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Office of Inspector General
SURVEY REPORT
SURVEY REPORT ON CONTRACTING
ACTIVITIES AT THE ATMOSPHERIC RESEARCH
AND EXPOSURE ASSESSMENT LABORATORY
E1JBB2-11-0038-2700015
SEPTEMBER 30, 1992
EPA
350/
1992.2
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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, O.C. 204*0
SEP 30 ;s9-2
OFFICE OF
THE INSPECTOR GENERAL
MEMORANDUM
SUBJECT:
FROM:
TO:
Survey Report on Contracting Activities at the
Atmospheric Research and Exposure Assessment Laboratory
Survey Report No. ELJBB2-ai-0038-2700015
Kenneth A. Konzx
Assistant Inspector General faf Audit
Erich w. Bretthauer
Assistant Administrator
for Research and Development
This survey report presents the results of our recently
completed survey of contracting activities at the Atmospheric
Research and Exposure Assessment Laboratory (AREAL), Research
Triangle Park (RTF), North Carolina. The survey disclosed
indications of significant problems in the administration of the
laboratory's on-site support contract.that the Office of
Inspector General (OIG) has identified in recent audit reports.
These reports include EPA'a Management of Computer Sciences
Corporation Contract Activities (audit report no. E1NME1-04-0169-
21000295, dated March 31, 1992) and Contracting Activities at
Environmental Research Laboratory • Duluth (audit report no.
E1JBF1-05-0175-2100443, dated July 7, 1992). Also, since similar
issues were addressed in a recent ORD Acquisition Management
Improvement Initiative (AMU) internal review of AREAL and
corrective actions are ongoing or planned, we do not believe an
audit of the laboratory's contract administration activities is
warranted at this time.
The potential deficiencies cited in this survey report were
not fully developed and supported by audit verification.
However, we have identified these issues in order to bring them
to management's attention for such action as it deems necessary.
In accordance with EPA Order 2750, we have designated the
Assistant Administrator for Research and Development as the
action official for this report. As the action official, you are
asked to provide this office with a written response to the
report within 90 days of the report date. For corrective actions
planned but not completed by the response date, reference to
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specific milestone dates will assist this office in deciding
whether to close this report.
We appreciate the cooperation extended to our auditors
during this survey. If you or your staff has any questions
concerning this report, please contact John M. Bishop, RTF Audit
Manager, on (919) 541-1028.
SURVEY OBJECTIVES
The overall objective of this survey was to make a
preliminary assessment of the adequacy and appropriateness of the
award and administration of AREAL contracts.
He reviewed the administration of AREAL contracts for
indications of whether:
— personal services relationships existed;
— the invoice review process was adequate to ensure that •
EPA paid for reasonable costs;
— technical directives were sufficiently detailed and
authorized;
— work performed was within the overall contract scope of
work;
— conflicts of interest existed between program officials
and contractor personnel;
— there was duplication of services among contractors; and
— contract award fees were reasonable.
We also reviewed the procurement of Small Business
Administration (SBA) Section 8(a) contracts to determine whether
they may have been awarded to avoid competition. He reviewed the
award of other contracts for evidence of lack of competition.
SCOPE OF SURVEY WORK PERFORMED
We reviewed RTF-Contracts Management Division (CMD) files
for AREAL's four largest competitively awarded contracts and for
five sole-source contracts. Only contracts active in fiscal 1991
were considered for review. We reviewed the following contracts:
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Contract Number
68-DO-0106
68-02-4544
68-02-4451
68-D1-0009
68-D8-0063
68-D1-0111
68-D8-4546
68-02-4475
68-D1-0154
Contractor
Mantech Environmental
Technology Inc.
Research Triangle Institute
Environmental Science
and Engineering, Inc.
Research Triangle Institute
Research and Evaluation
Associates,'Inc.
Research and Evaluation
Associates, Inc.
Research and Evaluation
Associates, Inc.
American Scientific
International Corporation
Envair
Maximum
Expected Value
(millions) .
$50.3
Total Maximum Expected Value
17.3
14.4
9.6
4.5
3.0
1.8
.6
.08
$101.58
Based on our review of CMD files, we selected the Mantech
and Environmental Science and Engineering (ESE) contracts for .
more detailed review of contract administration issues. This
review primarily focused on fiscal 1991 and 1992 activities. In
reviewing these contracts, we interviewed CMD Contracting
Specialists and laboratory Project Officers (PCs), and examined
the POs1 contract files. We also interviewed laboratory TD
monitors for the Mantech contract.
In addition, we reviewed the Acquisition Management
Improvement Initiative (AMII) draft report dated June 22, 1992,
and the new procedures for the Mantech contract TD preparation
issued May 14, 1992. We also assessed the adequacy of actions
planned and in process at AREAL to address the deficiencies noted
by the AMII review and AREAL's Quality Action Team (QAT).
N .
This effort constituted a survey of contracting activities
at AREAL, and does not represent an audit in accordance with the
Government Auditing Standards (1988 Revision). The potential
deficiencies cited in this survey report are being called to
management's attention for such action as it deems appropriate.
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SURVEY RESULTS
As a result of our survey we identified several areas of
concern with regard to an AREAL contract award action and AREAL's
administration of the Mantech contract. These concerns, along
with the findings of ORD's AMII and our assessment of AREAL1s
completed and planned corrective actions, are provided below.
A.
CONTRACT AWARD
We found no instances of splitting of SBA Section 8(a)
contracts to avoid competition. However, we did have concerns
regarding the justification for sole-source award of one non-8(a)
contract. '
Envair Contract Award
We have concerns whether the sole-source award of an $80,000
fixed-price contract to Envair in September 1991, met the Federal
Acquisition Regulation (FAR) requirement for sole-source awards.1
The FAR 6.302- 1 (a) (2) (i) allows sole-source awards for
unsolicited research proposals which are unique and innovative.
Based on information made available to us, the uniqueness and
innovativeness of the Envair proposal appeared questionable.
The sole-source justification for the award stated the
uniqueness of the proposal was that: (1) it raises the
possibility that the same ozone strategy in all U.S.
non-attainment areas may not be justified; and (2) EPA should
explore the option of multiple strategies [i.e., VOC (volatile
organic compounds) control versus NOx (nitrogen oxides) control
or some combination of both].
EPA has historically encouraged exclusive reliance on VOC
emission reductions to achieve compliance with ozone air quality
standards. In recent years EPA has accepted NOx emission
reductions as a supplement to VOC control.
We found material contained in two reports which appeared to
present the same idea which was included in the sole-source
justification as the basis for the uniqueness and innovativeness
of the proposal. These reports included a National Research
Council report entitled Rethinking The Ozone Problem In Urban"And
Regional Air Pollution, released in 1991, and an Office of
Technology Assessment staff paper entitled Urban Ozone And The
Clean Air Act; Problems and Proposals for Change, issued in April
'The sole-source justification also approved two additional
phases estimated to cost a total of $140,000.
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.1988. These reports discussed the role of NOx and VOC in forming
ozone pollution and suggested that NOx controls should play a
larger part in reducing ozone pollution. For example, the
National Research Council report noted that "...NOx control will
probably be necessary in addition to or instead of VOC control to
alleviate the ozone problem in many cities and regions. The
optimal set of controls of NOx, VOCs, or both will vary from one
region to another, as discussed above."
We also noted circumstances which could indicate a potential
conflict of interest in the award of this contract. We found
that the owner of Envair was on a peer review panel which
evaluated AREAL's Air Oxidant Program. He served on this panel
prior to submitting his research proposal to AREAL. The Envair
proposal was submitted to one of the project managers in the Air
Oxidant Program. This same project manager later became the PO
for the Envair contract.
In general,, we are concerned about the appearance of a lack
of competition for contracts at the laboratory. We plan to ;
address issues related to the award of and competition for
contracts in separate OIG audits in the near future.
B.
CONTRACT ADMINISTRATION
We identified several areas of concern with AREAL's
administration of the Mantech contract. Most significant of
these areas were the indications of personal services
relationships, the invoice review and approval process, and the
preparation of'TDs.
These contract administration issues were also identified in
two recent internal reviews at AREAL. First, AREAL conducted a
Quality Action Team (QAT) review of the preparation of Mantech
contract TDs. This resulted in a May 14, 1992, memorandum from
the AREAL Director to AREAL Division Directors, Branch Chiefs,
and TD Monitors outlining changes in the preparation of TDs.
Secondly, the Office of Research and Development (ORD), in
conjunction with CMD, completed a review, of contract management
at AREAL and issued a draft report on June 22, 1992. This review
was part of ORD's AMII. A discussion of the various survey
issues mentioned in these reviews, along with our analysis of
corrective-actions taken by AREAL, is provided below.
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1.
PERSONAL. SERVICES
PIG Survey
As a result of our survey we noted that the Mantech contract
exhibited most of the attributes of a personal services
relationship. The contractor's work: (1) was performed on-site,
(2) was accomplished with Government-furnished equipment, (3) was
integral to the mission of AREAL, and (4) has lasted over one
year. We did not evaluate whether similar services were
performed by Government employees in EPA or other agencies.
We also noted descriptions of activities which indicate that
Government supervision of the Mantech employees may be occurring.
For example, a laboratory divisional award fee evaluation
recommended several Mantech employees for individual awards based
on job performance. Another award fee evaluation discussed the
cooperative effort between EPA and Mantech in filling a
"bioprobe" position. The evaluation did not state whether the
position was a contractor or EPA position; however, the nature of
the interaction described is inappropriate in either instance.
In addition, we noted that TDs were deficient in
descriptions of work required and deliverables expected, and, as
a result, appeared to have required excessive direction from the
laboratory's technical monitors.
AMII Review
.The AMII draft report indicated that the potential for
personal services was the highest area of vulnerability in the
Mantech contract. The report cited the co-authorship of papers,
the lack of definitive TDs resulting in the need for excessive
EPA direction, EPA involvement in contractor staffing, and
contractor support to laboratory committees as areas of concern.
The report recommended that: (l) ORD develop a policy on
co-authorship, (2) AREAL issue guidance on the preparation of TDs
and issuance of technical direction, (3) AREAL review and revise
management performance standards to include contract management,
(4) AREAL officials take the Procurement and Contracts Management
Division (PCMD) Project Officer refresher course, (5) AREAL and
CMD prepare guidance on the use of Key Personnel clauses and TD
workplans, (6) ORD and AREAL develop guidance on the involvement
of contractors in supporting laboratory committees, and (7) AREAL
in conjunction with the Office of General Counsel (OGC), PCMD,
and ORD determine the limitations on the use of Senior
Environmental Employees.
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QIC Analysis of Corrective Actions
We agree with the recommendations cited in the AMII draft
report. We also noted that the AREAL Director issued new
procedures for the preparation of TDs in a May 22, 1992
memorandum. We believe these actions and new procedures, if
implemented, will help in eliminating the .appearance of personal
services relationships in the Mantech contract.
2.
INHERENTLY GOVERNMENTAL FUNCTIONS
PIG Survey
We noted that Mantech Quarterly Progress Reports contained
statements indicating that contractor employees performed a
function which may be inherently .governmental. In describing the
task functions for Technical Directive No. 58, Mantech's
quarterly reports indicated that the contractor... "established:
cooperative agreements with government, university, and private
personnel." Although not listed .as a prohibited activity under
EPA order 1900.2, we believe this type of activity represents an
inherently governmental function.
We were also informed by a technical monitor that the
contractor assisted in the preparation of his draft TD. The
monitor stated that this assistance was necessary since AREAL did
not have expertise in the area of work required by the TD.
AMII Review
The AMII draft report identified several areas of concern
under the issue of inherently governmental functions. These
areas included: (I) use of contractors to perform Quality . :
Assurance (QA) and Quality Control (QC) functions, (2) contractor
participation on peer review panels for evaluating potential EPA
hires, (3) contractor development of contractual tasks, and (4)
contractor evaluation of commercial products for the possibility
of future use by EPA. ... -
The report recommended that: (1) the Office of Modeling and
Monitoring Systems Quality Assurance establish a QAT to review
the use of contractors for conducting QA and QC activities, (2)
AREAL conduct a review and make recommendations concerning the
use of contractors in peer review panels established for
evaluating potential EPA hires, and (3) AREAL prepare a position
paper outlining controls to ensure compliance with Agency
directives and the FAR when contractors evaluate commercial
products for EPA.
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PIG Analysis of Corrective Actions
He agree with the recommendations cited in the AMU draft
report. The report also states that AREAL intends to review
contractor performance of sensitive and controlled activities.
Recommendation
We recommend that the review of contractor performance of
sensitive and controlled activities include the contractor's role
in participating in the establishment and monitoring of
cooperative agreements.
3. INVOICE REVIEW AND APPROVAL
PIG Survey
Our survey work disclosed indications that the invoice
review and approval process used for the Mantech contract was not
sufficient to ensure that costs approved and paid for by EPA were
reasonable or supportable. The Mantech invoices we reviewed did
not provide detailed cost data for labor hours, travel, training,
and equipment charged as direct costs to the contract. We also
noted that the TD monitors did not routinely provide feedback to
the PO on the reasonableness of costs charged to their technical
directives. Given the lack of detail on the invoices and the
lack of input from technical directive monitors, the PO did not
have adequate assurance that the costs approved for payment were
supportable or reasonable.
AMU Review
The AMU draft report recognized the need for better review
of contractor costs and that it may be difficult for AREAL to
demonstrate that billings are "reasonably accurate." The report
recommended that AREAL and CMD define the technical monitor role
and ensure that technical monitors are provided with necessary
monthly financial data.
PIG Analysis of Corrective Actions
We agree with the recommendations cited in the AMU draft
report. We believe that defining the technical monitor's role is
necessary.
Recommendation
We recommend that a system be developed for the technical
monitor (or work assignment manager) to provide appropriate
feedback to the PO before invoices are approved for payment.
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4.
TECHNICAL DIRECTIVES
PIG Survey .
All four technical directives we reviewed in our survey
sample did not contain: (1) adequate descriptions of work to be
performed, (2) adequate descriptions of deliverables or
end-products, and (3) criteria for determining acceptance of
deliverables. In addition, we saw indications that work started
under TDs before the TDs had been approved by the PO. We also
noted that the nature of the work performed under TDs changed
without a concurrent modification of the TD. On one TD, the
technical monitor informed us that the contractor helped in-the
preparation of the draft TD. We also noted that the Mantech
contract TDs were issued by the PO but copies were not provided
to the Contracting Officer (CO).
AMII Review and AREAL OAT
TD deficiencies were addressed through an AREAL QAT and by
the AMU draft report. Both reviews noted that TDs were overly
general and broad in scope, thus requiring excessive technical
direction from technical monitors.
As a result of the AREAL QAT, the Director of AREAL issued a
memorandum outlining changes in the preparation of TDs. The
major change included re-writing and re-issuing all TDs by
July 1, 1992. The guidance required new TDs to be "completion
form11 to the extent possible, which meant that new TDs were to:
(l) describe work that is for a specified period of time; (2)
have defined products/end points, (3) contain well-defined
budgets and skill mix requirements, and (4) be detailed enough to
minimize the need for additional technical direction.
The AMII draft report outlined corrective actions being
undertaken by the AREAL QAT which included designing a
standardized TD format and defining the role of the technical
monitor. The AMU draft also recommended that: (1) all levels of
management and supervision have their performance standards
reviewed and revised if necessary .to include emphasis'on contract
management, and (2) AREAL POs and technical monitors take the
Project Officer refresher course.
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PIG Analysis of Corrective Actions
We agree with the recommendations of the AMII draft report
and the new procedures issued by AREAL which, if implemented,
should resolve the deficiencies in Tp preparation. However, we
question the appropriateness of POs issuing TDs. We believe the
TDs are, in effect, work assignments. EPA Acquisition Regulation
(EPAAR) 1512.104(b) requires that EPAAR clause 1552.212-71 work
Assignments be inserted into a contract when work assignments are
used in a cost-reimbursement term form (i.e., level-of-effort)
contract. This clause requires that COS issue work assignments.
We believe the use of CO-issued work assignments would have
prevented many of the problems noted above in the preparation and
issuance of TDs.
Recommendation
We recommend that AREAL work with the Contracts Management
Division to evaluate whether a work assignment system should be*
used instead of a technical directive system when issuing work
tasks to contractors..
5.
TRAVEL AND TRAINING
PIG Survey
We found no written contract policy defining what types of
contractor training and travel costs are allowable as direct
charges to the contract. The lack of a written policy combined
with the TD and invoice review and approval deficiencies noted
above increase the possibility that unnecessary and unauthorized
costs will be paid by AREAL.
AMII Review
The AMII draft report recognized the lack of contract policy
on travel and training and recommended development of contract
clauses and guidance in this area.
OIG Analysis of Corrective Actions
We agree with the actions recommended in the AMII draft
report. These guidelines, if implemented and enforced, should
resolve the deficiency noted.
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6.
FUNDING
OIG Survey
As evidenced by a March 28, 1991, memorandum from the then
Acting Director of CUD, RTF incremental (obligated) funding was
allowed to fall approximately $1 million short.of incurred costs
on the Mantech contract during early 1991. Funding also fell
short of incurred costs for some TDs during September and October
1991. Although funding was eventually obtained to cover all
obligations, laboratory managers should not allow contractors to
incur costs if sufficient obligated funds are not available. In
this case, the Government would find itself in a position in
which it was liable for reimbursing contractors without the
funding to do so.
AMII Review and AREAL QAT
The AMII draft report discussed incremental funding as an
ORD-wide problem. The report recommended that ORD meet with the
Office of the Comptroller to present the case for improving the
efficiency of funds control and for disseminating explanations on
the procedures for recertification of funds and for releasing
incremental funding. The draft report also discussed the need to
train contract managers in preparing independent cost estimates
for TDs.
The AREAL QAT also identified a need to restructure and
reform the financial management processes of the Mantech
contract. In a July 9, 1992 memorandum, the AREAL QAT
Chairperson, established a new "financial" QAT to address these
issues.
OIG Analysis of Corrective Actions
Since the outcome of recommended meetings with the Office of
the Comptroller and the results of the AREAL "financial" QAT are
pending, we cannot comment on the effectiveness of these actions.
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cc: Christian R. Holmes, Assistant Administrator for
Administration and Resources Management, PM-208
Clarence E. Mahan, Director, Office of Research Program
Management, RD-674
H. Matthew Bills, Acting Director, Office of Modeling, .
Monitoring Systems and Quality Assurance, RD-680
Dr. Gary J. Foley, Director, Atmospheric Research and
Exposure Assessment Laboratory, MD-75
Dr. John J. O'Neil, Director, Office of Senior Official for
Research and Development, MD-50
Michael E. Bower, Director, Contracts Management Division,
RTF, MD-33
Carolyn Levine, Audit Coordinator, OARM-HQ, PM-208
Anne Brent, Audit Coordinator, ORD-HQ, RD-674
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