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UNITED STATES ENVIRONME^TALPROTECTJON AGENCY
t O.C. 20460
f 9 "
OFFICE OF
THE INSPECTOR GENERAL
MEMORANDUM
SUBJECT: Audit of Superfund Interagency
Agreements with the Corps of Engineers
Aidex Corporation Site
Audit Report No. M5BG8-11-0040-80781
FROM: Kenneth D. Hockman T^vvjctfe
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RECUW1ENDATIONS
We recommend that the Director, Grants Administration Division^"
Evaluate the appropriateness of Corps of Engineers '
actions for ensuring that fair and reasonable prices
were obtained for the contract modifications referred
to on page 23 of the report. Should deficiencies be
found, consideration should be given to adjusting the
amount EPA has paid or will pay the Corps of Engineers
for work done at the Aidex site.
Reclassify the $19,850 improperly charged to the
design phase to the construction phase and initiate
action to obtain from the State of Iowa its required
cost share.
ACTION REQUIRED
In accordance with EPA Directive 2750, the Action Official is
required to issue a final determination within 150 days of the
audit report date.
Should your staff have any questions concerning the report,
please have thorn contact John Walsh of my staff on 475-6753.
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.•U2—
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JoTKiBL'T^.N OF REP OKI
Regional Administrator, Region V
:'hlel. Grants Information and Analysis
Branch (rM -2 Loi
i'-irect'-'r, Financial Management Division tPM-226)
Director, Office of Emergency and Remedial
Response JWH-543)
Agency Foliowup Official
Attn: Resource Management Staff (PM-208)
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UNITED STATED
i. f-aOTECTlOlM AGENCY
, o,c. 2G-.60
UN
Or
MEMORANDUM
ND
SUBJECT; Audit of COE Superfund Interagency
Agreement - Aldex Corporation Site
Audit Report No. M5BG8-11-0040-80781
PROM:
TO:
Harvey" G.'Pippen,. Jr., Director
Grants Administration Division (PM-216P)
Kenneth D. Hockinan
Divisional Inspector General for Audit
Internal Audit Division (A-109)
On March 18, 1988, you transmitted an audit report Issued by
the Army Audit Agency (AAA) on Corps of Engineers (COE) activities
at the Aidex Corporation site, with two Issues highlighted for
attention of EPA management. The Issues Involve proper classifi-
cation of costs and COE procedures for assuring that fair and
reasonable contract prices are obtained under Superfund lAGs . We
are reviewing both of these issues in regard to EPA policy options.
However, findings in the AAA report do not represent the final
determinations of the Department of the Army since the Army "command-
reply process" had not been completed at the time the report was
forwarded to EPA. Given the interim status of the AAA report, I
believe It is inappropriate at this time to Initiate discussions
with the COE on the issues you highlighted. My staff will continue
to consider with other EPA offices the policy implications of those
issues, but we will not proceed ulth formal resolution of the
points raised until a final report is forwarded by the Department
of the Army.
Should you have further questions on this matter, please ^
me, or have your staff contact Thomas L. Hadd, Chief, Grants Infor-
mation and Analysis' Branch, at 476-8270.
cc: Paul Nadeau, WH-548E
Deborah Dietrich, WH-548D
Karen Clark, LE-132C
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ARMY POSITION STATEMENT
I. TITLE: ^J^Con.truction, Mdex Corporation Site,
II. REPORT NUMBER/DATE: MW 88-600, 28 January 1988
III. DA ELEMENT HAVING INTEREST OR ACTION:
Office, Chief of Engineers
IV. ARMY POSITION:
Comm-and agreed with the recommendations or proposed
alternative corrective actions. The actions taken or plan
implement the recommendations were satisfactory There WP
measurable monetary benefits derived by the Army from this
V. DATE ARMY POSITION ESTABLISHED: 19 July 1988
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JAIG-PA (Cr*AO/2!?JnnnoM?6-5c) 1st End rir. Qui nn/ah/G9*- •', 6-1 9
Sl'RjrCT : L'SAAA Audit of Snperfund Construction--Aidex
Ccrpcration Si'^e, Council Dluffs, Iowa, U.S. Army engineer
District, Omaha, r;c
HQDA("A!G-PA} , V.V.SH CC 2021^-1734 2 0 JUL 1388
FOR: HCDA(CEAO), V.'ASH DC 2C314-1RCJO
1. The co.iur.and reply to LJSAAA Audit Report MW 8S-5C33 has been
reviewed and found responsive to the audit findings and recom-
mendations. The HQDA position concerning the partial non-
concurrences with recommendations A-2, B-l, B-2 and B-4 is that
the pommand position is sustained. The actions taken or planned
meet the intent of the recommendations. The reply to
recommendation E-4 is considered responsive based on command's
determination that administrative costs would negate any possible,
savings.
2. The command reply process is completed in accordance with
AR 36-2.
FOR THE INSPECTOR GENERAL:
Enc 1 wd
CF:
SAAG-PRP
SAAG-LFF
SACW (ATTU:
Mr. Ruiz)
JWE?
GREEN
Colone/, IG
Chief, Plans and Analysis
Division
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DEPARTMENT OF THE ARMY
L. S
A"*iv C'J'1'4 Ol f "(Jinff'l
DC 20314-1000
Pf ML v 1 f j
MEMORANDUM FOR: SECRETARY OF THE ARMY INSPECTOR GENERAL, ATTN: SAIG-PA
SUBJECT: USAAA Audit of Superfund Construct1on--A1dex Corporation Site,
Council Bluffs, Iowa, U.S. Army Engineer District, Omaha, NE
1. The Command position 1s as reflected In the report except for the
additional facts, and the revised position stated below.
Recommendation B-l: Command agrees that a contract modification should have
been issued during closeout to cover all variations 1n estimated quantities on
the Aidex contract that were not covered in modifications previously issued.
However; Command does not believe that issuing a modification at this juncture
would serve any meaningful purpose, unless requested by the customer - EPA,
since the contract has already been finalized. Guidance will be issued
requiring future superfund contracts to be modified during the closeout
process, as recommended.
Recommendation B-2: The revised Command position 1$ that 1n addition to
obligating cost overruns on a Miscellaneous Obligation Document (DA Form 3717)
and notifying the contractor accordingly, a modification will be Issued during
closeout to reconcile the total contract cost to the individual line items.
Recommendation B-4: As stated in our position on Recommendations B-l and 8-2,
Command agrees that a modification should have been issued to record the
increase 1n the total contract dollar amount. Also, the dollar amount of the
change did technically meet the requirements 'for requesting certified cost or
pricing data from the contractor for possible collection actions. However; the
administrative expense of preparing another government estimate; modifying the
contract to reconcile the total cost to individual line Items; and auditing the
certified cost or pricing data would negate any possible cost savings. Appli-
cable future Superfund contract files will contain supporting documentation
and/or an explanation for not taking collection actions against the contractor.
Recommendation C-l: All expenses will be costed In accordance with the
applicable inter-agency agreement (IAG) between the Corps and EPA.
2. The report did not contain any reportable monetary benefits. In
opinion, there Is no need to classify or protectively mark any portion of
report or responses thereto.
our
/GWUGE K. WITHERS,
1 tfajor General, US
Deputy Commander
JR
A
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DEPARTMENT OF THE ARMY
OFFICE OF THE AUDITOR GENERAL
3101 PARK CENTER DRIVE
ALEXANDRIA VIRGINIA 22302
28 January 1988
Commander, U. S. Army Engineer District, Kansas City
Commander, U. S. Army Engineer District, Omaha
This is our report on the Audit of Superfund Construc-
tion for the Aidex Corporation site at Council Bluffs,
Iowa. The audit was made from April through November 1987
at your commands and was part of a multilocation Audit of
Superfund Construction.
Procurement practices used for both the design and con-
struction projects at the Aidex Corporation site were in
accordance with prescribed procedures for contracts and
contract modifications, except for variations in estimated
quantities used in the construction contract. Surveillance
of the design contractor was adequate, but surveillance of
the construction contractor was not fully effective.
Except for obligations, accounting transactions were
generally recorded promptly and accurately. The U. S. Army
Corps of Engineers' direct and indirect costs for the
Superfund project were consistent with established
procedures; however, some in-house, construction costs were
incorrectly charged to the design effort. Actions to
implement the Army's Internal Control Program as it relates
to Superfund construction were adequate. The results of
audit are summarized in Part I and the details are in
Part II of this report. Copies of the report are being
furnished to the activities listed in the Annex.
5LD L. STUGAR
The Auditor General
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AUDIT OF SUPERFUND CONSTRUCTION
AIDEX CORPORATION SITE
COUNCIL BLUFFS, IOWA
CONTENTS
Letter of Transmittal
PART I
PART II
Page
SUIKARY
Preface 1
Objectives and Scope 2
Background 3
Observations and Conclusions 3
Command Reaction 8
Responsibilities and Resources 8
FINDINGS, RECOIMENDATIONS, AND
COMMAND COMIENTS
A - Contract Administration 11
B - Variations in Estimated
Quantities 20
C - Reimbursable Orders 28
ACTIVITIES FURNISHED COPIES OF
THE AUDIT REPORT 31
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U. S. ARMY AUDIT AGENCY
ALEXANDRIA, VIRGINIA 22302-1596
AUDIT OF SUPERFUND CONSTRUCTION
AIDEX CORPORATION SITE
COUNCIL BLUFFS, IOWA
AUDIT REPORT: MW 88-600
28 JANUARY 1988
PART I
SUMMARY
PREFACE
The Comprehensive Environmental Response,
Compensation, and Liability Act of 1980 (Public Law 96-510)
mandated the establishment of the Hazardous Substance
Response Trust Fund, which is commonly known aa
"Superfund." The Superfund, managed by the
U. S. Environmental Protection Agency, was established to
respond to emergency hazardous conditions and to fund the
cleanup efforts required to remove or control hazardous
waste substances in instances when the responsible party
cannot be identified or will not perform the cleanup and
the State will not assume responsibility. In February
1982, the Environmental Protection Agency and the
U. S. Army Corps of Engineers reached an agreement for the
Corps to provide technical assistance, contract for design
and construction work, and perform contract administration
functions when the Federal Government assumes cleanup
responsibility for hazardous waste sites. The actual
cleanup is accomplished by contracting with private firms.
Contract costs are paid by the Corps and then reimbursed by
the Environmental Protection Agency.
The public law establishing the Superfund requires the
Inspector General, Environmental Protection Agency to audit
Superfund as appropriate and requires Federal agencies to
cooperate with the Inspector General's efforts. The
Inspector7 General requested audit assistance from The
Auditor General of the Army in evaluating the Corps'
management: of Superfund cleanup efforts. Representatives
of The Auditor General and the Inspector General decided
that an audit during 1987 of the Corps' involvement with
Superfund would evaluate the effectiveness of accounting,
procurement, and contract administration for selected
Superfund projects and would evaluate the appropriateness
of Corps' in-house costs charged to the projects. This
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report gives our audit results for the design and construc-
tion projects for the Aidex Corporation Superfund site,
Phase III.
OBJECTIVES AND SCOPE
By agreement with the Environmental Protection Agency,
the mission of the Corps includes providing technical
assistance for the cleanup of the Aidex Corporation hazard-
ous waste site, contracting for design and construction
work at the hazardous waste site, and performing the
associated contract administration functions. Specific
audit objectives for our review of the Aidex Corporation
hazardous waste site cleanup effort were to determine
whether:
- Contracts and contract modifications were awarded in
accordance with prescribed procedures and if procure-
ment practices ensured that services were received at
fair and reasonable prices.
- Surveillance of contractor performance was adequate to
ensure contract requirements were met and whether
payments made to contractors were proper.
- Accounting transactions (obligations, disbursements,
receivables, and collections) were promptly and
accurately recorded in the accounting records, and if
any rejected transactions were corrected and re-
entered in a timely manner.
- Direct and indirect cost charges were consistent with
established Corps of Engineers procedures.
- Actions taken to implement the Army's Internal Control
Program, as it relates to Superfund construction, were
adequate.
The audit, performed from April through November 1987,
was made in accordance with generally accepted government
auditing standards and, accordingly, included such tests of
internal controls as we considered necessary in the circum-
stance*. The audit was an integral part of the
raultilocatlon Audit of Superfund Construction, and the
result* will be included in an overall report to higher
management levels. Additionally, the results of audit will
be furnished to the Inspector General, Environmental
Protection Agency. Audit york was performed at Headquar-
ters, U. S. Army Engineer District, Kansas City; and at
Headquarters, U. S. Army Engineer District, Omaha and its
Fort Crook Field Office. The audit covered transactions
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that were representative of operations current at the time
of the audit.
BACKGROUND
The Aidex Corporation operated a pesticides formulat-
ing and packaging plant on a 15-acre site near Council
Bluffs, Iowa, during the 1970's. The plant was damaged by
fire in 1976 and the corporation declared bankruptcy in
1980. Extensive contamination of warehouses, surface
soils, and shallow groundwater resulted from fire fighting
and the plant housekeeping practices used by the
corporation. The site was identified for Federal cleanup
by the Environmental Protection Agency and the cleanup
effort involved three phases. Cleanup and disposal of
spilled and drummed granular pesticides, highly contami-
nated soils, and liquid wastes were accomplished during
Phases I and II. Phase III consisted of excavation of
contaminated soil and offsite disposal in an approved land-
fill facility, decontamination of buildings, rehabilitation
of existing monitoring wells, and installation of three new
monitoring wells.
To accomplish Phase III, the Environmental Protection
Agency provided the Corps about $8.3 million. The Kansas-*
City District awarded the design contract for the cleanup
effort in January 1985 and awarded the construction CQJV-
tract fojrfne cleanup" effort in July 1966~!Th"e3esign
contract vFas adminTsTsred By"the Kansas City District and
the construction contract was administered by the Omaha
District. The construction contract responsibility was
transferred to the Omaha District following contract award
because the cleanup site was located within the Omaha
District's geographic boundary. Cleanup of the Aidex
Corporation site was 99-percent physically completed by
November 1986.
OBSERVATIONS AND CONCLUSIONS
Contract and contract modifications for the design of
the Aidex Corporation site cleanup were awarded in accor-
dance with prescribed procedures, and the procurement
practices ensured that services were received at fair and
reasonable prices. The design contract was advertised in
the Commerce Business Daily and 19 architect-engineer firms
responded. Preselection and selection boards evaluated
each firm's qualifications and prioritized three firms con-
sidered for contract award. Prior to negotiation, cost
data was obtained from the pr9spective firm selected and a
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government cost estimate was used to evaluate the reason-
ableness of the bid proposal. A firm-fixed price contract
was awarded during January 1985 in the amount of $177,341
for predesign and preliminary design services, and the con-
tract included an option of $70,659 for final design
services. There were seven modifications to the design
contract valued at $216,037. Each was issued in accordance
with the Federal Acquisition Regulation and the Engineer
Federal Acquisition Regulation Supplement.
Contract and contract modifications for the construc-
tion effort at the Aidex Corporation Site were awarded in
accordance with prescribed procedures, and procurement
practices ensured that services were received at fair and
reasonable prices except for variations in estimated
quantities listed in the construction contract.
- The construction contract was advertised in the
Commerce Business Daily and nine prospective
contractors responded. A government cost
estimate was used to evaluate bid proposals
received and the lowest bid proposal submitted by
a responsive contractor was selected for contract
award. A firm-fixed price contract for about
$6.9 million was awarded during July 1986 for the
construction project. After award, there were
three modifications valued at $312,520 for the
construction contract. Procedures used to issue
two of three modifications were appropriate, but
procedures used to issue the other modification
valued at $311,754 were not adequate to ensure a
fair and reasonable price. The government
estimate prepared for the modification was an
analysis based on the price and quantity already
on contract rather than a detailed analysis of
increased costs due to the additional quantity.
The estimate included about $50 a unit for
transportation that waa not applicable to the
additional quantity. And, the contractor was not
f requested to provide certified cost or pricing
data as required by the contract and regulatory
guidance. Actions were needed to make another
government estimate and to request the contractor
to provide certified cost or pricing data. If
the results show the unit price for the
modification was too high, actions are needed to
collect the overpayment.
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- The construction contract was modified to
increase the total contract price for only about
60 percent of the amount paid for variations in
•estimated quantities. As a result, obligations
totaling about $195,000 were not recorded
promptly or accurately for variations not covered
by contract modifications, and payments to the
contractor exceeded the value of the contract as
shown on contract documentation. Use of contract
modifications for all variations in estimated
quantities would ensure that proper documentation
for recording obligations is available and that
total payments made are within the contract
price.
Surveillance of the design contractor's performance
was adequate to ensure contract requirements were met and
payments made to the contractor were proper. Timely
reviews were made by Corps personnel of design documents
submitted by the contractor. Corps personnel verified that
services were performed before giving approval for payment
to 11 requests for progress payments received from the con-
tractor.
Surveillance of the construction contractor's perfor-
mance was not fully effective to ensure contract
requirements were met and all payments made to the
contractor were proper. Of about $7.4 million of services,
quantities of work valued at about $1.6 million were not
verified in accordance with contract requirements. The
government did not obtain second party assurance that the
services paid for were received because a survey firm was
subcontracted to verify only part of the pay quantity
measurements, separate pay quantity measurements were not
adequately controlled, and onsite Corps personnel did not
observe all measurements taken. Action was needed to make
the Corps rather than the contractor primarily responsible
for survey measurements for pay quantities on future
Superfund contracts when the basis for payment is cubic
yards excavated and to make weight rather than cubic yards
excavated the primary basis for payment when transportation
is the significant cost factor. Contract requirements con-
cerning holding progress meetings, maintaining transporta-
tion logs, and monitoring quality control were met. But,
contract requirements concerning the basis for making
progress payments, approval of trucking firms, and site
entrance control were not fully enforced by Corps
personnel. The -necessity (or contracting officer
representatives to be totally familiar with and enforce
contract requirements and modify contracts when
requirements are changed needs to be reemphasized.
f
I
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Except for about $245,000 of obligations for the
construction effort, accounting transactions for the Aidex
Corporation cleanup were generally recorded promptly and
accurately in the accounting records and rejected transac-
tions were corrected and reentered in a timely manner.
- About $465,000 of obligations were recorded for the
design effort during the period January 1985 through
April 1986, and about $7.5 million was recorded for
the construction effort during the period April 1986
through April 1987. Except for about $245,000,
obligations were accurately and promptly recorded in
accordance with AR 37-21 and Engineer Regulation 37-2-
10. .Contract and contract modifications were
obligated in the month issued. Labor, overhead, and
various small expenses such as supplies and vehicle
usage were obligated in the month of the expense using
miscellaneous obligation documents. A reimbursable
order issued for the construction project was
obligated in the month accepted. And, travel funds
were obligated in the month the travel orders were
issued. However, obligations of about $195,000 were
not properly recorded for variations in estimated
quantity for the construction contract, and
obligations of about $50,000 were not promptly
recorded for laboratory testing performed by the
Missouri River Division Laboratory in support of the
construction effort.
- About $70,000 of disbursements were recorded for the
design effort during the period January 1986 through
January 1987, and about $7.3 million was recorded dur-
ing the period April 1986 through April 1987 for the
construction effort. In total, 32 transactions were
recorded. Disbursements were made for design and
construction contractor invoices, purchase orders,
travel vouchers, imprest fund purchases, and reimburs-
able order invoices. All 24 disbursement transactions
reviewed were promptly and accurately recorded within
30 days of the approval for payment.
- About $63,000 of receivables were recorded for the
d«cign effort during the period January 1986 through
January 1987, and about $7.3 million was recorded
during LJie period September 1986 through April 1987
for construction effort. In total, 21 transactions
were recorded. The receivables were based on monthly
bills sent to the Environmental Protection Agency.
All 12 receivable transactions reviewed were promptly
and accurately recorded within the sane month that the
bills for reimbursement were sent to the Environmental
Protection Agency.
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- About $84,000 of collections were recorded for the
design effort during the period January 1986 through
January 1987, and about $7.3 million was recorded dur-
ing the period October 1986 through April 1987 for the
construction effort. In total, 19 transactions were
recorded. Of 16 collections reviewed, 15 were
promptly and accurately recorded within 3 workdays
after receipt of the check. The other collection was
accurately recorded 4 workdays after receipt of the
check.
- A total of 7 rejected transactions for the design
effort^ occurred during the 6 months ended June 1986,
and ^jP rejected transactions for the construction
effort occurred during the 6 months ended March 1987.
All 11 rejects reviewed were corrected promptly and
re-entered to the accounting records within the same
month that the rejects occurred.
Direct and indirect Corps costs charged to the Aidex
Corporation design and construction efforts were consistent
with established Corps procedures. However, a portion of
the costs associated with the construction effort was
charged to the design effort. Through April 1987, about
$71,000 of inhouse Corps costs were incurred for the design
project and about $114,000 of inhouse Corps costs were
incurred for the construction project. According to Engi-
neer Regulation 37-2-10, in-house expenses such as labor,
travel, supplies, and reimbursable orders that can be
directly related to a specific Corps project should be
costed to that specific project. Overhead and indirect
costs are then charged to the project based on a predeter-
mined rate applied to actual direct labor hours incurred.
A total of 11 Corps personnel charged direct labor hours to
the construction project and 29 Corps personnel charged
direct labor hours to the design project. All 17 Corps
personnel we interviewed performed tasks that benefited the
Aidex Corporation Superfund site. But the coats of as much
as $25.pOC)a330ciated with advertising and awarding -the
constructToTr~cpntract- umr» charged to the design effort.
Actionw^s neededto transfertheexpense€oEH8proper
project. All costs reviewed for travel, supplies, and
reimbursable work charged to the projects were expenses
that directly benefited the projects. The only overhead
and indirect costs charged to the projects were amounts
based on direct labor hours. Overhead and indirect costs
charged to the Aidex Corporation Superfund site projects
were based on the same allocation method and rates that
were used for all projects performed by the Kansas City and
Omaha Districts, at the time of review.
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Actions taken to implement the Army's Internal Control
Program, as it relates to Superfund construction, were ade-
quate. Superfund functions were not designated as a
separate assessable unit but rather the various aspects of
Superfund efforts were included in several assessable
units. No DA or Corps published internal control check-
lists specifically for Superfund functions were available
at the time of our review. The overall implementation of
the program by the Kansas City District was covered by
another audit of the District during 1987 and the results
will be included in the report for that audit. Omaha Dis-
trict required key managers having Superfund responsibili-
ties to have internal control responsibilities in their job
descriptions and performance standards. Omaha District
also completed 10 internal control checklists during the
19 months ending June 1987 and another 10 were in progress.
Some of these checklists related to aspects of Superfund
functions.
COMIAND REACTION
The Commander, U. S. Army Engineer District, Omaha
partially agreed with the findings and recommendations.
The Commander did noJL_ajjre«—wi*-h fh^ r*»gQmmfnr!a1-jqn tn
majte__the Corps primarily responsible ^~- J"
contract pay cfuantities and to use"! M *~;
yards as the pay measure when transportation is the
significant CoTTtractcost iactdH1 (A-2).—Also, the
Commander did not agree that contract modifications were
needed when variations in estimated quantity occurred (B-l
and B-2) or that cost and pricing data should be obtained
for a modification issued for the Aidex Corporation
hazardous waste site construction contract (B-4).
**
Detailed command comments are presented after each
recommendation in Part II of this report. The Army's posi-
tion on the findings, recommendations, and command comments
will be established when the official command-reply process
prescribed by AR 36-2 is completed.
_ _ - *.0 cwmpK
RESPONSIBILITIES AM) RESOURCES
By agreement with the Environmental Protection Agency,
the Corp* of Engineers is responsible for managing the
design and construction of Federal cleanup sites paid for
with money from the Superfund Trust Fund. Design work is
managed vithln the Corps' Missouri River Division and con-
struction is managed by the Corps' district with jurisdic-
tion over the" geographic location of the cleanup site. The
Environmental Protection Agency provided $485,000 for the
design of Aidex Corporation cleanup site, Phase III;
S
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costs. Engineering, construction contr
resource management personnel are direc?ly
^ SUPerfUnd Actions at the
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PART II
FINDINGS. RECOMMENDATIONS. AMD COMMAND COMMENTS
FOR TOR COMMANDER, U. S. ARMY ENGINEER DISTRICT, OMAHA
A - CONTRACT ADMINISTRATION
FINDING
Surveillance of the construction contractor at the
Aidex Corporation Superfund site was not fully effective.
Quantities of work valued at about $1.6 million were not
verified in accordance with contract requirements. The
government did not obtain second party assurance that all
the services paid for were received because a survey firm
was subcontracted to verify only part of the pay quantity
measurements. Additionally, adequate survey control was
not maintained over the initial or lump sum quantity of
material excavated versus the additional quantity of
material excavated. U. S. Army Corps of Engineers person-
nel did not observe all measurements taken nor document
results of measurements observed or independently taken.
Weight of material removed from the Superfund cleanup site
was not used as a basis for payment even though weight was
the significant cost factor that could have been readily
verified fay the government. Also, contract requirements
concerning progress payments, approval of trucking firms,
and site entrance control were not fully enforced by Corps
personnel.
DISCUSSION
1. Background. A primary objective of contract adminis-
tration is to ensure that contract terms are met and the
services paid for are actually received. The Federal
Acquisition Regulation prescribes policies, procedures, and
responsibilities for administering contracts. Contracting
officers may appoint qualified government employees as
their authorized representatives to administer contracts.
Personnel oX the Construction Division, U. S. Army Engineer
District, Oftttha, were appointed as the contracting
officer's representatives for administering the Aidex
Corporation Superfund site construction contract.
Representatives are required to perform surveillance of
contractor performance to assess 'compliance with contrac-
tual terms. When services are not performed in accordance
with contractual terms, action should be initiated to
require contractors to correct noted deficiencies or to
reduce the contract price by the value of services not per-
formed.
11
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2. Verification of Quantities. Additional quantities of
excavated contaminated material claimed by the contractor
were not verified in accordance with contract requirements.
As a result, the government lacked second party assurance
that all of the services, for which payments of about
$1.6 million were made, were actually received.
a. Contract: Iteas and Requirements. The contract
for construction at the Aidex Corporation Superfund site
consisted of 20 lines; 2 lines covered removal of contami-
nated material, while 2 other lines covered offsite
transportation and disposal of the material. Both the
removal and disposal categories of work were divided into
an initial quantity and an additional estimated quantity
with the unit of measure as the cubic yards excavated. The
contract did not require that government personnel take the
survey measurements that would be the basis for payments to
the contractor. Rather, the contract stated that surveyors
with current State of Iowa registration should supervise
all surveying activities and all surveying required for
measurement of pay quantities should be performed in the
presence of the contracting officer's representative. The
contractor was paid about $6.4 million for the removal,
transportation, and disposal of contaminated material
through the fourth progress payment made during January
1987. Payments were as follows:
Contract
...Line,
5
6
15
16
Description
Initial Quantity
Removal
Additional Quantity
Removal
Initial Quantity
Transportation and
Disposal
Additional Quantity
Transportation and
Disposal
Unit Price
Lump Sum
for Job
$10 Per
Cubic Yard
Lump Sura
for Job
$275 Per
Cubic Yard
Amount
$ 300,000
58,590
4,424,700
1.611.225
$6.394.515
b. Surveys. Requirements of the contract for certi-
fied surveys were not fully met.
(1) Total Quantity. Adequate survey control was
not maintained over the to*tal quantity of material exca-
vated. The contractor's final report for the cleanup site
stated that a total of 20,412 cubic yards of contaminated
12
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material was
excavated
notes, how .add*tional excavation i V™ ,dld not
not
m.terial excavated, item,
.urvey control
lumP •«»
l
•ft.r the
r..urv.y
'
14
«••
caiculated .
reVl.v „. eould find
excavation was include
Payment quantity „
b« ««roU^
don*' "u*1"* °ur
h" a"Y of th« •»•!•
°r lu»P "»
13
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c. Measurements Observed. A representative of the
contracting officer did not observe all surveying
measurements-for-pay quantities as required by the
contract, and results of observations made were not docu-
mented. Two Corps employees were present at the cleanup
site on a full-time basis to monitor the cleanup project as
representatives of the contracting officer. Observation of
survey measurements-for-pay quantity was one of the tasks
assigned to the onsite Corps personnel. The Corps employee
assigned responsibility to monitor survey measurements
stated that about 75 percent of the contractor's measure-
ments were monitored and some spot check measurements were
taken. Measurements observed and independently taken by
the Corps employee, however, were not recorded in govern-
ment inspection reports or other documentation that could
be used to verify contractor measurements that were not
certified by the survey firm.
d. Services Received. Because prescribed controls
for verification of pay quantities were not followed, there
is no second party assurance that all of the services paid
for were actually performed.
(1) Capacity of Trucks. Capacity of trucks used
to transport contaminated materials from the site raise
doubt if the total quantity of cubic yards paid for was
actually excavated. Transportation manifests showed that
a total of 1,003 trucks loaded with contaminated material
were dispatched from the Aidex Corporation site. The
trucks used had a maximum capacity of 24 to 30 cubic yards,
but because of highway weight and other restrictions, the
trucks were always loaded less than full. Manifest docu-
ments that accompany contaminated material shipments
require a quantity amount. Weight rather than cubic yards
was used for most of the shipments from the site. For
35 truck shipments made during a period when the onsite
truck scale was inoperative, an estimate of cubic yards was
indicated on the manifests. Each of the 35 manifests
showed 15 cubic yards as the load estimate. Although the
cleanup site did not have measuring devices for cubic yards
loaded, it is reasonable to believe the estimates were
fairly accurate because a Corps employee signed the mani-
fests indicating that the shipments were accurately
described, and a truck driver signed acknowledging receipt.
The trucks -wymld have had to average over 20 cubic yards a
load to move the 20,412 cubic yards excavated as claimed by
the contractor. The volume of material on the trucks would
be greater after excavation because the material was dis-
turbed rather than compacted. The 20,412 cubic yard pay
14
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quantity represents compacted, in-ground material. Based
on the 35 manifests showing IS cubic yards, there is doubt
if the over 20 cubic yard average a truck was obtained for
all shipments made.
(2) Command Analysis. At our request, personnel
of the Omaha District's Construction Division performed an
analysis and concluded that 20,412 cubic yards of contami-
nated material could have been removed from the Aidex
Corporation Superfund site. The estimate of the cubic
yards excavated was based on the weight of contaminated
material shipped from the site as shown by the truck mani-
fests. The conclusion reached was not exact because it
relied on assumptions about the type of soil and debris
removed from the site for conversion of weight to cubic
yards. The analysis showed that the contractor's payments
could have been proper, but does not provide assurance that
they were. When after the fact remeasurements are not
possible, as in this case because of backfilling and
grading at the site, there is no substitute for proper work
verification controls during construction. Based on the
problems experienced with this Superfund project,
consideration needs to be given to making the government
primarily responsible for survey measurements for pay
quantities on future Superfund construction contracts when
cubic yards excavated is a basis for payment.
e. Basis for Payment. Weight rather than cubic
yards excavated would have been a better unit of measure-
ment for the transportation and disposal lines of the
contract (lines IS and 16). Most of the total payments to
the contractor were for transportation and disposal of con-
taminated material (about $6 million of about $7.3 million)
but the unit of measurement for payment of cubic yards
excavated was not directly related to the contractor's
costs for these services. Weight loaded onto trucks was
closely monitored because of highway restrictions, so
second party verification of services performed would have
been simpler. The trucks were weighed at least twice,
before a load left the Aidex Corporation Superfund site and
at the disposal site. The disposal site was paid based on
weight. Consideration needed to be given to using weight
rather than cubic yards excavated as the measurement for
payment on future Superfund construction contracts when
transportation <^id disposal is a major cost of the project.
3. Other Requirements. Contract requirements concerning
progress payments, approval of, trucking firms, and site
entrance control were also not fully met.
IS
-------
a. Progress Payments. Progress payments were based
on esfrima-f.es of future work, not work actually completed.
There were four progress~-payments made to the contractor
through January 1987, totaling about $7.3 million. Accord-
ing to the contract, the contractor could request progress
payments for completed work supported by quantity surveys.
Corps personnel were responsible for determining the amount
of the payment based on supporting records such as survey
reports provided by the contractor. Corps personnel
invo* td in approval of progress payments stated that the
four payments made were based on actual surveys, as well as
estimated work for about a 15-day period until the end of
the month. Contractor and Corps personnel met at mid-month
to jointly determine payment amounts. Allowing progress
payments for estimated work was not in accordance with the
contract and did not ensure amounts were paid only for
actual work performed.
b. Trucking Firms. The construction contractor used
truck firms that were not approved by Corps personnel to
remove contaminated material from the Aidex Corporation
site. Trucks from seven firms were used to transport con-
taminated material from the cleanup site. The contract
required that the Corps approve in advance the use of each
trucking firm and that a transportation plan for each firm
b^ provided to the contracting officer. The transportation
plan includes U. S. Environmental Protection Agency identi-
fication number, types and sizes of equipment to be used,
description of transportation methods and procedures, and
information on necessary permits to transport contaminated
material. Contract files did not indicate approval for
three firms used, and transportation plans were not pro-
vided for two firms used. Although no accidents or
incidents occurred, the Corps was not adequately assured
that all trucking firms used -were qualified contaminated
material transporters.
c. Site Entrance Control. Entrance control records
for the cleanup site were incomplete. The contractor was
required to maintain records on visitors and vehicles
entering and leaving the cleanup site. Vehicle r*gQ,r«?g
only for^4 rlayg *
-------
RECOMMENDATIONS AND COMMAND COMMENTS
A-l Require representatives of the contracting officer to
record, in government documentation, results of measure-
ments for pay quantities independently taken and observed.
Command agreed and stated that guidance was issued to the
office responsible for administering the Aidex construction
contract. This guidance, issued 23 September 1987, empha-
sized the requirement that government documentation should
include the results of measurements for pay quantities that
were independently taken and observed. Similar guidance
will be issued to other contracting officer representatives
by second quarter FY 88.
A-2 Coordinate with the U. S. Army Engineer District,
Kansas City (the other Corps District responsible for
awarding Superfund construction contracts) and:
- Make the Corps, rather^than the contractor, primarily
responsible for survey"measurements for pay quantities
on future Superfund contracts when cubic yards
excavated is a basis for payment.
- Make weight rather than cubic yards excavated the pri-
mary basis for payment for future Superfund contracts
that involve significant transportation and disposal
costs.
Command did not agree and stated that:
- Corps of Engineers personnel should not assume primary
responst...ility for survey measurements for pay quanti-
ties on future Superfund contracts where cubic yards
excavated are a basis for payment. Corps Districts do
not have the personnel resources needed to accomplish
the survey measurements. If the Corps is made
primarily responsible, a separate contract would have
to be established to perform this service. Contract
fees and internal Corps charges associated with manag-
ing another contract would cause an increase in
supervision and administration costs and manpower
requirements and thus an overall increase in the total
project construction cost to the Corps. A blanket
waiver will be requested to allow for this performance
of initial and final survey by other than Government
employees.
17
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- Corps of Engineers Quality Assurance personnel already
have the primary responsibility to ensure that the
contractor's Quality Control Program is functioning
effectively. This also applies to the contractor's
Quality Control Program regarding survey measurements
for pay quantities. The importance of this already
established responsibility will be emphasized in guid-
ance that will be issued to Quality Assurance person-
nel by second quarter FY 88. This response was
coordinated with the Kansas City District.
- Weight, rather than cubic yards excavated, will be
considered as the basis for payment on future
Superfund construction contracts involving significant
transportation and disposal cost. However, the use of
such a payment basis may not be appropriate for some
Superfund construction contracts. Therefore, each
project will be considered on a case-by-case basis.
This response was coordinated with the Kansas City
District.
II. S. Army Audit Agency Evaluation. The preferred method
of performing pay quantity surveys is by government person-
nel. The Federal Acquisition Regulation states that
government personnel should conduct the original and final
quantity surveys for pay purposes unless a level above the
contracting officer determines that it is impracticable for
government personnel to perform the surveys. The circum-
stances of each contract should be considered before
approval is obtained to not use government personnel for
surveys. Superfund construction contracts are larger
dollar value contracts; usually greater than a million
dollars each. Command did not quantify the additional
costs of having government personnel perform the quantity
surveys or the additional cost to administer separate con-
tracts compared to allowing the contractor to perform the
surveys. We believe the difference would Jbe small compared
to the potential for overpayment due to construction
services not being properly verified. Our recommendation
would provide second party assurance that all construction
services paid for were received. Command's comments that
the use of weight rather than cubic yards excavated will be
considered as the pay quantity measure for future Superfund
contract* on a case-by-case basis is responsive to our rec-
ommendation. We agree there might be some instances where
cubic yards excavated might be more appropriate. But in
instances where transportation is the major cost of the
cleanup effort, we believe weight, which is easily
verified, would be a more appropriate unit of measurement
for pay purposes.
IS
-------
responsibility £or Superfund^ offi«s J "^ **
-------
FOR THE COMMANDER, V. S. ARMY ENGINEER DISTRICT, OMAHA
B - VARIATIONS IN ESTIMATED QUANTITIES
FINDING
The construction contract for the Aidex Corporation
Superfund site was modified to increase the total contract
price for only about 60 percent of the actual amount paid
for variations in estimated quantities. As a result, obli-
gations totaling about $195,000 were not recorded promptly
or accurately for variations in estimated quantities not
covered by contract modifications, and payments to the con-
tractor exceeded the total value of the contract. Also,
the price analysis made for a modification issued was not
adequate to ensure a fair and reasonable price. The
government estimate was an analysis based on the price and
quantity already on contract rather than a detailed analy-
sis of increased costs due to the additional quantity. The
government estimate included about $50 a unit for
transportation that was not applicable to the additional
quantity. Also, the contractor was not requested to pro-
vide certified cost or pricing data as required by the
contract and regulatory guidance. As a result, the
contracting officer did not have sufficient data for evalu-
ating the price and the price paid may have been too high.
DISCUSSION
1. Background. The Aidex Corporation Superfund site con-
struction contract included eight lines of work that were
unit-priced and an estimated quantity of units were
indicated for the eight lines. The contract had a varia-
tions in estimated quantities clause. This clause provides
that if the quantity of a unit-priced item is estimated and
the actual quantity varies more than plus or minus
15 percent from the estimated quantity, an equitable
adjustment in the contract price can be made upon demand of
either the government or the contractor. The equitable
adjustment should be based upon any increase or decrease in
costs due solely to variations in the estimated quantity.
Headquarters, Corps of Engineers has issued supplemental
contracting guidance that requires contracting officers to
take gfpp following actions when actual work exceeds the
estisaifed quantity of work on a contract by more than
15 percent:
f
- Where the difference .in cost between the actual
quantity and 115 percent of the estimated quantity
exceeds $25,000, the coujtracting_jafficer shall make a
demand on the contractor for a reduction in contract
20
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unit price unless it is found, in writing, that unit
costs have not been sufficiently reduced to justify a
demand for reduction.
- Where the difference in cost between the actual
quantity and 115 percent of the estimated quantity is
$25,000 or less, the contracting office shall make a
demand for adjustment only if it is determined that it
will be to the government's interest to make such a
demand.
Contract modifications are issued to cover changes in
requirements after award of a contract. Basic policy and
procedures for processing contract modifications are
included in the Federal Acquisition Regulation and the
Engineer Federal Acquisition Regulation Supplement.
2.
Contract: Modification
a. Variations in Quantity. Variations in estimated
quantities occurred for the Aidex Corporation construction.
contract, but the contract was modified to cover only about
60 percent of the variations that were paid. A contract
modification was issued for $311,754 during November 1986
for variations in estimated quantity of contract line 16.
But the modification only covered the quantity variation
amount that was over 115 percent of the estimated quantity
for the one line of the contract. The first 15-percent
variation for the contract line, about $169,496, was not
covered by the modification. Variations in quantity for
other contract lines, totaling about $17,865, were also not
covered by a contract modification. Personnel of the Omaha
District's Construction Division staged modifications were
not necessary because the contract -as written, allowed for
variations and the only reason for the one modification
issued was to placate finance and accounting personnel who
would not process a progress payment without an increase to
the total contract price. The use of contract modifica-
tions for all variations in estimated quantities would
ensure proper documentation for recording obligations as
well aa help to ensure payments to contractors are within
the total contract price.
•3»*s, ^
b. Obligatlona. Obligations totaling $195,226 for
variatioMlf in estimated quantities were not properly
recorded on the accounting records. The Corps uses the
finance and accounting subsystem of the Corps of Engineers'
Management Information System t6 record accounting transac-
tions for Superfund projects. An obligation was promptly
recorded for the variations covered by the contract modifi-
cation, but obligations were not timely for variations not
covered by contract modifications. During January 1987,
21
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when the progress payment covering the variations was
paid, finance and accounting personnel recorded an obliga-
tion of $169,496, 2 months after the work, to cover
variations not covered by the contract modification. But
no obligations were recorded through June 1987 (7 months)
for variations in the other lines that totaled $17,865 and
were not covered by a contract modification. Finance and
accounting personnel also recorded an obligation totaling
$7,865 during January 1987 to cover potential variations
for other lines based solely on the variations clause in
the contract; funds remained obligated through June 1987,
5 months later. This recorded obligation was not proper
because the variations had not occurred and AR 37-21 does
not allow recording obligations for permitted variances
until authorized by the contracting officer or until actual
delivery and acceptance.
c. Payments. Total payments made to the contractor
exceeded the total contract price as shown on contract
documentation. According to the payments clause of the
contract, the government will pay the contractor the price
as provided in the contract. Through the fourth progress
payment made during January 1987, $7,311,598 was paid to
the contractor, but the contract price as shown on contract
documentation was only $7,251,710.
Document*
Basic
Modification 1
Modification 2
Modification 3
Amount
$6,939,190
0
311,754
766
* Contract modification 1 covered assignment
of the contracting officer's representative,
modification 2 covered variations in estimated
quantities as previously discussed, and
modification 3 covered crop damage and closure
of building openings.
Th« difference resulted from variations in quantity not
included in contract modifications ($187,362) less
unliquidated obligations for amounts shown on the contract
($127,474). Unless estimated quantities are adjusted to
actual quantitites, contract documentation will be
incomplete because the actual contract price will not be
shown and finance and accounting personnel will not know
the maximum authorized payment amount.
22
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3. Procedures for Determining Fair and Reasonable Prices.
The analysis made for the price on the modification
actually issued was not adequate to ensure a fair and rea-
sonable price for the government, According to the
Engineer Federal Acquisition Regulation Supplement, when
the actual quantity exceeds 115 percent for an estimated
quantity and the value exceeds $25,000, the contracting
officer shall make a demand on the contractor for a reduc-
tion in the contract unit price unless the contracting
officer finds in writing that unit costs have not been suf-
ficiently reduced to justify a reduction. The finding of
fact for the modification issued stated that the
contractor's unit price compares favorably to the govern-
ment estimate so no revision to the unit price is
necessary, and the price is considered to be fair and
reasonable. Our review, however, showed that the unit
price was overstated on the government estimate. Also, the
contractor was not requested to provide a written proposal
and certified cost or pricing data. As a result, the unit
price may be too high for variations in the estimated
quantity on line 16 of the contract.
a. Government Estimate. An in-depth government
estimate was not prepared for the modification. Guidance
for preparation of estimates is provided in Engineer Manual
1110-2-1302. According to the manual, estimates for con-
tract modifications should be based on a detailed analysis
of the change in requirements and contractor's actual costs
should be used as much as possible. The 17 October 1986
government estimate for the modification was actually an
analysis based on the price and quantity already on
contract rather than an analysis of increased costs due to
the additional quantity. The increased quantity and actual
contractor costs were not used. In addition, the estimate
for the modification assumed 80 percent of the contaminated
materiel would be transported 980 miles to a disposal site
in Alabama and 20 percent would be transported 610 miles to
Indiana. However, the contractor indicated during Septem-
ber 1986 progress meetings with Corps personnel that the
closer disposal site would be used for all shipments as
soon as approval from the Environmental Protection Agency
was obtained. Shipments to the closer disposal site
started 2 October 1986, 15 days before the government esti-
mate fo*%.-.,t$* modification was prepared. The government
estimate. ^.-£«r the modification did not reflect the
transporti££on of all material to the closer disposal site.
The government estimate for the modification was overstated
by about $50 a cubic yard for transportation. Altogether,
the potential existed to reduce the contract price by about
$87,000.
23
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b. Coat Or Pricing Data. The contractor was not
requested to provide certified cost or pricing data for the
modification issued. The Federal Acquisition Regulation
requires that certified cost or pricing data be obtained
from the contractor before modifications over a. set amount
are accomplished and the requirement relates to both
formally advertised and negotiated contracts unless ade-
quate price competition exists. A clause of the contract
set the cost or pricing data requirement for modifications
expected to exceed $100,000. The modification issued met
the requirements, but the contractor was not requested to
provide certified cost or pricing data. As a result, regu-
latory requirements were not met and the contracting
officer did not have sufficient data for evaluating if the
price for the modification was fair and reasonable. A
lower price may have been negotiated if required procedures
were followed.
RECOMMENDATIONS AND COMMAND COMMENTS
B-l Issue a contract modification to cover all variations
in estimated quantities on the Aidex Corporation Superfund
site construction contract that are not covered in
modifications previously issued.
Command did not agree and stated that issuance of a con-
tract modification to cover all variations in estimated
quantities on this contract is not necessary. The varia-
tions in estimated quantities clause of this contract
states that: "...If...the actual quantity of the unit-
priced item varies more that 15 percent above or below the
estimated quantity, an equitable adjustment in the contract
price shall be made upon demand of either party." Para-
graph 36.2/9002(a) of the Engineer Federal Acquisition
Regulation Supplement states that: "where the difference
in cost between the actual quantity and US percent of the
estimated quantity exceeds $25,000, the contracting officer
shall make a demand on the contractor for a reduction in
the contract unit price...unless he shall find in writing
that unit costs have not been sufficiently reduced to
justify a demand for a reduction." Modifications for other
variations in estimated quantities are not required by the
tersjs> of the contract. Execution of a modification to
cov** all quantity variations in this contract would be an
unnecessary expense, and not be in the government's best
interest.
B-2 Direct that contract 'modifications be issued for all
variation amounts in estimated quantities on future
24
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Superfund site construction contracts having a variations
in estimated quantities clause.
Command did not agree and stated that contract modifica-
tions should not be required for all variations in estimat-
ed quantities on future Superfund site construction
contracts with a variations in estimated quantities clause.
The variations in estimated quantities clause of this
contract states that: "...If... the actual quantity of the
unit-priced item varies more than 15 percent above or below
the estimated quantity, an equitable adjustment in the con-
tract price shall be made upon demand of either party."
Paragraph 36.2/9002(a) of the Engineer Federal Acquisition
Regulation Supplement states that: "where the difference
in cost between the actual quantity and 115 percent of the
estimated quantity exceeds $25,000, the contracting officer
shall make a demand on the contractor for a reduction in
the contract unit price...unless the contracting officer
shall find in writing that unit costs have not been
sufficiently reduced to justify a demand for a reduction."
This type of contract provides for variations in quantities
up to 115 percent. Execution of a modification for every
variance in quantity is not necessary and would be costly
to the government. Although contract modifications are not
required for all variations in quantities, variations which
result in overruns will be obligated based on a Miscella-
neous Obligation Document (DA Form 3717). Guidance to this
effect will be issued by second quarter FY 88.
U. S. Any Audit Agency Evaluation. With regard to
Command's comments on Recommendations B-l and B-2, the
total dollar value of the contract increases or decreases
when variations occur in the estimated quantities. This
changes the terms of the contract (total value) and a modi-
fication to the contract is required. If modifications are
not issued for variations, the contract haa no maximum
authorized total value. Issuing contract modifications for
variations provides a control over the total dollars autho-
rized since a maximum amount is specified and this ensures
that funds are available before the government creates a
liability. Modifications should be periodically issued to
increase thf> authorized ceiling as new estimates of the
quantitiesjH|sjbove the ceiling are determined. In the
instances* iBire the total variations in quantity are within
the amoiufllP allowed by the contract (plus or minus
15 percent* for the Aidex construction contract), a
modification could.be issued during the contract closeout
process after the work is completed.
B-3 Make a review of the accuracy of obligations recorded
for variations in estimated quantities for all lines of the
25
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Aidex Corporation Superfund site construction contract hav-
ing- estimated quantities. Adjust the obligations recorded
based on the review.
Command agreed and stated that a review of obligations was
completed during October 1987. Action was taken to adjust
obligations involving estimated quantities as supported by
the review.
B-4 Prepare another government estimate for variations in
the estimated quantity for line 16 of the contract using
the guidance provided in Engineer Manual 1110-2-1302.
Request the contractor to provide certified cost or pricing
data for the variations. If the results show the $275 a
unit price of the modification was too high, take appropri-
ate actions to collect the overpayment.
Command did not agree and stated although a government
estimate to cover transportation and disposal of additional
contaminated soil and waste was prepared using the
guidance provided in Engineer Manual 1110-2-1302, the
justification under paragraph 36.2/9002(a) of the Engineer
Federal Acquisition Regulation Supplement for contract item
number 16 was inadvertently prepared as a modification
instead of the required finding of fact. The modification
package justifies no price change for the overrun above
115 percent of the estimated quantity. A conscious deci-
sion was made to process the change order in lieu of repro-
cessing as a finding of fact. The additional
administrative expense was not considered justified. The
change order was, therefore, not considered a true
modification and cost or pricing data was not obtained. A
true modification would -require an audit of the
contractor's cost or pricing data. All future findings of
fact will not be allowed to be processed as change orders
because of the resulting confusion.
0. S. Any Audit Agency Evaluation. As stated in our
evaluation of the Command comments on Recommendations B-l
and B-2, an increase in the total contract dollar amount
vaai a change in the terms of the contract so a modification
stoould have been issued. The dollar amount of the change
the requirements for requesting certified cost or pric-
•data frfm the contractor.
Issue guidance reemphasizing the need to prepare gov-
ernment estimates in accordance with Engineer Manual 1110-
2-1302 and the need to* request certified cost or pricing
data from Superfund cleanup contractors when modifications
meet 'the specified dollar criteria.
26
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Command agreed
con-
t
27
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FOR THE COMMANDER, U. S. ARMY EMGINEER DISTRICT, OMAHA
C - REIMBURSABLE ORDERS
FINDING
Controls over reimbursable orders issued to Corps
activities supporting the Aidex Corporation cleanup efforts
were not adequate to ensure that all costs were accumulated
against the appropriate Superfund project or to ensure that
obligations were recorded in a timely manner. Costs for
award of the construction contract were charged to project
design, and obligations of $49,636 were not recorded
promptly because a reimbursable order was not issued when
laboratory work was authorized for the construction
project. Timely obligations are necessary for proper con-
trol of funds. Also, State governments share in the cost
for construction projects but not in the cost for design
projects and therefore the proper accumulation of expenses
against Superfund projects is important. Unless coat
transfers are made, the Superfund Trust Fund could absorb
costs that should be paid by a State.
DISCUSSION
1. Background. Each government agency is directed by law
to establish and maintain an adequate system of accounting
and internal controls over obligations, accrued expendi-
tures, applied costs, and outlays. The Corps uses the
finance and accounting subsystem of the Corps of Engineers
Management Information System to record accounting transac-
tions for Superfund work. When a Corps district
responsible for a Superfund project needs assistance from
another Corps district or laboratory, Engineer Regulation
37-2-10 requires that a reimbursable order (DA Form 2544)
be used to authorize and control the work. Obligations are
to be recorded by the requesting activity for the full
amount of the reimbursable order based on receipt of the
accepted order from the servicing Corps activity.
V ., .JisMimintlnj for Expenses. As much as $25,000 of in-
costs for Aidex Corporation Superfund
ton project were charged to the design project.
ril 1986, Omaha Engineer District issued a DA
reimbursable order to Kansas City Engineer
$25,000 to advertise and award the construc-
:t. The order was accepted on 25 April 1986 and
the construction contract'was awarded 10 July 1986. How-
ever, through April 1987, only $61 for reproduction
expense* was charged to the reimbursable order. Workorders
in the design project files at the Kansas City Engineer
26
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District showed work was performed for tasks covered by the
construction project reimbursable order, but the accounting
code cited was for the design project. An accounting code
for tlSpy., reimbursable order was not established in the
accounwilg system until August 1986, a month after the
award j^. the contract. The files did not show how much
work wa* actually accomplished and charged to the design
project, and cost transfers were not made after the proper
accounting code was established. Proper accumulation of
cost against Superfund project funds is important because
under Superfund laws, State governments share in the cost
for construction projects (10 percent), but States do not
share in the cost of design projects. Unless cost trans-
fers are made for expenses that are incorrectly charged to
the design project, the Superfund Trust Fund could absorb
costs that should be paid by a State.
3. Obligations. Obligations were not recorded promptly
for about half of the dollars authorized for reimbursable
work on the construction project. In total, about $102,000
of reimbursable work was authorized. Missouri River Divi-
sion Laboratory provided $49,636 of laboratory services in
support of the construction project from September through
November 1986, but an obligation for the effort was not
recorded until April 1987 when a billing was received from
the laboratory. A reimbursable order or other written
authorization was not issued by Omaha Engineer District to
the laboratory as required by Engineer Regulation 37-2-10.
Without an accepted DA Form 2544, finance and accounting
personnel did not have a basis for recording an obligation
in advance of the services being performed. Balances of
funds available for future obligation were overstated and
reports of monthly funds obligated were understated due to
the way obligations were recorded 'for the reimbursable
work. Proper accounting for obligations is necessary at
all times for fund control to prevent actual expenditures
from exceeding authorized expenditures and to ensure accu-
rate monthend reports.
the Kansas City Engineer District deter-
ot the expenses incurred to advertise and
Corporation construction contract were
project and transfer these expenses to
project.
Command agreed and stated that*a cost transfer was prepared
to transfer $19,850.53 from the design account to the con-
struction account for Aidex Corporation site Phase III.
These transactions were completed in October 1987. This
response was coordinated with the Kansas City District.
29
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f* » o
of
30
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ANNEX
ACTIVITIES FURNISHED COPIES OF THE AODIT
this report are being furnished to the following
acti
es
Assistant Secretary of the Army (Civil Works)
Assistant Secretary of the Army (Financial Management)
Assistant Secretary of the Army (Installations
and Logistics)
The Inspector General
Director of the Army Staff
Chief of Public Affairs
Deputy Chief of Staff for Personnel
Deputy Chief of Staff for Logistics
Chief of Engineers
Commanders
U. S. Army Corps of Engineers
U. S. Army Criminal Investigation Command
U. S. Army Engineer Division, Missouri River
First Region, U. S. Army Criminal Investigation Command
Commandant, U. S. Army Logistics Management Center
Inspector General, U. S. Environmental Protection Agency
This report is not to be released outside the Department of
the Army for 60 days. After that period has elapsed, the
report may be released in accordance with the procedures
prescribed in Army Regulation 340-17 and Department of the
Army Memorandum 36-1. However, the results of audit will
be furnished to the Inspector General, U. S. Environmental
Protection Agency, who requested this audit.
31
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MMIITMINT Of THf AWMJY p 3
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MEMORANDUM: SECRETARY OF THE ARMY INSPECTOR GENERAL, ATTNs SAXG-PA
SUBJECT: USAAA Audit of Suptrfund' Construction—Aldtx Corporation Stte,
Council Bluffs, Iowa, U.S. Army Englnttr District, Omaha, NE
1. Tht Command position Is as rtfltcttd 1n tht report except for tht
additional facts, and tht revised position stattd btlow.
Recommendation B-l: Command agrtts that a contract modification should havt
bttn Issutd during clostout to covtr all variations 1n estimated quantities on
tht Aldtx contract that were not covtrtd In modifications previously Issutd.
However; Command dots not believe that Issuing a modification at this juncture
would serve any meaningful purpose, unless requested by tht customer - EPA,
since tht contract has already bttn finalized. Guidance will bt Issutd
requiring futurt suptrfund contracts to bt modified during the closeout
process, as recommended.
Recommendation 8-2: Tht revised Command position 1s that In addltlo* to
obligating cost overruns on a Miscellaneous Obligation Document (DA For* 3717)
and notifying tht contractor accordingly, a modification will bt Issutd dtrtng
clostout to rtcondlt tht total contract cost to tht Individual lint Iftms.
Recommendation B-4: At stattd In our position on Recommendations B-l and 8-2,
Command-agrees that a modification should havt bttn Issutd to record tht
Increase .in tht total contract dollar amount. Also, tht dollar amount of tht
changt did technically meet tht requirements for requesting ctrtlfltd cost or
pricing data'from tht contractor for posslblt collection actions. However; tht
administrative expense of preparing anothtr government estimate; modifying tht
contract to rtcondlt tht total cost to Individual 11nt Items; and auditing tht
ctrtlfltd cost or pricing data would negate any possible cost savings. Appli-
cable futurt Suporfund contract flits will contain supporting documentation
and/or an explanation for not taking collection actions against tht contractor.
Recommendation c*l: All txptnsts will bt costtd In accordance with tht
applicableijAttr-aftncy agreement (IAG) bttwttn tht Corps and EPA.
*• Th* fJ^^Hfc "* cont*1n "W reportable monetary benefits. In our
opinion f^^HpMt* to classify or protectively mark any portion of this
report •^^•iW thereto.
__. I6E K. WITHERS, JR.
Major General, USA
Deputy Commander
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MPAKTMINT Of THE AHMY
nvmoN, com «
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District, ATOli Mr* lobtrc I, Z«rub«, P,|, CIMKOD-U,
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WiJICTi CoacrMt MA. DACW43-86-C-0233,
Project.
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