
       Insufficient time is spent on contractor oversight, particularly in field
operations. Focus group participants frequently noted that they could not
spend enough time monitoring contractor performance.  This problem also
surfaced during an OIG audit of field operations at  Superfund sites.67
       The OIG has found that  in some contracts deliverables are not
reviewed sufficiently, and thus feedback to the contractor is inadequate.68
       The award fee provision  under many cost-reimbursement contracts
is one means of commenting on contractors' performance, but the system is
not effective unless the feedback is timely. The award fee process often
has proven to be slow and cumbersome and  not highly effective as a
method of controlling contractor performance.69
          interview.
   67OIG Audit Report, "Review of Region 2's Oversight of Superfund Post-Settlement
Activities," March 29, 1990.
         Audit Report, "Review of Region 2's Oversight of Superfund Post-Settlement
Activities," March 29, 1990.
     Focus group results.

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      There are no separate recommendations in Section IV captioned,
"Inadequate Monitoring of Performance." The recommendations for
improved training, guidance, rewards and recognition, and contract
language improvements are intended to result in improved monitoring of
contractor performance.

c.  Inadequate Monitoring of Government-Furnished Property

      OIG's recommendations in its CSC audit address issues involving
government-furnished property (GFP) procedures. The scope of the audit,
however, addresses concerns about GFP used in field projects or after
projects are concluded. The Committee's staff believes there are potential
vulnerabilities  in these two areas.  We learned, for example, that certain
GFP can be inventoried as a single system (like a water treatment system
at a Superfund site).  When the system is dismantled, however, the
component parts may not always be  accounted for in the inventory.70
Property control receives low priority, particularly in the field, where the
necessary paperwork may be neglected until years later when the contract
is closed out. The extent of this and other problems is difficult to quantify,
since EPA contract property personnel are not located in the Regions  or at
field sites.  The Committee's staff is recommending improvements in
training and guidance, as well as the formation of a Quality Action Team
(OAT) to evaluate property management and recommend additional
process  improvements.
   ^leadquarters interview.
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6. Problems With Indirect Costs

      The greatest controversy regarding indirect costs has arisen in the
context of "employee morale" costs.  EPA has been criticized for paying a
variety of claimed costs, including such widely discussed items as Christmas
parties, tickets to professional sporting events, Rolex watches and Tiffany
clocks. While employee morale costs  represent a tiny fraction of contract
expenditures, the public reaction to such costs can seriously compromise
the Agency's credibility. However, the FAR provides that costs incurred
for activities designed to improve working conditions, employer-employee
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relations, employee morale, and employee performance are allowable if
these costs are reasonable.71
        One of the issues which has been raised in the Congressional
hearings is whether the test of what is reasonable should be tailored to
reflect the standards in private industry, or rather, the norm in the
government.  In all but the most unlikely circumstances, it is not proper for
the government to provide its employees the sorts of benefits noted
above.72 The Committee's staff suggests that, since contractors are being
used to perform work for the government, the standard used to identify
    71FAR §31.205-13.  Under FAR §31.201-2, the factors to be considered in determining
whether a cost is allowable include the following:

        (1) Reasonability.
        (2) Allocability.
        (3) Standards promulgated by the Cost Accounting Standards
               Board, if applicable; otherwise, generally accepted
               accounting principles and practices appropriate to the
               particular circumstances.
        (4) Terms of the contract.

        Pursuant to FAR §31.201-3(a), a cost is reasonable if, in its nature and amount, it
does not exceed that which would be incurred by a prudent person in the conduct of
competitive business. The FAR emphasizes that "no presumption of reasonableness shall be
attached to the incurrence of costs by a contractor."  In fact, if the CO or COTR questions
the cost, the burden of proof is on the contractor to establish  that the cost is reasonable.
        The FAR §31.201-39(b) goes on to state that what is  reasonable depends on a
variety of considerations and  circumstances, including:

        (1) Whether it is the type of cost generally recognized as
               ordinary and necessary for the conduct of the
               contractor's business or  the contract  performance;
        (2) Generally accepted sound business practices, arm's
               length bargaining, and Federal and State laws
               and regulations;
        (3) The contractor's responsibilities to the Government...
               other customers.... and the public at large....

     Hearing, Subcommittee on Environmental, Energy and Natural Resources, Committee
on Government Operations, April 9,  1992.

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 reasonable costs should mirror more closely the standard used for
 government employees.
        GAO has found that a contractor's inaccurate recordkeeping hid
 other unallowable costs . For example, costs were sometimes claimed as
 allowable because they had been placed in the wrong account, rather than
 in an account that labeled them as clearly unallowable.  In addition, costs
 were passed along even though justification submitted by employees was
 incomplete or nonexistent.73

 7. Suspension and Debarment

        One of the more effective means available to the Agency to ensure
 contractor integrity is suspension and debarment (S&D).  The federal
 government's S&D  policy is to protect the public interest by awarding
 contracts only to "responsible" contractors.74 Businesses and individuals
 who are suspended  or debarred are excluded from entering into new
 contracts from any federal department or agency, thereby depriving them
 of the single largest customer in the American economy.
        The Compliance Branch of OARM's Grants Administration
 Division is responsible for accomplishing the Agency's S&D program.  Four
     According to GAO, in response to EPA's and GAO's audit work, CH2M Hill has
begun to change its accounting controls and is putting more complete reviews in place. See
GAO, Testimony Before the Subcommittee on Oversight and Investigations, Committee on
Energy and Commerce, House of Representatives, "Federally Sponsored Contracts;
Unallowable and Questionable Indirect Costs Claimed by CH2M Hill," March 19, 1992.
      The permissible grounds for S&D are broad, and thereby allow S&D to be used to
address almost all forms of misconduct by a contractor.  Among the enumerated causes for
S&D are the commission of any offense indicating a lack of business integrity and "any
other cause of so serious or compelling a nature that it affects the present responsibility of a
person." 40 C.F.R. §§ 32.305, 32.405.

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attorneys and one investigator are assigned to the Branch. EPA's S&D
program is recognized as vigorous both within and outside the Agency.  In
FY 1991, the Branch undertook suspension actions against 120 business
entities, debarred 79 firms, and reached agreements through which 39
others took remedial measures to restore themselves as "responsible
persons."75
       While S&D is a proven effective technique for addressing contractor
fraud and abuse, the commitment of human resources to the program and
its low profile in the OARM organizational hierarchy are not
commensurate with  this fact. In addition, some program offices are
reluctant to initiate  S&D, in part because of their unfamiliarity with  S&D
requirements and procedures. This, coupled with their dependence on
contractors contributes to a hesitancy to jeopardize the contract, even if it
is in the Agency's long-term interest.
       The small number of attorneys in the Compliance Branch requires
that S&D be reserved for the most egregious of wrongdoing by EPA
contractors. The Compliance Branch needs the resources to address poor
contractor performance that rises to the level of serious  intentional
deviations from contract requirements or a pattern of grossly negligent
performance. Merely terminating a contract with a contractor in such
 circumstances allows the contractor the opportunity to enter into Agency
 contracts and potentially cause a repetition of  such problems, or to contract
 with other federal agencies or departments and have them experience
 similar serious contract performance problems as encountered by the EPA.
 The only certain prevention of this recurrence is through suspension or
 debarment of a contractor.
    75Headquarters interview. These numbers include not only Agency contractors but also
 firms that were the subject of criminal and civil environmental enforcement actions.
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       The assignment of the S & D program, which deals principally with
the responsibility of government contractors rather than with that of grant
recipients, to a branch office in the Grants Administration Division, with
the title of Compliance Branch, unnecessarily disguises and minimizes the
role of the S&D program.

8.  Lack of Communication/Coordination

       The Committee's staff found almost universal agreement and
substantial evidence that the Agency's national contracts management
program is seriously lacking in effective and coordinated communications.
This is a clear systemic weakness that  derives from management
inattention, failure to recognize a continuing problem,  and failure to
attempt even the most rudimentary improvements.  Regional line staff ~
POs, WAMs, DOPOs ~ clearly felt isolated, lacking a voice to assist in
formulating the basic policies and procedures  that they must implement.
       During interviews, staff noted the lack of information sharing across
the organization as well as up the line. EPA does not adequately support
the contracting structure, processes and personnel with management
information systems. Poor communication, and the resulting lack of
consistent information about contracts, contractors, subcontractors, and
contracting guidance is a major weakness in the Agency. Currently,
fragmented systems store data in a variety of formats and are not
accessible to everyone, so baseline information is collected with difficulty
and uncertain validity.  These problems are  exacerbated as contracting
personnel, who want to do a job well, seek locally developed databases or
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create their own to fill the current void in information management
systems.76
      There are few methods for sharing information among COs, POs,
DOPOs and WAMS. Many DOPOs and WAMs operate in a vacuum
isolated from others who are doing similar work. Resources for
communication tools such as newsletters, meetings, and electronic bulletin
boards have not been channeled to EPA contract managers, except for
Superfund. As a result, COs, POs, DOPOs, and WAMs are not fully aware
of the roles and responsibilities of others in the procurement cycle.
      In addition, OGC and PCMD do not adequately coordinate with
each other on  important contracting matters such as policy decisions,
contract purposes and types, negotiations, post-award contracts
management issues, conflict of interest issues, contract close-outs and
program enforcement issues.
      Although geographic separation may have some bearing on the
communication and separation problems, the Committee's staff concludes
that the COs' workload, unclear responsibilities and competing priorities
also play a significant role.  Unreturned phone calls, lost documents, and
conflicting goals and guidance are symptoms of management problems and
staff confusion, not distance. Many said that COs cannot respond to the
programs they serve due to a lack of understanding that comes only with
presence and common experiences.
       Poor communication also extends to upper and mid-level EPA
management.  Most Agency managers are unaware of past
accomplishments or problems, results of management reviews, or ongoing
improvements in  contracts management. Most managers interviewed were
    76Focus groups and interviews Agency-wide.
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not aware of the contents of EPA's FY 1991 FMFIA Report, their own
offices' FMFIA Reports, government-wide GAO audits, OIG national
audits, or OIG Region-specific audits.  Currently, OARM and OPPE
operate separate tracking systems for OIG and GAO audits. Consequently,
the Agency is seriously falling behind in its ability to resolve audits and
implement corrective actions in a timely manner.77
       Recommendations to improve communications problems within the
Agency are contained throughout Section IV of this Report.
   March 1992 OIG Semi-Annual Report to Congress.
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                   IV.  RECOMMENDATIONS


                        A.  INTRODUCTION


      The Committee's staff recommendations to improve and correct
EPA contracts management were developed with the goal of realizing the

following vision of how EPA managers should function in the desired state:
      EPA managers would possess the skills to perform strategic
      planning, to organize, to direct and motivate employees, to
      provide timely and appropriate training, recognition,
      empowerment and teamwork, to perform measurement and
      analysis, and to assure quality.  EPA senior management
      would insist upon accountability and would replace ineffective
      and poor managers.  Where organizational  or programmatic
      changes occur, EPA management would use the opportunity
      to move skilled, effective managers into positions in the
      organization. Recognizing the need for an  integrated
      approach, EPA management would allocate sufficient
      resources to manage  its mission and emphasize that
      measuring success must include evaluation of all management
      practices, including the conscientious management of
      contracts.  The managers recognize the cultural barriers to
      quality contracts management and, with diligent effort, would
      begin to remove them.
      The Agency communicates the priority of contracts management

through its formal and informal structures, systems, and processes.

Business and management decisions and activities are an integral part of

accomplishing EPA's mission and must involve the same rigor and

professionalism exhibited in its scientific, technical and legal functions.
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      The Committee's staff recommends a broad range of changes that
affect all levels of contracts management activity and involve all the key
players in the contracts business in EPA. The recommendations fall into
two major categories: systems and processes.  They are intended to remedy
the underlying causes described in Section III above, in order to avoid
contracting improprieties such as those set forth in Section II.
      The first category of recommendations would construct a national
program for contracts management through a series of Agency-wide actions
including management accountability, reorganization, reallocation of
resources, improvement of human resources systems, and legal support for
contracts management.
      The second category of recommendations proposes a number of
detailed steps  to correct contract problems identified in the initial
"Problems" Section of the Report and the underlying causes described in
Section III C,  "Contract Processes." These recommendations address
guidance, training, communication and coordination within the contracts
management community.  Process recommendations also deal with
improvements in estimating and monitoring  contract costs, use of control
mechanisms, including contractor sanctions,  and control of government
property.
       We recognized that some organization units may not have sufficient
resources to implement all  of these recommendations. The Committee's
staff recommends that resources be reprogrammed as necessary.
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                    B.  MANAGEMENT SYSTEMS

1. MANAGEMENT ACCOUNTABILITY

      These recommendations address the authority, responsibility and
accountability of managers, contracts professionals and technical program
staff with contracts duties by defining the basic roles and responsibilities in
the contracting system. The  recommendations also address formal
management controls, audits and audit follow-up. A fundamental principle
of TQM is empowerment. Empowerment involves the placement of
authority, resources, and responsibility at the lowest practicable level
closest to where  the involved function is performed. This Report seeks to
apply that principle.

a.  Roles and Responsibilities

      The Committee's staff recommends a gradual restructuring of the
roles  and responsibilities of contract administration personnel.  Business
management functions now performed by POs and WAMs would be shifted
into the position of Administrative Contracting Officer (AGO) or
Contracting Specialist. Similarly, the technical functions now performed by
POs would be performed by the WAMs. WAMs would be trained  in the
new responsibilities and are  eligible to become Contract Officer's
Technical Representatives (COTRs).1 COTRs would be nominated by the
program office and appointed by the  ACO to perform all technical review
and oversight of a contractor's performance.  Only individuals who  have
   1GSA's "A Guide for Contracting Officers' Technical Representatives," (May 1991)
should be consulted and possibly furnished to all contracting personnel.
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completed required training may be appointed as COTRS. This
restructuring would reduce the levels of review and would narrow and
focus accountability. The new organization is represented in Appendix F.
      Placement Contracting Officers (PCOs) who award national
contracts would report to the proposed OAAM (see subsection 2.a.and b.
below) and would be located in Headquarters, RTF, and Cincinnati.
      National contracts used by the Regions would be placed from
OAAM and administered by the appropriate Headquarters Program office.
The PCO would be located in Headquarters, RTF, or Cincinnati.  After the
restructuring is complete, the program offices would have designated ACOs
to administer their contracts.  These ACOs would report to the SPO in the
program offices.  Each Region using a national contract would designate a
COTR to manage the technical functions required by the contract. The
COTRs would report to their immediate supervisors.
      Regional contracts, such as Superfund, facilities management, or
health care units, would continue to be placed and administered by the
Regions. This would require the realignment of some functions currently
being performed by POs and WAMs so that they are performed by ACOs
and COTRs. The PCO and AGO would report directly to the SPO in their
Region. The PCO and AGO would be located in offices directed  by the
SPO and not in the Regions' program offices. The COTRs would report to
their immediate supervisors, who may receive input from the SPO on the
COTR's performance evaluation.  In addition, in order to promote
accountability, the SPO should have input into the performance evaluation
of all managers in the COTR's chain of command.  Of course, the National
Program Manager will  continue to have a  role in planning and overseeing
program contracts, even if they are delegated to the  Regions.
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      To implement the restructuring of the roles and responsibilities of
contract administration personnel, the Committee's staff recommends that
all Regions and Offices submit an Implementation Plan (IP) to OAAM by
November 1, 19922. The IP will include:
      1)     an analysis of the impact on personnel;
      2)     an analysis of educational and other requirements for
             personnel;
      3)     proposed descriptions for employees whose present position
             descriptions will be affected by the restructuring;
      4)     additional resource requirements;
      5)     a complete listing of contracts currently in use by the
             Office/Region;
      6)     a certification that the Region or Office has the resources to
             manage the contracts it administers;
      7)     a schedule for developing and implementing contracts
             management plans for the contracts it administers;  and
       8)    an action plan for implementation, with milestones attached.
       Offices and Regions should prepare the IPs using workforce
 planning, as recommended throughout this Report.  Also, the IPs should
 consider implementation of a career track for contracting professionals,
 training of managers, and hiring practices  that match people, skills, and
 interests with tasks.  OAAM and  the  Office of Human Resources
 Management (OHRM) should work together to develop performance
 objectives and job description elements that accurately describe contracts
 management functions for COTRs. These elements should be ready for
 Agency review by April, 1993.
          are approximately 99 COs, 164 Contracting Specialists, and 4,000 POs and
 WAMS/DOPOs currently at EPA.

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       The IPs should be submitted to OAAM and reviewed. OAAM and
 each Office or Region should reach agreement on their contents.
 Implementation of IPs should begin by February 15, 1993.  Their
 completion date would depend upon the agreement made with OAAM.
       Under this structure, offices using EPA's large mission contracts
 would be accountable and responsible for managing the contract using
 good business practices within the policies established by the OAAM Policy
 Division and applicable law.  This makes EPA's program leadership
 accountable for its decisions.
       As a further check and balance, the Chief Financial Officer (CFO)
 would issue all CO warrants and terminate or limit warrants if contract
 mismanagement occurs.  In extreme cases of mismanagement, the CFO
 may decline to approve contract extensions, option years, or even
 undertake a re-procurement. Appropriate oversight and use of the CO
 warrant authority by the CFO would be an important part of good
 contracts management at EPA in the future.

 b. "Contracting Team" Concept

       Interviewees and focus group participants suggested the formation  of
 quality contracting teams to accomplish the life cycle management of a
 contract from award to closeout.  This system is used in other agencies and
 in private industry.3
      As described -above, all placement of national contracts would be
accomplished in OAAM.  A Quality Contracting Team would be created
for each contract to include the PCO, the ACO, the COTRs, the Program
   Interview with DOD officials.

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Office Manager or Supervisor, legal counsel, and a cost analyst. The team
would meet when appropriate during the procurement cycle and be
available for consultation in their areas of specialization as the need arises.
      It is important to convene the team upon the conceptualization of
the contract and keep it active through the placement, use, closeout and
audit of the contract.  This way, all team members would be fully
knowledgeable of the history and terms of the contract, and EPA's rights
and obligations.  The team concept also provides a system of checks and
balances through the life of the contract among those who use it.
      We recommend that the team prepare a contracts management
plan,  including a milestone chart, for the proposed contract.  This plan
would go beyond the acquisition plan to involve post award activities,
including scheduled team meetings for each contract year, through contract
closeout. Planning would include the methods for scheduling and tracking
of WAs or DOs, financial monitoring, scheduling of award fee activities
(where appropriate), schedules for exercise of options, etc. OAAM would
not proceed with a procurement unless the contracts management plan
demonstrates that adequate resources are available to implement it.
      Before EPA can award a contract, we recommend that each team
member must sign a certification form  which states that:  'To the best of
my knowledge and belief, I certify that the award of this contract and the
language of this contract comply with applicable federal law and written
EPA policy, and is in the best interests of EPA" This certification form
should be executed in addition to EPA Form 1900-19 and any other
applicable EPA contract review forms.
      We recommend the formation and institutionalization of support
groups in the  Regions, RTF, and Cincinnati under the new PCO, AGO,
COTR structure.  Membership would not be mandatory but would be

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encouraged by supervisors and peers and provide a way to extend one's
professional growth.  Support groups provide a format for education and
sharing ideas for improved systems and processes.  OAAM would develop
a communication plan and budget no later than the end of the FY94
budget development process, to support the  team concept and support
groups to enhance communication. The budget could include funding to
produce a newsletter targeted at the contract profession at EPA, with
articles explaining current policy, new policy, tips for making one's job
simpler, recognition of colleagues who have  demonstrated good contracts
management, clarification of legal issues, and other items of interest.
       OAAM should create opportunities for groups of PCOs, ACOs, and
COTRS to assemble  in quarterly or bi-annual meetings in Headquarters,
RTF, Cincinnati, and the Regions, as is done with Superfund contracts
management teams.  Other outreach/assistance activities would include
lectures,  hands-on workshops, contract-specific guidance, and team-building
exercises.

c.  Role of the Senior  Procurement Officer

       The Administrator recently required Assistant, Associate and
Regional Administrators to designate a single SES-level manager to serve
as Senior Procurement Officer (SPO) with full responsibility for the
effectiveness and integrity of all procurement activities, including contract
administration, in his/her office.  Separate, on-site SPOs should be
designated for each EPA laboratory or major EPA field site.  This was the
first step taken to improve the management accountability of contracts
management.
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      Since then, a cadre of approximately 50 SPOs has been appointed.
The Committee's staff recommends that the SPO retain complete
responsibility for contracting management within his/her jurisdiction.  The
SPO should be a member of the Senior Executive Service (SES), and when
at all possible, regularly maintain a position that encompasses cross-cutting
managerial responsibilities within his/her organization.  His/her
accountability for contracting management should not be delegated.
Appendix G provides a more detailed discussion of the duties and
responsibilities of the SPO. There are a number of recommended actions
in the Appendix pertaining to the  SPO responsibilities.
      The SPO would evaluate the performance of PCOs and ACOs
within his/her span of control.  Communication  on  policy and guidance
would flow to the contracting staff through the SPO. The contracting staff
would also rely on the SPO's support when program offices place pressure
to perform outside the required processes to get the job done.  Final
authority for  arbitrating situations when program goals and contracts
management goals seem to be conflicting would reside with the SPO with
support from the Assistant or Regional Administrator.
      To ensure that the various program offices with contract
responsibilities are correctly administering  the contracts within their span
of control, the SPO would provide input into the performance evaluation
for  the program managers. The SPO would provide an informal
evaluation, either oral or written, during April for each mid-year
performance  evaluation period. By October  15  of each year, the SPO
would provide a written evaluation of the contract administration in each
program for the performance evaluation period.
      No office head, division director, or Regional, Assistant or Associate
Administrator may receive an outstanding performance evaluation, award

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or promotion if there are serious deficiencies in the administration of
contracts under their command.

d.  Management Integrity Controls

      The Federal Managers' Financial Integrity Act (FMFIA) provides a
potentially useful mechanism for managers to identify their responsibilities,
to establish goals for meeting these responsibilities, and to specify the
means for achieving the goals. By fully utilizing the planning and
management features of the FMFIA process on a regular basis, managers
have built-in controls for identifying the most vulnerable steps in
accomplishing their goals.  Once managers have identified the desired
actions for accomplishing their goals,  the process is adaptable to frequent
assessment of high-risk areas in order to allow corrective actions to be
implemented early in the process, when they are most meaningful.  Most of
the recommendations in this Report are well suited to the management
techniques of the FMFIA process.  By including major action items in the
Internal Control documentation of the responsible managers, progress will
be effectively tracked.
      To ensure documentation of and accountability for FMFIA decision
making (see Appendix K, Case Study 6), the Committee's staff
recommends that the Senior Council  on Management Controls formalize
its decision process to document and  forward its recommendations to the
Administrator.  The Senior Council should prepare decision papers for the
Administrator reflecting each  member's view on whether an issue should
be declared as a material weakness.
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e. Audit Follow-Up

      Although EPA has recently allocated additional resources to audit
follow-up, the Agency has not been effective in this area. It is essential
that the Agency establish accountability to ensure that its commitments in
response to audits are kept and that corrective actions effectively remedy
the problem identified.  Otherwise, the current process, through which
successive audits raise identical problems, will continue.  The validation of
corrective action is essential to maintaining the Agency's credibility.
Accordingly, the Committee's staff makes the following recommendations:
      (1)    The Administrator should delegate authority and
             responsibility to the Chief Financial Officer (CFO) as the
             Agency's single audit management official, to  oversee all
             audit actions and ensure appropriate follow-up and corrective
             action by program offices and Regions.  The  audit action
             officials named by OIG should develop and implement a
             response to the audit and, with the concurrence of the AA
             for OPPE on GAO audits, will develop and implement an
             appropriate corrective action plan.
      (2)    The action official should be accountable for completion of
             corrective  action before closing an OIG or a GAO audit.
      (3)    The CFO  should review corrective actions before the action
             official may close  an OIG or GAO audit. The CFO should
             consult with OPPE regarding the programmatic effectiveness
             of the corrective action taken in response to GAO audits.
      (4)    The CFO  should develop a system of routinely evaluating all
             corrective  actions  implemented as a result of an OIG or
             GAO audit.  The evaluation would occur two  to three years

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      after the corrective action has been implemented. The
      purpose of the evaluation is to determine if the corrective
      action has corrected the problem(s) identified in the audit
      and to evaluate whether or not further improvements are
      needed.
(5)    The CFO should publish an annual "Lessons Learned" report
      by December 31 that summarizes the results of all GAO and
      OIG audits on contracts management, the corrective actions
      implemented, and the results of any evaluations that have
      been completed during the previous fiscal year.  The report
      will be sent by January 31 to all managers who have contract
      responsibility and be available for all contract managers.
(6)   The CFO should consider the creation of an automated data
      base, with capabilities similar to those used by legal staff for
      case law research, which would contain all OIG  and GAO
      audits and Agency responses. The purpose of this system
      would be to provide managers, contract personnel, and audit
      follow-up officials with comprehensive access to program and
      contract audits. It would also provide early warnings of
      contracts management problems.  This type of automated
      system  would prove useful in implementing recommendations
       (4) and (5) above.  The CFO should coordinate with OPPE
       on any automated data base for GAO audits and responses.
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f.  Case Studies

      Appendix K contains several case studies summarizing specific
contracts management problems.  The case studies include
recommendations which apply only to the circumstances set forth therein.

2. MANAGEMENT INFRASTRUCTURE

      The major thrust of these recommendations is to build a formal
organizational structure that would support quality contracts management
in EPA.

a. Reorganization of OARM

      EPA's OARM has a wide range of responsibilities,  including
facilities management, personnel, procurement and contracts management,
and budget. The Assistant Administrator for OARM is also the Agency's
Chief Financial Officer.  This welter of responsibility deprives contracts
management and other fiscal responsibility of needed attention. As
Senator Glenn has remarked:
      In some cases, CFO positions are being tacked onto the
      already overburdened shoulders of their assistant secretaries
      for administration or management as an afterthought. This
      practice all but ensures  that these very important jobs - and
      thus financial management - will get short shrift  in many
      agencies.4
   Congressional Record S18549 (Daily ed., November 26, 1991).
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       Contracts management must be given the stature and attention that
it deserves. Accordingly, the Committee's staff recommends that the
Agency's key business functions -resource management, acquisition and
assistance  — become the sole focus of an Assistant Administrator-level
office, headed by the Chief Financial Officer.  The Agency's primary
financial functions would then reside in a single, strong office whose
exclusive focus would be matters pertaining to fiscal management and
accountability.  This office would accomplish its mission through directly
managing EPA's financial functions and vigorous oversight of related
activities in other parts of the Agency. The Committee's staff believes this
focus, placing emphasis on the CFO function, is highly consistent with the
spirit and letter of the CFO legislation.  The staff interviews with OMB
and relevant congressional staff indicate the same.  Other functions of the
current OARM would be consolidated under an Assistant Administrator
for a new Office of Human Resources, Facilities, and Information
Management (OHRFIM).  (See Appendix F.)5
       As shown in Appendix F, the proposed Office of Acquisition,
Assistance, and Finance (OAAF) would consist of the  Office of Acquisition
and Assistance Management and the Office of the Comptroller.  The  head
of OAAF would be the  Chief Financial Officer (CFO) and the Senior
Procurement Executive of the Agency.
        plain language of Section 205 of the Chief Financial Officers Act of 1990, Pub. L.
 101-576, codified at 31 U.S.C. § 901, may be interpreted to establish the Chief Financial
 Officer of each agency as a presidentially appointed/Senate (PAS) confirmed position. The
 proposed reorganization accordingly would not increase the total number of EPA Assistant
 Administrator-level PAS's already statutorily authorized.  Thus, the AA for OAAF would
 use the PAS position authorized by the CFO Act, and the AA for OHRFIM would use the
 PAS position currently filled by the AA for OARM.
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 b.  Organization of New OAAM

       We recommend that the new Office of Acquisition and Assistance
 Management (OAAM) consist of a staff Office of Suspension and
 Debarment and at least three divisions - a Procurement Division (PD), the
 Grants Administration Division (GAD), and the Policy, Evaluation and
 Training Division (PETD) - which would take effect upon clearance of the
 AA-level reorganization.
       The Committee's staff recommends a reorganization of the functions
 of suspension and debarment into an Office of Suspension and Debarment
 (OSD), reporting directly to the Director,  OAAM. This reorganization
 would properly align suspension and debarment activities, currently in the
 Grants Administration Division, into one staff office to serve both the
 grants and contracts functions.  The OSD would be responsible for
 managing the Hearing Officer function and the duties of the S&D
 Debarring official.  OSD would be responsible for ensuring contractor and
 grantee compliance with federal law and regulations and overall national
 policy development, direction and oversight. Finally, we recommend that
 the Agency reconsider the resources required for these functions and
 ensure appropriate allocation of resources, especially to increase
 communication with state and local officials.
       The Procurement Division (PD) would be responsible for the
placement of national contracts and would be geographically located in
Washington, D.C., RTF, and  Cincinnati. Each of the three locations would
report functionally and organizationally to the Director, PD.  The post-
award administration of contracts would not take place in OAAM.
      The Policy, Evaluation and Training Division (PETD) would
combine certain resources from both the current PCMD and the Grants
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Administration Division to provide stronger, more effective policy
development, training, and evaluation for procurement and grants. The
Division would promote and monitor strategic planning; develop effective
workload models; implement workforce planning, training and staff
development for acquisition and assistance professionals; interpret and
establish policies and guidance; establish quality performance measures and
evaluate the Agency's contracts and grants programs; provide advice and
guidance to SPOs; perform quality assurance and quality control review;
perform cost review and closeout functions; and maintain communications
and information management systems for acquisition and assistance
activities.
       The Grants Administration Division would consist of the current
functions of the Grants Administration Division except that:  (1) its policy
functions would be in the PETD, and (2) its suspension and  debarment
function would be located in a staff office to the Director, OAAM.
       We recommend that the Office of the Comptroller consist of its
 current three divisions -- the Resources Management Division (RMD), the
 Financial  Management Division (FMD), and the Budget Division (BD) --
 with the following changes of responsibilities, which would take effect as
 part of the reorganization:

        (1)   The Agency's GAO liaison and audit follow-up function and
              associated resources would transfer from the Office of Policy,
              Planning and Evaluation (OPPE) to the Resource
              Management Division, Office of the Comptroller, consistent
              with its role of OIG audit follow-up and FMFIA
              coordination.
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       (2)    The functions and resources of the National Contracts
             Payment Division in RTF would transfer to the Financial
             Management Division, Office of the Comptroller. Staff
             would remain geographically located in RTF, NC.
       (3)    In keeping with our recommendation to analyze extra- and
             intramural resource options through the budget process, the
             Budget Division (BD) would be responsible for the Agency's
             activities to implement OMB Circular A-76, which are
             currently in RMD.  (See Section IV.B.3., Allocation of
             Resources -- effective September 1, 1992.)

c.  Placement of Competition Advocate

       In order to ensure full independence to promote competition in
contracting, the Competition Advocate would report  directly to the
Director of OAAM.

3.  ALLOCATION OF RESOURCES

a.  Affirmative Use of the Budget Process for Acquisition Decisions

       EPA will continue  to contract out elements of its work to the
private sector. The Agency needs a planning process that assures the best
use of both EPA FTEs and contractors in accomplishing its mission.
EPA's use of contracting mechanisms must be coordinated through the
annual budget process.  We believe this process should be used to ensure
that contracting decisions  are reviewed and approved in advance by senior
Agency officials and that appropriate scrutiny is applied to each decision

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about whether to contract out specific categories of work.  As part of that
process, the Office of the Comptroller's Budget Division would be
responsible for issuing EPA's budget call letter, coordinating with the
Office of Acquisition, and ensuring that EPA's A-76 program is used
effectively to  evaluate contracting.
         In preparation for the FY95 budget submittal, EPA should review
its use of contractors Agency-wide. By November 30, 1992, PCMD should
develop guidance that identifies criteria to assist with the analysis of the
appropriate use of contractors. The guidance should address issues such as
personal services, IGF, conflict of interest, and cost-effectiveness. By
February 28,  1993, each program office should be responsible for
developing its overall resource allocation, together with its justification for
contract resources.  The submission should include an analysis of
contractor use versus EPA employees and a set of recommendations for
resource allocation based on that  analysis.

b.  Adequacy of Resources for Contracts Management

      The Agency must recognize the importance of contracts
management activities within its current workload models. Program offices
should review existing models to ensure that pricing factors identify
contracts management as a cost element. OAAM should  review current
pricing  factors and determine their appropriateness for the next workload
model cycle.  OAAM should develop a workload model for contracts
management -- both for contracting offices and program offices' contracts
management functions.
       In order to improve EPA's ability to estimate resource demands, we
recommend that the Agency develop a pilot program to test systems (using

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time sheets and time-and-motion studies) that document time and
resources allocated to contracts management. Effective systems are
available that could serve as models for the Agency, e.g., the system used
in the State of Connecticut's Department of Environmental Protection.
The proposed OAAM should field-test the pilot system throughout the
contracts management infrastructure, including contract placement and
administration activities in Headquarters, Regions, and laboratories.  The
results should assist the Agency in improving its workload modeling and
workforce planning.
       In addition, the Agency should consider increased use of temporary
employees. The Office  of Personnel Management recently promulgated
regulations allowing the hiring of private sector temporaries.6 While these
regulations have been used primarily for secretarial help, there is no
limitation  on the nature of services that can be obtained.7  The Agency
should explore whether further advantage may be taken of the flexibility
conferred  by these regulations, which allow EPA to retain contractor
personnel in situations where EPA employees cannot fill a  critical need.8
This mechanism allows the Agency to retain services needed for the
performance of its mission, within the context of clear restraints that would
avoid the problem of personal services. The Committee's  staff believes,
   654 Fed. Reg. 3766 (Jan. 25, 1989), 5 CFR Subpart E (1991).
   7The regulation excludes only SES and managerial or supervisory positions.  5 CFR
§300.502.
   8EPA must assure that the contracting firm remains the legally responsible employer.
The contracting firm has the responsibility to recruit, test, hire, train, assign, pay, provide
benefits and leave, discipline, and terminate the temporary employee. However, it is
inescapable from the nature of the work performed by temporaries (especially secretarial
employees) that the Agency must exercise day to day supervision.
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however, that the current 45-day limitation on temporaries is needlessly
brief and recommends that EPA seek to have the regulations modified to
extend that time period. The Agency may wish to consider rotation of
contractor personnel in order to avoid continuous supervision.

4. HUMAN RESOURCES

      These recommendations address the underlying causes identified in
many of the interviews and focus groups relating to the ability of EPA to
attract and retain the right people  in contracts management positions.  The
specific areas of recommendations are workforce planning, recruiting,
career management, and rewards and recognition.

a. Workforce Planning

      The new Office of Acquisition and Assistance Management
(OAAM) and EPA program offices need to employ basic workforce
planning techniques to identify the skills needed to perform contracts
management functions. In addition, to implement the Committee staffs
recommendations on the contracts management infrastructure,
accountability and  contracting teams,  OAAM should be able to use
established workforce planning methods to anticipate the recruitment,
training and development of staff and teams to perform the needed
functions.
       Strategic planning should address what EPA does in terms of its
mission; budget planning should tell the Agency the FTEs and dollars it
has to get the work done, acquisition planning should help the Agency
determine how it should carry out the work - through EPA staff, contracts,

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grants, lAGs, cooperative agreements, etc. ~ and workforce planning
should enable the Agency to anticipate who will perform contracts
management jobs.
       OHRM should assist OAAM, the Office of the Comptroller, and
OPPE in integrating workforce planning into the overall planning
framework of the Agency to support contracts management activities in
OAAM and in the AA-ships and Regions.
       OAAM should initiate a pilot analysis within one AA-ship or
Region to focus on future human resource needs, on-board skills, existing
gaps, and proposed recruiting, training and development efforts to support
contracts management activities.  The analysis should result in the creation
of a "Contracting Skills Inventory" used to identify the levels of
qualifications and resource skills of persons presently involved with
contracts administration. Individual Development Plans or Training Plans
should be used to supplement the technical expertise already found in the
organization. The deadline for this is December 31, 1992.

b.  Recruitment

       In order to  ensure a well qualified contracts management workforce,
beginning October 1,  1992, all requests to OHRM for vacancy
announcements should indicate the percentage of contracts management
work to be performed, together with a description of associated duties such
as technical review, invoice review, and contractor monitoring and
performance evaluation.
       The subject matter expert in the program office  should work with
the staffing specialist  hi OHRM to identify the knowledge, skills and
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abilities (KSAs) required by the position so that the applicant will know
exactly what the duties of the position are.
      By October 1, 1992, OHRM and OAAM should develop or revise
model language for contracts management performance standards for all
employees with contracts management responsibilities; OAAM should be
responsible for disseminating this standard by October 15, 1992.  The
model should include such items as timely planning of work assignments,
financial monitoring, invoice reviews and detailed evaluations of contractor
performance.
      By October 30, 1992,  programs and other offices should review all
current position descriptions and FY93 Performance Standards to ensure
that these reflect contracts management responsibilities.  Managers and
supervisors involved with contracts management duties should assign
appropriate weights for such work to their staffs respective Performance
Standards.

c.  Career Management

      To address the problem of lack of career advancement for technical
experts, OHRM should examine the Agency-wide applicability of the Office
of Research and Development's system of non-managerial career tracks for
senior scientists. In the long term, this approach should help  alleviate the
problem of scientists and engineers going  into managerial careers by
default, without the motivation and interest in management and
administrative responsibilities such as contracts management.
      OAAM and OHRFIM should evaluate the existing grade structure
for contract managers by December 30, 1992. By October 1993,  OAAM
and OHRM should correct disparities between  the grade structure for

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contract managers and the grade structure for other program personnel.
OAAM should also review career tracking of the contracting profession at
EPA and should further consider methods for encouraging rotations
through placement and administration, Regions and Headquarters, policy
and training.
      To provide some career incentive for technical staff at pre-
supervisory levels, the Agency should give weight to the quality of contracts
management  skills demonstrated by the employee, recognizing the
planning, analysis, negotiation, oversight, tracking and evaluation abilities.
These abilities will be considered in crediting for managerial experience
when an individual applies for a supervisory or managerial position.

d.  Rewards and Recognition

      Effective  cultural changes are brought about by the appropriate use
of both positive  and negative incentives.  The recommendations throughout
this section provide both.  In line with the earlier discussion of contracting
teams, the Agency should recognize and reward team performance  as
visibly as individual accomplishments.  This should reinforce the cultural
shift toward teamwork, which is a key factor in the organizational and
functional changes recommended above.
      Contracts management should be recognized by Agency managers as
important to  the fulfillment of EPA's mission.  The Agency should
recognize effective contracts management through existing awards and
incentives or through specially tailored program awards. The Agency
should promote  the practice of individual program offices setting aside
specific funds for contracts management awards, especially for staff who
perform these duties as part of their jobs, but not on a full-time basis.
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      The granting of peer awards is another approach that has proven
successful in the Office of Water for recognizing "customer" service.  Peer
awards are "on-the-spot" cash awards actually recommended and awarded
by staff to other staff in or outside the organization for excellent service.
This could be particularly appropriate for contracts management service,
since it is a major form of internal customer-supplier interaction.
      There must also be a recognition of poor performance by staff or
managers. Agency managers must use the personnel rules available for
dealing with poor performance.  Simply shuffling employees from one job
to another or putting them in an area considered to be unimportant is not
acceptable.  Not taking the  appropriate personnel actions when problems
occur sends the same negative message as rewarding a manager for only
doing part of his/her job correctly.

5.  INVOLVEMENT OF LEGAL COUNSEL

      The Agency should reallocate current legal resources or hire more
contract attorneys to provide legal support for contracts management. A
QAT consisting of legal and contracting Agency personnel from
Headquarters, RTF, Cincinnati,  the Regions and the field laboratories,
should be created to determine where new contract attorney resources
should be placed, based on the location of COs and their corresponding
legal needs.   The QAT should complete its study by January 31, 1993.
The Committee's  staff is convinced that contract attorneys are needed in
EPA's Regional offices and believes that they should report to the
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Regional Counsels.9  Once such a reporting relationship is established, the
Committee's staff recommends that the reporting relationship among the
Regional Counsel, General Counsel, and Assistant Administrator for
Enforcement be adjusted to accord with the Regional Counsel's increased
counseling function.
       The Committee's staff also recommends that PETD and OGC
amend the Acquisition Handbook to address in more detail the roles and
responsibilities of EPA contract attorneys. The Handbook should provide
for OGC or  ORC (as appropriate) concurrence for legal sufficiency in the
final contract award.  This action should be completed by January 31, 1993.
       The Committee's staff recommends that contract attorneys
periodically review standard or boilerplate contract language to determine
whether it continues to serve the needs of the Agency.  The first review
should be completed by June 1, 1993.  Thereafter, reviews should be
completed by June 1 of each succeeding year.
       Finally, the Committee's staff recommends that contract attorneys
be present at any meetings between the Agency and the contractor where
the contractor counsel is present.  The contracting staff should notify the
contracting attorney in advance of such meetings.
    9The Regional Counsels should manage these attorney resources rather than OGC
because (1) regional contracting staff report to the Regional Administrators, who are
advised by the Regional Counsels; (2) there will be no disconnect between staff attorney and
management, unlike the existing disconnect between the attorneys in RTF/Cincinnati and
OGC management; (3) legal contract questions requiring the interpretation of state law can
be resolved by regional contract attorneys holding local state bar licenses; and (4) the
Regional Counsels and new contract attorneys can be readily trained. The Committee staff
notes that NASA, DOE and GSA have decentralized their contract legal support-field
attorneys are recruited locally and report to the field legal managers.

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                    C. CONTRACT PROCESSES

1. Establishment and Dissemination of Policy and Guidance

      The Agency needs a strong central source for consistent, easily
accessible guidance on contracting policy.  The formation of OAAM, with a
single policy unit, will establish the necessary organizational foundation; a
strong management presence is required to exert the necessary leadership
for a comprehensive national contracts management program.  Areas
where substantive guidance is particularly needed are set forth in Section
Cl.b. below.

a. Promote Clarity  in Policy and Guidance

(1) Consolidation and Clarification of Guidance

         By February 1, 1993, the new Policy, Education and Training
Division (PETD) should have sole responsibility for issuing guidance for
contracts management.  By December 15, 1992, the SPO in each office that
has issued guidance relating to contracts management should compile in
notebooks and clearly label all guidance  that is currently in effect.  The
notebooks should include a complete and accurate index of all documents
contained therein.  The SPO should provide a complete copy of the
guidance notebooks to PETD and OGC.  By March 1, 1993, PETD and
OGC should have reviewed all of these notebooks and identified all
guidance requiring modification.  By May 1, 1993, PETD and OGC should
issue a schedule for revising, replacing, or clarifying all guidance that
requires modification. If OGC and  PETD do not have existing resources

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 to perform this function in a timely manner, then a group composed of 10
 to 15 senior attorneys, COs, and POs should be appointed to review the
 guidance. The group members should report to PETD and OGC but may
 work out of their home offices.
          All guidance must be clearly labeled as guidance, dated and
 numbered. If a document is not clearly labeled as guidance, it should not
 be considered or followed. A system should be developed for filing the
 guidance in a central notebook.  By October 30 of each year, PETD should
 issue an updated index of all existing guidance.
          Requests for guidance development or amendments should be
 sent to the Director of PETD. The Director should evaluate the requests
 and develop a schedule for issuing this guidance.  The Director would then
 issue the schedule listing the guidance in the development and planning
 stages, with an estimated date  of completion on or before January 1 and
 July 1 of each year. The Director would send the schedule to the AAs,
 OGC, the RAs, SPOs, Regional Counsel, and  all Division Directors and
 Branch Chiefs involved in contracts management.

 (2) Hotline or Bulletin Board

         OAAM should make  clear guidance readily available for
questions of an ad hoc nature.  We recommend that an information hotline
or electronic bulletin board be  established so that contract managers
throughout the Agency may get quick and practical advice for real
situations or an interpretation of existing guidance to address situations as
they arise under contracts. This action should  be completed by June 1,
1993.
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(3)  Single Guidance Document

         We recommend that the Acquisition Handbook be abolished and
that its contents be merged with the Contracts Management Manual and
EPAAR (if applicable, e.g., EP clauses - See (l.)c. below) so that a single
guidance document supplements the Acquisition Regulations for all Agency
contract managers. OAAM should complete this merger by June 1, 1993.

b.  Establish Subject Matter of Needed Guidance

         EPA especially needs to develop and issue guidance in the
following areas:

 (1)  Contractor Performance

         PETD should issue user-friendly guidance on management of
 contracts, including preparation of SOWs for contracts, WAs and DOs,
 preparation of independent government estimates (IGEs) of cost, and
 formal documentation of oral contract authorization. This action should be
 completed by December 1, 1992. Better SOWs and IGEs would help
 eliminate inappropriate personal services and provide better  control of
 contractor costs.
          PETD should develop a guidance package, including a videotape,
 for use by performance evaluation boards. The package would promote
 more consistent implementation of the performance evaluation process for
 determination of award fee in cost reimbursable contracts. This guidance
 should be prepared by January 1993.
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  (2) Avoiding Contractor Performance of Inherent Governmental Functions

          Although EPA has issued an order with general guidelines
  regarding what is appropriate to contract out, this has not proved in
  practice to be sufficient.  The Committee's staff therefore recommends that
  PETD publish guidance containing a more comprehensive list, with
  examples of the sorts of tasks for which it is inappropriate to contract out
  (e.g., drafting regulations or congressional correspondence, reviewing state
 program submissions).
          In addition, EPA can monitor for inappropriate use of contractors
 by directly addressing the issue in the contracting documents. Currently,
 EPA Order 1900.2 requirements are inserted into all new contracts. The
 guidance to be developed should also include standard language to be
 inserted in SOWs for contracts, DOs and WAs to the  effect that no IGF
 should be performed.  OAAM should consult with OGC in preparing this
 language.

 (3) Avoiding Personal Services

         EPA needs to take firm steps to counter the perception and
 reality of personal services.  The Agency must alter its relationship with
 contractors to make it clear that it is EPA that directs the contractors, not
 vice versa.  The  Agency must ensure that SOWs are as clear and precise as
 possible, so that  the need for continual supervision of the contractor is
 minimized. EPA needs to draw some  bright lines around what is and is
not allowed and  make clear to all personnel the importance of following
the rules.
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         At the same time, as long as EPA remains heavily dependent
upon contractor support, the Agency should be careful not to create an
adversarial relationship or atmosphere of distrust between EPA and
contractor employees. Efficient operations require an open dialogue
between EPA and contractor employees.
Officials at other agencies warn that an adversarial culture between the
agency and contractors has adversely affected the quality and timeliness of
the product involved.10 Rather, the Agency must encourage building of
teams that include contractor employees and EPA employees.  EPA should
build on other agencies'  experience in using TQM principles to improve
the quality of both contracts management and performance.  In
implementing its recommendations, the Committee's staff emphasizes the
need to keep these two principles in balance. (See Appendix K, Case Study
7).  Specific recommendations regarding personal services follow:
          (A)   OAAM  and OGC should jointly prepare a  detailed
                guidance document and videotape dramatizing the EPA
                policy on personal services.  The guidance should include
                 as many specific examples as possible of what does and
                 does not constitute personal services. This should be
                 accomplished by February 1, 1993.
                     All EPA employees should be required to attend
                 training on this subject.  In addition, an annual refresher
                 course,  perhaps taught in conjunction with ethics, should
                 be required for each employee whose job involves
     10Interviews with DOD, NASA officials.

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                 contract-related issues, as well as that employee's
                 supervisors and managers.11
           (B)   The Administrator should send a memorandum to all
                 employees instructing them not to participate in the hiring
                 or firing of individual contractor employees.  Evaluation of
                 such employees should be conveyed to the appropriate
                 contractor supervisor through the CO or the  CO's
                 appointed representative. By July 1, 1993, OHRM should
                 draft revisions to EPA's personnel regulations to
                 specifically make a violation of these instructions a serious
                 offense.
          (C)    By October 1, 1992, all future contracts should include
                 provisions, to be developed by OAAM and OGC, (i) that
                 employees of contractors and subcontractors be trained, at
                 the contractor's expense, in personal services  restrictions;
                 and (ii) that contractors have adequate management
                structure in place to supervise and control the
                performance of their employees.

 (4) Avoiding Conflicts of Interest (COIs)

         (A) OAAM could prevent possible COI problems by focusing, to
a greater extent, on COI during the planning  and acquisition phases. An
"up-front" investment in prevention could avoid many COI issues that arise
after award of the contract.  In  consultation with OGC, OAAM should
carefully review solicitations and contractor's bids to avoid, neutralize, or
    Cross-reference training.
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mitigate potential conflicts of interest and be required to make a written
finding of its analysis at each appropriate stage of the procurement. The
deadline for implementing these procedures is January 1993.
         (B) For every procurement, OAAM should determine whether
the contract should include language from Section 13 of EPA's draft COI
regulations. The draft regulations would amend Section 1552.212.71 of the
EPAAR and require a contractor to certify to the best of his or her
knowledge and belief that all actual or potential organizational COIs have
been reported to the CO or that no actual or potential organizational COIs
exist.
         We recommend that each SOW for contracts, DOs and WAs
 requires contractor submittal within five days of receipt of any known or
 potential COI.

 c. Amendments to EPAAR

          PETD and OGC should review all class deviations to the
 EPAAR and EP clauses in the Acquisition Handbook to determine which,
 if any, should be adopted as amendments to  the EPAAR.  OAAM will
 then prepare *  Fgforal Regulations notice incorporating those
 amendments. The deadline for the review of deviations is March 31, 1993,
 and for the Proposal of Regulations, October 31, 1993.
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  2.  LONG-TERM CONTRACT PLANNING

  a.  Integrated Planning

          We recommend that the Agency fully integrate its strategic,
  budget, and acquisition planning processes, and that these processes be
  linked to quality and timely Agency outputs and accomplishment of the
  Agency's mission. We recommend that the Agency's Budget Reform Task
  Force, which has made some progress in linking strategic planning and
  budgeting processes, develop a plan of action, in coordination with OAAF
  and OPPE, with milestones to implement this recommendation by
  September 30, 1993.

 b. Planning Contract Type

         Managers sometimes choose large cost-reimbursement contracts
 with wide-ranging statements of work because of the lengthy lead times for
 award of contracts.  In  order to encourage use and management of
 appropriate contract types, we recommend the formation of a Quality
 Action Team (QAT) to study how the Agency can reduce contract award
 lead time, increase competition,  tighten cost and performance controls,
 better evaluate contractor performance, and more efficiently collect and
 utilize contractor performance evaluations for future award decisions.
 OAAM should establish the QAT composed of Headquarters, Regions, and
 Field personnel by December 31, 1992.
         In addition, the Agency should prepare a plan for executing long-
term contract planning with the goal of using the most cost-effective
contract types, including, where appropriate,  fixed price contracts and

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hybrid cost-reimbursement contracts. The planning horizon should be
three years or longer where existing program plans and known
congressional mandates make it feasible. OAAM should coordinate this
plan with each program office.
         This plan should consider the use of an "omnibus contract," in
which either cost-reimbursement or fixed-price WAs are available under
the contract.  Further, this plan should encourage contract teams to
consider negotiating hybrid contracts that would better shift the risk of
performance away from the government.
          This plan should also include consideration of parallel awards of
 several smaller cost-reimbursement contracts to prevent over-dependence
 on any single contractor.  Additionally, the plan should consider procuring
 contracts with overlapping SOWs to provide the Agency with the  ability to
 compete particular WAs among contractors to  assure cost-effective
 contracting.
          The deadline for this plan for executing long-term contract
 planning is February 1993.

 c.  Selection of Contract Type

           OAAM and OGC should modify the Solicitation Review Form to
 include a specific reference to the fact that appropriate review of the
 contract type solicited occurred.  If a pure cost-reimbursement contract is
 solicited, this clause should specifically certify that the Agency has met the
 limitations on utilization of cost-reimbursement contracts set out in FAR
  16.301-3.
           OAAM should prepare a guidance document regarding the
  different contract types available to the Agency, along with the advantages

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and disadvantages of each type.  This document should be completed by
February 1993 and included in the plan for contract planning.

d. Award Fee Contracts

         OAAM should review and modify the policy for determining
when an award fee contract is appropriate. This policy should set out the
procedure that the contracting officer will use in determining the maximum
percentage of award fee available.  The policy should be used by COs
during the pre-award contract phase. This action should be completed by
January 1993.

3. TRAINING

         Virtually every focus group raised the inadequacy of contracts
management training as a major problem. The Committee's staff agrees
that the Agency's training program is woefully inadequate and in need of
fundamental revitalization. We offer the following recommendations:

a. Training Staff Workload

         OAAM and OHRM should perform a workload analysis to assess
the need for additional training staff. This action should be completed by
November 15, 1992.  Additional staff should be recruited as needed.
OAAM and  the EPA Training Institute  should complete this action by
February 15,  1993.
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b. Improve Contracts Management Training - General

         (1)  EPA should examine its contracts management training
courses and upgrade or replace them with courses individually tailored to
specific contract roles and responsibilities.  These courses should be
designed by a team consisting of contracts management staff in OAAM and
the program offices. Other federal agencies, including the Acquisition
Institute  and DOD, should be consulted. OAAM must ensure that
modified courses eliminate material considered of little or no relevance to
the target audience.  OAAM should ensure that ethics are included in the
subject matter of the contracts management training program, similar to
that recently provided in SES and some Regional contracts management
training.  OAAM must streamline procedures for modifying course material
and should institute a process that allows for continuous improvement of
course content based on student feedback.
         Case studies, role playing, and break-out groups should
supplement lectures. Interactive training techniques encourage group
discussion and allow groups to surface relevant issues so that they may
serve as points of discussion and a basis for group problem solving.
Experienced contracting professionals or contract managers should serve as
course instructors.   OAAM should complete these action and coordinate
with the  EPA Training Institute by March  1, 1993.
         (2)  OAAM should develop short (one- to two-hour) seminars on
topical issues in contracts  management as necessary, establishing target
audience attendance requirements as appropriate.   The first of these
seminars should be prepared by March 31, 1993.
         (3)  OAAM should also develop a one-hour contracts
management orientation videotape for mandatory viewing by all new

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Agency hires.  OAAM should also provide an on-site trainer to answer
questions. This action should be completed by December 1, 1992.
         (4)  We recommend that by March 1, 1993 all SES managers,
ODs, and Division Directors re-certify their FMFIA responsibilities, as they
apply to contracts management, through a course offered by the on-site
FMFIA coordinator.

c. Develop Specific Contract Issue Training

         OAAM should develop a comprehensive training course for COs
on the advantages and disadvantages of various types of contracts.  This
training course should include practical illustrations of the various
advantages and disadvantages of particular contract types. In addition, this
course should include mock contract negotiations to empower the COs to
negotiate hybrid contracts which, when appropriate, would better shift the
risk of performance to the contractor. In general, this training should
support the recommendations regarding planning contract type.  The
training course should be ready by September 1, 1993, and the training
complete by February 1, 1994.

(1) Practical Orientation Course

         OAAM should develop a brief orientation on contracts
management, beyond that provided to all Agency hires, along with  a "How
To" guide for writing WAs, procurement requests and other common
administrative actions.  This would help acclimate newcomers to contracts
management at EPA while they are waiting to take formal training. This
action should be completed by January 15, 1993.

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(2)  COI Training

         The Quality Assurance Unit of OAAM should work with OGC to
incorporate a COI training unit, emphasizing realistic case scenarios, into
the contracts administration training courses. OAAM and program
managers should reinforce the prohibition on contractor participation in
developing WAs. This action should be completed by January 15, 1993.

(3)  Suspension and Debarment Training

         EPA should provide contracts management personnel with the
tools and train them in the methods available to enforce contract
performance, including training on Suspension and Debarment, with
emphasis on how to make S & D an effective tool for controlling
contractor abuse. OAAM should develop this training by January 15, 1993.

(4)  Invoice Review Training

         OAAM should develop training for ACOs and COTRs on invoice
review.  Emphasis of training should be on the provisional nature  of
invoice payments and the ACO's option to partially suspend invoice
payments while resolving questionable claims and to recover overpayments.
OAAM should require certification of attendance as a job standard
prerequisite.  This action should be  completed by May 1993.
                                  96

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(5) Property Management Training

         OAAM should work to improve property management training
for contracts managers.  The Agency's basic training curriculum must be
adapted to include property management, covering at a minimum: (1) the
procedures for property justification before its purchase by a contractor, (2)
registry of property on the Personal Property Accounting System (PPAS)
after purchase, (3) definition of circumstances when property must be
registered after its  removal from an installed system, (4) transfer of
property, and (5) disposal of property in a manner most advantageous to
the Agency. The action date for this is March 1, 1993.

4. COST ESTIMATION

         Development of in-house cost estimation skills is an Agency
contracts management priority. OAAM should work with program offices
to prepare  cost estimating guides and the corresponding databases to assist
with the development of valid independent governmental estimates.
Guides should be completed by October 1992, followed by continual
development of databases.
         As is already required in the Superfund program, independent
cost estimates should be required for all WAs in excess of $25,000. The
SPOs  should complete an analysis of the IGE procedures used for their
procurement programs and should determine the resource needs for
specific cost estimators to ensure compliance with the IGE requirement.
The deadline for this is October 1, 1992.
                                 97

-------
5. CONTROL OF CONTRACT COSTS

         OAAM should define invoice review responsibility and
accountability for ACOs and COTRs.  The guidance should establish a
decentralized system of review, placing review authority into Regional and
Headquarters program offices12 and giving acceptance/rejection authority
to ACOs.13 This guidance should also provide for designation of alternate
ACOs and COTRs with full authority to act on behalf of primary
ACO/COTR.

a. Elements of an Invoice

         In coordination with OMB, OAAM should also develop guidance
on the requisite elements of an invoice under each major contract type.
This guidance should require contractors to submit invoices that include:
(i) a reasonable summary of the work performed; (ii) costs defined by
individual WA or DO; and (iii) a breakout of labor-hours, labor-mix, and
individual line item claims for other direct costs. PCOs should negotiate
invoice requirements on all  future contracts based on guidance developed
above. The deadline for guidance development is September 1,  1993.

b. Timing of Review

         Currently, POs have only 15 days for invoice review and the
remaining time is used for processing by NCPD. POs do not think that  15
    12Headquarters focus group.
    13Inierview with former EPA senior manager.
                                  98

-------
 days is adequate for review. OAAM, in coordination with OGC, should
 review the approval requirements of the NCPD to determine, consistent
 with the Prompt Payment Act, whether they could provide more flexibility
 for thorough review of contractor performance and invoices consistent with
 good contracts management practices. This action should be completed by
 January  1, 1993.

 c.  Invoice Certification

         OGC and OAAM should develop an invoice certification to the
 effect that the contractor has reviewed all of the costs contained therein
 and that the costs have been reviewed and determined "allowable." This
 certification would accompany all invoices being submitted for payment.
 This should be done by February 1, 1993.
         OGC and OAAM must examine where it is possible to enforce
 contract  provisions for denying or reducing payments when performance is
 not satisfactory.  By March, 1993, those offices should issue a joint policy
 statement defining a strategy to enforce the denied-payment provisions.

 d.  Indirect Costs

         The Committee's staff recommends that the Agency narrow the
 definition of employee morale costs hi EPA contracts, in the EPAAR, and,
ultimately, in the FAR.14  OAAM and OGC should draft policy with
    14The Administration has recently assembled a "SWAT" team consisting
of representatives from 12 Federal agencies (including EPA), to examine
current integrity structures, procedures, and controls in government
contracting.  Its recommendations are due in October, 1992.
                                 99

-------
specific definitions of categories of both allowable and unallowable indirect
costs. The definition of allowable employee morale costs should mirror the
rules regarding federal employees as far as possible. This should be
completed by December 30, 1992.
         By February 28, 1993, OAAM and OGC should draft a contract
clause to be incorporated in all new contracts that incorporates the above
policy on the allowability of specific indirect costs.  The clause should
contain (1) a list of certain costs which are not allowable as employee
morale costs, and (2) an illustrative list of the types of costs for which the
provision is intended to apply.  The new clause should be incorporated into
new contracts entered into by EPA, and added to existing contracts where
possible.
         While a standard contract clause will help, we also recommend
revising the EPAAR (48 CFR Chapter 15) to clarify which costs are
reasonable. We believe that, if pursued aggressively, this can be
accomplished in a relatively short period of time.15
         Amendments to contract clauses and the  EPAAR would help the
Agency control indirect costs. However, contractors may still argue that
    15The process for amending the EPAAR is exempt from OPPE Steering
Committee oversight, and thus is not subject to the same process as is
required of the Agency when it amends its various regulations. The
Executive Council of Administrative Officers serves as a coordinating and
reviewing body for EPAAR amendments instead of the Steering
Committee.
         While the EPAAR does not follow the traditional regulation
development route, it does have its own process consisting of approximately
twenty-one (21) steps and taking anywhere from nine to twelve months.
The EPAAR amendment is in-house, other than the public comments
phase.  EPAAR amendments are not likely to be "major rules" that are
subject to OMB review pursuant to Executive Order 12291.
                                 100

-------
 their costs are allowed by the FAR.16  To reduce uncertainty, EPA may

 consider obtaining class deviations from the FAR and should work with

 OMB to revise the FAR along the lines discussed for contract clauses and
 the EPAAR. A FAR deviation may be used to implement a change in
 contracting policy that is "inconsistent" with the FAR. The changes
 possible in a deviation from the FAR can go further  than those made

 through an amendment to the EPAAR, since they do not, by definition,
 require consistency with the FAR.17

           Since the FAR is a government-wide regulation, approval of an

 amendment  by the full Civilian Agency Acquisition Council (CAAC) can
 require a significant amount of time and effort by the Agency. EPA must
 work with OMB in aggressively pushing for the necessary changes to be
 made to the FAR regarding indirect costs.
     Contractors have argued that if they do only a small portion of their business with the
 government, we do not have the "right" to dictate issues with regard to their indirect costs.
.Ssg Regional interviews. In addition, contractors have used the "but see 31.201-1 and
 31.205-13" provision in the entertainment costs section of the FAR (FAR 31.205-14) as an
 argument to claim otherwise unallowable entertainment costs as allowable employee morale
 and welfare costs. FAR 31.205-14 reads as follows: "Costs of amusement, diversion, social
 activities, and any directly associated costs such as tickets to shows or sports events, meals,
 lodging, rental, transportation, and gratuities are unallowable (but see 31.205-1 and
 31,205,13).  Costs of membership in social, dining, or country clubs or other organizations
 having the same purposes are also unallowable, regardless of whether the cost is reported as
 taxable income to the employees." (emphasis added)

     While the FAR places a premium on Agency-wide consistency in the procurement
community, it recognizes the need for deviations from it when necessary to meet the specific
need and requirements of an agency. The FAR actually encourages the development and
testing of new techniques and methods of acquisition through the use of FAR deviations.
See Generally. FAR Subpart 1.4.
          A FAR class deviation is a deviation that affects more than one contracting
action.  Class deviations take approximately three months from the time EPA seeks FAR
consultation until the Class Deviation is effective. Class deviations involving cost principles
require approval of the Civilian Agency Acquisition Council.
                                     101

-------
         Some contractors apply a voluntary management reduction
(VMR) of their allowable indirect costs to their major customers, including
EPA. The VMRs may be decreased to offset questioned costs or penalties
if additional unallowable costs are found by the auditor. Therefore, the
VMR acts as a cushion to keep the firm from being affected by any later
disallowance of indirect costs. If unallowable costs are found after the
discount has been determined, some firms' practice has been not to
reimburse EPA, but rather to reduce the VMR by the amount of the
unallowable costs.18
          Using VMRs places the burden on the government to either
accept the adjustment or determine the amount of unallowable costs by
audit means.  Since  DCAA does not review every transaction, it is  possible
that the actual unallowable costs may exceed the VMR and not be
detected. The use of VMRS is not an acceptable alternative to complying
with Cost Accounting Standard 405 and FAR 31.201-6, which require
contractors to identify specifically and exclude unallowable costs from
incurred cost proposals submitted to the government.  Moreover, the VMR
may actually encourage contractors not to be as conscientious as necessary
when making allowability claims since they see the VMR account as
available to cover errors. In addition, unless unallowable costs have been
removed from the bill prior to the discount,  it is unclear how much, if any,
savings the VMR actually produces.
          While in theory, it is not objectionable to  provide a discount  to
major customers, contractors must remove unallowable costs and account
    18Hearing, Subcommittee on Environmental Energy and Natural Resources, Committee
 on Government Operations, April 9, 1992. See also. GAO Testimony, "Federally Sponsored
 Contracts, Unallowable and Questionable Indirect Costs Claimed by CH2M Hill," on
 oversight and investigations, Committee on Energy and Commerce, House of
 Representatives, March 19, 1992.
                                   102

-------
 for their costs in accordance with the FAR regardless of whether they
 subsequently choose to offer a discount. These sorts of charges indicate, as
 do the charges for employee morale, the need to institute mechanisms and
 processes to both detect and prevent such  charges from being made.
          Inadequate contractor internal controls also contribute to
 excessive costs.19  For example, a major Superfund contractor20 did not
 adjust its charges  to  reflect differences between federal regulations and
 company policy.  When the contractor's own policies were more lenient
 than was the FAR, the firm claimed the full  amount rather  than claiming
 the portion the FAR allowed.21 This is unacceptable.  When contracting
 with  the government, the costs contractors  submit must be adjusted to
 conform to the FAR's standards.
     GAO Testimony before the Subcommittee on Oversight and Investigations, Committee
on Energy and Commerce, House of Representatives, March 19, 1992.
          Testimony, "Federally Sponsored Contracts Unallowable and Questionable
Indirect Costs Claimed by CH2M Hill," Subcommittee on Oversight and Investigations,
Committee on Energy and Commerce, House of Representatives, March 19, 1992.
   21For example, the FAR specifies that only actual selling costs associated with the sale
of an employee's home are allowable. CH2M Hill, on the other hand, provides employees
with (1) an incentive payment of 6 percent of the average of two appraised values or the
actual sale price, whichever is higher, up to a maximum of $15,000 and (2) a 1-1/2 percent
self-sale premium of the selling price for sales in which the employee finds a buyer and
carrying costs or loan points are not incurred. The net effect of this in one case was that an
employee's home was sold by a realty company, who was paid $66,000, and the employee
was paid $14,700 for the sale.

                                    103

-------
7. SUSPENSION AND DEBARMENT AND OTHER ADDITIONAL
    CONTROLS

a. Enhanced Use of Suspension and Debarment

          Suspension and debarment can be a strong inducement for
diligent compliance by contractors with their responsibilities under FAR,
EPAAR and contract provisions, and for contractor maintenance of high
standards of integrity.22 Merely terminating a contract with a contractor
in such circumstances allows the contractor the opportunity to enter into
future Agency contracts and cause  a repetition  of such problems, or to
contract with other federal agencies or departments and have them
experience similar serious contract performance problems encountered by
the EPA. The elevation of the S & D program as an Office of Suspension
and Debarment would  enhance both the prominence of the program and
the Agency commitment to utilize  this process  when warranted.
    ^Under FAR 9.406-2, a contractor may be debarred in the event of:
     (a)    a conviction of or civil judgment for a variety of offenses, including fraud,
           falsification or destruction of records, making false statements, or the
           commission of any other offense indicating a "lack of business integrity or
           business honesty that seriously affects the present responsibility of a
           Government contractor or subcontractor."
     (b)    a preponderance of the evidence indicates that there has been a violation of the
           terms of a Government  contract, such as a willful failure to perform in
           accordance with the terms of the contract, or a history of failure to perform or
           flf unsatisfactory    performance of a contract; or
     (c)    any other cause of so serious or compelling a nature that it affects the present
           responsibility of a contractor.
           Under FAR 9.407-2, a contractor may be suspended if the suspending official
 suspects, based upon adequate evidence, similar problems as those noted above  east.

                                     104

-------
 b. Penalties for Improper Claims

          DOD has statutory authority23 to assess penalties when the
 Secretary determines that a contractor has sought an unallowable cost.
 The penalty amount is two times the amount of the cost.
          The Committee's staff recommends that EPA explore the
 possibility of obtaining this authority. OGC and OAAM should coordinate
 in preparing a report that evaluates the relative merits of 10 U.S.C. § 2324,
 identifies the procedure for obtaining such authority, and includes a
 recommendation whether the Agency should seek such authority.

 c. Include Contract Clauses That Provide for Interest Payments
    on Monies Improperly Claimed and Paid

         When a contractor includes in its invoice costs that are
 unallowable and these are paid by the government, the error may not be
 found until an audit of the contract is performed, if at all. Even if the
 government is able to identify and prove that these costs were improper
 and obtain reimbursement from the contractor, the contractor would have
 had the benefit of the use of the funds for the interim period.  This
 provides an incentive for contractors  to include as many questionable costs
 as possible.
         OGC and OAAM should draft a standard contract clause that
provides  the payment of interest on monies paid by EPA based on invoices
for costs  that were not allowable.  This clause should be used in all EPA
contracts. Action: OGC with OAAM; deadlines: contract clause--
November 30, 1992; EPAAR Amendment-December 1, 1993.
       USC § 2324
                                105

-------
8. CONTROL OF GOVERNMENT PROPERTY

         Under the proposed reorganization, the responsibility for setting
standards for all property management will lie within the Office of Human
Resources, Facilities, and Information Management (OHRFIM). The
Office of Acquisition, Assistance, and Finance (OAAF) will be directly
responsible for the administration of contract property.  The two
organizations should form a Quality Action Team (QAT) to evaluate the
need for additional property management personnel necessary to ensure
that property management is in full compliance with established guidance
and procedures.  The QAT shall also consider the need for and possible
benefits of decentralizing property management to Regions where
 appropriate. The study of additional personnel needs and analysis of
 decentralization of property management should be completed by March of
 1993.
          OHRFIM should also develop  a plan for addressing the material
 nonconformance of reconciling the Personal Property Accountability
 System with the Integrated Financial Management System.  This should be
 completed by March of 1993.

                   D.  TRACKING IMPLEMENTATION

          The Committee's staff found that one of the most consistent
  reasons that past efforts to solve contracts management problems have not
  been implemented was the lack of a tracking system for the corrective
  actions taken. Managers  have not been held accountable to ensure that
  effective actions were implemented. Therefore, the Committee's staff
  recommends that the Deputy Administrator require each Regional,

                                  106

-------
Assistant and Associate Administrator to provide a written report detailing
what actions have been taken to comply with the recommendations in this
Report and to submit a schedule for compliance with any actions that have
not been completed by October 1, 1993.  A similar report would be
required each October 1 thereafter until the recommendations have been
fully implemented.
         Beginning in 1993, by October 1 of each year, each RA and AA
should  submit a report to the Deputy Administrator  detailing the state of
contracts management in their offices.
         The detailed report on the state of contracts management in their
offices and the report on the status of compliance with the
recommendations in this Report should be used in the annual performance
evaluation of the RAs and AAs.  No RA or AA should receive an
outstanding in a performance evaluation or be eligible for any awards
related to contracts management if either of these reports is late or
inadequate or if there are serious deficiencies in the administration of
contracts in their respective offices.
                                 107

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E. CHRONOLOGICAL SUMMARY
OF THOSE RECOMMENDATIONS
      WITH DUE DATES
#

1.
2.
3.
4.
5.
6.
7.
DATE

By
Sept. 1,
1992
By
October
1992
By
Oct. 1,
1992
By
Oct. 1,
1992
Begin
Oct. 1,
1992
By
Oct. 1,
1992
By
Oct. 15,
1992
ACTION
1992
Budget Division will be responsible for
implementation of OMB Circular A-76
activities.
Completion of cost estimating guides to
assist with development of valid
independent governmental estimates.
Future contracts include provisions that
employees of contractors and
subcontractors be trained in personal
services restrictions, and that contractors
have adequate management structure in
place to supervise and control the
performance of their employees.
Complete analysis of the IGE procedures
used for procurement programs and
determine resource needs for specific cost
estimators to ensure compliance with the
IGE requirement.
All vacancy announcements indicate the
percentage of contracts management work
to be performed and associated duties.
Develop model language for contracts
management performance standards for all
employees with contracts management
responsibilities.
Disseminate language in #6.
WHO

Office of
the
Compt-
roller
OAAM
and
Program
Offices
OAAM
OGC
SPOs
OHRM
OHRM,
OAAM
OAAM
F/O*





~~
See
7.
See
6.
            108

-------
8.
9.
10.
11.
12.
13.
14.
15.
16.
By
Oct. 15,
1992 and
annually
there-
after
By
Oct. 30,
1992
By
Nov. 1,
1992
By
Nov. 15,
1992
By
Nov. 30,
1992
By
Nov. 30,
1992
By
Dec. 1,
1992
By.
Dec. 1,
1992
By
Dec. 15,
1992
Provide a written evaluation of the
contract administration in each program
for the performance evaluation period
Review all current position descriptions
and FY93 Performance Standards to
reflect contracts management
responsibilities.
Submit Implementation Plan to OAAM
outlining the restructuring of the roles and
responsibilities of contract administration
personnel.
Perform workload analysis to assess the
need for an additional training staff.
Guidance developed for analysis of
appropriate use of contractors.
Contract clause is drafted providing for
penalty or payment of interest on monies
paid by EPA on invoices for unallowable
costs.
Issue guidance on management of
contracts including preparation of SOWs,
WAs, DOs, and IGEs.
Develop a one-hour contracts
management orientation videotape for
mandatory viewing by all new Agency
hires.
Each Office with its own guidance on
contracts management compiles notebooks
and labels guidance currently in effect and
provides copies to OAAM and OGC.
SPOs
Program
Offices
and
Regions
Offices
and
Regions
OAAM,
OHRM
OAAM
OGC,
OAAM
PETD
OAAM
SPOs


See
38.
See
37.
See
39.
See
67.
--

See
46,
53,
65.
109

-------
17.
18.
19.
20.
21.
22.
23.
24.
25.
By
Dec. 30,
1992
By
Dec. 30,
1992
By
Dec. 31,
1992 and
annually
there-after
By
Dec. 31,
1992
By
Dec. 31,
1992
By
January
1993
Im-
plement
by
January
1993
By
January
1993
By
Jan. 1,
1993
Evaluate the existing grade structure for
contract managers.
Draft policy with specific definitions of
categories of both allowable and
unallowable indirect costs.
Publish a "Lessons Learned" report
summarizing the results of all GAO and
OIG audits on contracts management.
Individual Development Plans or Training
Plans are used to supplement the technical
expertise already found in the
organization.
Formation of QAT to study how the
Agency can improve contracting processes
such as: reduce contract award lead time,
increase competition, tighten cost and
performance controls.
Develop a guidance package, including
video, for performance evaluation boards.
Review solicitations and contractors' bids
to avoid COI and prepare written finding
of analysis at each appropriate state of the
procurement.
Review and modify policy for determining
whether an award fee contract is
appropriate.
Review approval requirements of NCPD
to determine consistency with the Prompt
Payment Act.
OAAM,
OHRFIM
OAAM,
OGC
CFO
Offices
and
Regions
OAAM
PETD
OAAM,
OGC
OAAM
OGC,
OAAM
See
62.
See
40.
See
30.
™—

—

—
—
110

-------
26.
27.
28.
29.
30.
31.
32.
33.
34.
By
Jan. 15,
1993
By
Jan. 15,
1993
By
Jan. 15,
1993
By
Jan. 31,
1993
By
Jan. 31,
1993 and
annually
there-
after
By
Jan. 31,
1993
By
February
1993
By
February
1993
By
Feb. 1,
1993
Develop an orientation on contracts
management and guide for writing work
assignments, procurement requests, etc., to
acclimate newcomers to contracts
management.
Incorporate a COI training unit into the
contracts administration training courses
Develop training for contracts
management personnel on enforcing
contract performance, including
Suspension and Debarment.
Amend the Acquisition Handbook to
address in more detail the roles and
responsibilities of EPA contract attorneys
Distribute the "Lessons Learned" report to
managers with contract responsibilities.
QAT to determine where new contract
attorney resources should be placed
completes its report.
Prepare a plan for executing long-term
contract planning.
Complete guidance document on different
contract types and their advantages and
disadvantages.
The new Policy, Education, and Training
Division will have sole responsibility for
issuing guidance for contracts
management.
OAAM
OGCand
QAUnit
of
OAAM
OAAM
PETD,
OGC
CFO
OAAM,
OGC
OAAM,
Offices
and
Regions
OAAM
OAAM,
PETD



~
See
19.
~

~

111

-------
35.
36.
37.
38.
39.
40.
41.
42.
By
Feb. 1,
1993
By
Feb. 1,
1993
By
Feb. 15,
1993
Begin by
Feb. 15,
1993
By
Feb. 28,
1993
By
Feb. 28,
1993
By
March
1993
By
March
1993
Develop invoice certification by
contractors that document the invoice has
been reviewed and all costs determined
"allowable."
Prepare detailed guidance document and
videotape on policy on personal services
Additional training staff recruited.
Implementation Plans initiated.
Using OAAM's criteria, develop overall
resource allocation and justification for
contract resources.
Place clause to incorporate policy on
allowable and unallowable indirect costs
and place in new contracts and where
possible, in current contracts.
Report completed by QAT formed to
evaluate need for additional property
management personnel and analysis of
benefits of decentralizing property
management.
Complete plan for addressing the material
nonconformance of reconciling the
Personal Property Accountability System
with the Integrated Financial Management
System.
OGC,
OAAM
OAAM,
OGC
OAAM,
OHRM
OAAM,
Regions
and
Offices
Offices
and
Regions
OGC,
OAAM
OHRFIM
and
OAAF
OHRFIM
—
—
See
11.
See
10.
See
12.



112

-------
43.





44.




45.


46.



47.




48.



49.


50.



By
March
1993



By
March 1,
1993


By
March 1,
1993
By
March 1,
1993

By
March 1,
1993


By
March
31, 1993

By
March
31, 1993
By
April
1993

Examine where it is possible to enforce
provisions for denying or reducing
payments when performance is not
satisfactory and issue a joint policy
defining a strategy to enforce the denied-
payment provision.
Recertification of FMFIA responsibilities
as they apply to contract management
through a course offered by the on-site
FMFIA coordinator.

Agency's contract training curriculum is
adapted to include property management.

Review guidance notebooks compiled by
the SPOs and identify modifications
required.

Examine contracts management training
courses and upgrade or replace them with
courses tailored to specific roles and
responsibilities.

Review all class deviations to EPAAR and
EP clauses to the Acquisition Handbook
to determine which should be adopted as
amendments to the EPAAR.
First seminar prepared on short, topical
issues in contracts management.

Develop for Agency review performance
standards and job description elements
that accurately describe contracts
management functions for COTRs.
OAAM,
OGC




SES
manag-
ers, ODs
and
DDs
OAAM


PETD,
OGC


OAAM,
Program
Offices
and
EPATI
PETD,
OGC


OAAM


OAAM,
OHRM


__





._




__


See
16,
53,
65.
__




See
66.


._


..



113

-------
51.





52.


53.



54.





55.


56.


57.


58.


In
April
1993 and
annually
there-
after
By
May
1993
By
May 1,
1993

By
June 1,
1993 and
annually
there-
after
By
June 1,
1993
By
June 1,
1993
By
July 1,
1993
By
July 1,
1993
Provide informal oral or written
evaluation of contract administration in
each program at each performance
evaluation period.


Develop training for ACOs and COTRs
on invoice review with certification of
attendance as a job standard prerequisite.
Issue a schedule for revising, replacing, or
clarifying all guidance requiring
modification.

Review standard contract language to
determine if it serves the needs of the
Agency.



Acquisition Handbook abolished and
contents merged with the Contracts
Management Manual.
Information hotline or electronic bulletin
boards established for contract managers
for quick and practical advice.
Issue schedule listing the guidance in
development and planning stages

Revise EPA's personnel regulations to
specifically make violation of personal
services a serious offense.
SPOs





OAAM


PETD,
OGC


Con-
tract
Attor-
neys


OAAM


OAAM


PETD


OHRM


__





„


See
16,
46,
65.
—





..


—


..


..


114

-------
59.





60.


61.


62.



63.





64.





65.





66.


By
Sept.
1993



By
Sept. 1,
1993
By
Sept. 1,
1993
By
October
1993

By
Oct. 1,
1993 and
annually
there-
after
By
Oct. 1,
1993 and
annually
there-
after
By
Oct. 30,
1993 and
annually
there-
after
By
Oct. 31,
1993
Develop a plan of action with milestones
to fully integrate strategic, budget and
acquisition planning processes.



Develop guidance on the requisite
elements of an invoice under each major
contract type.
Prepare comprehensive course for COs on
advantages and disadvantages of various
types of contracts.
Correct disparities between the grade
structure for contract managers and the
grade structure for other program
personnel.
Written report submitted to the Deputy
Administrator detailing actions taken to
comply with the recommendations in the
Report and schedule for compliance with
outstanding actions.

Written report submitted to the Deputy
Administrator detailing the state of
contracts management in their Offices.



Updated index of all existing guidance is
issued.




Proposal of Regulations will be made after
the Review of Deviations in the EPAAR
and clauses in the Acquisition Handbook.
Budget
Reform
Task
Force,
OAAF,
OPPE
OAAM,
OMB

OAAM


OAAM,
OHRFIM


AAs/RAs





AAs/RAs





PETD





PETD,
OGC

__





«


See
68.

See
17.


__





_*





See
16,
46,
53.


See
48.

115

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67.



68.


By
Dec. 1,
1993

By
Feb. 1,
1994
Amend the EPAAR to provide for penalty
or payment of interest on monies paid by
EPA based on invoices for costs not
allowable.
Training of COs completed on the
advantages and disadvantages of various
types of contracts.
OAAM,
OGC


OAAM


See
13.


See
61.

*F/O - Recommendations with follow-on responses.
                                116

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       FUNCTIONAL TIE-INS" OF SCCM RECOMMENDATIONS

                       (BASED ON REPORT)

       This is intended to identify common issues contained in the Report's
 Recommendation.  The listing indicates Recommendations interrelated
 based on subject matter. For example, the Report Recommendations
 dealing with Conflict of Interest will be found in Recommendations 23 and
 60.

 o     A-76 Review: #1

 o     Audits: #19,30

 o     Communications: #56

 0     Conflict of Interest: #23,27,60

 o     Contract Management Manual; *SS

 o     Cost Estimation (IGR); #2,4,14

 o     EPAAR/FAR: #48,66,67

 o     FMFIA: #44

 o     Guidance:

 Guidance Notebook #16,34,46,53,57,65

 Create Guidance/Policy on:

 Appropriate Use of Contractors #12
 Award Fee  #24
 Contract Language #54
 Contract Types #33,61,68
 Cost Estimation (IGE) #2
Denial of Payment for Poor Performance #43
Development of Statements of Work #14
Development of Work Assignments/Delivery Orders #14 26
Indirect Costs #18,40,
                               117

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Inherent Government Functions #63
Invoices #35,52,60
Penalty or Payment of Interest Clause #13,67
Performance Evaluation Board #8,22,51
Personal Services #3,36,58
Prompt Payment #25
Property Management #41,42,45
Standard Contract Language #54
Suspension/Debarment #28

o      Human Resources: #5,6,7,9,10,11,15,17,20,26,37,50,62

o      Integration into Strategic Planning Cycle: #32,59

o      Implementation Plans: #38,63,64

o      Legal Support:  #29,31

o      Long-term Planning: #32

o      Quality Action Teams: #21,31,41

o      Resource Allocation: #11,39

o      Training: #15,27,28,45,47,49,52,61,68
                                 118

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APPENDICES

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                                 APPENDIX A
                   ADMINISTRATOR'S STANDING COMMITTEE
                        ON CONTRACTS MANAGEMENT
                            COMMITTEE MEMBERS


 Christian R. Holmes, Chair and Acting Assistant Administrator
   for Administration and Resources Management

 Laurie Goodman, Associate Administrator for Regional Operations
   and State/Local Relations

 Richard Guimond, Deputy Assistant Administrator for Solid Waste
   and Emergency Response

 Edward Hanley, Deputy Assistant Administrator for Administration
   and Resources Management

 Morris Kay, Regional Administrator, Region VH

 Victor Kimm, Deputy Assistant Administrator for Prevention,
   Pesticides, and Toxic Substances

 David J. O'Connor, Director, Procurement and Contracts Management Division
 Office of Administration

 Alvin Pesachowitz,  Director, Office of Information Resources Management

 Martha Prothro, Deputy Assistant Administrator for Water

 Michael Shapiro, Deputy Assistant Administrator for Air and Radiation

 John Skinner, Deputy Assistant Administrator for Research
  and Development

 Michael Thibault, Assistant Director of Policy and Plans
 Defense Contract Audit Agency *

 Greer Tidwell, Regional Administrator, Region IV

Anna  Virbick, Deputy Inspector General *

Gerald Yamada, Principal Deputy General Counsel
* Specially invited guests.
                                     A-l

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A-2

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                                APPENDIX B
                  ADMINISTRATOR'S STANDING COMMITTEE
                       ON CONTRACTS MANAGEMENT
                              STAFF MEMBERS
 John R. Barker
 Director

 Leonard H. Shen
 Deputy Director
 Mary Kay Lynch
 Associate Director
 William O. Ross
 Team Leader
 John Alter
Jessica Barron
Editor
Bruce Bellin
Paul Connor
Joseph Freedman
David Garrison
 Regional Counsel
 U.S. EPA - Region IV

 Deputy Superfund Enforcement Counsel
 Office of Enforcement
 U.S. EPA - Headquarters

 Chief, Office of Program Operations
 Office of Water
 U.S. EPA - Region IV

 Chief, State Requirements Section
 Office of Emergency and Remedial Response
 U.S. EPA - Headquarters

 Quality Coordinator
 Immediate Office of the Assistant Administrator
 Office of Water
 U.S. EPA - Headquarters

 Human Resources Management Division
 Office of Administration and Resources Management
 U.S. EPA - Cincinnati

 Counsel, Office of Criminal Enforcement
 Office of Enforcement
 U.S. EPA - Headquarters

 Chief, Enforcement Action Section
 Office of Waste Programs Enforcement
 U.S. EPA - Headquarters

 General Attorney
 Office of General Counsel
 U.S. EPA - Headquarters

Assistant Regional Counsel
U.S. EPA - Region HI
                                    B-l

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Lisa Haage
Sam Jamison
Rebecca Knoy
Tom Mariani



Cathy Mitchell



Don Morales


Tina Murphy


Michael Northridge
 Margo Padgett
 Pam Phillips
 Eugene Pontillo
Section Chief, Hazardous Waste Branch
Office of Regional Counsel
U.S. EPA - Region IX

Chief, Removal Contracts Unit
Office of Contracts and Grants Administration
U.S. EPA - Region IV

Management Analyst
Management and Organization Division
Office of Administration
U.S. EPA - Headquarters

Environmental Enforcement Section
Environment and Natural Resources Division
U.S. Department of Justice

Civil Investigator
EPA National Enforcement Investigations Center
Denver, Colorado

Assistant Regional Counsel
U.S. EPA  - Region II

Secretary,  Office of the Administrator
U.S. EPA  - Headquarters

Attorney Advisor
Superfund Enforcement Division
Office of Enforcement
U.S. EPA - Headquarters

Management Analyst
Resource Management Division
Office of the Comptroller
U.S. EPA - Headquarters

Chief, Texas Waste Enforcement Section
Office of Regional Counsel
U.S. EPA - Region VI

Program Analyst
Resource  Management Division
 Office of the Comptroller
U.S. EPA - Headquarters
                                      B-2

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Roy Rathbun
JLisa Reaves
Ralph Rizzo
Matt Robbins
Joseph Salata
Kathy Seikel
 Tom Sharpe
 Raphael Shaw
 Desktop Publisher
 Gene Smith
 Mike Webb
 Candice Wilkinson
Project Officer
Office of Wetlands, Oceans, and Watersheds
U.S. EPA - Headquarters

Secretary, Information Access Branch
Office of Information Resources Management
U.S. EPA - Headquarters

Management Analyst
Management and Organization Division
Office of Administration
U.S. EPA - Headquarters

Chief, Contracts Management Unit
Waste Management Division
U.S. EPA - Region IV

Management Analyst
Resource Management Division
Office of the Comptroller
U.S. EPA - Headquarters

Special Assistant to the  Director
Procurement and Contracts Management Division
Office of Administration
U.S. EPA - Headquarters

Contract Officer
Procurement and Contracts Management Division
Office of Administration
U.S. EPA - Headquarters

NPL Operations Section
Office of Emergency and Remedial Response
U.S. EPA - Headquarters

Assistant to the Director
Emission Standards Division
Office of Air  and Radiation
U.S. EPA - RTF, NC

Civil Investigator
EPA National Enforcement Investigations Center
Denver, Colorado

Clerk/Typist, Management and Policy Staff
Office of the  Comptroller
U.S. EPA - Headquarters
                                      B-3

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                    ADDITIONAL PART-TIME SCCM STAFF


Helen Ferrara                 Assistant Regional Counsel
                             Office of Regional Counsel
                             U.S. EPA - Region II

David Schachterle              Assistant Regional Counsel
                             Office of Regional Counsel
                             U.S. EPA - Region VIH
                                   B-4

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                              APPENDIX C:
                U.S. ENVIRONMENTAL PROTECTION AGENCY
          FEDERAL CONTRACTS MANAGEMENT ADVISORY BOARD
Dr. Laurie Broedling
Associate Administrator for Continuous Improvement
National Aeronautics and Space Administration
Washington, DC

Mr. Richard Hopf m
Associate Administrator for Acquisition Policy
U.S. General Services Administration
Washington, DC

Mr. Jerry Riso
Deputy Assistant Secretary
U.S. Department of Education
Washington, DC

Mr. Robert Scott
Deputy to the Commander
Defense Contract Management Command
U.S. Department of Defense
Washington, DC

Mr. Allan Joseph (Advisor)
Rogers, Joseph, O'Donnell and Quinn
San Francisco,  CA

Professor Ralph Nash (Advisor)
George Washington University
National Law Center
Washington, DC
                                     C-l

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C-2

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                            APPENDIX D
     LIST OF SOURCE DOCUMENTS, INFORMATION, AND REFERENCES


CATEGORIES:                                                     Page

Inspector General Reports  	  D-2

Government Accounting Office Reports 	  D-4

EPA Management Reports  	  D-5

EPA Regions   	  D-5

EPA Laboratories  	  D-5

EPA Field Offices  	  D-6

EPA Headquarters Offices 	  D-6

Federal Agencies   	  D-6

Other Sources  	  D-6

Reference Library	  D-7
                                 D-l

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 EPA INSPECTOR GENERAL REPORTS

 *   EPA's Planning, Negotiation, Awarding and Administering of Emergency
    Response Cleanup Services Contracts, (E5E26-05-0101-61508), 9/23/86.

 +   Special Review of EPA's Teambuilding Training Program, (Memorandum),


 4   Region 4 Spent $5.3 Million on Unsuccessful Hazardous Waste Cleanups,  (E5EH7-
    04-0181-81927), 9/26/88.

 4   Report of Audit on the Management of the Technical Assistance Team
    Services, (E5eH7-03-0290-81949), 09/28/88.

 *   Management of Contracts Supporting the Office of Solid Waste, (E1XM*I-11-
    0047-9100209), 3/89.

 +   Audit of Contractor Direct Costs-1984, (P8BML7-05-0692-9100045), 11/1/88.

 +   Audit of Contractor Direct Costs-1983, (P8BML7-05-0388-9100071), 11/21/88.

 +   Audit of Contractor Direct Costs-1982, (P8BML7-05-0694-9100077), 12/2/88.

 *   Review of Two Significant Removal Actions in Region 5, (E1SHD9-05-0019-
    9100493), 09/29/89.

 *   Review of Region 2's Oversight of Superfund Post-settlement Activities,
    (EISJC9-02-0044-0100230), 3/29/90.

 *   Superfund: Region 4 Removial Cleanup Activities, (ElsGB9-04-0016-0100519),
    9/27/90.                                                             '

 *   Guidance Needed For Disposing of Wastes Generated From Pre-remedial  Site
    Inspections, (EISGG9-05-0275-0400044), September 28, 1990.

 *   Superfund Cost-Plus-Award-Fee Contracts,  (EISFF9-03-0144-0100222), March
    28, 1990.

+   EPA Unnecessarily Delays Responsible Parties From Cleaning Up Hazardous
    Sites, (E1SJEO-02-0157-1100431), 9/30/91.

*   Special Review - Allegations Concerning Unsafe Conditions and
    Mismanagement of Electrical Contracts at EPA's Environmental Research
    Center, RTP, NC, (E6AMGO-11-0033-1400001), 11/26/90.

4   Region 8 Management of Computer Science Corporation Contract Activities
    (E1XMF1-08-0033-1100441), 9/30/91.

                                      D-2

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Special Review of Allegations of Improprieties and Management of the Interim
Computer Workstation Contract, (E6EMPO-15-0039-1400060), 9/91.

Special Review Report of Procurements Through the Waterside Mall Lessor,
(E6AMG1-13-0035-1400024), 6/20/91.

Special Review - EPA Oversight of Contractor Property Control Systems,
(E1SFG1-05-0018-1400046), 9/27/91.

Report on Review of EPA Region 9's Administration of Louisiana-Pacific
Superfund Site Remedial Investigation Activities, (E1SG*8-09-0143-1300054),
3/29/91.

Review of the Adequacy of Selected Headquarters and Regional Operational
Controls Over the CLP, (E1SKE9-11-0047-1100411), 9/91.

Final Report of Audit on Superfund ARCS Contracts in Regions 1, 3 and 5,
(E1SGE2-03-0145-2100209), 2/3/92.

EPA Needs to Strengthen the Acquisition Process For ADP Support Services
Contracts, (E1NMF1-15-0032-2100300), March 31, 1992.

Survey of the Alternative Remedial Contracting Strategy: Contract Bidding
and Award Process, (E1SGB9-11-0021-0100274), 4/90.

EPA's Negotiation, Award and Management of Contractor-owned Equipment
on Emergency Response Clean-up Services, (E1SHD1-06-5054-2100292),
3/30/92.

EPA's Management  of CSC Contract Activities, (E1NME1-04-0169-2100295),
3/31/92.

Improvement Needed in EPA's Resource Access Control Facility (RACF) Security
Software, (EINMBO-15-0027-110151), August 16, 1991.

Region 2's Potentially Responsible Party Search Program, (E1SJCO-02-0303-
2100), 3/12/92.

Review of Cost Recovery Negotiations, (E1SJC1-02-0113), 2/27/92.

Review of Contracts Awarded on Behalf of the  OPPE, (E1BM5-11-0041-
60187), 2/11/86.

Superfund Cost-Plus-Award-Fee Contracts, (E1SFF9-03-0144-0100222), March 28,
 1990.
                                  D-3

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4   Special Review of Carpet Cleaning Activities at Headquarters, (E6AMG2-13-0039-
    2400003).

*   Special Review of FMSD's Security and Property Management Branch, (E1PMG1-
    13-0038-240002).

*   Special Review of EPA's Major Information Systems, (E1RMG1-15-0041-1400061)
    09/91.                                                                 '
GENERAL ACCOUNTING OFFICE REPORTS

4   Ineffective Information Management Impedes EPA's Enforcement Mission and
    Cross-Media Initiatives, GAO T-IMTEC-91-16,
    June 19, 1991.

4   Government Contractors - Are Service Contractors Performing Inherently
    Governmental Functions?, GAO (GGD-92-11), November 1991.

+   Superfund:  EPA Has Not Corrected Long-Standing Contract Management
    Problems, RCED-92-45, October 1991.

*   Inappropriate Use of Experts and Consultants At Selected Civilian Agencies,
    GAO/GGD-91-99, July 1991.

4   Sound Contract Management Needed At EPA, GAO (T-RCED-89-8), February 23
    1989.

*   Superfund Contracts: EPA's Procedures for Preventing Conflicts of Interest Need
    Strengthening, GAO(GAO/RCED-89-57), February 1989.

*   Superfund Contracts: EPA Needs to Control Contractor Costs, GAO/RCED-88-182
    July 1988.

t   Status of EPA's Contract Management Improvement Program, GAO/RCED-87-
    68FS, January 1987.

*   EPA Needs to Improve Controls Over Change Orders and Claims, GAO/RCED-86-
    16, November 17, 1987.
    EPA Should Better Manage Its Use of Contractors, GAO/RCED-85-12, January 4,
    1985.

    EPA's Use of Management Support Services, GAO (CED-82-36), March 9, 1982.
                                    D-4

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 4   Agencies Need Better Guidance for Choosing Among Contracts, Grants and
     Cooperative Agreements, GGD-81-88, September 4, 1981.

 4   EPA's Use of Consultants, GAO/T-GGD-89-5, February 3, 1989.

 4   Audit Backlogs and Audit Follow-up Problems Undermine EPA's Contract
     Management, GAO/T-RCED-91-5, December 11, 1990.


 EPA MANAGEMENT REPORTS

 4   EPA, Contracts Management: The People and the  Process, Office of
     Administration and Resources Management, November 1988

 4   Management Review - Contract Laboratory Program, Task Force Report, October
     18, 1991
 EPA REGIONS

 4   Preliminary Site Analysis (PSA) - Region III - Philadelphia, April 14-15, 1992

 *   PSA - Region IV - Atlanta, April 23-24, 1992

 4   Trip Report - Region V - Chicago, April 20-21, 1992

 4   Region VI - Dallas, Video-conference focus group, April 22, 1992

 4   PSA - Region VH - Kansas City, April 22-23, 1992

 4   PSA - Region IX - San Francisco, April 20-21, 1992

 4   Observations - Regional COs (Regional CO Supervisors), April 16, 1992


 EPA LABORATORIES

 4   PSA - Office of Research and Development (ORD),
    Cincinnati, OH, April 28-29, 1992

4   PSA - ORD, EMSL, Las Vegas, April 28-29,  1992

4   Trip Report, ORD, Environmental Research  Laboratory, Duluth, MN, April 6,1992

4   PSA - OARM, ORD, OAQPS, OGC, Research Triangle Park, NC, April 29- 30
    1992                                                      V
                                    D-5

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4   PSA - ORD, Environmental Research Laboratory, Athens, GA, April 28-29, 1992


EPA FIELD OFFICES

4   PSA - OARM, CMD, Research Triangle Park, NC, April 22-May 6, 1992

4   PSA - OARM, Cincinnati, OH, April 28, 1992

EPA HEADQUARTERS OFFICES

4   PSA - Procurement and Contracts Management Division, March 30-May 6, 1992

4   PSA - OAR, Headquarters and OAQPS, Research Triangle Park, NC, April 23-30,
    1992

4   PSA - Office of Solid Waste and Emergency Response, April 28-May 5, 1992

4   PSA - Office of Water, May 4-6, 1992

4   Trip Reports - Office of Pesticides, Prevention, and Toxic Substances, May 1,  1992


FEDERAL AGENCIES

4   PSA - Army Corps of Engineers, May 4, 1992

4   PSA - General Services Administration, May 4, 1992

4   PSA - National Aeronautics and Space Administration, May 15, 1992

4   Field Observation of other Federal Agencies, Department of Defense, May 6, 1992

4   PSA - Department of Energy, May 4, 1992


OTHER SOURCES

4   Interviews with Senior Agency Managers and Former Senior Agency Managers

4   Interviews with Program Offices

4   Hotline Summary

4   Suggestion Box Summary
                                    D-6

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    EPA Contract Management Problem Assessments, Submitted in Response to the
    Administrator's 3/10/92 Request For Assessments of Problems Related to Contract
    and Program Management, April 1992

    Implementation of the Superfund Alternative Remedial Contracting Strategy
    (ARCS), Report of the Administrator's Task Force, 1991
+   Memo - Interview With EPA's Suspension and Debarment Office, May 22, 1992

*   Memo - Telephone Interview With Mary Louise Uhlig, OPPTS, May 26, 1992

+   PSA - Bill Mathis, Contract Consultant, May 1, 1992

*   PSA - Dan Guttman, Contract Consultant, May 5, 1992

4   PSA - Hazardous Waste Action Coalition, April 27, 1992

i   Focus Group Data Sumary


REFERENCE LIBRARY

    Auditing/Quality Assurance (excluding CSC Audits)

    Audit Handbook for EPA Managers, A Guide to Better Audit Management and
      Effective Audit Resolution, undated

    EPA, Quality Assurance Manual for Management Audit Tracking System (MATS)
      Information Management, 205B-92-001, May 1992

    EPA, Internal Control Guidance for Managers and Coordinators, A Guide to
      Successful Implementation of FMFIA, Office of the Comptroller, undated
      EPA, Senior Council on Management Controls, March 3, 1992

    MATS - Internal Audit Data, April 1987-May 1992 Management Study Guide
      (OMB), Part HI, Supplement OMB Circular A-76, Performance of Commercial
      Activities, undated

    CH2M Hill Audit:Letter to McLane Fisher, Executive Vice President, CH2M Hill,
      from Christian R. Holmes, Acting Assistant Administrator for Administration and
      Resources Management, March 18, 1992

    Summary of Negotiations, ARCS Contract Regions IX and X, CH2M Hill, undated

    RFP WA 87 0838, ARCS Region V Contract, CH2M Hill, undated
                                    D-7

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    Summary of Negotiations, Overview, undated

    U.S. Environmental Protection Agency Summary of Negotiations - CH2M Hill,
      undated

    Awarded ARCS Contracts, undated

    Implementation of Procurement Integrity Regulations, Memorandum, February
      20, 1991

    Post Employment Restrictions of the Procurement Integrity Act, Memorandum,
      May 9, 1991

    Clarification of Post Employment Restrictions of the Procurement Integrity Act,
      Memorandum, July 19, 1991
CSC INFORMATION

    Letter to Peter Cahn, President, Applied Technology Division, Computer Sciences
      Corporation, from   Christian R. Holmes, Acting Assistant Administrator for
      Administration and Resources Management, March 3, 1992

    Source Selection for RFP No. W902404-A3, Memorandum from Thomas D.
      McEntegart, Chairman, Source Evaluation Board, to Donald L. Hambric, Source
      Selection Officer, undated

    CSC/TOSS Phase-In Request for Personnel Waivers, Memorandum from David M.
      Cline, Director, Scientific Systems Staff/OIRM, to Lawrence Schlosser, TOSS
      Contracting Officer, ADP Contracts Management Section/PCMD, February 11,
      1991

    Report on Audit of Proposal for Initial Pricing Under RFP #W902404-A3, letter
       from Computer Sciences Corporation to Dennis Buck, PCMD, April 18, 1990

    Draft Audit Report No. E1NME1-04-0169 - EPA's Management of CSC's
      Contract Activities, Memorandum from Kenneth A. Konz, Assistant Inspector
      General for Audits, to Christian R. Holmes, Acting Assistant Administrator for
      Administration and Resources Management, February 4, 1992

    CSC Contract Management Report, Technical and Operational Support Services,
      EPA Contract No. 68-WO-0043, January 1992

    CSC Contract Financial Report, Technical and Operational Support Services, EPA
      Contract No. 68-WO-0043, January 1992
                                     D-8

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     CSC Delivery Order Progress Report, Technical and Operational Support Services
       EPA Contract No. 68-WO-0043, Book 1, January 1992


 Federal Acquisition Regulations - FAR (Chapter 1, Title 48,
 Code of Federal Regulations)


 Hearing Transcripts

     Hearing Before the Senate Committee on Governmental Affairs, Contracting
       Problems at EPA, March 2, 1992

     Departments of Veterans Affairs and Housing and Urban Development and
       Independent Agencies Appropriations for Fiscal Year 1993, Subcommittee of the
       Committee on Appropriations, U.S. Senate, 3/26/92


     Hearing on EPA Mismanagement of $1/2 Billion in Contracts with Computer
       Sciences Corporation, House  of Representatives, Subcommittee on Oversight and
       Investigations, Committee on Energy and Commerce, March 4, 1992

     Hearing on the Use of Consultants and Contractors at EPA, Subcommittee on Post
       Office and Civil Service, U.S. House of Representatives, February 23,  1989

     Hearing Before the Subcommittee on Federal Services, Post Office and Civil
       Service, Committee on Governmental Affairs, An Examination of Consultants at
       the Environmental Protection Agency, February 3, 1989


Testimony

     Christian R. Holmes, Acting Assistant Administrator for Administration and
      Resources Management, EPA, before the Subcommittee on Oversight  and
      Investigations, Committee on Energy and Commerce, U.S. House of
      Representatives, March 4,  1992

    Christian R. Holmes, Acting Assistant Administrator for Administration
      and Resources Management, EPA, before the Subcommittee on Oversight and
      Investigations, Committee on Energy and Commerce, U.S. House of
      Representatives, March 19, 1992

    Michael J. Thibault, Deputy Regional Director, Mid-Atlantic Region, Defense
      Contract Audit Agency, before the U.S.  House of Representatives, Subcommittee
      on Oversight and Investigations, Committee on Energy and Commerce, on Audit
      Activities of the Defense Contract Audit Agency At Computer Sciences
      Corporation, March 4, 1992

                                     D-9

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    Lyle G. Hassebroek, President, CH2M Hill, Inc., before the Subcommittee on
     Investigations and Oversight of the Committee on Energy and Commerce, U.S.
     House of Representatives, March 19,1992

    Local 2050, National Federation of Federal Employees, before the House
     Committee on Post Office and Civil Service, by J. William Hirzy, President,
     February 23, 1989

    Richard C. Fortuna, Executive Director, Hazardous Waste Treatment Council,
     "Impact of Contractors on EPA's Hazardous Waste Treatment Programs," before
     the House Subcommiteee on Civil Service, Post Office and Civil Service
     Committee, U.S. Congress, February 23, 1989
POLICY
    EPA 1901-Acquisition Regulation Manual (EPAAR), 1990 edition, Procurement
      and Contracts Management Division, undated

    EPA, Acquisition Handbook, March 1, 1990

    OPPE, Work Assignment Manager Training Toolbox and Manual, undated

    EPA, Doing Business with EPA, Revised April 1991

    EPA, Project Officer's Handbook, 2nd edition, April 1984

    EPA, Contract Administration, November 1991

    EPA, Delivery Order Project Officer Guide, OARM Management Assistance and
      Advisory Services Contracts, 21M-1017, Revised June 1991

    Department of Defense, Defense Logistics Agency, Defense Contract Management
      Command, Contract Administration Manual, DLAM8105.1, October 1990

    EPA, Contract Management Manual, 1991  edition (includes change 3, 8/15/91)
                                     D-10

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                             APPENDIX E
                    APPROACH AND METHODOLOGY
TOTAL QUALITY APPROACH

      In general, the SCCM Staff identified conditions that are symptomatic of
problems in the current procurement and contracts management system and
barriers to improved quality in its processes. Total Quality Management and
other quality improvement concepts guided this study and preparation of the
report.  These include customer focus; quality as a priority equal with cost,
schedule, and volume produced; a balance of short- and long-term goals; an
emphasis on preventing errors rather than detecting them after the fact; quality
as a shared responsibility; flat, integrated organizational structures; and the
involvement of people at all levels in problem solving.
      The staff asked the individuals interviewed, as well as the focus group
participants, to point out root causes of problems and to look outside the
existing milieu for ideas to make systemic and lasting improvements to the
process and system.  Some of the most enlightening and productive sessions were
the focus groups conducted across the country to give front-line staff, COs,
Contract Specialists, POs, WAMs, and DOPOs the  opportunity to express their
views on the contracts management world they work in daily.
      The results and recommendations of this Report reflect the voice of those
who actually perform the work and the intelligence, creativity and honesty of a
broad range of managers and staff throughout EPA. The staff hopes that the
use of quality management principles for this study will encourage and result in
the kind of cultural change needed in the Agency.
SCCM STAFF COMPOSITION

      The 23-person staff is multi-disciplinary - consisting of individuals from
EPA Headquarters and Regions as well as from the Department of Justice. (See
Appendix B.)  Staff members were selected for their fact-finding abilities,
analytical and writing skills, capacity to work under pressure,  and experience
with Agency systems. Included among the staff are POs, WAMs, and COs.
      Early in the process,  staff members were  briefed in depth on such issues
as the budget process, report preparation, audit resolution and the  role of legal
counsel in the  present contracts management arena. The staff had access to, and
conducted interviews of, experts in the field of contract management.  Staff
members were encouraged to raise questions and engage in discussions with
Agency contract specialists and outside experts.  The diversity of the group
resulted in the objective inquiry which we believe underlies this report.
                                   E-l

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REVIEW OF PAST REPORTS

      The staff examined existing reports and audits on contracts management
in order to become familiar with already identified problems and to evaluate the
effectiveness of the solutions adopted in the Agency's responses. During this
phase of the study, it became evident that several appropriate solutions
previously recommended had not been implemented.  Given the Agency's
current commitment to correct long-standing contracts management problems,
some of these solutions may be worthy of reconsideration and thorough
implementation.
      The staff also reviewed the Agency's GAO report files, which contained
over 500 post-1980 titles.  The OIG provided a list of 33 contracts management
audits conducted since 1980.  The GAO reports were first screened for their
relevance to contracts management issues. The staff then created a preliminary
list of 31 GAO and 21 OIG reports, reviewed these, obtained copies of other
relevant corresponding testimony from the GAO and the OIG, and established a
core list of 14 GAO and 32 OIG reports for further analysis.  (See Appendix D.)
      The criteria for selecting a report for comprehensive staff review were:
(1) direct GAO or OIG review of an EPA contract issue; (2) GAO or OIG
review of a government-wide contract issue with EPA specifically mentioned; or
(3) GAO or OIG review of other issues directly relevant to contracts
management.  The OIG's recent audit of the CSC contract received particular
emphasis in this review process due to its comprehensive portrayal of the EPA's
contracts procurement and management process.
       The staff also consulted with the Management and Organization Division,
EPA's in-house management consulting group, regarding prior contracts manage-
ment studies.  Several important reports were subsequently identified and
analyzed. In particular, the staff studied Contracts Management: The People
and the Process issued December 7, 1988. The goal of this process was to avoid
approaches that had been ineffective and to highlight potentially effective past
recommendations that have not been implemented.
 CONGRESSIONAL DIALOGUE

       Several members of Congress raised issues about the Agency's ability to
 manage its contracts. These were triggered by problems identified in the recent
 OIG audit of the CSC contract. The staff met with key Congressional members
 to seek guidance on the study process and reviewed transcripts from Congres-
                                    E-2

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sional hearings dealing with the EPA's contracts management.1 The review
centered on assessments of common themes of Congressional concern about
EPA's need to improve its management of contracts and reduce the potential for
waste, fraud and abuse.
PROBLEM ASSESSMENTS

      Administrator William K. Reilly and Acting Assistant Administrator for
Administration and Resources Management Christian R. Holmes also requested
that all Regional and Headquarters senior executives submit reports assessing
present and potential problems in contracts and program management.  These
"Problem Assessments" included any vulnerabilities identified in pertinent OIG
or GAO  audits or during the FMFIA process; any schedules for corrective action
not yet completed; and any other relevant information.  All Problem
Assessments were catalogued and reviewed for inclusion in the study. (See
Appendix I.)
INTERVIEWS AND FOCUS GROUPS

       The staff conducted individual interviews and focus groups at a
representative sample of offices. Visits were made to Regions in, IV, V, VII and
IX, Research Triangle Park NC, Cincinnati OH, Las Vegas NV, and Athens GA
A video conference was conducted with Region VI. Interviews were also
conducted with many  employees in Headquarters offices including OARM,
OSWER, OAR, OW and OPPTS. Approximately 100 individual interviews,
ranging from staff to Assistant/Regional Administrators, were conducted.
       To collect  comparable information during these interviews, the staff
developed contracts management interview guides.  These guides were based on
information collected  in previous reports and audits, areas of Congressional
concern, and the  staffs own experiences in Agency program and contracts
management. They were also tailored to the individual interviewee's level of
   particular, transcripts from the following Congressional Hearings were reviewed:

       1.     March 4, 1992 and March 19, 1992
             Congressman John Dingell
             EPA's procurement and management of Computer Sciences      Corporation
             (CSC)

       2.     March 2, 1992
             Senator John Glenn
             EPA's procurement and management of CSC

       3.     April 9, 1992
             Congressman Michael Synar
             Payment by EPA of questionable costs

                                    E-3

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 responsibility and, where possible, expertise in Agency and contracts
 management.
       The staff generally conducted interviews in two-person teams, although
 certain interviews were conducted by a single staff member. In the alternative to
 personal interviews, telephone and videoconference equipment was used.  The
 findings from the interviews were assimilated into preliminary site analyses that
 were used as information sources for relevant portions of the study.
       The staff conducted thirty-three (33) focus groups that included 275
 Agency employees. These were "horizontal," that is, each group consisted of
 similarly situated individuals.  The size of the groups varied from seven (7) to
 twenty (20) employees with similar contract responsibilities.


 SUGGESTION BOX AND HOTLINE

       The staff also instituted both a Hotline and a Suggestion Box to collect
 additional  data and to offer contributing individuals the option of anonymity. On
 April 15, 1992, John Barker, SCCM Staff Director, sent a memorandum
 announcing the Hotline and the Suggestion Box and asking all EPA employees
 to recommend improvements to the EPA's contracts management programs and
 to identify problems and barriers to improvements. Additionally, a flyer
 advertising the Suggestion Box and Hotline was distributed desk to desk to all
 Agency employees. Staff prepared protocols for collecting this information and,
 when appropriate, referring relevant information to the OIG.  Similar Suggestion
 Box invitations were made to EPA's thirty largest contractors.

 LEGAL ISSUES AND ANALYSIS

       Throughout the data collection process, a variety of legal issues arose. In
 consultation with legal experts (e.g., Professor Ralph Nash, George Washington
 University National Law Center), the staff evaluated applicable statutes and
 regulations with a view toward identifying authorities contained in existing
 statutes and regulations, and, as appropriate, potential revisions in  the statutory
 and regulatory framework governing contracts management. In particular, the
 staff focused on the FAR, CICA, PPA, the CFO Act, and the EPAAR.

 BENCHMARKING: OTHER FEDERAL AGENCIES, FEDERAL CONTRACT
 MANAGEMENT ADVISORY BOARD AND THE PRIVATE SECTOR

      The staff analyzed institutional systems outside of EPA and  interviewed
managers and contracting specialists to obtain recommendations on successful
contracts management processes. In particular, the staff met with personnel
from General Services Administration, National Aeronautics and Space
Administration, Department of Defense, Department of Energy, and the Naval
Air Systems Command. Information from these visits was assimilated into site
assessments for inclusion hi the Report. The staff also met with XEROX
                                  E-4

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management in order to get the private sector perspective on contracts
management.
      In a final attempt to solicit external, quality guidance, the Committee
convened a Federal Contract Management Advisory Board whose members
reviewed our analysis, options, and recommendations. (See Appendix C.)
METHODOLOGY AND THE RESULTING ANALYSIS

      The analyses, conclusions and recommendations contained in the Report
grew out of the sources and methods described above. The objective was to look
at the Agency's contracts management problems as a whole rather than
piecemeal. The approach that the staff adopted therefore focuses both  on
specific, daily management issues and on the larger framework from which these
issues arise.
                                  E-5

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E-6

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     APPENDIX F:
ORGANIZATIONAL CHARTS
          F-l

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F-2

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                                        Chart #1
                                  Current Structure
            Office of Administration and Resources Management
    Office of
 Administration
       New
   Headquarters
      Project
     Facilities
   Management &
  Services Division
      Grants
   Administration
      Division
   Safety, Health
       and
   Environmental
   Management
      Division
    Procurement
   and Contracts
    Management
      Division
   Management &
    Organization
      Division
                                 Assistant Administrator for
                                     Administration and
                                   Resources Management
                                _L
     Office of
 Human Resources
   Management
       Employee
     Participation &
    Communications
        Division
   Executive Resources
   & Special Programs
        Division
    Field Operations,
      Evaluation &
    Support Services
        Division
      Headquarters
 -(Operations & Client
     Services Division
      EPA Institute
        Division
     Policy, Research
     and Development
        Division
               Office of
            Administration &
               Resources
           Management, RTP
  Contracts
Management
   Division
   Facilities
Management &
   Services
   Division
                                             Program
                                            Operations
                                           Support Staff
National Contract
    Payment
    Division
Human Resources
  Management
     Division
              National Data
               Processing
                Division
Office of the
Comptroller



Budget
Division

Financial
Management
Division

Resource
Management
                      F-3
                      Office of
                     Information
                      Resources
                    Management
                                                          Division
                       Scientific
                     Systems Staff
                      Management
                      Planning and
                    Evaluation Staff
                     Administrative
                        Systems
                        Division
                      Information
                     Management &
                    Services Division
                                                       Program
                                                    Systems Division
                                            Office of
                                        Administration &
                                            Resources
                                          Management,
                                            Cincinnati
Information
 Resources
Management
  Division
  Contracts
Management
  Division
    Facilities
 Management &
Services Division
Human Resources
  Management
    Division

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                                  Chart #2
                        Proposed Reorganization
           Office of Acquisition, Assistance and Finance
 Program
Operations
  Staff
Assistant Administrator for Acquisition,
        Assistance and Finance
       (Chief Financial Officer)
Office of Acquisition and
Assistance Management
                           Office of Suspension
                             and Debarment
                          Competition Advocate
                                    Office of the Comptroller
    Procurement
      Division
 oRTP
 o Cincinnati
 o Washington, DC
  Policy Evaluation
    and Training
      Division
      Grants
   Administration
      Division
                                          Resources
                                         Management
                                           Division
                                      oFMFIA
                                      o OIG Audits
                                      o GAO Audits
                                          Financial
                                        Management
                                          Division
                                           Budget
                                          Division
                                                           oA76
                                    F-4

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                                        Chart #3
                             Proposed Reorganization
  Office of Human Resources, Facilities, and Information Management
                                 Assistant Administrator for
                                Human Resources, Facilities,
                               and Information Management
       Office of
    Administration
          New
      Headquarters
         Project
        Facilities
     Management &
     Services Division
      Safety, Health
          and
      Environmental
      Management
        Division
      Management &
       Organization
         Division
                  Office of
              Human Resources
                Management
                   Employee
                 Participation &
                 Communications
                    Division
               Executive Resources
               & Special Programs
                    Division
                 Field Operations,
                  Evaluation &
                 Support Services
                     Division
                  Headquarters
              —(Operations & Client
                 Services Division
                                           EPA Institute
                                             Division
                                          Policy, Research
                                          and Development
                                             Division
               Office of
            Administration &
               Resources
           Management, RTP
   Facilities
Management &
   Services
   Division
                       Office of
                     Information
                      Resources
                     Management
                        Scientific
                      Systems Staff
                       Management
                       Planning and
                     Evaluation Staff
                     Administrative
                        Systems
                        Division
                       Information
                     Management &
                     Services Division
                                                                               Program
                                                                            Systems Division
                                           Office of
                                        Administration &
                                           Resources
                                         Management,
                                           Cincinnati
Human Resources
  Management
    Division
Information
 Resources
Management
  Division
             National Data
               Processing
                Division
                                            F-5
   Facilities
 Management &
Services Division
                                        Human Resources
                                          Management
                                            Division

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             STANDING COMMITTEE ON CONTRACTS MANAGEMENT
         RECOMMENDATION ON THE OFFICE OF ADMINISTRATION AND
                             RESOURCES MANAGEMENT
CURRENT ORGANIZATION/STRUCTURE

      • Assistant Administrator

      • Chief Financial Officer

      • Office of the Comptroller
      • Procurement and Contracts
         Management Division (PCMD)

      • Grants Administration Div. (GAD)

      4 Research Triangle Park (RTP)


      4 Cincinnati

      • Facilities Management and
         Services Div.
      • Office of Human Resources Management

      • Office of Information Resources Management
      4 New Headquarters Project

      • Safety, Health and Environmental
         Management Division

      • Management and Organization Div.
PROPOSED ORGANIZATION/STRUCTURE

    • Assistant Administrator

    • Chief Financial Officer

    • Office of the Comptroller

    O General Accounting Office Audits

    4 PCMD


    4 GAD

    D RTP (Contract Mgmt. & National Contract
       Payment Divisions)

    D Cincinnati (Contract Mgmt. Division)

    O Direct Contracts Property Management


    D Standards for Agency Property Management.

    D Standards for Financial Personnel

    D Standards for Integrated Fin. Mgmt. System

    D Standards for Program Information Systems

    D Standards for Planning Systems

    D Standards for Evaluating Systems
                                            F-6

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NOTE: The Chief Financial Officer's Act of 1990 provides broad authority to direct,
manage, and provide policy direction and guidance to Agency activities related to: 1)
financial management planning and budgeting, 2) recruitment, selection and training of
financial personnel, 3) financial management systems, and 4) reports on execution of the
budget and performance against objectives.
Legend:

 * Functions/Activities under Current Organization
 D Functions/Activities Changed by Proposed Organization
                                        F-7

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CURRENT
CO
CO
CO
CO
CO
CO
PO
PO
PO/WAM
PO
PO
PO
PO
WAM
WAM
WAM
WAM
WAM
DOPO
MAJOR CONTRACTING RESPONSIBILITIES1
Sign a contract
Obligate funds
Issue Work Assignments
Modify any contract terms or conditions
Terminate a contract
Accept supplies and/or services
Monitor contract administration by WAM (COTR)
under LOE contract
Review overall technical and financial progress
Provide technical direction
Monitor use of government property
Certify vouchers
Recommend contract modifications to the contracting
officer.
Assist in contract closeout
Develop statement of work and LOE estimate for
specific work assignments under term form contracts
Monitor performance on work assignment
Recommend work assignment amendments to PO
(AGO)
Review relevant portions of monthly technical and
financial progress reports
Assist the PO (AGO) in voucher certification
Determine labor categories for delivery orders under
time and materials contracts
PROPOSED
PCO
PCO/ACO
ACO
AGO
ACO
COTR
ACO
ACO
COTR
ACO
ACO
COTR
COTR
COTR
COTR
COTR
COTR
COTR
COTR
CO    - Contracting Officer          PCO
PO    - Project Officer
WAM  - Work Assignment Manager   ACO
DOPO - Delivery Order Project
         Officer                     COTR
- Placement Contracting
  Officer
- Administrative
  Contracting Officer
- CO's Technical
  Representative
   1From EPA's "Contract Administration Manual", pages 2-8 through 2-11.

                                       F-8

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                                 APPENDIX G
              DESIGNATION OF SENIOR PROCUREMENT OFFICERS
       In his memorandum of February 28, 1992, Christian Holmes, Acting Assistant
 Administrator for OARM, required Assistant, Associate, and Regional Administrators to
 "designate a single SES-level manager to serve as 'Senior Procurement Officer' (SPO)
 with full responsibility for the effectiveness and integrity of all procurement activities in
 your office.  Separate, on-site Senior Procurement Officers are to be designated for each
 EPA laboratory or major EPA field site." This was the first step taken to improve the
 management accountability of contracts management.
       Since then, the Agency has appointed a cadre of 52 SPOs. The SPOs assisted the
 Committee staff with data collection for this Report.  However, since their appointment,
 the sustained role of the SPO has been reviewed and questioned by those to whom
 responsibility was initially delegated.  Such questioning, which included span of control,
 training, and accountability, was welcomed and appreciated by the Committee staff.
       The staff recommends consideration of SPOs in the following offices:

             Regions I-X
             Office of International Activities
             Office of Acquisition, Assistance  and Finance
             Office of Enforcement
             Office of General Counsel
             Office of Policy, Planning, and Evaluation
             Office of the Inspector General
             Office of Water
             Office of Solid Waste and Emergency Response
             Office of Air and Radiation
             Office of Prevention, Pesticides and Toxic Substances
             Office of Research and Development
             Office of Regional Operations and State/Local Relations
             Office of Congressional and Legislative Affairs
             Office of Communication, Education and Public Affairs
             Office of Human Resources, Facilities and Information Management

      Due to the location of contracting in some of the Headquarters program offices,
some AAs may desire to designate more than one SPO.  By August 1, 1992, it is
recommended that each AA/RA, including those with labs and field operations, will
present to OAAF a proposal to provide contract oversight and establish reporting
relationships for operations within their purview. By August 15,  1992, the AA for
Acquisition, Assistance and Finance will concur in the SPO appointments.
                                      G-l

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REGIONAL APPOINTMENT OF THE SENIOR PROCUREMENT OFFICER

      The Committee recommends that Regional Administrators appoint their Assistant
Regional Administrators as SPOs.  Organization is such that contracts management is
already operating in the ARA's office in some Regions. The ARAs have an existing
supportive relationship and have built in opportunities to meet and discuss areas of
common concern.
RESPONSIBILITIES OF THE SPO

      The SPOs are stewards of the integrity of the contracting process and its support
systems:  resources management, continuing education and training, and budget and
strategic planning that emphasizes win-win results.  This responsibility and authority
cannot be delegated. It is recognized, however, that SPOs will require assistance in the
management of contracting resources and support systems. We recommend that SPOs
initiate workforce and workload planning immediately within the context of these
additional responsibilties to ameliorate requests for appropriate resources.
      The SPO's primary functions are:  1) to ensure that all rules, regulations, policy
and guidance relating to contracts management are adhered to;  2) to ensure that
contracting and its staffing are incorporated into strategic planning, workforce planning,
and the budget;  3) to ensure that the Regions and offices receive full value for their
contract funds;  4) to ensure that an atmosphere is fostered in which good contracts
management practices are a part of the culture; and 5) to ensure that close coordination
and timely, two-way communication are maintained with OAAM.
      The SPO is responsible for the conduct of his or her CO and COTRs, as well as
the CO's and COTRs' adherence to and implementation of policy, guidance, and
regulations. Specific duties include:

Personnel

1.    Facilitate the training and continued education of the  procurement staff. After
      training requirements are met, each SPO will request  the warrant for a  CO from
      OAAM.

2.    Provide for career development of procurement personnel, including rotational
       assignments in placement, policy, and training.

3.     Ensure that procurement positions are assigned to qualified personnel.

4.     Evaluate the performance of COs within his or her span of control.

5.     Establish and oversee programs of continuing education in procurement
       responsibilities for senior executives, mid-level managers and supervisors, and
       staff.
                                       G-2

-------
6.     Coordinate employee recognition programs such as the Contracts Management
      Award and other procurement staff recognition programs within the office or
      Region.
Processes

1.     Develop long-term procurement strategy, in concert with OAAM, that anticipates
      program needs and the requirements of the federal and Agency procurement
      policies and standards.  Coordinate the Acquisition Plan Preparation to coincide
      with the Agency's annual budget.

2.     Communicate policy and guidance from OAAM's Policy Evaluation and Training
      Division to the contracting staff.

3.     Develop and disseminate procurement documentation required to keep managers
      and staff informed and ensure the "early warning" capability to avoid contracts
      mismanagement rather than relying on audits and other "end-of-the-pipe" controls.

4.     Ensure integrity of responses to procurement-related audits and other external
      assessments of procurement activities; monitor remedial actions to ensure
      commitments are met;  coordinate Quality Assurance functions with OAAM staff.

5.     Resolve situations when program goals and contracts management goals seem to
      conflict. Note:  The staff recommends that SPOs review Region 10's
      action/decision memorandum system for tracking and documenting upper-
      management decisions. See Region 10 FMFIA letter for 1991.
6.
      Report on procurement issues and developments at AA/RA staff meetings and
      other appropriate fora.

7.     Subsume the role of the "Program Competition Coordinator" to assist the Agency
      Competition Advocate to help insure the integrity of the procurement placement
      process and enhance the Agency's pro-competitive posture.

8.     Assist with coordination of the Integrated Contract Management System's (ICMS)
      design and implementation phases.

      The SPOs will use this document to more completely address and define their
role in the procurement process. One month after SPOs have been appointed, they will
convene a meeting with the AA, OAAF and the Director of OAAM to finalize roles and
responsibilities.
      The Committee staff also recommends that a QAT be  formed at that time for
continual improvement of the roles and responsibilities of the SPO.  The changes
recommended in this Report require long-term diligence. SPOs will serve a different
role in the early implementation of these recommendations than three to five years from
now, when the Agency is further down the road to process improvement. Therefore, we

                                      G-3

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recommend that SPOs make short-term (one- to two-year) and long-term (three- to five-
year) plans.  Short-term responsibilities would include modifying performance
descriptions, improving training, and creating workload models.  Long-term planning
could include refining hiring practices and education systems to meet specific needs, and
alignment of the budget and procurement cycle.
EDUCATION OF SPOs

      The level of knowledge of the contracting process required to implement their
new contracting responsibilities varies among the initial cadre of SPOs.  The Committee
staff recommended that all receive special training developed by OAAM, to prepare
them for their upcoming oversight responsibilities.  Many will have received the Contract
Management Training for all executives, presented June 4 and 5,  1992.  However, more
in-depth training will be necessary.
      The Committee staff recommends that the in-house procurement experts in
OAAM prepare and conduct a special training course for SPOs to further prepare them
for their duties. The training will be very specific to the contract process at EPA and
will include such issues as a review of current procurement-related audits, review of
personal services and IGFs, and major contracts in use at EPA.  This training will take
place by January 31, 1993.
FUTURE APPOINTMENTS AND CONTINUED EDUCATION OF EXISTING SPOs

      It is recommended that the Director of OAAM will establish criteria for
education, management experience, and association with contracting activities to which
future SPOs must comply before appointment.  SPOs will participate in approximately 40
hours of procurement training in their first year, 24 hours of procurement training in
their second and third years, and 16 hours of procurement training each year following.
                                      G-4

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                           APPENDIX H
           SYNOPSIS OF SUGGESTIONS AND HOTUNE ISSUES
     SUBMITTED TO SCCM STAFF BETWEEN APRIL AND JUNE OF 1992
                     SUGGESTION BOX SUMMARY
                       THROUGH JUNE 5, 1992
LOCATION
REGIONS
System Alignment
Dependence on
Contractors
Contracting Processes
Audit Backlog
Federal Acquisition
Regulations
HEADQUARTERS
Systems Alignment
Program Impact on
Contracts Management
Dependence on Contractors
Contract Processes
LABS/FIELD OFFICES
Systems Alignment
Dependence on Contractors
Contract Processes
WAM/
DOPO

5
3
12






1

1

3
PO

2

3



4

1
2

2


CO














1
PROF

4
7
8



3


3

5
2
3
ANON

6
3





1
1





OTH

9
6
16
2
1

3

1
3

2
1
7
WAM/DOPO - Work Assignment Manager/Delivery Order Project Officer
PO - Project Officer
CO - Contracting Officer
PROF - Professional (e.g., manager, scientist)
ANON - Anonymous
OTH - Others whose role was not or could not be identified.
                                H-l

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                             HOTLINE SUMMARY
                           THROUGH JUNE 5, 1992
LOCATION
REGIONS
System Alignment
Program Impact on
Contracts Management
Dependence on Contractors
Contract Processes
Audit Backlog
HEADQUARTERS
Systems Alignment
Dependence on Contractors
Contract Processes
Other Agencies
LABS/FIELD OFFICES
Systems Alignment
Dependence on Contractors
Contract Processes
samBMHi^a:
WAM/
DOPO



2
5


1

2





PO



1











CO


1

6


1
3
3





PROF

3

9
25
1

6
10
6
1

8
9
16
ANON



5











OTH















WAM/DOPO - Work Assignment Manager/Delivery Order Project Officer
PO - Project Officer
CO - Contracting Officer
PROF - Professional (e.g., manager, scientist)
ANON - Anonymous
OTH - Others whose role was not or could not be identified.
                                   H-2

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                                 APPENDIX I
                      PROBLEM ASSESSMENT SUMMARY
PROBLEM ASSESSMENTS

      On March 10, 1992, Administrator William K. Reilly requested that all EPA
offices supply critical information on contract management within each office.
Subsequently, Acting Assistant Administrator for OARM Christian R. Holmes specified
the information requested in the "Problem Assessments." Messrs. Reilly and Holmes
requested from all Regional and Headquarters senior executives a "Problem Assessments
Report" which focused on present or potential problems in the area of contracts and
program management.  These "Problem Assessments" included any vulnerabilities
specifically identified in a program management audit performed by the IG or GAO or
otherwise identified during the FMFIA process; any implementation schedules for
corrective actions not yet completed; and any other information relevant to the issue at
hand. The staff reviewed and catalogued all Problem Assessments to assure their inclu-
sion in the study.
      The following overarching patterns and trends were revealed through the Problem
Assessments:

             Inadequate training both of individuals directly involved in managing
             contracts and of their managers

             Faulty accountability and fragmented reporting lines

             Unclear and inconsistent policy and guidance on how to manage contracts

             Poor control and oversight, particularly of Level of Effort  contracts, the
             most commonly used contract type in the Agency

             Inherent weaknesses in the review process both in the pre- and post-award
             phases of contract management

             Overdependence on contracting, often leading to abuses such as:

                   inappropriate use of on-site contractors
                   contractors that perform inherently governmental functions
                   inadequate attention to conflict of interest
             ~    personal services relationships with contractors

             Inadequate cost control

             An expanding contract management burden within the Agency coupled
             with a static contract administration workforce -- that is, an underdevotion
             of FTEs to the administrative burden associated with contract management


                                        1-1

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CAUSES:
       The assessments revealed pervasive problems that are systemic in nature and are
assoaated with the gradual evolution of an historically technical agency into one that has
become highly leveraged ~ that is, quite dependent on extra-mural funding to accomplish
its mission.                                                                    r
CONCLUSIONS:

      Because the leveraging of funding in the direction of contracts rather than in-
house resources will continue, the Agency must develop and implement new strategies in
order to adapt to a world in which much of its mission is accomplished through
contracting.  These strategies are described in detail in the recommendations of this
report. In general, they consist of:

            A new alignment for the management infrastructure devoted to contracts

            A restructuring of the roles of employees who deal with contracts as a
            daily, hands-on part of their duties

            A wholesale shift in the Agency culture toward fostering contracts
            management

            A renewed commitment toward adopting useful conclusions cited in
            previous contracts management studies

            A major training initiative which effectively buttresses the contracts
            management function
                                       1-2

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                               SUMMARY OF
            CONTRACT MANAGEMENT PROBLEM ASSESSMENTS
          REQUIRED BY THE ADMINISTRATOR'S MARCH 10 MEMO
OFFICE OF SOLID WASTE AND EMERGENCY RESPONSE

Problems Identified

      • Superfund material weaknesses (Corrective Action plans developed and
        routinely monitored);
      • ARCS Review (Implementation Plan developed);
      • 30-Day Review (Recommendations being implemented);
      • OIG Investigation of OSW in 1988 (Internal controls developed);
      • OUST PCMD Review and Follow Up, January 1991/1992 (Internal Controls
        established and upgraded).

Actions Undertaken

      • Quick review of existing or potential problems;
      • QAT established to oversee review of Office internal controls;
      • Establish high-level oversight position for contract management (in addition to
        SPO);
      • Identification of Agency-wide issues (possibly for Standing Committee);
      • Continuing information on OSWER contracts  subject to hearings.
      • Institutionalize project officer support group

Other Comments

      • Managerial training/involvement in contract management needed  at all levels;
      • Hands-on staff training hi contracts management needed;
      • Continuing program need for mission support  contracts.
OFFICE OF PREVENTION, PESTICIDES AND TOXIC SUBSTANCES

Problems Identified

       •  A national delivery order for data entry of enforcement data in each Region
         may be problematic.

Actions Undertaken

       •  Increased emphasis on Regional oversight;
       •  HQ staff management of contractor performance;
       •  Verification of contract personnel clearance for CBI;
       •  Implementation of AA/OARM 2/28 memo standards.

                                     1-3

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 OFFICE OF PREVENTION, PESTICIDES AND TOXIC SUBSTANCES (Cont'd)

 Other Comments

       •  Ongoing program need for large mission-support contracts.


 OFFICE OF WATER

 Problems Identified

       •  Inadequate training;
       •  On site contractors;
       •  Personnel turnover/overload;
       •  Financial/contract management process "disconnects";
       •  Award fee process - failed incentive;
       •  Small vs. large contracts management tradeoffs;
       •  Regional use of HQ contracts;
       •  Personal services relationships with contractors.

 Actions Undertaken

       •  Formation of senior work group on contract management.
       •  Terminated all knwon personal services activity

 Other Comments

       •  Need to meet program responsibilities under good contract management
         principles.


 OFFICE OF RESEARCH AND DEVELOPMENT

 Problems Identified

      •  Contract management identified in FMFIA reports as a major weakness;
   •   •  Certain lab problems identified by ORD and IG  reviews.

Actions Undertaken

      •  Creation of Acquisition Management Improvement Initiative to examine and
         improve acquisition program;
      •  Establishment of four  QATs to address broad contract management issues and
         develop specific proposals;
      •  Implementation of AA/OARM's 2/28 memo standards.
                                     1-4

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Other Comments
         Better management will require increased attention and
         resources at all levels;
OFFICE OF RESEARCH AND DEVELOPMENT

      •  Lack of clear policy/guidance communication hampers management;
      •  Fragmented responsibility/unclear accountability for management of resources.
OFFICE OF POLICY PLANNING AND EVALUATION

Problems Identified

       •  Inappropriate use of on-site contractors;
       •  Perceptions of contractor performance of inherently governmental functions;
       •  Inadequate attention to conflict of interest;
       •  Personal services relationships with contractors;
       •  Inadequate cost control.

Actions Undertaken

       •  Improvements to training and guidance provided to staff and managers;
       •  Development of 5-year contracting strategy and meeting with potential vendor
         community;
       •  Implementation of AA/OARM 2/28 memo standards;
       •  Development of data system for management information;
       •  Moved contractors off-site;
       •  Improvements to voucher review process;
       • Established permanent contracts management group reporting to the Senior
         Procurement Official

Other Comments

       •  PCMD staffing shortages creates contract management problems that promote
         program "corner cutting";
       •  Perception that contract management is OARM "process" responsibility;
         program office focus is technical "substance" issue;
       •  Limited program staff interest in contract management as a career focus;
       •  Lack of accountability in the acquisition process;
       •  Reliance on contractors for sensitive work at the expense of underfunding
         poses continuing risk to the Agency, ultimately undermining public confidence
         in our ability to manage;
                                       1-5

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 OFFICE OF POLICY PLANNING AND EVALUATION (cont'd)

       •  Systemic problems -- unrealistic government-wide personnel ceilings, difficulty
         in attracting people to government service, push to contract out services --
         should be addressed by Standing Committee.

 OFFICE OF ENFORCEMENT

 Problems Identified

       •  None specifically

 Actions Taken

       •  Designation of SPO in OE and NEIC (April 3, 1993 memo from AA/OE to
         OE managers/supervisors);
       •  Directed SPOs to re-emphasize proper contractor relationship with contract
         managers;
       •  Implementation of AA/OARM 2/28 memo standards;
       •  Conduct of survey for current/projected contract activities (due 4/10/92);

 Other Comments

       •  None
OFFICE OF AIR AND RADIATION

Problems Identified

      • Rapid growth and heavy workload demands and severe time pressures to
        complete critical projects;
      • Heavy workload demands on OAR contract management personnel;
      • Use of on-site contractors;
      • Growing reliance on fewer, larger contracts over time;
      • Separation of project officer from work performance location.

Actions Taken

      • Established a Contracts Management Work Group to conduct long-term study
        of strengths and weaknesses of OAR contract and project management;
      • SPO meetings scheduled with OAR contract management personnel during
        April  1992 to educate and obtain feedback on problems/issues;
      • Implementation of management review of OAIAP contracting and scheduling
        symposium for office POs, DOPOs and WAMs (May 27-28, 1992);
      • OMS  established contract check list for POs;
                                     1-6

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 OFFICE OF AIR AND RADIATION (cont'd)

       •  OPR review of all WAs for the scope, of work and personal services, and
         developed questionnaire on inherent government services for major LOE
         contract;
       •  OAQPS established workgroup to coordinate review of contracts management
         activities (including contractors' work space);
       •  Development of OAR contract assessment checklist to assist in the review of
         OAR contracts;
       •  Project-by-project review of CSC delivery orders;
       •  Development of a 9 step Office Director action plan to ensure OAR
         application of sound contract management;
       •  Establishment of QAT to conduct a thorough review of OAR  contracting
         practices and develop 5-year plan.

 Other Comments

       •  None
OFFICE OF ADMINISTRATION AND RESOURCE MANAGEMENT

Problems Identified

OARM-Specific

       •  Vulnerabilities in high-dollar volume, multi-task delivery order contracts;
       •  Dependency on a single contractor to maintain mission-critical management
         information systems;
       •  Potential use of contractors to perform inherently governmental functions;
       •  Government-owned property held by contractors may be at risk;
       •  Appearance of contractor access to confidential business information;
       •  Complex regulations create potential for misinterpretation;
       •  Potential for managers to assign ADP contract systems oversight to
         insufficiently trained personnel;

Agency-Wide

       •  Distinction between contractor and EPA employees may become blurred;
       •  Potential for appearance of conflicts of interest;
       •  Possible inadequate contractor financial systems;
       •  Potential for POs, DOPOs and WAMs to be designated without appropriate
         training;
       •  Inconsistent award fee ratings categories;
       • Early-warning detection system does not always compel senior management to
        take action.
                                      1-7

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OFFICE OF ADMINISTRATION AND RESOURCE MANAGEMENT (Cont'd)

Actions Taken

      • AA/OARM visits to four Regions and two field offices;
      • Special meeting of Senior Council on Management Controls (April 23, 1992) to
        consider amending FMFIA letter to President;
      • Establishment of Standing Committee on Contracts Management;
      • Reorganization of PCMD;
      • OARM-led review of EPA contracting strategy;
      • Designation of EPA Senior Procurement Officials;
      • SES special seminar on contracts management;
      • Issuance of guidance to Agency managers on contracts management (2/28/92);
      • CSC audit review and performance evaluation.

Other Comments

      • Recommend full-scale application of TQM principles to EPA's contracting
        process.
      • Changing deeply embedded culture is a long term effort;
      • Quick and decisive action is needed to correct real and potential abuses
        identified.

OFFICE OF COMMUNICATIONS AND PUBLIC AFFAIRS

Problems Identified

      • None

Actions Taken

      • Implementation of AA/OARM 2/28/92 memo standards;
      • Formation of QAT to develop contract responsibilities and requirements for
        OCPA (due to AA/OCPA 4/15/92);
      • Routing  of POs/Commitment Notices through SPO;

Other Comments

      • None


OFFICE OF REGIONAL  OPERATIONS AND STATE/LOCAL RELATIONS

Problems Identified

      • None  identified  by IG, GAO or FMFIA during last 5 years;
                                    1-8

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OFFICE OF REGIONAL OPERATIONS AND STATE/LOCAL RELATIONS (Cont'd)

      • Investigating personal services occurrence under one work assignment; stop
        work order issued pending outcome;
      • Mixed appropriation funding of one work assignment;
      • Contractors working on-site, not in statement of work;
      • Incomplete WA files;
      • Lack of contract expenditure tracking system;
      • Outstanding contract obligations need resolution.

Actions Taken

      • Appointment of new Project Officer to manage AScI contract;
      • Correction of problems identified by September 30, 1992.

Other Comments

      • None

OFFICE OF GENERAL COUNSEL

Problems Identified

      • Legal review focuses only on placement of larger contracts;
      • No routine legal input to contract administration due to lack of resources;
      • Insufficient HQ legal support for Superfund contracting;
      • Additional FTE needed for Contract Law Branch and Inspector General
        Division.

Actions Taken

      • Provided automated legal research capacity to Agency's attorneys.

Other Comments

      • Very limited user of contracts.

OFFICE OF THE ADMINISTRATOR

Problems Identified

      • Administrative and performance problems on an OROSLR contract;
      • Need to improve procurement policies to prevent unauthorized procurements.

Actions Taken

      • Implementation of AA/OARM 2/28 memo standards;

                                     1-9

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OFFICE OF THE ADMINISTRATOR (Cont'd)

      •  Reassigned management of OROSLR contract to correct deficiencies;
      •  Established appropriate contract management procedures for OCEM;
      •  Providing training for persons in the procurement chain.

OFFICE OF INSPECTOR GENERAL

Problems Identified

      •  Inconsistent invoice requirements;
      •  Need for contracts management training;
      •  Potential for supervision of on-site contractors;
      •  Backlog of audit requests.

Actions Taken

      •  Standardized contract processes;
      •  Moved contractors off-site;
      •  Provided training for employees involved in contracts management.

OFFICE RESPONSES NOT YET RECEIVED BY STANDING COMMITTEE STAFF
(as of June 2, 1992):

OFFICE OF CONGRESSIONAL AND LEGISLATIVE AFFAIRS

OFFICE OF INTERNATIONAL ACTIVITIES
                                   1-10

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REGION I

Problems Identified

       •  No specific areas addressed.

Actions Undertaken

       •  In  the process of communicating problems and concerns to the organization;
       •  Review of on-site contract efforts to identify compliance status;
       •  Inclusion of contract management measures in performance standards;
       •  Implementation of AA/OARM 2/28 memo standards.

Other Comments

       •  Administrator's support needed for FY94 regional budget initiative for regional
         contract oversight FTE.


REGION II

Problems Identified

      •  Inadequate cost/pricing capability in Regions;
      •  No single, reliable, current source of information on Agency contract services,
         scope and sources;
      •  Contract regulation, guidance, program policy issuances and guidelines are not
         consolidated or organized, nor readily accessible;
      •  Current project/contract officer training programs do not impart thorough
         understanding of legal/technical requirements of the position;
      •  Significant increases in Agency programmatic responsibility without
         proportionate growth in EPA resources essential for assuring effective internal
         controls and management oversight;
      •  Audit backlogs, reliance on cognizant agencies leave the Agency vulnerable to
         fraud, waste, abuse and impairing ability  to manage;
      •  ESAT Superfund lab contracts are vulnerable, due to FAR  definition of
        personal services and nature of ESAT support;
      • Dual role of ERCS contract officers as OSCs creates imbalance in contract
        management responsibility;
      • OSC warrant authorizations exceed contracting officers' warrant authorizations
        without comparable training; requirements;
      • National TOSS Delivery Orders are not linked to regional management
        oversight, breaking chain of good internal
                                      1-11

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REGION II (Cont'd)

         controls for tracking progress and approving payment.

Actions Taken

      •  Implementation of AA/OARM's 2/28 memo standards;
      •  Established ARCS on-site costs documentation review team and ARCS
         Management Team;
      •  SPO advisories issued to regional contract staff;
      •  Ongoing ERRD review of CH2M Hill involvement in Regional Superfund
         program;
      •  Strengthen internal controls for invoice reviews of Superfund contractor
         billings.

Other Comments

      •  Further continuing review of Region II's contract management oversight may
         identify other areas needing  attention;
      •  Continued lack of resources  perpetuates the low priority that management
         issues appear to occupy within the Agency's culture;
      •  In the absence of budgetary  relief, reform is unlikely to result in permanent
         change.

REGION III

Problems Identified

      •  Potential for competing job requirements vs. adjunct contract duties to affect
         contract management;
      •  Potential for EPA emphasis  on delivery of programs and attaining
         environmental goals vs. adhering to procedures affecting contract management;
      •  Contract-specific training not available to  staff;
      •  Remote management of large HQ contracts with work vested in the Regions.

Actions Taken

      •  Currently conducting  internal vulnerability review of CSC contract (projected
         completion mid-April 1992);
       •  Region will review all contractual relationships after corrective action from
         CSC report.

Other Comments

       •  Resources for S&E management support have not kept pace with resource for
         program implementation;
                                       1-12

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         Solving contracts management problem must be matched by a resource base
         which is adequate for the job.
REGION IV

Problems Identified

      •  Inadequate Regional resources;
      •  Inadequate invoice reviews;
      •  Heavy reliance on CSC;
      •  Inadequate statements of work;
      •  Personal services;
      •  Inadequate contract administration and financial management;
      •  Nature of LOE contract/cost reimbursement contracts;
      •  FIT/site assessment vulnerability;
      •  Conflict of interest and limitation of future contracting;
      •  EPA/Contractor fraternization;
      •  Access to CBI/enforcement-sensitive information;
      •  Statement  of work development;
      •  Program management office;
      •  Property in possession of contractors;
      •  Information security;
      •  Point of contact for administrative issues;
      •  Contract information awareness and training for staff;
      •  EPA's reliance on ESAT;
      •  Inherently governmental functions.

Actions Taken

      •  Development of Regional Action Plans to address each area of vulnerability
         identified by responsible unit.

Other Comments

      •  Regional Action Plans will serve as a beginning for permanent improvements.

REGION V

Problems Identified

      •  None identified (detailed review in progress, projected for completion by
         5/8/92).
                                      1-13

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Actions Taken
         Implementation of AA/OARM 2/28 memo standards;
         Development of action plan (projected for completion by 5/8/92).
REGION V (Cont'd)

Other Comments
         Cursory review of CSC delivery order statements of work do not reflect
         performance;
         of any inherent government functions or prohibited contracting activities;
         No examples of contract employees retaining sole knowledge of EPA systems
         or operations have surfaced.
REGION VI

Problems Identified
         Physical location of contract employees;
         Decentralization of National DO for PCS data;
         Lack of FTEs to perform inherent government functions;
         Lack of guidance/training for DOPOs;
         Inadequate guidance/training on National DOs/TOSS contract/ethics and
         standards of conduct;
         National DO DOPO responsible for oversight of services provided in Regions.
Actions Taken
         Establishment of a Contract Management Improvement Workgroup to support
         Regional CM initiatives;
         Assign TOSS Coordinator role to SF CO to provide focal point for DOPO
         guidance/assistance;
         Development of draft CSC audit Action Plan (final due 4/3/92)
         Request A-76 guidance from PCMD;
         Regional staff supporting Superfund Zone Contracts, national ARCS
         Implementation Plan, Dunn Task Force, Long Term Contracting Strategy.
Other Comments
         Region is requesting a clear delegation of authority for the Senior Procurement
         Official.
         Region requires FTE support for a Regional Contracts Manager as specified in
         TOSS contract, and requests clarification from OIRM/PCMD regarding
         funding a position.
                                      1-14

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        Region provided common sense solutions to CSC audit findings in a February
        28 memo to the ARA;
        Region responded to AA/OARM March 31 follow-up memo.
REGION VII

Problems Identified
        Insufficient resources allocated to properly manage contracts;
        Lack of contract management knowledge;
        Lack of contract-specific training;
        Insufficient written guidance on national contracts;
        Lack of contract file and Deliver Order (DO) documentation;
        Inadequate DO statements of work (SOW);
        Some work performed outside SOW;
        Lack of adequate invoice review on national DOs;
        Inadequate independent government cost estimates;
        Inadequate property accountability;
        Perception of personal services and conflict of interest.
Actions Taken
         Implementation of AA/OARM 2/28 memo standards;
         Requiring standard contract invoices and independent government cost
         estimates on ARCS contracts since 1988;
         Initiation of surveillance reviews of ARCS invoices;
         Conducted review of CSC contract in August 1991;
         Conducted all-hands contract awareness training 9/91;
         Development of corrective action plan with due dates.
Other Comments
         More problems exist on National than Regional contracts due to remote
         location of COs to POs and DOPOs.
 REGION VIII

 Problems Identified
         Supervision of contractors by EPA staff;
         Co-mingling of contractors and EPA staff;
         Contractors performing duties similar to EPA staff.
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 Actions Taken
          Established a Contracts Management Review Task Force to complete reviews
          and actions plans and establish continuous improvement process for contract
          management;
          Implementation of AA/OARM 2/28 memo standards;
          Imposed a freeze on contract hiring;
          Published new Region VIII contract management guidelines;
 REGION VIII
          Conducted 500 staff hours of staff training;
          Developed detailed workplans for CSC and ARCS contract audits and other
          vulnerable areas identified in-house;
          Proposal to reorganize the Policy and Management Division to emphasize
          contracts management;
          Identified vulnerabilities under FMFIA for off-site contractors and developed a
          corrective action plan;
          Requested HQ to ask for audit of ARCS contractors' indirect costs.
 Other Comments
         Actions implemented thus far have begun to change culture of contracts
         management in the Region.
REGION IX

Problems Identified
         Potential to misconstrue on-site contractors as personal service;
         Inadequately qualified on-site contractors;
         Added responsibilities of CFO Act, and increased information
         management/security needs require sound  management practices, oversight and
         corresponding resources;
         Growth in program resources and responsibilities without proportionate growth
         in management support potentially leaves Regions vulnerable.
Actions Taken
         Took immediate action to address and correct issues raised in Region's
         administration of CSC DOs;
         Appointment of ARA to serve as SPO;
         Formation of QAT to identify, address and prevent vulnerabilities in CM;
         Region employee appointed as CSC Contract Coordinator;
         ARA conduct of comprehensive contract management review of
         strengths/concerns;
                                      1-16

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      •  Region is addressing ARCS Task Force recommendations for workload and
         equipment control.
Other Comments
      •  Agency resources in Management PEs have not kept pace proportionately with
         significant growth in program PEs;
REGION X

Problems Identified
         Regional culture of contractor/co-worker relationship;
         Additional training needed for task leaders;
         Statements of work inconsistent and allow too much discretion in performance;
         Lack of national and regional contract oversight resources delays decision
         process;
         Uncertain budget approval process;
         Adequacy of contractor management of government property;
         Possible conflict of interest with some Region X Superfund contracts;
         Lack of audit support for Superfund contracts;
         Unauthorized procurements and resulting requests for ratification of
         unauthorized actions.
 Actions Taken
         Implementation of AA/OARM 2/28 memo standards;
         Formation of ARCS Management Team to monitor ARCS contracts;
         Team of attorneys and contract officers addressing Conflict of Interest issues;
         Examination and updating of Regional property management system
         (completion projected 5/31/92);
         Development of action plan to address overall problems identified and
         implement long-term solutions;
         Implemented new procedures to reduce unauthorized commitments.
 Other Comments
          Contractors have performed effectively over the years and provided excellent
          value for the expenditure.
                                       1-17

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                                 APPENDIX J
                         EPA CONTRACT LEVERAGING

                      THE ISSUE OF OVER-DEPENDENCE
QUESTION

      Does EPA's preference for use of extramural resources over intramural resources,
i.e., contract dollars versus FTEs, and our inability to effectively manage these
extramural resources expose us to financial risk?


INSTANCES

      One theme of this Report is that EPA is exposed to financial risk as a result of
our inability to effectively manage extramural resources.  Mid- and senior-level managers
do not understand the fundamental importance of good contracts management to the
success of the programs they manage.


CAUSES

      Workload planning does not include performing an analysis of the need for
extramural versus intramural resources, and EPA seldom conducts A-76 reviews to
determine the relative cost effectiveness of the two options.  Acquisition planning is
often a pro forma exercise, and managers rarely question the reasonableness of
continuing to contract out functions historically performed by contractors.  EPA
employees often lack the technical expertise to perform the work of the contractors or to
oversee their work.  The result is that contractors, in many cases, are not "niche players,"
fulfilling needs of an intermittent or non-recurring nature, but permanent members of
the EPA work force.
      The tables below demonstrate the degree to which EPA uses its appropriations to
leverage authorized FTEs by contracting for professional hours. Overall, one in every
three EPA "employees" is a contractor. The ratio of contractor FTEs to Federal FTEs
ranges from 1 in 6 for the funds appropriated for the Inspector General, to 3 in 7 for the
funds appropriated for Superfund.  When we examined the ratios  for information
resources management reflected in the second table, EPA uses a higher percentage of its
IRM budget to compensate contractor employees (i.e., 65%) than the Federal
government in general (i.e., 50%).  The third table demonstrates that EPA, when
compared to a select group of other Federal agencies, contracts out a high percentage of
its budget. Excluding the Construction Grants program from our  budget, EPA obligates
roughly 1 in every 3 dollars in contracts. While such an analysis is not  adjusted for
contract dollars used to purchase hardware (e.g., NASA) nor agencies with programs
similar to Construction Grants, EPA has a high  investment in contracts.
                                       J-l

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       The FTE figures are a snapshot of EPA's dependence on contractors in FY 1991.
 They do not show the bigger picture of programs that have depended upon contractors
 historically for their maintenance, nor the extent to which the Agency is dependent on
 the same contractor or a series contractors.

         COMPARISON OF AGENCY AND CONTRACTED FTEs - FY 1991
                              (dollars in thousands)

 APPROPRIATION       CONTRACT FTEs1      EPA FTEs2         FTE RATIO

 Salaries & Expenses             4,331              12,406.9            .35:1

 Superfund                      2,699               3,459.4            .78:1

 Leaking Underground             34                 82.5             .41:1
 Storage Tanks

 Federal Insecticide,                58                143.3            .40:1
 Fungicide & Roden-
 ticide Act

 Inspector General                 58                323.2            .18:1

                               7,180              16,415.3            .44:1
        COMPARISON OF EPA AND GOVERNMENT-WIDE IRM DOLLARS
                Information Resources Management FY 1990 Actual3
                              (dollars in thousands)


EPA
US Gov.
Personnel
Compensation
$ 39,833
$4,676,876
Commercial
Services
$ 159,803
$10,094,199

Total
$ 262,297
$19,804,651
Percent
Commercial
65%
50%
   Source: "Summary of Contracted FTEs By Appropriation (FY 1989-1993)":  PCMD, January 1992.

   Source: Justification of Appropriation Estimates for Committee on Appropriations - FY 1993: EPA
OC, January 1992.

   3Source: "Benchmarks of IRM Investments," Memorandum: Alvin Peschowitz to John Barker, May 8
1992.                                                                      3 '


                                      J-2

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           COMPARISON OF EPA AND SELECTED FEDERAL AGENCY
           CONTRACT DOLLARS TO BUDGET AUTHORITY - FY 1991
                                (dollars in billions)
EPA6

DOC

HHS7

DOI

DOT

NASA
                         Budget      Contract
                         Authority4   Dollars5
$ 6.0
$ 2.6
$222.9
$ 6.9
$31.0
$ 14.0
$ 1.153
$ 0.532
$2.238
$ 1.733
$ 3.343
$12.012
Percent
Contracts

19%

20%

 1%

25%

11%

86%
CONCLUSION

      There is nothing inherently wrong with contracting out year after year for the
same activities, but the EPA's managers need to recognize that, in doing so, they risk
erosion of the technical base of Agency programs; loss of corporate memory to
contractors; potential COI and CBI problems; and, ultimately, potential loss of public
confidence.  These consequences do not follow for every program contracted out on a
long term basis; however, they are dangers that must be assessed in determining how we
assign Federal FTEs (i.e., to minimize our vulnerabilities), and whether EPA requests
additional FTEs to assure agency integrity.
   4Source: "Budget and Program Newsletter" February 7, 1992.

   5Source: "Federal Procurement Report": GSA, February 13, 1992.

   6Budget authority includes Construction Grants Program ($2.1 billion). Contract dollars as a percentage
 of total budget authority, excluding Construction Grants, is approximately 30 percent.

   7Excludes Social Security Administration.

                                        J-3

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J-4

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                                 APPENDIX K

                                 CASE STUDY 1
               OFFICE OF POLICY, PLANNING, AND EVALUATION

                        THE ISSUE OF ACCOUNTABILITY
QUESTION

       How have EPA's culture and senior management contributed to the accountability
problems revealed through the OPPE example?
 INSTANCES

       One organization in which the systemic problems described at length in the body
 of the Report recently reached serious proportions between 1986 and 1989, is the Office
 of Policy, Planning, and Evaluation (OPPE). OPPE was criticized in a hearing before
 Senator David Pryor for using a contractor to prepare Congressional testimony for the
 confirmation hearings of one senior official.  OPPE was also criticized for sending a
 contractor to represent EPA at an international meeting and using another contractor to
 help draft language on an international treaty.
       An investigative report issued by OIG in July 1990 uncovered the improper and,
 possibly illegal, use of contractors by OPPE to circumvent Civil Service Act hiring
 procedures.  OIG determined that as far back as 1986, and possibly earlier, a number of
 top management officials in OPPE were aware of, and had fostered, a disregard for the
 rules and regulations regarding contracting and hiring.  The individuals involved
 admitted to using contractors as a means to hire new employees.
    The common practice was to ask a contractor to subcontract with a prospective EPA
 employee for a few months until EPA's personnel office completed the paperwork
 necessary to hire the employee formally at EPA  The employees worked on EPA
 property, for EPA managers, and, for the most part, acted as if they were EPA
 employees. The  employees were paid through work assignments that were specifically
 written to provide funding for the individuals hired.  Further, many of the individuals
 involved admitted to OIG they filed false progress reports to reflect work that was not
 done; and some admitted they filed claims for hours that were  not actually worked but
 were used to finance education and travel expenses.
       In May  1991, the Agency removed all contracting authority from OPPE and
 placed the organization "in receivership" until an oversight group charged with putting
 matters back on track was satisfied that OPPE could effectively resume contract
 management responsibilities. This group sought to effect a shift in OPPE's
 organizational culture from an almost single-minded focus on technical outputs to one
 that values a balance of program and management objectives.  However, despite the
work of the oversight group  and numerous reforms made within OPPE, concerns may
 remain in the minds of some that the Agency has not fully held accountable the
                                      K-l

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managers responsible for the irregularities and infractions that occurred. EPA has,
however, held the contractors accountable.  Each of the four contractors involved was
required to return funds to the Agency for the work assignments used to cover salaries of
prospective hires, and one contractor, American  Management Systems, was suspended
from all federal contracting for a short time as a result of its involvement.
      While this case was referred to the Department of Justice for possible action,
Agency managers and staff cited by OIG received a letter of reprimand and/or a limit
on contracts management authority. They were rewarded for their contributions to EPA,
despite the problems in the contracts management area, through merit pay increases,
cash awards and promotions.
CAUSE

      The involvement of senior OPPE management at the time in these practices and
the seriousness of the offenses themselves clearly indicated the extent to which OPPE
perceived itself as unaccountable for contracts management and their office's readiness
to compromise these responsibilities in favor of the substantive Agency mission.
CONCLUSION

      The message sent by these improper activities and the awards and promotions
given to the participants have in some cases had an adverse effect on attempts to
improve the quality of contracts management because it implied that top Agency
management lacks commitment to good contracts management and to management
accountability. Senior Agency officials should further evaluate this case and consider
appropriate corrective action, e.g., employee orientation programs that emphasize
disciplinary actions available and generally taken by the Agency in cases where
employees fail to abide by law, policies and procedures.
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                                 CASE STUDY 2

             ENVIRONMENTAL RESEARCH LABORATORY - DULUTH
QUESTION

       Have EPA personnel used the non-competitive award process provided through
the Small Business Administration's (SBA) 8(a) Program to subvert effective contracts
management practices?
 INSTANCES

       This case and analysis is based largely on information contained in the OIG Draft
 Report on Contracting Activities at Environmental Research Laboratory - Duluth (May
 29, 1992). In 1985, an EPA employee, sole owner of a firm (AScI Corporation)
 conducting a small amount of non-governmental business since 1982, applied for
 certification under the Small Business Administration's 8(a) Program.  This certification
 allowed the  firm to seek procurement opportunities in the federal system through a non-
 competitive  award process. While still employed by EPA, AScI's owner specifically
 requested that SBA officials contact the Laboratory concerning potential procurement
 opportunities.  The Laboratory officials identified the need for a contract for
 toxicological support activities at the facility.  Officials recommended approval of AScI.
       Apparent conflicts of interest existed prior to award; the CO did not review the
 situation, and the ethics official was not provided an opportunity for review.  Laboratory
 officials advised the contracting specialists that OGC had approved the contract;
 however, no written evidence of such an approval was provided to the  CO prior to
 award. The 8(a) firm had hired the spouses of Laboratory officials, contingent upon the
 firm being awarded the contract. Without adequate pre-award review  of potential
 conflicts of interest, the Contracts Management Division in Cincinnati  recommended that
 AScI receive a non-competitive award of $998,706. Another sole source award  for
 $5,967,698 was made on the last day of the next Fiscal Year (September 30, 1987).
       Between 1986 and 1989, the Duluth Laboratory had an existing  contract with a
 firm (UWS) to perform chemical analysis support activities. In 1989, Laboratory officials
 decided to seek another contract for similar work.  The Laboratory official discouraged
 UWS from submitting a bid and requested that UWS become a  subcontractor to the 8(a)
 firm; this in  fact did occur.  Even while soliciting for a new contract, Laboratory officials
 stated in a memorandum  to the CO their decision to exercise the option year of the
 UWS chemical analysis support contract; a week later, they decided to cancel the UWS
 contract and to provide AScI with the additional work.  This reversal in EPA's decision
 resulted in the award of a new contract to AScI,  for the same services, at a higher cost to
 the government.  The new amount was $4,569,073.
      In 1990, EPA awarded three additional contracts to AScI, again through  a non-
 competitive award process.  The Laboratory separated the contracts into three segments,
 apparently to avoid the $3 million threshold above which we must use  competitive award
procedures.  EPA did not provide any other 8(a) bidders an opportunity to bid for these

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contracts.  In addition, the work identified for each contract was identical, thereby
supporting the conclusion of a deliberate action taken by the Laboratory officials to
avoid competition.
      The Director of the Laboratory significantly participated in procurement actions
that influenced the award to AScI.  The CO did not review apparent conflict of interest
issues prior to contract award.
      After award to AScI, EPA tasked the contractor to perform work outside the
scope of the Statement of Work, apparently to keep the contractor busy during
downtime.
CAUSES

      The culture of EPA, i.e.. a lack of concern for contracts management, fosters
contractor mismanagement.  The view that results were more important than regulations,
no one was paying attention, and the end justifies the means appears to have been
pervasive. EPA often views on-site contractors as part of its "family."  Technical
specialists are appointed to be contract managers but are not supported in fulfilling these
responsibilities. Due to the nature of research activities, technical specialists often do
not maintain appropriate "arms-length" business relationships with contractors, despite
periodic training on ethics requirements governing federal employees.  This culture
manifests itself in actions of managers and staff, both EPA and contractors, impacting
both pre-award and post-award contract activities.
      In this specific case, Laboratory  officials had worked with each other for some
time; thus, when one manager sought to become involved in a business venture, the
culture deemed it appropriate that colleagues would be of assistance to him.  Vested
interests  on the part of the Laboratory  officials influenced the award and continued use
of AScI.  Detailed guidance was lacking on how laboratory officials and staff were to
interact with prospective and  present contractors.
      The use of the 8(a) contract vehicle resulted in the award to a firm well known to
senior managers.  It is possible that had another means been available which could have
resulted in award to the same firm, the Laboratory would not have pursued the 8(a)
procurement process.  The SBA 8(a) Program represented  more a mechanism of
convenience rather than a commitment by the facility to foster the use of small and
minority-owned businesses.
IMPLICATIONS

      Contracting requirements were jeopardized because of the desire of the
Laboratory to award this contract to AScI.  The use of SBA 8(a) contracts can provide
the Agency with an effective contract vehicle; successful use of SBA 8(a) firms has been
demonstrated throughout many EPA programs.  That a contract is subject to FAR Part
19 (Small Business and disadvantaged concerns) does not exempt the award and
management of the contract from other, generally applicable FAR requirements or from
other, related strictures including but not limited to COI rules, CBI limits, and post-
employment restrictions.

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      The Agency's managers and contracting specialists must exercise diligence to
fulfill applicable contract requirements.  The program must work with the contracting
office to ensure compliance with existing requirements. EPA must take actions to ensure
impartial processing of contract awards.  The substantial involvement of senior managers
resulting in preferential contract award may constitute a violation of EPA's ethics rules.
CONCLUSIONS

      The Agency cannot be assured that the AScI contracts were awarded in the best
interests of the government. The credibility of the EPA contracts and the 8(a) program
has been adversely affected. Agency managers should further investigate this matter and
take appropriate corrective action, including disciplinary action.
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                                CASE STUDY 3

              NATIONAL CONTRACTS PAYMENT DIVISION (NCPD)

                     RESPONSIBILITY AND ACCOUNTABILITY
                           IN AWARDING CONTRACTS
QUESTION

      What were the process deficiencies surrounding the award of the Technical
Support Services (TSS) contract at the National Contracts Payment Division (NCPD)?
BACKGROUND

      CSC has held a contract to provide technical and operational computer system
support for EPA since the early 1970's. EPA awarded CSC the Systems Operations and
Software Maintenance (SOSM) contract in October, 1985 to cover a five year period of
performance inclusive of options.  In November, 1989, delivery order 709 required CSC
to establish and operate an EPA National Contract Payment System.  This operation
continued under the delivery order until January 2, 1991, when the functions were
assumed under the TSS Contract awarded to CSC (Contract Number 68D10003). The
term of the TSS contract covered one year and three option periods, expiring in
September, 1994.
      Under both contracts CSC employees appear to have had access to confidential
business information (CBI) as they input data from contractor invoices. In addition, CSC
employees may have had access to  the hard copies  of invoices from every EPA
contractor, including their own company. Prior to the OIG Audit of March 31, 1992,
CSC staff had access to CSC invoices through the NCPD mailroom.  Subsequent to the
audit, this practice was revised to ensure the CSC staff did not have access to their own
invoices. CSC employees also  appear to have had access to CBI while scanning
Superfund cost recovery data into the Superfund Cost Recovery Image Processing System
(SCRIPS).
EVENTS

      A review of available EPA documents indicates that contractor access to CBI was
recognized and discussed within EPA on several occasions between the issuance of the
initial solicitation for the TSS Contract on December 18, 1989, and the award of the TSS
Contract on January 2, 1991.  For example, in early May 1990 OGC identified portions
of the SOWs within the TSS solicitation as inconsistent with the Agency's CBI
regulations. An OGC memorandum prepared later in May concluded the only means of
obtaining a business's consent to release CBI under the current regulations is by request
of each affected business.  OGC also telephonically confirmed that procurement related
CBI may not be released without the specific consent of the originating contractor and

                                      K-7

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that publishing a notice in the Federal Register about the release of CBI was not
sufficient. During a telephone conversation with PCMD, and in follow-up
documentation to them, OGC stated that even if CBI was not being claimed, there must
be a statement from the contractor to that effect prior to release of the information.  In
late May PMCD approved the RFP after assurance from the contract specialist that
OGC's comments regarding CBI were properly responded to.
      In early June 1990, OGC was asked to make a rule change to 40 CFR 2.209(e) to
allow CSC employees access to CBI without obtaining consent of other contractors or to
find an alternative solution to the CBI access  problem.  Also, the Director of NCPD was
notified that a Federal Register Notice regarding disclosure of Privacy Act information
to support contractors was necessary before the new TSS Contract could be awarded.
Discussions continued between PCMD and OGC regarding the CSC CBI access
question. After a mid-June meeting, PCMD chose to proceed with the rule change
rather than request contractor consents which could risk non-replies or non-consents.
Subsequently, PCMD sent a revised Freedom of Information Act (FOIA) regulation to
OGC for approval.
      CBI remained an issue during the month of July 1990. Reviews of an amendment
to the TSS  solicitation indicate that CBI and Privacy Act issues were of concern to OGC
and that efforts to strengthen clauses regarding access and disclosure were being added
as legal safeguards.  Various correspondence indicates that:  (1) meetings were held with
NCPD, PCMD, and OGC regarding the CBI issue, (2) OGC did not concur  in the
proposed amendments to  the FOIA regulations to allow contractor employees access to
CBI as authorized Agency representatives, and (3) a decision had been made, "because
of the impact on contracts all  around the Agency" to continue the contract awarding
process for the TSS contract.
      Later in October 1990, a legal review of the latest amendment to the  TSS
solicitation indicated that  the CBI  issue had not been obviated. Another legal review in
December 1990 indicated that OGC considered the contract legally sufficient except for
the CBI issue. On January 2,  1991, the TSS Contract was awarded to CSC despite the
CBI issues repeatedly raised by OGC.
CAUSES

      Diffused responsibility, authority, and accountability among: (!) the program
office (OARM/RTP), (2) the contracting office (PCMD), and (3) OGC resulted in the
award of the TSS contract at the NCPD without the resolution of the CBI problems.
      The Agency does not systematically analyze the functions that should be
contracted out as opposed to performed in-house, given such concerns as personal
services, inherently governmental functions, conflict of interest, CBI, and others.
Program offices take little responsibility for contracting problems.  They can point to
others, including, in this example, OMB because it did not "give" EPA enough in-house
staff, PCMD which made the ultimate decision to award the contract, and OGC which is
the "legal expert," and is accountable for the sufficiency of the final decision.
      The conflict and pressures between contracts management and program mission
contributed to the TSS award without resolution of the CBI problem. PCMD officials
were expressly concerned about "no immediate alternative" to allowing the procurement

                                       K-8

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to proceed.  They did not insist to the program office that either the contract must be
substantially changed or the functions must be performed in-house. The inertia that
builds up over the course of an on-going procurement contributes to this unwillingness to
"say no" at a late stage.
      This case study also  demonstrates the inefficiencies in the Agency's legal review
role in the contracts process.  There exists either: (1) an unwillingness by OGC to insist
on, or elevate, its legal position in the face of strong program opposition, (2) a
reluctance on the part of PCMD and the program offices to listen to OGCs warnings
and concerns, or (3) a combination of both.  Instead of refusing to designate the contract
as legally  sufficient  and warning higher management when it was clear that PCMD was
planning to proceed with the  TSS award, OGC provided vague comments concerning the
CBI problem and allowed the contract award to proceed. PCMD  did not explore an
alternative means to resolve OGCs objections in part because  a system and culture
existed which allowed them to proceed as described above.


CONCLUSIONS

             EPA  needs accountability for contract decisions of all parties  involved -
             program offices, PCMD, and OGC. We must specify who has the authority
             and responsibility for specific aspects of the contract decision  process.

             EPA must have a team approach to contract decision-making in the
             Agency, from pre-award through post-award, which involves all parties in
             the exercise of their responsibilities early in and  throughout the process.

             Senior management should further evaluate this  case and consider
             appropriate corrective action, including disciplinary  action.

              OGC must be willing to elevate consideration of issues where arguably
             unlawful behavior is threatened. PCMD must be prepared even to
              terminate a long-standing and programmatically  important procurement
             where necessary to ensure compliance with the law.
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                                CASE STUDY 4

         PROCUREMENT AND CONTRACTS MANAGEMENT DIVISION

                       THE ISSUE OF ACCOUNTABILITY
QUESTION
      How has EPA's management of its procurement organization contributed to the
Agency's contract management problem?
BACKGROUND

      Since the early 1980's, the Procurement and Contracts Management Division
(PCMD), then located within the Office of Fiscal and Contracts Management (OFCM),
has reported to the Assistant Administrator for Administration (OA).  In FY 1984, OA,
including the PCMD and the Grants Administration Division (GAD), was assigned to
report to the new Assistant Administrator for Administration and Resources
Management (OARM). PCMD is one of six divisions reporting to the OA OA is one
of seven offices reporting to the AA, OARM.
INSTANCES

      On the basis of information obtained through focus groups and interviews, the
Standing Committee investigated vacancies, new hires and details in PCMD.  While the
Agency's contract management function was undergoing critical review by the OIG, the
GAO and Congress, PCMD experienced a slow rate of growth, high turnover, and out-
stationed critical personnel to other offices, away from then* responsibilities.
      While PCMD experienced rapid growth in the early 1980's, on-board employees
increased from 199 to  2041, a three percent rate of growth, during the five-year period
between FY 1988 and  FY 1992 (as of 5/16/92). During the same period, OARM grew
from 1,260 on-board employees to 13312, a six percent rate of growth. Also during this
period, hiring freezes and ceilings were applied. While PCMD observed them, other
divisions appeared to have successfully lobbied  internally to get around these limitations.
      The rate of turnover in PCMD is  consistently higher than that for OARM and has
ranged from  12 to 20 percent, compared to 9 to 13 percent for OARM.  The rate for
GAD during the same period ranged from 9 to 18 percent3. During the first 8 months
    Source: EPA Personnel Payroll System Data Base, May 29, 1992. Information includes Ceiling
 Employees On-Board, Gains, Losses by organizational unit.

    2Source: Id.

    3Source: Id.

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  of this fiscal year, 13 persons left PCMD.  PCMD has hired only six employees during
  the same period.  Based on interviews and focus groups with PCMD personnel, the level
  of dissatisfaction is increasing as PCMD managers redistribute the workload of previous
  employees, thus increasing the workload of those remaining. Managers also reported an
  increase in the number of requests for personnel evaluations by PCMD employees
  applying for jobs in other offices.
FTEs AND ON-BOARD STRENGTH, FY 1989-1 991 4
CLASSIFICATION
=====
Authorized FTEs
On-Board
Hires
Terminations
Net
••— — i^—_ _.
PCMD
Fiscal Years
89
==
204
193
32
38
-6
m^^mm
90
=5=
203
217
56
32
+24
i^m^mm
91
=====
208
211
20
26
-6
tmt^umm
OA
Fiscal Years
89
=====
405
414
74
82
-8
•••••
90
===
444
474
114
54
+ 60
•MMMB
91
===
455
461
44
57
-13
••^^•i
OARM
Fiscal Years
89
==
1,218
1,254
173
179
-6
^^MMB
90
===
1,309
1,370
254
138
+ 116
^MM^
91
=====
1,366
1,386
174
158
+ 16
•^•^•M
 CAUSES

       The absence of effective workload models greatly diminishes PCMD's ability to
 ettectively vie for resources to support this critical business function.  The resulting staff
 shortages have caused additional problems.  PCMD staffs perception that its managers
 are willing to play by the rules (i.e., observe the freeze), and not cause complication
 (i.e., not to request waivers), has further reduced morale and increased turnover  As  a
 division within OARM, PCMD was unable to compete successfully for management
 attention, advise of the impending crisis in contracts management, and initiate policies
 guidance and management reviews to avert many of the problems contracts management
 taces today.                                                                6
CONCLUSIONS

       OARM, OA, and PCMD management must take responsibility for its resource
management decisions and their significant impact on EPA's contracts management  As
stated in the Report, the Agency must hold senior managers accountable for decisions
                   F^time Pr°f<*si<>nal Equivalents (FTEs) were supplied by the OC, based on

       t           eSldent'?. B^Ct ReqUCSt; PCMD FTES Were SUPPU*d ^ °A; Aboard figures,
hires and terminations were supplied by Human Resources Management Division, OA.

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In this case, these decisions include foregoing resources sufficient to shore up contracts
management; shifting personnel from policy, review and oversight functions to
accomplish contract placement; authorizing the detail of key personnel in quality control,
operations, and regional control and management; sacrificing strong, consistent national
policy and guidance in favor of increased placement of contracts; and permitting the
Agency to abandon sound management principles and risk increased waste, fraud and
abuse.  The Agency has a responsibility to create management information  systems to
inform managers, workload models to support requests for resources and a  system of
evaluation and rewards the reinforce good management practices and principles.
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                                CASE STUDY 5

                   WAIVER OF CONTRACT REQUIREMENTS

                   ISSUE OF MANAGEMENT ACCOUNTABILITY
QUESTION

      Does EPA's waiver of the personnel qualification requirements under the TOSS
contract, without receiving consideration from CSC for the waiver of such requirements,
indicate a lack of management accountability in the EPA acquisition process?
INSTANCES

      OIG issued an audit report dated March 31, 1992 concerning EPA's management
of Contract No. 68-WO-0043, Technical Operational Support Services (TOSS), CSC. The
audit criticized the Agency for waiving personnel qualifications without appropriate
consideration.  That report largely documents the following facts.  The Agency awarded
the TOSS contract to CSC on September 28, 1990.  The contract obligates the contractor
to provide skilled personnel to support the Agency in satisfying various information
management needs.  The contractor is paid at fixed hourly rates for services supplied in
approximately seventy different labor categories.  The contract specifies personnel
qualification requirements for each labor category, including educational requirements
and related work experience.
      Prior to contract award, the personnel qualification requirements raised concerns
both within the Agency and in the contracting community.  College degree requirements
were of particular concern.  According to the Agency's PO, he decided in late-1989 that
college degrees should be required of personnel performing work in various labor
categories under the contract. The PO also decided that an "equivalency clause"
included in the predecessor contract, the Systems Operation and Software Maintenance
Contract (SOSM), should not be included in the  TOSS contract.  The equivalency clause
allowed the  contractor to treat one year of  relevant work experience as equivalent to one
year of college education.  For example, an individual with five years of relevant work
experience, but no college degree, could qualify for a position requiring a four-year
degree and one year of relevant work experience.
       In December,  1989, a program  official from the headquarters offices raised
concerns that the combination of the requirement for a college degree and the deletion
of the equivalency clause might be too inflexible. He said that the program officials
would be forced to seek approval for contractor employees who did not possess the
required degree. He recommended including an equivalency clause in the solicitation.
      Vendors responding to the TOSS solicitation also raised the issue of an
equivalency clause in questions submitted to the  Agency prior to the receipt of proposals.
At least three vendors, including two of the three later included in the competitive range,
asked a question concerning education and experience substitutions.  The CO assigned to
the procurement said  that she suggested that an  equivalency clause be included in the

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 solicitation but that the PO adamantly resisted the inclusion. The PO acknowledges that
 he rejected any suggestion that an equivalency clause be included. Accordingly, on
 January 26, 1990, the CO issued Amendment No. 1 to the solicitation, which contained
 the Agency's answers to the vendor's questions and made it clear that work experience
 could not be used to fulfill education requirements.  The TOSS contract, as awarded, did
 not provide for waiver of education or experience requirements, nor did it provide an
 equivalency clause.
       In conversations with the PO, he said that he anticipated that some waivers would
 be necessary in order to keep incumbent contractor employees.  He intended to allow
 incumbent employees to remain in their positions but expected to take a "hard line" on
 any requests for waivers for non-incumbents.  The PO said that prior to  award he had no
 idea that CSC would request the large number of waivers it later requested.
       Best and Final Offers were received on September 7, 1990; award was made to
 CSC on September 28, 1990.
       According to the PO, sometime after contract award, during the contract's 60-day
 phase-in period, the CSC Program Manager (PM) orally requested waivers for
 unqualified CSC employees.  The PO stated that he asked the CSC PM to identify the
 individual employees affected and the qualification requirements they failed to meet
 According to the  PO, the CSC PM later provided the requested information. The PO
 stated that he does not now have a copy of this document and does not remember
 whether it included a cover letter requesting the waivers. The CO who administered
 the contract after award (not the same person as the pre-award CO) stated that he could
 not recall ever  seeing a written request from the contractor for the waivers.
       The CO recalled that he and the PO discussed CSC's request for waivers in
 January, 1991.  In a memorandum dated February 11, 1991, the PO asked that  the CO
 waive the contract's labor category qualification requirements for 165 individuals.
 According to the CO, he orally granted the requested waivers in March,  1991.  This oral
 waiver has not been reduced to writing. According to the audit, the waived requirements
 affected approximately 16 percent of the work force supplied by CSC under the TOSS
 contract.
       On May 21, 1992, EPA decided to revoke the waivers. Although further inquiry
 into the circumstances surrounding the granting of the waivers is continuing, the Agency
 determined that enough questions had been raised about the appropriateness of the
 waivers that the Agency would revoke the waivers, effective June 30, 1992.


 CAUSES

      The circumstances surrounding the discussion of potential contract labor category
problems before contract award and the subsequent granting of the waivers after award
points out the lack of accountability of officials in the EPA acquisition process.
      The facts indicate that both the pre-award CO and the PO recognized  the
potential problems that a lack of a contract labor qualification substitution clause would
create.  However, it appears that neither one took the necessary efforts to effectively
resolve the problem. Ostensibly, the PO and CO were taking the untenable position that
no contract labor qualification waivers would be granted. The PO took this position with
the knowledge that the incumbent contractor required such a clause to perform work

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under the predecessor contract.  The facts do not indicate that either the CO or PO
sought legal advice, nor do the facts indicate that management officials involved
themselves effectively in the pre-award process.
      The facts also indicate that both the post-award CO (different CO) and PO failed
to effectively manage the waiver request made by CSC immediately after contract award.
Neither demanded that CSC fully document and explain why it could not perform its
contract that it had won based on technical competition. In addition, it appears that
neither the CO nor PO critically reviewed CSC's request for a blanket waiver of
qualifications of 165 incumbent CSC employees. The CO failed to negotiate adequate
consideration prior to the waiver of contract requirements.  The CO did not document
his decision to waive contract requirements. The facts do not indicate that either the
CO or PO  sought legal advice, nor do the facts indicate  that management officials
involved themselves effectively in the post-award process, pointing up the abdication of
important management and policy decisions by senior managers at EPA.
CONCLUSIONS

       EPA has allowed a situation to exist where individuals and organizations are
making very significant Agency business decisions on the contracts they manage without
holding them and their organizations accountable for the improper decisions they make
such as in the waiver decision.
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                                 CASE STUDY 6

                                FMFIA PROCESS
QUESTION

      How did EPA's senior managers address EPA's contracts management issue in
the FMFIA5 process?

Background

      Since 1988, EPA's Deputy Administrator and the Assistant Administrator for
OARM have issued numerous FMFIA documents6 requesting Agency managers to
address their contracts management improvements and/or weaknesses.
      For the past four years, EPA's senior managers continued to "research" EPA's
contracts management issues. In May of 1992, EPA requested that OMB add
procurement and contracts management to its "high risk" list.  At the same time, EPA
announced its intent to formally declare contracts management as a material weakness in
the 1992 FMFIA Report.

Brief Definition of Terms

             Material Weakness: A weakness  in an Agency that requires the
             Administrator to bring it to the attention of the President and Congress
             annually.  Within the Agency, managers track quarterly and report to the
             Senior Council as necessary.

             High Risk Area:  A weakness that may make up a series of issues or
             reflects a single material weakness, requiring the Agency to identify
             resources in the Agency's budget  and report progress to OMB twice a year.

             Other Area of Concern: An issue that the Agency wants to highlight to the
             President  and Congress yet is not able to declare a material weakness or
             recommend as a high risk area.  The Senior Council discusses this during
             the year to determine how the Agency will handle  the matter.
    5The Federal Managers' Financial Integrity Act is an important tool available to evaluate the
 management health of government agencies.

    ''EPA's Guidance for Preparing FMFIA Report, EPA's Internal Decisions and Presentations, OMB's
 High Risk Lists, and EPA's Annual FMFIA Reports to the President and Congress.

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  INSTANCES
  OffW ^ th  r       n   omCnt °f EPA S Seni°r Council on Management Controls, the
  Office of the Comptroller, Resource Management Division had to go "hat in hand-
  urging EPAs senior managers to declare material weaknesses.  Interviews with EPA

  t^hrSSS? rCVealed ?* thC FMFIA prOCCSS 1S a "neSative award" structure ^d
  that the FMFIA process inherently proved a "punishment for raising your hand"

  th t PP^^    1988 ^ 1989 FMFIA decision making Process' the RMD proposed
  that EPAs senior management consider reporting contracts management  as a material
  weakness in EPA's FMFIA Report.  In both years, the AA for OARM believed ₯
  pr^rT-      reP°rte.d contracts management, the problem would be perceived as a
  PCMD issue Bather than the Agency-wide systemic and pervasive weakness that it is.7
        In July 1989, OMB Director Richard  C. Darman required EPA's Deputy
 ™tZhirat°r t0 Pff°rm a ,qUl? assessment of EPA's highest priority issues and most
 vulnerable areas.  As a result  of the assessment, EPA's AA for OARM informed OMB
 that contracts management and property management were major areas of concern
 Deliberations between EPA and OMB began on these areas in September.  Although
 tPA provided more information to OMB on the contract issue in October OMB
 dropped it from its initial list of high risk areas.  The AA for OARM chose to elevate
  his issue once again in EPA's 1989 FMFIA  Report as an area that EPA would continue
       At the end of 1989  the Deputy Administrator established EPA's Senior Council
 on Management Controls8. The Council's purpose is to (1) keep EPA's senior managers
 OMR ,5      s Pr°blemS ldentlfied by the Agency's OIG'the GAO' and Concerns of
 UMB, (2) provide overall management control and audit management strategy and
 guidance; and (3) involve senior management in significant management integrity issues
       During August 1990, GAO informed the Senior Council that Superfund Contracts
 Management was highly vulnerable to fraud, waste and abuse.  EPA's Associate Director
 for Superfund and RCRA Procurement Operations, PCMD, presented a Contracts
 Management Update to EPA's Senior Council on  Management Controls. This prompted
 the Deputy Administrator, in September, to request EPA's senior managers to address
 contracts management concerns in the upcoming FMFIA letters. EPA's senior managers
 SSS?^ SC   Q arCaS °f C°ncem rdated to contr*cts management in their 1990
 FMFIA Reports   During the November meeting  of the Senior Council, the Council
 decided not to address these issues as a material weakness, but as other areas of concern
   Several EPA Senior Managers have suggested that contracts management was not made a FMFIA issue
because of lack of wilhngness to share responsibility across AA-ships. Ihey suggest that FMF^ do^'tTend
itself to Agency-wide issues, but is inherently a program-by-program device.

   "The Deputy Administrator chairs the Council, which meets at least four times a year. Since its
inception, the Deputy Administrator has attended every meeting of the Senior Council.
                           . Governmental Functions, Advisory and Assistance Contracts, Award
         Revie       Interest> aad Financial Administrative Contracting Officers and Financial


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in EPA's 1990 FMFIA Report. However, EPA did declare ORD's management of
extramural resources as a material weakness. Additionally, EPA also reported potential
problems with EPA's Contract Laboratory Program as a potential future issue.
      During 1991, the Senior Council discussed EPA's contracts management issues at
the June, September and November meetings. Because EPA declared several areas of
concern in the contracts management arena, the Deputy Administrator requested that
OARM develop an Integrated Contract Management Strategy. OARM developed the
strategy and continued to report on its progress during 1991.  At the same time, EPA's
OARM/RTP senior manager led a review of EPA's Contract Laboratory Program as
promised in the FMFIA letter. In September, GAO participated in the meeting of the
Senior Council and suggested EPA declare contracts management at large a material
weakness in its 1991  letter.
       During the November 1991 decision malting meeting of EPA's Senior Council on
Management Controls, attendees10 decided not to declare contracts management as a
material weakness.  The consensus was to see the results of the integrated contracts
management strategy before declaring contracts  management in general as a material
weakness.
       Based on the  progress of the strategy and the declaration of three contract-related
material weaknesses, EPA's Senior Council on Management Controls once again
postponed declaring contracts management as a material weakness for another year.
However, as before,  EPA declared several procurement-related issues as areas receiving
particular management attention by EPA in its 1991 FMFIA Report.12
       As a result of the Congressional interest in EPA's contracts management
practices, EPA's Senior Council on Management Controls held a meeting in April of
 1992.  At that time, the Council decided to declare contracts management as  a high risk
issue and the AA for OARM requested OMB to add it to their list. Additionally, the
AA for OARM committed to OMB that EPA would declare contracts management as a
material weakness in its 1992 FMFIA Report.
 CAUSE

       The Agency is reluctant to declare a weakness until it has been formally reviewed
 by either OIG or a management team. The FMFIA process is viewed as a "negative"
 award system and "punishes" people for raising then- hand. Also, the Agency may be
 reluctant to identify major problems where there is no one "owner" of the weakness.
 Agency managers, who focus primarily on program products, do not deal effectively with
    10The attendees included the Deputy Administrator, Assistant and Regional Administrators or their
 representatives, the General Counsel and the Inspector General.

    11These material weaknesses are:  Accelerated Remedial Cleanup, ARCS Contracts Management,
 ORD's management of extramural resources, and the Contract Laboratory Program.

    12These issues were: Superfund Operations Reorganization, Contract Management Improvements,
 Conflict of Interest, Contract Property, and Centralized Contract Management and Administration Efforts.

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 programs and functions that cut across Agency organizational lines (e.g., contracts
 management and FMFIA).


 CONCLUSION

      EPA senior-level managers need to declare major weaknesses or concerns as
 material weaknesses and then develop the appropriate paperwork, not vice-versa.  In
 developing categories such as "other areas of concern" or "potential future issues", EPA's
 senior management may simply be prolonging the identification of weaknesses as'
 material. Not being able to have one owner of the issue does not negate the
 Administrator's responsibilities to declare major problems to the President and the
 Congress in EPA's FMFIA Report.  The Agency must design systems and ensure a
 culture in which the senior management team deals effectively with cross-cutting issues.


 HOW SOME OTHER FEDERAL AGENCIES ADDRESSED CONTRACT ISSUES IN
 1991  FMFIA REPORTS

 National Aeronautics and Space Administration:

 High Risk Area:                  Procurement and Contracts Management
 Material Weakness:               Inadequate Institutional Funding
 Material Weakness:               Procurement - Contract and Subcontract
                                Management Oversight

 Department of Health and Human Services:

 Material Weakness:               Administration of Procurement and Contracts over
                                $25 thousand
 Material Weakness:               NIH Procurement System

 Department of Defense:

 Material Weakness:               Inappropriate Offloading of Contract Requirements
 Material Weakness:               Delinquency in Processing Contract Reports
 Material Weakness:               Task Order Contracting
 Material Weakness:               Contracting via Interagency Agreements

 Department of Justice:

High Risk and Material Weakness:  Career Management and Contracting Officer
                                Standards Program
Material Weakness:               Procurement Process in DBA and Field Divisions
Material Weakness:               Procurement Improvement in Immigration and
                                Naturalization Service
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                                CASE STUDY 7

                      EPA AND ITS CONTRACTORS - TQM
QUESTION

      What are the practical and financial implications of EPA involving its contractors'
efforts to continually improve Agency processes and procedures?
INSTANCES

      The recent ARCS Study recommended that EPA improve communications with
its contractors using Region Vs Total Quality Management (TQM) example.  Some
offices and Regions question this recommendation in light of recent OIG audits
criticizing EPA for not maintaining "arms-length" relationships with contractors.
      Region V invited its seven ARCS firms to participate in a series of meetings to
discuss ARCS program implementation; six firms accepted. The Region conducted an
initial training session to educate contractor and EPA personnel alike on TQM
principles. Participants later engaged in a brainstorming session to identify issues
impacting effective ARCS contract management. Using written voting, priority issues
were identified; specific notation was made whether the respective rankings were from
the contractor or EPA Discussions then focused on three priority issues (Pre-
Qualification Standards; Delays in Work Plan Approvals; and Involvement of State
Agencies). Participants met again to review the action status.
      Feedback from the contractors was positive.  EPA managers were also pleased;
many of the issues identified by the contractors had been previously earmarked by
Region  V for action.
      Region HI also initiated a TQM session with its five ARCS firms. Participants
identified 69 issues impacting ARCS; TQM voting narrowed these to eight priority areas
(More Defined Statements of Work; Ineffective RPM Management of Work
Assignments; Adversarial Relationships between EPA and the Contractors; Scoping
Meetings; Lack of Communication; Roles and Responsibilities of Contractors and EPA;
Award Fee Process; and Lack of Commitment from Senior EPA Managers on
Contracts).  Further discussion centered on how these issues impact Superfund's initiative
to clean up sites "cheaper, faster and better."
      The Department of Defense has had extensive experience in using TQM in
meetings with its contractors.  DOD officials praise these discussions very highly ("DOD
has moved from a spirit of open hostility with firms to one of frank communications.")
DOD's  experience arose from its need to ensure that management officials, both within
the organization and the contracting community, understood new DOD program
directions.
      DOD formalized this approach through a program entitled "In Plan Quality
Evaluation Programs" (IQUE). DOD uses "Process Action Teams," consisting of DOD
and contractor representatives, to develop quality assurance approaches to the
Department's inspection and process monitoring activities.

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 CAUSES

       There exists a strong difference of belief in the Agency culture which views
 contractor support in two different lights. On the one hand, contractors are seen as
 being an essential part of the EPA mission; this approach significantly impacts the "arms
 -length  relationship cited in the OIG reports.  In fact, at times the contractor is  often
 seen as  a part of the EPA family and its employees are treated as if they were federal
 employees. On the other, EPA views contractors with suspicion, questioning whether the
 interests of Agency contractors are truly in line with the goals of the Agency. The two
 views are seen as mutually exclusive. The true relationship, with a focus on problem
 solving and enforcing contractual rights tempered by the rule of reason, is a business one
 m which the standard should be open and honest dealings.
       Both approaches are restrictive in their perspective. EPA is a highly contractor-
 leveraged agency; therefore, we are reliant on contractor support. In turn, the Agency is
 charged with managing these contracts in such a manner as to ensure program integrity
 and objectivity. In order to ensure the proper balance between contracts management
 and program delivery, it is essential that all parties understand the parameters within
 which these contracts must be administered.


 IMPLICATIONS

       TQM principles are being used extensively throughout the private and public
 sector to improve communication levels and expand service delivery within organizations
 EPA is committed to changing its management culture; TQM is an approach through
 which changes can be made that substantially benefit the Agency.
       There is some concern about the appropriate means to reimburse contractors for
 their participation in these "extraordinary11 meetings. There are three options which can
 meet this concern: (1) EPA can reimburse the firms through the separate Program
 Management fees (already negotiated in some contracts); this was the method followed
 in Regions ffl and V; (2) EPA can use a separate Work Assignment, with a Statement of
 Work identifying specific tasks and allowable charges for the firms to participate in these
 sessions; DOD uses this method with the tasks being identified as the development of a
 report based on specified DOD/Contractor IQUE meetings; or (3) the firms shall
 consider costs for these  sessions to be part of their indirect rates and thus, not directly
 billable to the Agency.  [Since EPA is now negotiating contracts without separate
 Program Management fees and since the contractor is receiving information which can
 benefit it company-wide as opposed to any site-specific benefit, the third option seems to
 be the most reasonable.]
       Initial discussions with contractors may be difficult as EPA and the contractors
 attempt to attain a "comfortable" environment within which to have frank and open
 discussion. However, based on examples in EPA and other private and public sector
 organizations, the tension is reduced quickly as TQM principles are applied.
       Throughout this networking approach, EPA will need to make certain that it does
not appear to relinquish its final decision-making authority. Vigilance will be maintained
m order to avoid the perception that  contractors are exercising an undue influence over
EPA in matters of policy.  There will be instances  and processes where it is not

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appropriate for contractor participation in TQM sessions (e.g., processes and procedures
to improve project management). In addition, such participation will be limited to post-
award consultations.
CONCLUSION

      TQM principles have proved to be effective tools in improving organizational
responsiveness, bringing together divergent perspectives in addressing mutually
designated priority issues. As a dynamic organization, EPA must recognize the positive
aspects of discussions with contractors involved in Agency programs.
      Open and frank discussions, following TQM principles, can reduce the distrust
found in the culture of the Agency,  reinforce the proper balance essential to effective
contracts management, and result in process and program improvements.
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                                APPENDIX L

       A CHECKLIST FOR MANAGING CONTRACTS IN FURTHERANCE OF
                           THE AGENCY'S MISSION
BACKGROUND

      As suggested by the schedules that accompany them, many recommendations of
the Report cannot be implemented overnight.  Training takes time, as does
reorganization and, certainly, changes in Agency culture. What can senior Agency
leaders do to move immediately toward better contracts management?

BRIEF ANSWER

      Senior managers, Assistant Administrators and the like, can take steps that will
improve contracts management immediately and support the recommendations set out in
the Report as they are implemented.  Indeed the Agency's leaders may well need to take
these steps if the rest of the Agency is to follow.
      To encourage and aid this necessary managerial initiative, what follows is a rough-
and-ready, contracts management checklist that senior Agency managers could begin to
use immediately. The checklist includes contract-related issues that should be kept in
mind when making any management decision, types of information a manager should
have in hand regarding contracts that could be or are used in support of activities under
that manager's control, and questions to be raised on a regular basis with  immediate
subordinates and the senior manager's contracts counterparts.

QUESTIONS/CHECKLIST

      A) To what extent do various components of the Office or AA-ship depend upon
         contractors for getting its work done?

         1)  Of all monies expended by or on behalf of the Office in the course of a
             year, what percentage of those monies is paid directly to contractors?
         2)  What percentage of monies paid to contractors on behalf of the Office is
             disbursed under any  form of cost-reimbursement contract?
         3)  What is growing at a faster rate from year to year, monies expended on
             behalf of the Office for activities performed in-house, or monies expended
             on behalf of the Office for activities performed by contractors?
         4)  Regardless of source, how many person years of effort are expended in
             furthering the Office's tasks over the course of a year?
             What percentage of those person years is supplied by government
             employees? By contract labor?
         5)  For the most important and time-sensitive activities that the Office
             contracts out, could we perform them on our own if we had to, and for

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       how long could we do so without getting additional help either in the form
       of a new contractor or added, in-house resources?
    6) If it became expedient or necessary to take over an activity presently
       performed for the Office under contract, do we have control over the
       hardware, systems documentation, instructions, protocols, and other
       information our own people would need to perform the task in question?

B)  In supporting any allocation of resources, regardless of whether the allocation
    is an increase, have we considered whether contracts management personnel
    would be needed to oversee our proposed resource allocation?
C)  Are we familiar with the key findings and recommendations of the most
    recent audits and evaluations regarding Agency activities performed under
    contract?
D)  Are we checking this Office's operations whenever an IG or GAO audit has
    identified shortcomings in the analogous operations of another component of
    the Agency?
E)  What is the nature and frequency of meetings between each of our Office's
    program staffs and their contracts management counterparts?
F)  Do those staff meetings - as well as periodic, follow-up meetings by relevant
    managers - result in planning and exchange of information on at least the
    following topics:

    —  each staffs internal goals, performance, and progress;
    —  oversight of Agency contractors serving the program;
    -  identification of anticipated requirements that will have to be satisfied by
       contractual procurement;
    -  identification of activities that could be moved to more competitive
       contract types as the current contracts for those goods  or services expire.
       For example, some activities presently performed under a cost
       reimbursement contract might in future be contracted out under a fixed,
       firm price contract.

G)  Do we see any evidence of our attempting to use or secure contract resources
    as a means of coping with limits placed on the Agency's or Office's budget
    relating to number of in-house employees or other budget  and/or cost
    classifications? (Put another way, would we and/or our managers, for reasons
    such  as cost-efficiency or maintaining Agency expertise, prefer to accomplish a
    task in-house rather than under contract but find the option foreclosed owing
    to a shortage of in-house resources, such as FTEs?
H)  What are we doing to make clear that no matter how hard we push, as we
    should, to accomplish as much of the Office's mission as expeditiously as
    possible,  we do not ever mean to encourage or permit - explicitly, implicitly,
    or inadvertently ~ lower level personnel to sacrifice the requirements of
    contracts management or other rules of law in  deference to a programmatic
    objective?
I)   How are we securing systematic, efficient, oversight by mid- and higher-level
    managers to ensure that the Office receives all the support it should under

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        contracts but does so while staying clear of classic contractual missteps,
        including:

            1)   Performance of personal services, directed by us or acquiesced in by
                 the contractors (are we overseeing the contractor or treating him as
                 our own employee);
            2)   Ceding of inherent governmental functions to contractors;
            3)   Losing Agency expertise or discretion needed to exercise the
                 Agency's governmental functions;
            4)   Losing in-house expertise needed to assign and oversee the technical
                 undertakings of the contractor;
            5)   Creating conflicts of interest owing to past employment relations,
                 other clients of an Agency contractor, or other work being done by a
                 contractor for the Agency.

     J)  Are personnel from our Office participating in all evaluations performed by
        the Agency to assess the performance of contractors from whom we receive
        goods or services?
     K) Are we taking steps to ensure that our representatives on such review panels
        receive adequate information about the  quality of that contractor's
        performance for our Office, so that the representative can - and understands
        he should - evaluate the contractor based on the  actual performance under
        the contract?
     L) What steps should we take to ensure the Office's timely compliance with
        current training, guidance, and other  applicable requirements.
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