HW
oooj
y
- |f
,,
. 7
;=c 19.•,;-:•:
MEMORANDUM
SUBJECT!
FROM:
TO:
(V
Draft Audit Report E1XM+8-11-0047
Management of Contracts Supporting the
Office of Solid Waste
Ernest E. Bradley III ^
Assistant Inspector General for Audit (A-109)
Charles L. Grizzle
Assistant Administrator for Administration
and Resources Management (PM-208)
J. Winston Porter
Assistant Administrator for Solid Waste
and Emergency Response (WH-562)
Attached is the subject draft report. To be sure that audit
reports are as factual as possible, it is our practice.to permit
audited parties to furnish their written comments on -tentative
report material. Therefore, in accordance with Agency Directive
2750, please provide this office with a written response to the
draft audit report within 30 days.
Tour comments should address the factual accuracy of the
draft report, the policy implications of the recommendations, and
any plans for taking corrective action, including specific mile-
stone dates. The final report will include an assessment of your
comments *
do not release this draft report to individuals out-
side yctaigoffice. Should you or your staff have any questions
about ttj&if"report, please contact Melissa Heist of my staff at
475-82l||FV
Attachment
cc: See Attached List
HEADQUARTERS LIBRARY
ENVIRONMENTAI PROTECTION AGENW
WASHINGTON, D.C. 20460
-------
-------
cc: Director, Procurement and Contracts Management
Division (PM-214F)
Associate Director for ADP Procurement and Contract
Support (PM-214F)
Associate Director for Superfund/RCRA Procurement
Operations (PM-214F)
Peter Nobert, OZG Liaison
Office of Administration and Resources Management (PM-225)
Director, Office of Solid Waste (WH-562)
Director, Office of Program Management and Support (WH-562)
Jose Acevedo, OIG Liaison
Office of Solid Waste and Emergency Response (WH-562A)
Chief, RCRA Program Management Branch - Region 5
Chief, Financial Analysis Section - Region 5
-------
-------
UNITED STATES INTERNAL AUDIT DECEMBER 13$$
ENVIRONMENTAL DIUISION CA-1QS)
PROTECTION AGENCY WASHINGTON, DC 201SO
&EPA DRAFT AUDIT REPORT
E1XM*8-11-0047
MANAGEMENT OF CONTRACTS
SUPPORTING THE
OFFICE OF SOLID UASTE
-------
-------
DRAFT
TABLE OF CONTENTS
•?t?'- . Paoe
C. ' • •
SCOPE AND OBJECTIVES 1
SUMMARY OF FINDINGS 3
BACKGROUND 6
FINDINGS AND RECOMMENDATIONS 9
1. AGENCY PERSONNEL DIRECTED CONTRACTORS TO PERFORM
UNAUTHORIZED WORK 9
2. CONTRACTORS' WORK WAS NOT ADEQUATELY MONITORED ... 16
3. IMPROVEMENTS ARE NEEDED IN THE AGENCY'S SUBCON-
TRACTING ACTIVITIES 25
4. WORK WAS PERFORMED USING MULTIPLE CONTRACT
ACTIONS 31
5. PROGRAM OFFICE PERSONNEL LACKED ADEQUATE CONTRACT
TRAINING . . 33
EXHIBIT A - UNAUTHORIZED WORK PERFORMED BY
CONTRACTORS 38
EXHIBIT B - NUMBER OF DAYS TO APPROVE SAMPLE WORK
ASSIGNMENTS, DELIVERY ORDERS AND AMEND-
MENTS 39
EXHIBIT C - WORK PLANS THAT TOOK OVER 100 DAYS TO
APPROVE 40
EXHIBIT D - NUMBER OF DAYS TO PROCESS AWARD FEES
FOR SAMPLE CONTRACTS 41
DRAFT
-------
-
-------
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, O.C. 20460
OFFICE OF
THE INSFECTOB GENERAL
MEMORANDUM
SUBJECT:
FROM i
TO:
Draft Audit Report E1XM*8-11-0047
Management of Contracts Supporting the
Office of Solid Waste
Ernest E. Bradley
Assistant Inspector
neral for Audit (A-109)
Charles L. Grizzle
Assistant Administrator for Administration
and Resources Management (PM-208)
J. Winston Porter
Assistant Administrator for Solid Waste
and Emergency Response (WH-562)
Attached is the subject draft report. To be sure that audit
reports are as factual as possible, it is our practice to permit
audited parties to furnish their written comments on tentative
report material. ' Therefore, in accordance with Agency Directive
2750, please provide this office with a written response to the
draft audit report within 30 days.
Your comments should address the factual accuracy of the
draft report, the policy implications of the recommendations, and
any plans for taking corrective action, including specific mile-
stone datM. The final report will include an assessment of your
comments
not release this draft report to individuals out-
side your^off ice. Should you or your staff have any questions
about this report, please contact Melissa Heist of my staff at
475-8206.
Attachment
cc: See Attached List
-------
cc:
Director, Procurement and Contracts Management
Division (PM-214P)
Associate Director for ADP Procurement and Contract
Support (PM-214F)
Associate Director for Superfund/RCRA Procurement
Operations (PM-214F)
Peter Nobert, 016 Liaison
Office of Administration and Resources Management (PM-225)
Director, Office of Solid Waste (WH-562)
Director, Office of Program Management and Support (WH-562)
Jose Acevedo, OIG Liaison
Office of Solid Waste and Emergency Response (WH-562A)
Chief, RCRA Program Management Branch - Region 5
Chief, Financial Analysis Section - Region 5
-------
SCOPE AND OBJECTIVES
We have completed an audit of the Agency's procedures for
administering contracts supporting the Office of Solid Waste
(OSW). We initiated this audit based on information provided
to us bytthe Office of Administration and Resources Management.
The preliminary results of a review performed by that office
indicated systemic problems existed in the management of OSW
contracts.
The objectives of our audit were to determine if the Agency's
procedures for administering the contracts were adequate, and
if the contracts were being administered in accordance with
Federal and EPA acquisition regulations. Specifically, our
review covered the following contract administration functions
performed by contracting officers, project officers, work assign-
ment managers and delivery order managers: (1) issuance of
work assignments and delivery orders, (2) monitoring of contrac-
tors' technical performance and cost expenditures, {3} approval
of subcontractors, and (4) determination of award fees. We did
not attempt to evaluate the quality of the contractors' work or
the reasonableness of their coats.
Our fieldwork was performed from April 25, 1988 to October 14,
1988. At the request of an official from the Office of
Administration and Resources Management, we reviewed two
delivery orders under one contract where work started prior to
issuance of a contract or delivery order. In addition, we
evaluated the Agency's administration of nine randomly selected
contracts. We limited our selection of contracts to those
awarded by the Headquarters, Procurement and Contracts Manage-
ment Division. Five of the contracts we reviewed were contracts
initiated by OSW primarily to support its mission. The remain-
ing four contracts were initiated by other program offices but
were used by OSW to order services and products. For our sample,
we selected work assignments and delivery orders that were
issued or amended during fiscal 1987. We reviewed 36 work
assignments and 7 delivery orders with a total value of $10.6
million that were issued under the nine contracts.
We conducted audit work at the following offices in Headquarters:
Office of^$olid Waste; Office of Underground Storage Tanks;
Office of ftjlicy, Planning and Evaluation; and the Information
ManagemM^and Services Division, Program Systems Division,
Management and Organization Division, and Procurement and
Contracts Management Division within the Office of Administra-
tion and Resources Management. We also conducted audit work at
the RCRA Program Management Branch in Region 5 and at the offices
of five of the contractors in our sample.
DRAFT
-------
To accomplish our audit objectives, we interviewed contracting
officers, project officers, work assignment managers, delivery
order managers and contractor personnel responsible for the
contracts, work assignments and delivery orders in our sample.
We also reviewed the official contract files and the records
maintained by the project officers, work assignment managers
and delivery order managers. Lastly, we reviewed documentation
maintained by contractors to support the costs that they had
claimed.
Part of our audit work included determining the status of prior
audit findings and recommendations related to EPA's administra-
tion of contracts. We identified the following General Account-
ing Office (GAO) and EPA Office of Inspector General (OIG)
audit reports that addressed issues related to contract admini-
stration:
(1) "The EPA Should Better Manage Its Use of Contrac-
tors", GAO/RCED-85-12, January 4, 1985;
(2) "EPA's Planning, Negotiation, Awarding and Admini-
stering of Emergency Response Cleanup Services
Contracts", E5E26-05-0101-615C8, September 23, 1986;
and
(3) "Review of Contracts Awarded on Behalf of the Office
of Policy, Planning and Evaluation", B1BM5-11-0041-
60187, February 11, 1986.
in these reports, auditors reported that EPA's management of
contracts did not provide assurance that quality work was
received at a reasonable price and that contractors complied
with the terms of the contracts. Although EPA has increased
its contract management resources and improved its contract
management process in response to these reports, we identified
many of the same problems during this audit. Our observations
concerning these prior audit reports are included in the Find-
ings and Recommendations section of this report.
Our audit was conducted in accordance with the Standards for
nental Organizations. Progr^pyf Activities anc
Revision) issued by the Comptroller General of
the UnitfipStates. We evaluated whether the Agency was
efficientay^and effectively managing contract resources and
whether ther-Agency was complying with Federal regulations and
Agency policy. We did not evaluate program results. Internal
control weaknesses, disclosed as a result of our audit, are
included in the Findings and Recommendations section of this
report. We 'had no indication that items not tested would
disclose further weaknesses beyond those described.
DRAFT
-------
SUMMARY OF FINDINGS
Although-BPA has increased its contract management resources and
improved^fcts contract management process in response to prior " <
6AO and BPA-OIG audit reports, further improvements are needed.
Our audit-*disclosed that the Agency was not effectively admini-
stering contracts supporting the Office of Solid Waste. In
addition, Agency personnel were not always following Federal '' ij
and EPA acquisition regulations in administering the contracts.
Work assignment managers, delivery order managers, project
officers and contracting officers who were responsible for
managing the contracts were not always ensuring that: (1) only
required work was ordered, (2) funding was available for the
work performed, (3) contractors were assigning the appropriate
personnel to perform the work, (4) the cost of the work performed
was reasonable, and (5) competition was utilized to the maximum
extent possible. The following paragraphs summarize our findings.
AGENCY PERSONNEL DIRECTED CONTRACTORS TO PERFORM
UNAUTHORIZED WORK
Agency work assignment managers routinely directed contractors to
perform work before it was properly ordered or funded by the
contracting officer. In our random sample of 43 work assignments
or delivery orders, we found that contractors started work early
on 13. Also, on one delivery order a contractor began work • ••;
before funds were obligated. On three other work assignments,
the contractor continued work after the estimated cost of the
work assignments had been exceeded. These contractors incurred
an estimated $532,723 in unauthorized or unapproved costs. In •/-
addition, an Agency project officer identified two delivery
orders under one contract where the contractor started work
early. On the one delivery order the contractor started work
prior to issuance of the contract. On the other delivery order
the contractor started work prior to issuance of the delivery
order. This contractor incurred approximately $400,000 in
unauthorized costs.
Such contractor actions could result in contractors performing
work that is not needed or for which funds are not'available.
Work assiggniMnt managers cited time pressures and a lack of
knowledgfjp&fe contracting procedures as reasons for requesting
cbntractdJipHto perform the work. Contractors told us that they
started tias^work early or in the absence of funding because the
Agency personnel requesting the work also made decisions about
award fees and future contract awards. If contracting and
project officers had properly reviewed contractors' invoices
and status reports, they would have been aware that the contrac-
tors performed unauthorized work. We found no evidence in our
review of randomly selected contract actions that, if they were
aware, they ever questioned or refused to pay contractors for
the unauthorized work. As a result, contractors continued to
start work before work assignments or delivery orders were issued.
DRAFT
-------
DRAFT
CONTRACTORS' WORK WAS NOT ADEQUATELY MONITORED
We found,.that Agency personnel were not adequately monitoring
work performed by contractors. Contract administration
procedures and guidelines developed by the Procurement and
Contracts Management Division (PCMD) were not being followed.
For example, contractors completed and were paid for substantial
portions of work before their work plans had been approved, and
contractors' monthly status reports and invoices were not ade-
quately reviewed. Program office personnel were not adequately
monitoring contractors' work because they did not understand
the importance of performing this function and did not place a
high priority on it. PCMD'a ability to monitor contracts was
hindered by the lack of a system to track key contract actions,
such as approvals of work plans and receipt of monthly status
reports. By not effectively managing contracts/ EPA was not
ensuring that quality products and services were obtained at a
reasonable cost.
We also found that EPA was not effectively using award fees to
motivate contractors. For the four cost plus award fee
contracts in our sample, contractors were paid $526,709 in
award fees during fiscal 1987. The payment of these award fees
at stated intervals during the life of the contract was intended
to motivate the contractors to improve poor performance or
continue satisfactory performance. However, we found that due
to the low priority placed on making award fee determinations, 4
contractors were not informed of the Agency's award fee
decision until an average of six months after the end of the
evaluation period. As a result, the Agency was not providing
contractors with timely feedback on their performance, so they
could make necessary improvements. More importantly, the
Agency was paying contractors award fees without receiving the
full benefit they could provide in motivating contractors'
future performance.
IMPROVEMENTS ARE NEEDED IN THE AGENCY'S SUBCONTRACTING ACTIVITIES
Agency personnel went through prime contractors to obtain the
services crf^subcontractors and consultants rather than contract-
ing direc£ix with these companies or individuals. Work on 7 of
our 43 majjim. work-assignments or delivery orders was performed
almost totally by subcontractors or consultants, if the Agency
had contracted directly with the subcontractors or consultants,
the general and administrative costs and fees of $115,216 paid
to the prime contractors could have been eliminated. Also,
these procurements could have provided the Agency with an
excellent opportunity to increase competition and to use small
business firms. Agency personnel and contractors also were not
complying with the Federal Acquisition Regulations related to
DRAFT
-------
DRAFT
subcontracting. For example, prime contractors were not
competitively selecting subcontractors and consultants.
Work assignment managers were selecting and directing subcon-'
tractors^ work. As a result, competition was restricted,
contract'costs were increased and internal controls were
weakened.
WORK WAS PERFORMED USING MULTIPLE CONTRACT ACTIONS
We also found that OSW was using more than one work assign-
ment and contract to complete work on projects. On six of our
43 sample work assignments, the work ordered was a continuation
of work started on another work assignment and contract. The
work was transferred because ceilings on the original contracts
had been reached or the contracts had expired. By transferring
work between contracts, the Agency increased its risk that a
contractor could bill and be paid twice for the same costs.
Contractors could have easily done this because contractors'
invoices were approved by project officers who only had
knowledge of their own contract.
PROGRAM OFFICE PERSONNEL LACKED ADEQUATE CONTRACT TRAINING
Lastly we found that some program office personnel lacked the
necessary training to effectively manage contracts. Sixteen of
the 43 project officers, work assignment managers and delivery
order managers we interviewed had not attended the Agency
required training. Also, the courses provided by the Agency
did not adequately address day-to-day contract management duties,
such as preparing work assignments, reviewing invoices and
work plans, and evaluating contractors' performance. This lack
of contract training contributed to project officers, work
assignment managers and delivery order managers making
inappropriate contracting decisions. ',
RECOMMENDATIONS
This report contains recommendations directed to PCMD and OSW.
Although w» are making separate recommendations to the two
officesMMiy of the corrective actions can only be
implemented by the two offices working together.
We are recommending that OSW take appropriate disciplinary
actions against individuals whoi (1) direct contractors to
perform unauthorized or unfunded work, (2) approve contractors'
invoices when the contractors have not submitted acceptable
work plans, and (3) select or direct the work of subcontractors
or consultants. We are also recommending that OSW adequately
plan procurements so that work can be completed under a single
work assignment or delivery order.
-------
D:
We are recommending that PCMD expand their current contract ™
administration and financial monitoring reviews to include steps
designedSto determine whether Agency personnel are directing
contractors to perform unauthorized work, whether they are
selecting and directing subcontractors, and whether they have
attended the required training. We are also recommending that
PCMD establish additional policies and procedures related to making
award fee determinations, reviewing contractors' invoices, and
preparing work assignments and delivery orders. In addition, we
are recommending the development of a contract management tracking
system. To increase competition, we are recommending that PCMD:
(I) perform an independent review of subcontracts prior to intiatin
follow-on procurements to identify those that could be broken out
and awarded as separate procurements, and (2) require contractors
to submit detailed information on how they selected subcontractors.
Finally, we are recommending that PCMD revoke the certifications
of those contract managers who have directed contractors to
perform unauthorized or unfunded work or who have not attended the
required .training.
BACKGROUND
The Resource Conservation and Recovery Act (RCRA), as revised
by the Hazardous and Solid Waste Amendments of 1984, provides
the legislative mandate for a nationwide program to manage
hazardous wastes from generation through disposal. The Office
of Solid Waste is responsible for developing regulations
pursuant to RCRA and for implementing the national program to
regulate hazardous waste. To carry out its legislative mandate,
OSW uses a number of contracts and contractors. During the
period audited, fiscal 1987, the office obligated $35 million
for contract actions.
Types of Contracts Used
OSW uses two types of contracts to obtain contractor services:
(1) cost reimbursement contracts under which work assignments
are issued, and (2) fixed rate for services, indefinite delivery
and quantity contracts under which delivery orders are issued.
Cost reiatpcvenent contracts are used when the estimate of
total co«j|i|]Mgotlated is believed to be reasonable under the
circumataaaii, but because of the degree of uncertainties 4
involved, 'if fixed-price arrangement is not feasible. In this
instance, the Government assumes the risk and pays the contrac-
tor the actual allowable costs incurred in the performance of
the contract, up to the total obligated costs established at
the time of negotiation. Beyond this amount, the contractor is
not reimbursed and is required to stop work unless additional
funds are obligated and continued work is authorized by the
contracting officer.
-------
Some of the cost reimbursement contracts utilized by OSW contain
an award£;fee provision. The amount of the available award fee
paid to j$fcontractor is based on a subjective evaluation of the
contractor's performance made by EPA program and contracting
officials-;^ The evaluation takes into consideration such factors
as the quality, timeliness, and cost effectiveness of the products
produced. The award fee is decided upon at stated intervals
during the contract, usually every three or four months. The
overall objective of the award fee is to motivate the contractor
in a positive way to improve poor performance or to continue
satisfactory performance.
The other type of contract which OSW uses is the fixed rate for
services, indefinite delivery and quantity contract. Under
this type of contract, the contractor is required to provide a
specified product or service over a stated period of time at
fixed rates. These contracts do not contain award fee provisions.
Contract Administration
Contract administration encompasses all functions related to a
contract from the time it is awarded until final payment is
made and the contract is closed out. Within EPA these functions
include (1) issuing work assignments, delivery orders, and amend-
ments; (2) monitoring contractors' work by reviewing.work plans, -
status reports, and invoices; and (3) providing contractors with
feedback on their performance. The primary purpose of contract
administration is to ensure that contractors satisfactorily
perform in accordance with the contract terms and conditions.
Contracting officers have the overall' responsibility for obtain-
ing satisfactory contractor performance. However, since many
Agency contracts are highly technical, contracting officers
rely on personnel from the program office originating the
contract actions to assist them in monitoring the contracts.
Within OSW approximately 10 project officers and 150 work
assignment or delivery order managers help to administer con-
tracts. The project officer is responsible for monitoring the
overall progress of all work assignments or delivery orders
under a contract and for providing technical support to the
contractoS^f The work assignment and delivery order managers
are respOiikl|ble for the day-to-day activities related to
individuopPibrk assignments or delivery orders. The work assign-
ment or delivery order manager is the person most knowledgeable
about individual projects performed under the contract.
Issuance of Work Assignments and Delivery Orders
To order work under a contract, the work assignment or delivery
order manager prepares a work assignment or delivery order.
D?.
-------
The individual's branch chief reviews the document and forwards
it to the project officer who also reviews it for accuracy and
acceptability. If no changes or clarifications are needed, the
document 'i» forwarded to the contracting officer for approval
and issuance to the contractor. Only contracting officers are
authorized to order work from the contractor. The contracts
contain provisions prohibiting contractors from beginning work
before the contracting officer has issued a work assignment or
delivery order.
In preparing the statement of work for a work assignment or
delivery order, the work assignment or delivery order manager
must take care to keep the statement of work within the scope
of work of the contract. Work assignments and delivery orders
must be specific in terms of end products required and types of
reports to be submitted. Any specific requirement must be
explained in the work assignment or delivery order. This pre-
vents the contractor from misinterpreting what the Agency wants.
-------
FINDINGS AND RECOMMENDATIONS
UNAUTHORIZED WORK
Agency work assignment managers routinely directed contractors
to perform work before it was properly ordered or funded by the . *
contracting officer. In our random sample of 43 work assignments
or delivery orders, we found that contractors started work early"~
on 13. Also, on one delivery order a contractor began work
before funds were obligated. On three other work assignments,
the contractor continued work after the estimated cost of the
work assignments had been exceeded. As a result, contractors
incurred an estimated $532,723 in unauthorized or unapproved
costs for these 17 work assignments or delivery orders (See
Exhibit A). In addition to the unauthorized work we identified,
one Agency project officer identified two delivey orders under
one contract where the contractor started work early. On the
one delivery order, the contractor started work prior to
issuance of the contract by the contracting officer. On the
other delivery order, the contractor started work prior to
issuance of the delivery order. The contractor incurred
approximately $400,000 in unauthorized costs on the two
delivery orders. Such contractor actions could result in
contractors performing work that is either not needed or for
which funds are not available.
Work assignment and delivery order managers cited time pressures
and a lack of knowledge of contracting procedures as reasons
for requesting contractors to perform the work. In addition,
they noted that contracting officers were not always responsive
in meeting OSW's contracting needs. Contractors told us that
they started the work early or in the absence of funding because
the Agency personnel requesting the work also made decisions
about award fees. More importantly, the individuals requesting
the work sometimes served on the technical evaluation panels
that rated contractors' proposals. Therefore, the contractors
believed that by not performing the work they might jeopardize
their chances of receiving future contract awards.
When contractors performed work before receiving a work assign-
ment or
-------
Each of the contracts we reviewed contained a clause prohibiting
the contractor from performing work except as directed in work
assignments or delivery orders issued by the contracting officer.
Issuance^of work assignments and delivery orders was necessary
because the contracts were mission type contracts with general
statements of work. Individual work assignments and delivery
orders provided contractors with specific information on the
work ordered. Before the work assignment and delivery orders
were issued to the contractor, Agency policy required that they
be approved by both program and contracting office personnel.
This approval process was intended to ensure that (1) the work
ordered was within the scope of the contract, (2) the work
ordered was necessary and did not duplicate other work ordered,
(3) the contractor was given clear direction on the work ordered,
and (4) sufficient funding was available for the work ordered.
When Agency personnel orally directed contractors to perform
work in the absence of work assignments or delivery orders, the
possibility existed that the contractor could have misunder-
stood what was being ordered and performed work the Agency did
not need. More importantly, the contractor could have performed
work for which funding was not available. This could also have
happened in those instances where contractors either performed
work before funds were obligated or continued work on work
assignments when the estimated ceiling for the work assignments
had been exceeded. U.S. Code 31 Section 1341, the Anti-Deficiency
Act, prohibits Government employees from authorizing expenditures A
exceeding the amount available in an appropriation. In addition,^|
FAR 32.704(c) states that Government personnel encouraging
contractors to continue work in the absence of funds will incur
Anti-Deficiency Act violations that may subject them to civil
or criminal penalties. Agency personnel, by requesting contrac-
tors to perform unauthorized work, were placing themselves in a
situation where they could have been subject to the civil and
criminal penalties of the Anti-Deficiency Act.
Since OSW personnel told us that they could not always wait
until delivery orders and work assignments were issued before
requesting contractors to start work, we analyzed how long it
took the Agency to issue work assignments, delivery orders and
amendment*^(contract actions). We found that it took project
officersfippaverage of eight days and contracting officers an
average'-;-;
-------
ments, delivery orders and amendments that have been sent to
PCMD for approval. The listing provides the date OSW delivered
the documents to PCMD, the contracting officer's signature
date/ and' the time lag for approval. This system was developed
to help OSW and PCMD identify those documents that still need
approval, as well as to make PCMD aware of how long it takes
contracting officers to approve work assignments. OSW also
prioritizes contract actions sent to PCMD for approval. Those
actions that need immediate attention are color coded and hand
delivered to PCMD for immediate action. Both OSW and PCMD
personnel agree that this system is helping PCMD be more respon-
sive to OSW's contracting needs. This should alleviate the
need for OSW to request contractors to perform unauthorized
work.
A. Contractors Started Work Before Work Assignments
and Delivery Orders Were Issued
Six of the nine contractors in our sample started work prior
to receiving a work assignment or delivery order. These
contractors started work on 13 work assignments or delivery
orders and incurred an estimated $107,116 in costs before con-
tracting officers authorized the work. In addition to the
unauthorized work we identified in our sample, one Agency pro-
ject officer found that a contractor started work early on two
delivery orders. The contractor started work on one delivery
order prior to issuance of the contract. On the-other delivery
order, the contractor started work before the delivery order
was issued. The contractor performed approximately $400,000 of
unauthorized work under the two delivery orders. Contractors
performed unauthorized work because OSW work assignment and
delivery order managers orally notified contractors of pending
work assignments and delivery orders before they were approved
by the contracting officer. OSW personnel told us that this
was necessary because they were under pressure to meet Congres-
sional deadlines, and they could not wait for the contracting
officer's approval before discussing the work with the contractor.
In addition, contractors realizing the urgency of the work
willingly began work early. Contractor personnel we interviewed
stated that they did not think they would receive high-award
fees,'ifettoy were not responsive to the work assignment managers'
request»Jpi-Tn*« contractors also wanted to ensure they received
subsequeHcf contract awards from EPA.
For 10 of the 13 delivery orders or work assignments in our
sample where contractors started work early, invoices, monthly
status reports or memorandums submitted by the contractors
clearly showed that work began early. We even identified two
instances where the delivery orders issued by the contracting
officer indicated work began early. On these two delivery
orders, the period of performance began prior to the date they
were signed by the contracting officer.
U <
-------
•':-•> "
EPA Acquisition Regulation 1501.670-4 provides that:
Contracting actions taken by personnel without
formally delegated contracting authority do not
legally obligate the Government for the expen-
diture of funds. If an unauthorized contract
action would have been valid had it been
authorized by a Contracting Officer, then the
Contracting Officer may ratify the unauthorized
action. If an unauthorized action is otherwise
improper, a Contracting Officer cannot ratify
it and the Agency must deny legal liability, in
which case the person committing the unauthorized
action may be personally liable.
None of the 13 delivery orders and work assignments in our
sample where unauthorized personnel ordered the work was ever
formally ratified by the contracting officer. Contracting
officers and project officers who were responsible for review-
ing invoices, monthly status reports, work assignments, and
delivery orders either did not properly review the documents,
or they did not take any action against the work assignment
manager and contractor if they were aware of the unauthorized
contract actions.
On the two delivery orders where the project officer determined
that unauthorized work was performed, the contracting officer
required the contractor to submit a ratification request. The
contracting officer reviewed the request and informed the
contractor that the unauthorized work could not be ratified.
PCJfD also revoked the certification of the delivery order
manager who directed the work. PCMD should take similar
actions in other instances where contractors have performed
unauthorized work.
The Financial Compliance and Quality Assurance Staff within
PCMD conducts contract administration reviews of all EPA
contracts with a value of $5 million or more and randomly
reviews contracts of $1 million. These reviews concentrate
on the project and contracting officers duties and include
reviewin^|ntch areas as cost and technical monitoring; subcon-
tracts aliitcAOnsultants; issuance of work assignments, delivery
orders, ttH^podifications; and disputes, claims and terminations.
During tHiSS? reviews, PCMD focuses on documents and paper trails
rather than interviews and discussions with contracting and
project officers. Also, PCMD does not review the work assign-
ment managers' performance. PCMD relies on the project officer
to document any problems with the work assignment managers'
work. Considering our findings it is evident that PCMD needs
to perform more indepth oversight reviews of the Agency's manage-
ment of contracts. These reviews should include work assignment
managers since they are performing contract management duties
on a daily basis.
12
05
-------
PCMD also performs financial monitoring reviews of contractors.
These reviews currently do not include steps specifically
designed .to determine if contractors performed unauthorized
work, and?-if they did whether they charged the costs to the '"'
correct-work assignments. The reviews should include these
steps because we found during our visits to five contractors
that when they incurred costs prior to receiving a work assign-
ment, they recorded the costs in a suspense account or an
account established for other work. For example:
— One contractor recorded costs in a suspense account
until the approved work assignment was received
from the contracting officer.
— Two contractors recorded costs against "quick
turnaround" work assignments that had very
general scopes of work. After the contractors
received the approved work assignments from
the contracting officer, they transferred the
costs out of the general work assignments and
into the appropriate work assignments.
— One contractor admitted to incorrectly charging
costs incurred prior to receiving a work assignment
to an existing work assignment that had a similar
scope of work. After the work assignment was finally
approved, the costs were transferred to the correct
work assignment. This contractor stated that the new
work assignment was completed in its entirety before
the contracting officer approved it. -
—" One contractor recorded costs against a work
assignment which had.been established for
administrative costs. In this instance, costs
were never transferred to the appropriate
work assignment.
B.
Contractors Performed Work Before Funds Had
Been Obligated or After Approved Ceilings
Had Tlncm Exceeded
We iden£iat$iKi one delivery order in our sample where the
contract ijijisj i formed work for two months and incurred an esti-
mated $2Sfjj$74 in coats before the Agency obligated funds for
the work; ~ In addition, on three other sample work assignments,
a contractor continued work after the approved ceilings for the
work assignments had been exceeded. This contractor incurred
an estimated $404,833 in costs before the necessary work assign-
ment amendments were processed. These incidents occurred because:
(1) contracting officers issued delivery orders before funds
were available for the work, and (2) OSW and PCMD personnel did •••
not review contractors' monthly status reports and prepare amend-
13
-------
ments in a timely manner. Allowing contractors to parform work
before funds have been obligated or after approved ceilings
have been exceeded could result in violations of the Anti-
Deficiency- Act .
The delivery order on which the contractor started work before
funds were obligated was for OSW library services. The delivery
order was issued by the contracting officer on September 30,
1987 with an effective date of October 1, 1987. The delivery
order was approved by the contracting officer subject to the
availability of funds because OSW did not have fiscal 1988
funds available for the work. The contractor started work on
October 1, 1987 and continued working in the absence of funding
until an amendment was processed on December 16, 1987 to fund
the work.
Another contractor continued work on three work assignments
after the ceilings for the work assignments had been exceeded.
The contractor informed the Agency in memorandums or in monthly
status reports that the ceiling amounts had been reached or
exceeded, but the Agency did not take timely action to process
amendments to the work assignments. For example, on two of the
work assignments the contractor, in a memorandum dated
February 10, 1988, informed OSW that it had expended the alloca-
ted funds for the work assignments as of February 5, 1988. The
.contractor continued work under these two work assignments, and ,
incurred an estimated $329,775 before the necessary amendments
were processed on April 14, 1988. The provisions of the contract
under which these work assignments were issued did not require
the contractor to stop work when the estimated cost of the work
assignment was reached. However, by allowing contractors to
continue work before the amendments were issued, the Agency was
not ensuring that sufficient funding was available for the work.
RECOMMENDATIONS •
We recommend that the Director, Procurement and Contracts
Management Divisiont
that OSW submits ratification requests
unauthorized contract actions identified
ig this audit and during reviews performed
by PCMD or OSW.
Require contracting officers to review ratifi-
cation requests to determine whether contractors
should be paid for the unauthorized work and
whether the person requesting the unauthorized
work should be personally liable.
Revoke the certifications of project officers and
work assignment managers who direct contractors
to perform unauthorized or unfunded work.
14 !*\'r\ r\ -.-
-------
— Expand the scope of the current contract admini-
stration reviews to include a more detailed
.. evaluation of project officers performance and to
^include a review of work assignment managers
performance.
— Expand the financial monitoring reviews of contrac-
tors to include steps specifically designed to
determine whether contractors are performing unauthor-
ized work and whether contractors are charging costs
to the correct work assignments.
We recommend that the Director, Office of Solid Waste take
disciplinary actions against individuals who direct contractors
to perform unauthorized or unfunded work.
15
-------
2. CONTRACTORS' WORK WAS NOT ADEQUATELY MONITORED ™
Our auditldisclosed that the Agency was not adequately monitor-
ing contractors' work. Although PCMD had established contract
administration procedures and guidelines in response to prior
GAO and EPA-OIG audit reports, we found that these procedures
were not being followed. For example, we found that: (1) con-
tractors completed and were paid for substantial portions of
work before their work plans had been approved; (2) award fee
determinations were not communicated to contractors in a timely
manner; and (3) contractors' monthly status reports and invoices
were not adequately reviewed. These factors impacted on the
Agency's ability to effectively manage contracts and ensure
that the best possible product or service was obtained at a
reasonable cost.
OSW primarily uses cost reimburement contracts to obtain con-
tractor services. Under this type of contract, the contractor
is only responsible for making a good faith effort to complete
the work at an estimated cost. The Government is responsible
for full payment even if the final product is unsatisfactory,
or it exceeds the estimated cost. Therefore, Federal Acquisi-
tion Regulation (FAR) 16.301-3 states that cost reimbursement
contracts may onlv be used when Government monitoring of the
contractor's work will provide reasonable assurance that the
contractor is using efficient methods and effective cost
controls,
EPA's contracting procedures provide Agency personnel with
several means by which they can monitor contractors' work and
ensure satisfactory performance. The contracts themselves
contain provisions that require contractors to submit work
plans explaining how they propose to complete the assigned
work. The contracts also require contractors to submit status
reports. In addition, some of the contracts provide for pay-
ment of an award fee to be based on an evaluation of the
contractors' performance.
EPA's lack of monitoring of contractors' work has been the
subject Q&» previous EPA and GAO reports. In GAO's January 4,
1985 repi$t, "The EPA Should Better Manage its Use of Contrac-
tors" (GJfcVRCBD-85-12), the GAO concluded that EPA's management
of cost rplifeursement contracts did not provide assurance that
quality work was received at a reasonable price. The GAO
recommended that PCMD carry out its contract management respon-
sibilities by having contracting officers become more involved
with monitoring work assignments. EPA-OIG Audit Report No.
E5S26-05-0101-61508, "EPA's Planning, Negotiation, Awarding and
Administering of Emergency Response Cleanup Services Contracts",
dated September 23, 1986, contained a similar finding. Auditors
reported that PCMD was not monitoring contracts on a regular
basis. As a result, the contractors were not always complying
with the contract terms, providing cost effective services, and
16
-------
complying with Federal laws. The OIG recommended that the Agency
actively review contractors' compliance under the contracts on a
routineJbaais to improve contract monitoring.
We found'-'that Agency contracting officers, project officers,
work assignment managers and delivery order managers still were
not adequately monitoring contractors' work. Project officers,
work assignment managers and delivery order managers, did not
understand the importance of performing this function. Thus,
they did not place a high priority on it. The ability of
contracting officers to monitor contracts was hindered by the
lack of a system to track key contract actions, such as approvals
of work plans, receipt of monthly status reports, and determina-
tions of award fees.
Inadequate monitoring of contractors' work can result in the
Agency paying for poor quality or unfinished products. For
example, we identified one work assignment in our sample where
the contractor incurred $40,782 to prepare an inspector's manual.
When the work assignment manager received the draft manual, he
was dissatisfied with the contractor's work and requested that
the contracting officer cancel the work assignment. The contrac-
ting officer did cancel the work assignment. However, the Agency
had to pay for a product that, according to the work assignment
manager, the Agency does not plan to use. Better monitoring of
the contractor's work could have prevented the Agency from
paying $40,782 for a product that could not be used.
A. Contractors Completed or Continued Work in the Absence
of Approved Work Plans
Contractors c'ompleted and we're paid for substantial portions of
work before the work plans had been approved. According to the
terms of the contracts we reviewed, contractors were to stop
work on work assignments if the work plans were not approved
within the specified number of days. We found that contractors
were not stopping work, if their work plans were not approved.
On nine of our sample work assignments, valued at $1,460,142,
it took the Agency more than 100 days to approve the work plan.
We determined that the contractors incurred an estimated $814,682
(56 percent) of the costs for these work assignments before the
work plaji^were. approved. If the Agency had later found the
contractM^^r.'pTOt>baed work plans to be unacceptable, the Agency
may hayfpB^B^to;-'pay contractors for costs that they had already
incurri
Agency personnel did not place a high priority on reviewing and
approving contractors' work plans. We found that the Agency
took an average of two months to approve contractors' work
plans once they were received. We also found some work plans
that had never been approved. By not promptly reviewing work
plans, the Agency was not ensuring that contractors had an
adequate understanding of the scope of the work and that the
. 17
-------
proposed levels of staffing and resources were appropriate and IP
reasonable. In addition, it is difficult for the Agency to
monitor work assignment progress without an approved work plan
in place against which key milestones and incurred costs can be
compared. ,'-.
After receipt of a work assignment, the contractor has from 10
to 20 days, depending on the particular contract terms, to
develop and submit a work plan to the contracting and project ~ --
officers for approval. The work plan should include a detailed
technical and staffing plan as well as a cost estimate. After
receipt of a proposed work plan, the contracting officer has
15 to 40 days to approve or disapprove the plan in writing.
Work plans are reviewed to ensure that the contractor's under-
standing and approach for accomplishing the effort is within
the scope of the work assignment, and that the proposed level
of staffing and resources are appropriate and reasonable for
performing the work.
According to the contract terms, if the contractor has not
received an approved work plan within the predetermined number
of calendar days after its submission, the contractor must stop
work on the work assignment. Also, if the contracting officer
disapproves a work plan, the contractor must stop work until
the reason for the disapproval is resolved. In either case,
the contractor is to resume work only when the contracting
officer has finally approved the work plan. Jj
in our review, we found that work plans for 54 of the 69 work
assignments and amendments in our sample were not approved
within the timeframes stated in the contract, 15 to 40 days.
It took an average of 65 days to approve the 69 work plans
in our sample. However, we found cases where it took from 106
to 422 days to approve work plans. Exhibit C contains a
listing of those work plans not approved within 100 days. The
exhibit shows that there were delays by both OSW and PCHD in
approving the work plans.
For the nine work assignments where the work plans took more
than 100 day* to approve, we estimated that the contractors
incurred ||pX4,682 in costs before the work plans were approved.
By not pJipptly reviewing and approving work plans. Agency work
inn 1 gnmijfi^jiiinngnrn. project officers, and contracting officers
were not ensuring that contractors were proposing effective and
efficient methods to perform the work ordered by the Agency.
Feedback to the contractor early on in the procurement cycle is
extremely critical and prevents contractors from incurring
unnecessary or excessive costs.
18
-------
we found no evidence that Agency personnel discouraged contrac-
tors from continuing work, even if an approved work plan was
not in place. For example, contractors' invoices continued to .
be approved'" for payment by project officers. This occurred
because OSW personnel were under pressure to get the job done,
so they did not tell the contractors to stop work. For example,
we identified one work assignment, valued at $397,998, where
the contractor was preparing information for a congressional
hearing. The contractor worked over a month and the assignment
was almost completed before the work plan was approved. Contrac-
ting officers did not notify contractors to stop work because
they did not have a system to alert them that work plans had
not been received or approved.
Contractors we visited stated that they did not adhere to the
stop work policy even if an approved work plan was not received
because:
— they knew work assignment managers were under
pressure to get work done;
— they realized contracting officers, project
officers and work assignment managers did not
review work plans in a timely manner; and
— contracting officers did not notify them to
stop work if work plans had not been received.
By not requiring contractors to stop work when their work
plans were not approved, the Agency was not effectively
using the work plan approval process to monitor contractors'
work.
B. Award Fee Determinations Were Not Communicated To
Contractors in a Timelv Manner
EPA was not effectively using award fees to motivate contractors.
For the four cost plus award fee contracts in our sample, con-
tractors were paid $526,709 in award fees during fiscal 1987.
The payment'^ of these award fees at stated intervals during the
life of t^Mcontract was intended to motivate the contractors
to imprOTM||ifer performance or continue satisfactory performance.
However, ^pTouhd that due to the low priority placed on making
award feefdlr&eriitinations, contractors were not informed of the
Agency's award fee decision until an average of six months
after the end of the evaluation period. As a result, the Agency
was not providing contractors with timely feedback on their
performance, so they could make necessary improvements. More
importantly, the Agency was paying contractors award fees with-
out receiving the full benefit they could provide in motivating
contractors' future performance. Had the award fee determina-
tions been made timely, contractors may have provided better
quality products.
19
-------
FAR 16.404-2{b)(3) explains the award fee process. It states.
Cost-plus-award-fee contracts shall provide
for-evaluation at stated intervals during
performance, so that the contractor will
periodically be informed of the quality of
its performance and the areas in which
improvement is expected. Partial payment
of fee shall generally correspond to the
evaluation periods. This makes effective
the incentive which the award fee can create -^- ,,.
by inducing the contractor to improve poor —
performance or to continue good performance.
At the end of each evaluation period, each work assignment
manager evaluates the contractor's performance with regard to
the work assignments they manage. At the same time/ the
contractor is required to complete a self evaluation for each
active work assignment. The evaluations are given to the pro-
ject officer who reviews them, reconciles any differences, and
prepares a recommendation which is given to the Performance
Evaluation Board. The Board meets, reviews the project officer's
recommendation and makes a determination on the percentage of
the available fee to award the contractor. The contracting
officer then communicates the Agency's decision on the amount
of the award fee to the contractor. EPA Acquisition Regulation
I516.404-278(c) requires that the Performance Evaluation Board
meet within 30 days after the end of each evaluation period.
For the four cost-plus-award fee contracts in our sample, it
took an average of six-months for the Agency to complete the
award fee process (see Exhibit 0). The table below analyzes
the average amount of time it took to complete key actions in
the award fee process. This analysis shows that both OSW and
PCMD were responsible for delays in the award fee process.
ACTION
AVERAGE NUMBER
OF DAYS TO COMPLETE
Work ass
officers*
to the
managers and project
award fee recommendations
tee Evaluation Board
82
Minutes of the Performance Evaluation
Board meeting were forwarded to the
contracting officer 37
Contracting officer informed the.contractor
of the Agency's award fee determination 56
Total days to complete award fee process 175
20
-------
The contractors in our sample received award fees ranging from
55 to 95 percent of the available amounts. This range shows
that soaȣ contractors needed to be provided with feedback on
things they should do to improve their performance while others
needed to be rewarded for their superior performance. By not
timely informing contractors of the Agency's award fee determi-
nations, the fees were not being, effectively used to motivate
contractors' future performance.
Our discussions with individuals involved with the award fee
process showed that they did not always understand or appreciate
the award fee process. For examples
— One contracting officer told us that contractors do not
value the award fee received because it is a small
amount compared to the amount of the base fee they
receive .
— One project officer told us that he wondered why the
award fee contract was still used. The project officer
commented that a contractor often prefers a fixed fee
instead of an award fee contract because the contractor
generally makes more on a fixed fee than a percentage of
an award fee.
— Another project officer stated that work assignment
managers have more important things to do than prepare
evaluations for award fee determinations. The project
officer also stated that the current award fee process
takes too much of his time.
These comments show the Agency's current award fee process
needs to be improved. Agency personnel need to understand the
process. PCMD needs to ensure that the award fee determinations
are communicated to contractors in a timely manner.
C. Contractors * Invoices and Monthly Status Reports
Ware Not Ademiatielv Reviewed
Agency
and
assi
review
1 did not adequately review contractors' invoices
status reports. We found that 32 of the 34 work
delivery order managers in our sample did not
ctor invoices. Only project officers were required
ices/ even though the work assignment managers
to review
were more knowledgeable of contractors' work and were in a
better position to determine if costs billed were reasonable
for the work actually performed. We also found that monthly
status reports and invoices did not contain sufficient informa-
tion to adequately monitor contractors' work. For example,
information such as labor hours and rates, names of individuals
working on the contract, and a breakdown of subcontractor costs
usually were not provided by the contractor. In addition, one
21
-------
project officer informed us that it was difficult to compare ™
contractors' status reports and invoices to make a determination
about the,?reasonableness of costs expended for the work performed.
Agency guidance states that under cost-type contracts the con-
tractor has little incentive to control costs. Therefore, a
significant amount of contract monitoring and oversight is
needed. Further, the guidance adds that Federal employees are
responsible for monitoring the efforts of contractors in order
to prevent waste of public funds and to obtain the required
services within the budgeted costs. Invoices and monthly status
reports were the primary means by which Agency personnel could
monitor contractors' work.
According to the Contract Administration Manual, the project
officer is required to review the invoice to determine whether
the payment request is in line with items delivered and/or
services performed by the contractor. If the project officer
takes exception to the amount billed the amount should be
disallowed. The manual also states that it is important that
the project officer ensures the timely submission of progress
reports from the contractors. The project officer should
review the reports with great care and compare the contractor's
reported progress with the amount billed on invoices.
Project officers approved invoices without thoroughly reviewing
them for accuracy. In addition, project officers did not always M
compare the monthly progress reports with the invoices to ensure
that the amounts billed appeared reasonable for the progress
being reported. One project officer told us that the invoices
were only checked to ensure that the costs and hours did not
exceed the budgeted amount. By doing this, there was no assurance
that the costs billed were correct and the contractor was not
over paid.
In addition, 32 of the 34 work assignment and delivery order
managers we interviewed stated that they did not receive invoices
to review. The.only items they received were the monthly status
reports. Some work assignment managers further stated that they
were onlj^checking the monthly reports to ensure that the contrac-
tor had nort|exceeded the labor hour limit established for the
work ass^pppntarr This situation compounded the problem of project
of ficer»i*M^ adequately reviewing the invoices or monthly status
reports)."'&?V:~V. -.
D. PCMD Needs To Track Contract Related Actions
PCMO needs to track and monitor critical contract related
actions. -During our review, we found that PCMO did not have a
mechanized system to track such things as when work assignments
were issued, when work plan approvals were due, when award fee
22
-------
determinations were due, and whether project officers and work
assignment managers had attended required training. The EPA
Contract^Administration Manual states that monitoring contract
related^actions is critical to effective contract management/
Improvements in this area would result in more consistent
monitor£ncf of contracts and would provide PCMD management with
an overview of contract administration within the Agency.
We found that relevant contract administration information
was contained in various files and was not readily available
to contracting officers, project officers, and work assignment
and delivery order managers, or to PCMD managers who were
responsible for overall Agency contract management. For example,
when we wanted to take a sample of contracts and needed to
know the number of work assignments or delivery orders issued
under each contract, PCMD was unable to readily provide this
information. PCMD had to manually generate this information
from their contract files or obtain the information from
contractors. In addition, we requested information on the
number of trained and certified project officers, work assign-
ment managers, and delivery order managers. According to PCMD,
each individual contract file contains this information, and it
is not available in a centralized system.
Our audit findings indicate a definite need to collect and
monitor contract information in an automated format. While
PCMD does have a limited system to help it manage two Superfund
contracts and track the dollars and hours expended for work
assignments under these two contracts, our review showed
that PCMD did not have any reports or system that reported the ;:
dates when: (1) work assignments were approved or when work
actually started; (2) work plans were received and finally
approved; (3) project officers and work assignment and delivery
order managers received contract training and were certified;
and (4) award fee evaluations and determinations were made.
OSW personnel told us that OSW does track when work assignments
and work plans were sent to PCMD for approval. They also told
us that on October I/ 1988 they started to use a Contracts
Management, System to track OSW contracts. A September 29, 1988
document^iHit,received on the system, indicated that it will
maintaJ^^^Otttract data base allowing OSW to generate a variety
of repol^^^|i|ed on data included in the basic contract action
forma,"j^u^yi^procurement and work assignment requests. OSW
also indicated'that they were discussing the possibility of
PCMD adopting the system to monitor contracts.
Both OSW and PCMD officials agreed that a tracking and monitor-'
ing system would be beneficial and could assist in managing the
Agency's contracts better. Establishing a sufficiently detailed
tracking system would provide PCMD and the Agency with a key
23
-------
tool needed to assist management in their oversight responsibili-
ties. If-"properly developed and implemented, the system could:
(1) reduce or in some instances eliminate the conditions noted
in this report; and (2) improve the overall Agency management
of contracts.
RECOMMENDATIONS
We recommend that the Director, Procurement and Contracts
Management Division:
Emphasize to project and contracting officers the
importance of approving work plans. Require con-
tracting officers to notify contractors to stop
work if work plans are not approved within the
authorized timeframe.
— Emphasize to project officers that they should not
continue to approve contractors' invoices if the
contractors have not submitted acceptable work plans.
Notify OSW management about those project officers
who continue to approve such invoices.
— Establish timeframes for completing key actions in
the award fee process and ensure that contractors,
project officers, and work assignment managers under-
stand the process and why award fee contracts are
used.
— Establish procedures and guidelines that include
the work assignment and delivery order managers as
part of the review process for contractor invoices.
— Require project officers to coordinate with work
assignment managers so that invoices and monthly
status reports are reviewed and compared for accuracy.
— Require contractors to provide more detailed informa-
tion on invoices.
|lop a contract management tracking system that
^^L include pertinent contract information related to
work assignments, work plans, required training and
certifications, and award fees.
We recommend that the Director, Office of Solid Waste take
disciplinary action against project officers who continue to
approve contractors' invoices when the contractors have not
submitted acceptable work plans.
24
-------
ACTIVITIES
We foun
A. Utilization of Subcontractors Limited Competition
and Increased Costa •.
Agency personnel went through prime contractors to obtain the
services of subcontractors and consultants rather than contract-
ing directly with these companies or individuals. Work on 7 of
our 43 sample work assignments or delivery orders was performed
almost totally by subcontractors or consultants. If the Agency
had contracted directly with the subcontractors or consultants,
an estimated $115,216 in general and administrative costs and
fees paid to the prime contractor could have been eliminated.
Also, these procurements could have provided the Agency with an
excellent opportunity to increase competition and to use small
business firms.
The freqMjjpuaa of subcontractors can be attributed to the
type ofi^jlSiract used by OSW. The scope of work of these
missionfelllaracts encompasses a number of areasv Prime
contractc?rl'dd not have the necessary expertise in all areas,
so they include a number of subcontractors on their team. The
use of subcontractors can also be attributed to Agency employees
requesting subcontractors to work on specific work assignments.
25
r
-------
By going through prime contractors to obtain subcontractor
services, the Agency unnecessarily paid general and administra-
tive cost* and fees to prime contractors who added little value
to the product or service provided by the subcontractor. For
example,i:pften the prime contractors only placed cover letters on
work plans and reports prepared by the subcontractor.
Work on 22 of our 43 sample work assignments and delivery orders
was performed partially by subcontractors. We identified seven of
these 22 work assignments where work was performed almost totally
by subcontractors. The following schedule compares estimated
general and administrative costs and fees paid to the prime contrac
for these work assignments with the estimated direct labor hours
spent by the prime contractors on the work assignments.
Work Assignment
1
2
3
4
5
6
7
Total
Estimated
Costs
$210,000
40,000
305,691
344,829
18,639
22,800
49,771
$991,730
Estimated
Direct Labor
Hours for Prime
82
18
120
0
0
25
281
Estimated General
and Administrative
Costs and Fees
Paid to the Prime
$ 11,602
2,720
42,838
50,249
2,716
1,576
3.515
$115,216
As this schedule shows, the prime contractors were paid an
estimated $115,216 in general and administrative costs and
fees even though they had minimal involvement in the work
assignment* and added little value to the work performed by
the subcontractors or consultants.
Contractors did not maximize competition in the award of
subcontracts as required by the Federal Acquisition Regulation.
We contacted four of the nine contractors in our sample to
determine how they selected subcontractors and consultants.
They told us that they did not request competitive proposals
through full and open competition. Generally they selected
subcontractors and consultants by word of mouth, reputation,
and previous work with the firm.
26
-------
This selection procedure did not ensure that competition was
maximized or that the Government received the best quality
products^gsc services at the lowest price. He found that
contract||!S were able to non-competitively select subcontrac- ' ;
tors beciluie contracting officers were not following the PAR'S
procedure* for approving subcontractors. Specifically, contrac-
ting officers were not determining whether the contractor had a
sound basis for selecting the subcontractor and whether adequate*
price competition was obtained.
FAR 44.204(e) and 52.244-5 require contractors to select
subcontractors on a competitive basis to the maximum practical
extent. Competition is important in government procurement.
Competition results in lower prices and in improved ideas,designs,
and technologies. The competitive process also provides a means
for finding out what is available to meet the government's
needs. When competition is restricted, the government loses
opportunities not only to obtain lower prices, but also to
increase the productivity and effectiveness of its programs.
we concentrated our review on subcontractors and consultants
that were added to prime contractors' teams after the base
contracts were awarded. We found that in five of the seven
requests reviewed, prime contractors did not provide the Agency
with enough documentation to explain how they selected the
subcontractors or consultants they proposed to use. They
generally provided their requests for subcontractor approval in
work plans and only briefly explained why they needed to use a
particular subcontractor. They did not explain how they chose
the subcontractor nor did they provide additional documentation
supporting their selection. If contracting and project officers
reviewed anything other than the contractors' requests, it was
not documented in the file. FAR 44.202-2 requires contracting
officers to consider various factors in approving contractors'
requests, to use particular subcontractors. These factors include
considering whether the contractor used adequate price competition
and whether the contractor had a sound basis for selecting a
subcontractor. In the contract files we reviewed, we found no
documentation to show that the contracting officer had considered
these factors.
Contra
project;
approv*
and £o
fficers we talked to told us that they rely on
technical evaluations of subcontractors in
.tractor requests. We reviewed these evaluations
cation of how the project officer determined a
subcontractor was the beat qualified or what they reviewed
to make the determination. OSW management told us that they
were more comfortable approving subcontractors and consultants
who they knew. However, contracts should not be awarded on the
basis of favoritism but should go to those submitting the best
offer to the government. Offering all contractors the oppor-
tunity to compete helps to minimize collusion and ensures that
the government pays a fair and reasonable price.
27
r
-------
C. Subcontractors and Consultants Were Selected and
Directed bv Agency Personnel
Of the 34 work assignment or delivery order managers we
interviewed, 17 said they either selected or directed the work
of subcontractors. Not only is this a violation of the FAR,
but it also creates a situation whereby these individuals could
be obtaining kickbacks for directing work to certain subcontrac-
tors. By communicating directly with subcontractors, Agency
personnel could create an oral contractual agreement between
EPA and its subcontractors. Also, when Agency personnel select
and direct the work of subcontractors, prime contractors cannot
be held responsible for the quality or cost of the work. Work
assignment and delivery order managers were selecting and
directing the work of subcontractors and consultants because
they were not knowledgeable of Federal Acquisition Regulations.
The type of contract used by OSW also created an environment
whereby Agency personnel could easily attach a work assignment,
and direct work toward certain subcontractors and consultants;
thus, circumventing the lengthy process of contracting directly
with a subcontractor. Better monitoring of work assignment and
delivery order managers by PCHD could also have helped ensure
that Agency personnel were not selecting or directing the work
of subcontractors..
PCMD's Contract Management Manual states that Federal employees
cannot direct the prime contractor to subcontract any part of
their work, nor can they direct the prime contractor to subcon-
tract with a specific firm. Federal employees also have no
right to deal directly with a subcontractor on any issue, nor
does a subcontractor have a right to obtain a direct decision
from the Agency. FAR 42.204(b) also confirms this by stating
that it is the prime contractor's responsibility to manage its
own subcontractors. The Agency's concern with subcontractors
is normally limited to evaluating the prime contractor's manage-
ment of them.
Two previous audit reports also identified problems with Agency
personnel selecting and directing the work of subcontractors.
In a February 1986 audit report -V the EPA 016 reported that
Agency iis^itjiiyemi influenced prime contractors' decisions regard-
ing whic^i|Jbeontractors to use and what work to subcontract.
Also, OIGfiiiditors.' reported that Agency personnel directed
subcontractors' work. In January 1985, GAO reported that EPA
project officers directed prime contractors to make sole source
subcontract awards. •*/ Based on our audit work, it appears
that these problems have not been corrected.
I/ Review of Contracts Awarded on Behalf of the Office of Policy
~ Planning and Evaluation, E1BM5-11-0041-60187.
2/ The SPA Should Better Manage Its Use of Contractors, "
GAO/RCED-85rl2.
28 ,.
-------
Lack of training contributed to work assignment managers
selecting.and directing subcontractors. Five of the eight work
assignnMual^managers who directed subcontractors' work had no
contractfpfaining. One work assignment manager told us that he.
not onlyl-requested a prime contractor to use a particular sub-
contractor, but also requested that a specific employee of the
subcontractor perform the work. This employee was a former EPA
employee who previously worked for the work assignment manager1
This work assignment manager stated he had never taken contract
management training and was unaware he could not select subcon-
tractors. We also noted that prime contractors do not discourage
Agency personnel from contacting subcontractors and consultants
directly. Prime contractors told us that in many cases they
assign subcontractors as contact points for work.assignments
and encourage the Agency to communicate directly with the
subcontractor.
Better monitoring of work assignment and delivery order managers
could help prevent them from dealing directly with subcontractors.
As stated earlier in this report, PCMD conducts contract manage-
ment reviews of all contracts with a value of $5 million or
more, and a random review of contracts with a value of $1 million.
Although these reviews evaluate contracting and project officers'
contract performance, they do not review work done by the work
assignment manager. In fact, no one within the Agency formally
reviews the work assignment managers' contract performance,
with the exception of OSW management, and this is only done
through annual and semiannual performance appraisals.
RECOMMENDATIONS .
We recommend that the Director, Procurement and Contracts
Management Divisions
— Perform an independent review of subcontracted work
assignments and delivery orders prior to initiating
follow-on procurements to identify those that could be
broken out and awarded as separate procurements.
R§gaire contractors to submit detailed information on
" "" ' selected subcontractors and consultants to
.prime contractors are competitively awarding
xtracts.
Lude steps in contract administration reviews
designed to determine whether Agency personnel
are selecting and directing the work of subcontrac-
tors and consultants. Revoke the certifications
of individuals who select or direct the work of
subcontractors and consultants.
29
-------
or d^rectth. wor of
w«te
30
-------
4. WORK WAS PERFORMED USING MULTIPLE CONTRACT
c
OSW usedi|mTiltiple work assignments and delivery orders to
complete^work on projects. On six of our 43 sample work
assignments or delivery orders, the work ordered was a
continuation of work started on another contract. We also
found five work assignments that were continued from another
work assignment within the same contract. This occurred
because procurements were not adequately planned and contract
ceilings were reached before work was completed or work
assignments became too large to manage. By transferring work
between contracts/ the Agency increased its risk that a
contractor could bill and be paid twice for the same costs.
Contractors could easily do this because their invoices are
approved by project officers who have knowledge of only
their own contract. In addition, when work on projects is
split between work assignments and delivery orders, it becomes
difficult to track and monitor the contractor's work by
comparing the contractor's costs with the product or service
provided.
One PCMD official told us that each work assignment or delivery
order should stand alone and not be a continuation of a previous
work assignment or delivery order. Further, the official stated
that work should be completed under one contract. However, we
found that PCMD had not placed any restrictions on using multiple
contract actions to perform the same work. In fact, by reviewing
work assignments and the related work plans, we were able to
identify the work assignments that contained carryover work
from other work assignments.
Work was transferred between work assignments and delivery
orders because OSW was not adequately planning their contract-
ing needs. Thus, contract ceilings were reached before work on
individual work assignments and delivery orders was completed.
For example, in one instance, EPA had two contracts with a
contractor. The first of the two contracts was reaching its
capacity so a second contract was awarded. Three work assign-
ments wermcontinued from the first contract to the second
»t contract had reached its capacity. Work
assigiUBnN«re,.also issued to continue work from other work
hin the same contract. For example, two contrac-
tors tj that/this occurred because the previous work
assignmem^irwere too large to manage, and OSW felt it was
necessary to split some of the work off into a new work assign-
ment. Again this was caused by a lack of adequate procurement
planning.
31
-------
OSW should improve its procurement planning to ensure that '
contracts.have sufficient capacity to accomplish any work on
work assignments or delivery orders placed under them. Using
only on« work assignment or delivery order to complete a project
will strengthen internal controls and assist Agency personnel
in monitoring contractors' work.
RECOMMENDATIONS
We recommend that the Director, Office of Solid Waste require
procurements be adequately planned so that work can be
completed under a single work assignment or delivery order.
We recommend that the Director, Procurement and Contracts
Management Division;
— Issue a policy stating that procurements are to be
developed so that work can be completed under a single
work assignment or delivery order.
— Require contracting officers to review work assignment
and delivery order requests to determine whether they
contain carryover work from another work assignment or
delivery order. If so, require the program office to
provide a justification for why the work cannot be
completed on the original work assignment or delivery
order.
32
-------
5. PROGRAM OFFICE PERSONNEL LACKED ADEQUATE CONTRACT
TBAI1IIMG .
e personnel who had been delegated contract
adminiatration responsibilities by the Procurement and
Contract!: Management Division lacked the necessary training to
effectively manage contracts. Three of the nine project
officers and 13' of the 34 work assignment and delivery order
managers in our sample had not taken the required contract
administration course. Fifteen of these 16 individuals who had
not attended the required training had been managing contracts
for at least one year. In addition, we found that the contract
courses provided by the Agency did not adequately address
day-to-day contract management duties, such as preparing work
assignments, reviewing invoices and work plans, and evaluat-
ing contractors' performance. Consequently, program office
personnel lacked an understanding of Federal and EPA contracting
procedures, ;ahd they did not understand the importance of their
contract administration responsibilities. This contributed to
program office personnel! (1) requesting contractors to perform
work before work assignments and delivery orders were issued
and funded, (2); inadequately reviewing contractors invoices and
monthly status reports, and (3) selecting and directing the
work of- subcontractors and consultants (see previous findings).
Contract training: for program office personnel is particularly
important-since these individuals have technical backgrounds,
and the^r^ho^;knowledgeable of Federal and EPA procurement
reguiatibmi^^Chapter 7 of the EPA Contract Management Manual
recogBizes^thll. The Manual states that it is EPA's policy
.that all individuals serving as project officers, work assign-
ment managers7-ahdrdelivery order managers fully understand
their resppnaibllities and duties. This understanding is to
be develop^|tgrough training and actual work experience. Only
individual* who'liiye completed the required training courses
are to b«;:-p«rjaiittidvto administer contracts. Project officers
tli^Bisic Project Officer course and the Contract
Work assignment and delivery order
the Contract Administration course.
sons why inadequately trained individuals
contracts. OSW personnel we interviewed
its, job pressures, and a lack of emphasis
'reasons why required training was not
found that normally project officers, work
rjLr and delivery order managers were required
evidence that they had completed the necessary
§they could assume their duties. However, we
found thar when these individuals assumed their duties pending
completion o^the^courses, PCMD did not have a tracking system
£hat-a4'Iow«1^feK«K to follow-up to make sure these individuals
subsequently completed the courses.
L
33
•r
-------
A. Agency Contract Managers Did Not Attend The Required 4
Training
During our audit, we interviewed nine project officers and 34
work assignment and delivery order managers who managed
contracts:, work assignments or delivery orders. We found that
16 (37 percent) of these individuals had not taken the required
basic contract administration course. Interviews with several
of these individuals also disclosed that they were inexperienced
in contract management. However, these individuals who lacked
the required training were responsible for the management of
major Agency contracts. For example, the 13 work assignment
and delivery order managers in our sample, who had not attended
the required training were responsible for managing contract
actions valued at $2.9 million.
EPA's project officers, work assignment managers and delivery
order managers are responsible for initiating procurement
actions and monitoring contractors' performance. PCMD developed
two courses to provide these individuals with a basic understand-
ing of the acquisition process and the principles of contract
management. EPA's Contract Management Manual states that project
officers must attend both the Basic Project.Officer and Contract
Administration courses to be certified, and work assignment and
delivery order managers must complete at least the Contract
Administration course in order to be certified to manage contracts
The manual for the Contract Administration course emphasizes the
important role these individuals play in the contract management
process. For example, the manual states the following:
Probably the most time-consuming role of
a project officer in relation to contract
management is that of technical oversight.
This is the area where the involvement of
the project officer, work assignment
manager/ or delivery order officer exerts
the most influence over the actual work
product the Agency will receive. From the
time the assignment is given to the
.contractor until the work is accepted by
BFA, these individuals are responsible for
, assuring that the contractor understands
-the work requirements and performs in a
manner to produce quality results within
the time required.
In Region 5, technical monitors were not attending contract
training. These technical monitors were responsible for day-
to-day monitoring of contractor actions. We discussed this
lack of training for technical monitors with a PCMD official.
The official told us that the individuals should have taken the
required training since they are functioning as work assignment
managers.
34
-------
We foundkthat project officers and especially work assignment
manage^^Md" delivery order managers were under pressure to get
contrajj^gj|fe..to-' complete work. Additionally, work assignment
and deJapjjpBy - order managers were not full time--contract managers
and had^raier competing duties. The contracting process and
procedures were often viewed as a nuisance rather than a help •"• ' •
in monitoring: the contractor's performance. This combination
of performance pressure and a lack of proper training and
contract administration experience caused the work assignment
and deliver order managers to take inappropriate actions. For
example, one delivery order manager who did not have the required
contract training requested a contractor to start working on
two delivery orders in our sample before the delivery orders
were approved by the contracting officer. The contractor
incurred $38,767-in costs before these delivery orders were
approved. In addition, the same individual requested another
contractor to perform work on two additional delivery orders
before they were-issued by the contracting officer. This con- •
tractor incurred; approximately $400,000 in costs before the
delivery orders-were approved. In our discussions with this
individual, he indicated that he did not realize he had done
anything wrong- because he had not attended the required traif
When PCMD revoked the certification of this delivery order.
manager, one of the individuals selected to replace him als<
had not attended.:.the -required training;/ . ;* -''"•* "•"'--
»* * ._ • . .''":• ^ "'-£
f* •• ••«•• •* , • .•*•.. -»•• • —
PCMD is responsible for administering contract management train-
ing and certifying that project of f icers and ^rk jasjaignment •
and delivery? order-^managers have received tlttl retired/training.
However,.,PCl|D>doe» not have a system to'monitor .wheVhVr. the.
Agency'a contract; managers have attended' the1 required contract
.training. -rWJxl^lejsPCMDtrusually receives1-a cert4fJtcation form
• from- an indiLvidua?K wha has successfully attended: the couraa,
they; do,-no 15 have)ta system to provide them with "information, on
•r^, _*_- * . have nQ^ taxwn--tiia,-irfljq^£red; >
< .> .^- " . fi-' •:n.*A •. »:+(^**s* -*'V-f.« ./• *'t •'._•"? -•
Th||
asaic
?management courses provided^byj PCMD
las management of contracts^ work"
Lvery orders. For example,, the courses
^•rfdMM areas such-as:/contract^furiding;
Uof work assignments, work plansv.and
ihyoice«;^and^utilisation of subcontractors^^-gfisr intent of the
two requiredbtraiAing courses is- to*provide-1 BPA employees who
areltnbt contrSjCifcingiprofessionals a- clearer"undent4nding of
.the acquiaition-process, and the knowledge to ensure that the
Agency receives the-best possible products or services for the
money it spends. However, several Agency contract managers
stated that the courses did not provide the necessary detailed
training needed to manage contractor actions.
- . ' ' . 35
r
-------
During our audit, we received the following comments on the
contract training from OSW contract managers and their
supervisors.
— One work assignment manager indicated that the
courses were impractical because they taught rules
and regulations, but not how to go about day-to-day
contract management. The individual also indicated
that the contract administration course should
better explain how to estimate labor dollars and
hours for a work assignment.
— One work assignment manager told us that the contract
administration course did not provide the basic know-
ledge needed to administer contracts. A lot of
additional guidance was needed from other staff members
and the project officer.
— One work assignment manager informed us that the
course books were hard to understand and that the
material was unclear and difficult to learn.
— One Agency manager stated that the courses were
boring and lacked imagination. The individual
further said that since the .course is required
and is so important to contract management, time
should be spent to improve the course. -
We reviewed the training course materials and course outlines.
We agree that the courses do not devote adequate attention to
the tasks and duties performed by the work assignment and
delivery order managers. In addition, we met with PCMD and OSW
officials and found they also were concerned about the content
of the contract training courses. One PCMD official who recently
attended a course given specifically for Agency Superfund work
assignment managers told us that the course content was more
relevant and emphasized more day*to-day contract management
than PCMD's required course. The official was considering
recommending that this course be used Agency-wide in place of
the current required course. In a related discussion on training,
an OSW official told us that OSW plans to train all their work
assignoMM^aad delivery order managers with the same course, if
it is apj^vred by PCMD.
in summary, adequate contract management training is essential
because the individuals who have been delegated contract admini-
stration responsibilities are not familiar with contracting
procedures. PCMD needs to ensure that these individuals attend
the required courses, and that the training provides them the
knowledge needed to ensure that EPA obtains the best possible
products and services for the money spent.
36
-------
RECOMMENDATIONS
We rec
Managi
E^that the Director, Procurement and Contracts
'Division:
Reemphasize to Agency managers the requirement that
all Agency project officers and work assignment and
delivery order managers take the required training.
— . Perform a review to determine which project officers,
delivery order and work assignment managers have not
taken the required training. Notify supervisors of
contract managers who have not attended the required
training that the contract managers' certifications
will be revoked if they do not complete the required
training within six months. Revoke the certifica-
tions of the contract managers who do not subse-
quently take the required training.
— Develop a tracking system to ensure that in the
.-. future all contract managers either have attended ,0
the required training when they assume their duties^
or attend the course within six months of assuming r§
their duties. • ;I
—„ Revise the,, content of the contractradministration
courses to address those areas where we noted
probld
1
••"!
a
^V, $"•£?•
37
r
-------
EXHIBIT A
UNAUTHORIZED WORK PERFORMED BY CONTRACTORS
> WORK STARTED BEFORE WORK ASSIGNMENTS OR
DELIVERY ORDERS WERE ISSUED
Contract
A
B
C
D
E
P
No. of Work Assignments
—or Deliwrv
4
4
2
1
1
k.
13
Estimated
Cost Incurred
Prior TO
$ 17,291
12,965
38,767
26,688
9,035
$107,116
WORK PERFORMED BEFORE FUNDS WERE OBLIGATED
H
No. of Delivery Orders
1
Estimated
Unauthorized
Expenditures
$20,774
Contract
D
WORK PERFORMED AFTER APPROVED CEILINGS
WERE EXCEEDED
Estimated
Amount of
No. of Work Assignments Overrun
3 $404,833
TOTAL ESTIMATED UNAUTHORIZED OR UNAPPROVED
CONTRACTOR COSTS $532,723
38
-------
EXHIBIT B
NUMBER OF DAYS TO APPROVE SAMPLE WORK
No. of Work /
Assignments, /
No. of Days Delivery /
to Obtain Project Orders, and /
Officer Approval
0-10
11-20
21-30
31'- 40
Unable to
.Determine (1):
73
20
6
0
1
21
No. of Work?
Assignments^
No. of Days Delivery * |
to Obtain Contracting Orders, and!
Officer Approval Amendments *
0-10
11 - 20
21 - 30
31 - 40
41+
5* i."
Unable to
Determine (1)
45
25
8
13
1|
5
19
of xol
(1) No date wa» given next to signature of project officer, work
assignment/delivery order manager,, or contracting officer, so
, we-were unable to determine the number of days it took to
-, obtain approval. -
-------
EXHIBIT C
Contract
WORK PLANS THAT TOOK OVER IpQ DAYS TO APPRftVR
Costs
No. of Days No. of Days . Total No. Incurred
for Program for Contracting of Days Prior To
Office to Officer to to Approve Work Plan
.&DO3TQV& f*f*^w»1» n 1 A «» n«.^ _....._ «.» i_ •*«.« .« « .
A
A
A
A
A
b
B
D
D
294
211
272
237
9
9
44
107
17
128
128
6
15
185
133
93
20
89
422
339
278
252
194
142
137
127
106
ii n.oac ova ±
$191,207
156,719
19,478
72,715
24,047
82,230
59,193
13,136
195.957
Total Costs Incurred Prior To Work Plan Approval $814,682
40
-------
EXHIBIT D
NUMBER OF DAYS TQ PROCESS AWARP
FOR SAMPLE CONTRACTS^/
Contract A -2-X
Performance
Period
1
2
Total Number of
Days to Determine
Fee and Inform
Contractor
110
114
Contract B
1
2
3
4
142
150
63
134
Contract D
1
2
3
299
365
243
Contract F 1 113
2 226
3 141
AVERAGE NUMBER OF DATS TO PROCESS AN AWARD FEE 175
fees applicable to fiscal 87 performance
lly, contracts provide that award fee
are to be made every three or four months.
was awarded in the middle of fiscal 87.
Therefore, there were only two performance periods during
fiscal 87.
The first performance period for this contract began
in fiscal 86 and ended in fiscal 87, so we included it
in our review*
41
r
-------
------- |