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\ UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
MAR 3 I 1992
information Resources Center
US EFA (3404)
401M Street, SW
Washington, DC 20460
THE INSPECTOR GENERAL
MEMORANDUM
EPA's Management of Computer Sciences Corporation
(CSC) Contract Activities
Audit Report No. E1NME1-04-0169-2100295
William K. ReT\ly
SUBJECT:
TO:
Attached is the final report entitled "EPA's Management of
Computer Sciences Corporation (CSC) Contract Activities." Our
overall audit objective was to evaluate the adequacy of EPA's
management of CSC contract activities in relation to applicable
laws, regulations, and policies and to determine whether past
allegations and problems identified with the administration of
contracts still existed.
This report is addressed to you because of the wide reaching
nature of the findings and the need for all top EPA managers to
become involved in seeing to it that necessary corrective action
is properly implemented. Overall, a basic cultural change is
needed at EPA toward all contractors, not just CSC. EPA staff can
no longer view contractors as part of the EPA family and treat
them as such. Rather, contracts must be properly administered in
a business like fashion. To accomplish this, EPA top managers
will have to set the proper tone for the organization and act
positively to change employee attitudes and to correct bad
procedures which have unfortunately become common practice.
We greatly appreciate the positive response by Acting
Assistant Administrator Christian Holmes to the report and the
many substantive actions he and his staff have initiated to
correct the contract management problems we identified. My staff
and I look forward to working closely with you and EPA's senior
management team to aggressively resolve the Agency's contract
management problems.
In accordance with EPA Order 2750, you, as the action
official are required to provide this office a written response
to the audit report within 90 days of the final audit report
date. For corrective actions planned but not completed by your
response date, reference to specific milestone dates will assist
us in closing the report. We have no objections to the further
release of this report to the public.
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Executive Summary
operations or information systems, (5) unqualified contractor
staff, (6) inadequate assurance of cost-effective Agency
operations, and (7) non-accountability for hundreds of thousands
of dollars of EPA property in CSC's possession. Deficient
technical expertise, inadequate contract management training and
guidance, and weak oversight of project officers' activities also
resulted in approval of improper direct and indirect charges to
CSC contracts and potential improper obligation and expenditure
of expiring appropriations contrary to the Comptroller General's
bona fide need rule and the Antideficiency Act. Questionable
charges and potential savings totaled over $13 million for the
activities reviewed (see Appendix VI).
PRINCIPAL FINDINGS
EPA VULNERABILITY FROM CSC CONTRACT ACTIVITIES HAS SUBSTANTIALLY
INCREASED
The Agency's vulnerability to fraud, waste, abuse, and related
conflict-of-interest situations from CSC activities has steadily
grown since the 1985 SOSM contract award. This vulnerability
dramatically increased with award of the TOSS contract in 1990
and CSC's substantial involvement in: (1) critical, if not
inherently governmental, Agency functions, (2) the long-term on-
site and off-site relationship between contractor staff and EPA
management, (3) management of its EPA contracts. The Agency's
lax attitude toward contract management, failure to adequately
correct previously identified contact management deficiencies,
and consolidation of major system development, operation, and
maintenance (often without adequate system documentation*) and
technical support services under one contractor has also elevated
the Agency's risk from CSC's activities. ,This risk is compounded
by the Agency's inadequate contract management practices and weak
or ineffective controls over the contractor's activities (see
Chapters 3 through 7). Our audit did identify illegal contract
activities (i.e., personal services), possible cost
inefficiencies in contract award and administration, and
potential conflict-of-interest situations (see Chapters 4, 5, 6,
and 7).
PCMD'S FMFIA PROCESS DID NOT ENSURE PROPER CONTROL OVER CSC
CONTRACT ACTIVITIES
Procurement and Contracts Management Division's (PCMD) Federal
Managers' Financial Integrity Act (FMFIA) process did not
adequately identify internal control weaknesses or ensure proper
implementation of FMFIA control objectives and techniques
relative to the TOSS contract. Many material control weaknesses
: s OIG Audit No. E1NMF1-15-0032, Review of Computer system
Integrity Requirements.
IV
Audit MO. E1NME1-04-0169
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Executive Summary
in the TOSS contract administration were not previously
identified in PCMD's FNFIA risk assessments. In addition, PCMD
had not adequately assessed control techniques to ensure proper
implementation by contract management staff. Critical control
techniques identified in PCMD's FHFIA documentation were either
not implemented or improperly implemented by the TOSS Contracting
Officer (CO) and his staff. As a result, there was insufficient
assurance that Agency resources were safeguarded against waste,
fraud, abuse, and conflicts of interest. Because many of CSC's
contract activities were of a mission-critical nature and involve
the Agency's most sensitive data base systems, proper control of
the contract operations is essential to the integrity of the
Agency's programs.
CONTRACT MANAGEMENT AND OVERSIGHT NEEDED SUBSTANTIAL IMPROVEMENT
Although the TOSS contract was one of EPA's largest IRM
contracts, with a total value of $347 million, neither PCMD nor
OIRM provided adequate resources, guidance, or effort to properly
manage and control contract activities. The majority of the
contract management responsibility had been delegated to Delivery
Order Project Officers (DOPOs) or left in the hands of the /
contractor. Generally, the DOPOs did not have adequate training
or experience to properly fulfill these responsibilities and a
conflict-of-interest situation was created when the contractor
was permitted to manage its own contract. As a result, contract
management was materially deficient, resulting in numerous
contract administration and control deficiencies including
illegal and prohibited contract practices. These deficiencies
included:6
-Inadequate Delivery Orders (DOs)/Statements of Work
(SOWs) that did not preclude improper, illegal
contract activities and ensure quality of contractor
performance.
-DOs administered illegally as personal services type
contracts.
-Performance of inherently governmental tasks by
contractor personnel.
-Performance of tasks outside the scope of the DO Or
contract.
-Improper charges for training, conferences, related travel
costs, and "idle time.11
-Contractor staff who do not meet contract job requirements.
6 Deficiencies related to each DO in our sample of 26 TOSS DOs
are shown in Appendix V.
V Audit NO. E1NME1-04-0169
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Executive Summary
-Verbally authorized contract variances without timely
contract modification or written contractor notifications.
-Inadequate accountability for EPA property in the
contractor's possession.
We identified $13.1 million in questionable contract charges and
potential savings (see Appendix VI) resulting from insufficient
control and administration of CSC operations on those contract
activities included in our review. Because of poor contract
documentation maintained by DOPOs we were unable to quantify all
questionable costs. Therefore, the questionable charges cited
above do not reflect the total unnecessary or excessive costs
incurred by the Agency on those contract activities audited.
Both PCMD and OIRM officials attributed the contract management
problems to a lack of staff to properly perform contract
management and oversight functions. However, we identified
several other factors contributing to these problems. These
included inadequate and untimely guidance or failure to follow
guidance, no training or inadequate training for DOPOs who were
the primary contract managers, improper contractor assistance in
DO preparation and management, failure of the DOPOs to obtain and
be aware of TOSS contract requirements, insufficient DOPO
oversight and/or support by OIRM and PCMD, and a general
"laissez-faire" attitude of EPA officials toward management of
the TOSS contract, which directly contributed to the creation of
a prohibited personal services relationship between EPA and the
contractor.
EPADID NOT ENSURE ACCOUNTABILITY FOR GOVERNMENT PROPERTY
FURNISHED TO CSC AND DIDNOT ADEQUATELY JUSTIFY AGENCY EQUIPMENT
COSTS UNDER THE TOSS CONTRACT
Government property furnished to and acquired by CSC under the
SOSM and TOSS contracts was not properly accounted for or
adequately protected. This occurred because: (1) neither the CSC
contracts nor the individual DOs under these contracts contained
a list of all EPA property CSC had in its possession, and (2)
PCMD did not take effective actions to require CSC to comply with
EPA and contract requirements for property accountability. As a
result, the contractor was not legally authorized under the
contract to use the Government furnished property and EPA had
inadequate accountability of property in CSC's possession. In
addition, CSC's use of Government furnished property in the
performance of the TOSS contract was not properly supported in DO
justifications as required by the Federal Acquisition Regulation
(FAR) and EPA procedures and lease-versus-purchase analyses for
Government furnished equipment were based on
inadequate/inaccurate information. As a result, equipment costs
under the contract were not properly justified and excessive
costs were incurred on CSC leased equipment.
vi
Audit NO. E1NME1-04-0169
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Executive summary
INADEQUATE FINANCIAL MANAGEMENT OF TOSS CONTRACT
Inadequate financial management of the TOSS contract resulted in
improper fund obligations and contract payments. DOPOs were
essentially the sole approving official for contractor invoices7
although Indefinite Quantity/Indefinite Delivery (IQ/ID)
contracts, such as TOSS, require significant levels of oversight
due to the high risk of contractor inefficiency. There were no
second party reviews of invoices approved by DOPOs although they
had not received adequate guidance and were inadequately trained
on contract financial management. Neither the Project Officer
(PO) nor CO performed reviews of invoices for the TOSS contract.
As a result of the lack of controls over approval of contract
invoices, improper contractor charges of at least $154,000 were
paid on the 26 DOs we reviewed and expired appropriations,
totaling at least $901,182, were obligated for severable contract
operations contrary to provisions of the Comptroller General's
bona fide need rule and the Antideficiency Act.
EPA PRE-AWARD AND POST-AWARD TOSS CONTRACT MANAGEMENT MAY
HAVE PRECLUDED A FAIR AND COMPETITIVE CONTRACT AWARD AND
THE MOST COST-EFFECTIVE AGENCY OPERATIONS
Waivers of TOSS contract education/experience requirements for
165 CSC and sub-contractor TOSS employees undermined the
integrity of EPA's contracting process, caused the Agency to
incur unnecessary costs estimated at more than $2 million per
year, jeopardized the Agency's Delegation of Procurement
Authority, and raised questions about the overall technical
expertise of the CSC employees working under the TOSS contract.
The TOSS CO verbally granted these waivers shortly after CSC,
which was not the low bidder, was awarded the TOSS contract based
on its technical excellence, statements in the CSC TOSS proposal
and contractor correspondence indicated that the company had done
the necessary personnel file reviews to be aware that a
substantial number of its employees had "labor category problems"
before or very shortly after the contract award date. These
waivers were requested only 4 1/2 months after the contract
award. In addition, even though the contract represented
expenditure of about $347 million over a 5-year period, the
Agency had not conducted an analysis to determine the cost-
effectiveness of contractor versus in-house performance. Our
cost comparison for certain TOSS labor categories showed an .
estimated 13 to 110 percent savings from in-house performance
with an estimated first-year savings of $4.5 million for these
selected technical support activities.
7 PCMD's Financial Section periodically reviewed invoices on
a test-check basis; however, these reviews, conducted at esc
headquarters, concerned CSC support for contract charges rather
than the propriety of the charges.
Vii Audit NO. E1NME1-04-0169
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Executive summary
RECOMMENDATIONS
EPA needs to reduce its risk exposure from CSC contract activities;
preclude fraud, waste, and illegal/improper contract
administration; and assure cost-effective operation of technical
support services utilized by Agency program offices. Risk
reduction and cost-effectiveness can be accomplished through
substantially improved contract management and control over CSC
activities, use of EPA staff to control and perform critical Agency
functions, decreased CSC involvement in EPA's critical
financial/information systems through award of multiple support
service contracts, and retention of Agency expertise in the
technical service functions of the Agency. The award of separate
contracts for each major system development, enhancement, operation
and maintenance could increase competition, reduce over-reliance on
one contractor, increase the Agency's control over its major ADP
functions, and ensure that the Agency incurs the lowest possible
cost for technical support.
AGENCY COMMENTS
The Agency generally agreed with the findings and recommendations
presented in the report and has initiated substantive actions to
correct the contract management deficiencies identified. The
Agency did disagree with several overall report implications or
conclusions related to EPA's use of contractors, contractor access
to Agency information systems, Agency expertise to oversee
contractors, and EPA's over-reliance on CSC.
We believe the Agency misinterpreted the report's conclusions
regarding EPA's use of contractor's and contractor access to Agency
information. The Agency states that operation of libraries, mail
rooms, and information systems are contractible, commercial
activities under OMB Circular A-76. We agree. However, the extent
to which EPA contracted these services to one contractor with
little or no oversight and control goes well beyond the intent of
A-76 requirements. Also, the report does not state, as the Agency
contends, that it is inappropriate for contractors to have access
to sensitive and/or nonsensitive data; however, the report does
conclude that vesting access to the majority of Agency's mission
critical systems in one contractor unnecessarily increases the
Agency's vulnerability to the contractor. Finally, the report does
not state that the Agency would not survive without CSC or that EPA
lacks expertise to oversee CSC activities in all systems; however,
the report does conclude that due to CSC's extensive involvement in
so many critical systems, the sudden loss of CSC would greatly
impair the Agency's ability to perform its critical missions over
the short-run and that, in some systemsf EPA lacks the on-site
expertise to properly monitor and control contractor operations.
Because most of the Agency's disagreements related to overall
report implications or conclusions, the Agency's response to the
draft report and OIG's evaluation of the response have been
included in their entirety as Appendix I of this report.
viii Audit NO. E1NME1-04-0169
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TABLE OF CONTENTS
Page
EXECUTIVE SUMMARY i
1 INTRODUCTION 1
PURPOSE i 1
BACKGROUND 1
SCOPE AND METHODOLOGY 7
PRIOR AUDIT COVERAGE 10
2 EPA VULNERABILITY FROM CSC CONTRACT ACTIVITIES HAS
SUBSTANTIALLY INCREASED 13
BACKGROUND 13
EXTENT OF CSC INVOLVEMENT IN EPA'S HIGH RISK,
MISSION CRITICAL SYSTEMS ERODES AGENCY'S CONTROL OF
THE SYSTEMS AND SENSITIVE DATA 14
POTENTIAL CONFLICT OF INTEREST SITUATIONS HAVE EVOLVED
BETWEEN CSC AND EPA STAFF FROM EXPANSION OF CSC
CONTRACT ACTIVITIES 19
POTENTIAL CSC PERFORMANCE OF INHERENTLY GOVERNMENTAL
FUNCTIONS RESULTED FROM WEAK CONTRACT MANAGEMENT AND
UNCONTROLLED EXPANSION OF CSC PROGRAM INVOLVEMENT.. 26
OTHER CONTRACT MANAGEMENT PRACTICES AND INTERNAL
CONTROL WEAKNESSES COMPOUND EPA'S VULNERABILITY 28
LONG RECOGNIZED CONTRACT MANAGEMENT DEFICIENCIES
REMAIN UNCORRECTED BECAUSE OF LAX MANAGEMENT
ATTITUDE TOWARD SOUND CONTRACT MANAGEMENT 29
OIRM VESTING THE AGENCY'S OVERALL TECHNICAL SUPPORT
SERVICES IN ONE CONTRACTOR LIMITS COMPETITION,
ELEVATES AGENCY RISK, AND APPEARS CONTRARY TO
CURRENT EPA POLICY . 33
CONCLUSION 35
RECOMMENDATIONS 36
AGENCY RESPONSE AND OIG EVALUATION OF AGENCY
COMMENTS 38
3 PCMD'S FMFIA PROCESS DID NOT ENSURE PROPER CONTROL
OVER CSC CONTRACT ACTIVITIES 39
Audit NO. E1NME1-04-0169
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Table of Contents
BACKGROUND 39
PCMD'S REVIEWS OF CONTRACT MANAGEMENT FUNCTIONS
WERE INSUFFICIENT TO ENSURE ATTAINMENT OF FMFIA
CONTROL OBJECTIVES 40
CONCLUSION 43
RECOMMENDATIONS 43
AGENCY RESPONSE AND OIG EVALUATION OF AGENCY
COMMENTS 44
4 CONTRACT MANAGEMENT AND OVERSIGHT NEEDED SUBSTANTIAL
IMPROVEMENT 45
BACKGROUND 46
INADEQUATE STATEMENTS OF WORK RESULTED IN INADEQUATE
CONTROLS AND PROHIBITED CONTRACT MANAGEMENT
PRACTICES 49
RECOMMENDATIONS 65
TOSS DOS WERE ADMINISTERED AS PROHIBITED PERSONAL
SERVICES CONTRACTS 67
RECOMMENDATIONS 78
POTENTIALLY INHERENTLY GOVERNMENTAL FUNCTIONS WERE
PERFORMED UNDER TOSS CONTRACT 80
RECOMMENDATIONS 90
THE CO AND POs ALLOWED CSC STAFF TO PERFORM TASKS
OUTSIDE THE SOW OF THE CONTRACT OR RELATED DOS 91
RECOMMENDATIONS 94
UNTIMELY/UNDOCUMENTED CONTRACT VARIANCES MATERIALLY
CHANGED THE NATURE OF THE CONTRACT AND RESULTED IN
QUESTIONABLE CONTRACT COSTS 96
RECOMMENDATIONS 106
DYSFUNCTIONS EXISTED IN THE TOSS CONTRACT MANAGEMENT
PROCESS 108
RECOMMENDATIONS 110
AGENCY RESPONSE AND OIG EVALUATION OF AGENCY
COMMENTS Ill
Audit No. E1NME1-04-0169
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Table of Contents
5 EPA DID NOT ENSURE ACCOUNTABILITY FOR GOVERNMENT
PROPERTY FURNISHED TO CSC AND DID NOT ADEQUATELY JUSTIFY
AGENCY EQUIPMENT COSTS UNDER THE TOSS CONTRACT 113
BACKGROUND 113
INADEQUATE ACCOUNTABILITY FOR EPA PROPERTY PROVIDED
TO THE CONTRACTOR 113
AGENCY DID NOT ADEQUATELY JUSTIFY GOVERNMENT
EQUIPMENT COSTS UNDER THE TOSS CONTRACT 122
RECOMMENDATIONS 130
AGENCY RESPONSE AND OIG EVALUATION OF AGENCY
COMMENTS 131
6 INADEQUATE FINANCIAL MANAGEMENT OF TOSS CONTRACT 133
IMPROPER CONTRACT CHARGES RESULTED FROM INADEQUATE
INVOICE REVIEWS AND RELATED CONTROLS 133
INADEQUATE GUIDANCE AND CONTROLS OVER INVOICE
APPROVALS RESULTED IN BONA FIDE NEED RULE AND/OR
ANTIDEFICIENCY ACT VIOLATIONS 144
RECOMMENDATIONS 152
AGENCY RESPONSE AND OIG EVALUATION OF AGENCY
COMMENTS 154
7 EPA PRE-AWARD AND POST-AWARD TOSS CONTRACT MANAGEMENT
MAY HAVE PRECLUDED A FAIR AND COMPETITIVE CONTRACT
AWARD AND THE MOST COST-EFFECTIVE AGENCY OPERATIONS.. 157
WAIVERS OF CONTRACT REQUIREMENTS FOR INCUMBENT
CSC STAFF RAISES QUESTION OF FAIRNESS OF TOSS
CONTRACT AWARD 157
COST-EFFECTIVENESS OF CONTRACTOR PERFORMANCE
APPEARED QUESTIONABLE WHEN COMPARED TO IN-HOUSE
PERFORMANCE 170
RECOMMENDATIONS 172
AGENCY RESPONSE AND OIG EVALUATION OF AGENCY
COMMENTS 173
APPENDIXES
APPENDIX I: AGENCY COMMENTS ON DRAFT REPORT
AND OIG EVALUATION 175
Audit NO. E1NME1-04-0169
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Table of Contents
APPENDIX II: GLOSSARY OF ACRONYMS AND
ABBREVIATIONS 217
APPENDIX III: SAMPLE OF TOSS DELIVERY ORDERS
AUDITED 219
APPENDIX IV: CSC INVOLVEMENT IN MAJOR EPA
INFORMATION SYSTEMS 221
APPENDIX V: CONTRACT MANAGEMENT DEFICIENCIES
RELATED TO SAMPLE DOs 223
APPENDIX VI: QUESTIONABLE CHARGES/POTENTIAL
SAVINGS 229
APPENDIX VII: SAMPLE OF SOSM DELIVERY ORDERS WITH
FY 1991 EXPENDITURES OF FY 1990
ANNUAL FUNDS 233
APPENDIX VIII: COMPARISON OF TOSS CONTRACT COSTS
WITH EQUIVALENT FEDERAL FTE COSTS... 237
APPENDIX XI: PRIOR OIG AUDITS WITH CONTRACT
MANAGEMENT FINDINGS 245
APPENDIX X: REPORT DISTRIBUTION 251
Audit Mo. E1NME1-04-0169
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CHAPTER 1
INTRODUCTION
PURPOSE
The Environmental Protection Agency (EPA) spends hundreds of
millions of dollars annually for contracted services. However,
only a few contractors provide mission-support, on-site services
in EPA offices nationwide as does Computer Sciences Corporation
(CSC). For more than a decade the Agency has awarded national
contracts to CSC for technical and operational support services.
CSC's contract activities have gradually increased in value from
about $1 million annually in the late 1970's to about $60 million
in 1991. CSC contract activities have also expanded in scope
since 1985 and currently encompass the majority of EPA-wide
technical support services utilized by the Agency.
Because of substantially increased use of service contracts
Government-wide, primarily due to increasing agency workloads and
limited Federal staffs, Congress and the Office of Management and
Budget (OMB) have expressed concerns regarding the use and
control of service contractors to: (1) preclude contractor
performance of inherently governmental functions and prohibited
personal services relationships and (2) ensure quality, cost-
effective performance from contractor services.
As a result of EPA's increased use of CSC's services,
Congressional and OMB concerns related to these type contracts,
and a prior 1987 OIG survey which identified improper
administration^of CSC's contracts, the Office of Inspector
General (OIG) initiated a review of EPA's management of CSC
contract activities. Specific areas of audit emphasis addressed:
(1) whether contract management and controls were in compliance
with applicable laws, regulations, and Agency policy and
precluded fraud, waste, and abuse of contract resources; (2)
whether contracted activities were in the best interest of the
Agency and represented the most cost-effective alternative; and
(3) whether alleged impropriety and past contract management
problems continued to exist.
BACKGROUND
EPA has contracted with CSC since the early 1970's for technical
and operational computer systems support. CSC has provided such
contract services on a nationwide basis for almost 12 years1.
The types and volume of CSC services began to expand
significantly with the award of the Systems Operations and
1 OIRM consultant report "A Review of the TOSS Contract
Administration Functions and Processes' Within OIRM's Management
Planning and Evaluation Staff (MPES)", dated May 15, 1991.
1 -Audit No.'E1NME1-04-0169
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Chapter 1
Introduction
Software Maintenance (SOSM) contract in October 1985. The SOSM
contract was for fiscal year 1986 and four option years. CSC was
also awarded a maximum five- year contract to provide similar
services to EPA laboratories in February 1987, the Scientific
Applications, Statistics, and Laboratory Automation Support
(SASLAS) contract. In September 1990, a follow-on contract
(effective December 19902) to the SOSM contract was again awarded
to CSC for another maximum of five years. This contract was
titled the "Technical and Operational Services Support (TOSS)"
contract with an estimated value of $347 million. Under this
contract CSC became EPA's primary EPA-wide technical support
contractor.
The following charts illustrate the growth of CSC staff
supporting EPA contracts since 1983 in contrast to growth in EPA
staff for the same period.
PERCENT GROWTH OF CSC STAFF VERSUS EPA FTEs
1983 THRU 1991
% Increase Over 1983 Base Year
1983 1984 1985 1986 1987 1988 1989 1990 1991
Fiscal Years
2 Although TOSS contract was awarded on September 28, 1990,
the majority of TOSS delivery orders were not effective until
December 1, 1990. Performance of SOSM delivery orders was extended
through October and November 1990.
2 Audit HO. E1NME1-04-0169
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Chapter 1
Introduction
The types of technical services provided under the TOSS contract
cover almost all technical service areas including: (1) computer
system/software development, enhancement, maintenance, and
operation; (2) document processing, publications, and graphics;
(3) office automation and records management; (4)
telecommunications and local area network support; and (5)
laboratory/research support.
Significant Increase In CSC Contract Activities
The TOSS contract expanded the technical service labor categories
under the SOSM contract from 30 to 67 with substantially
increased labor hours for each labor category. The new TOSS
labor categories included telecommunications, ADP system/hardware
maintenance, laboratory services, and local area network
administration. The Agency intended that the SASLAS contract
activities would be incorporated into the TOSS contract upon
expiration of the SASLAS contract in 1991. The Agency also
merged telecommunication services under the TOSS contract upon
expiration of another contract for these services held by a
different contractor.
Between 1986 and 1991, CSC technical services provided to EPA
greatly increased. For instance, in March 1987, CSC staff
utilized by EPA programs and related offices under the SOSM
contract totaled 630. At the beginning of the TOSS contract
(January 1991), about 1,014 CSC staff were utilized by EPA under
this contract. This total does not include the hundreds of staff
subcontracted for by CSC under EPA contracts. As of September
1991, 1,165 CSC staff were being utilized under the follow-on
TOSS contract, an 85 percent increase since 1987, in just 4.5
years3. According to the Office of Information Resources
Management (OIRM), there were 1,452 CSC staff working under the
TOSS contract in November 1991, a 130 percent increase since
March 1987 and a 43 percent increase since January 1991, less
than a year.
The following is a comparison of CSC staff increases between
March 1987 and September 1991 at or adjacent to EPA locations.
3 TOSS contract staff shown does not include subcontractor
staff and subcontractor DOs. CSC staff totals based on CSC's TOSS
Contract Management Report for September 1991. CSC did not report
subcontractor personnel or DOs totally operated by a subcontractor
in this report.
3 Audit NO. E1NME1-04-0169
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Chapter l
Introduction
EPA Office
Ada, OK
Ann Arbor, MI
Annapolis, MD
Athens, GA
Atlanta, GA (Reg 4)
Boston, HA (Reg 1)
Chicago, IL (Reg 5)
Cincinnati, OH
Corvallis, OR
Dallas, TX (Reg 6)
Duluth, MN
Denver, CO (Reg 8)
Grosse lie, HI
Gulf Breeze, FL
Washington, DC (EPA Hqs)
Kansas City, MO (Reg 7)
Las Vegas, NV
Montgomery, AL
Narragansett, RI
Omaha, NE
New York, NY (Reg 2)
Philadelphia, PA (Reg 3)
Research Triangle Park,
San Francisco, CA (Reg 9)
Seattle, WA (Reg 10)
Waltham, MA
Other
TOTALS
CSC Staff
03/31/87 09/30/91
'qs)
7)
3)
k, NC
g 9)
4
15
14
23
22
19
31
25
3
36
7
28
10
15
142
25
46
6
9
0
25
21
58
28
17
0
1
4
34
25
25
40
50
64
53
9
74
13
61
10
19
329
35
47
13
18
4
53
44
69
36
27
3
6
Increase/
(Decrease)
No. %
0 0%
19 127%
11 79%
9%
82%
2
18
31 163%
33 106%
112%
200%
28
6
38 106%
6 86%
118%
0%
33
0
4 27%
187 132%
10 40%
1 2%
7 117%
9 100%
4
28 112%
110%
19%
29%
59%
23
11
8
10
3
5
630
1165
535
500%
85%
CSC's TOSS Contract Financial Report for October 1991 indicated,
as of September 1991, about 2 million labor hours (includes
subcontractor hours) had been ordered under the fiscal year 1991
TOSS contract delivery orders (TOSS Option Period 1) with a value
of about $50 million.
Types of Contracts Awarded to CSC
EPA has primarily awarded indefinite quantity, indefinite
delivery (IQ/ID) type contracts to CSC, a form of cost-
reimbursable contract with fixed labor and general administration
rates. This type contract has a broad statement of work and
estimated value with specific work assignments and dollar amounts
established through delivery orders (DOs) issued to the
contractor, pursuant to the contract. DOs authorize the level of
effort, on a fiscal year basis, and are accompanied by statements
of work that identify task-related technical requirements and
Audit HO. E1NME1-04-0169
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Chapter 1
Introduction
labor mix and budget needed to accomplish these requirements.
Delivery orders expire at the end of each fiscal year or contract
base/option period and have to be reissued for subsequent
contract periods.
The SOSM, SASLAS, and TOSS contracts were IQ/ID "umbrella"
contracts awarded by the Office of Administration and Resources
Management's (OARM) Procurement and Contracts Management Division
(PCMD) for OARM's Office of Information Resources Management
(OIRM). These contracts established a minimum and maximum value
for DOs issued during the life of the contract. EPA obtains CSC
services through the issuance of DOs on a national or
regional/local basis. Under these contracts, EPA's regional and
Headquarters program offices order technical services through
DO's and the DO's are funded by the individual offices placing
the order. When the SOSM contract expired, there were
approximately 127 DO operations, valued at $17 million, carried
over into the TOSS contract. At the end of 11 months (November
1991} under the TOSS contract, the number of 1991 delivery orders
had increased to approximately 200 (a 57.5 percent increase)
valued at $53 million.
EPA Contract Management Responsibilities
OARM has primary responsibility for EPA's procurement of
contractor services. Within OARM, PCMD provides procurement
support for contract solicitation and contract management and
OIRM provides the general management and support for EPA's
technical services and ADP functions. OIRM, through PCMD,
acquired CSC. contract services for
EPA Headquarters and regional operations. The Contracting
Officer (CO) is in PCMD and has responsibility for overall
contract management and control. The national Project Officer
(PO) is on OIRM's staff and has responsibility, in conjunction
with the CO, for the overall contract administration.
Delivery Order Project Officers (DOPOs) and Alternate Delivery
Order Project Officers (ADOPOs) are responsible for preparing DOs
and related Statements of Work (SOWs) and overseeing contractor
operations related to specific delivery orders. DOPOs for
regional delivery orders are normally located nearby or on-site
with the CSC staff; however, DOPOs for national DOs are usually
located at EPA Headquarters with the DO activity occurring in
various regional offices. In some instances, DOPOs for national
DOs have ADOPOs or regional contact persons on-site to monitor
CSC activities or coordinate the flow of information between CSC
staff and the DOPO.
CSC Contract Management
CSC provides CSC site managers to manage CSC staff on individual
5 Audit No. E1NME1-04-0169
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Chapter 1
Introduction
or multiple delivery orders and provide monthly progress reports
to the assigned DOPO(s). The site manager is responsible for
developing project workplans based on the DO and SOW provided by
EPA. There is usually one CSC site manager in each EPA region
and an assistant site manager in regions with large CSC staffs.
At EPA Headquarters, site managers may manage multiple DOs in the
Headquarters area.
The SOSM and TOSS contracts assigned certain contract management
responsibilities to the contractor to include planning, quality
assurance, providing monthly progress reports to EPA managers,
tracking of delivery orders and related budgets, etc. CSC is
permitted to charge program management costs under the contract
for expenses associated with these responsibilities. Program
management costs are charged as a percentage of direct labor
hours billed under the various DOS. The CSC program manager (CSC
Vice-President for EPA Contracts) has overall responsibility for
the contractor's program management and related contractor
support activities and serves as the contractor's liaison with
EPA for discussion of EPA's technical requirements and resolution
of contractual problems. The CSC program manager also has
assistant program managers, a quality assurance coordinator, and
several levels of CSC site managers to perform CSC's
contract/program management responsibilities.
Applicable Laws. Regulations, and Policies
The Service Contract Act of 1965, as amended, and the Federal
Acquisition Regulation (FAR) in the Code of Federal Regulations
(CFR) Title 48 provide Government-wide terms under which support
services may be obtained through contracts. The Federal
Information Resource Management Regulations (FIRMR), codified in
41 CFR Part 201, govern the acquisition of Federal information
processing resources and certain related support functions.
Within EPA, support service contracts and related contract
management in general are guided by:
- Environmental Protection Agency Acquisition Regulations
(EPAAR), 48 CFR Part 1501
- Contracts Management Manual, EPA Directive 1900
- Contracts Administration Training Manual, October 1990
- EPA Project Officers' Handbook
- Delivery Order Project Officers' Guide, issued draft March
1990.
- EPA Order 1990.1, dated October 31, 1985, entitled "Use of
Contractor Services"
Audit NO. E1NME1-04-0169
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Chapter l
Introduction
- EPA Order 1900.2, dated October 22, 1990, entitled,
"Contracting at EPA"
The TOSS contract, in particular, has specific guidance for post-
award contract management in OIRM's Technical Operational Support
User's Guide. This guidance was issued in draft in November
1990. The guidance was issued in final in August 1991, and was
titled "User's Guide for the TOSS Contract."
SCOPE AND METHODOLOGY
This audit generally covered contract management and related
transactions under the TOSS contract awarded to CSC in September
1990. However, transactions under the prior SOSM contract and
activities related to CSC's current National Contract Payments
Systems (NCPS) contract were reviewed where considered necessary
to fully develop conditions identified during our review of TOSS
contract activities and establish a historical perspective
regarding CSC contract awards. The audit fieldwork was performed
from April 1991 through December 1991 primarily at EPA
Headquarters, CSC Headquarters, Research Triangle Park, two
regional offices (Regions 6 and 9), and two EPA laboratories
(Gulf Breeze, Florida and Corvallis, Oregon).
The overall objective of this audit was to evaluate whether EPA's
management of CSC contract activities was in compliance with
applicable laws, regulations, and policies and to determine
whether past allegations and problems identified with the
administration of CSC contracts still existed (See PRIOR AUDIT
COVERAGE section of this Chapter). Specific objectives were to:
1. Evaluate EPA management and controls over CSC contract
activities to protect the Agency from fraud, waste, and
abuse; ensure the most cost-effective technical support
operations; ensure contractor compliance with contract terms;
ensure quality of contractor performance; and ensure
contractor accountability for Agency.resources in its
possession.
2. Determine whether CSC contracts or related delivery orders
were being administered or operated as prohibited "personal
services" contracts as defined in 48 CFR Part 37.
3. Assess the quality of CSC staff provided in relation to
contract requirements.
4. Evaluate the preparation of DOs; verification, approval, and
processing of CSC invoices; and controls to ensure compliance
of contract obligation and expenditure with applicable
appropriation law.
5. Identify improper contract charges to include "idle time" and
Audit No. E1NME1-04-0169
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Chapter l
Introduction
unallowable training and travel costs charged to the TOSS
contract.
Review of Delivery Order Operations
To accomplish our audit objectives, we judgmentally selected six
EPA locations for our review of CSC contract activities. These
locations included EPA Headquarters, Research Triangle Park,
Regions 6 and 9, and EPA laboratories at Gulf Breeze, Florida and
Corvallis, Oregon. For the National DOs we also visited Regions
1 and 4 to evaluate DO operations. The locations were selected
based on the number and size of active CSC delivery orders or
previous allegations of contract mismanagement. At these
locations a judgmental sample of 26 CSC delivery orders under the
TOSS contract with a dollar value of $14.1 million was selected
for audit (See Appendix III for a list of sample DOs by
location, value, and number of CSC staff). This sample
represented 18 percent of the 145 TOSS DOs funded as of March 31,
1991, with a value of over $30 million. The sample DOs were
generally selected based on their dollar value, size of CSC
staff, and CO/PO reviews of SOWs and DOS.
The following charts compare the size of CSC staff at audit
locations to total CSC staff under the TOSS contract and the
relative increase in CSC staff at selected locations between
March 1987 and September 19914.
GROWTH OF CSC STAFF AT AUDIT LOCATIONS
UNDER SOSM AND TOSS CONTRACTS
Number of Employees
1,400
Audit Locations - EPA-Wide
Fiscal Years 1937 - 1991
Includes only CSC staff. Subcontract Staff Unknown.
4 TOSS contract staff shown does not include subcontractor
staff and subcontractor DOs. CSC staff totals based on CSC's TOSS
Contract Management Report for September 1991. CSC did not report
subcontractor personnel or DOs totally operated by a subcontractor
in this report.
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Chapter l
Introduction
Our audit of the sample delivery orders included (1) reviews of
the DO and related SOW, DOPO contract management files, CSC
monthly progress reports, CSC invoices, CSC site manager records,
and CSC personnel files; and (2) interviews of DOPOs, ADOPOs,
appropriate EPA managers, CSC site managers and selected staff,
and former CSC employees. Since we did not perform a detailed
financial audit of CSC claims, we did not verify incurred or
claimed charges on invoices submitted by the contractor. CSC
claims under the SOSM and TOSS contracts and related contractor
accounting records are subject to audit by the Defense Contract
Audit Agency (DCAA) who is the cognizant financial audit agency
for CSC Government contracts. Our audit coverage was closely
coordinated with DCAA to preclude duplication of audit effort and
facilitate an open interchange of audit information concerning
CSC operations.
/
Review of Overall EPA Contract Management and Controls
We reviewed EPA's overall contract management activities at EPA
Headquarters and Research Triangle Park. Specifically, reviews
were conducted at OARM's PCMD, OIRM, and Facilities Management
and Services Division (FMSD) locations. Evaluation of EPA
management of CSC contracts included: (1) reviews of PCMD and
OIRM contract management files and contract guidance related to
the SOSM and TOSS contracts, Federal Managers' Financial
Integrity Act 5(FMFIA) documentation and control techniques; (2)
interviews of COs and POs for the SOSM and TOSS contracts, OARM
property management staff, and CSC program managers; (3) reviews
of program manager files, CSC activities related to the National
Contracts Payment System (NCPS), SOSM contract
obligations/expenditures of fiscal year 1990 annual
appropriations for fiscal year 1991 DO operations, and fiscal
year 1990 DO issuances for the follow-on TOSS contract; (4)
assimilation of contract payment information from the NCPS
related to fiscal year 1991 SOSM DO expenditures; and (6)
comparison of selected TOSS labor rates to federal Full-Time
Equivalent (FTE) costs using basic OMB Circular A-76 guidelines.
Certain data used in this report was extracted from CSC contract
activity reports, EPA financial management systems, and OIRM
tracking systems. With exception of the NCPS system, no audit
tests were performed to evaluate the adequacy of manual or
automated controls for these systems or the validity of the data
maintained by these systems. Therefore, we can not and do not
attest to the accuracy or integrity of the system data used in
this report. In addition, only limited reviews of NCPS external
controls related to CSC contract activities were performed.
NCPS's automated controls were not evaluated.
We conducted the audit in accordance with Government Auditing
Standards (1988 revision) issued by the Comptroller General of
the United States. Our audit included tests of management and
9
Audit Mo. E1NME1-04-0169
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Chapter 1
introduction
related FMFIA controls, policies, and procedures specifically
related to the audit objectives. The findings in the report
include material control weaknesses identified during the audit
and our recommendations to correct the weaknesses, where
appropriate. Controls established for review of DOs and related
SOWs by the CO and PO identified some of the deficiencies we
found relating to DO operations; however, neither PCMD nor OIRM
had taken expeditious actions to correct these deficiencies. No
other issues came to our attention as a result of specified audit
procedures which we believed were sufficiently material to
warrant expanding the scope of our review.
Scope Limitations and Impediments
During the audit, we encountered several impediments to the
accomplishment of our audit objectives. CSC attorneys insisted
on attending all audit interviews of CSC staff and reviewing all
CSC site manager records requested by auditors prior to release
to the OIG. Also, CSC site managers were reluctant to release
contract information in their possession and contradictory, often
incorrect, information was given by EPA, as well as CSC managers
during the audit. The presence of CSC attorneys at CSC staff
interviews and pre-interview briefings CSC attorneys conducted
with CSC personnel scheduled for interview tended to inhibit the
free exchange of information on CSC contract operations. Both
the CSC attorneys' involvement in the audit and contradictory
statements made by both CSC and EPA staff, necessitated
additional audit coverage in an attempt to obtain a true picture
of contract activities and unnecessarily prolonged the audit
fieldwork.
PRIOR AUDIT COVERAGE
A 1987 OIG special review (Review No. E6eW7-08-0073) of Region 8
CSC activities under the SOSM contract, initiated as a result of
allegations concerning EPA's mismanagement of the CSC contract,
disclosed evidence of (1) administration of CSC activities as
prohibited personal services contract, (2) ineffective monitoring
of CSC staff hours, (3) unqualified CSC personnel, (4)
inappropriate contract charges for training and idle time, (5)
improper invoice approvals, and (6) CSC involvement in the
preparation of SOSM DOs. A followup audit of CSC contract
activities in Region 8 was initiated in December 1990 to
determine whether conditions identified during the 1987 survey
still existed. The "Audit of Region 8 Management of Computer
Sciences Corporation Contract Activities" (Audit Report No.
E1XMF1-08-0033-1100441, issued September 30, 1991) disclosed that
EPA Headquarters and Region 8 did not implement and enforce sound
contract management controls, Region 8 administered Contractor
support services as personal services, and neither CSC nor EPA
performed minimum background investigations for CSC personnel
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Chapter 1
Introduction
even though CSC employees had access to critical, sensitive
Agency data and the automated systems that store and manipulate
this data. On the basis of preliminary results of this Region 8
audit, OIG initiated this nationwide audit of EPA management of
CSC contracts.
Other prior OIG audits also identified similar EPA contract
management problems. These prior audits are listed in Appendix
IX of this report.
In addition to prior OIG audits of CSC contracts, the General
Accounting Office (GAO) had issued several audit reports and
given Congressional testimony concerning problems with EPA's
management of consulting and management support service
contracts.
GAO Audit, "EPA's Use of Management Support Services"
(GAO/CED-82-36), issued March 9, 1982.
GAO Audit, "The Environmental Protection Agency Should
Better Manage Its Use of Contractors" (GAO/RCED-85-12),
issued January 4, 1985.
GAO Audit, "Status of EPA's Contract Management Improvement
Program" (GAO/RCED-87-68FS), issued January 1987.
GAO Testimony, The Environmental Protection Agency's Use of
Consultants" (GAO/T-GGD-89-5), issued February 3, 1989.
GAO Testimony, "Sound Contract Management Needed at the
Environmental Protection Agency" (GAO/T-RCED-89-8), issued
February 23, 1989.
GAO Audit, "Government Contractors: Are Service Contractors
Performing Inherently Governmental Functions?" (Audit No.
GAO/GGD-92-11), issued November 1991.
Although none of these reports specifically involved CSC contract
activities, many of the conditions reported were similar or
relevant to those OIG has identified in this audit and in Region
8's management of the CSC contract. Specifically:
- EPA's extensive use of support service contracts to perform
critical agency functions and augment insufficient EPA staff.
- Potential performance of inherently governmental functions by
contractors.
- Excessive, improper use of contract consolidations and
modifications in lieu of open solicitation and competition for
services.
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Chapter 1
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1
- Inadequate contract SOWs, monitoring, and quality assurance
criteria to evaluate contractor performance.
- Contractor conflicts of interest.
The Department of Defense (DOD), Defense Contract Audit Agency
(DCAA), is the cognizant audit agency for financial audits of
CSC's Government/military contracts. During the past fiscal
year, DCAA has issued two audit reports containing conditions
directly related to this audit.
"Audit of CSC's Billing System", Report No. 6321-
91R11010004-196, issued August 28, 1991.
"Report of Followup Audit of Accounting System, Computer
Sciences Corporation", Report No. 6321-91R177000001-236,
issued August 31, 1991.
DCAA's Report No. 6321-91R11010004-196 disclosed that CSC's
billing system was unreliable and recommended disapproval of
CSC's billing system unless significant improvements were made to
ensure accurate invoices. Specifically, the audit stated CSC's
billing system (1) failed to use current provisional billing
rates, (2) failed to bill labor costs at contractual rates, (3)
contained an ineffective review of billings, and (4) included
preparation of billings outside of accounting records and
controls. The followup audit of CSC's accounting system
disclosed the following deficiencies, previously reported, that
required additional corrective actions: (l) inadequate
supporting documentation for journal entries and verbal
.authorizations on DOs, (2) inadequate accounting system manual,
and (3) voluminous unsupported labor transfers between DOs.
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CHAPTER2
EPA VULNERABILITY FROM CSC CONTRACT ACTIVITIES
HAS SUBSTANTIALLY INCREASED
The Agency's vulnerability to fraud, waste, abuse, and related
conflict-of-interest situations from CSC activities has steadily
grown since the 1985 SOSM contract award. This vulnerability
dramatically increased with award of the TOSS contract in 1990
and CSC's substantial involvement in: (1) critical, if not
inherently governmental, Agency functions, (2) the long-term on-
site and off-site relationship between contractor staff and EPA
management, and (3) management of its EPA contracts. The
Agency's lax attitude toward contract management, failure to
adequately correct previously contract identified management
deficiencies, and consolidation of major system development,
operation, and maintenance (often without adequate system
documentation1) and technical support services under one
contractor has also elevated the Agency's risk from CSC's
activities. This risk is compounded by the Agency's inadequate
contract management practices and weak or ineffective controls
over the contractor's activities (see Chapters 3 through 7). The
audit did identify illegal contract activities (i.e., personal
services), possible cost inefficiencies in contract award and
administration, and potential conflict-of-interest situations
(see Chapters 4, 5, 6, and 7).
BACKGROUND
Since the early 1970's, EPA has contracted with CSC for
ADP/technical support services. Since 1977, CSC's role in EPA
technical support began to expand dramatically and culminated in
the OIRM umbrella IQ/ID technical service contract, SOSM, awarded
in October 1985, a maximum five-year contract. Most of the CSC
work was in EPA offices nationwide. Under this umbrella
contract, program managers throughout EPA could request CSC
services through delivery orders as long as the programs had
funds to pay for the services. Because of personnel ceilings and
alleged staff shortages, growing program workloads, and abundant
contract funds, EPA managers began to utilize the CSC contract to
obtain needed staff2. As a result, CSC involvement in critical
..'. OIG Audit No. E1NMF1-15-0032, Review of Computer System
integrity Requirements. The audit report is being processed
concurrently with this report and is expected be issued by March
31, 1992.
2 GAO audit reports (i.e., GAO/CED-82-36, GAO/RCED-85-12, and
GAO/GGD-92-11) and Agency studies (i.e., Contract Management: The
People and the Process, November 1988) have documented EPA
management conclusions that personnel ceilings and EPA staff
shortages coupled with the availability of contract dollars has
caused the Agency's overdependence on contractors.
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Chapter 2
EPA Vulnerability Prom CSC Contracts
Agency functions expanded dramatically. At the end of the SOSM
contract in 1990, there were about 130 active delivery orders and
over 1,000 CSC staff assigned to the contract (not including
subcontractor personnel) .
In September 1990, EPA awarded a follow-on, five-year contract,
TOSS. However, the majority of contract DOs were not effective
until December 1, 1990. This contract greatly expanded the
technical services provided by CSC to include telecommunications,
equipment installation and maintenance, local area network
administration, etc. This consolidated several prior and future
expiring contracts, several previously performed by other
contractors, under this umbrella technical services contract. At
the end of fiscal year 1991, after 10 months of contract
activity, CSC delivery orders had increased to 200 with 1,452 CSC
staff assigned (not including subcontractor personnel) .
EPA is heavily dependent on contractor support and, as such, the
Agency's vulnerability to contractor activities was highlighted
in a 1988 OARH study, "Contracts Management: The People and the
Process." This study included an indepth survey of EPA contract
managers' concerns. Some of these concerns included: "...the
extent of contracting made the Agency vulnerable to a loss of
expertise ..." and "... an over-dependency on contractors could
open up opportunities for collusion, contracting for personal
services and directed subcontracting."
EXTENT OF CSC INVOLVEMENT IN EPA'S HIGH RISK, MISSION CRITICAL
SYSTEMS ERODES AGENCY'S CONTROL OF THE SYSTEMS AND SENSITIVE DATA
Major System Development. Enhancement. Maintenance, and
on
EPA's heavy reliance on one contractor, CSC, for development,
enhancement, operation, and/ or maintenance of a majority of its
critical information and financial management systems has
dramatically increased the Agency's vulnerability to this
contractor's operations. This vulnerability is compounded by
lack of system documentation and EPA technical expertise in some
cases, internal control weaknesses, and potential conflict-of-
interest situations involving this contractor's activities at EPA
offices .
An OIG report "Special Review of EPA's Major Information Systems"
(Report No. E1RMG1-15-0041-1400061, issued September 30, 1991)
identified EPA's major operational and developmental information
systems and ranked the systems by vulnerability and inherent
risks associated with each system. The report identified two
operational and two developmental systems as "Very High Risk", 14
operational and three developmental systems as "High Risk", and
45 operational and one developmental systems as "Moderate Risk".
Based on information furnished by CSC management and EPA staff on
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Chapter 2
EPA Vulnerability From CSC contracts
systems and ranked the systems by vulnerability and inherent
risks associated with each system. The report identified two
operational and two developmental systems as "Very High Risk11, 14
operational and three developmental systems as "High Risk", and
45 operational and one developmental systems as "Moderate Risk".
Based on information furnished by CSC management and EPA staff on
36 of these major EPA systems, CSC is substantially involved in
system development, enhancement, operation, and/or maintenance
for all four operational or developmental "Very High Risk"
systems and 13 of 16 operational or developmental "High Risk"
systems reviewed. Examples of high risk and very high risk
systems in which CSC has substantial involvement include the
Integrated Financial Management System (IFMS), Financial
Management System (FMS), Management Audit Tracking System (MATS),
National Contract Payment System (NCPS), EPA Payroll System
(EPAYS), Personal Property Accounting System (PPAS), and Federal
Facilities Information System (FFIS). We also identified 14
"Moderate Risk" operational/developmental systems that
potentially contain sensitive, mission critical data. CSC is
substantially involved in 11 of these systems. The 36 systems
referred to above along with CSC involvement are shown in
Appendix IV.
The number of systems by type and category of contractor
involvement are shown below.
System Development
Major Enhancements/Redesign
Programming
Software Development
System Operation
System Maintenance
Other (user support/
training, etc.)
Operational
9
15
8
10
20
17
Developmental
3
1
3
Of 29 major operational systems included in Appendix IV, CSC was
involved in system development/enhancement, operation, and
maintenance for 14 systems. Involvement of the contractor in all
phases of a system makes the Agency particularly vulnerable to
the contractor's operations. This vulnerability is compounded
when the systems are not documented and the Agency has not
retained technical expertise in the system. Information we
obtained on CSC involvement in the NCPS and evidence obtained in
a concurrent OIG audit "Computer Systems Integrity Requirements"
(Audit No. E1NMF1-15-0032) disclosed that CSC has consistently
inadequately documented systems they developed and EPA has not
retained sufficient expertise in the system design and operation
to properly monitor and control contractor activities.
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Chapter 2
EPA Vulnerability From CSC Contracts
For instance, our review of CSC involvement in the NCPS disclosed
that CSC developed, operated, and maintained this "High Risk"
system and that no adequate system documentation existed. All
primary technical knowledge of the system essentially resided
with CSC staff. Our review of system operation disclosed
material weaknesses in the systems external controls and a
potential conflict-of-interest situation with CSC participation
in the processing of its own contract invoices (see Conflict of
Interest section below for further details). In addition, an
attempt by DIG staff, through direct system access, to
independently obtain CSC payment information for this audit
emphasized EPA's lack of technical knowledge of the system's
fields and data base,layout. Without data base record layouts,
OIG staff could not identify by field names where certain
contract invoice data was stored in the system, since there was
no system documentation, auditors contacted EPA managers
overseeing the system but these managers and their staff had no
knowledge of the file layouts and had to direct the auditors to
CSC personnel who had designed and now operate the system. It
was evident from our review that EPA relied heavily on the
contractor for system knowledge, operation, and maintenance.
Other examples of CSC control of EPA systems were found in
reviews of DOs for the ORD Gulf Breeze Laboratory and Workforce
'91 Report. Neither the DOPO nor any other EPA staff at the Gulf
Breeze Lab had technical expertise in the VAX system operated for
the Labs programs by CSC. EPA staff depended entirely on CSC for
system operation and maintenance. Without sufficient technical
knowledge of the VAX system, the DOPO could not have properly
monitored and controlled contractor activities. In fact, CSC
assisted in preparing the DO and SOW. The DOPO said if CSC left
the Lab, she would have to call the RTP computer center for
assistance.
The VAX system was also used to support the ORD Headquarters1
Workforce '91 DO (DO 137) based on CSC's recommendation. The
ADOPO requested CSC advice on the best system for the project
and a CSC employee advised use of the VAX system because of the
system's efficiencies and capabilities. The ADOPO accepted the
recommendation even though he had no technical knowledge of the
VAX system. The CSC employee later transferred to EPA
Headquarters to work on the DO because of her VAX expertise.
Neither the DOPO or ADOPO possessed any VAX expertise. CSC had
to assist the DOPO and ADOPO in preparing the DO, including SOW
and labor mix required. According to the ADOPO, he and the DOPO
had requested EPA technical assistance but found that no EPA
employees possessed VAX expertise. The DO has been modified
three times to add resources, change labor categories and hours,
and alter milestones primarily based on CSC recommendations. The
DO .project has taken longer and cost significantly (increased
from $33,000 to $69,500) more than originally estimated. Neither
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Chapter 2
EPA Vulnerability From CSC Contracts
the DOPO or ADOPO had sufficient system expertise to evaluate
CSC's recommended changes and cost increases or properly monitor
the contractor's performance. Therefore, technical control of
the system resides with CSC and EPA has no assurance that the DO
changes were reasonable or justified. On this DO, CSC is
essentially making decisions on resource requirements and cost-
effectiveness for the Agency.
Contractor Access to Sensitive Acrencv Data Bases and Management
Information
CSC staff operate, maintain, and, to some degree control, EPA
systems which contain the most highly sensitive, mission-critical
data the Agency possesses. An OIG audit of EPA's use of Resource
Access Control Facility (RACF) security software (Audit No.
E1NMBO-15-0027-1100151, issued March 1991) disclosed that the
software was not being properly implemented and used to restrict
access by EPA or contractor personnel to highly sensitive
information in EPA's mainframe systems.' As a result, these
systems are vulnerable to unauthorized access and alteration of
critical data. The report stated:
[EPA] is not providing sufficient guidance, oversight
and active monitoring of contract personnel who are
responsible for RACF security. ...As a result of these
conditions, the Agency is exposed to unnecessary risks
by providing the means for unethical users to access
the mainframe system and conduct unauthorized
activities with little fear of detection.
Inadequate system security coupled with major system operation
and maintenance concentrated in one contractor magnifies the
Agency's risk from CSC operations.
CSC staff also have access to EPA fax and electronic mail systems
and process and open EPA postal correspondence at many EPA
offices. This includes electronic and postal mail processing at
the highest levels of EPA management. The Agency possesses
little information or knowledge to which the contractor is not
privy.
In addition, the Agency's vulnerability to CSC's access to this
sensitive data is unnecessarily elevated because neither EPA nor
CSC performed adequate background investigations of CSC staff
working for EPA. The TOSS contract does not require the
contractor to perform at least a minimum background check on its
employees (except CSC personnel involved with the Toxic
Substances Control Act (TSCA) Confidential Business Information
system) that EPA staff are subjected to. The TSCA CBI system is
only one of many high risk systems in which CSC is significantly
involved. Furthermore, the TOSS contract does not specify the
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Chapter 2
EPA Vulnerability From esc Contracts
level of background check required for TSCA system staff and
assigns total responsibility for personnel security and system
access to CSC.
Office of Management and Budget (OMB) Circular A-130 states
agency policies:
... are to include requirements for screening all
individuals participating in the design, development,
operation, or maintenance of sensitive applications as
well as those having access to sensitive data. The
level of screening required by these policies is to
vary from minimal checks to full background
investigations,, depending upon the sensitivity of the
information to be handled and the risk and magnitude of
loss or harm that could be caused by the individual.
These policies shall be established for both Federal
and contractor personnel (emphasis added).
We found no Agency policy concerning security requirements for
contractor personnel. Because CSC personnel design, operate, and
maintain many of EPA's "High Risk" systems, A-130 criteria would
require that a significant number of CSC positions associated
with these systems could be classified as sensitive with the
requirement for, full,or at least minimum background
investigations/ Background investigations are already required
for EPA personnel associated with these systems.
The lack of minimum background investigations for CSC personnel
was noted in our pilot audit of Region 8's administration of CSC
contract activities3. The Region 8 audit report recommended that
the TOSS contract be modified to require minimum background
investigations for all current and future CSC employees. OIRM
and PCMD had not responded to the Region 8 final report at the
conclusion of this audit; however, OlRM's response to the Region
8 draft report stated that OIRM would examine the TOSS labor
categories to see if certain positions required a background
investigation. In response to the Region 8 final report, OIRM
did not clearly agree to background investigations for all CSC
personnel as recommended; therefore, we have included the same
recommendation at the conclusion of this Chapter to reiterate our
continued concern that at least minimum background checks be
.required for contractor personnel.
An example of the consequences of inadequate background checks
recently occurred in Region 4's computer center. A CSC computer
3 OIG audit "Region 8 Management
Corporation Contract Activities" (Audit
1100441), issued September 30, 1991.
of Computer Science
No. E1XMF1-08-0033-
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center employee was arrested for numerous counts of fraud against
various federal programs and the employee was found to possess
numerous ID's under various aliases. A background check by
police and OIG investigators disclosed that this person had prior
criminal convictions and was fired by his previous employer for
security reasons. Although OIG investigators warned the Region
not to allow this person access to Regional facilities, a guard
mistakenly gave the CSC employee access to the Region's computer
center for almost two hours after he was released from jail on
bond. Regional personnel do not know what this person may have
done to the Region's systems or data bases. CSC was not aware of
this person's background because no background investigation was
required or performed. As a result, this person of questionable
character was allowed access to Region 4's critical program
support systems and data.
POTENTIAL CONFLICT-OF-INTEREST SITUATIONS HAVE EVOLVED BETWEEN
CSC AND EPA STAFF AND FROM EXPANSION OF CSC CONTRACT ACTIVITIES
We identified potential conflicts of interest in CSC contract
operations of both an organizational and personal nature. Actual
conflicts of interest or the appearance of such conflicts should
be avoided to maintain program integrity and public trust in
Agency operations and preclude potential fraud, waste, and abuse
that can result from such conflicts.
48 CFR Section 9.501 (FAR) defines an organizational conflict of
interest related to a contractor as follows:
...when the nature of the work to be performed under a
proposed Government contract may, without some
restriction on future activities, a) result in an
unfair competitive advantage to the contractor, or b)
impair the contractor's objectivity in performing the
contract work.
Potential conflicts of interest we identified involved both
possible unfair competitive advantages and impairment of the
contractor's objectivity.
CSC Participation In Managing Its EPA Contracts To Include
Developing Statements of Work and Delivery Orders
Our audit of CSC DOs and overall TOSS contract management
disclosed that CSC, in effect, assigned itself work and managed
its own contract for EPA. Of 26 DOs we reviewed, CSC had
participated in the preparation of 20 DOs and SOWs including the
number and types of labor categories needed to perform the SOW
(see details in Chapter 4). Lack of adequate guidance, DOPO
over-dependence on the contractor, and, in some cases, lack of
19
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DOPO technical knowledge and expertise to know what resources
were needed or the specific tasks to be accomplished contributed
to this condition. Generally, on less-technical,less-complex
DOs, DOPOs possessed sufficient expertise to define task and
resources by themselves; however, many of these DOPOs still
involved CSC staff in preparation of the DOS. On highly-
technical, more complex DOs, DOPOs did not always possess the
necessary technical expertise to properly monitor and control the
contractor's work. CSC's involvement in preparation of DOs under
its contract represented a conflict of interest and prohibited
contracting activity under EPA Order 1900.2 and potential
contractor performance of inherently governmental functions (see
discussion below). Also, CSC, under TOSS contract terms, was to
track DO obligations, expenditures, and labor categories and
related modifications for EPA. Many DOPOs relied heavily on
CSC's tracking of DO balances rather than obtaining this
information from EPA's Financial Management System (FMS). Even
the national TOSS PO had a CSC DO in her office (9 CSC employees
assigned) to maintain and operate her TOSS DO/contract tracking
system and log-in and administratively process CSC DOs/SOWs
received from DOPOs nationwide. It was also apparent that the CO
relied on CSC managers to track his verbal contract modifications
and document contract problem resolution. The CSC program
manager (CSC Vice-President for EPA Contracts) stated that in
reality CSC manages the TOSS contract for EPA.
Long-Term Close Relationship Between EPA And Contractor May
Preclude Arms-Length Transactions Between Contractor and Agency
The close on-site (EPA office locations) interaction between CSC
and EPA personnel for over a decade has created a close
relationship between EPA and the contractor and has resulted in a
free interchange of personnel between CSC and EPA staffs. In
some cases, the spouses or children of CSC personnel are EPA
personnel and vice versa and they work at the same location.
While such a close relationship facilitates smooth contract
transitions and contract operations, the Agency's risk of
conflict-of-interest situations and less than arms-length
transactions between the contractor and EPA increase. These
situations could and have resulted in illegal contract
administration (i.e., personal services) and EPA contract
management decisions that were not the most cost-beneficial or
cost-effective alternatives for the Agency.
In the early 1980's, the OIG recognized the risk from
Agency/contractor relationships. A 1982 OIG vulnerability
assessment report stated that the most vulnerable area at EPA was
the procurement function because "... close relationships exist
between program office personnel and contractors that could
easily lead to favoritism and unjustified sole-source awards."
The November 1988 OARM contract management study previously cited
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EPA Vulnerability From esc Contracts
concluded that:
...Often, little differentiation exists between
contractor and EPA staff, ...Many managers viewed
contractor employees as supplemental staff members
whose presence compensated for a lack of funding for
in-house staff, ...Cost efficiency and productivity are
rarely considered [in contracting decisions].
These same concerns are repeated in a November 6, 1991,
memorandum from the Acting Assistant Administrator for OARM to
the EPA Deputy Administrator regarding the Contracts Management
Improvement Program. An attachment to the memorandum "Contracts
Management Plan of Action, Executive Summary" included the
following statements:
There are certain [contract management] issues that are
quite broad touching on behavioral attitudes and habits
deeply ingrained in EPA's views of contracts and
contracts management. ...Due to the large use of
contract support at EPA, Agency personnel work very
closely with their contractors and tend to treat them
more as co-workers rather than as a purely business
relationship.
CSC has provided EPA with on-site technical support services for
over 12 years. This long-term relationship has fostered close
associations between EPA and CSC staff. CSC personnel perform
critical Agency functions and EPA managers are very dependent on
the contractor's work. In some instances an EPA managers'
performance ratings are tied to the performance of CSC employees.
Therefore, EPA managers had a tendency to become directly
involved with contractor personnel and create personal services
relationships. Our audit disclosed that many EPA managers
treated CSC personnel in EPA offices as FTEs. CSC staff were not
identified as contractor employees in the EPA work place or
office phone listings, were commingled with EPA staff in many
instances, and represented themselves as EPA employees to the
public. In one instance, we found that a CSC employee had been
commingled with EPA staff for so long that an EPA secretary did
not know she was a contractor employee. We were initially
informed that she was part of the EPA staff until we interviewed
the person.
The close relationship between EPA and CSC staff has also been
fostered by the free interchange of personnel between EPA and the
contractor. Many CSC employees have become EPA employees and
vice versa. For instance, the current national PO for the TOSS
contract was once a CSC employee. In addition, the CSC program
manager for the TOSS contract was once (in the late 1970fs) an
EPA employee. In addition, the former SOSM and TOSS contracts PO
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billing system4. The DCAA report stated that internal controls
related to the contractor's billing system "...generally do not
assure the accuracy and reliability of costs billed on progress
payments and claimed in public vouchers." DCAA recommended that
CSC's billing system be disapproved unless significant
improvements were made.
National Contracts Payment Systems
CSC developed, operates, and maintains the NCPS. No current
documentation or data element dictionary exists for the system.
CSC activities on the NCPS were contracted through a DO under the
SOSM contract but a separate contract was awarded to CSC for the
NCPS after SOSM expired. The NCPS receives all contract DOs and
modifications for input of authorized labor categories and rates
into a DO data base. Contractor invoiced labor categories and
rates are verified against the categories/rates in the data base
during a prevalidation review.
According to the EPA employee involved with processing CSC
invoices, CSC personnel were not permitted to input DO or DO
modification information into the system (two EPA employees input
this data) used to validate CSC invoices prior to the TOSS
contract. CSC staff were only permitted to log the invoices into
the system as to date received, date of .the invoice, DO number,
and invoice amount. ' This log*-in process was done for all
contractor invoices received. With initiation of the TOSS and
new NCPS contracts, however, CSC personnel were not only
permitted to log-in CSC invoices but input information from
contracts and DOs and related modifications for labor categories
and rates into the system data base and handle the routing of
invoices between the DOPOs and NCPS EPA staff. This function had
been performed by CSC for non-CSC contracts prior to TOSS. After
invoices were logged-in, CSC routed the invoice to the EPA
employee for a prevalidation of the invoice against the TOSS DO
data base. No CSC employee was allowed to perform the invoice
prevalidation; however, the prevalidation test matched invoiced
labor categories and rates against a data base created by the
contractor. The EPA employee said she tried to check all
information entered by CSC staff for new TOSS DOs and sample test
information entered 'for DO modifications but was only able to
check about 10 to 25 percent of the data entries. The EPA
employee further stated that the NCPS database software
restricted CSC to certain screens. Only she had access to the
prevalidation screen and invoice payment screen. However, since
CSC maintains this system, CSC personnel had direct access to
4 DCAA Audit Report No. 6321-91R11010004, "Report on Audit of
Billing System, Computer Sciences Corporation," issued August 28,
1991.
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system files and could bypass software controls. In addition, a
prior OIG audit disclosed that NCPS system access was not being
controlled through proper use of the RACE software5.
Once prevalidated, the DOPO approval sheet is electronically
generated. CSC attaches this sheet to the DOPO's copy of the
invoice and routes the invoice to the DOPO for approval.
Invoices returned to the NCPS by DOPOs are received and logged-in
by CSC personnel and routed to the EPA employee for electronic
payment approval.
The prevalidation test is always performed prior to submission of
CSC invoices to the DOPOs for approval. The EPA employee said
that in the past DOPOs were not closely reviewing the CSC
invoices for errors in labor categories and rates, etc.. and the
NCPS staff would find errors after DOPO approval. This required
resubmission of a corrected invoice to the DOPO. Now all copies
are validated before DOPO review and approval.
Our contact with the PCMD's Director of Policy and Management
Staff revealed that no FMFIA controls had been identified by PCMD
for CSC's invoice payment process (see Chapter 6). The Director
stated that the contracts Payment Division (CPD) had assured her
that CSC did not "touch" their own invoices. She said she was
told that CSC invoices came in a special colored envelope to
preclude processing by CSC staff. The EPA employee at NCPS said
that this had never been the case. CSC staff had always logged
in all invoices and that CSC invoices received by NCPS had no
distinctive color.
Based on our review of NCPS operations we identified the.
following control weaknesses related to CSC invoice processing:
1. CSC involvement in processing its own invoices created
unnecessary risk and the appearance of a conflict of
interest.
2. NCPS invoice prevalidation control was nullified by the
contractor's construction (with limited EPA verification) of
the data base used in the prevalidation test.
3. CSC physical control of invoices at critical stages of
invoice processing created opportunities for fraudulent
invoices and forged DOPO approvals.
4. CSC's apparent technical control of the NCPS bypassed system
5 OIG audit "Improvements Needed in EPA's Resource Access
Control Facility (RACF) Security Software" (Audit No. E1NMBO-15-
0027-1100151, issued March 1991.
25 Audit No. E1NME1-04-0169
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controls and elevated risk.
These system weaknesses are magnified by DCAA's recent audit of
CSC's billing system which concluded that the system was
unreliable in ensuring the accuracy of costs billed.
Personal Property Accounting System
CSC is currently performing major system enhancement for PPAS and
will be operating and maintaining this system. This system
contains the Agency's property accountability records for all EPA
property in contractor possession as well as the property
utilized by EPA staff. CSC controls a large amount in EPA
equipment, furniture, etc., valued in the hundreds of thousands
if not millions of dollars6. Such extensive CSC involvement in
this "high risk" system increases Agency vulnerability to the
contractor and creates the appearance of a conflict-of-interest
situation. This vulnerability is compounded by EPA's disapproval
of CSC's property accountability system in 1990 and CSC's
inability or unwillingness to account for all property in its
possession and/or control. Details of CSC's property
accountability problems and EPA's inability to timely resolve
these problems are presented in Chapter 5 of this report.
POTENTIAL CSC PERFORMANCE OF INHERENTLY GOVERNMENTAL FUNCTIONS
RESULTED FROM WEAK CONTRACT MANAGEMENT AND UNCONTROLLED EXPANSION
OF CSC PROGRAM INVOLVEMENT
CSC's potential technical control over certain EPA
systems/activities and its participation in preparation of TOSS
delivery orders (see appropriate section of Chapter 4 for
details) creates the potential for, if not actual, contractor
performance of inherently governmental functions. The contractor
is essentially made or influenced management, as well as
technical decisions in the Agency's most critical program
operations. As a result, the Agency may not be sufficiently in
control of the technical and management functions of many CSC
supported systems and program operations.
6 CSC has never accounted for or reported all EPA equipment
in its control. The contractor has generally only reported the EPA
equipment and property it possesses in its own offices. CSC,
however, controls a vast amount of equipment on EPA premises
nationwide.
26 Audit NO. E1NME1-04-0169
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The GAO7 in a recent audit concerning potential service
contractor performance of inherently governmental functions
indicated that a key criterion as to whether contracts are
appropriate is whether the Government maintains sufficient in-
house capability to be thoroughly in control of the technical,
policy, and management functions of the agency. In this context.
Government decisionmakina power means more than simply being a
final authority or signatory to a document.
GAO in this audit report specified certain guidelines for
determining appropriate contracting to include: (1) inclusion of
detailed written tasks and assignments in contracts, (2)
retention of agency technical expertise to prescribe, monitor,
and evaluate contractor work, (3) retention of institutional
memory by the agency, (4) prevention of contractor exclusive
expertise and related contractor monopoly, and (5) establishment
of definitive time periods for use of contractors with finite or
deliverable products. Almost all of these guidelines for
appropriate contracting were contradicted, to some degree, by CSC
contracts with EPA. The contracts and related DOs were generally
for broad statements of work, undefined deliverables, and
indefinite contractor operations coupled with potential loss of
the Agency's expertise in critical program functions. CSC has
been performing certain major Agency functions for over 12 years.
CSC development, operation, and/or maintenance of certain
critical EPA information and financial management systems over an
extended period (up to 12 years) has potentially given the
contractor exclusive expertise in certain systems and established
a monopoly for the contractor that will preclude or inhibit
future "open" competition for contracts in these areas.
In the less technical, complex DO operations, EPA usually
retained sufficient technical expertise to control and monitor
contractor activities even though adequate control and monitoring
did not always occur. However, in several of the complex, highly
technical DO operations, usually involving major EPA data
systems, CSC involvement was so extensive that the Agency's
ability to effectively review and monitor the contractor's work
and consider options other than those developed by the contractor
was questionable. As previously discussed, EPA's insufficient
technical expertise and inadequate system documentation for at
least three systems included in this audit appeared to give CSC
technical and some managerial control of these systems. This
condition was also disclosed in several other systems included in
OIG's concurrent audit of Computer Systems Integrity Requirements
(Audit No. E1NMF1-15-0032).
7 GAO report "GOVERNMENT CONTRACTORS: Are Service Contractors
Performing Inherently Governmental Functions?", Audit No. GAO/GGD-
92-11, issued November 1991.
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In addition, our review of certain national TOSS DOs revealed
that duties performed by CSC staff were sometimes EPA specific
and the skills and knowledge required to perform these jobs were
not "commercially available" (see details in Chapter 4). EPA had
to extensively train CSC personnel in applicable laws,
regulations, and EPA procedures for these positions. Where
contractor staff perform functions so intimately related to the
Agency's missions that contractor staff must be given the skills
and knowledge by the Agency to perform their duties, the question
arises as to whether these functions are inherently governmental.
OTHER CONTRACT MANAGEMENT PRACTICES AND INTERNAL CONTROL
WEAKNESSES COMPOUND EPA'S VULNERABILITY
Numerous control weaknesses and questionable contract practices
were identified in EPA's management of the TOSS contract (see
Chapters 3 thru 7 for details). These weaknesses and
questionable practices included: (1) inadequate contract
guidance, contract monitoring, PO/DOPO training, PO/DOPO
expertise, invoice reviews, DOS, SOWs, property accountability,
etc; (2) no workload analyses to justify DO needs and costs; (3)
poor communication between CO/PO and DOPOs in regions,
laboratories, and other field units; (4) untimely, excessively
delayed contract actions; and (5) over-reliance on the contractor
for management-of contract activities. In many cases, these
control weaknesses resulted from PCMD's inadequate implementation
of established FMFIA control techniques for contract management
activities (See Chapter 3).
The TOSS contract is a large, umbrella cost reimbursable type
contract for overall technical mission-support. This contract
has a very general scope of work, specifying the type of
contractor assistance that can be performed and the total
estimated contractor hours available for use. Each program
office submits a work assignment (DO) which should include a
detailed SOW and an estimate of the hours needed to perform the
task. As noted in this review and prior GAO audits*, these type
contracts provide great flexibility to program offices, but
provide little incentive for efficiency and place a large
oversight burden on EPA management to control costs. The
contract controls currently in place are not adequate or
effective in fulfilling this large oversight responsibility and
ensuring that contractor activities are needed and represent the
most cost-effective approach. This situation increases the
Agency's risk of contract waste and abuse from CSC's extensive
8 GAO audit titled "The Environmental Protection Agency
Should. Better Manage Its Use of Contractors," Audit No. GAO/RCED-
85-12, issued January 4, 1985.
28 Audit NO. E1NME1-04-0169
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involvement in Agency operations.
Insufficient contractor oversight of service contracts performing
critical Agency functions can result in the contractor performing
inherently governmental functions as discussed above. Because of
GAO's concern that contractors may be assuming governmental roles
in key agency operations, OMB on December 16, 19919, issued a
proposed policy letter providing more extensive guidance on
inherently governmental functions. This guidance states that
when the performance of key agency functions by a contractor is
involved, additional management attention (controls) to the terms
of the contract and the manner of performance is necessary. This
includes effective management procedures and policies that enable
meaningful oversight of contractor performance, sufficient in-
house resources for such oversight, and the actual practice of
proper oversight. Many of the DOs under TOSS contract represent
the characteristics described in OMB's proposed policy letter on
inherently governmental activities and therefore, would require
enhanced Agency oversight and control of contract performance.
However, contract controls were found to be ineffective or
deficient in direct contradiction of this proposed policy letter.
LONG RECOGNIZED CONTRACT MANAGEMENT DEFICIENCIES REMAIN
ONCORRfiCTED BECAUSE OF LAX MANAGEMENT ATTITUDE TOWARD SOUND
CONTRACT ADMINISTRATION
Serious EPA contract management deficiencies have been reported
by GAO and OIG10 for over 10 years and the Agency has recognized
such deficiencies in its own studies of EPA contract
administration. Although the Agency has initiated many
initiatives to improve contract management (i.e., EPA's Council
of Management Integrity) and contract management may have
improved in some programs, these problems were found to still
exist relative to CSC contract activities. Based on interviews
and documents obtained during the CSC contract audit, we could
only conclude that many EPA managers involved in CSC contract
management had encouraged a "hands off" environment in managing
the Agency's technical service contractors and had not allocated
the resources necessary to properly manage and control the
Agency's functions performed by CSC staff. This environment (l)
sacrificed cost efficiency and effectiveness in contract
operations for the name of expediency, (2) encouraged the bending
or circumvention of sound contract procurement and management
practices and regulations, (3) inappropriately replaced EPA staff
9 Federal Register, Volume 56; dated December 16, 1991.
10 List of prior OIG audits with a brief description of audit
scope and'results are contained in Appendix IX of this report.
29 Audit NO. E1NME1-04-0169
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with contractors or precluded the consideration of FTE
performance of vulnerable activities, and (4) emphasized task
completion over risks and costs to Agency programs. In such an
environment neither the Agency nor the taxpayer are protected.
Regardless, EPA managers apparently encouraged and rewarded this
"laissez-faire" environment to the extent that EPA contract
managers for the CSC contracts viewed Federal contracting
policies and .regulations as obstacles to task accomplishment
rather than tools for sound management and protection of the
Government and public interest. Because of the prevalence of
this "laissez-faire" environment, most of the deficient contract
management activities identified in this report and in many prior
reports will continue to exist in CSC contract activities until
the Agency's administration takes serious actions to change staff
attitudes toward technical support contracting, provides adequate
staff resources necessary for effective control of major program
operations, and institutes strict management accountability for
contract actions. For EPA, sound contract management is
essential considering the critical role contractors play in
Agency programs and mission accomplishment.
View of EPA Contract Management by Contracting Officers for
CSC Contracts
Our audit of CSC contract activities revealed that contracting at
EPA has been relegated to a signature/service function for the
program offices rather than one of contract administration.
Although program managers should determine the types and quantity
of resources required for their operations, Contracting Officers
(COs) should retain their authority to ensure that contracts are
legally sufficient, protect the Government's interest, and comply
with sound contract management policies and regulations. An
equitable balance of contract control must be maintained between
the CO and responsible program office to ensure the economy and
quality of contract actions. However, COs for the TOSS and SOSM
contracts viewed their function as only one of providing a means
for giving program personnel what they wanted without
consideration of sound contract practices, justification, or
cost-effectiveness. One CO, who had worked on CSC contracts,
described the PCMD's CO function as that of a "Sears Catalog,"
there only to serve the program offices and provide what ever
service the program offices want. Program managers look in the
catalog of contractor services to see what they want and PCMD
gives it to them. As one CO told us, the objective of contract
management is to protect the interests of the Government,
"properly understood, this is not [always] synonymous with the
interests of the program office." PCMD's Chief, Administrative
Contracts Management Section, told us that COs manage by
exception. "If they don't hear anything, they assume everything
is okay." He said the CO is here for questions and that PCMD is
very service oriented.
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Our audit disclosed that no emphasis was placed on justifying
program "wants" or needs, program managers only had to ask.
According to the SOSM CO, contract needs should be determined by
the program but the FAR requires that a cost estimate be prepared
for any identified needs before the contract is awarded. These
needs are to be established and documented using the best
estimate of the services required. The CO doubted that we would
find such documentation of contract needs in EPA. Except for a
list of labor categories with estimated hours included in the
Individual Acquisition Plan, we did not find backup for the
services requested under the TOSS contract in PCMD TOSS contract
files.
The CO should have the authority to operate the contract
efficiently and in the best interest of the Government, but
according to both a former and the current CO for CSC contracts,
"you can say you won't approve a contract action, but management
will find someone else who will." One CO stated that when she
refused to sign a document, a program person would call his boss,
who would call his boss, who would call her boss and ask why
things are being held up. The SOSM CO advised that when she went
through the effort to try to save the program money through
negotiations with the contractor (CSC), program management's
reply was that it "wasn't worth the effort, it was nice, but it
wasn't worth it. Price is not considered, the programs want
their new toy." This CO further stated the program managers do
not want the "checks and balances" associated with "sound
contracting" practices. If there is a problem, their solution is
to just "throw more contract money their way."
Both COs, who worked on former and current CSC contracts, stated
that there is no oversight of contractors' work. As a result,
EPA is left very vulnerable, however, its not "the mentality of
the Agency to change things." According to one CO, Agency
management doesn't care about quality. Quality is not demanded.
Both COs stated that in most cases, the program people couldn't
tell you what they are getting for their money and they don't
care. When they previously asked certain program staff, "what
are you getting from CSC. Their answer was, they [CSC] run the
computer. If you ask, what do they do, how do they run the
computer, they can't tell you."
The contract management environment described by former and
current COs for CSC contracts is compounded by the attitude of
EPA managers who sometimes took CSC contract management
responsibilities very lightly by delegating such responsibilities
to the lowest level employees. One CSC CO told us, "some DOPOs
are secretaries." In addition, we found that EPA managers did
not always allot adequate time for DOPOs to perform their
management'responsibilities. Most TOSS DOPOs had other job
duties that required most of their time.
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technical support services under one contract, TOSS, and one
contractor, CSC. In addition, TOSS DOs have been issued for the
development, redesign, or substantial enhancement of major EPA
systems without competition. The consolidation of most technical
services under one contractor and .the limiting of competition for
major system design tasks, increases the Agency's reliance on and
vulnerability to CSC.
EPA Order 1900.2 titled "Contracting At EPA," dated October 22,
1990, promotes breaking out sensitive Agency activities into
smaller components to broaden contractor resources available to a
particular office, to reduce potential for conflicts of interest,
and to avoid loss of corporate knowledge by becoming too reliant
on any one contractor.
An OIRM consultant study titled "A Review of the TOSS Contract :
Administration Functions and Process with OIRM's Management
Planning and Evaluation Staff (MPES)", dated May 15, 1991
contained the following statements.
The TOSS contract was also viewed as strategically
positioned in that its Statement of Work (SOW) was
broadly developed with the potential to encompass other
OIRM contract activities that would allow for
alternative contract vehicle options for the user
community or for the re-positioning of the existing
contracts upon expiration....
OIRM increased the labor categories in the TOSS contract for
future consolidation of several concurrent technical support
contracts, that were to expire in the near future, under one
contractor. These included the laboratory technical support
contract (SASLAS), another CSC contract, and the .
telecommunications contract held by another contractor. Also,
the OIRM consultant concluded that the TOSS contract would also
absorb the Agency's general programming (GP) needs when the
current GP contract, held by another contractor, expired. This
conclusion was based on the fact that the GP follow-on contract
(Mission Oriented Systems Engineering Support - MOSES) did not
contain a GP component in the SOW. The consultant study also
contained the following related statement.
...many in the user community expect to shift their
traditional, general programming activities (of the GP
contract) to TOSS as MOSES is brought into fruitation....
Several DOs identified during the audit tasked CSC to develop or
redesign certain major EPA systems. The SOWs for these DOs were
so broad that the DOs appeared to be mini-contracts awarded
through a TOSS DO without competition. For instance on DO 39
and 62, the CO's review comments on the DO SOW indicated that
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scope of the DO for some tasks were so broad that essentially the
DO represented* an ID/IQ DO issued under an ID/IQ contract or a
contract within a contract.
EPA has relied on CSC to provide technical support for over a
decade. CSC's extensive involvement in major EPA information and
financial systems along with a loss of EPA expertise in these
systems may have already adversely affected the openness and
fairness of future competition for EPA's technical support
services. As 6AO stated in its recent report on contractor
performance of inherently governmental functions11, agencies
should avoid situations in which the contractor, by virtue of its
work for the Agency, develops exclusive expertise to the degree
that a monopoly is established. Such a monopoly may already
exist in certain CSC operations within EPA. This is evidenced by
a TOSS PO statement regarding the waiver of contract labor
category requirements for a substantial number of CSC staff
shortly after contract award (see Chapter 7):
The [CSC] staff has invaluable experience and
institutional knowledge. The Agency cannot afford the
loss of this staff without adverse effects on its IRM
[Information Resource Management] program.
CSC was not the low bidder ($56 million between lowest bid and
CSC's bid) for the TOSS contract but still received the contract
based on the technical quality of CSC's proposal. However, one
of the technical criteria in the RFP was the contractor's
institutional knowledge of EPA operations. Because of CSC's 12
years of prior technical support for EPA IRM functions, CSC
definitely had the advantage under this requirement.
Therefore, to reduce the over-dependence of the Agency to this
contractor, EPA should utilize qualified FTEs for technical
support, wherever possible, to strengthen EPA's expertise in all
technical service functions and consider multiple contracts,
where necessary, to a variety of technical support contractors.
CONCLUSION
Although the Agency's vulnerability on less complex, technical
DOs would have been reduced through good contract management
practices and controls, the expansion of CSC involvement in many
critical, highly technical Agency functions has resulted in the
potential transfer of technical and related managerial control of
11
GAO report "GOVERNMENT CONTRACTORS: Are Service
Contractors Performing Inherently Governmental Functions?" (Audit
No. GAO/GGD-92-11), issued November 1991.
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Chapter 2
EPA Vulnerability From CSC Contracts
these Agency functions to the contractor. On these highly
technical, complex DOs EPA may not have retained sufficient
technical expertise or institutional knowledge to properly
identify technical tasks and resources needed. Therefore, the
contractor assisted DOPOs in developing SOWs and labor mixes for
DOs. Also, without sufficient technical expertise, DOPOs could
not properly monitor and oversee contractor activities.
EPA managers have stated that the increased use of contractors to
perform major Agency activities resulted from personnel ceilings
and related insufficient EPA staff, to perform these functions.
These managers further stated it has always been easier to obtain
contract money than FTEs from Congress and OMB. As a result of
increased contractor participation in Agency programs, as well as
lax contract management, our audit disclosed DOS that were
administered as prohibited personal services contracts (see
Chapter 4). Contractor personnel in many of these cases
performed duties so intimately related to the Agency's mission
that their work required continuous supervision by EPA managers.
Use of contractors as substitutes for insufficient Agency staff
circumvents personnel ceilings established by the Government and
inappropriately augments Agency staff without proper legislative
review. However, the more prevalent problem with this approach
is the Agency's loss of control over critical program functions.
This transfer of control over critical functions to the
contractor increases the Agency's vulnerability to fraud, waste,
and conflict-of-interest situations, especially when the
activities are primarily vested in one contractor.
The apparent erosion of technical control of some critical Agency
functions coupled with the Agency's heavy reliance on one
contractor to perform these functions has increased the Agency's
risk from this contractor's operations to near unacceptable
levels and has substantially reduced the Agency's capacity to
effectively manage major program activities. When the Government
permits contractors to assume control over key functions,
situations can result that are not in the Government's best
interest. We believe the Agency should reduce its vulnerability
by establishing sound contract management practices, reducing the
contractor's involvement in major systems/functions, and
restoring institutional expertise through use of FTEs to perform
critical Agency functions. Also, multiple contracts to different
contractors for system enhancement, operation, and maintenance
and separate contracting, through open competition, for major "
system development would also reduce Agency risk.
RECOMMENDATIONS
We recommend that the Assistant Administrator for Administration
and Resource Management reduce the Agency's vulnerability and
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Chapter 2
EPA Vulnerability From CSC Contracts
dependence on CSC and preclude the establishment of a contractor
monopoly on EPA-wide technical support services by:
- Decreasing CSC involvement in major information/financial
management systems and other critical Agency functions
through increased use of FTEs for high-level technical
services and award multiple contracts for the development
and enhancement of major systems. The increased use of FTEs
in these functions should also serve to increase the
Agency's technical expertise in these critical areas.
- Separating system development/enhancement, operation, and
maintenance among a broad base of contractors to increase
system security, decrease system vulnerability, and preclude
Agency over-reliance on any one contractor for system
support.
- Requiring at least minimal background investigations for
contractor personnel with access to sensitive Agency data or
critical Agency systems. The CO should modify the TOSS
contract to require that such background checks be
performed.
- Restrict CSC access to the Agency's most sensitive
management information that contractor personnel may obtain
through mail or fax processing in high-level management
offices.
- Eliminating or reducing CSC contract activities that
create potential conflict-of-interest situations or the
appearance of a conflict of interest such as CSC involvement
in the NCPS .and PPAS systems, CSC on-site contract
activities that facilitate personal services and less than
arms-length relationships with Agency staff, and CSC's
involvement in management of its own contracts.
- Require EPA contract managers to consider all
alternatives in any planned procurement of resources to
ensure selection of the most cost-effective and least
risk alternative for the Agency. This includes the
consideration of either partial or complete in-house
(FTE) performance in all cases.
- Establish clear lines of management accountability
for contract actions and ensure that this
accountability is strictly enforced.
Recommendations for other contract management deficiencies cited
in this Chapter, such as weak internal controls, inadequate
management practices, and contractor performance of inherently
governmental functions, will be included in the appropriate
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Chapter 2
EPA Vulnerability From CSC Contracts
report chapters that follow.
AGENCY RE8POMSE MID PIG EVALUATION OF AGENCY COMMEKTS
The Agency generally agreed with many of the findings and
recommendations in this Chapter. However, there were certain
overall implications or conclusions presented in Chapter 2, such
as use of contractors for certain activities, contractor access
to information, and adequacy of EPA expertise to oversee the
contractor. The Agency's disagreement with certain Chapter 2
conclusions and our response to this disagreement are presented
in Appendix I of this report.
The Agency also disagreed with the recommendation that EPA reduce
its exposure to the contractor by increasing the use of FTEs in
high-level technical positions and multiple contract award for
large system development. The Agency stated that it has
sufficient in-house expertise in its financial and information
systems and that CSC is not the only contractor involved in these
systems. We disagree that the Agency has sufficient expertise in
each major system in which CSC plays a major role to properly
control and monitor this contractor. We identified numerous
instances where DOPOs did not have expertise in the systems which
CSC was developing, operating, and/or maintaining. This
disagreement is discussed in more detail in Appendix I. We agree
that CSC is not the only contractor in EPA's information and
financial systems but CSC is the primary contractor in most of
the Agency's most critical systems. Therefore, we continue to
conclude that the Agency should increase FTE involvement and
expertise in the systems that CSC develops, operates, and
maintains and that development or major enhancements of large,
critical systems should be contracted individually rather than
through non-competitive TOSS DOs.
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Chapter 3
POMP'S FMFIA PROCESS DID NOT ENSURE PROPER
CONTROL OVER CSC CONTRACT ACTIVITIES
PCMD's FMFIA process did not adequately identify internal control
weaknesses or ensure proper implementation of FMFIA control
objectives and techniques relative to the TOSS contract. Many
material control weaknesses in the TOSS contract administration
were not previously identified in PCMD's FMFIA risk assessments.
In addition, PCMD had not adequately assessed control techniques
to ensure proper implementation by contract management staff.
Critical control techniques identified in PCMD's FMFIA
documentation were either not implemented or improperly
implemented by the TOSS CO and his staff. As a result, there was
insufficient assurance that Agency resources were safeguarded
against waste, fraud, abuse, and conflicts of interest. Because
many of CSC's contract activities were of a mission-critical
nature and involve the Agency's most sensitive data base systems,
proper control of the contract operations is essential to the
integrity of the Agency's programs.
BACKGROUND
The Federal Managers' Financial Integrity Act (FMFIA) of 1982
requires that each executive agency establish internal accounting
and administrative controls in accordance with standards
prescribed by the Comptroller General. The Act specifies that
these controls were to provide reasonable assurance that
agencies' obligations and costs comply with applicable law; that
Government assets are safeguarded against waste, loss,
unauthorized use, and misappropriation; and that revenues and
expenditures are properly accounted for and recorded for proper
reporting and accountability purposes.
OMB Circular A-123 and EPA Resources Management Directive 2560
prescribed the policies and procedures for Agency implementation
of FMFIA requirements. PCMD has been designated as an assessable
unit under EPA procedures* The FMFIA process for each assessable
unit consists of the following events: (1) risk assessments
every three years to identify vulnerable operations, (2) a
Management Control Plan (MCP) every five years which details
event cycles, control objectives and techniques, and (3) Internal
Control Reviews (ICR) and Alternate Internal Control Reviews
(AICR) annually. In addition, each EPA program manager is
responsible for periodically evaluating the internal control
systems in place and taking action to correct identified
weaknesses.
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Chapter 3
FMFIA Process Did Mot Ensure Proper Control Over CSC Contract
PCMD'S REVIEWS OF CONTRACT MANAGEMENT FUNCTIONS WERE INSUFFICIENT
TO ENSURE ATTAINMENT OF FMFIA CONTROL OBJECTIVES
Although the TOSS contract was one of the largest IRM contracts
managed by PCMD, no quality assurance reviews had been conducted
by PCMD on TOSS contract management or management of the
predecessor contract, SOSM, to determine whether internal control
responsibilities were adequately defined and internal controls
techniques were properly implemented to meet control objectives.
As noted in this review and prior GAO audits, the ID/IQ contracts
provide great flexibility to program offices, but provide little
incentive for efficiency and place a large oversight burden on
EPA management to control costs. In addition, the TOSS Contract
involved a large outlay of federal funds and was susceptible to a
greater amount of waste, loss, unauthorized use, or
misappropriation than smaller contracts. The contract controls
currently in place were not adequate or effective in fulfilling
this large oversight responsibility and ensuring that contractor
activities were needed and represent the most cost-effective
approach. In addition, PCMD management apparently did not
periodically evaluate implementation of established FMFIA
controls as required by EPA guidance. These conditions lead to
the internal control weaknesses in contract management identified
in this and subsequent Chapters of this report.
Internal Control Responsibilities Were Not Adequately Defined
Internal control responsibilities were not adequately defined at
all levels of TOSS contract management. Specific FMFIA
requirements were not included in the performance standards of
all managerial levels and many EPA employees without proper
contract management authority were often performing contract
management functions. The lack of defined contract
responsibilities over internal controls was often evidenced by
organizational conflicts between PCMD, OIRM, and Headquarters and
regional program management over appropriate contract management
practices. This facilitated inadequate implementation of an
effective internal control system over the TOSS contract and has
contributed to CSC's performance of EPA's contract management
functions in some instances.
On the TOSS contract the CO and PO have an integral role in the
Agency's adherence to FMFIA, but specific FMFIA requirements and
responsibilities were not included in their performance
standards. Inadequate contract oversight at these management
levels could produce material weaknesses in the internal control
system. OMB Circular A-123 and EPA Resources Management
Directive 2560 require that each Senior Executive Service, Merit
Pay and any other employee with significant internal control
responsibilities maintain written performance agreements against
which a manager's internal control performance can be recognized
and evaluated. The performance agreement should outline specific
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Chapter 3
FMFIA Process Did Not Ensure Proper Control over CSC Contract
internal control responsibilities and establish performance
standards which are specific to the employee under evaluation.
In order to assure a viable, effective internal control system,
all levels of contract management should have specific control
responsibilities defined in their performance standards.
In addition many EPA employees were performing contract
management functions without proper delegation of contract
authority. From our review, we found that 14 of 26 DOs had EPA
employees performing oversight of CSC employees who had not
received the contract administration training or been approved as
POs by the CO. These EPA employees directed the CSC employees as
supervisors and not as contract managers. This resulted in many
contract weaknesses such as the performance of personal services
and contractor performance of inherently governmental functions.
Critical Control Objectives Were Not Properly Implemented Bv Toss
Contract Managers
The high degree of risk associated with the TOSS contract
necessitated the need for extensive internal controls and reviews
to assure proper implementation of an effective internal control
system. However, TOSS contract managers did not effectively
implement internal controls to prevent material weaknesses from
occurring in the administration of this contract. As a result,
an effective system of internal controls over contract operations
was not established which resulted in ineffective contract
management and the performance of prohibited contract activities.
Although PCMD identified both pre-award and post-award event
cycles, control objectives, and control techniques for contract
management, PCMD did not properly follow through to determine
whether internal controls were adequate or functioning. We
identified several control objectives for which control
techniques were either not adequate or not properly implemented
to accomplish the control objective. The following control
objectives were not properly implemented resulting in internal
control weaknesses:
Control Objective; "To ensure selection of the source whose
proposal has the highest degree of realism and whose performance
is expected to best meet stated Government requirements."
The TOSS CO verbally granted waivers of education/experience
requirements for 165 contract employees shortly after CSC was
awarded the TOSS contract based on its technical excellence.
This undermined the integrity of EPA's contracting process,
caused the Agency to incur unnecessary costs estimated at more
than $2 million per year, jeopardized the Agency's Delegation of
Procurement Authority, and raised questions about the overall
technical expertise of the CSC employees working under the TOSS
contract (see details in Chapter 5).
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Chapter 3
FMFIA Process Did Mot Ensure Proper Control Over CSC Contract
Control Objective: "To ensure a well-trained and competent
contract management workforce." Control techniques included the
requirement that all POs must complete training and meet the
experience and workload requirements in the contracts Management
Manual, Chapter 7.
However, internal Controls were not sufficient to insure DOPOs
had the contract management expertise to properly manage the
contract. Although they had the basic contract management
courses, this was insufficient for the level of responsibility
delegated to the DOPOs. This lack of contract expertise resulted
in numerous deficiencies in DO preparation and oversight (see
details in Chapter 4).
Control Objective: "To ensure compliance with contract terms and
conditions." Internal control techniques included review of SOWs
and DOs by the CO to ensure compliance with contract terms and
policies, reviews of technical and financial progress reports to
ensure conformance with contract requirements, issuance of
contract modifications and change orders in accordance with FAR
and Agency procedures, and screening of SOWs to eliminate
inherently governmental functions.
Neither PCMD or OIRM implemented adequate controls or provided
sufficient resources to properly manage the contract. The
majority of the management responsibility had been delegated to
the DOPOs or left in the hands of the contractor. Also, the CO
and PO did not review all DOs and SOWs approved or ensure that
deficiencies noted on those reviewed were corrected. As a
result, the DOs were administered illegally as personal service
type contracts, CSC employees performed potentially inherently
governmental tasks, work was performed outside the SOW,
accountability for EPA property was not accomplished, and
contractor staff, who did not meet contract job requirements,
were assigned to the DOs (see details in Chapter 4).
Control Objective; "To ensure delivery of all property and
performance of all services in conformance with contract
requirements."
Internal controls over the preparation and review of
DOs/Statements of Work did not preclude improper, illegal
contract activities and ensure quality of contractor performance
(see details in Chapter 4). In addition, Government property
furnished to and acquired by CSC under the SOSM and TOSS
contracts was not properly accounted for or adequately protected.
As a result, equipment cost under the contract were not properly
justified and excessive costs were incurred on CSC leased
equipment (see details in Chapter 5).
Control Objective; "To promote cost control on Agency
contracts." Internal control techniques included periodic CO
42 Audit Mo. E1NME1-04-0169
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Chapter 3
FMFIA Process Did Not Ensure Proper Control Over CSC contract
reviews of invoices to ensure that invoices conform with contract
requirements, that contractor charges are in accordance with the
level of effort expended, and resolve cost issues raised by POs.
Internal controls over the approval of contract invoices were not
properly implemented. This resulted in the payment of improper
contractor charges and the improper obligation of expired
appropriations for severable contract operations contrary to
provisions of the bona fide need rule and the Antideficiency Act.
Control techniques were identified in PCMD's FMFIA documentation
for the PO and CO to review invoices for compliance with contract
requirements; however, no CO or PO invoice reviews were being
conducted at the time of our audit (see details in Chapter 6).
In addition, CSC was involved in the National Contracts Payment
System (NCPS) which processes CSC invoices for payment and the
Personal Property Accounting System (PPAS) that maintains the
EPA's inventory control records for hundreds of thousands of
dollars of EPA equipment in CSC's possession without adequate
internal controls. The extensive involvement of contractors in
the information/financial systems with weak or ineffective
controls increases the Agency's vulnerability to fraud, waste,
abuse, and related conflict of interest situations (see details
in Chapter 2).
CONCLUSION
The establishment of event cycles, control objectives, and
control techniques is only a part of the FMFIA process. TOSS
contract managers did not assure that the controls established
were functioning properly by defining FMFIA responsibilities and
conducting systematic reviews of control activities. This
resulted in material weaknesses in TOSS contract administration
as identified in this report. In addition, the high risk nature
of the TOSS contract increases the potential that other material
weakness may occur in the management of this contract that were
not identified in this report.
RECOMMENDATIONS
We recommend that the Deputy Administrator require proper
implementation of EPA's FMFIA internal control process to ensure
adequate controls are established for the TOSS contract and to
obtain compliance with applicable regulations and contract
requirements. Specifically, require the Assistant Administrator
for Administration and Resources Management to:
- Identify or establish all appropriate contract internal
controls to fully comply with FMFIA requirements and ensure
the establishment of an adequate system of controls.
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Chapter 3
FMFIA Process Did Not Ensure Proper Control Over CSC Contract
- Perform an indepth review of TOSS contract management to
evaluate the implementation of established controls. This
review should emphasize the identification of material
contract management weaknesses.
- Document specific FMFIA requirements and responsibilities
in the performance standards of OIRM and PCMD TOSS contract
managers and hold these managers strictly accountable for
adherence to these requirements and responsibilities.
We also recommend that the Deputy Administrator require
Headquarters, regional, and laboratory managers to:
- Document Specific FMFIA requirements and responsibilities
in the performance standards of TOSS DOPOs and their
supervisors.
- Ensure that DOPOs and their supervisors are held
accountable through FMFIA reviews and performance
appraisals, for the proper control of their respective DOs.
AGENCY RESPONSE AND PIG EVALUATION OP AGENCY COMMENTS
The Agency agreed with the findings and the first four
recommendations presented in this Chapter. The Agency disagreed
with the last recommendation on the basis that the performance
appraisal system, not the FMFIA process, is the proper tool to
ensure contract manager accountability. However, the FMFIA
process/reviews have to identify noncompliance with established
controls before accountability can be established under the
performance appraisal system. We have changed the recommendation
to add performance appraisals as a basis of accountability.
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CHAPTER 4
CONTRACT MANAGEMENT AND OVERSIGHT
NEEDED SUBSTANTIAL IMPROVEMENT
Although the TOSS contract was one of EPA's largest IRM
contracts, with a total value of $347 million, neither PCMD nor
OIRM assigned sufficient resources, provided adequate guidance,
or devoted an appropriate level of effort to properly manage and
control contract activities. The majority of the contract
management responsibility had been delegated to DOPOs or left in
the hands of the contractor. Generally, the DOPOs did not have
adequate training or experience to properly fulfill these
responsibilities and a conflict of interest situation was created
when the contractor was permitted to manage its own contract. As
a result, contract management was materially deficient, resulting
in numerous contract administration and control deficiencies
including illegal and prohibited contract practices. These
deficiencies included:'
-Inadequate DOs/Statements of Work (SOWs) that did not
preclude improper, illegal contract activities and ensure
quality of contractor performance.
-DOs administered illegally as personal services type
contracts.
-Performance of inherently governmental tasks by
contractor personnel.
-Performance of tasks outside the scope of the DO or
contract.
-Improper charges for training, conferences, related travel
costs, and "idle time" (see details in Chapter 6).
-Contractor staff who do not meet contract job requirements
(see details in Chapter 7).
-Verbally authorized contract variances without timely
contract modification or written contractor notifications.
-Inadequate accountability for EPA property in the
contractor's possession (see details in Chapter 5).
We identified $13.1 million in questionable contract charges and
potential savings (see Appendix VI) resulting from insufficient
control and administration of CSC operations. These charges
included unauthorized contractor activities, inappropriate
contract charges, or the results of inefficient operations of the
1 Deficiencies related to each DO in our sample of 26 TOSS
DOs are shown in Appendix V of this report.
45 Audit NO. E1NME1-04-0169
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Chapter 4
TOSS Contract Management Needed Substantial Improvement
contract, but were not always unnecessary expenditures.
Deficiencies leading to these questionable charges are identified
in this and subsequent chapters of this report. Because of poor
contract documentation maintained by DOPOs we were unable to
quantify all questionable costs. Therefore, the questionable
charges cited above do not reflect the total unnecessary or
excessive costs incurred by the Agency on those contract
activities reviewed. They also do not include charges that may
have been incurred on DOs outside our audit sample; however,
based on the commonality of problems found in our sample DOs at
eight EPA/contractor locations, we believe the deficiencies
identified are common to all DOs under this contract. Similar
deficiencies were previously reported in our pilot audit of the
management of CSC operations in Region 8.
Both PCMD and OIRM officials attributed the contract management
problems to a lack of staff to properly perform contract
management and oversight functions. However, we identified
several other factors contributing to these problems. These
included inadequate and untimely guidance or failure to follow
guidance, no training or inadequate training for DOPOs who were
the primary contract managers, improper contractor-assistance in
DO preparation and management, failure of the DOPOs to obtain and
be aware of TOSS contract requirements, insufficient DOPO
oversight and/or support by OIRM and PCMD, and a general
"laissez-faire1.1, attitude of EPA officials toward management of
the TOSS contract, which directly contributed to the creation of
a prohibited personal services relationship between EPA and the
contractor.
BACKGROUND
In April 1990, EPA's Administrator issued a memorandum
documenting that he recognized the potential vulnerability the
Agency was subject to with its extensive use of contractors.
He stated:
Due to the extent of EPA's contracting, it is critical
for us to effectively manage our contracts....Agency
accountability begins when we make a decision to use
contractor support. And once we accept a final product
from a contractor, we become responsible for its
content and for how it may be used in reaching Agency
decisions.
From that memorandum, the Agency issued EPA Order 1900.2, which
provided:
The extent of the Agency's contracting, coupled with
its regulatory nature, create a strong potential for
conflict of interest with members of the contracting
46 Audit No. E1NME1-04-0169
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Chapter 4
TOSS Contract Management Needed Substantial Improvement
community. This problem is magnified when a limited
number of contractors provide support in a variety of
potentially sensitive areas. EPA must consider these
facts when developing its. contract requirements. It
must be judicious in deciding the most effective ways
to use its contractors and look for ways of reducing
the potential for conflicts of interest. And, if
contract support has been used, EPA must play a
proactive [emphasis added] role in ensuring a final
Agency product that is unbiased and represents Agency
thinking. The final product provided under a contract
may assist EPA in reaching a decision; however, a
contractor should not make the decision for the Agency.
The Director, Procurement and Contracts Management Division
(PCMD), also stated in a contract administration review report:
Effective administration of contracts after award is
not only an important responsibility, but also an
essential one to ensure that the Agency receives
quality goods and services in a timely manner and at
reasonable cost. Therefore, program and contracting
personnel must place major emphasis on the
administration of contracts.
In addition, OMB, in a December 1991 Proposed Policy Letter2 on
Inherently Governmental Functions, stated:
After award, even when a contract does not involve
performance of an inherently governmental function,
agencies should take steps to protect the public
interest. Agencies need to play an active, informed
commanding role in contract administration so that
Government policies, rather than private ones, are
being implemented. Such participation should be
appropriate to the nature of the contract, and should
leave no doubt that the contract is under the control
of Government officials.
The FAR, Section 1.602-2, designates the primary responsibility
for management of a contract to COS. It states that,
"Contracting officers are responsible for ensuring performance of
all necessary actions for effective contracting, ensuring
compliance with the terms of the contract, and safeguarding the
interests of the United States in its contractual relationships."
EPA Contracts Management Manual (EPA Directive 1900), Chapter 7,
provides for delegation of some contract management
2 OMB Policy Letter 92, Section (9), issued December 16,
1991.
47 Audit NO. E1NME1-04-0169
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Chapter 4
TOSS contract Management Needed Substantial Improvement
responsibilities to POs and DOPOs. Chapter 7 allows CDs to
appoint Project Officers (POs) and others to assist in the
administration of the technical aspects of contract performance.
The PO is the primary technical representative of the CO for a
contract.
As the technical representative, the Project Officer:
initiates procurement actions, evaluates contractor
proposals; certifies contractor monthly invoices;
assists Agency officials (such as Work Assignment
Managers) in writing statements of work; prepares
delivery orders and work assignments for signature by
the Contracting Officer; reviews contractor progress
reports, financial reports and deliverables, reviews
contractor requests (such as subcontractor consent) and
recommends approval or disapproval to the Contracting
Officer; assists the Contracting Officer in the
resolution of problems associated with contractor
performance; and acts as the Contracting Officer's
representative for monitoring other technical aspects
of contract performance after award.
The Contracts Management Manual further states that "Project
Officers must be technically proficient in the work to be
performed under a contract so they may properly evaluate a
contractor's performance."
Delivery Order Project Officers (DOPOs) define work requirements
for the CO to use in preparation and issuance of DOs under
indefinite quantity/indefinite delivery (IQ/ID) contracts,
according to the Contracts Management Manual. After a contract
is issued, the DOPO monitors contractor performance. The DOPO is
the primary Agency contact for the technical performance of a
specific DO. Therefore, the DOPO must have a strong technical
knowledge of the work to be performed under a DO in order to
properly monitor a contractor's performance.
According to the Contracts Management Manual, the DOPO assists in
the review of monthly technical and financial progress reports,
contractor invoices for payment and delivery order modifications.
PCMD is responsible for the development and continued refinement
of the two courses leading to certification under EPA contracts.
The Office of Administration and Resources Management (OARM)
identified PCMD as an assessable unit in their FMFIA
documentation. To ensure sound contract management, the FMPIA
documentation included internal control techniques such as CO
reviews of SOWs for compliance with regulations, contract terms,
and Agency policy and CO invoice review on a spot-check basis.
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Chapter 4
TOSS Contract Management Needed substantial improvement
INADEQUATE STATEMENTS OF WORK (SOWS) RESULTED IN INADEQUATE
CONTROLS AND PROHIBITED CONTRACT MANAGEMENT PRACTICES
The SOW is the foundation of the contract. It should identify
the work the contractor is legally obligated to perform, set
boundaries within which the contractor must operate and provide a
tool for monitoring progress and determining the extent of
contract completion. DOPOs for the TOSS contract prepared
inadequate sows that did not provide an adequate description of
the work to be done, did not effectively control the contractor's
activities, did not provide a schedule of performance or any tool
for measuring the contractor's progress and permitted the
performance of inherently governmental and/or prohibited
activities under the contract.
Although they recognized the importance of a good SOW, neither
the PO or CO properly reviewed TOSS sows and DO packages prior to
their issuance. Only eight (valued at $8.1 million) of the 26
DOs reviewed during our audit field work, were reviewed by the CO
and/or PO. All eight were determined by the CO/PO to be
deficient. Neither PCMD nor OIRM performed proper follow-up on
recommended revisions for SOWs that were reviewed to ensure that
deficiencies identified were corrected. The deficiencies in the
SOWs resulted in internal control weaknesses, contractor
performance of unauthorized tasks, uncertain contract
performance, potential conflict of interest situations, and the
establishment of a prohibited employer/employee relationship
between EPA and CSC employees.
National DOs
The CO authorized issuance of National DOs under the TOSS
contract. Under these National DOs, management problems were
compounded because, DOPOs were located in Headquarters but the
majority of tasks were performed by CSC employees located.in
regional offices, working under the direction of regional EPA
managers. Despite the geographical separation of CSC staff from
DOPOs, SOWs did not include adequate controls to avoid the
creation of personal services relationships and work outside the
SOWs. The SOWs did not have sufficient detail to permit
contractor employees to work independently and did not contain
acceptance criteria to provide assurance that products ordered
were properly received.
Although both the PO and CO are required to review all DO
packages prior to their issuance, neither the CO nor PO could
identify which of the TOSS DOs were National DOs and which were
regional DOs. Therefore, the disjointed DO oversight
(geographical separation of DOPO from contractor operations) was
not detected when these DOs were processed. The CO and PO both
advised us that the only way to identify National DOs would be to
go through all*DOs and read each SOW. If all SOWs had been
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TOSS Contract Management Needed substantial Improvement
properly reviewed prior to their issuance, National DOs should
have been easily identified by contract management. By
identifying the location of the DO work to be performed and the
location of the DOPO, we were able to identify eight National
DOs. The CSC Program Manager for the TOSS contract did not
understand OIRM's difficulty in identifying National DOs. CSC
developed a separate department to handle administration of these
unique DOs which signified their importance to the contractor.
Based on our review, these DOS comprised 17 percent of DOs issued
as of January 1991, with dollar values ranging from $78,000 to
over $1 million.
Personal services and performance of work outside the scope of
the DOs was found to be more prevalent on the National DOs than
any other DOs reviewed. Further, the work under these DOs
represented primarily program support rather than definite
deliverables or products. Therefore, personal services and
related deficiencies were more likely to occur on these DOs
without intensive contract management review and oversight.
However, such review and oversight did not occur. Moreover, we
found increased occurrences of performance of inherently
governmental activities under these DOs (See Inherently
Governmental section of this chapter).
Inadequate Preparation of SOWs
PCMD, OIRM and CSC officials all described the TOSS SOWs as
deficient. Although these SOWs were prepared by DOPOs, they were
approved by the TOSS alternate PO and CO before issuance. As
previously stated, the SOWs did not provide sufficient detail for
contractor personnel to independently perform the tasks being
procured under the DOS and there was no acceptance criteria to
enable the DOPOs to properly determine when an acceptable product
or task was completed. In effect, as the CO informed us, the
SOWs did not adequately describe what was being bought and how we
knew when we got it.
OIRM and PCMD reviews of some of the SOWs issued under TOSS
identified deficiencies such as, SOW tasks not sufficiently
defined, personal services language in task descriptions, DO
tasks that were inherently governmental functions, deliverables
were not required or not clearly described, criteria for
acceptance of deliverables was not provided, and labor mix
requirements and staff qualifications were omitted or not clearly
described. Based on our review of DOs in our sample that were
evaluated by OIRM and PCMD, few, if any changes were made to the
SOWs as a result of the OIRM/PCMD reviews, prior to the CO's
signature.
We determined that SOWs which had not been reviewed by CO and/or
PO also contained weaknesses similar to those found in SOWs
50 Audit HO. E1NME1-04-0169
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TOSS Contract Management Needed Substantial Improvement
reviewed by the OIRM/PCMD. For example, tasks were not clearly
defined in 18 (valued at $10.7 million) of the 26 DOs in our
sample. SOWs which did not adequately define contractor tasks
required EPA staff to provide direction and supervision to CSC
employees. This contributed to the establishment of a prohibited
employer/employee relationship between EPA and its CSC employees
discussed later in this Chapter. Vaguely defined tasks also
resulted in work being done outside of the TOSS SOWs or, in some
cases, outside of the scope of the TOSS contract, which were not
authorized by the TOSS CO. EPA guidance is clear on the limits
of authority for project officers. EPA's Project Officer's
Handbook and FAR provide that POs do not have the authority to:
"(1) Award, agree to, or execute any contract or contact
modification; (2) obligate, in any way, the payment of money by
the Government..." When POs/DOPOs permit contractor employees to
perform tasks that were not included in the DO SOW and not
approved by the CO, they have exceeded their authority. Some
DOPOs did not seem to recognize when they had exceeded this
authority by permitting work outside the scope of the SOW. Work
outside of DO and contract SOWs are discussed in a subsequent
section of this Chapter.
Although PCMD and OIRM had identified DOPO failure to include
acceptance criteria in SOWs as a consistent deficiency, 22 SOWs
(valued at $12.5 million) in our 26 sample DOs did not include
measurable performance criteria to be met by the contractor. As
a result, the DOPOs had inadequate standards for acceptance of
the contractor's work. This deficient performance criteria also
contributed to the need for an increased level of EPA oversight
of CSC employees. The EPA Project Officer's Handbook, emphasized
that an inadequate or poorly written SOW may result in
unreasonable prices and failure to obtain the desired effort from
the contractor. Further, without specific criteria, EPA had no
basis for rejection of unacceptable or inadequate products
received from the contractor. DOPOs informed us that usually
there were no deliverables under their DOs since the product
procured was labor hours; however, we found that DOPOs had not
established methods to adequately monitor labor hours provided
(see Chapter 6).
DOPOs indicated to us that prior to FY 1991, they had never
experienced problems with the SOWs submitted to the PO for DOs
under SOSM and predecessor contracts. DOPOs advised us that they
used the prior year's SOW to prepare their SOW for the TOSS
contract. These SOWs had been acceptable in the past. However,
both the TOSS and SOSM COs stated that these SOWs had been
deficient, but were developed under other COs. The SOWs did not
adequately describe tasks to be performed and included language
that provided for prohibited personal services relationships to
exist or develop between EPA and CSC employees. As a result of
the reviews that were performed of TOSS SOWs, some DOPOs were
contacted about problems in their SOWs by members of the
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TOSS Contract Management Needed Substantial Improvement
alternate PO's staff; however, in most cases, we found that
follow-up by the PO's staff on identified SOW problems did not
occur.
Inadequate Assistance From PO In SOW Preparation
PCMD guidance states that DOPOs "assist" in preparation of DOs,
however, as previously stated, the majority of effort in
preparation of the TOSS delivery order SOWs was performed by the
DOPOs through the submission of their procurement requirements.
With little or no assistance from the PO, or alternate PO, DOPOs
submitted their labor requirements and a description of tasks to
be performed. The Contracts Management Manual states that the PO
is the primary ..technical representative of the CO and that the PO
assists Agency officials in writing SOWs.
Generally, the PO did not get involved with the preparation of
the TOSS SOWs. When the TOSS contract was awarded, the
designated PO for the contract was located in RTP. The alternate
PO was located in OIRM offices in Headquarters. Procurement
packages were submitted to the alternate PO's office for
preparation and review of DOs prior to the CO's signature.
According to the CO, the PO in RTP had the technical expertise to
function as PO, however, the alternate PO had the staff in the
Headquarters office to perform the voluminous tasks necessary for
processing TOSS contract DOs. DOPOs consistently referred to the
alternate PO when referencing any assistance obtained from the
Project Officer's level. However, they stated that neither the
assistance nor the guidance was adequate. (The TOSS contract was
modified in July 1991 to make the alternate PO the PO for the
contract, and deleting the former PO from the contract.)
The EPA Project Officer's Handbook states that, "It is important
to note, that although the PO may have written the SOW or
specifications, it is imperative that the PO [emphasis added]
review the entire contract package in order to properly discharge
his/her responsibilities as a PO." On the TOSS contract, neither
the PO, nor the alternate PO wrote SOWs for the DOs. The
alternate PO's review of procurement request packages submitted
by the DOPOs primarily involved ensuring that all DO components
were included in the package; however, we determined that this
review was not always thorough. DOPOs for 15 (valued at $11.1
million) of the 26 sample DOs did not include all the required
components of a DO. These items included things such as the DOPO
certification, documentation that the DOPO had received the
required training, the rationale for split funding, and the
ceiling price justification (justification for ceiling priced DOs
rather than fixed price).
The alternate PO issued a planning package to DOPOs in July 1990
to aid DOPOs in preparing their TOSS DO requests. This package
included a copy of the proposed TOSS contract SOW, with new labor
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categories under the TOSS Contract, and "A Set of Brief SOW
Guidelines For Delivery Orders." However, no further
coordination was made between the PO and the DOPOs in the actual
preparation of the documents.
Most DOPOs indicated that they were unable to reach the alternate
PO or the CO to obtain assistance in the preparation of their
SOW. Thirteen DOPOs reported that they received inadequate
support from Headquarters staff in preparing and/or managing DOs.
Region 6 officials stated:
The TOSS users guide was not received by the DOPOs
until after the DO Statement of Work (SOW) was due to
the Contracting Officer (CO) in EPA Headquarters.
The transition from the System Operation and Software
Maintenance (SOSM) contract to the TOSS was very
chaotic and it was impossible to get assistance from
PCMD. Calls to CO for assistance were futile.
EPA Headquarters has a responsibility to improve in
their oversight role.
Gulf Breeze lab officials spoke of a three to four month delay in
DO paperwork submitted to the "big black hole in Washington,
D.C." Many of the DOPOs in our sample complained of not being
able to understand the new TOSS contract labor categories, for
example and relied on contractor staff for assistance after being
unable to contact EPA contracting personnel.
Improper Contractor Assistance in DO Preparation
DOPOs inappropriately sought the assistance of the contractor to
determine the work to be done, the status of DO approval, and the
date the contractor was authorized to start work. Twenty of the
DOPOs in the sample informally discussed the DO requirements with
the contractor before the issuance of the DOs (DOs valued at
$11.5 million). This is a prohibited activity due to the
potential for a conflict of interest situation. EPA personnel at
all levels appeared to be unaware of the potential that CSC
managers could be motivated by profit potential for the company
rather than cost effective provision of services under DOs. One
EPA Lab Manager said, "If I have a technical expert, why can't I
use his technical expertise" when discussing why they permitted
the contractor to be involved in the preparation of the.SOW. Two
DOPOs in RTP did not believe the contractor's involvement in
development of the labor mix was a problem because they developed
the budgeted amount available and maintained control over the
process.
The DOPO for the aforementioned lab made similar comments,
stating that budgetary limitations precluded EPA from buying
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TOSS Contract Management Needed Substantial Improvement
resources other than those absolutely needed for lab operations.
The lab Manager stated that their budgets were very restrictive
so they always made final determinations on their needs, not CSC.
However, budgets are based on levels of required resources and
when EPA managers allowed CSC to participate in decision making
in any way, a conflict and a potential for undue contractor
influence was created. In addition, relying on a budget as a
control permits cost inefficiencies within the budget. Cost
effectiveness must be an objective for all monies expended, not
just those costs that exceed the budget.
A DOPO in RTF asked a CSC employee to send a projected billing
sheet to help him prepare the planning Procurement Request for
the FY 1992 DO. The.DOPO1s E-mail message to the CSC employee
requested:
I need your projected billing sheet for next
year....planning PR's are due out of here ASAP. To
meet the deadline, I'm planning to cut an $80 PR ....
please use $8Ok as your figure for total labor hours
and ODC'S.
Another example of CSC assistance occurred on a Washington, D.C.
DO where the assistant DOPO consulted with CSC on what computer
system and labor categories to use for the DO tasks.
Modifications to the- DO increased the authorized labor hours by
90 percent and'more than doubled the DO's ceiling price, again
with the advice of CSC. We believe the EPA staff lacked the
technical expertise to properly evaluate the changes. They
stated they had asked for assistance from the EPA technical staff
but found that there were no government employees with the
expertise; therefore, they relied on the figures provided by the
contractor's staff.
DOPOs used CSC as a resource in developing DOs because they were
uncertain about needs or lacked expertise in the tasks performed
by CSC. In addition, in some cases, they were unable to get
assistance from EPA Headquarters. These discussions with CSC
prior to the issuance of the DO could enable the Contractor to
guide the DOPOs into ordering more labor hours than needed, to
upgrade labor categories beyond the expertise needed to perform
the SOW tasks, or to include tasks that were not necessary to the
program office's mission.
EPA Order 1900.2, Contracting at EPA, issued in October 1990,
prohibits
The preparation of Statements of Work, Work Assignments,
Technical Direction Documents, Delivery Orders, or any other
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TOSS Contract Management Needed substantial improvement
work issuance document under a contract that the contractor
is performing or may perform. Authorizing a contractor to
do any of these activities creates a clear conflict of
interest situation since they essentially allow the
contractor to assign itself its own work.
PCMD Guidance on Contracting Activities, an appendix to the Toss
Users * Guide, contains the same prohibition and adds that
allowing this type of prohibited contracting activity results in
"...further fostering the impression that contractors run EPA."
In addition, the Delivery Order Project Officer's Guide, issued
in March 1990, stated that DOPOs cannot contact the contractor
regarding activities and budgets of DOs that have not been issued
by PCMD. The Contract Administration Manual issued to DOPOs
during their required training also stated that it is prohibited
for DOPOs to formally or informally discuss or divulge any
information relevant to a DO with the contractor prior to its
issuance.
In contrast, CSC encouraged their managers to talk with DOPOs
before DOs are issued. CSC's Project Plan Guidelines, issued on
January 3, 1990 and the CSC's EPA Center Managers' Guide provided
for pre-DO discussions with DOPOs. The Center Managers' Guide
stated, "...informal discussion of the work to be accomplished
with the EPA DOPO prior to issue of the Delivery Order can
preclude many misunderstandings and differences." One reason
these "informal discussions" represent a potential conflict of
interest is that CSC managers are evaluated, in part, based on
how many new positions, labor category upgrades, or additional
hours they "sell" to EPA. According to CSC files, one CSC manager
gave as a significant accomplishment in his 1991 performance
appraisal:
Negotiated at the AA's OSWER level of EPA, the addition
of over $12M in new software development tasks of which
$8M is currently in procurement while other tasks are
in the design stages of procurement. This new growth
is coupled with an already 18% growth in new business
revenues over FY 90 from labor category upgrades and
new expansion of existing projects. This resulted in a
business take away from 4 other contractors serving
EPA...
Another CSC Site Manager had a similar significant accomplishment
for 1991:
By successfully negotiating with the Delivery Order
Project Officer during the TOSS phase-in period. I
secured higher labor categories for a significant
number of the CSC staff to increase the total value of
the contract from $965,323.97 under the SOSM contract
to $1,490,594.59 under the TOSS contract an increase in
55 Audit NO. E1NME1-04-0169
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TOSS Contract Management Needed Substantial Improvement
revenues of $525,270.62.
In another case, a CSC Site Manager noted in a trip report that
he had provided a new site manager in another region with a copy
of his Lotus program used to calculate modifications to the
Delivery orders. He wrote:
(...you can do a "what if" with the numbers and quickly
see how to modify the Delivery Orders to everyone's
advantage.) 1 also explained that this becomes very
useful around Hay, because you can estimate how much
money would be left over on any DO, and, if there was
enough, you could "consult" for an additional position
or a labor category upgrade...
Notes from a meeting between CSC and one of the TOSS
subcontractors stated,
...CSC needs to be aware of all of (sub-contractor's)
new business activity so that they will not be
marketing the same clients....We all need to look at
Marketing. Know what's going on at EPA and keep others
informed. A team effort is required. CSC needs to
know all the skills of (sub-contractor) staff for
marketing purposes.
We found several instances in which the DO labor categories for
CSC employees, determined with the assistance of CSC, were based
on the experience levels of the employee or the DO budget and not
on the requirements of the SOW. For example, CSC employees who
performed the same tasks under two different DOs, charged to
different labor categories. In other cases, different employees
doing the same tasks on a DO charged their time to different
labor categories. In addition, the tasks performed by CSC
employees on 15 DOs reviewed did not conform to the description
of the labor category being charged. For example, CSC employees
working as travel voucher auditors and accounting clerks in'
regional offices charged as Senior Data Control Clerks although
they performed either none or few of the tasks described for that
labor category.
One DOPO stated that she used CSC as a source of information for
her DO preparation because she was unable to get,assistance from
EPA Headquarters. Another DOPO said that it was easier to get
information from CSC and they were more knowledgeable about local
DOs than EPA sources. One Lab manager stated that in two years
he had talked to many people about ADP matters, but, he had never
talked to an EPA employee, they had all been contractors. He
believed that EPA did not have anyone with the expertise to
provide assistance on technical issues.
Contractor assistance before the issuance of the DO could
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TOSS Contract Management Needed Substantial Improvement
potentially result in contractor influence to increase labor
hours or labor categories or add additional tasks to the DO
beyond the Agency's actual needs. This potential increased when
EPA staff did not perform a workload analysis to support the
level of labor hours budgeted or when they lacked expertise in
the tasks being performed by CSC. The level of staffing needs in
the DOs were usually based on budgetary considerations and CSC
suggestions rather than actual Agency need or the most cost-
effective approach.
Inadequate Guidance To DOPOs
DOPOs advised us that they had inadequate guidance on preparation
of SOWs. OIRM issued a "Draft TOSS User's Guide" in November
1990 which contained directions on preparing a "Delivery Order
Request" including the required 14-element Statement of Work.
The TOSS Users' Guide emphasized the importance of the SOW by
stating, "...A well written SOW enables the work to be done in a
cost effective and timely manner. It also avoids delays in
progress and the need for DO modification." The Guide further
stated that the task descriptions were the most important section
of the SOW, "The contractor is only responsible for tasks
described here and must be able to work from these descriptions,
independent of the DOPO. These descriptions must clearly outline
what is to be done." However, DOPOs informed us that this
guidance was issued after they prepared their SOWs for the TOSS
contract.
The alternate PO stated that she provided guidance to DOPOs
during the TOSS contract planning process, prior to DOPOs
preparation of their SOWs. This guidance stated that the SOW
should contain a complete description of work because,
Technical direction (TD) is not a substitute for a
complete specification. TD can not increase the cost
of performance (when used to augment an incomplete
specification it most certainly will do just that). A
typical phrase such as "will work closely with the DOPO
to determine..." is a perfect example of this failing.
Such language is used to cover the failure to identify
the nature and extent of the EPA/contractor
relationship.
The alternate PO's guidance relating to instructions on
preparation of the SOWs was very general, primarily stressing the
need to be specific in task descriptions, but not illustrating
how this should be accomplished. It stated that,
Precision in expression is imperative:
(1) to identify the work required by the contractor;
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(2) to provide a specification detailed enough to "make
real11 the legal requirement for an "independent
contractor" relationship
(3) to prevent a de facto personal services
relationship from developing proscribed by law;
(4) to identify the criteria which will permit
inspection and acceptance to take place (this function
is inseparable from the SOW).
The guidance also included a copy of a checklist that would be
used by the CO and PO to verify that the SOWs were properly
prepared. As will be discussed in the following paragraphs, this
review process was not completed, so the DOPOs received
inadequate feedback on proper preparation of the SOWs.
The alternate PO's guidance did not provide information on how to
determine the labor mix to be used in the DO staffing matrix for
the SOW, although DOPOs were expected to provide this information
to the PO. The planning package included a copy of the proposed
TOSS contract SOW, listing proposed labor categories, but it did
not provide sufficient information to enable the DOPOs to
independently determine which categories were more appropriate to
fill the work needs under their DOs. DOPOs advised us that TOSS
labor categories were significantly different than those used
under the SOSM!contract and the TOSS labor categories
descriptions were not sufficient to guide them in determining
which categories to use. Further, DOPOs said they did not know
how to prepare a needs or workload analysis therefore, they had
insufficient guidance on how to determine the level of support
they needed to complete work under their DOs. As a result of the
DOPOs inadequate knowledge regarding preparation of a SOW, the
SOWs were deficient and contributed to the host of management
problems described throughout this report.
Insufficient DOPQ Training
DOPOs inadequate knowledge on preparation of SOWs was caused in
part by their lack of contract management experience and/or
insufficient technical expertise. Some of the DOPOs for DOs in
the audit sample had not taken the required contracts
administration training before they prepared the SOWs for their
DOs. A number of the DOPOs we interviewed, who had taken the
required training course, appeared overwhelmed by the level of
responsibility delegated to them by OIRM/PCMD after only three
days of contract administration training. In fact, some DOPOs
thanked auditors for bringing contract administration weaknesses
to their attention.
The TOSS CO believed the amount of training required to be a
DOPO, as well as a PO was inadequate. He stated that DOPOs are
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required to have only 3 days of training. A PO only needs 5 days
of training to manage a contract like TOSS. The Contract
Administration Course, which both DOPOs and POs are required to
take to be certified as project officers, is a 3 day course. In
contrast, we noted that CO's must have 500 hours of training to
be certified. While a significant amount of information is
included in the PO/DOPO Contract Administration course material,
we found it difficult to believe that a DOPO could comprehend and
retain enough of the 500 pages of information in the Contracts
Administration Manual to properly manage a contract. The
contract management weaknesses identified in this review support
this conclusion. For example, one DOPO told us that the training
provided in the Contract Administration and PO training courses
did not give DOPOs sufficient practical examples of reviewing
invoices and progress reports, which are two primary methods of
contract monitoring and ensuring cost efficiency.
Most of the DOPOs for our 26 sample DOs had taken the required 3-
day course, but demonstrated inadequate knowledge of sound
contract management. For example, one of the things the
Contracts Administration Manual advises a PO to do is obtain a
copy of the contract related to their DO. We found that 15 (DOs
valued at $11.3 million) of the DOPOs for our sample of 26 DOs
did not have a copy of the TOSS contract. Two other DOPOs said
they only had a portion of the contract (DOs valued at $688,000).
As discussed in subsequent sections of this chapter, DOPOs
included tasks in their SOWs that were outside the scope of the
TOSS contract, in part because they had not read the contract.
The CO said it was the PO's responsibility to provide a copy of
the contract to the DOPOs. We found, however, in isolated cases,
that some DOPOs did not even have a copy of their delivery order.
Others did not know when the DO was officially approved by the
CO, but relied on CSC to inform them when it was okay for CSC
employees to start work on their DOs. As a result of this
reliance on the contractor, contract employees began work on DOs
in Washington, and Regions 6 and 9 before work was authorized by
the CO. The Agency incurred an estimated $36,000 in unauthorized
charges before the DOs at these locations were signed by the CO.
In two other examples in Gulf Breeze and Washington, DOPOs
approved payment for labor categories that were not included in
DOs signed by the CO. The Agency incurred $59,026 in
unauthorized costs for these labor categories. DOPOs did not
seem to understand that payment for labor hours under these labor
categories would require contract ratification rather than their
approval. Since neither the CO nor the PO reviewed invoices,
they were unaware of these activities.
Inadequate Reviews of Statements of Work
SOWs for 18 (valued at $6.0 million) of 26 DOs in our sample were
not reviewed by either OIRM or PCMD although the draft TOSS
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Users' Guide stated that all DO packages would be reviewed by one
of these offices. The CO advised us that although he was aware
of his responsibilities to review the SOWs, he had not reviewed
all DOs due to resource constraints. Further, with one
exception revisions of the SOWs for the DOs that were reviewed
and corrections of the deficiencies noted by PCMD and. OIRM were
never completed. The exception was the SOW for DO 119, revised
effective September 20, 1991, just 10 days before the end of the
option period and expiration of the DO. As a result, the
inadequate and/or prohibited contracting practices identified by
the reviews continued throughout the first option period of the
contract.
PCMD's FMFIA documentation identified the CO's review and
approval of SOWs as a primary control technique for ensuring
sound contract management. Generally, the SOW is the blueprint
or specifications for the work to be done. EPA Order 1900.1
states in section 5b that, insofar as possible, the contract
should define the job. An attachment to that order stated that
users must provide contracting officers with a detailed
description of the job to be done. It is the job of the
contracting personnel to reduce this information to contract
format. The Contracts Management Manual contains similar
guidance. It states in section 7.5 that DOPOs define the work
requirements, the Project Officer initiates procurement actions,
assists Agency .officials in writing statements of work, and
prepares delivery orders for signature by the CO, and the CO
issues work assignments, ensuring that all requirements of law
and regulation have been met.
Prior to the start of the TOSS contract, the CO said he initiated
an effort to closely review all SOWs before they were signed.
Issuance of funded DOs was delayed until March 1991 in an effort
to permit an adequate period of time to complete the reviews.
The CO delegated review responsibilities to the alternate PO and
her staff for all DO SOWs with dollar values less than $250,000.
The CO was to perform reviews of DOs over $250,000. At the time
the contract was awarded, 127 procurement requests were submitted
to the PO/CO for review and issuance. The CO said they had good
intentions, however, they did not succeed in their effort to get
all SOWs reviewed and "cleaned up" before they were issued.
One example of inadequate CO and PO reviews was a Region 9 DO
which still contained the following tasks, indicative of
prohibited "personal services", after being signed by the CO on
April 1, 1991:
Under the direction of the Information Services Section
Chief [emphasis added], develop applications for the
user community on personal computers and or mainframes.
Perform any other duties within the job scope as
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directed by the ISS Section Chief to the Information
Center Coordinator [emphasis added] to help support
efforts of the Regional Information Center.
The contractor will assist in sorting incoming mail and
separating specific questionnaires addressed to EPA ...
and anything else within reasonable constraints of the
job and its relativity.
Upon request and guidance bv EPA [emphasis added], the
contractor will be directed to modify/add/rewrite
current UIC program facility...
The TOSS CO confirmed that he did not thoroughly review all SOWs
under the TOSS contract prior to signing them. OIRH also did not
complete their reviews of SOWs under $250,000. Although he was
aware of his responsibility to ensure that the SOWs complied with
contract terms and Agency guidance before he signed them, the CO
stated that he did not have time or staff resources to properly
perform these reviews. He stated that if he tried to withhold
approval of DOs until they were right, he would not last long as
a CO.
At the beginning of the TOSS Contract, the CO reviewed eight DO
SOWs with dollar values over $250,000, all of which were
determined to be deficient. There were 21 other DOs available
for review at this time that had dollar values over $250,000, but
these DOs were never reviewed. According to the CO's records,
the eight DO reviews were conducted on December 10, 11, and 19,
1990, and January 15, 1991. We found no documentation of any
other CO reviews subsequent to January 15, and before the March
1991 deadline he set for completion of such reviews. The CO told
us that he did not complete any more reviews because of a lack of
time. He said each review took up to eight hours to complete,
however, according to his records, he performed an average of two
reviews per day in December 1990 and January 1991.
The alternate PO and other MPES staff performed initial reviews
on 67 of 106 DO SOWs with dollar values under $250,000. While a
log maintained by the OIRH office showed that subsequent contacts
regarding DO problems were made with some DOPOs, we did not find
evidence that all deficiencies identified in the PO reviews were
resolved. The log provided by the OIRM office showed only 10 of
the 67 SOW review comments were satisfactorily resolved. None of
the SOWs where review comments were resolved were in our sample.
For two sample DOs obtained from PCMD files, the wrong SOWs were
attached, a fact which we subsequently brought to the DOPOs1
attention. At the time we obtained the correct SOW for one of
these DOs, we noted that the DOPO was in the process of either
writing or editing it on the computer. We therefore concluded
that the DO was not properly reviewed prior to issuance by the
CO. Although deficiencies were noted in each SOW reviewed, we
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found little evidence that even the SOWs reviewed were corrected
during the DO performance period.
The CO advised us in August, 1991, that PCMD and OIRM had dropped
efforts to "clean up" the SOWs during FY 1991. As any revised
SOWs came in, addressing prior review comments, they were
reviewed by a contract specialist who placed a cover sheet over
each DO documenting any deficiencies that remained in the revised
SOW and stating that these problems would be resolved in FY 1992.
As a result, the contract progressed throughout the first option
period under deficient SOWs.
Insufficient Internal Controls Over Vulnerable Contracting
Activities
Seventeen of the 26 DOs reviewed (valued at $13 million)
contained contracting activities identified as vulnerable by
EPA's Administrator. Generally, TOSS DOs did not contain
adequate controls to avoid the improper use of contractor staff.
We found that CSC had become such a pervasive part of the Agency,
that EPA DOPOs and managers did not recognize the potential for
conflict of interest situations or the inappropriateness of using
contractors for certain activities.
EPA Order 1900.2 lists 11 contract work areas which may place EPA
in a vulnerable position if adequate controls are not
implemented. The Order requires a justification by the
requesting program office which describes the type of work to be
performed under the contract, why the work cannot be performed
internally, and what will be done to ensure a final Agency
product that is unbiased and represents Agency thinking. One of
these areas is budget preparation support, a task on at least two
of the DOs in our audit sample.
Order 1900.2 also addresses another category of four vulnerable
activities which, although not sufficiently sensitive to require
justifications, do necessitate the establishment of special EPA
control measures. For these activities or situations, a special
discussion detailing control procedures to be enforced must be
included with the pre-award procurement request rationale
document. These activities or situations were very common among
the TOSS DOs reviewed and include:
(1) Situations where contractors share office space
with EPA employees.
Control measures must be established to prevent the
performance of personal services, to ensure that
contractors do not have inappropriate access to
privileged or sensitive information, etc.
(2) Support in preparing responses to Freedom of
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Information Act requests.
Control measures must be established to ensure that
contractors are in compliance with all regulations
involving FOIA, the Privacy Act, and confidential
business information.
(3) Any situation where a contractor has access to
confidential business information and/or any other
sensitive information.
Control measures must be established to ensure that
contractors do not have inappropriate access to
privileged and sensitive information, to ensure that
security systems are in place preventing the release of
sensitive information to non-designated contractor
employees, etc.
(4) Any situation where it can be assumed that the
contractor is EPA, without specifically identifying
itself as a contractor.
Control measures must be established to ensure that
contractor employees are clearly identified through the
use of badges, posted signs, etc.
The draft TOSS User's Guide recommended that internal controls
for these vulnerable activities be incorporated in the SOW;
however, 15 (valued at $11.6 million) of the 17 DOs in our sample
with such vulnerable contracting activities did not have controls
in their sows. Moreover, some vulnerable activities performed
were outside of the SOWs1 scopes. According to the TOSS Guide,
This guidance addresses increased sensitivity to the
vulnerable or prohibited contracting activities. TOSS
will be managed in a way to preclude such prohibited
activities and to ensure adequate internal controls on
the SOW's that contain vulnerable contract activities.
Vulnerable contracting activities performed by CSC employees
under TOSS were widespread and included working with Confidential
Business Information (CBI) and FOIA requests, budget preparation
support, situations where CSC employees shared office space with
EPA employees, and situations where it could be assumed that a
CSC employee was an EPA employee and they did not identify
themselves as contractors. DOPOs were required to include an
Administrator's Checklist for vulnerable/prohibited activities
when they submitted their DO package to OIRM/PCMD. However
reviews of DOPOs1 files found DOs with checklists not included,
incomplete, or inaccurate. Further, DOPOs could not provide us
with written documentation of internal controls to preclude such
activities.
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CSC.employees have access to virtually all information maintained
by EPA, from sensitive databases to the personnel actions of EPA
employees. They input data of every description, answer
telephones, manage file-rooms, conduct tours, welcome visitors,
access E-Mail, send and receive faxes and distribute the mail.
After reviewing CSC files in Region 6, auditors discovered that
their arrivals and departures from the regional office were being
discussed during weekly CSC task leaders' meetings. We finally
realized that it was the result of being issued and returning
identification badges on each trip to Dallas. These badges were
issued by a CSC employee at that time. Auditors in RTF received
sensitive correspondence from another audit division pertaining
to this audit which had been opened and delivered by CSC
employees. CSC employees in Region 6 handle virtually all
correspondence to and from the Regional Administrators office.
Apparently one of the few internal controls established was to
preclude CSC from handling EPA personnel actions. This internal
control was not a particularly effective one, since a CSC
employee in the Region's human resources office did data input
for EPA personnel actions.
CSC employees working under a DO in the TOSS PO's office at OIRM
had access to sensitive Agency information because their tasks
included assisting in the preparation of contract delivery orders
and providing budget preparation. These tasks gave the
Contractor knowledge of future contracting activity related to
information management activities at EPA. Because the DOPO
considered the budget tasks to be only administrative support, he
did not prepare the required justification.
On 17 (valued at $11.3 million) of the 26 DOs reviewed, CSC
employees shared office space with EPA employees. We found few,
if any, of the control measures required by EPA Order 1900.2.
There were also numerous situations where it could be assumed
that a CSC employee was an EPA employee and they did not identify
themselves as contractors during our review. At the start of
audit fieldwork many CSC employees did not wear badges that
identified them as contractors and their work areas were not
identified. For instance, auditors discovered during a review in
Region 4 that an employee who had assisted them during a previous
audit in Region 4 was a CSC employee and not an EPA employee as
they had assumed at the time. In addition, CSC employees were
observed in several locations during the audit answering the
telephone with the phrase "EPA". When asked if CSC employees who
dealt with the public over the telephone identified themselves as
contractors, several DOPOs did not know. One CSC employee told
us that she did not identify herself as a contractor because when
she did the callers hung up. A DOPO stated that she felt it was
confusing to the public for CSC employees to identify themselves
as contractors.
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Statement of work deficiencies, inadequate guidance and
inadequate assistance and oversight by PCMD and OIRM staff left
an excessive amount of contract management responsibility in the
hands of the DOPOs who were ill equipped to effectively manage
the contract. DOPOs were not adequately trained or prepared for
this formidable task.
RECOMMENDATIONS
We recommend that the Deputy Administrator ensure significant
improvements are made in TOSS contract management to safeguard
Agency assets, provide cost-effective contract operations, and
establish Agency control of critical Agency functions.
Specifically, require the Assistant Administrator for
Administration and Resource Management to:
- Require the PO and CO to review all DO packages and SOWs
for compliance with contract terms and Agency guidance prior
to signature and issuance.
- For any SOWs found deficient, require the PO to actively
assist the DOPO in resolution of problems and complete
necessary revisions before submission to the CO and before
the contractor is permitted to begin work.
- Require the PO and CO to ensure that all DO packages
include the Administrator's checklist for vulnerable and
prohibited contract activities, that SOWs are reviewed for
indications of such activities, and that where such
activities are identified, the SOWs include controls to
avoid improper use of contractor staff.
- Require OIRM and PCMD to provide an appropriate level of
assistance to the CO and PO to enable them to effectively
manage contract activities and be available to DOPOs for
contract management support.
- Require PCMD and OIRM to issue comprehensive guidance to
all EPA contract management staff prohibiting the use of
contractor assistance of any kind in preparing contract
documents and provide specific procedures to ensure that
these activities do not occur.
- Require OIRM and PCMD to develop procedures to ensure all
contract managers timely receive copies of contract
administration guidance.
- Provide a more advanced level of training to TOSS DOPOs
commensurate with the level of responsibility they have
under the TOSS contract, ensuring that each DOPO clearly
understands both his and the contractor's responsibilities
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and limitations. This training should include, but not be
limited to:
Preparation of adequately defined SOW tasks, that
include performance/acceptance criteria.
Preparation of a needs analysis and development of
appropriate labor mix for DOs.
Development of internal controls to prevent improper
use of contractor staff.
Techniques for effectively monitoring contractor
performance.
We also recommend that the Deputy Administrator require EPA
Headquarters, regional and lab managers to allocate appropriate
levels of resources to provide:
Technical expertise from program staff to assist DOPOs
in preparation of DO SOWs prior to submission to OIRM.
Development of needs analyses for DO labor
requirements.
Secondary reviews of SOWs prior to DOPOs submission to
OIRM.
Certified contract management staff for oversight of
work under National DOs.
Performance standards to make DOPOs accountable for
compliance with contract management guidance.
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TOSS DOS WERE ADMINISTERED AS PROHIBITED PERSONAL SERVICE
CONTRACTS
The Agency did not implement adequate controls to ensure that
administration of the TOSS Contract complied with Federal
Acquisition Regulation (FAR) Section 37.104, which prohibits
personal services contracts. As a result, the Agency
administered 25 (valued at $14 million) of 26 TOSS DOs in our
sample in a manner which exhibited many of the indicators of a
personal services contract. These contract operations were
characterized by the development of an employer-employee
relationship between EPA and the contractor staff. Personal
service contracts circumvent civil service laws which require the
government to obtain its employees by direct hire and OMB
personnel ceilings and inappropriately augment Agency staff
without proper legislative review. The employer-employee
relationship between EPA and CSC developed largely because of
CSC's performance on-site in EPA offices and their performance of
continuous critical Agency functions. As a result, EPA assumed
additional supervisory responsibilities over contractor personnel
and, therefore, incurred additional cost to ensure that CSC
provided the appropriate product. In some instances, the Agency
also exhibited this employer-employee relationship with
subcontractor employees, which is also prohibited because no
direct contractual relationship exists between EPA and
subcontractor employees.
Background
The FAR prohibits personal services contracts unless specifically
authorized by statute (48 CFR Subpart 37.1). It defines a
personal services contract as "a contract that, by its express
terms or as administered, makes the contractor personnel appear,
in effect, Government employees." It outlined six indicators for
assessing whether a contract is personal in nature:
1. Performance on site.
2. Principal tools and equipment furnished by the
Government.
3. Services are applied directly to the integral effort of
agencies or an organizational subpart in furtherance of
assigned function or mission.
4. Comparable services, meeting comparable needs, are
performed in the same or similar agencies using civil
service personnel.
5. The need for the type of service provided can
reasonably be expected to last beyond one year.
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6. The inherent nature of the service, or the manner in
which it is provided, reasonably requires directly or
indirectly, Government direction or supervision of
contractor employees in order to-
(i) Adequately protect the Government's interest;
(ii) Retain control of the function involved, or;
(iii) Retain full personal responsibility for the
function supported in a duly authorized Federal
officer or employee.
All six personal services indicators were found in many of the 26
sample DOs we reviewed. Our findings regarding each cited
indicator are summarized below.
Establishment Of Employer-Employee Relationship
EPA managers and DOPOs assumed responsibilities for supervising,
hiring/firing, evaluating, promoting and training CSC employees.
In 23 (valued at $14 million) of 26 delivery orders we reviewed,
EPA personnel had assumed at least some of these supervisory
responsibilities over CSC and its subcontractor employees.
According to FAR Section 37.104(c)(2), the key determinant in
whether a contract is a personal service contract is whether the
Government exercises-relatively continuous supervision and
control over contractor personnel performing under the contract.
In many instances, EPA assumed these responsibilities under the
TOSS contract, thus creating a personal services relationship.
Supervision Under Regional DOs
EPA personnel generally provided technical supervision of CSC
employees working under TOSS DOs, while CSC provided
administrative supervision to their employees. EPA employees
gave CSC employees day-to-day assignments directly, instead of
going through CSC site managers. Of the 26 DOs we reviewed, 17
(valued at $11.5 million) provided evidence of CSC employees
receiving daily assignments from EPA managers. The day-to-day
direction was almost entirely verbal, which most EPA employees
referred to as technical direction. However, technical direction
should only be given by the DOPO, confirmed in writing and
submitted to Headquarters. Additionally, most of the CSC monthly
progress reports documented that DOPOs had not issued technical
direction for the applicable reporting periods. This indicated
that the technical direction was really supervision and that the
CSC employees were under the direct control of EPA.
Clause 1552.237-71 of EPA's Acquisition Regulations (EPAAR)
states that the PO will provide technical direction on contractor
performance. Technical direction includes direction to the
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contractor which assists him in accomplishing the SOW and
comments on and approval of reports or other deliverables. It
must be within the contract SOW and will be issued in writing by
the PO or confirmed by him in writing within five calendar days
after verbal issuance. This clause is incorporated into Section
H.9 of the TOSS contract; however, the contract states that the
designated DOPO will provide the technical direction. Many EPA
employees, other than DOPOs, provided direction to CSC staff.
CSC employees reported the results of their work directly to EPA
managers, further indicating an EPA supervisory role over CSC
employees. Situations under two RTP DOs illustrated this
condition. A CSC employee at RTP, who prepared graphics for
researchers and scientists, told us she received her assignments
directly from EPA officials and reported the results of her work
back to these officials. Under another RTP DO, a CSC employee
submitted weekly updates on the status/results of his assignments
to the DOPO and the DOPO's supervisor. On one occasion, the
DOPO's supervisor asked the CSC employee for an update on a
specific project. Following receipt of the update, the EPA
supervisor commended the CSC employee for good performance. The
CSC site manager at RTP acknowledged that she did not have any
contact with this CSC employee and that the DOPO monitored the
employee's work.
EPA Order 1900.1 outlines principles for managing EPA contracts
in order to prevent personal services contracts from developing.
Section 5.b.(3) of the order states:
When the job definition requires interpretation of the
work description or other direction which is clearly
within the project officer's authority, make sure such
direction is issued from the Project Officer to the
appropriate contractor contact person in the form of a
written technical directive. Do not give any
instructions to individual contractor employees.
In addition to the fact that SOW tasks were not written in
sufficient detail to allow the contractor to work independently,
or did not include specific tasks, some CSC site managers and/or
task leaders did not possess adequate EPA program expertise to
supervise the employees in the program-related aspects of their
work. This was caused in part because the nature of the tasks
assigned to CSC were so integral to EPA's programmatic missions,
or inherently governmental, that they required EPA supervision
and were not conducive to independent performance by CSC
employees. (see inherently governmental finding in this Chapter
for details.)
As a result, EPA employees provided CSC employees the day-to-day
directions on their work tasks. EPA employees had to maintain an
active role in CSC employees work in order to ensure that CSC
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staff were productive and adequately performed their duties. For
the 26 DOs in our sample, 13 DOPOs reported spending an excessive
amount of time administering their delivery orders (DOs valued at
$10.1 million). A Region 6 DOPO in the Region's Financial Branch
stated that EPA personnel in the Accounting Section gave CSC
employees daily direction because it was too time-consuming to go
through the CSC chain of command when on-site CSC supervisors did
not have expertise in the IFHS system.
When contractor staff made up a large percentage of a program
offices's staff, there was even more of a tendency for EPA
employees to supervise CSC employees because the EPA employee's
performance standards were often dependent on CSC's performance.
For example, the. DOPO for the Superfund DO in Region 6 stated her
DOPO duties took up to 80 percent of her time. Our review of her
performance standards revealed they required her to work directly
with contractor employees in order to get an outstanding rating.
Specifically, the position description stated: "Meet with
contractors to discuss work assignment status problem areas.
....Actively involved in assigning tasks and monitoring
performance of CSC contractor's administrative support effort."
Administration of the CSC delivery order comprised 70 percent of
this DOPO's critical job elements. Region 6 advised us that
these erroneous performance standard requirements would be
corrected for FY 92.
Some EPA personnel told us they preferred to deal directly with
CSC employees because it was more efficient, even though they
knew the proper procedure was to issue technical direction
through the DOPO to the CSC site manager. Other EPA employees
said that they had to interact with CSC staff because the work
product was unique. Still others supervised CSC employees
because CSC employees performed poorly and EPA supervision was
necessary to ensure EPA got the appropriate product. The result
of these actions was that no significant distinction was made
between an EPA employee and (CSC) contractor employees.
Supervision Under National DOs
Supervision of CSC employees by EPA managers/employees was
compounded on National DOs because DOPOs for National DOs were
located in Washington and the administration of DO tasks was left
in the control of Regional managers where the CSC employees
performing the DO tasks were located. Many of the Regional
managers had never read the SOW for the National DOs. One
National DOPO admitted that he did not oversee the CSC employees
in the Regions and he did not have an alternate DOPO in the
Region to supervise CSC's performance. He stated: "Many of the
CSC - employees in the Regions are treated as EPA staff. They
perform whatever duties the Regional staff request of them."
Region 9 DOPOs and contact persons for National DOs spent
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significant amounts of their time supervising contractor
employees. Region 9 personnel said that on one National DO full-
time supervision of the CSC employees was required for several
months due to unsatisfactory performance by the contractor. For
another National DO, the Region 9 contact said that two
relatively new CSC subcontractor employees were very dependent on
him for guidance and that it would be a long time before they
became "self operating." Region 9's supervision of these two CSC
subcontractor employees was total. The CSC site manager was not
even aware that these two persons were CSC subcontractor staff.
EPA's daily supervision of CSC employees and treatment of the
contractor staff as EPA employees resulted in utilization of CSC
staff to perform tasks outside the SOW. Moreover, because of
these unique tasks outside the SOW CSC employees stated they had
to communicate directly with EPA personnel to accomplish their
assigned work. For example, in Region 4, a CSC employee working
under the Superfund CERCLIS National DO was directed to develop
the new TimeLine system. These tasks were not in the SOW. The
CSC employee stated that he had "not read the SOW. I don't know
anything about the SOW. My job wasn't a job description.
TimeLine was new and the Region wanted it." He further stated
that this special work often impeded his ability to perform his
normal duties and functions, and required him to charge overtime
to implement the system for other, sometimes non-Superfund,
branches, while still charging to the CERCLIS DO. The Regional
unit chief for CERCLIS was not happy with the extensive use of
this employee for these tasks. These tasks were requested and
performed under the direction of other Regional managers.
EPA Involvement In Hiring of CSC Employees
In 10 of 26 sample DOs (valued at $9.6 million), EPA managers and
DOPOs interviewed prospective CSC employees for new or vacant
positions before they were hired by the contractor. Some EPA
managers stated that they participated in these interviews to
make sure that the individuals CSC hired were technically capable
of performing the work. CSC managers said they introduced
potential CSC employees to EPA managers as a courtesy but that
CSC made the final decision. EPA managers also said CSC made the
final decision as to employment. However, CSC usually hired
those individuals EPA approved of and prospective employees were
usually not hired until EPA's approval was obtained. Therefore,
we concluded that EPA's participation in the interview process
influenced CSC decisions to hire certain employees.
CSC employees under National DOs in Atlanta and Boston and local
DOs at Gulf Breeze and RTF confirmed that they were not hired by
CSC until after their interview with EPA. In one situation in
RTP, a CSC employee was flown from Corvallis, Oregon to RTP to
meet with EPA managers prior to being hired by CSC. An EPA
manager stated that they were unaware that the employee had not
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already been hired by CSC, and believed it only to be a courtesy
visit. However, the CSC employee said she was under the
impression that the meeting with the EPA official was part of the
job interview.
A Gulf Breeze EPA official argued that it was appropriate for EPA
managers to participate in interviews of CSC employees prior to
their being hired. He said Lab officials usually met with all
the upper level employees before they were hired and thought it
crucial to do so. He said to not meet with the employees before
they were hired would place them in a more vulnerable position.
He seemed unaware that the DOPO could reject any employee
proposed by CSC if they did not meet the DO labor category
requirements.
This extensive involvement of EPA managers in contractor
personnel actions gives the appearance that EPA has assumed the
role of employer. Section 5.b(8) of EPA Order 1900.1 cautions
EPA personnel against this kind of involvement with contractor
employees. It states that EPA should:
Strictly avoid Government intervention with respect to
hiring and firing of employees or assigning particular
employees to specific tasks.
It is the contractor's responsibility to ensure that employees
working under the contract are qualified to perform the work.
EPA's needs are conveyed to the contractor through the Contract
and DO SOWs. The DOPO's responsibilities are to review CSC
employee resumes, that should be included in the CSC Project
Plan, to see that qualification requirements are met (TOSS
contract Attachment A, Paragraph 7.3.1) and to ensure that the
contractor accomplishes the services specified in the DO
(Paragraph 6.3 of the TOSS contract).
EPA Involvement In Evaluating/Promoting CSC Staff
In 15 of 26 sample DOs (valued at $11.3 million), EPA DOPOs and
other EPA staff prepared or provided input into performance
evaluations for individual CSC employees rather than evaluating
the overall performance of the contractor for completion of DO
tasks. Chapter 3 of EPA's Project Officers Handbook, Criteria
for Recognizing Personal Services, provides that one indicator of
personal services is the extent to which the "Government will
review performance by each individual contractor employee, as
opposed to reviewing a final product on an overall basis after
completion of work." Since EPA managers often assumed a
supervisory role over CSC employees, the CSC site managers
sometimes had to consult with these EPA managers in order to
evaluate their employees. EPA managers and DOPOs also wrote
letters to CSC management praising the efforts of individual CSC
employees. Moreover, each monthly contract management report
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submitted to the TOSS CO contained copies of letters from EPA
managers on individual CSC employees' performance from almost
every EPA region.
CSC employees were promoted through labor category upgrades,
initiated by EPA DOPOs, to reward good performance, increased
capabilities, long years of service and to retain CSC employees.
DOPOs did not document or provide any support to show that these
upgrades were the result: of changes in SOW tasks, or changes in
the applicable CSC employees' tasks and responsibilities. For
example, one Corvallis Lab official stated that the Lab gave
consideration to long-term CSC personnel who had increased their
skills, and that upgrades were based on EPA's needs and the CSC
employees' abilities. Another Lab official said upgrades had
been recommended for CSC employees who had been with the Lab a
long time and had increased their skills. The Corvallis CSC site
manager said that upgrades were initiated based on a different
level of service performed by an employee, such as executing more
technically complex functions within a task. These statements
suggest that upgrades were driven more by CSC employees' skills
than the Lab's needs.
In Region 6, a former DOPO said she included a position upgrade
for a CSC employee in her budget one year because CSC did not
give employees raises often enough and she wanted to provide the
employee with an incentive to keep them happy. Although
contractor employees may perform well, increase their skills, and
have many years of service, these factors should not be the basis
for upgrading their labor categories. Labor category upgrades
should be based only on a genuine change or expansion of EPA's
needs as reflected in the DO tasks. In effect, these labor
category upgrades resulted in more cost to the Government than
necessary to satisfy the delivery order requirements.
Because EPA managers over the years had shown their willingness
to initiate or approve labor category upgrades, CSC managers
often pursued promotions for their staff, through EPA. We
concluded that CSC based promotions of their staff on this
willingness and generally did not promote their employees unless
EPA agreed to a labor category upgrade.
CSC managers' internal memorandums recommending upgrades for CSC
staff focused primarily on increased qualifications and strong
characteristics of the employees rather than on increased tasks
and responsibilities in the SOW. For example, the Region 9 CSC
site manager said he obtained approval from a Region 9 official
to promote a CSC employee who had been working for many years and
had reached the top of the pay scale. Both CSC and EPA managers
interviewed believed EPA should promote CSC staff, further
demonstrating the existence of the employer-employee
relationship.
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Under the National Docket DO, EPA managers in Boston created
another DO to keep from losing a CSC employee. The DOPO for the
National Docket DO had declined to agree to another labor
category upgrade for one CSC employee because he believed the CSC
employee was already categorized beyond his required duties. The
employee had been promoted to a Technical Information Specialist,
and Regional officials wanted to promote him to an Information
Management Specialist. When the DOPO declined to support the
last upgrade because the DO tasks only required the services of a
Senior Control Clerk, Regional officials went to CSC and told
them the CSC employee was terrific and asked what they could do
to hang on to him. The Region's Office of Regional Counsel (ORC)
then "created a new position to hang on to" the CSC employee,
under a new DO. "We upgraded [the CSC employee], so he stayed."
EPA Participation In Training Of CSC Employees
EPA often trained CSC employees who did not possess adequate
expertise to perform the SOW tasks, rather than requiring the
contractor to provide qualified staff for the DO. Both EPA and
CSC managers firmly believed it was EPA's responsibility to train
the CSC employees. We concluded that this attitude was
attributable to the fact that EPA managers looked upon CSC staff
as their employees rather than contract employees. Also, the
DOPOs did not seem cognizant of the fact that they were buying
expertise rather than bodies. In some cases, EPA allowed CSC
employees to attend training courses that did not relate to the
SOWs or that were primarily for the employee's personal
enhancement. The costs related to these training courses and
conferences were charged to the contract when they should have
been paid for by CSC. (Inappropriate training costs charged to
the contract are discussed in greater detail in chapter 6.)
The TOSS contract specifically stated that it was the
Contractor's obligation to ensure that employees working under
the Contract were fully qualified and trained to perform the SOW
tasks. DOPOs were given the responsibility to verify these
qualifications upon accepting the Contractor's Project Plan which
included proposed staff for completing DO tasks. DOPOs reported
that they approved the unnecessary training so that CSC employees
could better perform tasks under the DO SOW. DOPOs viewed CSC
employees no differently than a government employee for which
they would provide adequate training to complete assigned tasks
and personal/professional development.
Personal Services Relationships With
Subcontractor Employees
Two DOS in our sample (valued at $177,921) had subcontractor
employees working under them. EPA established the same
supervisory relationship with these subcontractor employees as it
had with the CSC employees. EPA personnel assigned
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subcontractor staff day-to-day duties and participated in the
hiring and evaluation of the individual employees. In addition
to the fact that creation of a personal services relationship is
prohibited, EPA had no authority to deal directly with
subcontractor employees because there was no contractual
relationship between EPA and the subcontractor staff. Only the
prime contractor has the authority to instruct its
subcontractor's staff.
Under the two DOs we reviewed, either the DOPO or other EPA staff
provided instructions directly to the subcontractor's staff. For
example, the DOPO and alternate DOPO on a Headquarters DO gave
oral direction, including the prioritizing of work, to
subcontractor's staff. When specific DO tasks were completed,
the subcontractor employees gave the product to the DOPO or
alternate DOPO for acceptance. The subcontractor firm did not
possess sufficient on-site supervisory staff to manage the work
being performed because of high subcontractor staff turnover. As
a result, EPA assumed this supervisory role and was consulted by
the subcontracting firm for evaluations of its staff. EPA
personnel also wrote letters of commendation on subcontractor
employees' performance and participated in the hiring of the
subcontractor staff.
Performance On-Site
CSC employees under 24 (valued at $14 million) of the 26 sampled
delivery orders performed their work on EPA premises, which
according to FAR was another indicator of the existence of a
personal services contract. Performance on-site created a relaxed
environment and close relationships between EPA and contractor
staff which facilitated the development of an employer-employee
relationship with CSC employees. EPA did not institute adequate
controls to ensure that CSC employees located in EPA offices were
distinguishable from EPA employees on 20 of the DOs reviewed (DOs
valued at -$12.7 million). CSC employees wore badges that were
identical to EPA, or no badges at all, and were included in EPA
telephone directories, without being designated as contractor
employees. Some had name tags in their work space but nothing to
identify them outside their work space.
EPA officials in Gulf Breeze said that when CSC first came to the
Laboratory, EPA's relationship with the contractor was business-
like. However, as everyone began to know each other over a long
period of time, the relationship became relaxed. As a result,
EPA staff started giving assignments directly to CSC employees
instead of going through the CSC site manager. In another case,
a former Region 6 CSC employee told us it was difficult for CSC
and EPA employees to work side by side on a continuing, long-term
basis and keep an independent contractor relationship.
In Region 6 CSC employees were not only indistinguishable from
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EPA employees to uninformed persons, but also to some EPA
employees working on-site. In one instance, we asked an EPA
secretary to direct us to an EPA employee. After the secretary
named an employee and after we reverified with the secretary that
the person was reportedly an EPA employee, we determined that
this individual was actually a CSC employee. Therefore, even an
EPA employee who had worked in the same office with the CSC
employee did not know that her co-worker was a contractor
employee.
Principal ToolsAnd Equipment Furnished By EPA
EPA provided CSC all supplies and equipment necessary to perform
the SOW tasks for 25 (valued at $13.9 million) of the 26 sampled
delivery orders. This included PCs, terminals, modems, and
furniture. EPA also provided equipment to CSC staff who worked
in off-site locations. All equipment/supplies was owned by EPA.
Services Applied to Integral Effort of Agency
In 23 of the DOs we reviewed (valued at $13 million), CSC
performed tasks that were critical to the accomplishment of the
Agency's mission and/or CSC staff worked in key or sensitive
areas. Additionally, some of the tasks performed by CSC
appeared to be inherently governmental, or tasks that should have
been performed by EPA employees (discussed later in this
Chapter). CSC employees sometimes performed tasks that no EPA
employee had the expertise to perform; making the contractor's
services critical to the accomplishment of the Agency's mission.
For example, CSC operated the VAX system, a major computer system
that links EPA Laboratories to the Agency's computer system. A
Headquarter's assistant DOPO stated that EPA does not have the
in-house capabilities to program VAX systems; therefore, EPA is
completely dependent on contractors to do the work. Gulf Breeze
officials also confirmed that CSC operated the VAX system at
their lab, and that there were no on-site EPA personnel capable
of performing this critical function.
In other cases, EPA could not keep up with the workload without
the CSC employees. EPA employees described CSC as the
"lifeblood" of the Agency. They said we would be "up the creek"
without CSC. One Region 6 DOPO said, "We are very dependent on
these guys. That is not a good position to be in." CSC
personnel also attended EPA staff meetings, an indication that
EPA personnel considered them integral to their function. The
Region 6 CSC site manager received the Regional Management
Division Director's daily agenda and was included in the monthly
division staff debriefing. Also, CSC employees in Region 6 were
the only personnel trained to do data entry for NPDES general
permits. These CSC employees also acted as the source of contact
for over 200 companies and 7000 facilities which are regulated
for discharges of toxic or hazardous materials. The DO progress
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reports stated that a CSC employee made referrals of permit
violations to EPA engineers although this task was not included
in the DO's SOW. One EPA staff member said this CSC employee
"runs offshore." EPA environmental engineers stated they
sometimes get to enforcement action faster as a result of this
CSC employee mentioning problems to them. This apparent
inherently governmental function was performed by a CSC employee
because the off-shore permits units did not have an EPA
environmental assistant like other areas of the program.
Performance of these and other critical services was not
restricted to the examples provided in the foregoing paragraphs.
Other examples included: 1} CSC employees in Region 9 worked as
data entry clerks in sensitive areas such as personnel, regional
counsel, and accounting. 2) CSC employees in Region 6 answered
questions for EPA employees about travel, opened and routed mail
in the Regional Administrator's office and worked with EPA
personnel data. Further details are provided in a subsequent
section of this Chapter on performance of inherently governmental
activities under the TOSS contract.
Comparable Services
CSC employees performed comparable services to EPA FTEs under 15
of the sampled DOs (valued at $11.2 million), another indicator
of personal services. The CSC employees either performed similar
tasks as EPA employees, or provided services previously performed
by EPA. The Project Officer's Handbook stated that the nature of
the work characterizes whether services are personal in nature,
or
to what extent the Government can obtain civil servants
to do the job, or whether the contractor has
specialized knowledge or equipment which is unavailable
to the Government.
For example, in the Region 9's Information Resources Management
Center where the largest concentration of Region 9's CSC
employees are located, EPA and CSC employees performed the same
or similar tasks. The tasks included preparing courses and
providing in-house computer training, user support and
programming.
In addition, some former EPA employees had obtained jobs with CSC
and performed similar functions as CSC employees as they had
performed when working with EPA. These former EPA employees
worked for CSC at Gulf Breeze, Region 9 and RTP. Many EPA DOPOs
and managers told us that a substantial number of the functions
should be performed by EPA personnel, but were not because of the
lack of sufficient hiring authority.
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Service Expected To Last More Than One Year
Many of the services provided by CSC are continuous, with no end
in sight. Since the early 1970's EPA has contracted with CSC on
a nationwide basis to provide ADP/computer support, systems
operations, and/or software maintenance to its regions. EPA
DOPOs and managers for 24 (valued at $14 million) of 26 sample
DOs said the services provided by CSC are expected to last, at
the minimum, more than one year. Most of the DOPOs saw no end to
the services provided by CSC because EPA relied on CSC employees
to perform critical tasks they did not have sufficient FTEs to
perform. EPA may not have intended the procurement of these
services to be permanent or personal in nature. However, the
contract operates as such, and it is the contract's ongoing
nature, the criticality of the service provided and the co-
location of EPA and CSC employees, which forms the basis for the
evolving employer-employee relationship.
RECOMMENDATIONS
He recommend that the Deputy Administrator ensure significant
improvements are made in TOSS contract management to safeguard
Agency assets, provide cost-effective contract operations, and
establish Agency control of critical Agency functions.
Specifically, require the Assistant Administrator for
Administration and Resource Management to:
- Issue comprehensive guidance to all EPA contract
management staff describing prohibitions against personal
services relationships with contractor staff, with emphasis
on supervision, hiring and evaluations of individual
contractor staff.
- Move CSC staff off-site where possible to preclude the
development of personal services relationships and potential
conflict-of-interest situations cited in Chapter 2.
- Require the PO to implement specific procedures regarding
labor category upgrades, to include (1) PO approval of aJLl
requests for labor category upgrades and (2) written
justifications from DOPOs to support the need for the
proposed labor category upgrades.
- Require the PO to issue instructions to DOPOs requiring
that all technical direction to contractor employees be
given to site managers, promptly put in writing and
submitted to the PO, as required by the contract.
- Require the CO to reassess the propriety and cost
effectiveness of providing equipment to CSC staff,
particularly in off-site locations since CSC is paid premium
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rates for work CSC staff perform in off-site locations.
- Evaluate the need for national DOs. Covert national DOs
to regional DOs, where appropriate, to facilitate adequate
control of DO operations.
- Direct all contract management staff to cease any direct
contact with CSC subcontractor staff and provide general
guidance on proper management practices under contracts/DOs
involving subcontractors.
We also recommend that the Deputy Administrator require EPA
Headquarters, regional and lab managers to
- Issue instructions to all EPA employees who are not
contract managers prohibiting EPA employees from assigning
tasks, giving directions on work activities and scheduling
or prioritizing their work.
- Ensure that all CSC employees' work space is designated as
contractor occupied space, and that all contractors wear
distinctive badges identifying them as contractor staff.
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POTENTIALLY INHERENTLY GOVERNMENTAL FUNCTIONS WERE PERFORMED
UNDER TOSS CONTRACT
CSC employees on 12 (valued at $10.4 million) of 26 sample DOs
potentially performed inherently governmental functions in
apparent contradiction of an OMB Circular A-76 requirement that
tasks "being so intimately related to the public interest mandate
performance only by Federal employees." Also, limited reviews of
4 other national DOs (DOs 12, 74, 111, and 138) outside our
sample disclosed similar performance of apparent inherently
governmental functions by the contractor. Our conclusion on
these 16 DOs was based on the fact that (l) CSC employees on
these DOs performed decision- making functions critical to the
accomplishment of the Agency's mission and (2)-Agency officials
expended substantial amounts of money and time to train, equip,
supervise and develop CSC employees to give them the unique or
necessary skills to perform their tasks. We further concluded
that most of this effort was necessary because the nature of the
work performed was inherently governmental. As a result of the
additional investment EPA had to make in the CSC employees,
however, no noticeable benefit was received in using contract
employees instead of EPA employees.
CSC employees performed these apparent governmental functions due
to the lack of available FTEs rather than logical decisions based
on the significant merits in using contract resources rather than
EPA employees. The Agency's decision to utilize contractor
employees instead of EPA employees has had several negative
effects: (1) Contract employees with interests other than the
public interest were allowed to perform duties critical to the
Agency's mission; (2) critical knowledge of Agency's programs
resided with the contractor and not EPA, (3) flagrant personal
service relationships existed in the administration of the DOs;
and (4) contractor employees were allowed to perform activities
identified as vulnerable or sensitive contracting activities
without adequate internal controls.
Background
No definitive guidance exists as to what are inherently
governmental functions. OMB's Circulars A-120 and A-76 state
that consultants are not to be used to do work of a policy,
decision making, or management nature which is the direct
responsibility of agency officials. These functions include
those activities which require either the exercise of discretion
in applying government authority or the use of value judgments in
making decisions for the government. Because this definition
allows for varying interpretations as to what is inherently
governmental, EPA has, as stated in the Agency's Initial Draft
Materials for Recertification Course for Contract Managers,
"...tended to allow more and more borderline cases to be
contracted out and perhaps it has resulted in our pushing the
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limit on what could reasonably have been interpreted as
allowable."
GAO in a recent audit concerning contractor performance of
inherently Governmental functions3 at Federal Agencies indicated
that a key criterion as to whether contracts are appropriate is
whether the government maintains sufficient in-house capability
to be thoroughly in control of the technical, policy, and
management functions of the agency. In this context, government
decisionmaking power means more than simply being a final
authority or signatory to a document. The report further states:
Agency officials often contend that {contractors} do
not administer governmental functions — they only
assist in the administration of such functions.
...{GAO} stated in a 1981 report... that administration
begins when the contractor's involvement in basic
management functions is so extensive that the agency's
ability to consider options other than those developed
by the contractor is limited.
GAO in this audit report specified certain guidelines for
determining appropriate contracting:
- The work to be done must be specific enough that a
detailed contract can be written regarding the work
assignments, responsibilities and products expected.
{This would apply to DOs under the TOSS contract}.
- The Agency must retain the technical capability to
prescribe, monitor, and evaluate the work of the
contractor. Technical capacity should not be eroded
over time through the use of contracts to the degree
that future contracts could not be effectively
monitored and evaluated.
- The institutional memory must reside with the Agency,
not with the contractor.
- Avoid situations in which the contractor, by virtue of
its work for the Agency, develops exclusive expertise
to the degree that a monopoly is established.
- Use of contractors must be set for a definite time
period and for finite deliverable products. If need is
for a long or indefinite period, government employees
3 GAO audit "Government Contractors: Are Service Contractors
Performing Inherently Governmental Functions (Audit No. GAO/GGD-
92-11), issued November 1991. EPA was one of four Federal
agencies included in this GAO audit.
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should do the work.
The CSC TOSS contract contradicts all of these GAO guidelines for
appropriate service contracts.
EPA responded to the GAO report by stating that the Agency
"recognizes the importance of retaining a technical *corporate
memory1 and needs the capability to staff at levels consistent
with maintaining that knowledge." The lack of available FTEs was
highlighted by the Agency as impacting their heavy reliance upon
contractors to perform government work. They agreed with GAO
that they should be given the flexibility to manage their
activities, without regard to personnel ceilings, within an
authorized budget. The Agency also stated that they have taken
steps to correct the use of contractors in inherently
governmental functions. The Administrator's policy statement
formalized as EPA Order 1900.2 in October 1990 and new review
procedures of SOWS were highlighted by the Agency's response to
GAO as steps taken to address the problem of contractors
performing inherently governmental functions.
The Administrator's policy statement cited above was issued in
April 1990 to all agency personnel as the result of criticism
received that contractors make decisions for EPA which may leave
the agency open to criticism. The administrator stated:
In many cases, we have used contractors in areas of a
policy and decision-making nature that should remain
under the sole authority of EPA. Although I am certain
that key decisions are being made internally by EPA
managers, there is often the appearance that
contractors make those decisions for us. This
perception is highly damaging to EPA's credibility.
And, it must be stopped.
The Administrator developed a list of activities prohibited from
contractor participation in the Agency such as, determination of
Agency policy, development of SOWs, and preparation of FOIA
requests. In addition, the Administrator developed a list of
activities of potential vulnerability to the agency. These
activities require contractor involvement in programs that are
dependent upon contractor support to accomplish their mission.
The Administrator required that internal controls be established
to ensure proper oversight of such vulnerable contractor
activities.
In their FMPIA review, OABH included in their Event Cycle
Documentation, the control technique of screening DOs to
eliminate inherently governmental functions as defined in the
Administrator's policy statement. One of the efforts to
accomplish this control technique was revision of the
recertification course for contract managers to address the
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Administrator's concerns over performance by contractors of
inherently governmental functions. The draft training material
stated, "this will result in changes in the way we do business at
EPA, and may be a difficult transition at first."
Contractor Performance of Inherently Governmental Activities
fts An Inherently EPA Problem
CSC performed potentially inherently governmental functions under
the TOSS and SOSM contracts. Although the Agency recognized the
need to curtail contractor performance of possible inherently
governmental activities, there was no reduction of such
potentially prohibited work performed under the TOSS contract.
The significant expansion of labor categories under the TOSS
contract allowed the Agency to increase its use of the contractor
and consequently increased the occurrence of contractor staff
performing essentially governmental functions. A program manager
for one National DO demonstrated the Agency's lack of control
over this problem when he acknowledged that much of the work
performed under his prior SOSM DO was inherently governmental.
However, he said he planned to fully utilize the new TOSS labor
categories to perform additional work under the DO. The
manager's justification for allowing CSC to perform these
functions was the lack of FTE's and the need to accomplish the
program goals. DOPOs and Managers consistently told us that they
recognized the growing dependency on the contractor, but they
believed there was no other alternative if they wanted to
continue to achieve the Agency's mission.
In some instances, EPA has not maintained sufficient in-house
capability to be thoroughly in control of the technical, policy,
and management functions of the Agency. GAO and OMB guidelines
cautioned that these are classic indicators of the performance of
inherently governmental activities. Also, cost-effectiveness of
CSC staff over EPA staff was questionable because EPA had to
train and supervise some CSC employees, thus no apparent benefit
was derived from their use versus use of Government employees.
The Agency did not perform an analyses to determine if it would
have been more beneficial to obtain the services procured under
the TOSS contract from FTEs (see Chapter 7 for more details.)
To some degree, almost all of the GAO guidelines for appropriate
contracting mentioned in the preceding paragraphs were
contradicted by CSC contracts with EPA. The contracts and
related DOs generally contained broad statements of work,
undefined deliverables , and indefinite contractor operations
coupled with potential loss of the Agency's expertise in critical
program functions. CSC's performance of development, operation,
and/or maintenance of critical EPA information and financial
management systems over an extended period (up to 12 years) has
potentially given the contractor exclusive expertise in certain
systems and established a monopoly for the contractor that will
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preclude or inhibit future "open" competition for contracts in
these areas. The pervasive use of CSC staff to perform
potentially inherently governmental activities is discussed
further in the following sections of the report.
CSC Performed Decision Making Functions Critical To The
Agency's Mission
The performance of apparent inherently governmental duties was
evident on 12 National, laboratory and regional DOs in our sample
(valued at $10.4 million) and 4 other National DOs (valued at
$3.7 million) subjected to a limited review. We determined that
tasks performed by CSC on these DOs were essentially
governmental. On these DOS, CSC was instrumental in developing
and/or maintaining the critical information systems of Grants
Information Control System (GIS), Integrated Financial Management
System (IFMS), Permit Compliance System (PCS), Facilities Index
System (FINDS), RCRA Information System (RCRIS), CERCLA
Information System (CERCLIS), FIFRA and TSCA Enforcement System
(FATES), FIFRA/TSCA Tracking System (FTTS), and Enforcement
Docket System (DOCKET), Consent Decree Tracking System (CDITS)
which were utilized for monitoring and tracking program
activities. Program officials informed us they were heavily
reliant on information obtained from these systems to achieve
their program goals.
The "institutional knowledge" possessed by CSC on these systems
was an instrumental reason why the former TOSS PO requested
waivers for 143 CSC staff and 16 subcontractors who did not meet
the minimum qualifications of experience and education required
under the" TOSS contract (see Chapter 7). The qualification
requirements were increased from the SOSM to the TOSS contract
because of the "spiraling increase in complexity" of work
performed under TOSS. The PO, also the Director of the
Scientific Systems Staff of OIRM, stated in a memo to the
contracting officer that this put the Agency in a dilemma of
either losing "159 of its key technical contract support staff or
grant waivers to the unqualified staff." As a result of the CSC
employees "invaluable experience and institutional knowledge,"
the Director concluded "The Agency cannot afford the loss of this
staff without adverse effects on its IRM program."
In less technical, complex DO operations, EPA usually retained
sufficient technical expertise to control and monitor contractor
activities even though adequate control and monitoring did not
always occur. However, in the complex, highly technical DO
operations, such as those referenced above, CSC involvement was
so extensive that the Agency's ability to effectively review and
monitor the contractor's work and consider options other than
those developed by the contractor was questionable. EPA's
insufficient technical expertise and inadequate system
documentation for at least three systems included in this audit
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appeared to give CSC technical, if not managerial, control of
these systems. This condition was also disclosed in several
other major EPA systems included in OIG's concurrent audit of
Computer System Integrity Requirements (Audit No. E1NMF1-15-
0032). In many of the DOs, the Agency has potentially lost much
of the technical "corporate memory11 needed to define tasks and
evaluate the performance of the contractor.
In certain instances, lack of DOPO technical expertise related to
DO operations also contributed to CSC's participation in the
preparation of DO labor mixes and/or SOW's (see section on
inadequate SOWs in this Chapter). A CSC site manager on the
National Superfund CERCLIS DO stated that he had to provide the
DOPO with the "superior technical knowledge" in the preparation
of the SOW. The DOPO sought the assistance of the CSC site
manager after the contracting officer rejected the SOW for
numerous deficiencies. In other cases where the DOPO prepared
the SOW but had little or no technical expertise, the SOW was so
broad and ambiguous that it allowed the contractor to determine
the specific tasks in the project workplan to be accomplished, a
"de facto" SOW. Permitting the contractor to develop SOWs and DO
labor mixes places the decision and responsibility of what is to
be done and the level of resources needed to perform tasks on the
contractor.
In a fixed price contract situation the level of resources should
be determined by the contractor; however, in cost-reimbursement,
ID/IQ contracts where the work is an integral part of the
Agency's function performed on-site, Agency managers should
control resource levels. Where CSC determined the labor mix, the
Agency has in effect placed the responsibility for determining
the most cost-effective, cost-beneficial Agency operation on the
contractor whose primary goal is to increase corporate revenue.
In effect, the contractor makes decisions concerning program
costs/expenditures. OMB Circular A-76 describes value judgments,
to include decisions on monetary transactions and entitlement, as
inherently governmental functions. CSC is therefore performing
governmental functions by essentially making value judgments
related to the level and cost of resources to be used in Agency
(DO) operations.
Superfund CERCLIS Delivery Order
The heavy reliance on contract support was most evident in the
Superfund program. CSC staff have become a critical source of
information to the Agency. A program manager for the Superfund
CERCLIS DO admitted that most of the positions under the DO were
essentially governmental but the lack of FTEs necessitated his
using contract staff. He also stated that the program would stop
if the DO stopped. Congressionally imposed limitations on the
amount of administrative costs EPA may incur for payroll and
travel expenses have contributed to the use of contractors on the
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superfund DOs to administer program functions. CSC employees
performed a wide range of tasks in the Superfund program which
included programming, data entry, LAN administration, report
generation, graphics design and electronic publishing support,
CERCLIS Helpline, human resource functions, office
administration, secretarial support for CSC managers, training
coordinator, and various other special projects. CSC's
performance of such a wide scope of activities made the
contractor critical to the achievement of the Superfund program
mission.
Sometimes these special projects resulted in the CSC employees
assuming significant responsibilities for program operations
which often lead to performance of tasks outside the SOW. For
example, a Region 4 CSC employee was utilized by the Region to
develop a new TimeLine system, a task not included in the CERCLIS
DO's SOW. TimeLine schedules assist Superfund Remedial Project
Managers (RPMs) in tracking site activities, projecting crucial
deadlines and aid the RPM in negotiating site cleanup schedules
with contractors and PRPs. As a result of the success of his
efforts in developing this system, the CSC employee was also
involved in the "setup, initialization and training of TimeLine
in other regions." His site manager stated that the CSC employee
was the:
..."focal point11 and main spokesperson for providing
TimeLine support to the other regions and EPA
headquarters. He recently traveled to Washington D.C.
where he met with {EPA staff} to provide them with an
update of TimeLine support in all regions and discuss
strategy and future direction on TimeLine Project
. Tracking for the upcoming WasteLAN System
Administrators meeting. In addition, {he} also spent
additional time with {EPA employee} to further brief
her on TimeLine Management Tracking to assist her in
preparing for a briefing to the National Director of
Superfund. This is a critical position for Region IV,
EPA headquarters and the CSC EPA Center Program.
Based on the Site Manager's statements, the contract employee
assumed a decision-making role in the implementation of a new
system in EPA. The quote also indicates that the technical
knowledge of the new system may reside solely with the CSC
employee.
This CSC employee also provided his expertise in development of
the Timeline system to the Region 4 Federal Facilities Branch and
the Air & Pesticides program while charging to the National
CERCLIS DO. Since this work was outside the scope of the CSC
employee's normal duties under this DO, it often impeded his
ability to accomplish regular DO tasks. It also resulted in the
employee charging overtime to the CERCLIS DO to implement
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TimeLine for other regions and branches. We found that when a
qualified contractor employee was willing to take on more
responsibilities and perform at a higher level, the EPA program
managers often took advantage of that persons ability regardless
of the appropriateness of contractor employees performing those
functions.
Superfund Cost Recovery Delivery Order
On another National DO, CSC prepared the cost documentation
packages used to recover funds spent on Superfund site cleanups.
Despite the acknowledgement that "Successful cases mean hundreds
of millions of dollars are recovered by the Agency and are
available to clean up the nation's worst hazardous waste sites",
the Agency allowed an outside contractor to prepare these
packages. This was even more questionable when they stated
"Regions and SAB {Superfund Accounting Branch} find that the data
on the financial reports is increasingly inaccurate, and
therefore, overall data integrity is continually questioned and
the Agency is at risk of recovering the maximum possible."
EPA's Headquarters SAB and regional Superfund finance offices
were responsible for maintaining Superfund active site files.
These files contain hardcopy financial documents supporting all
EPA expenditures incurred during the cleanup of a Superfund site.
Upon request, these Finance Offices must prepare accurate, timely
and legally defensible cost documentation packages for attorneys
to successfully pursue judicial recovery of incurred cleanup
costs. The documentation furnished must agree with and support
the detail line item data shown on financial reports prepared for
the site involved.
Initially the cost documentation packages were prepared by EPA
employees. With the increase in the number of requests for cost
documentation packages, contractor support was added to aid in
the preparation of these packages. An EPA manager stated that at
first the contract personnel were vigorously opposed by his
region, but the workload requirements forced them to accept the
contract positions. The manager also stated the work performed
under the DO was not a good fit for the TOSS contract. The work
performed was essentially accounting in nature and the TOSS labor
classifications did not exactly fit the type of work performed.
Other National Delivery Orders
Many CSC employees had years of experience working in the
programs and would often provide any service asked by the EPA
employees. These tasks were often inherently governmental in
nature. For example, on DO 70, a CSC employee reviewed case
files for violations and signed off as the project officer,
basically providing the development of an enforcement action.
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The DOPO admitted that many of his CSC staff, due to the level of
experience they have in the program, were often performing
inherently governmental work. On DO 75, CSC employees performed
tasks such as preparing responses for FOIA requests, providing
information to the public (often representing themselves as EPA
employees), and performing research for regional attorneys. This
impacted upon their ability to complete assigned tasks under the
DO. The DOPO stated that the regional attorneys either "didn't
read the SOW, or ignored it". On DO 93, a CSC employee described
her duties as Administrative Assistant/Secretary to the Chief of
the regional Superfund Accounting Section and said she performed
duties similar to a office administrator.
Prudent contract management would question one contractor
performing so many critical operations for the Agency,
particularly in one major program such as Superfund. In
recognition of the need to limit the influence of contractors in
the Agency, the Administrator requested that the number of
contractors supporting the Agency be expanded because "Having a
limited number of contractors supporting us in so many of these
areas creates great potential for conflict of interest." We
found the opposite to be occurring in relation to CSC contract
activities. OIRM policy as reflected by the TOSS contract was to
consolidate technical support services under one contractor and
reduce administrative effort. Under the TOSS contract, CSC has
assumed responsibilities that used to be performed by other
contractors in maintaining and supporting major EPA systems. For
example, Superfund DO 39's dollar value increased in 1991 to
$5,229,017 with 127 CSC employees from $ 2,300,000 and
approximately 80 CSC employees in 1990 under SOSM. If EPA lost
CSC support, the accomplishment of the Superfund program's
mission would be at risk.
Nature of Work Was Not Conducive To Performance Bv Contractors
The work performed by CSC often required an intricate knowledge
of the Agency's programs and close contact with EPA personnel
before the CSC employee could fully perform the tasks required by
the DO. Essentially, the knowledge and job skills needed were
not commercially available and had to be developed in-house.
This required the Agency to expend significant resources to
train, equip, supervise and develop CSC employees to perform
these tasks. .The necessity of having to train the contract
employees in the needed skills emphasized as much as any other
factor the inherently governmental nature of the work performed
on the DOs. The training was required because the positions were
essentially governmental and required an indoctrination into the
laws, regulations, and policies affecting the program. Host of
the positions were not simple data entry positions, but required
an intimate knowledge of the program before the CSC employee
could adequately perform their duties. This point was
substantiated by an EPA unit chief on DO 39 when he stated that
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"CSC employees were expected to know programming when they are
hired, but EPA has to train them on how to perform their
functions." This manager stated that he had performance problems
with many of the contract employees because of their lack of
understanding of the EPA program.
The importance of CSC employees understanding the programs in
which they operated and the need for continuous EPA supervision
and training was seen from the following comments of an EPA
employee as summarized by a CSC site manager:
...she thinks CSC headquarters is doing a bad job. Her
reasoning was that we do not hire staff that are
knowledgeable about Superfund activities, and we do not
provide enough training for them to learn. She
compared our Data Control Clerks to senior Weston staff
with negative result. [CSC Assistant Site Manager] and
I explained about training under TOSS, pricing
differences between TOSS and WESTON contracts, and
lower expectations/ requirements for DCCs versus senior
management at WESTON. She said it did not matter to
her: "CSC is making too much money and the
headquarters support is terrible."
Although the employee blamed CSC for the failure to train their
staff in Superfund activities, the skill would be difficult to
provide or obtain from an outside source. On DO 93, a CSC
program manager stated that "We must bring in the right people
who can work independently of direct daily CSC supervision under
the auspices of the EPA FMO." The statement demonstrates that
CSC also viewed the work as tasks that would necessitate EPA
training and supervision of CSC employees. As a result, CSC
often did not provide technical supervisory support or training
for their employees to perform under the DOs.
On DO 93, a Region 9 EPA manager complained about having to
supervise CSC employees because of the "incompetence" of CSC
management. The problems occurred because the CSC task leader
was not capable of giving direction, assigning tasks or resolving
problems. He stated that the "involvement became so extensive
that it was becoming a full time job answering CSC employee
questions." As a result, he delegated the management of CSC
employees to an EPA employee. In her performance evaluation, the
CSC employee stated the problems occurred because the EPA staff
"assumed I knew what to perform for the team. I was just the
*New Kid on the Block1 that was trying to comprehend as much
information in a limited amount of time . . . I thought I should
have received the proper training by a EPA staff." The CSC
employee was asked to perform independently of EPA direction but
the inherently governmental nature of the work required an
extensive understanding of EPA programs and systems. This
knowledge could only be obtained by training from EPA employees
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or CSC employees that have years of experience in the program
because the work performed by many CSC employees does not
represent "commercially available" skills and, therefore, the
functions were not conducive to contracting.
RECOMMENDATIONS
We recommend that the Deputy Administrator ensure significant
improvements are made in TOSS contract management to safeguard
Agency assets, provide cost-effective contract operations, and
establish Agency control of critical Agency functions.
Specifically, require the Assistant Administrator for
Administration and Resources Management to:
- Evaluate work performed by contractor staff under the TOSS
contract to ensure (1) that it is appropriate for contractor
staff to perform these tasks and (2) that corporate memory
for critical program functions remain with Agency personnel
rather than contractor staff. Ensure the Agency has
sufficient technical expertise to properly control Agency
systems and functions and contractor activities.
- Allocate necessary FTEs to perform those duties so
intimately related to the Agency's mission that EPA
supervision of the work is required.
We also recommend that the Deputy Administrator require EPA
Headquarters, regional and lab managers to
- Carefully assess the functions being performed by
contractor staff at their locations to ensure that tasks
which are intimately related to the accomplishment of the
Agency's mission are being performed by EPA employees.
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THE CO AND FOa ALLOWED CSC STAFF TO PERFORM TASKS OUTSIDE THE SOW
OF THE CONTRACT OR RELATED DOS
EPA DOPOs allowed CSC staff to perform activities that were
outside the TOSS and/or DO SOWs. In 13 of 26 DOs reviewed
(valued at $10.1 million), CSC employees performed tasks that
were not incorporated in the SOW the CO approved or which were
not permitted under the TOSS contract. DO Project Officers
assigned CSC staff tasks because EPA Project personnel treated
CSC staff as if they were EPA employees rather than contractor
staff. In addition, inadequate reviews and approval of DOs and
SOWs by the CO and PO permitted tasks outside the scope of the
TOSS contract. The Agency incurred costs in excess of $192,522
for unallowable activities where either part of, or the entire
function the CSC employee performed was unallowable. We noticed
numerous other instances where the cost associated with actual
time spent on such unallowable activities could not be
calculated. However, many of the contract charges associated
with these activities could not be quantified because there was
no consistent method of separating the time spent on tasks
outside the SOWs from the time spent on tasks documented in the
SOW. Some tasks outside the SOW represented prohibited and
vulnerable contracting activities which necessitated increased
supervision by EPA.
Background
The TOSS Contract SOW was the guiding document for determining
what activities were appropriate for CSC staff to perform. The
CO had the ultimate responsibility for ensuring that activities
performed by the contractor were allowable under the Contract.
Specifically, FAR Section 1.602-2 stated:
Contracting officers are responsible for ensuring
performance of all necessary actions for effective
contracting, ensuring compliance with the terms of the
contract, and safeguarding the interests of the United
States in its contractual relationships.
Individual DOs were issued under the TOSS Contract documenting
contractor support needs of respective Agency programs. Section
6.3 of the TOSS contract SOW stated that DOPOs were responsible
for ensuring that the Contractor accomplished technical services
specified in delivery order pursuant to the contract. The
Contract Administration Manual, Section 7-23, stated that DOPOs
must not include any tasks in the SOW that are outside the scope
of the basic contract.
Tasks Outside TOSS Contract SOW
In 8 DOs reviewed (valued at $4.1 million), the CO and POs
allowed CSC staff to perform tasks that were outside the scope of
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the TOSS contract. The TOSS contract did not provide labor
categories for the tasks performed and therefore they were not
authorized by the contract. DOPOs did not follow Agency
guidelines and included these tasks in the DO SOWs and the CO
approved the DOs even though duties were outside the scope of the
Contract terms and labor category requirements. We concluded
that CO's and PO's review of SOWs were inadequate to detect such
problems or when detected, to ensure correction. (This
deficiency is discussed in detail in a preceding section of this
Chapter.)
These unauthorized functions were not consistent with those tasks
permitted under the labor categories charged by the CSC
employees. CSC employees under the eight DOs worked as
receptionists, switchboard operators, accounting clerks, and lab
managers. DOPOs included these unauthorized tasks in the SOW
because they were not familiar with TOSS contract terms and
because they generally disregarded contract terms. DOPOs viewed
CSC employees as additional staff available to do any job for
which they did not have sufficient FTEs. Furthermore, only eight
DOPOs had a copy of the TOSS contract, at the time of our audit,
which could have been utilized for determining which activities
were allowable under the Contract.
For example, Gulf Breeze officials used a CSC Science Specialist
to act as a "lab manager." The tasks performed by this employee
were outside the scope of the TOSS contract. Neither the Science
Specialist labor category, which this CSC employee charged to,
nor any other TOSS contract labor category outlined the tasks
actually performed by this employee. As a result, CSC invoiced
EPA approximately $36,000 during fiscal year 1991 for unallowable
activities.
The CSC employee's actual duties included serving as the Safety
Officer and Quality Assurance Officer for the Wet lab. He also
assigned space, coordinated use of equipment, handled work
orders, developed the water delivery system and a dissolved
oxygen apparatus, monitored activities in the Wet Lab and
reported on the effluent treatment system. These activities were
also documented in the CSC monthly progress reports. In
reference to the water delivery system, the CSC employee rewrote
the engineering proposal for the water delivery system. He
stated the proposal was given to him because the Branch Chief did
not have the expertise. The CSC employee wrote the proposal in
hopes of getting more funds for the project from Washington in
the next fiscal year. He met with EPA people from Washington to
discuss the expertise of the engineering firm and their needs.
The employee stated that he ended up in Washington preparing a
needs document. As a result, a new firm was obtained.
Gulf Breeze Lab officials said EPA employees used to perform this
CSC employee's current tasks in addition to their regular duties.
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However, these additional tasks interfered with their research,
so Laboratory officials contracted the tasks out to CSC.
The TOSS contract actually described a Science Specialist's tasks
as:
He/she plans research programs, analyzes the results,
and, develops solutions to highly complex technical
problems, developing and analyzing appropriate research
models, identifies scientific principles and prepares
procedures for accomplishing unique customer studies,
giving expert professional analysis of documentation
and substantiating research findings. He/she also
provides consultation to users and software systems
specialists to design efficient IRM scientific
systems, utilizing computer technology as a tool to
solve problems of an advanced nature.
Although some of the tasks performed by this employee were in the
DO's SOW, clearly they were not consistent with those outlined in
the TOSS contract. Section 7.3.3 of the TOSS contract stated,
"The contractor and its employees, during periods paid for by
EPA, and/or while on EPA premises, shall conduct only business
covered by this contract." The TOSS contract provided a wide
spectrum of tasks that were appropriate for contractor employees
to perform. We believe this employee's duties were not
incorporated in the contract because the tasks were essentially
inherently governmental in nature which required performance by
an EPA FTE.
The CO had the ultimate responsibility to ensure that contract
terms were met. Therefore, we believe that if the CO and PO had
performed adequate reviews of the DOS, they would have detected
discrepancies between the SOW tasks and the labor category
requirements and determined that the tasks were outside the
contract scope of work. Furthermore, had DOPOs aided this
process by following established guidelines, work incorporated in
the SOW that was outside the TOSS contract would have been
minimal. The DOPO's Guide to IRM Contracts stated "The DOPO
cannot %authorize1 the contractor to work outside the scope of
work of the contract. ... All such changes must be made by means
of a modification" to the contract. The TOSS User's Guide
further outlined that in preparing the DOs SOW, DOPOs should note
the specific sections and subsections of the contract authorizing
the work. Because most DOPOs did not have a copy of the TOSS
contract, we found that they did not reference these sections in
the DO tasks as required.
Tasks Outside DO SOWs
EPA DOPOs allowed CSC employees under 11 (valued at $9.9 million)
of 26 sampled DOs to perform tasks that were not included in the
DO SOWs approved by the CO. When CSC staff performed these
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any evidence that the same information on the staff
qualifications was provided to the CO. FAR Section 1.602-2
requires that the CO ensure the terras of the contract are met.
Therefore, it was the CO's responsibility to ensure that approval
of such a waiver was consistent with the contract requirements
before granting a blanket waiver. When contractor personnel do
not meet contract requirements, the Agency has less assurance
that the employees are capable of performing the work needed and
that the Government is receiving the level of services for which
it is paying. Because the waiver was requested so soon after the
award of the contract, fairness of the competitive award became
questionable (see Chapter 7 for details).
Additional Labor Categories
According to the CSC Contract Financial Report dated October
1991, the Agency expended over $1.2 million during FY 1991 for a
labor category which has never been approved through a formal
contract modification and which violated the terms of the TOSS
contract. The CO provided verbal consent, in February 1991, to
the CSC request for an Associate Programmer labor category
addition, but, contrary to contract terms, had not modified the
contract to reflect this change, as of November 1991.
According to Section H.19 of the TOSS contract, Labor Category
Changes,
The Contracting Officer may accept any change proposal
submitted pursuant to this clause by giving the
Contractor written notice thereof. This written notice
shall be given by issuance of a modification to this
contract. Unless and until a modification is executed
to incorporate a change proposal into this contract,
the Contractor shall remain obligated to perform in
accordance with the terms of the existing contract.
On February 12, 1991, the CO provided verbal consent to CSC's
October 10, 1990 request for an Associate Programmer labor
category. The labor category billing rates were accepted as
proposed for Option Period One with the Government site rate at
$17.43 per hour and the Contractor site rate at $20.54 per hour.
The Agency permitted the contractor to use the Associate
Programmer labor category before contract modification had been
prepared to define labor category requirements. Without written
requirements, DOPOs did not have a method of determining if an
employee qualified for the position. This could adversely affect
the quality of the work product and could result in EPA paying an
hourly rate not commensurate with the qualifications of the
staff.
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Program Management Costs (PMO)
Contract variances relating to program management charges
resulted in questioned costs of $2.0 million. The PMO costs were
not calculated in accordance with contract terms, were
inappropriately applied to a larger base of costs than provided
for in the contract, and did not include site management costs.
PCMD and OIRM issued guidance for management of the TOSS contract
that showed an erroneous computation of PMO and did not provide
adequate or appropriate guidance to DOPOs on what constituted
program management. As a result, EPA was billed twice for
overhead charges when the PMO percentage was inappropriately
applied to other direct costs (ODCs) where an overhead rate had
already been applied. The Agency was also double billed for site
management functions because these costs were charged direct to
each DO when they should have been included in the program
management charge.
A separate delivery order, DO 3, was issued for the purpose of
collecting and distributing the PMO allocation across all DOs;
however, no SOW was ever developed and formally approved for DO
3. PCMD and OIRM officials acknowledged that program management
was not properly defined and applied, however, they did not take
action to correct the problems.
The TOSS contract, in Section 7.1.2 provided funds to the
contractor for, "direct management of the contract" and
"assistance to the OIRM in the analysis of requirements for ADP
support services." It stipulated that these PMO costs would be
distributed on a prorated basis across all delivery orders issued
under the contract, as a percentage of direct labor. The
contract specifically stated that the percentage would not be
applied to ODCs. A formula to determine the percentage to be
charged was provided in Section 7.1.2.1 of the TOSS contract.
Furthermore, Section 7.3.6.1 of the contract lists the
Administrative and Management Support Positions the contractor
was required to provide. Among them were the Program Manager,
Assistant Program Managers, Quality Assurance Coordinators and
the Site Managers. The TOSS CO stated that the inclusion of the
Site Manager's position under this section of the contract
supported the fact that Site Managers were part of the
contractor's Program Management team, and as such, costs for
their services should be covered under PMO. The Chief,
Administrative Contracts Management Section, agreed that Site
Managers should be included in PMO because it is a overhead type
category. Even though they are located on-site, their time is
split among all delivery orders at the sites, and a determination
of how many hours spent managing employees or activities under
any one DO would be difficult at best. The inability to
determine actual hours per DO would indicate that the Site
Managers should be charged under PMO. Just as the Program
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Manager manages all activities under the contract, Site Managers
manage all activities at a particular site.
PMO Applied to ODCs
Because the TOSS PMO allocation rate was not applied in
conformance with TOSS contract provisions, EPA unnecessarily
expended approximately $78,225 during FY 1991 as a result of
double billing for contractor overhead expenses. Although the
TOSS contract specifically stated, "this allocation will not be
applied to Other Direct Costs," the 5.5 percent PMO rate was
applied to both direct labor and ODCs. Since there was already a
4.37 percent G&A rate being applied to ODCs, for overhead costs
associated with ODCs, the application of the PMO rate to ODCs
represented double billing for overhead costs.
The misapplication occurred because the CO and former PO
erroneously made a determination to apply the rate to total costs
under a DO rather than just to direct labor charges when they
developed guidance for management of the TOSS contract. The CO
attributed the discrepancy to the fact that at the time the
contract began they were trying to get too many things
implemented and some things just slipped through the cracks. The
CO said however, he intended to modify the contract to conform
with what was actually being done rather than change the method
of allocation. Neither he, nor the former PO believed that CSC
was receiving any additional funds because of this incorrect
application. The contract had not yet been modified at the end
of FY 1991 to reflect any changes in PMO methodology.
Double Charges For Site Management
In FY 1991, Site Managers charged over $1.8 million direct to
TOSS DOs for tasks already covered by the 5.5 percent PMO
allocation or the overhead portion of the direct labor rates. In
addition, we determined that each Site Manager had an assistant,
usually a Senior Data Control Clerk, whom they referred to as
their "secretary" who charged direct to DOs. The costs for these
"secretaries" are not included in the $1.8 million. However, we
determined that EPA expended an estimated $99,000 for Site
Manager's "secretaries" who charged to the delivery orders in our
sample in Region 6, Region 9, the Gulf Breeze Environmental
Research Laboratory, and National DOs during fiscal year 1991.
A draft SOW and guidance memo prepared by the TOSS CO stated that
preparation of monthly progress reports, development of QA/QC
plans, staffing, staff evaluation, personnel actions, were PMO
tasks that were to be charged only to DO 3. Reviews of CSC
personnel files and interviews with Site Managers and their
administrative staff determined that much of their time was spent
doing these types of tasks. However, a review of the invoices
for DO 3 showed that Site Managers were not charging to this DO.
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Instead, Site Managers and their administrative assistants were
charging their full-time directly to regional and national
delivery orders for PMO tasks.
During interviews Site Managers and administrative staff stated
that although they billed direct to only some DOs, they worked on
all of them. These CSC staff said that they could not determine
how many actual hours to bill to DOs because many of their tasks
benefitted all DOs or more than one. As a result, the direct
labor billed by Site Managers and their administrative staff was
not reflective of their actual time. This conflicts with TOSS
Section B.I which states that "The Contractor shall voucher for
only the time of the personnel whose services are applied
directly to the work called for in individual Delivery Orders."
According to the TOSS contract, the direct labor rates "cover all
expenses, including report preparation, salaries, overhead, and
administrative expenses and profit." The SOW further clarifies
that cost accounting and the associated administrative, clerical,
and billing functions shall be included in the contractor's
overhead costs.
Most of the CSC Site Managers and their administrative support
staff in the locations audited charged forty hours a week direct
to delivery orders. Their tasks and duties included recruiting
and interviewing job candidates, preparing progress reports and
internal CSC reports, and various timekeeping and cost accounting
tasks that should be included in the overhead portion of the
direct labor rates. The current PO advised that DO 3 was
discontinued in FY 1992. However, they negotiated a new, higher
PMO rate with CSC rather than applying the contract formula to
calculate the PMO rate. Additionally, no effort has been made by
PCMD or OIKM to recover any excess costs paid to the contractor
during FY 1991.
Questionable Training Charges
The Agency spent an additional $69,409 under DO 3 for CSC
corporate training/travel already included in overhead elements
per CSC's contract bid. EPA paid 45 percent of the total costs
of a June 1991 CSC Site Managers' Conference ($69,409), out of
PMO funds. EPA had already expended funds to cover a November
1990 TOSS phase-in conference for CSC employees and managers,
making the costs for the June 1991 manager's conference also
appear duplicative. The conference expenses should have been
covered by the seminar/corporate training element of the contract
overhead rate. In addition, although there was no definitive SOW
for DO 3, we found no "tasks" at the conference that was
consistent with services required by the contract. As a result,
we question expenditure of any PMO funds in support of this
activity.
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Agenda items for the conference included "EPA Future
Procurement," presented by the former TOSS PO, "Region IV Pilots
and Initiatives/' "EPA CIS Directions." These three
presentations appeared to provide CSC with information on new
opportunities to sell EPA additional services under CSC
contracts. CSC attorneys gave presentations on "Legal
Implications of EPA DO Management," and "TOSS/SASLAS Personal
Services," advising CSC staff on how to cope with our ongoing
internal audit of EPA's management of the CSC contracts. A
senior OIRM management official provided advice on dealing with
auditors, including statements that the IG's opinion on personal
services and his were very different (see Chapter 2). There were
also employee relations workshops, which clearly are corporate
related issues, and not matters pertinent to performance under
the TOSS contract.
While technology transfer and items related to work covered under
TOSS DOs was included on the agenda, there was no information
found to support that these discussions were necessary in order
for the work under the DOs to be completed. Since information in
CSC personnel files showed that Site Managers were evaluated in
part on their ability to acquire more business for the company,
we concluded that much of the information discussed was designed
to show Site Managers more ways to sell EPA additional services
under CSC contracts.
The CO approved funding for 45% of the conference costs based on
his analyses of the conference agenda. He determined that the
Agency received a benefit from discussions held at the
conference. The CO made a note on the conference notes stating
that, "This is a new contract which we are trying to move in new
directions. Many of the panel topics addressed important changes
in EPA management direction." But, as the current TOSS PO
pointed out, EPA personnel were only present the first day of the
conference. They had no direct knowledge of what items were
discussed in the remaining 3 days of the conference. She
recommended approval of only 20 per cent of the costs. The CO
based his decision on an analyses of the hours he believed were
spent on EPA related topics, with the only support being the
agenda and notes compiled by CSC.
In addition, CSC had already received $77,000 during the contract
phase-in for providing orientation on the new contract to its
employees and site managers. In November 1990 CSC held a phase-
in conference for the new TOSS contract .which was attended by
Site Managers and other higher level managers. Therefore, there
was no apparent need for EPA to fund a subsequent conference to
orient the managers to the new contract and "new directions" of
EPA's management, as provided in the CO's justification.
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Lack of PMO Guidance
Almost a year after DOPOs submitted planning documents for TOSS
DOs, and four months after the start of the TOSS contract, the CO
finally developed guidance on what kinds of tasks were already
covered under the PMO contract category in April 1991. In this
guidance, the CO stated that Site Managers should be considered
part of program management as indicated in contract Section
7.3.6.1, Administrative and Management Support Positions. This
would negate any direct charges to the contract for site
management time. However, this guidance was never issued because
the PO and OIRM disagreed with the recommendation to include Site
Managers in PMO since Site Managers had been included as a direct
charge labor category in the DOs that had already been issued.
Due to this conflict between the CO and OIRM, the CO apparently
took no further action to issue this or any other guidance on PMO
charges. According to the PO, the CO complained of inadequate
time and resources to redo the guidance. As a result, neither
the PO nor DOPOs had the benefit of the CO's interpretation
before or after developing staffing needs and the corresponding
budgets for each DO. DOPOs we interviewed expressed confusion
over how PMO should be applied and what was included in PMO.
In addition, the CO signed and issued DO 151 in Region 6 in April
1991, although site management tasks in the DO's SOW directly
conflicted with his interpretation that such tasks were included
under PMO. The CO had previously stated that these tasks should
not be billed direct. The sole purpose of DO 151 was to provide
delivery order management for five new Regional DOs. The site
Manager tasks identified in the SOW included overhead and
administrative tasks such as billing, timekeeping, personnel
management not directly related to the provision of technical
support to EPA, and the preparation of internal CSC reports that
were not deliverables under the contract. Region 6 stated that
there was confusion on PMO and a lack of understanding regarding
proper charging of program management costs.
No SOW For DO 3
The former TOSS PO initiated a separate DO upon award of the TOSS
Contract to accumulate charges for program management; however,
no SOW was prepared for the DO tasks. The lack of a definitive
set of tasks to be performed under program management contributed
to the duplicative and questionable charges referenced above, and
the confusion as to what was covered under program management.
Section C.I of the TOSS contract stated that "The Contractor
shall perform work under this contract only as directed in
delivery orders issued by the authorized ordering officers."
Section 4.0 of Attachment A of the TOSS contract stated that:
The Government will order required services and
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products by delivery orders having specifically defined
scopes-of-work and delivery schedules. ... EPA will
specify the services to be provided, products to be
delivered, dates such services and products are due,
and the approved labor categories required by an
individual task through delivery orders issued against
this contract.
Both the former PO and the CSC Program Manager both stated that
the SOW for DO 3 was the section in the contract on program
management. However, this section did not meet the
aforementioned criteria for a SOW. In addition, the TOSS CO
apparently disagreed with their interpretation because he
prepared a draft SOW for DO 3 in April 1991. The former PO (the
DOPO for DO 3) said this document had not been approved as the
DO's SOW. As a result, the contractor was permitted to bill the
Agency over $2 million for undefined tasks.
Computation of PMO Contrary To Contract Terms
The percentage of costs to be charged for PMO was not computed in
accordance with contract terms. Section 7.1.2.1 of the TOSS
contract provided that PMO would be "derived from the total cost
of the direct hours proposed by the offerer to perform the
program management support divided by the total cost of the
estimated labor hours." Rather than following the formula
specified in the contract, the former PO went to the contractor
for an estimate of contractor cost to manage the contract in
order to arrive at the rate to be applied. CSC estimated program
management costs of $2,034,223 for the following labor
categories: Program Manager; Assistant Program Manager;
Information Management Specialist; Senior Systems Analyst; Senior
Wordprocessing Operator; and Wordprocessing Operator.
Although CSC provided no support on how their estimate was
compiled, the PMO forecast provided by CSC was used to "back
into" the allocation rate of 5.5% that was applied to each DO.
By using this unsupported CSC estimate as the basis for PMO, the
former PO (and the DOPO for DO 3) permitted the contractor to
determine the budget, labor categories, and labor mix for DO 3.
The contract administration guidance prohibited DOPOs from
allowing a contractor to be involved in these determinations
because it essentially allows the contractor to assign itself its
work, as well as determine its level of profit.
Other Contract Variances Without Contract Modifications
Other contract variances without written contract modifications
to confirm verbal CO consent as of November 1991 included:
Contract modification to incorporate key personnel consent
for requests, dated November 28, 1990; November 30, 1990;
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January 3, 1991; February 8, 1991; April 18, 1991; and April
22, 1991.
Contract modification to incorporate Government Furnished
Property (GFP) as requested December 31, 1990.
Contract modification to incorporate consent for leased
Contractor Acquired Property (CAP) under TOSS.
Contract modification to incorporate the
experience/education equivalency clause.
Contract modification to correct the misstated TOSS
statement of Work definition of experience/education
substitution provided in section 7.3.1.
Contract modification to incorporate subcontract consent for
Continental Electrical Construction Corporation effective
July 5, 1991.
Other CSC requests/contract issues still outstanding at the
conclusion of our audit included:
The status of the contractual requirement (H.12) for a
listing of personnel requiring access to EPA computers.
The status of the contractual requirement for tracking
invoice charges by accounting data.
Changing the Waterside Hall leased space to CSC site rates
or relief of property accountability for equipment.
Rewording of H.15 to allow travel costs to be reimbursed
based on current federal travel regulations.
Determining a method to facilitate small purchases of
nonexpendable property.
Consent for the leased equipment "grandfathered" from the
SOSM contract.
Consent for key personnel requests, dated May 10, 1991, and
later.
Formal approval of the TOSS provisionally approved
subcontractors.
Status of the EPA site equipment which has been modified
into the TOSS contract.
Guidance on leased equipment requirements for October 1,
1991 forward.
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Status of subcontract consent request for Marasco Newton
Group, Ltd., requested July 2, 1991.
Status of Project Plan incorporation into the TOSS delivery
orders.
Elimination of the PMO delivery order by incorporation of
PMO costs into the fixed hourly rates.
Inclusion of Site Manager hours into the PMO pool.
In a October 1991 letter, CSC advised PCMD's Director that, "CSC
strongly believes that the lack of timely processing of these
items has placed both CSC and our subcontractors in an untenable
position." After a year of operating outside of the contract's
terms, CSC requested EPA's "expeditious attention in this
matter." We believe the CO's failure to take action on these
matters has in effect negated the extensive negotiation and
competitive award process used to issue the TOSS contract because
it no longer represents the controlling document over the
activities performed by CSC. The CO stated on numerous occasions
that the problem was "staff, staff, staff." He stated early in a
June 1991 interview that he was aware of at least half a dozen
things that-were being done that were contrary to contract terms.
We asked why he had not dealt with these issues, specifically the
program management issue, and he stated, "Its in a stack with
many other items that need addressing. I just haven't had time
to deal with them." While the workload may have been great, we
agree with CSC that the backlog of outstanding items was
"excessive."
RECOMMENDATIONS
We recommend that the Deputy Administrator ensure significant
improvements are made in TOSS contract management to safeguard
Agency assets, provide cost-effective contract operations, and
establish Agency control of critical Agency functions.
Specifically, require the Assistant Administrator for
Administration and Resources Management to:
-Ensure that prior to issuance of future contracts, contract
detail is specific enough to minimize the need for contract
variances.
- Require the TOSS CO to properly evaluate and act upon all
outstanding contract issues and variances and to timely
respond to all future contract issues brought to his
attention.
- Review all actions taken by the CO in connection with the
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TOSS Contract Management Needed Substantial Improvement
resolution of contract variances to ensure their
appropriateness.
- Require the CO to minimize the occurrence of verbal
contract authorizations, but when issued, to promptly
document (and maintain a record of) actions authorized
including the date and rationale for the authorization.
- Define and document the content of program management
costs under the contract. Issue guidance to all contract
personnel on the handling of program management charges.
- Recover costs from the contractor for inappropriate
charges to the contract resulting from contract variances.
We also recommend that the Deputy Administrator require EPA
Headquarters, regional and lab managers to
- Instruct DOPOs to maintain detailed documentation of any
verbal authorizations received from the CO and promptly
follow up with the CO to obtain written authorizations or DO
modifications, as appropriate.
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TOSS Contract Management Heeded substantial improvement
DYSFUNCTIONS EXISTED IN THE TOSS CONTRACT MANAGEMENT PROCESS
The FAR provides that COs are responsible for ensuring
performance of all necessary actions for effective contracting,
ensuring compliance with the terms of the contract, and
safeguarding the interests of the Government in its contractual
relationships. However, under the Agency's contracts with CSC,
the CO's authority had either been delegated or was not
stringently applied to contract actions. COs for both the SOSH
and TOSS contracts informed us that adequate contract management
authority was not given to COs at EPA. Both COs stated that they
were continually advised by their management that they were a
"service function," whereas in other federal agencies, COs were
contract managers. One of the COs stated that she had been told
her job was not to deny actions requested by program officials,
but to find a way to give them what they wanted. Both the SOSM
and TOSS COs indicated that upper level PCMD management frowned
upon COs who continually questioned items requested by program
officials. One CO said he wouldn't last very long if he tried to
withhold signature on contract actions until they were actually
right.
Under the CSC contracts, this condition was worsened by the
increasing influence OIRM had on how the contracts were managed.
For example, OIRM hired a contractor to rewrite the TOSS User's
Manual. The CO stated that he made several comments on the
manual in areas that he believed needed more clarification;
however, the changes were not incorporated into the manual. He
stated that a similar situation had occurred on the draft TOSS
User's Guide. He believed the manual needed significantly more
detail; however, OlRM's Director, Management Planning and
Evaluation Staff (MPES) disagreed with him, so the manual was
printed without the level of detail desired by the CO. The
problems identified in this report are indicative of the fact
that the DOPOs needed more detail than that provided in the draft
manual to effectively perform their jobs.
OIRM's control over contract actions was further demonstrated in
a note to the TOSS CO from another CO in PCMD who had been asked
to provide OIRM verbal approval for a CSC retreat under the TOSS
contract. In a January 1991 E-mail message to the TOSS CO, this
other CO stated that she had a telephone conversation with a
DOPO, the alternate PO, and the Director of MPES. The message
further stated:
During the telephone conversation [the MPES Director]
told me that they would like to have my approval,
however, they intended to have the retreat whether I
approved or not. At that point I wondered why they had
called since they made it clear that they were going to
do whatever they wanted to do anyway
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TOSS Contract Management Needed Substantial Improvement
After our initial telephone conversation, I read the
background information on this retreat. I discovered
that the retreat was scheduled for 1/14-1/17/91. I
also discovered that you had asked them to respond to
approximately 20 questions regarding the SOW. The
majority of these questions were still unanswered. The
PO even supplied a memo which stated that she was in
the process of rewriting the SOW. I discovered a
training clause in the contract. Based on the
information available, I ... approved 50% of the costs
if the contractor would pay for 50%.
The TOSS CO (a GM-13) explained to us that there was a
dysfunctional configuration in the TOSS contract management team.
Originally, the PO (a GM-15), who had years of contract and OIRM
experience, was located in RTP, but all contract documents and
guidance was generated from the OIRM office in Washington and the
alternate PO, who had only limited contract experience.
Subsequently, (in July and August 1991) the alternate PO (a GM-
14) was made PO, and the MPES Director (the PO's supervisor, a
GM-15) was made the alternate DOPO. OIRM also hired a former
PCMD CO and obtained limited contract authority to enable her to
process contract actions without the TOSS CO's approval. The
TOSS CO stated that rather than bring program staff to the
contract management process, they have taken the contract
management process to the program. The PO stated that this
action was taken in an effort to expedite TOSS contract actions
because of the volume of activity and the lack of staff available
to assist the CO in processing the actions.
The TOSS CO also emphasized that the CO had no line authority
over the PO level in EPA, which further complicated his ability
to ensure that the CO's authority is accepted and implemented.
Incidents, such as CSC's request for a retreat, and another
example described in Chapter 2 of this report, where the MPES
Director made biased statements at a CSC manager's conference in
favor of the contractor, indicate that OIRM did not always
maintain an independent attitude toward CSC.
The CO stated that contract management in EPA has become a
"subordinate, almost apologetic" function. The Agency is willing
to forgo doing the job properly if it is programmatically
inconvenient. He said one objective of contract management is to
protect the interest of the Government. This is not always
synonymous with the interest of the program office. This is
often an area of contention between the COs and program managers.
The TOSS CO provided us written comments during the audit which
included the following statements:
The heavy reliance on DOPOs and POs has proven to be a
mistake. Contract management in their "lightly trained"
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TOSS Contract Management Needed Substantial improvement
•.
hands is barely recognizable as contract management.
Contract management is:
understaffed
undervalued
underpowered
undersupported by the PO/DOPO/WAM structure in place.
He strongly recommended that the Agency significantly increase
the requirements to become a PO, DOPO or WAM. He stated that
there was an additional structural concern which related to the
workload limits placed on DOPOs and POs:
They are far too high. In view of the skill levels of
these individuals and the fact that, for many of them,
this is not their only, or even their primary duty, the
workload limits need to be reexamined.
The CO's concerns were substantiated by a Headquarters DOPO who
stated that he did not believe the training provided to DOPOs was
sufficient. Additionally, he is also responsible for three other
DOs and /or work assignments under other contracts as well as
performing the functions of a program analyst. Therefore, he
does not have sufficient time to carefully review invoices and
progress reports. In fact, the DOPO told us that the contractor
could add additional hours to the invoices without being
detected.
The CO had numerous suggestions for improving the process,
primarily involving the creation of senior DOPOs and technical
experts who could assist DOPOs in proper preparation of SOWs.
While we believe these suggestions have merit, we believe PCHD
needs first to better exert its authority as contract managers.
The CO's interpretations and recommendations should be strictly
accepted and enforced since he is the official recognized by the
FAR with ultimate contract management authority. However, unlike
past TOSS management, the CO must also be diligent in his
contract management, providing prompt and written documentation
of his decisions to both the PO and the contractor.
RECOMMENDATIONS
We recommend that the Assistant Administrator for Administration
and Resources Management ensure significant improvements are made
in TOSS contract management to safeguard Agency assets, provide
cost-effective contract operations, and establish Agency control
of critical Agency functions. Specifically:
- Reassess contract management responsibilities at all
levels to determine whether training requirements are
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TOSS Contract Management Needed Substantial Improvement
sufficient for the complexities of the contracts managed.
- For the TOSS contract specifically determine if adequate
resources with appropriate skill levels have been allocated
to management functions.
- Determine whether .the TOSS contract has been adequately
staffed at the PO level to provide technical proficiency in
all areas of work covered by the TOSS contract.
- Issue guidance to OIRM reminding them the need to maintain
arms-length relationships with the contractor at all times.
- Issue guidance to OIRM and PCMD detailing the line of
authority in contract management as it relates to the CO and
PO functions.
AGENCY RESPONSE AND PIG EVALUATION OF AGENCY COMMENTS
j
The Agency generally agreed with the findings and recommendations
presented in Chapter 4. The Agency's response is included in its
entirety in Appendix I.
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Chapter 5
EPA PIP NOT ENSURE ACCOUNTABILITY FOR GOVERNMENT PROPERTY
FURNISHED TO CSC AND ADEQUATELY JUSTIFY AGENCY EQUIPMENT
COSTS UNDER THE TOSS CONTRACT
Government property furnished to and acquired by CSC under the
SOSM and TOSS contracts was not properly accounted for or
adequately protected. This occurred because: (1) neither the CSC
contracts nor the individual DOs under these contracts contained
a list of all EPA property CSC had in its possession, and (2)
PCMD did not take effective actions to require CSC to comply with
EPA and contract requirements for property accountability. As a
result, the contractor was not legally authorized under the
contract to use the Government furnished property and EPA had
inadequate accountability of property in CSC's possession. In
addition, CSC's use of Government furnished property in the
performance of the TOSS contract was not properly supported in DO
justifications as required by the FAR and EPA procedures, and
lease versus purchase analyses for Government furnished equipment
were based on inadequate/inaccurate information. As a result,
equipment costs under the contract were not properly justified
and excessive costs were incurred on CSC leased equipment.
BACKGROUND
Historically, EPA has provided all of the equipment used by CSC
in performance of its EPA contracts. Most of this property
represented either Government Furnished Property (GFP) or
Contractor Acquired Property (CAP). For purposes of this report
all EPA property in CSC's possession, both GFP and CAP, will be
referred to as GFP. EPA also approves and reimburses CSC for
contractor acquired leased property used in performance of EPA
DOs. Under provisions in EPA's Contracts Management Manual and
the TOSS Users1 Guide, all GFP, CAP, or leased property require a
"Seven Point" justification for each DO approved by the CO. The
FAR in 48 CFR Section 45.102 provides that the general policy of
the Government is to require contractors to furnish all property
necessary to perform Government contracts. However, the FAR
further provides that agencies can furnish Government property if
justified and properly controlled by the contractor.
INADEQUATE ACCOUNTABILITY FOR EPA PROPERTY PROVIDED TO THE
CONTRACTOR
EPA awarded CSC the TOSS contract, with no restrictions on CSC's
acquisition and possession of Government property, despite
problems with CSC's accountability for GFP provided under prior
contracts and significant weaknesses disclosed in a review of
CSC's property control system just before the TOSS contract
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Inadequate Accountability/Justification for Government Furnished
Property and Equipment Costs Incurred Under TOSS Contract
award. CSC's property control system was essentially
disapproved1 the same month (September 1990) the TOSS contract
was awarded but CSC was still permitted to acquire at least
$188,000 of equipment during fiscal year 1991 under the TOSS
contract. They were also permitted use of at least $627,409 in
property that was in their possession under the prior SOSH
contract. Since this figure was provided by CSC and CSC did not
include in its inventory property used at Government sites,
$627,409 is a significantly understated value for Agency property
CSC possessed; however, EPA had insufficient records to account
for the total amount of equipment used by CSC staff.
In November 1989, CSC requested relief from accountability for 32
items of misplaced equipment that had been used under the SOSH
contract but obtained under prior EPA contracts. This equipment
was valued at approximately $40,000. A subsequent EPA review of
the contractor's property accountability system resulted in
disapproval of the contractor's property control system in
October 1990. The EPA Property Administrator recommended
substantial improvements be made in CSC's property control system
before reapproval of the system. EPA contracting personnel
advised us that since CSC's property system was disallowed, the
contractor was liable for any future equipment losses, indicating
that this would protect the Government's interest; however, the
lack of Agency documentation on EPA property in CSC's possession
could hinder the Agency's ability to hold the contractor liable
for loss of its property. Furthermore, CSC's property system had
been disallowed for at least a year at the conclusion of our
audit, yet EPA continued to authorize CSC's use and purchase of
Government equipment without requiring CSC to comply with the
Property Administrator's recommendations for significant
improvements in CSC's accountability for EPA property.
Background
Federal Acquisition Regulation (FAR) Clause 52.245-5, Government
Property (Cost-Reimbursement, Time-and-Material, or Labor-Hour
Contracts), states, "The Contractor shall be responsible and
accountable for all Government property provided under the
contract and shall comply with FAR Subpart 45.5."
FAR Section 45.502(a), Contractor Responsibility, provides that
"The contractor is directly responsible and accountable for all
1 Although the letter notifying CSC of EPA's disapproval of
its Property Control System was not issued until October 1990, the
SOSM CO's decision for disapproval occurred in September 1990,
prior to award of the TOSS contract. The SOSM CO discussed the
pending disapproval with the contracting specialist in charge of
the TOSS award before the award was made.
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inadequate Accountability/Justification for Government Furnished
Property and Equipment Costs Incurred Under TOSS Contract
Government property in accordance with the requirements of the
contract."
Section G.ll of the TOSS contract designated the Property
Administrator and incorporated the EPA "Contractor's Guide for
Control of Government Property." According to the Contractor's
Guide for Control of Government Property:
Regardless of how you acquire property, any use of
accountable government property under an EPA contract
must be authorized in writing by the Contracting
Officer. Accountable property is authorized in the
contract on an individual line item basis.
Government Assets Not Adequately Controlled
Neither the CO, PO, Property Administrator, nor the DOPOs had a
complete list of all equipment CSC had been furnished under EPA
contracts. EPA contract management staff did not ensure that all
property furnished to the contractor was listed in the TOSS
contract and DOs as required. In addition, CSC did not maintain
adequate records of GFP, in part, because CSC and PCMD disagreed
on what property should be included in CSC's inventory. CSC
managers believed that they should not be held accountable for
property used by CSC staff at EPA sites. Generally, PCMD
determined that, in accordance with the FAR, all property used by
CSC staff should be included in CSC's inventory as GFP,
regardless of location. Because no complete listing of property
used by CSC was maintained, and because PCMD had failed to
resolve the dispute over what property CSC should be accountable
for, Agency control and accountability for thousands of dollars
of Government assets used under CSC contracts was materially
deficient.
According to the EPA Property Administrator, there has never been
an accurate, complete listing of Government property CSC used at
EPA sites. Although most CSC employees worked on-site and used
some form of EPA equipment in performance of their job tasks, CSC
contended that they did not have to account for this property.
Therefore, they did not consistently list on-site property in
their property inventory. However, the Property Administrator
explained that, if equipment CSC staff used at EPA sites was
damaged, lost or stolen, a CSC employee would have to be the
person to report the property disposition or damage; thus, CSC
should be held accountable for the property. Further, neither
the FAR nor EPA's property guidance distinguished between
property used by the contractor on-site or off-site as relates to
the contractor's accountability for Government furnished
property.
EPA property officials informed us that EPA program managers made
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Inadequate Accountability/Justification for Government Furnished
Property and Equipment Costs Incurred Under TOSS Contract
resolution of the problem even more difficult. Some EPA DOPOs
agreed with CSC position that the contractor should not list GFP
at EPA sites in their inventory. The DOPOs mistakenly believed
that if CSC listed the property in its inventories, they would
lose control over the property. For example, a DOPO in Region IV
refused to permit CSC to prepare a complete inventory of all
property used by CSC staff in Atlanta because he said it was EPA
property. The CSC Site Manager had agreed to provide the
inventory, but would not do so without the DOPOs concurrence.
Other DOPOs either agreed with this position, or were not aware
that CSC should be maintaining the inventory or that all property
should be listed in the DOs. The CO for the SOSM contract stated
that a CO would have no way of knowing exactly what property is
used under a DO unless the DOPO reported it. She stated that she
suspected that DOPOs frequently authorized use of equipment
without informing the PO or CO.
Another factor in the ongoing debate on property accountability
between CSC and EPA was the fact that over the years different
COs had managed CSC contracts and each CO had different opinions
on what property CSC should be required to report. The Property
Administrator indicated that at least one attempt was made by his
office to elevate the problem to. PCMD's policy staff for a
resolution; however, we found no documentation of this effort to
resolve the issue. PCMD policy officials stated that they did
not recall receiving a request to make a determination on the
issue.
At the end of our audit fieldwork in November 1991, the property
accountability issue remained unresolved. Without formally
resolving the conflict, the TOSS CO issued a contract
modification in July 1991 listing on-site property used by CSC
under DO 101. CSC responded by protesting the inclusion of on-
site property in the contract and, thereby, making CSC
accountable for the property. They stated that this action
represented a change in EPA policy towards Government on-site
property. According to the CSC Program Manager, CSC did not
receive an EPA response to the protest, so the contractor was
left in doubt as to EPA's precise policy regarding accountability
for GFP in their possession.
Inadequate Contract Documentation Of Authorized Property
EPA also did not ensure that all Agency property furnished CSC
was recorded in contract records as required by EPA procedures.
The SOSM CO stated that EPA has lists of only the property that
has been formally reported by CSC. She attempted to compile a
complete list before SOSM expired; however, she believed that she
had accounted for only a third of the EPA property CSC actually
had in its possession. For example, CSC's SOSM GFP inventory,
dated February 14, 1991, listed 499 items valued at $627,409.
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Inadequate Accountability/Justification for Government Furnished
Property and Equipment costs Incurred Under TOSS contract
However, EPA's Personal Property Accountability System (PPAS)
inventory, dated August 16, 1991, only listed 119 items valued at
$387,968. The PPAS listing reportedly consisted of items CSC had
reported in their periodic (at least annual) inventory
submissions. However, the Property Administrator's staff
(another EPA contractor) advised us that they updated their list
with each of CSC's submissions. When CSC reported an item not on
the PPAS list, the item was added to EPA's property records;
however, the Property Administrator's staff had apparently not
reconciled the PPAS inventory to CSC's February 1991 GFP
inventory report. The Property Administrator's staff also
indicated that if CSC didn't report an item that was on the EPA's
list, they questioned CSC about the item. However, these
inquiries were not documented in the Property Administrator's
files. Although there was no assurance that CSC's inventory
reports were correct, the Property Administrator relied solely on
the property information reported by CSC without an independent
method of verifying the data.
EPA's Contract Administration manual provided to DOPOs during
required contract management training stated:
Government property furnished to a contractor must be
listed in the contract. Otherwise, there is no
authorization or record of the transaction. It would
be difficult to monitor its use and handling, and
ensure its proper disposition after the contract has
ended. Government property may not be provided to a
contractor without being formally authorized through a
contract. Property may not be authorized in a work
assignment or delivery order.
Although EPA's procedures stated that all property provided to
the contractor had to be authorized and listed in the contract,
neither the TOSS nor SOSM contracts included a complete list of
property the contractor had in its possession or was authorized
to use. Rather than include a list, each of CSC's contracts
contained a residual clause authorizing the contractor to use
property already in use under previous contracts. Each DO issued
under the TOSS contract stated:
"All Government Furnished Equipment (GFE) to be
provided to the contractor in this order is specified
(by quantity, name of GFE, model number, serial
numbers, etc.) in an Attachment to this order."
However, 24 (valued at $13.7 million) of the 26 sample DOs
reviewed did not include such GFE listings. The TOSS CO and PO
did not require DOPOs to submit the listings and DOPOs either did
not realize the listings were required or did not believe they
should be required. In one Headquarters DO, for example, the
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Inadequate Accountability/Justification for Government Furnished
Property and Equipment Costs Incurred Under TOSS Contract
DOPO advised us that she did not submit a justification for GFP
in the DO procurement package because she did not believe a
justification was necessary since the property furnished to CSC
never left the EPA office. In another instance, the DOPO at the
Gulf Breeze laboratory told us that she did not know until our
audit that all equipment being used by CSC should be listed in
the DO. We found no indication that either the TOSS CO or PO
questioned the absence of these property listings in the DO
packages submitted by DOPOs. Each of the 24 DOs in question was
signed by the CO with the certification that all equipment
provided to contractor staff was listed, even though there was no
attachment listing this GFP.
Inadequate Contractor Accountability For GFP
In addition to the lack of accountability at the EPA level,
significant problems were identified with CSC's property
accountability procedures. As far back as 1985, EPA property
files document CSC's non-compliance with EPA property regulations
regarding control of EPA owned and contractor acquired equipment.
The Property Administrator wrote in May 1985:
After repeated letters, phone calls, and conversations
to Computer Science Corp. and the Authorized
contracting officer, no action has been taken by CSC to
comply with property regulations regarding control of
EPA owned and contractor acquired equipment.
Much equipment has been provided by various Delivery
Orders but never reflected in either the Order or part
of the contract.
In 1987, another EPA Property Administrator advised the Chief of
the Agency's Property Management Section that there had been
problems obtaining inventory information on CSC contracts over
the past three years. Major issues documented included:
Unable to get annual final inventory certifications.
Program offices loan property without notifying this
office, or seeking modification to the contract through
"7 Point Justifications"
The use of numerous subcontracts with property most
frequently authorized on delivery order makes property
control and reporting more difficult.
Equipment was provided to CSC through various delivery orders and
was never documented in the delivery orders or as part of the
contract.
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Chapter S
Inadequate Accountability/Justification for Government Furnished
Property and Equipment Costa Incurred Under TOSS Contract
In January 1989, EPA approved CSC's property Control System;
however, in November 1989, CSC requested relief of accountability
for $40,000 of equipment for which they either could not locate
or document the equipment's disposition. In response to this
request, the Property Administrator performed EPA's first
compliance review of CSC's property control system. The Property
Administrator concluded in his June 1990 review that CSC's
property control system was inadequate in the following
categories:
Identification and Records - Inaccurate identification
of Superfund property.
Physical Inventory - Inventory not completed, no
inventory reconciliation.
Subcontract Administration - Little evidence that
subcontractors report Government property to CSC.
Reporting - CSC did not comply with reporting
requirements outlined in their approved written
property control procedures.
Contract Completion or Termination - CSC did not have
published procedures to effect property close-out upon
contract completion.
The Property Administrator also commented on the amount of long-
term property leases that were authorized under the SOSM
contract. The Compliance Review Report stated:
Our concerns involve a lack of consideration, by the
Program Management Office, in establishing long-term
lease agreements without considering, as a minimum, the
best interest of the Government ... There is reason to
believe that a more prudent procurement alternative
should have been chosen... [Deficiencies in lease
versus purchase analyses are discussed in a subsequent
section of this Chapter.]
The EPA Property Administrator informed CSC that their property
control system was inadequate and that they were required to
effect an adequate property control system by August 15, 1990.
At this time the Property Administrator was to re-examine the
system for contractual compliance. In a subsequent memorandum,
dated August 16, 1990, the EPA Property Administrator stated that
CSC had not complied with the reporting requirements of the FAR
and had not effected an adequate property control system by the
due date. He recommended to the CO that CSC's approved property
control system be withdrawn. He also suggested that a follow-up
review be performed in March 1991.
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Inadequate Accountability/Justification for Government Furnished
Property and Equipment Costs incurred under TOSS Contract
The CO officially disapproved CSC's property control system in
October 1990, based on the EPA Property Administrator's
recommendation, stating that CSC failed to "effect an adequate
control system." As a result of the suspension, CSC became
"liable for any and all costs incurred due to the loss,
destruction, or damage of approved Government Furnished Equipment
(GFE) or Contractor Acquired Property (CAP)."
The CO stated in her disapproval letter that she was, "gravely
concerned about this issue, as the contracts you hold with EPA
have such a large amount of GFE and CAP." The CO requested by
November 30, 1990, a written response from CSC on corrective
action for each property system area found to be inadequate. CSC
provided a response to the CO's request by the November deadline;
however, the CO did not provide a reply to CSC's response until
June 1991, seven months later. By that time, the TOSS contract
had been awarded to CSC and had been operational for six months.
Inadequate Consideration Of CSC's Disapproved Property
System During TOSS Contract Award
Although the SOSH CO stated that she informed PCHD officials,
working on the award of the TOSS contract, of the problems with
CSC's property accountability, this deficiency was not given
adequate consideration when the contract was awarded. Neither
the historical problems with property accountability nor the
disallowance of the property system was reflected in either the
evaluation of CSC's proposal or the TOSS contract language
relative to the contractor's responsibility regarding GFP.
The Contract Specialist working on the award of the TOSS contract
stated that she received a copy of the CO's disallowance of CSC's
property control system and discussed the property issue with the
SOSH CO during the week of the TOSS contract award. However, she
said the disallowance letter was received at the "twelfth hour"
of the award process and she did not recall that there was
anything in the letter that she considered significant enough to
affect the award of the contract to CSC. The SOSH CO stated that
the disallowance should have been considered in the contractor's
pre-award "Responsibility Check" as defined in FAR, Part 9. FAR
Section 9.104-1 lists seven items to be evaluated before contract
award to verify that a contractor had appropriate systems and
controls in place to properly manage the contract. If a
contractor was found non-responsible in any one of the seven
areas, it could be grounds for not awarding the contract to that
contractor. FAR Section 9.104-1, General Standards, states:
"To be determined responsible, a prospective contractor
must...Have the necessary organization, experience, *
accounting and operating controls, and technical
skills, or the ability to obtain them..."
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Property and Equipment Costs Incurred Under TOSS Contract
The Contract Specialist stated that she recalled that the letter
she saw allowed CSC a certain amount of time to respond and take
corrective action. Also, she did not authorize any property
under the TOSS contract, so the TOSS CO would have an opportunity
to ensure that the problems were corrected before he authorized
any equipment under the contract. However, before the problems
with CSC's property accountability system were corrected, the
TOSS CO granted verbal consent during fiscal year 1991 for CSC to
acquire approximately $188,000 of Government property. The TOSS
CO stated that he had not been involved in the property issues.
He said the problems occurred under the SOSM contract and were,
therefore, being handled by the SOSM CO as part of the closeout
of the SOSM contract. He further stated that there was no
prohibition against CSC being provided property under the TOSS
contract. The effect of the disallowance of CSC's property
control system was that CSC was now liable for any property
provided to them under the contract.
The EPA Property Administrator stated that the solution to the
problem was simple, CSC should be required to comply with his
recommendation for a complete "wall to wall" inventory of all
property in its possession. He said, however, he worked for the
CO and; although he had requested this inventory be done, only
the CO could enforce the recommendation.
Because PCMD did not enforce the Property Administrator's
recommendation, they failed to implement PCMD's FMFIA control
technique related to contract property management. OARM's FMFIA
documentation identified the following control technique for
PCMD:
Reviews to assure compliance with EPA property controls
and FAR Part 45.5 requirements for Management of
Government Property in the Possession of Contractors
are conducted by the EPA Property Administrator. If a
contractor's property system is found to be deficient,
the Contracting Officer may issue a formal disapproval
of the property system. With a disapproved system, a
contractor may be held to stricter standards of
liability for lost or stolen property.
EPA did partially comply with this internal control requirement
when the Property Administrator performed the compliance review
that resulted in the disallowance of CSC's property system.
However, since PCMD has not required CSC to bring their property
control system into compliance and since no restrictions have
been placed upon CSC's acquisition and control of property, PCMD
did not fully and properly implement this technique as relates to
the TOSS contract.
As of November 1991 CSC did not have an approved property control
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Property and Equipment costs incurred Under TOSS Contract
system in place and still had not provided a complete inventory
of all Government property in its use or possession. Also,
during November 1991, the Director of PCMD declared that the
contractor's records would become the official property records
for contractor-held property and that duplicate records would not
be maintained by the Government. The failure of both the Agency
and CSC to establish a complete listing of property in CSC's
possession, precludes the Agency from taking advantage of this
new procedure under the TOSS contract. Further, this deficiency
in property accountability places the Agency at risk of loss of
hundreds of thousands of dollars in property and equipment.
AGENCY DID NOT ADEQUATELY JUSTIFY GOVERNMENT EQUIPMENT COSTS
UNDER THE TOSS CONTRACT
CSC Use of Government Furnished Property (GFP) Or Contractor
Acquired Property (CAP) Not Supported
EFA's Contract Management Manual and TOSS contract guidance
required a "Seven Point Justification for Government Furnished
Equipment" be completed where EPA would furnish or pay for
purchase or lease of equipment utilized by CSC personnel as part
of the DO package. OIKM criteria required that cost-benefit
analyses (cost-effectiveness of GFP versus contractor furnished
equipment) be performed or other justifications be documented to
justify GFP, but we found no proper documentation or analyses for
GFP on DOs we reviewed that were issued under the TOSS contract.
Subpart 45.102 of the FAR, states that contractors are ordinarily
required tofurnish all propertynecessary to perform Government
contracts. However, agencies can furnish Government property if
•justified and properly controlled by the contractor. The
Contract Management Manual (EPA Directive 1900) and the User's
Guide For The TOSS Contract, dated August 1991, provides that
whenever a PO recommends property be provided to a contractor, a
written justification (referred to as a Seven Point Justification
for GFP) of need must be submitted to the CO. The TOSS guidance
further specifies that the justification must address seven
points, one of which states:
Explain why it is in the interest of the Government to
provide the property rather than to require the
contractor to provide the property at no direct cost to
the contract.
Similar instructions were included in the SOSM contract guidance
and the draft TOSS guidance, issued in March 1991.
At the time the TOSS contract became effective, OIRM issued more
specific guidance to POs concerning "Preparation of 7 Point
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Justification." This guidance stated that the "Seven Point
Justification" provided: (1) a structure to ensure that critical
aspects related to the decision to depart from the Government's
expressed policy of contractor provided property are fully
considered, and (2) an audit trail regarding the nature and
quality of those considerations in specific cases. The guidance
emphasized that the "TOSS contract, as well as others, needs to
dramatically improve the quality of its 7 point justifications."
Item (4) of this guidance stated the following:
Explain why it is in the best interest of the
Government to provide the property rather than to
require the contractor to provide the property at no
direct cost to the contract. TIP: Equipment acquired
for use on many projects other than the specific EPA
project at hand (for example, other contract work or
even commercial work), is properly an indirect charge
to the contract. Where FIP equipment is necessary to
perform the contract and the equipment will be used
exclusively on the DO project, it is properly a direct
cost to the contract and that project. The question
then becomes whether there are advantages to having the
EPA provide the equipment (see FIRMR 201-39.4501-1
attached). Some circumstances in which there may be an
advantage to the EPA to furnish equipment:
a. Time is of the essence and the EPA has the
necessary equipment.
b. The EPA has an ID/IQ contract in place and can
provide the equipment at a lower price or on more
advantageous terms and conditions.
c. Where the EPA will be paying 100% of the costs
needed to acquire the property (e.g., the
equipment will be used for the performance of on-
going work likely to be continued in the future
option periods), it should obtain title to the
equipment.
d. Where title is likely to vest in the EPA,
compatibility with the EPA's installed computer
base may be a strong consideration in this
decision.
The cited guidance entails a definitive analysis and cost-benefit
justification for GFP. However, our review of three randomly
selected DOs and four judgmentally selected DOs with varying
amounts of GFP disclosed that "Seven Point Justifications" for
five of the seven DOs essentially included the same statement to
support GFP - "It is in the best interest of the Government to
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Property and Equipment Costs Incurred Under TOSS Contract
furnish this equipment to the contractor rather than the
contractor providing the equipment at a direct cost to the
contract." There was no further justification for GFP documented
for these DOs. The justification for one of the remaining two
DOs did not even address the basis of GFP. The DOPOs for three
of these DOs stated that GFP was a continuation from the SOSM
contract and that they did not perform any cost-benefit or other
analysis to justify GFP. The DOPOs also did not have any
documentation of any cost benefit or other analyses performed
under the SOSM contract. Although the continuing critical
support activities represented by these DOs could potentially
justify GFP, such justifications were not properly documented as
required by OIRM and EPA's Contracts Management Manual. In
addition, 48 CFR 45.102 states that agencies can furnish property
if justified and properly controlled by the contractor. However,
EPA disapproved CSC's property accountability system in October
1990 because of serious control weaknesses.
Four of the DOs reviewed (DOs 33, 39, 40 and 74) involved the
leasing or purchasing of GFP, valued at approximately $76,000, to
be utilized by CSC at its corporate headquarters and at its
offices in RTF. The justifications for GFP to be utilized in the
contractor's offices should require extensive analyses; however,
the justifications, obviously prepared by CSC, essentially
contained the same sentence cited above.
Lease-Versus—Purchase Analyses for GFP Based on Inadequate
Information
Review of lease-versus-purchase analyses for GFP disclosed that
insufficient information was obtained to perform proper analyses
and that analyses were based on DO terms rather than the useful
life of needed equipment even though the equipment would be used
in continuing, long-term technical support operations. Also, the
CO had not documented his lease/purchase analyses as required by
EPA policy. As a result, the Agency has not assured that the
most cost-effective method of equipment acquisition was utilized.
In fact, review of equipment lease cost versus the equipment's
original purchase price5 for three DOs cited above revealed that
the Agency had reimbursed CSC for leasing costs in excess of 200
percent of the original purchase price of the applicable
equipment. In one instance, after paying over 238 percent of
original cost in 17 months of lease payments, the contractor.
2 Equipment purchase prices used in our comparison of lease-
versus-purchase alternatives were generally taken from the DOPO
"Seven Point Justifications for Government Furnished Property." We
did not verify these prices but did find that the prices may be
based on the leasing company's selling price rather than Government
contract prices which should be substantially lower.
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Property and Equipment costs Incurred under TOSS contract
with IPA approval, purchased the leased equipment resulting in
the Agency paying over 287 percent of the original purchase
price.
48 CFR Subpart 7.4, provides that agencies should consider the
lease or purchase of equipment based on an evaluation of
comparative costs and other factors. This consideration applies
to the renewal or extension of existing equipment leases as well
as the initial acquisition of equipment. According to Subpart
7.401, some of the factors to be considered include:
(1) Estimated length of the period the equipment is to be
used,
(2) Cumulative rental payments for the estimated period of
use,
(3) Net purchase price,
(4) Transportation and installation costs, and
(5) Maintenance and other service costs.
Some of the additional factors to be considered in a lease/
purchase decision were:
(1) Availability of purchase options,
(2) Potential use by other agencies after its use by the
acquiring agency,
(3) Trade-in or salvage value, and
(4) Imputed interest.
48 CFR Subpart 7.402, further stated that the purchase method is
generally appropriate if the equipment will be used beyond the
point in time when cumulative leasing costs exceed purchase
costs. Agencies should not rule out the purchase method merely
because future technological advances might make the equipment
less desirable. When leasing is selected, generally long-term
leases should be avoided and leases should contain an option to
purchase.
TOSS guidance, issued August 1991, requires a lease-versus-
purchase analysis as part of the "Seven Point Justification" for
GFP prepared by the DOPOs. However, previous OIRM guidance and
the Contracts Management Manual stated that the CO will perform
the analysis related to the lease or purchase of equipment,
especially if this analysis requires a present value calculation.
The Contracts Management Manual states only that the CO will be
125 Audit NO. E1NME1-04-0169
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Property and Equipment Costs Incurred Under TOSS Contract
assisted by the PO and that the CO shall document the analysis in
the contract file. OIRM guidance on preparing the "Seven Point
Justification" also requires the consideration of whether the
equipment will be used in future periods or whether the task is
of limited duration.
Our review of the CO's contract files disclosed no documentation
of lease/purchase analyses as required by the Contract Management
Manual. When questioned about the approval of leased equipment
for one DO, where the lease costs exceeded the purchase price for
a 12 month period, the CO said he had performed the present value
calculation in his head and based on the 10-month DO period3, the
lease was justified. However, the equipment was utilized in an
on-going, long-term technical function and; therefore, the useful
life of the equipment should have been considered rather than the
DO expiration date. Based on our review of seven DO "Seven Point
Justifications", we concluded that the CO approved equipment
leasing, apparently based on DO expiration, unless the DOPO
requested equipment purchase. The CO generally approved whatever
the DOPO or PO requested without determining the actual expected
life of the technical support activities utilizing the equipment.
Most TOSS DOs are for continuing, ongoing Agency functions and;
therefore, the useful life of equipment should be considered in
most lease/purchase analyses.
Although the CO did not document lease/purchase analyses, the
contract files did contain many questions by the CO's contract
specialist concerning DOPO requests to permit CSC to lease needed
equipment. For instance, we found the following comments noted
on the CO copy of "Seven Point Justifications" for certain TOSS
DOs:
DO 23 - "Why are we leasing vs buying?11, "Has the contractor
already leased the equipment, is there an option to purchase this
equipment?", "This is criminal, it costs more to lease than
purchase [for a 12 month period lease payments equalled $97,800
compare to $95,275 purchase price], we should never approve
this."
DO 33 - "Why is the property necessary?", "Why is,it in the
Government's interest [to provide the equipment]?", "to purchase
cost an addl. $170 [for 10-month DO period lease payments
equalled $2,780 for equipment costing $3,150]. Why are we
authorizing' lease?"
3 Since initial TOSS DOs were not effective until December 1,
1990, the DOs were only for a 10-month period. SOSM DOS covered
these technical support functions during October and November 1990.
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Property and Equipment Costs Incurred Under TOSS Contract
DO 40 - "I don't believe it's in the best interest of the govt.
to lease this equipment. The govt. could own this equipment for
an add. $1400 [for 10 month DO period lease payments equalled
$6,020 for equipment costing $7,500]."
DO 74 - "How long will these computers be leased? If this DO is
extended [long-term operation], lease is obviously not in the
govt's interest."
The contract files contained no documentation that these
questions were addressed by the CO before or after approval of
equipment leasing. In addition, our evaluation of "Seven Point
Justifications for GFP" disclosed that the CO did not receive all
the information, as cited in the FAR (48 CFR Subpart 7.4), that
would be needed to perform an accurate lease-versus-purchase
analysis. The "Seven Point Justifications" generally contained
only the monthly lease payments and the purchase price. The
DOPOs did not identify the total estimated period the equipment
would be used; the amount of transportation, installation,
maintenance and tax costs included in the lease payments; whether
a lease purchase agreement would or did exist between the
contractor and the leasing company; the terms of any such lease-
purchase agreement; trade-in or salvage value of equipment if
purchased; and purchase credits accumulated to date on on-going
leases.
Our indepth review of certain equipment lease costs for three DOs
in relation to original purchase price disclosed that the DOs
generally represented continuing, long-term support activities;
that DOPOs sometimes misrepresented lease/purchase values and Dp
circumstances, that CSC, in some instances, had long-term lease
contracts on the equipment but the CO approved leasing based on
DO performance period( normally a FY or 12 months); and that EPA
reimbursed CSC for lease costs exceeding 200 percent of original
purchase price in almost every case. These three DOs utilized
lease equipment with original purchase prices of about $119,400
and monthly lease payments totaling $10,618 during FY 1991. Our
analysis of CSC lease documentation for certain leased equipment
on the DOs disclosed that EPA had made lease payments as of
September 1991 totaling $246,717 on equipment with original
purchase prices (per GFP justifications) of $114,413. The total
lease payments shown do not reflect general administration (G&A)
and program management (PMO) charged EPA for these leasing
transactions. The G&A and PMO rates were 4.37 and 5.5 percent
for FY 1991.
DO Number 87 - Certain equipment utilized by a CSC subcontractor
under DO 87 had been leased for 17 months (since October 1989)
before being purchased by CSC in April 1991. The original
purchase price as shown on the "Seven Point Justification", dated
August 1989, was $14,138. Lease payments from October 1989
127 Audit NO. E1NME1-04-0169
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Property and Equipment costs Incurred Under TOSS Contract
i
through March 1991 totaled $33,747, 238.7 percent of the original
purchase price. In April 1991, the contractor, with EPA
approval, exercised the purchase option and bought the leased
equipment for an additional $6,564.12. This lease purchase
method resulted in the Agency paying 287.5 percent or $26,173 in
excess of the original purchase price. We also noted that
misleading, inaccurate statements were made in the "Seven Point
Justifications" for the DO. For instance, in September 1990, the
DOPO submitted a "Seven Point Justification" requesting to
purchase the equipment because of the continuing nature of the
work (another two years of operation); however, in November 1990,
the DOPO submitted another "Seven Point Justification" requesting
to lease the equipment from December through April 1991 because
the project would be completed by April 30, 1991. The lease was
terminated in April 1991 when the contractor purchased the leased
equipment for EPA. The DOPO said that the November justification
was submitted so that they could continue leasing the equipment
until the purchase could be approved and completed. However, the
November 1990 "Seven Point Justification" was very misleading
implying that the project was experimental, temporary in nature
and stating that the project would be completed by April 30,
1991. In addition, we also noted that the purchase price of the
equipment for the lease versus purchase analysis, shown in the
November "Seven Point Justification", had been increased to
$21,094. The original purchase price of $14,138 should be used
in any comparison with current lease payments. The cost of new
equipment cannot be compared to the lease cost for equipment over
one-year old. The use of the purchase price for new equipment
should only be compared to the lease payments for new equipment.
We could only conclude that the purchase price was increased to
justify continuation of the lease.
DO Number 10 - At least one 286-based computer and multi-sync
monitor had been leased over two years as of September 1991 and
another 286-based computer and monitor had been leased for about
24 months. The DO activities provided ongoing, long-term
operations and software support. Based on our contacts with the
applicable computer companies, we estimated that the original
purchase price of this equipment to be about $5,000 of the
$10,000 in cost for all DO 10 leased equipment as reflected on
the TOSS "Seven Point Justification" for GFP. Over a two-year
period EPA had reimbursed CSC over $10,227 for lease payments for
the computers and monitors. The lease payments represented over
205 percent of the estimated original purchase price of this
equipment. The FY 1991 "seven Point Justification" for this
equipment did not identify whether this was a long-term lease,
any lease purchase options, any accumulated purchase credits, or
that the equipment supported an ongoing support activity.
DO Number 23 - According to the February 21, 1991, justification
for GFP, leased equipment with estimated purchase cost of $95,275
128 Audit NO. E1NME1-04-0169
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inadequate Accountability/Justification for Government Furnished
Property and Equipment Costs Incurred Under TOSS Contract
was utilized on this DO. Monthly lease payments totaled $8,150.
Our review of CSC lease documents and contacts with the CSC site
manager disclosed that this equipment had been leased for periods
ranging from 20 to 31 months. Also, CSC vendor records indicated
that the contractor had a two-year lease on the equipment through
September 1990. For December 1990 through September 1991, the
contractor obtained a 10-month lease. Comparison of total lease
payments from acquisition through September 30, 1991 to estimated
purchase price disclosed the following:
Equipment
Acquired
File Server
8/89
Multiple Access
Units (MAU) 8/89
IBM MAU 2/90
Line Printer 8/89
Tape Drive 8/89
External Floppy
Drive 2/90
Power Conversion
Unit 8/89
Bar Code
Printers
PC
Workstations
8/89
8/89
8/89
10/89
3/89
3/89
3/89
3/89
Months Total Purch %Lease
Qty Leased Lease Cost Price Of Purch
2
1
1
1
1
9
7
2
1
1
1
26
26
20
26
26
20
26
26
26
26
24
31
31
31
31
$32,812 $10,000 328%
2,756
1,060
9,360
2,886
420
2,418
20,176
4,550
36,036
28,560
14,446
7,595
5,704
4.123
101,014
$172,902
1,000
500
4,500
1,150
276%
212%
208%
251%
230 183%
1,395 173%
8,000 252%
48,000 210%
$74,775 231%
A Xerox Model 1065 copier was also leased for this DO. The
copier was obtained on a 60-month lease in May 1989 and the lease
payment, less maintenance, is $1,029 per month. As of September
1991, EPA had incurred lease costs on the copier of $29,841 (29
months x $1,029). The February 21 GFP justification reflected a
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Property and Equipment costs Incurred under TOSS Contract
$20,500 estimated purchase cost for the copier. If the copier is
leased for 60 months, EPA will have reimbursed CSC $61,740 for
lease payments (301 percent of purchase price) not including G&A
and PMO charged for leasing transactions by CSC. Based on FY
1991 G&A and PMO rates, this could add up to an additional $6,240
on this one lease.
Interviews with the DOPOs for these three DOs revealed that they
were generally unaware of the information required for
lease/purchase analyses as stated in the FAR. They indicated
that they obtained all of the lease payment information and most
of the estimated purchase prices used in the "Seven Point
Justifications" from CSC. At least one DOPO indicated that CSC
got the purchase price from the leasing companies. Therefore,
the prices used may reflect suggested retail prices for the
equipment leased. The Government or GSA price should be
substantially less. Purchase prices utilized in lease/purchase
analyses should normally be the lowest price available to ensure
selection of the most cost-effective alternative for the
Government. The lease/purchase analyses performed by DOPOs or
the CO could not have assured a cost-effective approach since the
necessary information needed for each alternative and the lowest
available equipment prices were not utilized.
RECOMMENDATIONS
We recommend that the Assistant Administrator for Administration
and Resources Management ensure proper accountability for GFP in
CSC's possession and adequate justification of Agency equipment
costs incurred under the TOSS contract. Specifically, this
should include:
- Resolve conflicts within PCMD regarding contractor
accountability for EPA property on-site versus off-site
consistent with FAR requirements.
- Require CSC to provide a complete inventory of GFP in its
possession or control, either on-site or off-site, and
reconcile this inventory with PPAS.
- Require CSC to bring its property control system in
compliance with the Property Administrator's recommendations
and ensure that all the system deficiencies are properly
resolved.
- Require the TOSS CO to modify the contract to: (1) include
all GFP in CSC's possession as required by EPA procedures to
ensure proper accountability by the contractor, and (2)
require contractor compliance with EPA property control and
reporting requirements in future contract operations.
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Property and Equipment Coats Incurred Under TOSS Contract
- Issue definitive guidance to DOPOs requiring that all GFP
used by CSC be reported in future DO submissions as required
by EPA procedures.
- Require the CO and PO to ensure that the GFP lists are
attached to DO submissions before approval.
- Provide comprehensive guidance to TOSS POs on documenting
justifications for GFP. Remind POs that proper
justifications must be prepared for each subsequent DO or DO
renewal.
- Require the national PO and CO to review GFP
justifications to ensure the justifications are properly
supported.
- Discontinue approving GFP for CSC operations until the
contractor's property accountability system is corrected and
reapproved by EPA.
- Ensure that COs are requesting all information needed for
proper lease/purchase analyses and that COs are properly
documenting such analyses in the contract files as required
by EPA procedures.
- Instruct the CO to ascertain the nature of each DO before
making lease/purchase analyses and disapprove requests for
equipment leases on continuing, long-term DO activities.
COs should also ensure that equipment prices used in
comparison of lease/purchase alternatives represent the
lowest price available, generally the Government contract
price.
-Revise guidance to DOPOs on GFP justifications to include
FAR requirements and all the information needed by the CO to
make lease/purchase decisions. Ensure that this information
is submitted by DOPOs in future GFP justifications.
-Review all equipment leased for TOSS DOs to ensure that
leasing is the most cost-effective alternative for the
Agency. Equipment should not be leased for long-term DOs.
The Agency should buy needed equipment or exercise purchase
options on leased equipment where appropriate.
AGENCY RESPONSE AND PIG EVALUATION OF AGENCY COMMENTS
The Agency generally agreed with the findings and recommendations
in Chapter 5 with one exception. The Agency disagreed with the
recommendation that EPA discontinue approving GFP for CSC until
the contractor's property accountability system is corrected and
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Property and Equipment Costs Incurred Under TOSS contract
reapproved by EPA. The Agency indicates that it will wait for
CSC's response to the Assistant Administrator's letter of
February 28, 1992, before making decision to discontinue GFP. We
disagree with this additional delay because the Agency has been
waiting since October 1990, almost 1.5 years, for the contractor
to correct its property accountability system. During this
period, EPA has provided thousands of dollars of additional
equipment to CSC without proper accountability. This additional
delay will result in even more equipment being provided to the
contractor without any assurance that the property accountability
problems will be corrected. It is time that the Agency
discontinued catering to this contractor and insist that the
contractor account for the hundreds of thousands of dollars of
EPA equipment in its possession before additional GFP is
approved.
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INADEQUATE FINANCIALMANAGEMENT OF TOSS CONTRACT
Inadequate financial management of the TOSS contract resulted in
improper fund obligations and contract payments. DOPOs were
essentially the sole approving official for contractor invoices1
although IQ/ID contracts, such as TOSS, require significant
levels of oversight due to the high risk of contractor
inefficiency. There were no second party reviews of invoices
approved by DOPOs although they had not received adequate
guidance and were inadequately trained on contract financial
management. Neither the PO nor CO performed reviews of invoices
for the TOSS contract. As a result of the lack of controls over
approval of contract invoices, improper contractor charges of at
least $157,000 were paid on the 26 DOs we reviewed and expired
appropriations, totaling at least $901,182, were obligated for
severable contract operations contrary to provisions of the
Comptroller General's bona fide need rule and the Antideficiency
Act.
IMPROPER CONTRACT CHARGES RESULTED FROM INADEQUATE INVOICE
REVIEWS AND RELATED CONTROLS
DOPOs approved contract charges for unapproved and unallowable
travel and training, improper direct labor hour charges for site
managers and their assistants, and labor hours invoiced before
DOs were signed and issued by the CO. Almost all of the DOPOs in
our sample used contractor records to verify and reconcile DO
invoices. They did not have adequate assurance that hours
reported on CSC invoices reflected the actual time CSC staff had
spent working on DO tasks. DOPOs stated that they only reviewed
invoices for reasonableness. Most DOPOs had not established a
system for monitoring CSC labor hours to ensure the accuracy of
contractor invoices. Verification of hours worked was crucial
because labor hours was generally the only product purchased
under the DOs and only hours worked in performance of DO tasks
were eligible charges under the contract. National DOPOs (who
worked at separate location from the CSC employees under their
DOs) indicated they would only question invoice charges if there
was a significant variance in the hours billed. DOPOs relied
heavily on the accuracy of the contractor. PCMD and OIRM
provided DOPOs inadequate training on both the importance of and
proper techniques for review of invoices. Neither the TOSS CO
nor the PO performed secondary reviews of DO invoices and monthly
progress reports to assist DOPOs in identifying unallowable
charges under the contract.
The TOSS contract only delegated responsibility for reviewing
1 PCMD's Financial Section periodically reviewed invoices on
a test-check basis; however, these reviews, conducted at CSC
headquarters, concerned CSC support for contract charges rather
than the propriety of the charges.
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contractor invoices to the DOPOs. In actual practice, DOPOs were
also the approving officials for TOSS DO invoices. However,
insufficient guidance was provided by PCMD on how to carry out
this responsibility. The Contract Administration Manual used for
DOPO training did not require independent records or give
specific guidance or examples on how to verify invoices. Agency
guidance, and training emphasized prompt payment of invoices more
than ensuring that EPA receives the services it pays for.
Further, the TOSS Users' Guide did not require that DOPOs
implement surveillance of contractor activities or keep
independent time and attendance records although the product
being purchased by the Agency was the labor hours of the CSC
employee. The Contracts Management Manual states that the DOPO
is only responsible for assisting in the review of contractor
invoices for payment; the PO is responsible for certifying the
invoices. The PO's certification would provide secondary
controls for identifying ineligible charges. EPA's Project
Officer's Handbook stated that the PO is the primary resource of
the Agency in tracking and guiding contractor performance to
avoid waste. The Handbook states that a very effective means of
identifying waste is PO review of contractor invoices. In
addition, the CO is to perform spot checks of invoices according
to OARM'S FMFIA control techniques for PCMD. In actual practice,
however, the DOPOs performed the only review of the TOSS
invoices.
Background
According to the contract Administration Manual, the type of
contract dictates the level of financial monitoring necessary.
Under cost-reimbursable type contracts the Manual states:
...the contractor has little incentive to control
costs, as he or she will be reimbursed for whatever he
or she spends doing the work barring a determination
that costs are unreasonable or unallowable. Most of
the risk in this situation is borne by the government
and a significant amount of oversight is required. A
time-and-materials, labor-hour, or fixed-rate
indefinite quantity [i.e., CSC contracts) for services
contract is of even more concern, for the contractor
has a direct incentive not to control costs or perform
efficiently, because every additional hour of labor
charged will result in additional profit.
Federal employees have a responsibility to monitor the
efforts of contractors in order to prevent waste of
public funds and to obtain the required services within
the amount budgeted. Therefore, the importance of
diligent financial management of contracts cannot be
emphasized too strongly...
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The EPA Project Officer's Handbook also addresses the issue of
the relationship between cost responsibility, risk and
administrative oversight as follows:
...The degree of contract oversight by the Government
is directly related to the assumption of risk by the
Government. The greater the risk, the greater should
be the oversight of the contractor's performance. This
is the basis for the different administrative levels of
activity with respect to different types of contracts.
DOPOs Did Not Keep Independent Records Or Establish Surveillance
Techniques to Support Invoice Approvals
EPA DOPOs did not adequately account for time charges to the CSC
DOs. Most DOPOs relied on contractor source data to review and
approve invoices because they did not keep independent records or
establish surveillance systems to monitor and verify the hours
billed by CSC. Additionally, the Agency had no control mechanism
for monitoring (cross-checking) the labor hours of CSC employees
who charged to more than one DO, which occurred on 19 of the 26
DOs in the sample (valued at over $12.2 million). Approval of
contractor invoices through the use of the contractor's own
records created a high potential for overbilling to Agency
contracts. Independent records or surveillance systems to verify
contractor hours invoiced by CSC were not maintained for 22 of
the 26 DOS in our sample (valued at $13.6 million).
The Contracts Administration Training Manual stated that for an
IQ/ID contract such as TOSS,
...Clearly, the contractor has no incentive to control
the total number of hours expended on a project,
provided the contractor stays within the ceiling of the
delivery order. And, since ceilings are often
established based only on the Government's best
estimate, they sometimes may not equate to what the
work actually costs.
For these reasons, adequate surveillance of performance
is necessary by both EPA Project Officers as well as
Contracting Officers...[emphasis added]
In addition, a March 15, 1991, OMB Memorandum for Agency Senior
Procurement Executives concerning contract management and
administration provided the following guidance:
Federal agencies should place greater emphasis on the
development and use of a quality assurance surveillance
plan (surveillance plan) where the contract requires
administration by government personnel [i.e., TOSS on-
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site ID/IQ operations]. A well developed surveillance
plan provides a systematic method to evaluate services
the contractor is required to furnish rather that the
details of how the contractor accomplishes the work.
CSC site managers carefully tracked DO ceilings and monthly
billing reports to insure that DOPOs expended funds up to their
DO ceilings. This was demonstrated in a trip report prepared by
a CSC site manager noting that he had provided a new site manager
in another region with a copy of his Lotus program used to
calculate modifications to the Delivery orders. He wrote:
(...you can do a "what if11 with the numbers and quickly
see how to modify the Delivery Orders to everyone's
advantage.) I also explained that .this becomes very
useful around May, because you can estimate how much
money would be left over on any DO, and, if there was
enough, you could "consult" for an additional position
or a labor category upgrade...
Generally, DOPOs relied on data in CSC monthly progress reports
for their DOs to verify hours billed in invoices. Two DOPOs, who
used CSC monthly reports to verify invoices, described this
method of invoice verification as "blind trust" and "blind
faith." One lab DOPO used a supplemental report of hours billed
to verify invoices; however, this report was also prepared by
CSC. She required CSC to provide a plan of projected absences.
She stated that CSC was "better at it than EPA is." An Alternate
DOPO in Region 9 stated that the labor charges are verified
against timecards by the CSC site manager's assistant, and that
she saw no reason to question or recheck the verification
performed by CSC staff. EPA DOPOs did not seem to understand
that inadequate verification of hours billed resulted in
inadequate assurance that the Government received the product it
paid for since the hours worked were the only products EPA
received under a majority of the DOs.
DOPOs in Region 6 implemented new procedures for monitoring hours
worked by CSC employees as a result of our review. Region 6
concurred with our finding that independent records or
surveillance plans were needed. They stated:
The verification of invoices is a function that must be
strengthened and clarified during the contract
administration course and it must concentrate more on
administering contracts.
National DOs
The most obvious invoice review weakness occurred on the National
DOs where the National DOPO, who signed the invoices, had little
or no contact with the CSC employees who performed the work under
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these OOs. EPA contacts in the regions, who performed informal
oversight over the CSC employees on the National DOs, did not
review the invoices and were not consulted by the DOPO to verify
hours. A CSC site manager stated that the controls over the
National DOs were considerably weaker than the regional DOs. As
a result of the geographical separation of the CSC employees on
the national DOs from the DOPOs, the DOPOs conducted their
invoice reviews based on a comparison of normally allocated hours
to hours charged for each CSC employee on the DO. The
information used for this analysis was provided by CSC. The
DOPOs would only have concerns if there was a significant
variance from these standard hours charged by each CSC employee.
The National Pesticides DO had several employees who split their
time between DOs. In Region 1, an EPA Manager stated that one
"CSC employee was very busy about 4 or 5 months of the year and
not that busy during the rest of the year." Although, the work
was very cyclical, this employee, a CSC analyst, would charge
time based on his budgeted hours and not actual hours worked on a
DO^ CSC site management time worked on the same principal of
billing for budgeted hours rather than actual hours worked on the
DO. In Region 4, a CERCLIS Unit Chief said he only saw the site
manager once or twice a year although the site manager billed 13
hours per week to the CERCLIS DO.
CSC's Billing System Found Deficient By DCAA
DOPO reliance on CSC records for verification and approval of CSC
invoices was a financial control weakness that was compounded by
the deficiencies identified by DCAA in the contractor's billing
system. DCAA issued an audit report on CSC's billing system
(DCAA Audit Report No. 6321-91R11010004-196) in August 1991 which
found eight internal control deficiencies, including no written
billing policies and procedures, failure of the system to allow
traceability of costs to accounting records, failure to bill
labor costs at contractual rates, and ineffective internal review
of billings. The audit report stated:
In our opinion, the Applied Technology Division's
internal controls associated with the billing system
generally do not assure the accuracy and reliability of
costs billed on progress payments and claimed in public
vouchers. We recommend that the ACO disapprove the
billing system unless the contractor is more responsive
to our recommendations and submits an adequate action
plan with milestones to correct all system
deficiencies.
The audit report described CSC's ineffective internal review of
contract billings as follows:
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The current internal review and approval
(certification) process for public vouchers and
billings is ineffective. Practically every billing
reviewed contained one of more deficiencies {emphasis
added} as discussed throughout this report.
Accordingly, the certification process by the
accounting manager appears to be perfunctory, i.e.,
merely a sign-off rather than a thorough review of the
billing for accuracy and correctness.
Improper Charges For Travel. Training and Idle Time
On 19 of 26 DOs (valued at $12 million), the Agency paid for
nonbiliable training, travel, related direct labor hours and/or
other nonbillable/unallowable activities. DOPOs allowed CSC
employees to attend training which was: (1) unnecessary for
performance of the SOW tasks, (2) to obtain computer skills CSC
employees should already possess, and (3) to provide professional
development to the contractor employees. As a result, the
Agiency expended approximately $154,000 in fiscal year 1991 for
unnecessary and/or questionable training/travel costs on the 26
DOs we reviewed.
Since contract labor rates already included consideration for
training of contract employees, costs for anything other than
Agency specific training, necessary for performance of DO tasks,
were CSC's responsibility. There was also evidence that DOPOs
permitted CSC to bill the Agency for "idle time," or time where
CSC employees either did not work, or where they participated in
activities other than performance of DO tasks. Because DOPOs did
not monitor these activities we were unable to quantify these
unallowable costs. EPA DOPOs and managers either disregarded or
were unaware of guidance for determining whether training and
travel costs were allowable under the Contract.
The DOs did not include detailed training/travel plans
anticipated for CSC employees in their SOWs. Since SOWs did not
document when and why training proposed for contractor staff was
necessary, the PO and CO were unable to make a determination on
the allowability of the costs in advance. DOPOs believed that
incorporating training funds in their DO budget was sufficient to
obtain the CO's authorization for incurring of these costs.
Background
Section 7.3.2 of the TOSS contract SOW required the contractor to
provide well-trained staff. Specifically, it states:
The contractors' personnel shall maintain expertise in
state-of-the-art technology. The contractor shall
ensure this level of expertise through various methods
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(e.g., formal training and seminars). All training
shall be paid for by the contractor unless EPA
specifically grants prior approval for training to meet '
special needs peculiar to a particular delivery order.
The draft TOSS User's Guide also defined unallowable training
costs :
* The contractor may not bill for, and the EPA will not
pay, ordinary training (e.g. WordPerfect, Lotus, Time
Management, Stress Management, Total Quality
Management, etc.) of the type it may be expected a
fully qualified staff will possess.
* The contractor may not bill for attendance at
conferences which are not specifically tied to the
performance of the DO. Such conferences must be noted
in advance in the DO's Statement of Work with detail
supporting the relationship to the performance of the
DO provided.
* The contractor may not bill for travel not directly
required for performance of the DO.
The alternate PO provided additional guidance on allowable
training charges in a July 1990 memorandum to the DOPOs which
stated :
. . . The only types of training that are a valid charge
under ODC's may be the rare occasion when the training
is so EPA specific that commercial companies do not
offer the course — . In addition, attendance at
conferences, seminars and open houses should not be
approved unless the CSC employee is conducting a
session at conferences on behalf of EPA. . . . Also keep
in mind that while they are attending such functions,
the hourly charge for services is not being incurred
and therefore should not be paid...
Nonbillable Training/Conferences /Travel
EPA expended $67,000 to provide CSC employees with basic computer
skills and other training that was not DO specific and/or not
approved by the CO. Basic computer skills classes such as Lotus,
WordPerfect, and dBase were held in local EPA training centers
and CSC employees charged direct labor hours to their DOs while
they attended these classes. For example, in Region 9 the Site
Manager's secretary, a Word Processing Operator (WPO) , took a
beginning WordPerfect class. The labor category requirements in
TOSS contract Section 7.3.6.3.6 for a WPO specifically stated,
"This position requires. . .elementary WP ability in support of
desktop publishing packages (e.g., WordPerfect and Ventura)...11
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EPA also paid for training and related travel costs and direct
labor charges that were unrelated to specific DO tasks, but were
to further the employees' general knowledge in their field.
The training was often initiated by CSC instead of EPA,
indicating that it was not necessary to perform the DO tasks but
rather was a means of promoting the professional development of
the CSC employee. One CSC employee stated that the training he
had attended over the past two years was requested through his
"wish list" and initiated by the CSC Site Manager. The CSC
Program Manager issued a memorandum to CSC managers in October
1990 advising that:
Required travel and training authorizations from [the
PO or Alternate PO] must be requested directly, by EPA
DOPOs, not by CSC mangers. The next request [the PO]
receives from a CSC manager will not only be denied,
but repercussions from me will follow as well!!
We identified several instances where EPA paid for inappropriate
professional development of CSC employees. In Region 9, a CSC
employee had attended seven different educational sessions,
conferences, symposiums and workshops since October 1989. The
training primarily enhanced the employees's expertise and allowed
him to keep track of developments in the Geographic Information
Systems (CIS) field and should have been paid for by the
contractor.
DOPOs for two of the National DOs permitted unnecessary training
for CSC employees at national conferences, resulting in $90,000
worth of questionable charges to the DOs. The conferences were
not specifically tied to performance of the DO(s SOW. In
addition, the conferences sometimes included CSC managers,
resulting in additional unnecessary costs to the contract. A CSC
employee on the DOCKET DO stated:
...it was helpful to know that [CSC] management has an idea
of what we are doing. Probably didn't need [CSC Manager's
names] to be there. A lot of money spent for less than
fifteen minutes of talk.
With better management of the tools we already have,
teleconference, bulletin board, TSO datasheets,
documentation, etc., we can conquer the new tasks that lie
ahead. We should be able to present any necessary items in
three days at a conference once a year, not twice. This
delivery order cannot and should not be able to afford
flying everyone around twice a year for conferences. We
need more analysts, not more conferences.
Some Conferences might have developed because of active marketing
by CSC. The Deputy Program Manager stated in his 1988
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performance evaluation that he:
Negotiated for the increase in funding for the National
conferences and training seminars for five of eight large
scale National programs. This quadrupled the amount of
ODC's from FY '87 to FY '88. This also resulted in three
times the travel opportunities for the majority of the staff
in this Department.
EPA DOPOs were uncertain as to what were allowable training
charges under a DO and many felt that it was EPA's responsibility
to train the CSC employees. The DOPO at a lab site stated that
he felt it was important for CSC to attend EPA national
conferences which provided other types of system information and
policies in addition to regular training. The Program Operations
Director at this lab site stated that they wanted to keep the CSC
staff as well trained as their own staff.
Generally, DOPOs seemed unaware that they were buying expertise
from CSC rather than people. Instead, they felt it was their
responsibility to train the contractor employees to perform the
tasks requested in the SOWs. For example, in RTP one DO
specified that the Contractor evaluate the feasibility of.EPA
"migrating" from a VAX system to a UNIX system. The CSC employee
attended a training course, paid for by EPA, which discussed how
to migrate from the VAX -to the UNIX systems. In effect, the
Agency paid for the CSC employee to learn the skill that was
being "bought" from CSC.
The general attitude of EPA employees was to consider CSC staff
as "part of the family" and to assume responsibility for
maintaining their expertise and development. This resulted, in
part, because of the long-term nature of the contracts the Agency
has had with CSC.
Training Initiated Without CO's Approval
DOPOs permitted CSC employees to attend training that had not
been approved by the TOSS CO. This training has not been
specified in the SOW signed by the CO. DOPOs either did not seek
the CO's approval because they did not believe it necessary or
they did not wait for the CO's approval before permitting the
employees to attend the training course. In some cases, the
DOPOs said they had requested approval from the CO but the CO's
approval of the training was not prompt. However, since only the
CO has the authority to obligate the Government, costs incurred
for items not included in the DO and accompanying SOW approved by
the CO, or that the CO did not specifically authorize before they
were incurred, were not allowable.
DOPOs generally expressed confusion over what the correct
procedure was for authorization of training. Some DOPOs said
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According to the FAR, the advantage of procuring an indefinite
quantity contract was that the Government would only pay for
those services it needed. The contractor assumes the risk that
the Agency may use less than the number of hours anticipated as
this risk factor should be incorporated into its bid rates.
However, charges for "idle time" by CSC employees nullified the
advantages of this type contract and transferred the cost burden
from CSC to EPA.
For example, Region 9 officials approved pay for CSC employees'
time at home after the San Francisco Bay Area Earthquake of
October 17, 1989. An indeterminable amount of this time at home
did not involve DO work. An "Earthquake Report" describing the
first Senior Managers meeting held on October 20, 1989 stated
that the Regional Administrator strongly believed employees
should not lose pay because of the earthquake. The RA made
arrangements to keep Region 9 contractors on active payrolls. In
addition, an Assistant Regional Administrator asked EPA
Headquarters to treat the contractors' the same way they treated
EPA employees during this time.
Other Improper Charges
Other charges improperly approved by DOPOs included direct labor
hours for site managers and assistants (indirect labor) and
unauthorized labor hours incurred before DOs were signed and
issued by the CO. DOPOs authorized payments for these activities
in violation of contract terms and/or Agency contract guidance.
These problems were discussed previously in Chapter 4.
DOPOs were inadequately prepared to perform the sole review of DO
invoices. The DOPOs1 willingness to train contractor staff and
failure to monitor labor hours billed caused the Agency to incur
unnecessary costs. The SOSM CO stated that CSC "literally banks"
on the fact that they know the DO invoices are not properly
reviewed. The FAR charges the CO with the responsibility to
safeguard the interests of the Government. OARM charged the-CO
with the responsibility to review invoices periodically. The CO
and PO's failure to take an active role in DOPOs approval of
invoice charges led to deficiencies cited in this chapter.
INADEQUATE GUIDANCE AND CONTROLS OVER INVOICE APPROVALS RESULTED
IN BONA FIDE MEED RULE AND/OR ANTIDEFICIENCY ACT VIOLATIONS
Fiscal Year fFYl 1990 Appropriations Were Obligated and Expended
For FY 1991 Needs
The Agency improperly obligated FY 1990 funds for FY 1991
operations. The Agency expended expired FY 1990 funds in FY 1991
for FY 1991 needs. Both the obligation and expenditure of FY
1990 funds for FY 1991 needs were in violation of 31 U.S.C. 1502
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(1988). These conditions resulted from inadequate training and
guidance to DOPO's relating to appropriations law and lack of
follow-up reviews of DOPO invoice approvals.
One of the fundamental principles of appropriations law is the
Comptroller General's bona fide need rule. The bona fide need
rule states that without express authority an agency may only
obligate or expend a fiscal year appropriation to meet a
legitimate or bona fide need arising in the fiscal year for which
the appropriation was made; it may not be obligated for the
needs of a subsequent fiscal year. 31 U.S.C. 1502 (1988).
Services are generally viewed as chargeable to the appropriation
current at the time the services are rendered, because services
are generally viewed as "severable."
A contract for service is severable if it can be separated into
components, each of which can be independently performed to meet
a separate need. B-235678 (July 30, 1990). Continuing and
"recurring services designed to meet the continuing operating
needs of an agency are classic examples of such severable
services." B-235086 (April 24, 1991).
A non-severable contract is one that cannot be separated into
components, but is intended to meet an immediate, single need of
the agency, regardless of when the work under the contract is
completed. 60 Comp. Gen. 219, 220 (1981). A completion type
contract, in which the contract describes the scope of work by
stating a definite goal or end-product, is a generic example of a
non-severable contract. A recent Comptroller General (CG)
decision gives an example of a non-severable contract. B-235086
(April 24, 1991). In that decision, the U.S. Forest Service
awarded a land-line survey contract in FY 1984 and obligated its
FY 1984 annual appropriation. Work began before the end of FY
1984, but continued into FY 1985. The line surveys were needed
to establish boundaries for future timber sales and to prevent
immediate trespass. The survey work continued into FY 1985 and
each survey resulted in an end product—a metes and bounds map.
While the maps were going to be used in future fiscal years'
timber sales, the bona fide need in FY 1984 of a map to prevent
immediate trespassing on the property made the contracts non-
severable. B-235086 (April 24, 1991). Other examples of non-
severable contracts, where the entire contract was a bona fide
need of the fiscal year the contract was executed, are contracts
for supplies or the construction of a building. 60 Comp. Gen. at
220.
To the extent that a contract for continuing and recurring
services provides for a specific portion of the services to be
performed in a subsequent fiscal year, the services performed in
the subsequent fiscal year do not meet the test of .an immediate
need of the agency. 60 Comp. Gen. at 221. When an agency has
entered into a service contract, but is unable to define the work
precisely enough in terms of an end product, often the contract
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involves the kind of recurring tasks that meet an independent
need of the agency each time they are performed. B-235678 (July
30, 1990). "In that event, the concept of severability applies
and the bona fide need rule precludes funding such work in the
next fiscal year with appropriations that expire within the
current year." Id.
Over 120 SOSM contract DOs, due to expire September 30, 1990,
were modified to extend performance through November 30, 1990
(two months into FY 1991) and allow sufficient time for phase-in
of the new TOSS contract. Our review of CSC invoices for October
and November DO operations disclosed that on 58 SOSM DOs $1.12
million in expired FY 1990 or earlier appropriated funds were
expended for FY 1991 activities. A detailed review of 28 of
these 58 DOs which expended $901,182 in FY 1990 expired Salary
and Expense (S&E) appropriations, disclosed that these DOs
represented continuing technical support activities with no
specific DO end-products/deliverables other than system by-
products such as operational manuals and periodic system
problem/technical reports which were not separately priced in the
SOW (see Appendix VII).
For example, DO Number 768 was for ADP support for Region 6's
Information Resources Branch. The deliverables were described
as:
On a daily basis, the contractor shall deliver work in
accordance with the specifications detailed in the
Scope of Work. The only other deliverables are the
reports specified in Section 5 above.
Section 5 listed the following deliverables:
The contractor shall submit monthly reports to the EPA
Project and Subtask Officers which include production
statistics and contractor person hours and costs for
the previous month and funds remaining through the end
of the fiscal year....
This DO represented a continuing support operation with no
specific deliverables or end-products other than periodic
informational reports to EPA management on DO operations. The
NCPS invoice payment documentation for October 1990 DO activities
indicated that $14,655.74 was charged to Account No. OA4E06NOOOO,
a FY 1990 S&E account, with DOPO approval.
The Comptroller General addressed the issue of contract
modifications entered into in the last month of the fiscal year,
for services to be performed in the following fiscal year, in 61
Comp. Gen. 184 (1981). In that case the Department of the
Interior (DOI) had a contract with the Chico Unified School
System (Chico) to provide the necessary facilities and staff to
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operate youth camps from January 1, 1980 to September 30, 1980.
A modification was entered into on September 26, 1980 to extend
the contract to May 31, 1981.
The decision held that those modifications entered into at the
end of FY 1980 may be charged to the FY 1980 appropriation only
if the DOI had a bona fide need for the service in FY 1980. One
of the modifications was for Chico to continue to provide staff
for the camps. The decision held that the need for the staff to
operate the camps did not arise on September 28, 1980, but would
arise only at the beginning of each 8-week camp period. The
performance of the modification to staff the camps was held to be
severable from the performance of the underlying contract and the
DOI's FY 1981 appropriation should be charged for the cost of
those services. 61 Comp. Gen. 186. Another modification
provided for Chico to perform payroll services for camp
employees. This modification also held to be severable from the
underlying contract because Interior's need for these services
did not arise on September 26, 1980, but would arise when the
services had to be performed on pay days between October 1, 1980
and May 31, 1981. Id.
Similarly, DO Number 752 was to provide long-term and
comprehensive capability in the area of computer center services
for EPA Region 3. The DO tasks included computer operations,
terminal operations, word processing operations, workload
processing, production control, training, programming, data entry
services, graphic information systems, and LAN support. No
specific deliverables were described in the statement of work
other than monthly DO progress and system activity reports. The
bona fide need for these support services did not arise when the
DO was issued in FY 1990, but would arise in FY 1991 when the
word processing, data entry, training, etc., was to be performed.
This DO represented severable continuing support operations;
however, NCPS invoice payment documentation showed that the DOPO
approved and EPA paid $54,234.56 and $26,615.68 ($80,850.24
total), respectively for October and November 1990 DO activities
from Account No. OA4E03C01R, a FY 1990 S&E account.
In those few instances where specific deliverables were included
in the SOWS for the 28 DOs in our sample, the deliverables were:
(1) not substantial in relation to the primary purpose of the DO,
(2) were not an end-product of the DO, and (3) funding for these
deliverables was not identified separately for carryover of
expiring appropriations. Therefore, these deliverables were not
discrete end-products representing nonseverable contract
activities.
The CG (65 Comp. Gen. 741) in a similar situation stated:
...Although the 'Statement of Work' obligates the
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contractor to provide various interim reports on how
work is progressing, these reports are merely
informational and cannot be considered work products
independent of [the primary purpose of the SOW]....
Prior guidance for the SOSM contract and draft guidance for the
TOSS contract did not discuss severability and non-severability
of DO funding. EPA's contract Management training manual does
address severable and non-severable contracts but these
instructions are very general and not clear as to contract end-
products and other activities under specific contracts such as
SOSH and TOSS that would constitute non-severable DOs. The lack
of adequate guidance permitted broad interpretations by contract
management, specifically DOPOs, as to what was. and was not
severable DO activities.
The inappropriate expenditure of FY 1990 annual funds for FY 1991
needs can also be attributed to inadequate controls over invoice
approval. At the time of our audit the DOPO alone tentatively
approved invoices and approved the funding source for invoice
payment without any comprehensive followup reviews by the CO or
PO of the DOPO approvals and funds used. The CO retained
authority for final approval of contract payments on an annual
basis after an invoice audit; however, the CO did not review
invoice payments for proper funding at the time of our audit and
the invoice audits performed by PCMD on a periodic basis
primarily verified CSC support for contract charges, not invoice
funding approved by DOPOs.
There were also no reviews of proper invoice funding in the NCPS.
The EPA employee who was involved in processing CSC invoices at
the NCPS stated that she often had reservations about charging of
prior fiscal year funds on certain DOs but this decision was the
DOPO's and it was not within her authority to question invoice
funding. She only verified that sufficient funds remained in the
account charged. Therefore, the current invoice approval system
leaves the selection and carryover of funds for invoice payment,
without oversight, to the contract managers (DOPOs) who have the
least contract management experience and training and who have
the least knowledge about severability and appropriations law.
Yearend Spending Violated the Bona Fide Need Rule, and the
Antideficiency Act
The modification of the SOSM contract to extend performance into
FY 1991, violated not only the bona fide need rule, but also the
Antideficiency Act. 31 U.S.C. 1341(a)(1)(B)(1988). Similarly,
award of the TOSS contract just two days before the end of FY
1990 and the obligation and expenditure of expiring FY 1990
appropriations upon contract award represented violations of the
bona fide need rule and the Antideficiency Act.
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Attempts to extend performance of service contracts beyond the
end of a year, before appropriations for the subsequent fiscal
year become available, have been held to violate the
Antideficiency Act. See 61 Comp. Gen. 184, 187 (1981); 60 Comp.
Gen. 219, 222 (1981). The Antideficiency Act forbids incurring
of obligations in advance of, or in the absence of, available
appropriations. 31 U.S.C. 1341(a)(1)(B)(1988). The FY 1990
appropriation cannot be used to fund the severable portions of
the SOSM and TOSS contracts performed in FY 1991; only FY 1991
appropriations may be used to fund the severable services
performed under those contracts in FY 1991. As discussed
earlier, EPA extended performance of the SOSM contract into a
subsequent fiscal year before appropriations for that year had
become available and, as a result, violated the Antideficiency
Act. EPA's obligation of expiring FY 1990 appropriations on
severable portions of the TOSS contract also violated the
Antideficiency Act.
The TOSS contract was awarded September 28, 1990 with three TOSS
DOs issued between September 28 and September 30. One of these
DOS (DO No. 1, issued September 28, 1990) obligated and expended
$77,988 of expiring S&E funds (Account No. OA4D55A002). The
other two DOs, issued September 30, 1990, obligated FY 1990
authorizations of no-year (i.e., Superfund) and multi-year
appropriations. Because the SOSM contract supplied EPA's
technical support needs for FY 1990, all of these DOs were
essentially for FY 1991 technical support needs under the TOSS
contract. DO Number 1 was a payment to CSC for phase-in of the
new TOSS requirements and labor categories. The contract allowed
CSC 60 days after contract award for the phase-in period.
However, since SOSM DOs were carried over through November 30,
1990 and TOSS DOs were not effective until December 1, 1990,
there was sufficient time for the Agency to issue the phase-in DO
on October 1, obligating FY 1991 appropriations or conditioned
upon availability of funds, and still allow CSC 61 days for the
phase-in period (October 1 - November 30 equals 61 days).
Issuance of DO Number 1 before the end of FY 1990, using expiring
FY 1990 funds, created a bona fide need violation through
expenditure of FY 1990 funds for FY 1991 need and an
Antideficiency Act violation through obligation in advance of the
proper FY 1991 appropriations.
As previously stated, the CG's bona fide need rule provides that
a fiscal year appropriation may be obligated to meet a
legitimate, or bona fidef need arising in the fiscal year for
which the appropriation was made (see, e.g., 33 Comp. Gen. 57, 61
(1953); 38 Comp. Gen. 628 (1959); 54 Comp. Gen. 962, 966 (1975);
58 Comp. Gen. 471, 473 (1979); B-183184, May 30, 1975). In
addition, the Antideficiency Act prohibits incurring obligations
in advance of proper appropriations. Therefore, an improper
obligation of a current year appropriation for a legitimate need
of the subsequent fiscal year represents an obligation in advance
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of the proper subsequent FY appropriation and, therefore, a
violation of the Antideficiency Act.
We concluded that the obligation of FY 1990 funds for TOSS DO
Number 1, and possibly DOs 2 and 3, represented violations of the
bona fide need rule and that DO number 1 represented a violation
of the Antideficiency Act. Our conclusion is supported by
questions raised by a pre-award legal review of the proposed TOSS
contract. The legal review, conducted by an attorney in OGC's
Contract Law Branch, dated September 27, 1990, just one day
before the TOSS contract award, included the following comments:
The Antideficiency Act prohibits you from obligating FY
•90 funds for services performed in FY '91 unless they
are truly non-severable, we have bona fide need in '90,
and the work begins in '90. I advise you to seek OGC
review of the intended base year delivery orders [the
three DOs issued in FY 1990] to determine whether they
meet this test. If not, EPA will have constructively
terminated the contract in the base period for our
failure to [legally] order the minimum ($50,000).
The base year DOs are the three issued in FY 1990. The CO or her
staff's response to these comments was simply "Understood." We
found no evidence that the CO or her staff contacted OGC as
recommended. We do not believe there was sufficient time to
consult with OGC again on these specific severability issues
since the TOSS contract was awarded the very next day.
The legal review form used for the TOSS contract did not contain
any requirement for identifying the person responding to the
contract attorney's comments. Therefore, we are not sure who
provided the "Disposition" or response to the attorney's
comments. In addition, there was no certification by the CO that
proper action has been taken on legal comments or that the
comments and actions taken had been reviewed for adequacy by
higher management levels. To ensure that proper actions are
taken on contract legal reviews, the legal review form should be
modified to identify the person responding to legal comments, a
certification by the CO that proper actions have been taken
related to legal deficiencies, and evidence that higher
management has reviewed and approved the disposition of legal
concerns.
The Current TOSS Guidance on Severabilitv Is Incorrect And May
Perpetuate Improper Funding Practices
In August 1991, OIRM issued final guidance for the TOSS contract
administration (11 months after contract award). Unlike the
prior SOSM and draft TOSS guidance, the final TOSS guidance did
list criteria for determining severable and non-severable DO
operations. According to the TOSS guidance, the first of four
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criteria for severable services states a DO is severable if the
"...work can be interrupted without affecting the overall program
mission or specific purposes of the delivery order." Prior to
the TOSS Guidance, the Agency had not used the possibility of
interruption as a criterion in determining severability.
The TOSS guidance further provides that the first of four
criteria for non-severable services is if the "... interruption of
the work may deny EPA of an end product or completed service
critical to program mission." Based on this criterion, almost
all continuing TOSS technical support DOs could be determined by
POs to be non-severable, since any DO has a chance of being
interrupted by initial FY funding problems and any interruption
of a DO would preclude accomplishment of DO tasks. Also, any
such DO could be interpreted as having a "...completed service
critical to program mission," although the services provided are
actually continuing in nature and are never really completed.
However, funding has never been a problem thus far on the TOSS
contract or the prior SOSM contract. When new FY funding
problems occur, the Agency can and has issued new FY DOs
contingent upon availability of funds. CSC has accepted this
contingency in its past contract operations and considers this as
the cost of doing business with the Government. Therefore, the
possibility of DO interruption is minimal and should not be a
basis for determining DO severability or to justify the
inappropriate carryover of expiring appropriations in
circumvention of the bona fide need rule and related
appropriations law. We concluded that these criteria were
misleading, subject to varying interpretations, and not supported
by CG decisions.
Another criterion for severable services was "...work tasks are
repetitive and provide routine continuous products and/or
services." As stated earlier the CG has ruled that continuous,
recurring support services are severable but has never limited
the scope of such severable services to repetitive and routine
services. OIRM personnel stated that these criteria were their
interpretation of the severability rules in EPA's Contract
Administration manual. However, the Contract Administration
manual states that: (1) performance of non-severable services
cannot be segmented, (2) are bona fide need at the time of fund
obligation, and (3) represent a specific end-product deliverable.
EPA's OGC and PCMD's Procurement Policy Staff had not reviewed
the final TOSS guidance or OIRM's interpretation of the
severability rules.
We contacted the Director of PCMD's Procurement Policy Staff
concerning the TOSS guidance on severabiiity and non-severability
of DO operations. The Director said he had not previously
reviewed the TOSS guidance but he thought OIRM's criteria for
severability and non-severability (based on possible DO
interruption) appeared consistent with a recent Comptroller
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General decision. However, he felt that the "interruption"
criterion was irrelevant because interruptions due to funding
would never happen.
The Comptroller General decision PCMD provided, B-235678 (July
30, 1990), did not reveal any support for the TOSS criteria. On
the contrary, the decision rejected as a justification for not
waiting for the next year's appropriation, the concern that it is
impractical to stop or interrupt research under a cost
reimbursement level of effort contract at the end of an
appropriation's availability. The decision modified an earlier
decision (65 Comp. Gen. 156) which held that level of effort
contracts, by definition, were severable. Now, the fact that a
task is ordered under a level of effort contract would not
necessarily make it severable for the purpose of the bona fide
need rule. The nature of the work must be examined to make a
severability determination. The decision reiterates that level
of effort contracts are still severable in many instances,
especially when the agency is unable to define the work precisely
enough for a completion type contract.
RECOMMENDATIONS
We recommend that the Assistant Administrator for Administration
and Resources Management establish proper financial management
controls over the TOSS contract to ensure proper payment and
proper obligation of Agency funds. Specifically:
- Require the PO to perform reviews of all DO invoices in
conjunction with reviews of DO monthly progress reports, for
evidence of inappropriate charges, within 30 days of the
DOPOs1 review. For any unallowable charges identified by
this review, ensure that the DOPO deducts the amount from
future invoices.
- Require the CO to perform periodic spot-checks of DO
invoices in conjunction with reviews of DO monthly progress
reports, as required by FMFIA controls, for evidence of
unauthorized contract activities, and unauthorized labor
categories.
- Ensure that these invoice review requirements are
reflected in the PO and CO performance standards.
- Provide DOPOs with additional training and guidance to
include appropriate invoice review, surveillance techniques,
and unallowable and inappropriate charges to DO invoices
relative to travel, training, etc.
- Require the PO to re-implement procedures requiring PO
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approval of requests for CSC staff at training classes,
ensuring that (1) all training classes authorized are EPA
specific and necessary for the employees' performance of DO
tasks and (2) that all requests for attendance at
conferences are closely scrutinized and denied unless they,
at a minimum, comply with TOSS guidance.
- Require DOPOs to include detailed travel and training
plans in the SOW justifying the relationship between the
training need and the DO tasks.
- Require the PO and CO to perform detailed review of costs
questioned in this audit and where appropriate recover any
unallowable costs from the contractor. Issue contract
ratification for allowable but unauthorized charges
improperly approved by DOPOs.
- Issue instructions to the contractor and all EPA contract
personnel to prohibit CSC charges for any time not spent in
performance of DO tasks.
- Clarify and correct severability and non-severability
criteria provided in the TOSS users guidance. Ensure that
DOPOs understand severability criteria and the related
appropriations law.
- Establish proper oversight of DOPO invoice funding
approvals through periodic sampling and review of approved
invoices by the PO and/or CO, especially at the beginning of
each fiscal year.
- Obtain OGC and appropriate PCMD review and input on
contract policies that relate to appropriations law and
severability issues.
- Modify contract legal review forms to provide proper
controls and ensure proper disposition of attorney comments
on legal deficiencies.
- Remind contract management personnel of the bona fide need
requirements and Antideficiency Act prohibitions.
- Report any identified Antideficiency Act violations as
required by law.
We also recommend that the Deputy Administrator require EPA
Headquarters, regional and lab managers to
- Require DOPOs to more closely monitor activities of
contractor personnel to ensure time billed represents time
spent performing DO tasks.
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- Require DOPOs to maintain documentation of any time spent
by CSC employees not performing DO tasks for use in review
and approval of invoices.
- Require DOPOs to more carefully evaluate skills of
proposed contractor employees and deny requests for training
that provides skills the DOPO has in effect purchased under
the DO.
- Require DOPOs to release contractor staff from duty during
nonproductive time.
AGENCY RESPONSE AND PIG EVALUATION OF AGENCY COMMENTS
The Agency's full response to findings and recommendations in
Chapter 6 and our complete evaluation of the Agency's comments
are included in Appendix I. However, we have summarized the
Agency's principal disagreements and our response to these
disagreements below.
DOPO Invoice Review and Approval
The Agency response indicates that the report expects to much
from DOPOs in verifying the contractor's billed labor hours. The
response further states that the report implies that DOPOs should
maintain time and attendance records on contractor staff and
review contractor financial records.
The report does not state or recommend that DOPOs maintain time
and attendance records for contractor personnel. The report only
recommends that DOPOs perform some type of surveillance of
contractor operations to obtain some assurance that the labor
hours charged are reasonable rather than relying totally on
contractor reports to verify contractor invoices. Such
surveillance is already recommended in the EPA Project Officer's
Handbook and in OMB contract management guidance. Although most
DOPOs included in the audit did little monitoring of contractor
hours for those CSC employees not co-located with them (other
than review of the CSC monthly progress reports), there were a
few who maintained sign-in/sign-out sheets or performed other
types of monitoring to obtain reasonable assurance that the hours
billed by the contractor were correct.
The Agency response is not specific as to what contractor
financial records the report implies should be reviewed by the
DOPO. The only contractor financial record the DOPO is currently
required to review and approve are the invoices. The TOSS
contract delegates the validation and approval of invoices from
the CO to DOPOs. Chapter 6 makes no reference to any other
contractor financial records that DOPOs would be required to
validate.
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We found the Agency's response to Chapter 6's findings confusing
since the Agency agreed with all the recommendations related to
contract financial management including additional DOPO
monitoring of contractor operations to ensure propriety of
contractor hours billed.
Bona Fide Needs Rule/Antideficiency Act Violations
The Agency's response states that EPA's OGC and Comptroller
examined the Agency's policies regarding severable services and
bona fide need and determined the policies valid and, therefore,
the Agency could only conclude the findings of antideficiency
violations are incorrect due to a misunderstanding of the statute
or a misapplication of the statute to the specific facts. This
response provides no specifics as to what policies were examined,
on what basis (legal or otherwise) the policies were determined
valid, or how we misunderstood or misapplied the statute in each
of the potential violations cited in the report. Additional
specific information we will need on each individual case to
resolve this issue are detailed in Appendix I.
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EPA PRE-AWARD AMD POST-AWARD TOSS CONTRACT MANAGEMENT MAY
HAVE PRECLUDED A FAIR AND COMPETITIVE CONTRACT AWARD AND
THE MOST COST-EFFECTIVE AGENCY OPERATIONS
Waivers of TOSS contract education/experience requirements for
165 CSC and sub-contractor TOSS employees undermined the
integrity of EPA's contracting process, caused the Agency to
incur unnecessary costs estimated at more than $2 million per
year, jeopardized the Agency's Delegation of Procurement
Authority, and raised questions about the overall technical
expertise of the CSC employees working under the TOSS contract.
The TOSS CO verbally granted these waivers shortly after CSC, who
was not the low bidder, was awarded the TOSS contract based on
its technical excellence, statements in the CSC TOSS proposal
and contractor correspondence indicated that the company had done
the necessary personnel file reviews to be aware that a
substantial number of its employees had "labor category problems11
before or very shortly after the contract award date. The PO
requested these waivers only 41/2 months after the contract
award. The PO stated in his request that the contractor had
informed him during the phase-in of the need for substantial
waivers, making the contractor's request only 9 weeks after the
contract was awarded.
In addition, even though the contract represented expenditure of
about $347 million over a 5-year period, the Agency had not
conducted an analysis to determine the cost-effectiveness of
contractor versus in-house performance. Our cost comparison for
certain TOSS labor categories showed an estimated 13 to 110
percent savings from in-house performance with an estimated
first-year savings of $4.5 million for these selected technical
support activities.
WAIVERS OF CONTRACT REQUIREMENTS FOR INCUMBENT CSC STAFF RAISES
QUESTION OF FAIRNESS OF TOSS CONTRACT AWARD
Background
A February 11, 1991, memorandum from the former TOSS PO to the CO
requested a waiver for 149 incumbent CSC employees and 16
subcontractor employees, approximately 16 percent of the total
TOSS staff. The former TOSS PO stated in the memo that he had
reviewed the qualifications and experience of each of the staff
members to determine the extent and impact of the waivers. He
requested the waivers because "The staff has invaluable
experience and institutional knowledge. The Agency cannot afford
the loss of this staff without adverse effects on its IRM
program." The former PO said in the memorandum that he had been
informed of the need for waivers during the contract phase-in.
He explained that twenty of the employees had been granted
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waivers while working under the SOSM contract. The others did
hot require waivers under SOSM because
there was a substitution clause that allowed one year of
experience to be substituted for one year of education.
Neither the TOSS RFP nor the contract contained a substitution
clause or any provision for waivers of qualifications. In fact,
Section 7.3.1 of the TOSS Statement of Work provided that "All
contractor personnel performing under this contract must
[emphasis added] meet the minimum requirements for the applicable
contract labor category...The contractor shall submit individual
resumes attesting that proposed personnel meet the minimum
requirements stated in the contractor's initial proposal."
The Contract also required at Section G.13, Additional Invoicing
Requirements, that the following statement be included on each
invoice submitted:
All personnel who performed work under this contract
and billed on this invoice meet all of the educational,
experience, and other requirements specified in this
contract...
The educational and/or experience requirements for labor
categories were increased between the SOSM and TOSS contracts, in
conjunction with substantially increased labor rates. The PO and
CSC both commented positively on the increased requirements.
However, in his February 1991 waiver request, the PO contradicted
his previous comments by first justifying the reason and
necessity for increased educational requirements and then
requesting that unqualified CSC staff be retained by granting
waivers. The PO wrote:
When the labor category specifications for this contract
were being developed, it was decided to increase the minimum
educational requirements. The basis of this decision rested
on the belief that a more educated staff would increase the
level [of] professionalism. Because of the spiraling
increase in complexity of TOSS, this professionalism would
be of enormous benefit to the Agency's IRM program.
CSC also supported the new labor categories with their increased
requirements and outlined its intention to provide qualified
employees in its TOSS proposal (Section T.7.4.2):
CSC views the creation of new labor categories
(relative to SOSM) in a positive light. The TOSS labor
categories more closely define the job expectations,
provide finer resolution in staffing defined work
elements, and afford CSC employees viable opportunities
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for advancement.
...Where new requirements cannot be met by employees
assigned to the affected area or site, CSC managers
will review the credentials of other CSC employees to
determine if there .is an appropriate fit. Where this
action still fails to meet the requirements, CSC's Area
Recruiters will be tasked to assist the cognizant Site
Manager or Department Manager with the recruitment of
qualified candidates in order to hire new CSC employees
whose qualifications and experience meet EPA's
requirements.
Waivers Undermined Integrity Of Contracting Process
The request and grant of waivers for a significant number of
incumbent CSC and subcontractor employees shortly after the
contract award brings into question the fairness and
competitiveness of the TOSS procurement. EPA awarded the TOSS
contract to CSC because the Source Evaluation Board (SEB)
determined that the contractor was technically superior to the
lowest bidder (Company A) and had submitted a lower bid than the
third company (Company B) which was also technically qualified.
CSC's final technical score was 1196, Company A's was 978, and
Company B's was 1098. However, the waiver request makes the
validity of both the company's high technical evaluation score
and bid questionable. In effect, other TOSS bidders were at a
disadvantage if their bids were based on the precise labor
category requirements in the contract proposal. If the high
bidder had known that the Agency would accept employees who did
not meet the contract qualification requirements, they may have
been able to lower their labor rates to be more competitive with
CSC.
Even though CSC's bid was S56 millionhigher than the lowest
bidder. the company was awarded the TOSS contract so the Agency
could "reap the benefits of CSC's excellence," according to the
SEB report. We question such "benefit" or "excellence" since 16
per cent of the contractor's incumbent staff did not meet the
TOSS requirements. EPA's source selection criteria for contract
award showed that technical excellence would be considered more
important than cost or price. CSC's proposal received the
highest technical evaluation score. The low bidder's proposal
for the TOSS contract was determined to be only technically
adequate. According to the SEB's report:
The effects of only adequate services will be seen in
rework effort, in time delays to get up to speed, and
in *adequate1 products when the Nation needs
exceptional products from EPA.
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The SEE recommended that CSC be awarded the contract. The SEE
report explained the rejection of the lowest bidder by stating:
Awarding the contract to (the lowest bidder) could
potentially save EPA $56 million over a 60 month
period. Thus, another way of looking at this source
selection decision is whether the Agency is willing to
spend approximately $5.79 million a month rather than
$4.86 million a month for the next 60 months to reap
the benefits of CSC excellence. Although this is a
significant price difference, the long term benefits
that CSC's support will yield makes their proposal the
most advantageous for the Agency. In rejecting (the
lowest bidder's) proposal we keep in mind that the
Agency needs excellence in this TOSS effort. Although
(the lowest bidder's) proposal met our minimum needs
they simply did not demonstrate excellence.
CSC and Company B were rated close on a technical basis according
to the SEB report. However, the company's bid was $7.56 million
higher than CSC's. The report said that the company's proposed
price was reasonable, but that their base labor rates were
generally too high. Although CSC had lower labor rates and was
therefore awarded the contract, the company asked for waivers of
contract qualification requirements for 165 CSC and subcontractor
employees within 9 weeks of the contract award. (The PO did not
forward this request to the CO until 2 1/2 months later.)
Company B's bid may have been significantly higher because it was
based on the cost to hire personnel who met the contract
specifications. In effect, by accepting 165 unqualified
employees, the Agency "saved" $126,000 per month ($7.56
million/60 months = $126,000) over Company's B's proposal.
When asked why the lack of qualified staff was not discovered
before the contract was awarded to CSC, the former PO replied
that these people were not key personnel and so their
qualifications were not reviewed prior to contract award. He
indicated that only Assistant Program Managers were key
personnel. According to the TOSS SOW, Section 7.3.4.1, however,
site managers are also key personnel and the contractor's
proposal should have included their resumes. If the site manager
resumes had been reviewed prior to contract award, the Technical
Evaluation Panel would have discovered that six of the CSC site
managers did not have the required college degree. Further, the
Key Personnel provision in TOSS Contract Section H.10 did not
include all incumbent CSC site managers. CSC site managers who
required waivers were conspicuously absent from this section. In
a letter responding to a bid protest, dated July 19, 1990, the CO
who negotiated the TOSS contract stated that one reason this
bidder was eliminated from the competition was that three of its
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site managers (versus CSC's six) did not meet minimum
qualifications as stated in the RFP.
The former TOSS PO stated that he was "surprised" when CSC
informed him of the necessity for a substantial number of waivers
for CSC employees. However, OIRM comments on the draft RFP and
SOW stated that no provision for substituting experience for
education in the contract would present a problem. The comments,
which were written in December 1989 and addressed to the former
PO and the CO who negotiated the contract, stated that: "Without
this option we will be unable to qualify personnel for positions
requiring an undergraduate degree without a waiver from PCMD."
The final version of the contract did not contain a substitution
clause.
The impact of the waivers on the procurement was dismissed by the
former PO because he said that regardless of who won the
contract, the rank and file staff would stay with the contract
and EPA would have been faced with the same issue. However, the
Pre/Post Negotiation Memorandum stated that Company B, CSC's
closest competition, proposed to staff the contract with only 70
per cent of the incumbent's staff. CSC's waiver list was
comprised primarily of higher level technical staff, many of whom
a new contractor would presumably replace with its own staff.
Further, the PC's statement assumes that a new contractor would
also attempt to staff the contract with staff who did not meet
contract requirements. Providing EPA with nonconforming services
should not be a generally accepted practice among contractors.
Further, there is no requirement prohibiting use of incumbent,
experienced employees, but merely to pay them at the labor
category rate for which they qualify.
CSC Made Misstatements In Its Bid
The waivers of the TOSS requirements indicated that the award of
the contract to CSC was based on a bid which contained defective
cost and pricing data. In addition, the CO failed to reject
nonconforming services as required by the FAR. At a minimum, the
Government was entitled to a price adjustment as a result of the
waivers. Representations in CSC's bid proposal that its staff
met contract labor category qualifications appeared questionable
when CSC requested waivers of requirements for CSC and
subcontractor incumbent staff shortly after the contract award.
According to CSC's TOSS Proposal and Best and Final Offer, the
company was: (1) aware of the higher qualifications for the new
TOSS labor categories, (2) intended to fill all of the TOSS
positions with incumbent staff, and (3) had done the necessary
personnel reviews and analysis to determine whether its employees
qualified for TOSS positions.
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CSC was aware of the labor category "problems" either prior to or
very shortly after the September 28, 1990, award date. The
subject of CSC E-Mail correspondence, dated October 12, 1990, was
"Regions Department LC [Labor Category] Problems". The document
was entitled "Regions Department TOSS Phase-In Planning Document"
and listed 135 employees in Regions 1-10 with their proposed TOSS
labor categories and what TOSS requirements they did not meet.
The CSC Program Manager provided a similar TOSS Phase-In Planning
Document; however, this document was dated December 3, 1990,
almost two months after the October 12 document and two days
after work began under TOSS DOs. This document listed 146 CSC
and 16 subcontractor employees and the TOSS labor category
requirements they did not meet.
CSC submitted a Certificate of Current Cost or Pricing Data,
signed September 7, 1990, with its TOSS bid. The certificate
states that the cost or pricing data are accurate, complete, and
current as of the date the contractor and the Government agreed
on a price. According to FAR Section 15.801:
Cost or pricing data means all facts as of the date of price
agreement that prudent buyers and sellers would reasonably
expect to affect price negotiations significantly. Cost or
pricing data are factual, not judgmental, and are therefore
verifiable. While they do not indicate the accuracy of the
prospective contractor's judgement about estimated future
costs or projections, they do include the data forming the
basis for that judgement. Cost or pricing data are more
than historical accounting data; they are all the facts that
can be reasonably expected to contribute to the soundness of
estimates of future costs...
In addition, FAR Section 15.804-4 states:
(b)...If the contractor had information reasonably
available at the time of agreement showing that the
negotiated price was not based on accurate, complete,
and current data, the contractor's responsibility is
not limited by any lack of personal knowledge of the
information on the part of its negotiators...
(c)...Before agreement on price, the contractor shall
update all data as of the latest dates for which
information is reasonably available. Data within the
contractor's or a subcontractor's organization on
matters significant to contractor management and to the
Government will be treated as reasonably available.
What is significant depends upon the circumstances of
each acquisition.
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operations Questioned
The CSC TOSS proposal emphasized the advantages of its
experienced incumbent staff. The proposal noted that CSC's TOSS
phase-in planning was initiated in December 1989.
Early identification, commitment, and assignment of key
management and technical personnel to form the nucleus
of support for the TOSS start-up. This has already
been accomplished with these key personnel ready for
assignment. It is CSC's intention to transfer 100% of
our current SQSM work force to the TOSS proposal
[emphasis added].
In Section T.7.4.1.1 the CSC proposal also stated that:
CSC has made a comparative analysis of the skills and
quantities of personnel presently supporting EPA with
those identified in the TOSS RFP. It is expected that
after transfer of all SOSM employees to the TOSS
contract there will still be a 6 percent .shortage of
total required personnel...
Figure T.7-6, of CSC's proposal also showed that the contractor
intended to fill most TOSS positions with transfers of SOSH
personnel, including all 30 site manager's positions. Figure T.7-
7, listed the qualification requirements for the new labor
categories under TOSS, including the requirement for a college
degree for all site manager positions. The figure identified
those labor categories which differed from the SOSM structure and
provided a snapshot of CSC's ability to match those categories
with current employees. According to the proposal, Section
T.7.4.2,
Well in advance of phase-in, CSC managers are currently
reviewing in detail the personnel records of all
current employees to identify those individuals that
meet the qualifications of multiple categories.
Based on these CSC statements in its contract proposal, the
contractor should have been aware of unqualified staff well
before contract award. However, CSC's Best and Final Offer,
dated September 7, 1990, stated:
The incumbents in each of these job titles possess, at
a minimum, the education and experience requirements of
the labor categories as specified in Attachment A of
the RFP.
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Operations Questioned
TOSS CO Did Not Respond Appropriately To CSC'S Defective
Pricing And Provision Of Nonconformina Services
When informed of the failure of numerous CSC employees to meet
the TOSS labor category requirements, the PO requested and the CO
verbally granted waivers of requirements instead of pursuing the
Government's right to a price adjustment, at a minimum, under
both defective pricing and nonconforming services provisions in
the FAR. As a result, EPA incurred unnecessary costs of $2
million per year for unqualified CSC personnel.
FAR Section 15.804-7(b)(1) on defective cost or pricing data
states:
If, after award, cost or pricing data are found to be
inaccurate, incomplete, or noncurrent as of the date of
final agreement on price given on the contractor's or
subcontractor's Certificate of Current Cost or Pricing
Data, the Government is entitled to a price adjustment,
including profit or fee, of any significant amount by
which the price was increased because of the defective
data. This entitlement is ensured by including in the
contract one of the clauses prescribed in 15.804-8 and
set forth at 52.215-22, Price Reduction for Defective
Cost or Pricing^ Data The Clauses give the
Government the right to a price adjustment for defects
in cost or pricing data submitted by the contractor, a
prospective subcontractor, or an actual subcontractor.
The "Price Reduction for Defective Cost or Pricing Data" clause
was incorporated into the TOSS contract by reference in Section
I.I. However, the TOSS CO did not pursue the price adjustment
that the Agency was entitled to under the provision. In
addition, FAR Section 46.407 required the CO to reject services
which were nonconforming. Section 46.407 states:
(a) Contracting officers should reject supplies or
services not conforming in all respects to contract
requirements (see 46.102). In those instances where
deviation from this policy is found to be in the
Government's interest, such supplies or services may be
accepted only as authorized in this section.
(c)(1) In situations not covered by (b) above, the
contracting officer shall ordinarily reject supplies or
services when the nonconformance adversely affects
safety, health, reliability, durability, performance,
...or any other basic objective of the specification.
However, there may be circumstances (e.g., reasons or
economy or urgency) when acceptance of such supplies or
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services is determined by the contracting officers to
be in the Government's interest...
CSC Waiver Jeopardized EPA's Delegation Of Procurement
Authority
The waiver of CSC employees put EPA in non-compliance with the
Delegation of Procurement Authority (DPA) received from the
General Services Administration (GSA) for the TOSS procurement on
October 12, 1989. The request and grant of the waiver both
compromised the full and open competition required by the DPA and
materially changed the technical requirements of the contract
without an amendment to the DPA.
The DPA required that OIRM must comply with all applicable
Federal statutes, policies, and regulations governing the
acquisition, management, and utilization of ADP resources as
follows:
With respect to competition, the basic procurement
objective in satisfying ADP requirements is. to obtain
full and open competition through the use of
competitive procedures which permit all responsible
sources that can satisfy the needs of the agency to
submit offers.
...An amendment to this DPA must be obtained whenever
any material change is expected from the basis on which
the DPA was issued. Examples of such changes include a
substantive revision in the technical requirements,...
Also, since this DPA is issued in response to an APR
submitted under FIRMR Part 201-23.106-2, it places
greater responsibility on agency management to ensure
that proper information is developed and reviewed
before acquisition takes place (emphasis added).
Compliance with this delegation may be the subject of
later procurement management reviews by GSA.
Therefore, we urge you to take particular care to
thoroughly document your procurement files for this
requirement with all solicitations, amendments,
contracts, contract modifications, and supporting
justification that may tend to restrict competition.
Failure to comply with the conditions established
herein will render this DPA voidable...
A manager in GSA's Authorization Branch advised us that if
waivers were granted for a significant number of employees
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are discussed in detail in Chapter 4's sections on personal
services and inherently governmental functions, and in the
section on improper contract charges in Chapter 6.
Waivers Included Highest Level Of Technical Expertise
The group of labor categories with the highest level of required
technical expertise (analysis/programming/database support)
constituted 37 per cent of the waivers requested by the TOSS PO.
A majority of the waivered CSC employees did not meet the
qualification requirements due to the lack of a college degree.
Many of these employees obtained labor category upgrades to
higher level positions such as Technical Information Specialist
(TIS), Information Management specialist (IMS), and Senior System
Analyst (SSA) based more on their longevity and program
familiarity than on their technical expertise or the needs of the
DO. As a result, when the TOSS contract upgraded the educational
and experience requirements, a significant number of the CSC
employees in these positions no longer qualified for their labor
categories. For example, CSC requested waivers for 27 per cent
of their Senior Systems Analysts (SSA). This labor category has
the highest technical labor rate ($37.99 per hour) in the TOSS
Contract which is justified by the highly technical and complex
SSA tasks described in the TOSS SOW:
The Senior Systems Analyst coordinates with the Program
Manager and various EPA officials to ensure problem
resolution and user satisfaction; prepares and delivers
system concept presentations to colleagues,
subordinates, and user representatives; formulates
statements of management, scientific business problems,
devising IBM procedures for problem resolution; and
performs analysis of Program Office IRM/OA
requirements.
The Senior Systems Analyst provides supervisory,
technical, and administrative direction for contractor
personnel performing software development tasks,
including review of work products for correctness,
adherence to approved design concept, and to ensure
project schedules are being met.
Working with other analysts and programmers, the Senior
Systems Analyst helps develop test plans and procedures
to evaluate the effectiveness and efficiency of
developed systems and applications.
CSC's SSAs, who received waivers, worked on mission-critical
and/or sensitive systems and programs including PPAS, FFIS, and
NCPS.
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In addition, close to 50 percent of all Technical Information
Specialists (TIS) and Information Management Specialists (IMS)
required waivers. The TOSS SOW describes the tasks of these
labor categories as:
The Technical Information Specialist performs highly
complex information processing functions that require
independent judgement and knowledge of the subject
matter. These functions involve the preliminary design
and use of predesigned database searches, data entry
and report generation techniques for routine and ad hoc
purposes as well as the acquisition, control, analysis,
processing, dissemination and computerization of
materials, documents and data capture forms...
The Information Management Specialist directs data
handling and computer operations activities in support
of multiple concurrent EPA and state IRM data systems.
He/she directs control clerks, data analysts, computer
operators, technical writers, and operations and
administrative supervisors. He/she works closely with
various EPA national and local project managers and
data base support personnel, fulfilling various
technical and administrative reporting requirements and
providing suggestions for systems enhancements and
optimization to ensure the proper implementation,
development, and operation of the subject IRM systems.
The Superfund Cost Recovery DO in Region 9 is an example of a DO
that had both employees who did not meet labor category
requirements and performance problems. Of the five employees
reviewed, two did not meet labor category requirements, and one
of these two was included in the blanket verbal waiver. Region 9
personnel overseeing the activities of this DO said many of the
cost recovery packages prepared by CSC and submitted for review
were deficient and had to be sent back three or four times for
additional work, mainly because of an incapable task leader. CSC
personnel disputed this, stating that they did not receive proper
training and that Region 9 was constantly changing its
requirements. For another Region 9 DO, which was allowed to
expire, the DOPO said some of the CSC personnel did not have the
basic skills needed for the job, and were unable to spell or file
correctly.
In its DPA request to GSA, the Agency emphasized that its
"environmental mission is information-intensive and relies
heavily on the effective selection and utilization of IRM
technologies." The fact that the waivered employees performed
some of the most critical and highly technical functions under
the contract raises serious questions about CSC's technical
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expertise and their ability to adequately provide services
ordered under the TOSS contract.
COST-EFFECTIVENESS OF CONTRACTOR PERFORMANCE APPEARED
QUESTIONABLE WHEN COMPARED TO IN-HOUSE PERFORMANCE
Use of CSC personnel to meet the Agency's technical support may
not always represent the most cost-effective approach. Our
comparison of contract costs for certain technical support labor
categories, using the basic cost comparison methodology
prescribed in OMB Circular A-76, to the cost of in-house
performance showed an estimated 13 to 110 percent savings from
in-house performance (see Appendix VIII). Dollar savings based
on estimated first-year labor hours for each category totaled
about $4.5 million. None of the current or prior CSC technical
support contracts were awarded based on a comparison between
Federal and contract costs. PCMD personnel informed us that OMB
Circular A-76 does not require such comparisons for new
activities or activities historically contracted out. EPA
officials told GAO in prior contract audits that no A-76 costs
comparisons were made for support service contracts because OMB
personnel ceilings precluded additional EPA staff to perform
these functions.
Comparison of contract labor rates for 72 CSC and CSC
subcontractor technical support categories, using basic A-76 cost
comparison procedures, disclosed the following1:
Contractor/ No. of Categories % Contract Costs Potential
Subcontractor* Reviewed Exceed FTE Costs Savings 2
CSC
Atlis*
ASG, Inc*
Ed Brand*
Meta, Inc*
NMI/CRC*
15
20
15
1
9
12
13% - 34%
18% - 78%
25% - 38%
44%
41% - 110%
17% - 68%
$2,803,507
$ 697,414
$ 266,328
$ 16,092
$ 493,521
S 240.077
$4,516,939
OMB Circular A-76 (revised August 1983), entitled "Performance of
1 Details of comparisons of FTE costs to TOSS labor rates are
shown in Appendix VII.
2 Potential savings based on difference between computed FTE
costs and CSC labor rates multiplied by the estimated labor hours
in the TOSS contract for Option Period 1.
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operations Questioned
Commercial Activities," provides policy and guidance on whether
the Government's commercial activities should be performed by
federal employees or commercial sources. The circular provided
that Government agencies should rely on the private sector for
its commercial goods and services as long as it is more
economical. The Circular does not require a comparison of
contract versus in-house performance for new activities or
activities historically contracted out such as EPA's technical
support services. Cost comparisons are only required when 10 or
more EPA positions would be affected or eliminated by contracting
out an existing activity. However, circular A-76 does require
Agencies €o monitor contracts for cost-effectiveness and make
comparisons of contract costs to in-house costs when contract
costs appear unreasonable or contract performance is
unsatisfactory.
We found no evidence that EPA had ever performed a Circular A-76
cost comparison for technical support services provided under any
current or prior CSC contracts. Also, we found no documentation
(other than DCAA reviews of contractor pricing proposals for new
contract/subcontractor awards) of EPA monitoring the cost-
effectiveness of CSC contracts. Prior GAO reports3 and an EPA
contract management study4 document that: (1) many EPA contract
managers believed that using Federal employees in program support
activities would be more cost-effective, (2) EPA staff and
contractor employees perform many identical tasks, and (3) EPA
has used contractor employees for work of a continuing, long-term
nature. CSC has provided technical support to EPA programs for
over 12 years. These factors could be construed as meeting the
test of unreasonable contract costs under Circular A-76 and that
such support functions of a permanent nature should be performed
by EPA staff.
The cited GAO reports and EPA contract management study also
document that A-76 cost comparisons between in-house performance
and contract performance of Agency functions were not conducted
because of insufficient EPA personnel and because EPA managers
believed that OMB would not approve the needed EPA staff even if
in-house performance proved to be the most cost-effective
approach.
3 GAO reports "EPA's Use of Management Support Services"
(Audit No. GAO/CED-82-36), issued March 9, 1982 and "The
Environmental Protection Agency Should Better Manage Its Use Of
Contractors" (Audit No. GAO/RCED-85-12), issued January 4, 1985.
4 "Contracts Management: The People arid the Process," issued
November 1988, by EPA's Office of Administration and Resources
Management.
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Operations Questioned
A recent GAO report5 on the Department .of Energy's (DOE) use of
contractor support indicated that OMB's position about personnel
ceilings may be changing.
OMB officials said that during the 1980's OMB had a
clear policy of reducing federal employment and of
aggressively studying federal positions to determine
whether they should be contracted out. They said,
however, that OMB is now willing to consider requests
for additional staff if the requests adequately justify
cost savings. While OMB has not issued a formal policy
reflecting the change in position, OMB officials cited
the DOE conversions as evidence of OMB's change in
attitude. Further, for fiscal year 1993, OMB has
advised DOE that it would be willing to provide
additional staff positions if DOE can demonstrate that
converting contracts to federal staff would be cost-
effective. ...
Therefore, we believe that EPA should perform an indepth A-76
cost comparison between CSC technical labor costs and performance
of these activities by EPA staff. Based on this comparison, EPA
should request additional FTEs through OMB for those technical
positions that can be more cost-effectively performed in-house or
should be performed by FTEs because of their inherently
governmental nature.
RECOMMENDATIONS
We recommend that the Assistant Administrator for Administration
and Resources Management review the TOSS Contract award, seek
appropriate price adjustment and establish controls to ensure:
(1) compliance with FAR requirements and (2) cost-effectiveness
of technical support activities in all future procurements.
Specifically, this should include:
-Re-evaluating the three final TOSS bid proposals to ensure
that the contract award was appropriate.
-Selecting project officers and other members for Source
Evaluation Boards who do not currently manage contracts of
the incumbent contractor.
-Reviewing all key personnel resumes in all future
5 "ENERGY MANAGEMENT, Using DOE Employees Can Reduce Costs for
Some Support Services" (Audit No. GAO/RCED-91-186), issued August
1991.
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procurements.
-Requiring the CO to negotiate a price adjustment with CSC
to recover excess costs incurred as the result of any
failure of CSC staff to meet TOSS labor category
requirements.
-Requiring the PO to individually review educational and
experience requirements of all current employees working
under the TOSS contract to ensure that they meet contract
labor category requirements.
-Requiring the PO to review qualifications of all staff
proposed in project plans before work begins under TOSS
delivery orders.
-Requiring EPA contract management to conduct cost
comparisons between contract and in-house operation prior to
award or renewing future technical support contracts,
specifically the TOSS contract.
-Establishing a monitoring system to regularly review the
costs-effectiveness of contracted technical services.
-Using cost comparisons as a basis for requests for
additional federal staff where support services are
determined to be less expensively performed in-house.
AGENCY RESPONSE AND OIG EVALUATION OF AGENCY COMMENTS
The Agency's full response to findings in Chapter 7 and our
complete evaluation of the Agency's comments are included in
Appendix I. However, we have summarized the Agency's principal
disagreements and our response to these disagreements below.
The Agency disagreed with the draft report's inclusion of the
$4.5 excess of TOSS contract rates over FTE costs as questionable
charges. We agree and have changed the report to reflect this
amount as potential savings rather than questionable charges (see
Appendix VI).
The Agency also expressed concern that the report provides no
basis for questioning the Agency's non-performance of OMB
Circular A-76 cost comparisons (contract versus FTE costs) for
CSC technical service contracts. We disagree. Circular A-76
does not require such a cost comparison for new activities or
historically contracted operations unless there is reason to
suspect the cost-effectiveness of contract costs. As stated in
the report, we believe that the prior GAO audits and the Agency's
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Operations Questioned
Award And Cost-Effectiveness Of Contract
1988 study of EPA contract management provided a broad basis for
questioning the cost-effectiveness of contract costs versus in-
house operation. Therefore, on the basis of prior audit findings
and the Agency's own studies, we do question EPA's non-
performance of a pre-award A-76 analyses for the technical
services provided under the current TOSS contract.
The Agency disagreed with our recommendations that the CO and PO
review the qualifications of all current and future proposed
contractor staff. The Agency stated that this was the
responsibility of the DOPOs. We have removed the CO from these
recommendations; however, the EPA Contracts Manual vests the
responsibility for verifying the qualifications of contractor
staff with the PO. Therefore, we continue to recommend that the
PO review the qualifications of all current and future proposed
contractor staff to ensure that they meet TOSS labor category
requirements.
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Appendix I
AGENCY COMMENTS ON DRAFT REPORT AND PIG EVALUATION
MEMORAKDUM
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
MAR 16 1992
OFFKC or
ADMINISIHAII'JM
AND HESOUHCP;
MANAGEML'
SUBJECT: Agency Response to Draft Audit Report No. E1NME1-04-
0169; EPA's Management of^Computer Science
Corporation's
FROM: Christian R. Holm
Acting Assistant Administrator for Administration
and Resources Management
TO: Kenneth A. Konz
Assistant Inspector General for Audit
I am writing in response to the draft audit report entitled,
EPA's Management of Computer Science Corporation's Contract
Activities, dated February 4, 1992. Although I am encouraged by
your stated opinion that the audit findings do not allege or
suggest criminality by either EPA employees or CSC, I regard the
findings and conclusions of the draft audit as a matter of the
utmost seriousness, and one requiring immediate, hands-on
remedial action, as well as long term, fundamental reforms. The
balance of this memorandum outlines the actions taken or underway
by EPA discusses the few instances in which we do not agree with
the premises that appear to the basis of the audit
recommendations.
In preparing this reply, I have personally reviewed the
major findings and conclusions of the draft audit. I have held
extensive discussions with the responsible managers and staff of
the Procurement and Contracts Management Division and the Office
of Information Resources Management, and I have met face-to-face
meetings with Project Officers and senior managers at all but one
Agency site covered by the audit team. As you know, I have also
discussed the audit findings and conclusions with you and your
audit staff and with officials of the Defense Contract Audit
Agency (DCAA), which has audit cognizance for CSC.
My reply is presented below, in three major parts:
o Response to the draft audit findings and
recommendat ions
o Actions taken or planned
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Appendix I
o Policy disagreements
A. RESPONSE TO AUDIT FINDINGS AND RECOMMENDATIONS
The draft audit report was over a year in the making, covers
up to five years of CSC activity in EPA, contains up to 500
individual findings and presents nearly 100 separate
recommendations. Moreover, many of the audit findings are
presented as case examples that do not reveal the identification
of individuals or other specifics. Therefore, it is not possible
for the Agency to respond in detail to each finding. More to the
point, we do not think this would be productive. My own review
has convinced me that, while some specifics of your draft report
may be in error and some are debatable, the overall requirement
to improve internal management controls and clarify our
relationship with contractors is sufficiently clear to warrant
both immediate action and long term reforms.
Although we cannot reply in detail at this time to the
hundreds of individual findings in the draft audit, we will
pursue and respond to each and every finding and we will report
to you periodically on their disposition. More important, we
have carefully reviewed each recommendation and, with a few
important exceptions, we agree with the recommendations. The
exceptions involve areas where we disagree strongly with the
policies asserted in the draft audit, and therefore with the
recommendations based on those policies. These areas of
disagreement are discussed below.
.-
Attachment A presents our initial position with respect to
each formal recommendation. I plan to meet with your audit team
over the coming weeks to discuss those areas where disagreements
exist, and I will update this response when and as appropriate.
B.
ACTIONS TAKEN OR PLANNED
Since receiving the draft audit report, I have concentrated
on corrective actions, both in the short term to remedy specific
problems with the CSC contract and over the longer term to
correct the cultural problems discussed in the audit. The
actions taken or planned include:
1. An Agencywide program to strengthen contract management was
announced on February 28, 1992 and reiterated in the
Administrator's memorandum of March 10, 1992 (Attachments B & C).
The Administrator also directed each Assistant and Regional
Administrator to make a personal review of contract management in
their organizations and report to the Administrator by March 26,
in preparation for a special senior management meeting on this
topic on April 2, 1992. The Agencywide program contains both
short and long term remedial steps, including:
o Establishment of a Standing Committee on Contracts
Management to oversee EPA's procurement and contracts
management functions. The Standing Committee was
convened by the Administrator and Deputy Administrator
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Appendix I
on March 12, and will meet on a regular basis to
oversee immediate corrective actions in response to the
CSC audit and long term procurement reforms.
o Clear delineation of individual and organizational
accountability for contract management in all major
EPA offices, and the elevation of EPA's procurement
functions to an office-level organization reporting
directly to me.
o A full-dress review of EPA's contracting strategy,
including the degree and form of our reliance on
contractors1 and our preference for large-scale,
long-term mission contracts. This review is
specifically aimed at examining the design and
direction of major procurements now in process,
including at least one major procurement now
nearing final award.
o A full-scale application of Total Quality
Management 'principles to EPA's contracting
process in 'the belief that this offers the
best prospect for a permanent solution to
the chronic problem of contract management.
2. We are reviewing all aspects of the CSC contract and CSC's
overall performance as an EPA contractor. This review will be
directed by the Standing Committee staff to ensure objectivity,
and will examine the original award as well as current Delivery
Orders. Our review will also consider whether to recompete or
break up the present contract with CSC. I have further directed
that no future CSC delivery orders are to issued that do not meet
Federal standards, and that any defective Delivery Orders are to
be either corrected or canceled. We have also removed CSC from
any role in which they might come into contact with their own
vouchers, and are considering the advisability of removing them
entirely from the operations or the Contract Payment Center.
Finally acting on information provided by DCAA, I have issued CSC
a Notice of Intent to Withhold Payment unless they provide an
acceptable plan for correcting all accounting systems
deficiencies (Attachment D). We are also reviewing each of the
165 waivers of qualifications and have begun active negotiations
with CSC to obtain repayment of funds paid for personnel who did
not meet the qualifications specified in the contract.
3. A special review has been launched to identify all areas of
potential vulnerability to contract management problems similar
to those reported for the CSC contract. This review is also
being conducted by 'the special staff supporting the Standing
Committee, and will result in prompt corrective action when
problems are identified.
C. POLICY DISAGREEMENTS
The draft:;audit is critical of the CSC contract, and EPA's
design and management of this contract, on the grounds that
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Appendix z
Federal policy or good management practices are being violated.
In several key areas, we disagree with the policy that is
asserted or implied as the basis for your criticism. These are:
Agency Comment
1. Use of Contractors - The draft audit criticizes EPA for its
use of contractors to, among other things, operate libraries,
mail rooms, and information systems. These all are functions
that are specifically identified in Attachment A to OMB Circular
A-76 as "commercial services" that are appropriately contracted
out. EPA has relied on contractors to perform these functions in
some degree from its inception in 1970. As indicated by the
draft audit report, it would be inconsistent with long-standing
Federal policy to suggest that it is inappropriate to contract
out such functions. The thrust of current Federal policy is
clear, despite the statement included in the draft audit that
this policy "may be changing".
Unfortunately, as a result of the audit report's misreading
of well-established Federal policy, the Congress and the public
are now under the impression that EPA has misspent approximately
$5 million which you identified as "questionable costs" (page V
of the report's Executive Summary). I respectfully request that
you revise this portion of your report to accurately reflect the
facts. It is fair and appropriate to argue that Federal policy
should be changed and that doing so might save $5 million
dollars. It is grossly misleading to report these "savings" as
"questionable costs" in an audit. Moreover, it is misleading for
the audit to say "We11 found no evidence that EPA performed a
Circular A-76 analysis for technical support services" when you
note on the next page that OMB policy does not at present require
such an analysis.
I also believe that the report would be more useful in
stimulating the debate over when government employees should be
used if it more clearly distinguished between reliance on
contractors in terms of sheer numbers, and the very different
matter of relying on the expertise and judgement of contractors
to perform critical functions. The first is largely a policy and
budget choice; the second raises serious issues about who is in
control and can he held accountable for government.
QIC Evaluation
The Agency indicates that it is well established Federal policy
(OMB Circular A-76, Attachment A) to contract for operation of
libraries, mail rooms, and information systems. We agree and the
report does not, as the Agency indicates, criticize EPA for
contracting out these services. However, the degree of
contracting out of these operations to one contractor with little
or no control of contractor activities goes well beyond the
intent of Circular A-76. The Agency response states: "The
employment of contractors in this role, if accompanied by
appropriate safeguards and judgment in the role assigned to
contractors, is entirely consistent with sound practice." We
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Appendix I
concur with this statement; however, we did not find that such
safeguards and judgment existed in EPA's management of CSC's
contract activities. In fact the Agency's safeguards were eroded
over a long period of time as more and more of the Agency's
functions were turned over to the contractor. In addition, we
only recommended that (l) contractor involvement in critical
activities be reduced along with use of more FTEs with sufficient
expertise in these operations to properly control contractor
operations and (2) the use of multiple contractors for technical
support to reduce the Agency's risk to any one contractor. We
did not recommend that contractors be excluded from these
activities entirely.
We agree that the estimated $4.5 million excess of TOSS contract
rates over FTE costs would be more appropriately classified as
potential savings and the final report has been changed to
reflect this fact. However, we do not agree that there is no
basis for questioning the Agency's non-performance of A-76
analyses. Although, as stated in the report, Circular A-76 does
not require an A-76 analysis for new activities where less than
10 FTEs are affected or for activities historically contracted
out, it does require (1) monitoring of contract cost-
effectiveness which the Agency has not done and (2) comparison to
in-house performance when contract costs appear unreasonable.
The Agency's 1988 survey of EPA's contract managers provided
sufficient evidence that contracting may not be the most cost-
effective approach in certain areas. Based on this study, it
would be reasonable to expect, under current A-76 guidelines,
that the Agency would initiate cost comparisons between contract
and in-house costs for proposed future contracts; however, this
did not occur. At the very least a system for monitoring
contract cost-effectiveness should have been established;
however, again, no such system was implemented.
Agency Comment
2. Contractor Access to Information - The draft audit makes
much of the access of contractor employees to EPA's data bases.
In fact, in this one instance, I believe the draft audit report
is irresponsible in suggesting that it is generally inappropriate
to rely on contractors for computer support on the grounds that
this gives them access to sensitive EPA data. I hasten to add
that I am not referring here to the draft audit report's
discussion of CSC's involvement in the Contract Payment System —
in that case, I agree that the appearance at least is
unacceptable, and as noted above, I am taking action to correct
this situation.
Contracting out system design and support work is
commonplace in both Government and private industry. Banks,
insurance companies and manufacturing concerns follow this
practice, and have for years. EPA's employment of contractors in
this role, if accompanied by appropriate safeguards and judgement
in the role assigned to contractors, is entirely consistent with
sound practice. In order to ensure that EPA practices are in
line with this view, I have asked for a special review to ensure
179 Audit NO. E1NME1-04-0169
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Appendix z
that we apply appropriate security safeguards, including
background checks, when contractors support information systems.
The draft audit leaves the impression that the majority of
EPA data is so sensitive that contractors should either have no
access or only tightly controlled access. The fact is, however,
that nearly all EPA data is freely available to the public upon
request. In fact,"the Agency actively works to disseminate most
of the information it controls. It is also of interest to note
that EPA's most sensitive data, those covered by the CBI
provisions of the Toxic Substance Control Act (TSCA) is handled
by contractors under a specific statutory authorization. These
contractors are subject to careful background checks, and we have
never had a case of unauthorized release by a contract employee.
I do not question your right, or even your responsibility to
provoke a public debate about the wisdom of using contractors to
manage government data; however, I do believe that the draft
audit handling of this very complex issue is incomplete, and
therefore, potentially misleading.
QIC Evaluation
The report does not state or conclude that it is inappropriate
for contractors, in general, to have access to sensitive or
nonsensitive data. This would be impracticable. The report does
conclude that vesting access to the majority of the Agency's
mission-critical systems and information in one contractor
unnecessarily increases the Agency's vulnerability to this
contractor. Also, this vulnerability is compounded when minimum
background checks, routinely required for FTEs, are not required
for the contractor's staff who are developing, operating, and
maintaining the Agency's most critical, high risk information
systems and information processing.
The Agency concludes that since most of the Agency's data is
available to the public, the information is not sufficiently
sensitive to require tightly controlled contractor access.
Although the information in many EPA information systems
available to the public, there is much information in EPA
systems, operated and/or maintained by CSC that is restricted
from public release. This includes much of the financial data in
IFMS and EPAYS and information in enforcement and litigation
systems such as PCS, Docket, and CII (Criminal Investigation
Index) systems. Prior OIG audits of these systems have disclosed
major weaknesses in the security of these systems. Further,
availability of information to the public does not always denote
the criticality of the data to the Agency or the system that
maintains the data. Uncontrolled contractor access, along with
inadequate system security requirements (such as no background
investigations), can result in data alteration and manipulation,
system sabotage, fraudulent activities, unfair contractor
advantage, etc. Any of these activities could result in material
harm to the Agency's ability to properly function or manage
critical program activities. Sensitivity of data to public
release should not be the only criteria for controlled contractor
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access and proper system security.
An example of one DO in our audit sample which we considered as
dealing with sensitive information was DO 8. We considered the
information sensitive because it appeared to give CSC inside
information on future IRM procurements and, therefore, an unfair
competitive advantage. This DO operated in OIRM's MPES office.
This is the office where the TOSS PO works.
The goal of OIRM is to provide the resource and management tools
for the acquisition, development and operation of information
technology and systems in support of Agency missions. A majority
of MPES activity deals with planning and deployment of resources.
This includes the management of the central IRM procurement
process, project and contract plans, Agency Short-term IRM and
Timeshare resources, and other OIRM resources. This is
accomplished under DO 8 through contractor support on three
operating teams. DO tasks being performed by CSC employees
included providing data handling and analytical support
throughout the various phases of the Agency's annual budget
cycle. This data handling included initial receipt of budget
data from the Agency program offices to redistribution of an
automated version of the budget back to the program offices.
Under DO 8, the contractor also provided support for the FOCUS
system, which uses data extracted from ADP systems maintained by
other administrative offices including financial, contract, and
budget information. DO 8 further required the contractor to
provide data handling and document preparation support to service
the daily operational requirements for IRM DO and procurement
request transactions. This support included performance of all
tasks needed to maintain an accurate record (audit trail) of
modifications made to IRM delivery orders. Therefore, the
appearance is created that CSC, through DO 8, has the ability to
access information that would provide them with inside
information on potential future business with EPA - an unfair
competitive advantage.
Agency Comment
3. EPA Expertise to Oversee Contractors - The draft audit offers
the sweeping conclusion that EPA lacks the expertise to oversee
contractor supporting Agency information systems. The report
generalizes based on one example in which it appears that an EPA
employee without expertise in information systems was asked to
oversee work that required it. We are following up on the case
cited to make sure that the unit in question is aware of how to
obtain technical assistance from qualified EPA personnel, and
that the delivery order in question has competent oversight.
The real point is that, although there may well have been an
unwise assignment or DOPO responsibility to a person incapable of
overseeing the work, we do not agree that this one incident
demonstrates that, as an institution, EPA lacks the ability to
plan and oversee this work, whether performed by contractor or
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Appendix I
government employees. EPA has many people who are quite
competent in all information technologies presently in use by
EPA. I respectfully suggest that this aspect of the draft report
be revised to focus on the issue of controlling who is authorized
to issue and oversee technical work.
OIG Evaluation
The Agency concludes that the report "...offers the sweeping
conclusion that EPA lacks the expertise to oversee contractors
supporting Agency information systems." This is untrue. In
Chapter 2 of the report we state: "This [Agency] vulnerability is
compounded by lack of system documentation and EPA technical
expertise in some cases...[emphasis added]." The Agency response
also states that the report only cites one example and that this
example is not representative of contract management as a whole.
This statement is incorrect. The report cites three examples
identified in this audit where we questioned the Agency's
expertise to properly monitor and control the contractor's
operations. These included the VAX system at Gulf Breeze
Laboratory (Delivery Order 101), the VAX system as utilized in
the Workforce 91 operation (Delivery Order 137), and the
inadequately documented Contracts Payment System which was
developed and is operated and maintained by CSC. This audit and
a concurrent audit of EPA computer system integrity identified
numerous other instances, including the large CERCLIS and FATES
systems, where EPA's in-place expertise and, therefore, control
of the contractor's activities was very questionable. This is
not an isolated instance as implied in the Agency's response.
The TOSS CO, SOSM CO, TOSS PO, and the Alternate TOSS PO (later
became PO), all told us the DOPOs did not possess the expertise
to plan and oversee the work (i.e., identify what work they
wanted done) and, in some cases, were not aware of the specific
tasks CSC employees were performing under their DOs, specifically
those that were heavily ADP oriented. These comments, made by
senior contract officials for the TOSS contract, were based on
their direct contact with DOPOs and conclusions reached as a
result of reviews of the DO statements of work. The Alternate PO
and the person assisting her in performing the SOW reviews stated
that the weakest link in the DOPOs ability to prepare SOWs was
their lack of ADP expertise.
Also, the CSC Program Manager confirmed to us that the DOPOs
lacked technical expertise. She said the SOWS were not
sufficiently defined. She further stated that if another
contractor walked in to take over, they couldn't do the work with
the existing SOWs. She said CSC can do the work because they
have been doing it for so long. Finally, the Chief,
Administrative Contracts Procurement Section, summed up the DOPOs
expertise this way: "They are ignorant [techinically ignorant]."
He said they cannot go to contract management training courses
for 5 days and know everything. He said generally the
information taught in the project officer course "goes in one ear
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and out the other."
Finally, the Agency's response indicates that EPA has many people
who are quite competent in all information technologies. We can
not verify this fact. However, we can state that these competent
personnel were not the assigned project officers in the three
systems cited in the report. We were informed during the audit
that EPA had one or two employees at RTP that were competent in
the VAX system. At least one DOPO we interviewed was not aware
that such expertise existed within EPA. The Agency seems to
imply that this limited expertise gave them adequate control over
the contractor's operation of the VAX at many different
locations. However, proper contractor monitoring and control of
system operations can not be done by remote control. Contract
management is a day-to-day task. The on-site manager must have
the capability to properly monitor and control contractor
activities.
Agency Comment
4. Over-reliance on Contractors - The draft audit asserts that
EPA is so reliant on CSC that we could not survive without them.
This is simply not true, and the draft presents no evidence of
this except the quote of one, unidentified EPA official. The
mistake made by the draft audit is the failure to distinguish
between numbers and expertise. We do not depend on the current
level of contractor support to maintain the Agency's current
level of activity and productivity. We do not depend on CSC's
expertise, or that of any other single contractor, to operate the
Agency's critical systems in the event of a sudden loss of CSC
services — so long as we are allowed to act promptly to replace
CSC with either another contractor or government employees.
To ensure that we are absolutely prepared to face even the
sudden loss of CSC services, and those of other contractors
involved in the operating critical EPA systems, I have directed
that contingency plans be prepared for all critical
administrative systems (e.g., payroll, finance, etc.). These
plans are being developed now, and will be available for review
later this fiscal year.
OIG Response
Although the draft report does conclude that the Agency is
overdependent on CSC for mission-critical functions, we do not
emphatically state the Agency would not survive, in the long-run,
without CSC. The Agency's response is apparently based on the
quote of a senior OIRM manager concerning the Agency's reliance
on the contractor. The Agency also emphasizes that this is the
quote of only one EPA official. However, we only quoted one
official for conciseness. We received the similar statement from
numerous DOPOs, EPA managers, and contract management officials
interviewed. This was a prevalent opinion among many EPA
managers at various levels of the Agency.
Although we do not emphatically .state that EPA would not survive
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Appendix I
without CSC, we do conclude that due to CSC's extensive
involvement in so many mission-critical systems, the ability of
the Agency to perform its critical missions without CSC over the
short-run would be seriously impaired. The Agency has stated in
several instances that EPA possesses technical expertise in all
of the information technologies the Agency possesses and
maintains. We can not verify this statement since determining
the existence of such expertise EPA-wide was not an objective of
our audit. However, DOPOs we interviewed during the audit did
not believe that such expertise existed and we do not believe
that EPA currently possesses the number of employees with such
expertise in the individual systems to operate and maintain, on a
moments notice, the 30 plus major systems in which CSC is
extensively involved. These FTEs would have to operate these
numerous systems for many months until new FTEs are hired and
trained or a new contract is awarded. This belief is also
supported by the fact that many of these systems do not have
current, up-to-date documentation on which these EPA experts
could learn the operation of the individual systems. This could
require the presence of CSC staff to train the EPA staff in the
system's configuration, data elements, record layouts and fields,
report output, etc. We look forward to reviewing the contingency
plans mentioned in the Agency response to see how this enormous
task would be accomplished if CSC suddenly withdrew EPA
operations.
At least six of the 26 DOPOs we. interviewed stated that their
offices or programs could not function without CSC and that there
were no EPA personnel trained to perform the CSC's tasks.
Twenty-three of the 26 DOPOs in our sample stated that tasks
performed by CSC were critical or very critical to accomplishment
of the Agency's mission. DOPOs we interviewed emphasized that
the lack of contractor employees would severely impair their
ability to accomplish their mission. For example on DO 23, the
DOPO stated that many actions under TSCA CBI program require some
action be taken within 90 days; without the CSC staff, the
current EPA staff could do the job for maybe a week, with
substantial overtime. Under DO 10, the work performed by CSC
staff is mandated by the Clean Air Act. The DOPO for DO 39
stated that last year the records compiled by CSC on his DO were
used to recover $320 million. The DOPO for DO 125 stated that
if CSC did not provide them support, the volume of late payments
would increase from under five percent to eighty percent,
resulting in higher interest costs and the loss of discounts.
Also, the Prompt Payment Act would be violated. In virtually
every case, DOPOs stated that efficiency would significantly
drop, and office operations would be severely hampered. As one
DOPO stated: "We are very dependent on these guys. That is not a
good position to be in."
Agency Comment
5. Anti-deficiency Violations - In concert with the Office of
the General Counsel and the Comptroller, we have carefully
examined Agency policy regarding severable services and bona fide
need as applied to the TOSS delivery orders cited in the audit.
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We have determined that these policies are valid, and were
correctly applied in the cases cited. Thus, I must conclude that
the audit findings of anti-deficiency violations are incorrect
due to a misunderstanding of the statute or a misapplication of ,
the statute to the specific facts.
Since anti-deficiency violations, even if inadvertent, are a
very serious matter, I have directed that a further review be
made of all TOSS delivery orders to ensure that they are in
specific compliance with applicable law. Any violation found
will be reported as required under the statute.
OIG Evaluation
The Agency's response states the EPA's OGC and Comptroller
examined the Agency's policies regarding severable services and
bona fide need and determined the policies are valid and,
therefore, the Agency could only conclude the findings of
antideficiency violations are incorrect due to a misunderstanding
of the statute or a misapplication of the statute to the specific
facts. This response provides no specifics, therefore, we can
not properly respond to the Agency's position. The response does
not even address how the applicable statutes were misunderstood
or misapplied. We did not take exception to any EPA policies
related to severability and bona fide need determinations except
for certain guidance in the TOSS User's Guide. Based on our
research of the applicable statutes and CG determinations,
detailed review of the transactions involved, and insufficient
explanation from the Agency, we continue to conclude that bona
fide needs and related Antideficiency Act violations did occur.
The Antideficiency Act and CG guidelines require that each
individual potential violation has to be evaluated based on the
specific circumstances related to the case. We find no evidence
of such a detailed explanation for each transaction in the
Agency's response. We do note what appears to be blanket
evaluation of all of the potential violations cited based on the
fact that certain "unspecified" policies have determined to be
valid by the EPA OGC and Comptroller.
In order to resolve this issue, we need specific information as
to (1) what policies were determined to be valid by the OGC and
Comptroller and what was the legal basis for this determination,
(2) on what basis was each cited DO determined not to represent
continuing support services and, therefore, nonseverable, (3) on
what legal precedent or statute was such a determination made,
(4) what were the specific deliverables or end-products for each
DO upon which a nonseverable determination was based, (5) on what
basis was issuance of DO No. 1, obligating expiring
appropriations for next year's needs, not a violation of both the
CG's bona fide needs rule and the Antideficiency Act, and
finally, (6) how was the cited statute and prior CG decisions
misunderstood or misapplied. Resolution of these concerns may
ultimately require a definitive decision by the CG on each
individual case to preclude future misunderstandings or
misapplications of the applicable statutes.
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Appendix Z
Aaencv Comment
6. DOPO Financial Oversight Responsibilities - The draft audit
appears to expect DOPOs to exercise oversight of contractors in a
manner that is at odds with Federal policy. More specifically,
the draft is critical of DOPOs for failure to examine contractor
financial records, and even suggests that OOPOs keep separate
time and attendance records for CSC employees. As I am sure you
know, it is both inappropriate and impractical for DOPOs to
perform these activities. Examination of contractor financial
records is the responsibility of qualified Federal auditors, or
if that is not possible, PCMD's cost review staff. DOPOs are
neither competent nor authorized to conduct such examinations.
Duplicate timekeeping would be enormously wasteful, and almost
certainly an inappropriate activity for DOPOs.
DOPOs are expected to be sufficiently expert in the
contractor activities they oversee to judge whether the
Government is receiving sufficient value for its money. If they
do not feel this is true, they are expected to be able to
tentatively identify the reasons —- incompetence, inadequate
effort, etc. — and then take appropriate action. If they
suspect what amounts to false billing — i.e., billing for idle
time — they are to report this to the Contracting Officer who
has the authority to order an audit of the contractor's
timekeeping records or, failing that, halt work by the contractor
until the matter is cleared up. The report does a disservice to
already stretched DOPOs by asserting that they have
responsibility for validating contractor timekeeping and other
financial records.
As you know, in response to the enormous backlog of audits
to be performed by your office and DCAA, we have established our
own Financial Management Review program in PCMD to perform "mini-
audits" when we suspect accounting problems or feel that the
Government is especially vulnerable due to the size or nature of
a contract. We feel it"would be appropriate for the draft audit
to at least mention the FMR program, which I understand is nearly
unique in the Federal Government. It might also be appropriate
to include mention of the FMR made to resolve concerns about
CSC's billing practices while we wait for DCAA to catch up with
he audit backlog. Mention of this would provide a more balanced
view of EPA's efforts to guard against waste and abuse in the CSC
contract.
OIG Evaluation
The Agency states that the report (1) expects DOPOs to oversee
contractors in a manner contrary to Federal Policy and (2)
suggests that DOPOs keep time and attendance records and perform
reviews of contractor financial records. The Agency response
does not specify what Federal policy the report contradicts so we
can not respond to that comment; however, the report never
suggests that the DOPO should maintain detailed time and
attendance records. Also, we can not find any statement in the
report suggesting DOPO reviews of contractor financial1records.
186 Audit No. E1NME1-04-0169
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Appendix I
Unless the Agency is referring to the contractor's progress
reports which are not CSC financial records but monthly reports
prepared by CSC for EPA on each DO as.required in the TOSS
contract.
We do recommend that the DOPO maintain some type of surveillance
system to independently verify contractor labor hours. This is
no more than already specified in the Contracts Administration
Manual and OMB procurement policies. A March 15, 1991, OMB
Memorandum for Agency Senior Procurement Executives concerning
contract management and administration provided the following
guidance:
Federal agencies should place greater emphasis on the
development and use of a quality assurance surveillance
plan (surveillance plan) where the contract requires
administration by government personnel [i.e., TOSS on-
site ID/IQ operations]. A well developed surveillance
plan provides a systematic method to evaluate services
the contractor is required to furnish rather that the
details of how the contractor accomplishes the work.
This may include some type of sign-in/sign-out records if the
DOPO thinks it necessary or it may only consist of DOPO
occasional visits to all contractor locations to observe the
contractor's operations and note absentees. A few of the DOPOs
we interviewed during the audit already maintained sign-in/sign-
out sheets or had some other type of surveillance plan. However,
most DOPOs had no surveillance plans and, in some cases, did not
even check the contractor's progress reports against the invoices
received. This is the customary, minimum control most DOPOs
utilized.
Section 6.3 of the TOSS contract's statement of work states that
the DOPO is responsible for inspection and acceptance of contract
deliverables/services. He is responsible for ensuring the
contractor accomplishes technical services specified in his DO.
According to the contract, the DOPO monitors contractor labor
categories and hours authorized by the DO and reports any
diversions to the PO for investigation and resolution. The DOPO
is charged by the contract to review invoices and resolve any
questionable charges with the contractor, the PO or the CO.
Additionally, DOPOs certify, when they sign the individual DO
invoices, that they have either received the services billed for
or that adequate progress has been made on the work under the DO.
The audit emphasizes that DOPOs, by their own admission,
exercised this responsibility without sufficient and/or
independent verification that they had received services as
billed.
The Agency further states that DOPOs are expected to be
sufficiently expert in the contractor activities they oversee to
judge whether the Government is receiving sufficient value for
its money. Since the deliverable under the majority of TOSS DOs
is not a specific, end-product, but labor hours,, we can not
187 Audit No. E1NME1-04-0169
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Appendix I
understand how a DOPO, even with sufficient expertise, can
oversee the contractor's activities and judge the value received
by the Government based on a progress report prepared by the
contractor since the value received is primarily labor hours.
There must be some type of surveillance of the contractor's
activities to ensure, to some degree, that the labor hours
charged are reasonable. Even if a DOPO is an expert in some of
the contractor's operations (and many are not), we do not believe
he can judge with any certainty the exact hours it takes to
perform a specific task. If DOPOs are expected to be expert
enough to know the labor categories and labor hours needed for
particular tasks, then most DOs should be fixed price not ceiling
priced. However, fixed price DOs are rarely requested. DOPOs
would have to possess this capability to ensure proper contractor
billing without a surveillance plan.
The Agency's response states that if DOPOs suspect false billing,
they are to report this to the CO. How is the DOPO to suspect
such false billing if he only compares one contractor record
(progress report) to another (the invoice) to ensure proper
billing? Neither the Financial Management Review program nor an
audit of the contractor's records will identify such erroneous
billing as "idle time." Reviews and audits can only assure that
the contractor has adequate support for hours billed not whether
the hours were legitimate charges. Only the on-site contract
manager can identify this problem.
Finally, the Agency response indicates that the report does
disservice to DOPOs by asserting they have the responsibility for
validating contractor timekeeping and other financial records.
As previously stated, we did not recommend that DOPOs validate
contractor timecards or other financial records; however, the
TOSS contract does delegate the authority to review and validate
contractor invoices from the CO to the DOPO. This authority
carries the responsibility to ensure the reasonableness of these
invoices through surveillance or other techniques for monitoring
contractor operations.
Agency Comment
As I believe you know, I have assigned the very highest
priority to addressing the CSC audit findings, both the specific
findings of violations and the conclusions about fundamental
problems in EPA contract management. I am committed, as I know
you are, to ensuring that EPA's credibility — which is
absolutely vital to our success in protecting human health and
the environment — is above reproach. I look forward to working
with you toward this common goal.
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Audit NO. E1NME1-04-0169
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Appendix I
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Appendix I
regulations is at odds with any reasonable notion of quality.
EPA can and should be a model public institution; we must pursue
this goal in contracts management with the same fervor we apply
to science and environmental regulation.
Changing deeply embedded attitudes such as those reported by
the Inspector General will require a long term effort at all
levels of EPA. To begin this effort, I am organizing a Standing
Committee on Procurement to define essential reforms and ensure
their implementation. I will chair this committee, with Ed
Hanley, my deputy, and Anna Virbick, Deputy Inspector General, as
my co-chairs. I will announce the full membership and charter of
this committee by a separate memorandum in the very near future.
We shall not respond to criticism with a' flurry of short
term corrective actions, only to have the problem crop up in the
future. To avoid this mistake, the Standing Committee will
approach its work using fact-based management-, joint problem
solving, and a commitment to continuous improvement, the tools of
Total Quality Management and the keys to long term, fundamental
change.
Although our real goal must be long term improvement, we
have an obligation to act quickly and decisively to correct the
real and potential abuses reported by the Inspector General, or
risk the loss of public credibility. Therefore, with the
concurrence of the Administrator, I am taking the following
actions: '
1. Management Accountability - The Inspector General's report
on CSC portrays a complex array of hard-working EPA staff (e.g.,
Project Officers, Delivery Order Project Officers, Alternate
Delivery Order Project Officers, Work Assignment Managers, etc.)
struggling to do their work in a very complicated, system, without
sufficient constructive involvement by the Agency's senior
managers. This disturbing picture is reinforced by the fact
that, while we have trained more than 2,000 project officers each
year since 1986, widespread problems persist.
The pattern reported by the Inspector General suggests that
EPA's senior executives must improve in leading, counseling and
setting expectations for staff who carry out contract management.
To ensure that we make these improvements, the following actions
are required:
o You are to designate a single SES-level manager, who
reports directly to you, to serve as "Senior
Procurement Officer" with full responsibility for the
effectiveness and integrity of all procurement
activities in your office. Separate, on-site Senior
Procurement Officers are to be designated for each EPA
208
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Appendix I
laboratory or major EPA field site. The names of the
Senior Procurement Officers are to be provided to ae no
later than March 15, 1992. After March 15, OAFM will
rely on your Senior Procurement Officers as the single
focal point for procurement authority and
accountability in your office. We will meet with the
Senior Procurement Officers in early April to work out
the details of this new arrangement.
o Every member of the Senior Executive Service in EPA
must complete a special seminar on their role and
responsibilities in contract management, by the end of
FY 1992. This course is to be developed and delivered
by career EPA Senior Executives. Development and
delivery of this seminar will be the first order of
business for the Standing Committee discussed above.
Beginning in October, 1992, we will not process
procurement actions from organizations headed by SES
members who have not completed this seminar
successfully.
2. Clear Distinction Between Contractors and EPA - We value the
contribution of private contractors to EPA's work. However, we
must recognize that contractors are not part of "the EPA family".
We who are EPA employees have chosen public service and have
taken an oath to serve the interests of the American people.
Contractors and their employees have made a different choice, and
if we forget th'is critical distinction, we risk our credibility,
we dilute essential management controls, and we invite the abuses
alleged in the CSC audit report.
To make crystal, clear the distinction between EPA employees
and contractors, I ask that each of you ensure that:
o All contract employees have and wear identification
that is visibly distinct from that of EPA employees.
This must be in place at all EPA sites within 90 days.
o Contract employee workspace is to be physically
segregated from EPA employee workspace whenever
possible. I would like each of you to conduct an
immediate review of contractors who occupy EPA space to
determine what steps are needed to separate them more
clearly from EPA employees, and which can eventually be
moved to their own space.
o We are not in the business of training or entertaining
contractors. Contractors may not be trained at EPA
expense beyond what is required by their contract, they
may not participate in EPA events such as awards
ceremonies, they may not attend EPA staff meetings and
209
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Appendix I
conferences except in a specific, defined role (e.g.,
deliver briefing), and they may not be assigned
positions in which they can be mistaken for government
employees by the public or by EPA staff. Please take
steps immediately to ensure that all contractor
operations under your supervision meet these standards.
o An immediate review is made of all contract personnel
assignments to ensure that there are no assignments or
circumstances which violate the ban on personal
services, or are particularly vulnerable"to violations.
Violations are to be corrected immediately, even if
doing so requires termination of the contract support.
3. Contract Policy Review - It is time to re-think our current
reliance on very large, long term "mission11 contracts. Although
invaluable in many respects, these contracts tax our capacity to
administer large numbers of individual task orders. No clearly
superior alternative has been put forward, but we can no longer
ignore the troubling questions about our current strategy.
Moreover, we should all be deeply offended by the allegations
that have grown up around these contracts, allegations that
incumbent contractors have an "inside track" at EPA and that we
are so dependent on certain contractors that we can no longer
function without them. These allegations are not true, but the
mere perception that they are is terribly harmful to EPA.
To resolve questions about EPA's current procurement
strategy, I have asked the General Counsel and the Inspector
General to join me in conducting a thorough review of this
strategy to determine whether it provides an appropriate balance
between program performance, administrative efficiency and
management integrity. I expect to issue an initial report on
this issue within 120 days.
4. Organizational Accountability - A great many EPA offices
manage contracts with integrity and effectiveness. In fact, I
have visited several such offices in the past week, such as EPA's
Region 5 and the 0ARM'S RTP office. There always seem to be a
few organizations, however, that are plagued by chronic problems,
either because they lack the capacity to manage contracts or fail
to realize the importance of doing so well. Whatever the reason,
we simply cannot tolerate chronic weaknesses in contract
management — it threatens the credibility of the entire Agency.
To address this problem, I am working with the Inspector
General to define criteria and a process to monitor the overall
health of the contracts management function in individual EPA
organizations and to remove the procurement authority of offices
when appropriate. The Deputy Administrator recently demonstrated
the.effectiveness of this approach by directing OARM to assume
210
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Appendix I
another office's contract management functions when it became
apparent that action was required to reverse a history of
contract management problems. This approach is extreme and,
hopefully, will be rarely needed. However, having this process
defined and understood is an important way for EPA to demonstrate
that we do insist, ultimately, on quality and integrity in
contract management.
5. pj.evation of the Agency's Procurement Functions - I have
decided to elevate and focus accountability for the Agency's
procurement functions by having such functions report directly to
me. This step has been proposed many times over the years, most
recently by the ARCS Task Force in November, 1991. It is time to
stop studying this proposal and do it. Therefore, I will submit
an interim reorganization proposal to the Deputy Administrator
within 30 days, and complete a final proposal for Agency review
by the end of June, 1992.
I know that you share with me an absolute commitment to
ensuring that EPA is an institution with credibility, integrity,
and an abiding commitment to quality. I look forward to speaking
to each of you personally about these matters in the very near
future, and I know I can count on your support and advice in
addressing both the immediate and long term reforms required to
ensure the integrity of EPA contract management.
cc: All Agency Personnel
211
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Appendix I
212
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Appendix I
ATTACHMENT C
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
MAR i 0 tffl?
THE ADMINISTRATOR
MEMORANDUM
SUBJECT: Contract Management Review
TO: Assistant Administrators
Regional Administrators
General Counsel
Inspector General
Associate Administrators
In light of recent events concerning significant problems with the management of several
of the Agency's contracts, the Agency is undertaking a thorough review of the strengths and
weaknesses of the Agency's contract and project management efforts.
On April 2, 1992 I will be meeting with all Assistant Administrators, Regional
Administrators, Associate Administrators and other senior officials to discuss our present and
planned efforts to strengthen contract management In this regard, by March 26,1992, we will
need an assessment of all present or potential problems falling within your purview related to
contract and project management. By March 26, we will also need from you a proposed plan
of action to address any present and potential problems you have identified.
My concerns about contract management are not limited to the specific contracts
identified in recent hearings, but extend to all of our contractual relationships.
The Inspector General's reports make a convincing case that the Agency's internal
management of contracts has been inadequate. I understand the Inspector General believes that
this inadequacy applies to contract and project management at large throughout the Agency. In
particular, the Inspector General believes we may not be receiving appropriate value from our
213
-------
Appendix I
contracts due to an Agency culture, built up over the last 20 years, which does not assign a high
priority to contract management. In this regard, I expect you to cany out all of the actions
identified in Christian Holmes' attached memorandum which deals with immediate steps to
change this situation. We will not tolerate even the appearance of inadequate management of
contracts.
You should submit your assessment directly to me. Armed with these facts, I will ask
Hank Habicht and Christian Holmes to oversee an effort involving all offices in the Agency to
ensure that the quality of contract management at EPA is second to none. I view this matter
with the utmost seriousness. If we deal with it effectively it presents an opportunity to improve
permanently our effectiveness. My thanks for your immediate attention.
William K
cc: Hank Habicht
Deputy Administrator
Christian R. Holmes
Acting AA/OARM
Attachment: C. Holmes 2/28/92 Memo Re:
Contracts Management
214
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Appendix I
ATTACHMENT D
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
3 i££
OFFCEOF
ADMINISTRATION
ANDRESOUCES
UUMGEMEK"
Mr. Peter Cahn
President
Applied Technology Division
Computer Sciences Corporation
6565 Arlington Boulevard
Falls Church, VA 22046
Dear Mr. Cahn:
During our February 27, 1992 meeting, I informed you we will
be considerably tightening up our management of the CSC TOSS
contract.
I have completed a thorough review of the EPA Inspector
General's audit report on the TOSS contract and have discussed it
at length with the Inspector General. In addition, this morning,
I was personally briefed by the Defense Contract Audit Agency
(DCAA) on a history of serious deficiencies in CSC's accounting
system. I am deeply disturbed by what X heard.
It is quite clear to me that the deficiencies cited by DCAA
have persisted for far too long. The time for discussing these
problems is past. They need to be corrected, once and for all. In
my capacity as EPA's Acting Chief Financial Officer and Acting
Assistant Administrator for Administration and Resources
Management, I request that CSC take immediate and-unequivocal steps
to fix all the accounting issues raised by DCAA.
I gather from DCAA that you have recently been making progress
in improving your accounting, however;- the one matter which has
been of most concern for almost four years,' namely labor
adjustments, remains unresolved. While I hope you will be able to
meet DCAA's requirements, I feel I must clearly inform you of our
intentions should you not proceed accordingly.
In this regard, I request that you deliver to me and DCAA
personally, a plan for correcting this unacceptable situation. I
expect to see the plan by no later than April 30, 1992. If I do
not receive such a plan by April 30, I intend to commence whatever
actions are necessary and legal to withhold payments to CSC and
freeze issuance of work to CSC until I am absolutely convinced that
215
-------
Appendix X
CSC has corrected the deficiencies and demonstrates seriousness in
preventing their reoccurrence. My decision to withhold payments
and freeze issuance of work will be contingent upon the
acceptability of your plan to EPA and DCAA.
In addition to the above, I want you to know that I expect you
to also assign high priority to the negotiation between EPA and CSC
to determine consideration to the government for all waivers of
labor category qualifications issued under this contract. In-this
regard, I have asked that Mr. David O'Connor, of my staff, to bring
this matter to conclusion by April 30, 1992.
Sincerely,
—Christian R. Holmes
Acting Assistant Administrator
cc: Mike Thibault
Deputy Regional Director
Defense Contract Audit Agency
216
-------
Appendix zz
GLOSSARY OF ACRONYMS AND ABBREVIATIONS
ADOPO - Alternate Delivery Order Project Officer
ADP - Automatic Data Processing
AICR - Alternate Internal Control Review
CAP - Contractor Acquired Property
CFR - Code of Federal Regulations
CO - Contracting Officer
CSC - Computer Science Corporation
DCAA - Defense Contract Audit Agency, DOD
DO - Delivery Order
DOD - Department of Defense
DOPO - Delivery Order Project Officer
DPA - Delegation of Procurement Authority
EPA - Environmental Protection Agency
EPAYS - EPA Payroll System
FAR - Federal Acquisition Regulations
FFIS - Federal Facilities Information System
FIRMR - Federal Information Resources Management Regulations
FMFIA - Federal Managers' Financial Integrity Act of 1982
FMS - Financial Management System
FMSD - Facilities Management and Services Division, EPA
FTE - Full-Time Equivalent
GAO - General Accounting Office
GFP - Government Furnished Property
GP - General Programming
ICR - Internal Control Review
ID/IQ - Indefinite Delivery, Indefinite Quantity type contracts
IFMS - Integrated Financial Management System {j
LAN - Local Area Network
MATS - Management Audit Tracking System
MCP - Management Control Plan
MOSES - Mission Oriented Systems Engineering Support
MPES - Management Planning and Evaluation Staff, OIRM
NCPS - National Contract Payments System
OARM - Office of Administration and Resources Management, EPA
ODCs - Other Direct Costs
OIG - Office of Inspector General, EPA
OIRM - Office of Information Resources Management, EPA
OMB - Office of Management and Budget
PCMD - Procurement and Contracts Management Division, EPA
PMO - Program Management Costs (CSC)
PO - Project Officer
PPAS - Personal Property Accounting System
RACF - Resource Access Control Facility software
RFP - Request for Proposal
RTP - Research Triangle Park, North Carolina
SASLAS- Scientific Applications, Statistics, and Laboratory
Automation Support contract
SOSM - Systems Operations' and Software Maintenance contract
SOW - Statement of Work
TOSS - Technical and Operations Support Services contract
217
Audit No. E1NME1-04-0169
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Appendix ZZ
(This page intentionally left blank.)
218 Audit MO. E1NME1-04-0169
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Appendix ill
SAMPLE OF TOSS DELIVERY ORDERS AUDITED
LOCATION
National DOs
Washington, D.C.
Headquarters DOs
Washington, D.C.
Research Triangle
Park, North
Carolina
Region 6
Dallas, Texas
DO NO.
039
070
075
093
008
023
036
119
134
137
010
117
124
125
148
027
080
114
115
151
156
TITLE
OER/OPM-CERCLIS Data Management Supp
OPTS/OCM-Data Entry/Data Mgt for FATES/FTTS
EN/OCAPO-Enforcement Data System
OARM/OC-Superfund Document Files, Dev, Maint .
OIRM/MPES-General ADP Contract Support
OTS/IMD-TSCA Confidential Business Info Center
OPP/PMSD-Programming and Operations Support
OW Enforcement/Compliance Office Auto/LAN Supp
OSWER/OWPE-Onsite Supp for Cost Repvery
ORD Workforce '91 Report
ORD/AREAL-ADP Software and Operations Support
OARM/NDPD-Western US Telecommunications Supp
ORD/HERL-CMPU Prog Supp for Mgt Info Sys/MGRG
OARM/NCPD-Supr Cost Recovery Image Proc
Tech Supp for OIRM Unix Impact on VAX/VMS
Region 6/NPDES Permits Enforcement Data Mgt
Region 6/Data Mgt Supp for Superfund
Region 6/CSS Assistance Branch ADP Support
Region 6/Financial Branch ADP Support
Region 6/Management Support
Region 6 Financial Mgt ADP Support
DOLLAR
VALUE 1/
$5,229,017
$326,644
$637,625
$2,072,703
$283,806
$1,231,279
$239,810
$62,282
$115,639
$67,362
$784,756
$7i;090
$162,480
$95,004
$94,786
$133,175
$56,893
$338,124
$34,134
$73,467
$107,108
STAFF
CSC SUB
20
29
102
9
43.
9
2 8
2 5
3
24
1
7
7
3
8
9
5
3
7
219
Audit No. E1NME1-04-0169
-------
Region 9
San Francisco,
California
069 Region 9/FTS Mgnt for PCDE PRDN & FIFRAfTSCA
097 Region 9/HWMD-Superfund Program Supprt
099 Region 9/IRM-Facilities Mgt Tech Oper Sys Supp
Appendix I
$547,324 S
$20,074 1
$550,396 19
ORD Laboratory
Corvallis, Oregon
110 ORD/OEPER-ADP for Envl Res Lab-Corvallis
$348,530
11
ORD Laboratory
Gulf Breeze,
Florida
101 ORD/OEPER-ADP Supp Envl Res Lab-Gulf Breeze
$404,339
18
$14,087,847 474
1/ DO value and CSC Staff obtained from CSC TOSS Contract Management Report
for September 1991 except for DOs 114 and 115 that expired 3/30/91
and DOs 119 and 134 that were a subcontracted DOs. Information on DOs 114 and 115
from CSC TOSS Financial Report for October 1991 and OIRM records.
Information for DOs 119 and 134 were obtained from summary workpapers for DO audit.
CSC Staff and subcontractor staff shown represent full-time and part-time
staff potentially charging to these DOs. The number of subcontractor staff
was estimated based on the number of labor categories and hours allocated
to the respective DOs for subcontractor technical labor.
13
220
Audit No. E1NME1-04-0169
-------
Appendix IV
§
CO
(0
I
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I
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x
5
IV
!x
221
E1NME1-04-0169
-------
Appendix IV
222
E1NME1-04-0169
-------
Appendix V
EPA MANAGEMENT OF THE TOSS CONTRACT
FINDINGS
NUMBER OF DOS
CONTRACT MANAGEMENT
Prohibited Contractor Assistance with DO 18
Inadequacies in SOWs 18
No/Inadequate DO Acceptance Criteria 22
Prohibited/Vulnerable Activities 17
GFE Not Listed in DO 24
Inadequate Assistance from PCMD/OIRM 13
Work Outside DO/TOSS SOWs 13
Inherently Governmental Functions 12
No Review of Contractor Qualifications 15
No Independent Records to Verify Invoices 22
Access to Sensitive Agency Information 22
technical Direction Not Documented • 17 •
Oversight Other Than DOPO 14
No Copy of TOSS Contract 17
DOPO Performance Standards Did Not Include 10
Criteria on Contracting Duties
INDICATORS OF PROHIBITED PERSONAL SERVICES 25
. EPA Assumed Supervisory Responsibilities 23
CSC STAFF DID NOT MEET CONTRACT REQUIREMENTS 19
TRAVEL/TRAINING/IDLE TIME
Unallowable/Unapproved Training 19
Idle Time 16
223
Audit NO. E1NME1-04-0169
-------
Appendix V
EPA MANAGEMENT OF THE TOSS CONTRACT
REGION 6
FINDINGS
DELIVERY ORDER NUMBER
027 080 114 115 151 156 TOTALS
CONTRACT MANAGEMENT
Prohibited Contractor Assistance with DO
Inadequacies in SOWS
No/Inadequate DO Acceptance Criteria
Prohibited/Vulnerable Activities
GFE Not Listed in DO
Inadequate Assistance from PCMD/OIRM
Work Outside DO/TOSS SOWs
Inherently Governmental Functions
No Review of Contractor Qualifications
No Independent Records to Verify Invoices
Access to Sensitive Agency Information
Technical Direction Not Documented
Oversight Other Than DOPO
No Copy of TOSS Contract
DOPO Performance Standards Did Not Include
Criteria on Contracting Duties
INDICATORS OF PROHIBITED PERSONAL SERVICES
EPA Assumed Supervisory Responsibilities
CSC STAFF DID NOT MEET CONTRACT REQUIREMENTS
TRAVEL/TRAINING/IDLE TIME
Unallowable/Unapproved Training
Idle Time
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X X
X X
X X
X
X X
X
X
X X
X X
X
X
X X
X X
X X
X
X X
X
X X
6
6
6
5
6
4
4
4
2
5
6
5
5
6
4
6
5
4
4
6
224
Audit MO. E1NME1-04-0169
-------
Appendix V
EPA MANAGEMENT OF THE TOSS CONTRACT
REGION 9
FINDINGS
DELIVERY ORDER NUMBER
069 097 099 TOTALS
CONTRACT MANAGEMENT
Prohibited Contractor Assistance with DO
Inadequacies in SOWs
No/Inadequate DO Acceptance Criteria
Prohibited/Vulnerable Activities
GFE Not Listed in DO
Inadequate Assistance from PCMD/OIRM
Work Outside DO/TOSS SOWs
Inherently Governmental Functions
No Review of Contractor Qualifications
No Independent Records to Verify Invoices
Access to Sensitive Agency Information
Technical Direction Not Documented
Oversight Other Than DOPO
No Copy of TOSS Contract
DOPO Performance Standards Did Not Include
Criteria on Contracting Duties
INDICATORS OF PROHIBITED PERSONAL SERVICES
EPA Assumed Supervisory Responsibilities
CSC STAFF DID NOT MEET CONTRACT REQUIREMENTS
TRAVEL/TRAINING/iDLE TIME
Unallowable/Unapproved Training
Idle Time
X
X
X
X X
X X
X X
3
3
3
X
X
X
X
X
X
X
X
X
X
X
X X
X
X X
X X
X X
X
X X
X X
X
X
X X
3
2
3
3
3
1
1
3
3
2
2
3
225
Audit NO. E1NME1-04-0169
-------
Appendix V
EPA MANAGEMENT OF THE TOSS CONTRACT
RTF
FINDINGS
DELIVERY ORDER NUMBER
010 117 124 125 148 TOTALS
CONTRACT MANAGEMENT
Prohibited Contractor Assistance with DO
Inadequacies in SOWs
No/Inadequate DO Acceptance Criteria
Prohibited/Vulnerable Activities
GFE Not Listed in DO
Inadequate Assistance from PCMD/OIRM
Work Outside DO/TOSS SOWs
Inherently Governmental Functions
No Review of Contractor Qualifications
No Independent Records to Verify Invoices
Access to Sensitive Agency Information
Technical Direction Not Documented
Oversight Other Than DOPO
No Copy of TOSS Contract
DOPO Performance Standards Did Not Include
Criteria on Contracting Duties
INDICATORS OF PROHIBITED PERSONAL SERVICES
EPA Assumed Supervisory Responsibilities
CSC STAFF DID NOT MEET CONTRACT REQUIREMENTS
TRAVEL/TRAINING/IDLE TIME
Unallowable/Unapproved Training
Idle Time
226
X
X
X
X
X X
X
X X
X X
X
X X
X X
X
X
X X
X
X
X X X X
XXX
X X
2
1
4
1
4
2
4
3
1
2
3
1
4
3
2
: x x x 4
X 1
Audit No. E1NME1-04-0169
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Appendix V
EPA MANAGEMENT OF THE TOSS CONTRACT
NATIONAL/LABORATORY DOS
FINDINGS
DELIVERY ORDER NUMBER
039 070 075 093 101 110 TOTALS
CONTRACT MANAGEMENT
Prohibited Contractor Assistance with DO
Inadequacies in SOWs
No/Inadequate DO Acceptance Criteria
Prohibited/Vulnerable Activities
GFE Not Listed in DO
Inadequate Assistance from PCMD/OIRM
Work Outside DO/TOSS SOWs
Inherently Governmental Functions
No Review of Contractor Qualifications
No Independent Records to Verify Invoices
Access to Sensitive Agency Information
Technical Direction Not Documented
Oversight Other Than DOPO
No Copy of TOSS Contract
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X X
X X
X
X X
X X
X X
X
X
X X
X X
X X
X
"X
5
6
6
5
6
6
6
5
4
6
6
6
5
5
DOPO Performance Standards Did Not Include
Criteria on Contracting Duties
INDICATORS OF PROHIBITED PERSONAL SERVICES
EPA Assumed Supervisory Responsibilities
CSC STAFF DID NOT MEET CONTRACT REQUIREMENTS
TRAVEL/TRAINING/IDLE TIME
Unallowabie/Unapproved Training
Idle Time
* DOPO had partial copy.
227
X X X X X X 6
X X X X X X 6
X X X X X X 6
X X X X X X
X X X X X X
Audit NO. E1NME1-04-0169
6
6
-------
Appendix V
EPA MANAGEMENT OF THE TOSS CONTRACT
HEADQUARTERS
DELIVERY ORDER NUMBER
FINDINGS
CONTRACT MANAGEMENT
Prohibited Contractor Assistance with DO
Inadequacies in SOWs
No/Inadequate DO Acceptance Criteria
Prohibited/Vulnerable Activities
GFE Not Listed in DO
Inadequate Assistance from PCMD/OIRM
Work Outside DO/TOSS SOWs
Inherently Governmental Functions
No Review of Contractor Qualifications
No Independent Records to Verify Invoices
Access to Sensitive Agency Information
Technical Direction Not Documented
Oversight Other Than DOPO
No Copy of TOSS Contract
DOPO Performance Standards Did Not Include
008 023 036 119 134
XXX
X XXX
XXX
X X
X X X X
X X
X X
X X X X
XX X
XXX
X X
* X X X
X XX
137
X
X
X
X
X
X
X
X
X
X
TOTALS
4
5
3
3
5
3
2
5
4
4
2
1
3
4
Criteria on Contracting Duties
INDICATORS OF PROHIBITED PERSONAL SERVICES
EPA Assumed Supervisory Responsibilities
CSC STAFF DID NOT MEET CONTRACT REQUIREMENTS
TRAVEL/TRAINING/IDLE TIME
Unallowable/Unapproved Training
Idle Time
* DOPO had partial copy.
228
X X X X X X
X X X X X X
X X X X X
6
6
5
Audit No. E1NME1-04-0169
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QUESTIONABLE CHARGES/POTENTIAL SAVINGS
Appendix VI
Chapter
Description
Amount
Questionable Charges:
4
6
6
Costs Incurred Prior to
Execution of DO (FY '91)
Unauthorized Labor Categories
(FY »91)
Costs Incurred for Work
Outside DO SOW (FY '91)
Questionable Charges Related
to Contract Variances
(see attached sheet)
Improper Travel/Training Costs
(FY '91)
Questionable Charges to Prior
Year Appropriations Related to
Bona Fide Need/Antideficiency
Violations (FY '91)
Waiver of Unqualified CSC Staff
(Annualized - see attached)
$ 36,750
24,615
192,522
5,328,928
156,959
Potential Savings:
7
SUBTOTAL
Excess of CSC Costs Over FTE
Costs (Annualized estimate FY '91)
TOTAL
901,182
2.000.000
$ 8,640,956
4.500.000
$13,140,956
229
Audit MO. E1NME1-04-0169
-------
Appendix VI
QUESTIONABLE CHARGES/POTENTIAL SAVINGS
Costs Incurred Prior to Execution of DO:
Delivery Orders:
069
134
151
153
154
156
$ 5,281
20,000
2,079
3,572
2,031
3.787
TOTAL $36,750
Unauthorized Labor Categories:
Delivery Orders:
008 - Associate Programmer $34,411
101 - Minicomputer Specialist 19,138
Document Control Clerk 5,477
Subtotal $59,026
Less AP 34.411
TOTAL $24,615
Costs Incurred for Work Outside DO SOW:
Delivery Orders:
027
101
110
114
115
154
156
$ 16,163
56,449
2,632
52,272
21,512
11,226
32.268
TOTAL $192,522
Questionable Charges Related to Contract Variances:
Staff Qualifications - $2,008,703
(December 1, 1990 through March 28, 1991)
230
Audit NO. E1NME1-04-0169
-------
Appendix VI
Associate Programmer Labor Category - $1,245,714
(Fiscal Year 1991)
Double billing for contractor overhead expenses - $78,225
(Fiscal Year 1991)
Site Manager's Charges - $1,828,417
(Fiscal Year 1991)
Site Manager's Secretary Charges (Fiscal Year 1991)
Region 6 $40,781
Region 9 14,436
GBERL 22,543
Nationals 20.700
TOTALS $98,460
Site Manager's Conference (June 1991) - $69,409
TOTAL $5,328,928
Improper Travel/Training Costs:
Delivery Orders:
008
010
027
036
039
069
070
075
093
099
101
110
114
115
117
119
124
148
156
$ 902
516
492
1,639
59,741
2,745
13,436
30,052
12,864
7,578
8,117
9,394
289
271
2,147
329
5,401
890
156
TOTAL $156,959
Questionable Charges to Prior Year Appropriations Related to Bona
Fide Need/Antideficiency Violations - $901,182
231
Audit MO. E1NME1-04-0169
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Appendix VI
Waiver of Unqualified CSC Staff based on 1900 labor hours for 149
CSC employees (does not included subcontractors) - $2 million
Excess of CSC Costs Over FTE Costs (based on estimated hour* for
option period one) - $4.5 million
232
Audit HO. E1NME1-04-0169
-------
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Appendix VIII
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Appendix VIII
243
Audit NO. E1NME1-04-0169
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Appendix VIII
(This page intentionally left blank.)
244 Audit NO. E1NME1-04-0169
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Appendix IX
PRIOR PIG AUDITS WITH CONTRACT MANAGEMENT FINDINGS
1. (1984) Extensive Overcharges Identified in Cleanup at Drum
Recycling Facility. A half-million dollars in questionable
billings followed a contractor's cleanup of a pollution
emergency. The contractor's inadequate accounting system
permitted billings to EPA for ineligible items and made it
difficult to identify the actual cost incurred for
individual projects.
2. (1984) Improvements Needed to safeguard superfund. On scene
coordinators at hazardous substance removal sites did not
meet their responsibilities consistently from region to
region, or adequately monitor contractors' performance and
related invoices to ensure that EPA paid for only necessary
and acceptable work.
3. (1985) Better controls of Maintenance Activities Needed at
Cincinnati Center. Internal controls over the maintenance
contract for the Andrew W. Breidenbach, Environmental
Research Center, Cincinnati, Ohio, were not adequate to
prevent unreasonable or improper payments for work performed
and purchases of routine items.
4. (1985) EPA Needs to improve Timeliness of Hazardous Waste
Site Cleanup. Operational constraints such as lack of
timely review of contractor workplans by EPA are
significantly delaying EPA contractors in preparing to clean
up the Nation's worst hazardous waste sites.
5. (1985) Software Contractor Claimed over $1 Million in
Unallowed Costs. An EPA contractor claimed costs of
$1,063,544 that were unallowable due to the firm's
inadequate accounting system, its wrongful retention of
profits, and its inappropriate billing of add-on charges.
6. (1985) A Contractor charged EPA over $257,000 in Questioned
Costs. Emergency response contractor charged EPA over
$257,000 in questioned and unsupported costs for emergency
cleanup at two dioxin sites because its accounting system
was not acceptable for accumulating and billing costs on
time and material contracts.
7. (1985) Contractors for Emergency Cleanup Claim Costs Not
Incurred. Emergency response contractor and its
subcontractor claimed over $100,000 of personnel and travel
costs that were never paid to their employees in the cleanup
of the Rheinhart Tire Fire hazardous waste site. An
additional $270,000 of costs were claimed but unsupported.
8. (1986) EPA Pays Excessive Amounts for Emergency Cleanups of
Hazardous Wastes. The urgent need for emergency hazardous
waste cleanups led EPA to award multimillion dollar
245
E1NME1-04-0169
-------
Appendix IX
contracts for Emergency Response Cleanup Services (ERGS)
with limited competition and without assurances that the
negotiated rates were reasonable. As a result, EPA was.
paying excessive amounts for the emergency cleanups.
9. (1986) Employees Influenced Contractors1 Selection of
Subcontractors. Employees from the Office of Policy,
Planning, and Evaluation influenced prime contractors in
their selection of subcontractors and direction of their
work. In some cases, work was directed which appeared to be
outside the contract scope. In addition, subcontracts were
not always approved by EPA contracting officers before their
award.
10. (1986) Laboratory's Contract Management Needs Major
improvements. Contracting management practices at the
Environmental Monitoring Systems Laboratory, Las Vegas, did
not adhere to EPA procedures or requirements to ensure
adequate control and use of funds.
11. (1986) EPA Managed Chesapeake Bay Program Haphazardly.
Monitoring and administration of the grants and contracts
valued at $10.8 million was so poor that less than 50
percent of the required work products were received or, if
they were, the Agency did not keep the results. Further,
EPA could not demonstrate how these various research efforts
benefitted or even contributed to the Bay cleanup.
12. (1987) EPA Pays Over $334,000 to Training Facilitator
Without Competition. EPA officials spent over $334,000
through sole source procurements to have one teambuilding
facilitator for 41 EPA training sessions.
13. (1987) EPA May Be Paying Contractors $430,000 Annually in
Unnecessary Sales Taxes. EPA reimburses its contractors an
estimated $430,000 annually for unnecessary payment of State
sales tax on purchases of equipment and materials.
14. (1988) Region 4 Spent $5.3 Million on Unsuccessful Hazardous
Waste Cleanups. EPA Region 4 spent $5.3 million of the
Superfund on prototype cleanup technologies at two hazardous
waste sites that remained contaminated. It also discouraged
State involvement in the cleanup of one site while not
properly pursuing the responsible party's participation in
the cleanup costs of another.
15. (1988) Serious Problems with Region 3 and Headquarters
Management of Technical Support Contractor. Region 3 was
not always using available professional contractor personnel
to provide technical support for EPA's Superfund emergency
response programs nor documenting that the contractor's
performance justified EPA's payment of award fees. Also,
EPA Headquarters had not ensured that the contractor always
provided qualified personnel.
246
E1NME1-04-0169
J
-------
Appendix IX
16. (1988) EPA Pays Superfund Contractor Excessive Amounts for
Support Task. EPA's failure to properly monitor the
activities of the Field Investigation Teams (FIT) resulted
in payments for excessive award fees, excessive support
tasks, and work beyond the scope of the program.
17. (1989) improvements Still Needed in EPA's Contract
Management. Despite improving its contract monitoring
process, EPA was still not effectively administering
contracts supporting the Office of Solid Waste. EPA's
failure to properly manage contracts resulted in contractors
performing unauthorized and unfunded work and in Agency
personnel engaging in potential conflicts of interest.
18. (1989) Accuracy of contractor's Claimed Costs in Question.
Significant internal control weaknesses in an EPA
contractor's financial management system cast doubts on the
accuracy of $23 million of claims.
19. (1989) Inappropriate Contracting and Oversight Resulted in
Inefficient cleanups in Ohio and Indiana. A hazardous waste
cleanup contract awarded before the full extent of
contamination at an Ohio site was known was insufficient,
and another contract was required to complete the cleanup.
Inadequately directed contractor work violated asbestos
cleanup regulations at the Ohio site and impeded enforcement
efforts at an Indiana site.
20. (1990) Region 2 Ineffectively Managing and Enforcing Post-
Settlement Cleanup Actions. Region 2's completion of
Superfund cleanups was hampered by unnecessary delays in
initiating site work, stipulated penalties not being
enforced against potentially responsible parties (PRPs), and
contractors not being properly monitored.
21. (1990) Region 4 inadequately Managed "Removial" Cleanups.
Region 4 created potential conflict of interest situations
by utilizing ERCS contractors or their subcontractors to
perform remedial design, sampling, and site characterization
activities.
22. (1990) Guidance Needed for Disposing of Wastes Generated
from Pre-Remedial Site Inspections. Contractors used poor
judgement and made mistakes in disposing of wastes generated
from pre-remedial site investigations conducted for EPA.
23. (1990) EPA Awards Fees for Less Than satisfactory Work. EPA
paid award fees to Superfund contractors for work that was
less than satisfactory because cost-plus-award-fee contracts
allow all levels of performance to be rewarded.
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24. (1991) Agency Computer Files Not Adequately Protected. EPA
was not giving sufficient guidance to, or providing adequate
control over, contractor personnel responsible for a
software package which provides security for mainframe
computers at EFA's National Computer Center.
25. (1991) EPA Unnecessarily Delays Responsible Parties From
Cleaning Up Hazardous Sites. EPA was not adequately
monitoring Technical Enforcement Support (TES) contractors
hired to oversee potentially responsible parties' site
cleanups by conducting and documenting field and contractor
office reviews and quality assurance audits. As a result,
EPA had limited assurance that the TES contractors were
performing required work and that their tests and records
were reliable and accurate.
26. (1991) Electrical Code Violations Question Safety at the
Environmental Research center. EPA had not processed
contractor claims in a timely manner and an EPA official
improperly had direct dealings with a subcontractor instead
of the prime contractor.
27. (1991) Region 8 Created a Personal Services Relationship
with Contractor. Region 8 and Headquarters did not follow
EPA and Federal guidance and regulations in managing support
contracts with Computer Sciences Corporation. As a result,
contractor employees worked without clearly defined tasks or
criteria for measuring performance and a personal services
relationship was created.
28. (1991) Inefficient Contracting Practices May Cost EPA An
Extra $10.7 Million for Automatic Data Processing (ADP)
Equipment and Services. EPA could pay up to $8.4 million
over decreasing market prices for microcomputer workstations
and other ADP equipment by not modifying an interim contract
and delaying a competitive award. EPA could also pay the
contractor $2.3 million more than actually incurred for
operating expenses.
29. (1991) EPA Made Unnecessary and Improper Procurements
Through Its Waterside Mall Lessor. EPA's Facilities
Management and Services Division circumvented Federal
acquisition regulations and Agency procedures to make
improper procurements through its Headquarters lessor,
resulting in unnecessary costs in excess of $138,500.
30. (1991) Limited Oversight of Contractor Property Control
Systems. The limited number of contractor system reviews by
EPA did not result in reasonable assurance that the $90
million of EPA property in the contractors' possession was
adequately safeguarded and controlled.
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31. (1991) Region 9'a Administration of Louisiana -Pacific
Superfund Site Remedial Investigation Activities. EPA's
Remedial Project Manager relied on the contractor to develop
workplans, schedules, budgets, and cost reports; did not
document reviews of contractor costs and progress; and made
award fee recommendations which were not always consistent
with documented contractor performance problems.
32. (1991) Controls Over The Contract Laboratory Program. EPA
did not have an effective system for ensuring that complete
Document Files on sample analysis were received from
contractors. Further, EPA paid for Special Analytical
Services even though the data was not used; not used for the
intended purpose; or the data did not comply with all
contract terms and conditions.
33. (1992) Alternative Remedial Contracting strategy (ARCS) Has
Not Accelerated Remediation Of superfund Sites. ARCS has
failed to meet the Agency's goals. Rather than accelerating
the remediation of Superfund sites, the cleanups have been
delayed. To a large extent, the delays occurred because of
poor performance by contractors, and a lack of effective
administration by the Agency.
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Appendix X
REPORT DISTRIBUTION
Office of Inspector General
Inspector General (A-109)
EPA Headquarters
Administrator (A-100)
Deputy Administrator (A-101)
Assistant Administrator for Administration and Resources
Management (PM-2 08)
Assistant Administrator for International Activities
(A-106)
Assistant Administrator for Enforcement (LE-133)
Office of General Counsel (LE-130)
Assistant Administrator for Policy, Planning and Evaluation
(PM-219)
Assistant Administrator for Water (WH-556)
Assistant Administrator for Solid Waste and Emergency
Response (OS-100)
Assistant Administrator for Air and Radiation (ANR-443)
Assistant Administrator for Pesticides and Toxic Substances
(TS-788)
Assistant Administrator for Research and Development
(RD-672)
Associate Administrator for Regional Operations (A-101)
Director, Office of Administration (PM-217)
Director, Procurement and Contracts Management Division (PM-
214F)
Director, Office of Information Resources Management (PM-
211)
Comptroller (PM-225)
Agency Follow-up Official (PM-208)
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Appendix X
Office of Congressional Liaison (A-103)
Office of Public Affairs (A-107)
Grants Administration Division (PM-216)
Region Offices
Regional Administrator, Region 1
Regional Administrator, Region 2
Regional Administrator, Region 3
Regional Administrator, Region 4
Regional Administrator, Region 5
Regional Administrator, Region 6
Regional Administrator, Region 7
Regional Administrator, Region 8
Regional Administrator, Region 9
Regional Administrator, Region 10
Research Triangle Park
Director, Office of Administration and Resources Management
Gulf Breeze. Florida
Director, Environmental Research Laboratory
Corvallis. Oregon
Director, Environmental Research Laboratory
External
General Accounting Office
252
Audit MO. E1NMB1-04-0169
*U.S. Government Printing Office i 1992 - 312-014/40093
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