UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
SEP 30 I3S7
OFFICE OF
THE MSPECTOR GENERAL
MEMORANDUM
SUBJECT:
FROM:
TO:
Results of Survey of EPA's Contract Management Initiatives
Report No. E1YFB7-05-0002-7400070 :'->-^,.,!
ElissaR.Karpf
Deputy Assistant Inspector General ''
for External Audits
Alvin M. Pesachowitz
Acting Assistant Administrator
for Administration and Resources Management
"-U
Attached is the survey report concerning the United States Environmental Protection
Agency's (EPA) contracting activities. In February 1997, we began a survey, in conjunction
with the Office of Acquisition Management (OAM) staff; of the effectiveness of EPA's recent
contract management initiatives. The objective of our survey was to determine if the
implementation of the recommendations contained in the Standing Committee's Report on
Contract Management corrected the deficiencies identified in the report. Specifically, the team
(1) reviewed sampled contracts to determine if the problem areas the Standing Committee cited
still existed; (2) identified which of the recommendations made by the Standing Committee were
implemented, and in what form; and (3) identified which corrective actions were validated.
Also, as part of the survey, we evaluated whether contracts management should remain an
Agency-level weakness under the Federal Managers' Financial Integrity Act (FMFIA).
/Jthough EPA has taken positive steps to address contracts management deficiencies
since the Standing Committee first met in 1992, potential vulnerabilities remain in the areas of
(1) personal services, (2) contractor access to confidential or sensitive data, and (3) contractor
conflicts of interest. We will, conduct additional audit work in each of these areas to assess the
potential vulnerabilities, and we will report our results by September 30,1998. We also plan to
perform audits in several other procurement-related areas, including use of the appropriate
pirourement vehicle; interagency agreements; procurement planning; and contract capacity.
Each of these areas will ultimately impact the Office of Inspector General's overall assessment of
EPA's contracting function. We recommend that EPA continue to include contracts
management in its FMFIA report as an Agency-level weakness for fiscal 1997.
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Action Required
The purpose of this memorandum is to inform you of our survey results, areas of <
and future audit plans. At a July 1,1997 meeting to discuss the results of this survey,
management concurred with the recommendation to retain contracts management as an.
level FMFIA weakness. As a result, we are closmg this report m our audit tracking system.
additional response is required by you or your staff.
We wish to express our appreciation for the assistance provided by the two OAM-
managers who participated as part of the audit team. If you or your staff have any questions
concerning this survey, please contact Chuck AUbeny, audit manager, at (312) 353-4222, or
Debbie Baltazar, team leader, at (312)886-3205.
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Background
In June 1992, EPA's Standing Committee on Contracts Management (Standing Committee)-
now called the Resource Management Committee (RMC)made 40 recommendations to correct
longstanding weaknesses in contracts management. The Standing Committee's report identified
seven problem areas related to the Agency's contracts management:
Persona] services
Contractor access to confidential or sensitive data
Contractor conflicts of interest
Contractors performing inherently governmental functions
Loss of in-house expertise
Control of contractors'costs
Control of contractors' performance
In 1992, EPA first declared contracts management as a Presidential-level weakness under the
Federal Managers' Financial Integrity Act (FMFIA).
In August 1995, the RMC Chair reported that 38 of the 40 recommendations were implemented,
with the remaining 2 to be completed in 1997. EPA defined and planned to perform "validation"
steps for each corrective action to determine if the actions were effective in correcting the
deficiencies. In 1995, EPA downgraded its contracts management vulnerability to an Agency-
level FMFIA weakness.
Details on the scope and methodology of our review are contained in Exhibit 1.
Survey Results
Since 1992, EPA has taken positive steps to address contracts management deficiencies.
However, contracts management should remain an Agency-level FMFIA weakness for fiscal
1997. We found indications of potential vulnerabilities in the following three areas: (1) personal
services, (2) contractor access to confidential or sensitive data, and (3) contractor conflicts qf
interest. These problem areas are discussed in detail later in the report. We did not find evidence
of substantial problems in the other four areas that the Standing Committee identified, with the
exception of EPA's controls over contractor costs. Specifically, as part of an Office of
Management and Budget (OMB) requested audit, we found that (1) independent government cost
estimates were not always properly prepared or effectively used for negotiating contract costs;
.and (2) substantial opportunities exist for EPA to issue more efficient and cost-effective
completion form, fixed-price, and performance-based contracts, thus lessening its dependence on
cost-reimbursable, level of effort type contracting mechanisms (see Report Number E1SKF7-04-
0037-7100301, Chapters 2 and 3).
Report No. 7400070
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We reviewed 38 of the Standing Committee's 40 recommendations. The status of each of the
recommendations is summarized in Exhibit 2. We did hot review the two recommendations
dealing with the Agency's management information systems (#37 and #40, page 15) that were
scheduled for completion in 1997.
EPA implemented, in some form, 34 (89 percent) of the 38 recommendations. In some cases,
although the original recommendation was not implemented exactly as proposed, the Agency
took other actions intended to correct identified deficiencies. For example, the Standing
Committee originally recommended using a checklist, included in its report, during the FMFIA
process. Instead, the Office of Acquisition Management (OAM) issued a document called "Key j
Contracts Management Guiding Principles," for offices to use in preparing their annual i
letters. We considered a recommendation implemented if EPA's actions substantially,
the original recommendation's intent. In three cases (#25, #33, and #35, pages 14 and 15), the
actions taken did not substantially implement the original recommendation or its intent. In the
remaining case (#14, page 13), we were unable to determine if the recommendation was
implemented because Agency-provided documentation was insufficient
Of the 34 confirmed actions, EPA formally validated 9 (26 percent). In those cases where the
Agency took other actions than originally recommended, validation steps for the new actions
were not always developed or conducted. For many others, we were unable to determine why
the validation steps, which EPA originally defined, were not done. Without completing the
validation steps, EPA had no assurance that the recommendations were effective. However, we
do not believe it is beneficial for EPA to complete the remaining validation steps now. Five
years have passed since the Standing Committee issued its report. Circumstances have changed,]
both internal and external to EPA.
The Standing Committee report and EPA's subsequent actions have positively impacted
contracts management For example, there is a much greater awareness of contracting issues
among EPA staff than there was in 1992. However, our recent audit work indicates contract
management vulnerabilities may still exist. EPA would be better served by reassessing
improvements needed in contracts management. The Office of Inspector General (OIG) has
committed to performing audits during the coming year of the three areas in which we found
indications of potential ongoing risk (see below) as well as other procurement-related areas.
results of this work will assist the Agency in this reassessment
Three Areas of Potential Vulnerability
Personal services
Normally, the Government directly hires its employees under competitive appointment or other j
procedures mandated by civil service laws. Obtaining personal services by contract, ratheri
by direct hire, circumvents those laws and OMB personnel ceilings. Employer-employee
relationships between EPA and contractor personnel can also reduce the Project Officers' cont
4 Report No. 740001
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over contracts. For example, if someone other than EPA's designated representative (i.e., PO,
WAM, etc.) directs or assigns work to the contractor, work outside the scope of the contract
might be performed, creating legal problems.
The Federal Acquisition Regulation (48 CFR Subpart 37.104(b)) prohibits a personal service
contract unless specifically authorized by statute. We reviewed 12 contracts specifically for
personal service issues. We found indications of a personal service relationship between EPA
and the contractor in 4 of those 12 cases (33 percent). We also found that a personal service
relationship appeared to exist under one other contract which we originally sampled for the
inherently governmental functions issue.
We identified these examples in regional, Office of Administration and Resources Management
(OARM), Office of Research and Development, and Office of Policy, Planning, and Evaluation
contracts. In each of the five cases, EPA and contractor staff were co-located. Indications that
personal service relationships may have existed included: unauthorized EPA personnel directed
contractor staff (68D30002); an EPA supervisor monitored contractor staffs daily activities
(68W50024); and an EPA project officer provided technical direction to contractor staff other
than the program manager (68D50048). In addition, we found contractor space was not clearly
marked (68D30002,68W50024,68D50048); contractors did not identify themselves as such
when answering phones (68D30002); and contractors did not wear identification badges
(68W50024).
In response to our draft report, the Acting Assistant Administrator for Administration and
Resources Management emphasized that our examples were not necessarily personal services,
but indicators. He also pointed out two instances in which our description of specific problems
needed clarification. We agree, as stated in our report, that the examples presented are indicators
of potential personal services. Conclusions about the extent to which personal services actually
exist will result from additional audit work now underway. We also revised our description of
problems observed to clarify our concerns.
Contractor access to confidential or sensitive data
EPA obtains and maintains many types of confidential and sensitive data, including confidential
business information, enforcement-sensitive information, and Privacy Act information. Since
EPA uses contractors extensively, much of this information is accessed by those contractors in
the novmal course of performing their duties. Numerous laws and regulations dictate the proper
handling of such data, including the Privacy Act, Trade Secrets Act, Federal Acquisition
Regulation, and OMB Circular A-130. If sufficient controls are not in place over such
information, EPA, as well as employees involved in allowing the contractor access, may be at
risk for civil litigation and even criminal penalties.
Report No. 7400070
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We reviewed eight contracts in which a contractor had access to confidential or sensitive data,
and found concerns with two of these contracts (68W100S5 and 6W0567NASA1). In the first
case, a contractor was operating EPA's Integrated Contracts Management System, which allov
the contractor to access other contractors' confidential business information, including potential
competitors'. In the second case, a contractor was assisting EPA in conducting Equal
Employment Opportunity investigations, which required access to Privacy Act Information.
However, EPA did not require contractor personnel to sign confidentiality agreements.
In addition to the eight contracts which we specifically evaluated for data access problems, we
also identified, but did not have time to review hi detail, two cases which may also contain
related problems. In one (68W40021), an enforcement support contractor was asked to conduct
an ability-to-pay analysis of a company that EPA is pursuing enforcement action against. The
company whose financial information was being reviewed may not have been properly notified
of its release to a contractor. In the second case (D.W. 47945609-01), EPA had obtained
facilities management and programming support through an interagency agreement with the
General Services Administration (GSA). GSA, in turn, provided the services through two
existing contracts. Although the contractor employees had access to confidential data, EPA
employees had no knowledge of what, if any, confidentiality provisions existed in the GSA
contracts.
Contractor conflicts of interest
An organizational conflict of interest exists when conflicting roles might (1) bias a contractor's
judgment or (2) provide an unfair competitive advantage. Potential conflicts of interest include: I
(1) an EPA contractor having a business relationship (parent, subsidiary, client) with a company j
that is regulated by EPA; (2) a contractor that helps EPA define its requirements, develop
specifications for an upcoming procurement, and then competes for the procurement; and (3) a
contractor that is providing advice or assistance to EPA on a matter that will directly affect the
contractor. EPA relies on contractors to assist with almost all aspects of the Agency's work,
developing regulations and policies to supporting its enforcement efforts. It is vital that the
Agency be assured that its contractors are providing unbiased opinions, not influenced by other
interests.
We reviewed seven contracts to assess EPA's procedures for recognizing and dealing with
contractor conflicts of interest. Although we did not identify any specific unresolved conflicts <
interest, we have concerns over (1) EPA's heavy reliance on contractors' self reporting of
potential conflicts of interest, (2) EPA's limited efforts to assess the implementation of
contractors' conflict of interest plans, and (3) the existence of several "cradle to grave" cont
that may allow the same contractor to help EPA both define and implement requirements.
'This item was actually a purchase order and not a contract. However, we included it in|
our review because the issue of controls over access to data still applied.
6 Report No. 74000]
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EPA. does not proactively search for potential conflicts of interest. Instead, it relies on
contractors to self-report potential conflicts of interest. In most instances, the contractor decides
whether a particular situation qualifies as a potential conflict of interest If the contractor
concludes that no conflict exists, it is likely EPA is never made aware of the specific facts of the
case. EPA, therefore, has no way of challenging or disagreeing with a contractor's
determination.
EPA often requires a contractor to develop a conflict of interest plan. This document defines the
method the contractor will use to identify and resolve potential conflicts of interest. Although
EPA reviews these written plans as part of the contract award process, EPA rarely examines the
implementation of these plans to ensure they are effective. In one instance in which EPA did
review the implementation of a contractor's conflict of interest plan, EPA concluded that
potential conflicts could go undetected.
In one contract we reviewed (68WS0034), the contracting officer was concerned about a
potential conflict of interest, because the program office wanted the same contractor that
conducted the requirements analysis (under a different contract) to design and implement the
system. Federal Acquisition Regulation Subpart 9.5 provides that an organizational conflict of
interest can exist when "because of other activities or relationships..^ person is unable or
potentially unable to render impartial assistance or advice to the government..." The potential
conflict of interest memorandum, prepared by OAM prior to contract award, stated that the main
purpose of the Agency's requirement is to "acquire services that objectively recommend and
indejiendently verify and validate ADP and Telecommunications products, systems and potential
services". The memo goes on to state that
"The Agency's main concern would be a firm who may be unable to objectively
recommend or independently assess 'competitor' products or services, because
these recommendations or assessments may directly or indirectly impact then*
firm's profitability. Thus, the Agency could be vulnerable to a firm
recommending, steering or avoiding certain ADP products or services. This
would cloud the objectivity of the Agency's decision-making process for
acquiring products, systems or services."
Thus, by the contractor having performed the requirements analysis, the contracting officer
determined it was an organizational conflict of interest, and the same contractor could not
perfoim the design and implementation. However, according to the contract file, while there
were other contractors available to perform the work, there was extensive debate between the
program and contracting offices over the issue before the contracting officer's position prevailed.
While the contracting officer succeeded in preventing a conflict of interest, we are concerned that
the efforts of the program office may indicate their lack of understanding about conflict of
interest issues.
Report No. 7400070
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EPA has many contracts that have a high risk of having potential conflicts of interest. For
example, advisory and assistance contracts have been recognized as being particularly
vulnerable. In fiscal 1996, EPA had 200 active advisory and assistance contracts. Because of
this exposure to high risk contracts, we are concerned that EPA's heavy reliance on contractors
to identify and report potential conflicts of interest may not provide adequate safeguards.
In response to our draft report, the Acting Assistant Administrator for Administration and
Resources Management explained that contractors' self-reporting was the most practical and
cost-effective way of identifying conflict of interest (COI) problems; monitoring the daily
operation of every contractor's COI system would be cost prohibitive. He also stated that since
EPA identified COI as an Agency level FMFIA weakness, EPA has selectively audited several
contractor's COI procedures. He concluded that COI should not be an issue in a decision to
maintain contract management as an Agency-level weakness given that EPA's "COI procedures
are the most comprehensive within the Federal Government".
Our survey work was not intended to, and did not, reach final conclusions about EPA's COI
procedures. Our survey work indicates that this is a high risk area of contract management. We
found limited evidence that EPA audits the implementation of contractors' COI plans and were
presented with no information to support that EPA's COI procedures are the most comprehensive
in the Federal Government Additional audit work planned during FY 98 will determine the
adequacy and appropriateness of EPA's efforts to identify and resolve conflicts of interest.
Report No. 7400071
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Exhibit 1
Page 1 of3
Scope and Methodology
The survey was led by staff in the Office of Inspector General (OIG), Northern Audit Division.
EPA's Office of Acquisition Management, the organization responsible for EPA's contracting
function, assigned two experienced staff to the audit team. The OIG's Central, Financial,
Headquarters, and Southern audit divisions provided fieldwork assistance related to contracts
located in their geographic areas. We held a planning conference in Cincinnati, OH, on
February, 19-21,1997, and conducted fieldwork between January 21 and July 31,1997. Our
audit survey was conducted in accordance with Government Auditing Standards (1994
Re^/ision).
In 1,992, EPA's Standing Committee developed 40 recommendations aimed at improving
longstanding weaknesses. The Standing Committee also designed specific steps to validate the
effect of each recommendation. In August 1995, EPA reported it had implemented 38 of the 40
recommendations (#37 and #40 were scheduled for completion in 1997.)
To determine whether EPA implemented and validated these 38 recommendations, for each
recommendation, we:
contacted the individual listed as contact person in the August 1995 update; and,
asked the contact person to provide documentation showing the implementation
actions and validation steps taken.
Based on the information provided, we made an independent judgment regarding whether the
recommendation had been implemented and validated.
The Standing Committee report identified seven problems areas related to EPA's contracts
management:
Personal services
Contractor access to confidential or sensitive data
Contractor conflicts of interest
Contractors performing inherently governmental functions
Loss of in-house expertise
Control of contractors' costs
Control of contractors' performance
Report No. 7400070
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Exhibit 1
Page 2 of31
We devised steps for each of the seven areas to assess whether these problems still existed. For
all areas except "loss of in-house expertise", we selected a random sample of contracts, active in
fiscal year 1996, to review. We judgmentally supplemented some samples with potentially
vulnerable contracts that came to our attention during the course of our survey work. For each of]
these six areas, we identified (with input from EPA officials) a universe of contracts which we
believed had a high risk of having the particular problem, and picked our review sample from
those contracts. For example, for inherently governmental functions, we excluded contracts for
janitorial services and shuttle bus services, among others.
To identify the contract universe and sample for inherently governmental functions, controls o\
contractor costs, and controls over contractor performance, we used data obtained from EPA's
Contract Information System (CIS). We did not evaluate the controls over CIS or the quality,
integrity of data within this system. As a result, we cannot attest to the accuracy of the data in
the system. However, the Agency uses this data to report contracting accomplishments, and as
such, we relied upon the data for sample selection and analysis.
To identify the contract universe and sample for personal services, we used CIS and lists of on-
site contracts compiled by each of the four contracting divisions. To identify the contract
universe and sample for contractor access to confidential and sensitive data, we requested and
obtained from each Senior Resource Official a list of the contracts they manage which involved
access to confidential or sensitive data. To identify the universe and sample for conflicts of
interest, we used CIS and a list of contracts with special conflict of interest clauses, obtained by
OAM from the Integrated Contract Management System. We were not able to test the accuracy
of these lists, and cannot attest to the accuracy of the universes we identified. However, this <
was not an integral part of our survey, and was not substantially relied upon to accomplish <
objectives.
10
Report No. 74
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Exhibit I
Page 3 of3
We: arrived at these universe and sample sizes:
Problem Area
Personal services
Contractor conflicts of interest
Contractor access to confidential or sensitive data
Inherently governmental functions
Control of contractors' costs
Control of contractors* performance
Universe
Size
558
296
232
529
527
527
Contracts
Reviewed
12
7
8
18
13
13
For the sample contracts, we (1) reviewed contract files; and (2) interviewed contracting officers,
project officers, work assignment managers, delivery order project officers, and contractor
personnel, as appropriate. In reviewing contracts for personal services, we also visited the work
location, if the contractor was co-located with EPA staff.
For "loss of in-house expertise", we analyzed information from EPA's Personnel Payroll System,
EPA workforce snapshots, EPA workforce profile data, and Government-wide information from
the Office of Personnel Management. We also interviewed two key members of the Standing
Committee who were involved with this issue.
Although specific internal controls may have been reviewed during this audit survey of EPA
contracting, an evaluation of internal controls over EPA contracting activities was not an
objeciive of this survey. The survey scope was limited to assessing the Agency's
implementation and validation of the Standing Committee's 40 recommendations and any
control deficiencies identified were incidental to this purpose. Other issues related to appropriate
procurement vehicle; interagency agreements; and procurement planning came to our attention
during: the survey which we believe warrant further audit work but which could not be addressed
due to time constraints. These issues have been proposed for future audit work.
We met with EPA officials on July 1,1997 to discuss the results of our survey. We issued the
draft report to the Acting Assistant Administrator for Administration and Resources Management
on August 19,1997. His response to the draft report, dated September 23,1997, is included in
its entirety as Appendix 1. We made revisions to the final report, where appropriate, based on
the comments received. We provided the Office of Acquisition Management (OAM) detailed
written comment addressing the Agency's concerns, as such an exit conference was not held.
11
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12
Report No. 740001
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Exhibit 2
Page 1 of5
Recommendation Status
No.
]
2
3
4
5
6
7
8
9
Recommendation
Consolidate die contracts, grants, and suspension and debaiment
Auctions in an office-level organization reporting to a new
Deputy Assistant Administrator for Acquisition Management in
OARM.
Establish a separate suspension and debannent staff within the
new acquisition office apart from the contracts and grants
functions to provide for a more aggressive use of this authority
in managing contractor performance.
Establish a separate acquisition policy, training, and oversight
unit within die new office to ensure that these critical functions
compete successfully with contract acquisition and
administration for resources and management attention.
Analyze the reporting relationship between the new Office of
Acquisition Management and the contract management functions
in Research Triangle Park and Cincinnati to determine whether a
direct reporting relationship- would strengthen or weaken
management accountability and support for these field
acquisition units.
Launch an Agency-level Quality Action Team to improve the
procurement process.
Establish "factory floor" quality contracting teams to plan,
implement, and evaluate individual contracts.
Institutionalize Senior Procurement Official (SPO) positions in
EPA programs and regions by issuing formal guidance and
delegations to define responsibilities and define requirements for
certification by OARM.
Require internal vulnerability assessments using the checklist in
Appendix L of the staff report; require that all Agency senior
managers use this checklist in their annul FMFIA process.
Strengthen management tools such as the Federal Managers'
Financial integrity Act (FMFIA) process using the checklist
developed by the Standing Committee (Appendix L of the staff
report) to identify more effectively contract management
vulnerabilities.
Implemented
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Validated
No
No
No
No
No
No
No
No
No
Note
13
Report No. 7400070
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Exhibit 2
Page 2 of5
Recommendation Status
No.
10
Recommendation
Require Contract Management Plans for all major contracts;
these plans should specify program roles, .resources, and
responsibilities in managing the contract; identify key
vulnerabilities inherent in the contract and describe provisions
for dealing with these; and establish milestones for key decisions
and actions.
Implemented
Yes
Validated
No
Not
11
12
13
Require all offices to submit an Annual Acquisition Plan, to
define contract needs, beginning in FY93, including where
appropriate, an A-76 analysis, a description of how contracts will
be managed, special contracting needs (e.g., quick response
services), vulnerabilities (e.g., handling of sensitive data),
supplier capabilities, and internal capacity to manage contracts
and other extramural support.
Develop guidance defining the "Contracting Team" concept and
applying it to all major EPA procurements.
Design and implement, if appropriate, a pilot test of more
extensive and formal delegation of procurement authority to one
or more program offices and regions to make program offices
and regions more accountable for contract management.
Yes
No
Yes
No
Yes
Yes
14
Require EPA program and regional strategic plans, annual
budgets, and operating plans to reflect formal workforce
planning and justify the proposed mix of intramural and
extramural resources.
15
Request appropriate revisions in EPA's FY93 budget request
now pending before Congress to increase staffing levels of the
central acquisitions functions, legal counsel support, and
program and regional contract management functions.
Yes
Yes
16
Give priority to acquisition management functions in EPA FY94
budget request to ensure appropriate staffing for acquisition
management functions throughout EPA.
Yes
Yes
17
Appoint an SES-level employee with the training qualifications
and quality management experience to lead the development of a
comprehensive acquisition management training program.
Yes
Yes
14
Report No. 74000"
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Exhibit 2
Page 3 of5
Recommendation Status
No.
1«
19
20
21
22
23
24
25
26
27
28
29
Recommendation
Require periodic certification by the Agency's Procurement
Executive of all Agency senior executives, managers and staff
who perform acquisition management functions to ensure that
their training and performance warrant their being entrusted with
acquisition responsibilities. Certification of SES members
should be integrated with the SES certification process.
Require that all employees receive training in procurement
integrity by 1/93 as part of the ethics training program.
Establish a mandatory orientation program in acquisition ethics
and operating principles for all new EPA employees that is
tailored to EPA's specific requirements.
Establish a mandatory training, including periodic refresher
courses, in acquisition ethics, policies, and management methods
for all EPA Project Officers, Managers, and Senior Executives.
Develop a practical training course that instructs Managers and
Project Officers on how to manage contracts, control costs,
evaluate performance, encourage quality, and negotiate terms.
Upgrade EPA's Education Requirement for Procurement
Professionals in EPA.
Provide an updated index of existing guidance documents issued
by all headquarters offices, regional offices and field labs.
Prepare cost estimate guide and develop corresponding data
bases to assist with the development of valid independent
government cost estimates (IGCE). -
Eliminate inconsistencies in, and issue uniform guidance on,
management of contracts including the preparation of alt
procurement documents.
Identify procurement responsibilities in recruiting materials and
job announcements.
Use performance agreements and evaluations to give emphasis to
contract management responsibilities.
Describe acquisition management responsibilities in position
descriptions.
Implemented
Yes
Yes
Yes
Yes
Yes
Yes
Yes
No
Yes
Yes
Yes
Yes
Validated
No
No
No
No
No
No
No
No
Yes
No
No
No
Note
b
15
Report No. 7400070
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Exhibit:
Page 4 of!
Recommendation Status
No.
30
31
32
«
33
34
35
36
37
38
39
40
Recommendation
Examine grade structure and award program to give appropriate
recognition to contract management responsibilities.
Develop a career track for contract managers in much the same
way mat the Agency has for scientists and technical personnel.
Evaluate EPA's disciplinary system to ensure tough, equitable,
and consistent treatment of personnel who violate Agency rules
and requirements.
Use independent government cost estimates (IGCEs) to analyze
contractor costs.
Educate contract personnel on the use of procurement sanctions
including suspension and debarment to enforce contracts.
Use contract types other than cost-reimbursement contracts
where appropriate.
Develop policy on allowable and unallowable indirect costs.
Develop an integrated contract management information system
that meets the needs of both EPA programs and the central
acquisition functions, that is linked to EPA's integrated financial
management system, and that is fully operational by FY 1995.
Seek amendments to EPA Acquisition Regulations (EPAARs)
and the Federal Acquisition Regulation (FAR) indirect cost rules.
Review approval requirements of NCPD to determine
consistency with the Prompt Payment Act.
Complete plan for addressing the material non-conformance of
reconciling the Personal Property Accountability System with
the Integrated Financial Management System.
Implemented
Yes
Yes
Yes
No
Yes
No
Yes
Ongoing
Yes
Yes
Ongoing
Validated
No
No
No
No
Yes
No
Yes
N/A
Yes
Yes
N/A
Not
bj
c
dj
Notes
a. We were unable to verify the implementation of this recommendation. Agency-pro\
documents did not support that the recommendation, or its intent, was substantially
accomplished.
16
Report No. 740001
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Exhibit 2
Page 5 of5
Recommendation Status
We disagree with EPA's determination that these recommendations were implemented,
based upon recent work conducted by our Southern Audit Division, in response to an
OMB request. Our auditors found that, while EPA staff were preparing independent
government cost estimates, many estimates were not detailed (by task), and staff was not
using them to analyze or negotiate contractor costs. Also, no Agency-wide or program-
wide databases have been developed. While some offices have independently developed
databases, or had access to other databases (such as the Corps of Engineers'), our auditors
found mat staff did not use these resources.
We disagree with EPA's determination that this recommendation was implemented. We
base our conclusion on three observations: (1) the Agency's strategy addressed only a
single alternative to cost-reimbursable contracts (multiple awards with competed work
assignments); (2) government requirements under the Federal Acquisition Streamlining
Act superseded the planned pilot procurement, thus the procurement was not monitored
and reported on as planned; and (3) comparative data from FY 92 and FY 96 show that
EPA's use of cost-reimbursable contracts increased slightly to 86.7 percent of EPA's total
contract universe (see report El SKF7-04-0037-7100301).
EPA plans to complete implementation of these recommendations in 1997; we did not
review them.
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18
Report No. 740001
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Appendix 1
Page 1 of3
UNITED STATES EHVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
SEP 23 1997
OFFICE OF
ADMINISTRATION
AND RESOURCES
MANAGEMENT
MEMORANDUM
SUBJECT: Response to Draft OIG Report - Survey of EPA's
Contract Management Initiatives
Draft Report No. El YFG7-OS-0002xxxxxx
FROM: Alvin M. Pesachowitz
Acting Assistant Administrator for Administration and Resource Management
TO: . ElissaR-Karpf
Deputy Assistant Inspector General
for External Audits
We thank you for the opportunity to respond to this draft survey and the willingness of
die OIG auditors in discussing and clarifying the issues. While we may not agree on all issues,
all our interactions and dialogue have been very productive. Our comments regarding the
findings are as follows:
RESULTS OF REVIEW
Page 3.3rd para
1. Survey Results - It should be noted that the referenced draft report El SKF7-04-0037 has not
been finalized and therefore should not be included at this time.
Paees 4 and 5
2. Personal Services - We agree that personal service is a serious issue. The examples
identified were not necessarily personal services but indicators. There is a difference between
indicators and actual personal services. Personal service is a serious issue that management
should and will continue to pay close attention to.
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Note: The original response was signed by Alvin M. Pesachowitz.
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Although die survey cited several examples of personal services, some of the examples were
indicators of personal services and not in itself personal services For example, on page 5, third
paragraph, third sentence, the report states that under contract 68-W4-0022, "a project officer
did not put technical direction in writing." Failure to put technical direction in writing may be
considered inappropriate contact management However, it does not in itself create a personal
service situation. The determining factor is to whom the direction is issued. Written technical
direction, if given to a contractor employee rather than a supervisor, can create personal services
as easily as verbal technical direction. Conversely, verbal technical direction, if issued to the
proper contractor supervisor, does not create personal services. Therefore, the issue is whether
the technical direction is issued to the proper contractor employee, not whether it is verbal or
written.
The survey also states that if "unauthorized Agency personnel duvet contractor staff, work
outside the scope of the contract might be performed." We recommend mat mis sentence be
eliminated or reworded because in no instance should Agency personnel direct contractor staff.
Although work outside the scope of the contract is a serious contract issue, we do not consider
mis a personal service issue.
3. Contractor access to confidential or sensitive data
Anytime the contractor has access to CBI we will insure that adequate safeguards are included in
the contract
4. Contractor conflicts of interest (COI)
The report states that no specific, unresolved conflicts of interest exit However, mere were
concerns. Those concerns are addressed below:
A. EPA's heavy reliance on contractors' self reporting of potential conflicts of interest
OAM agrees with the OIG that the Agency has several contracts that have a potential for
conflicts of interest We do not concur with the findings that the Agency's COI procedures rely
too heavily on contractors' self-certification or reporting.
Contractors' certification is the most practical and cost-effective mechanism for identifying a
contractor's actual or potential conflict We would like to, as the OIG suggests, routinely
monitor the daily operation of every contractor's COI system, however, this would be cost
prohibited in terms of resources.
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Appendix 1
Page 3 of3
.3.
B. EPA's limited efforts to assess die implementation of contractor's conflict of interests plans.
We agree that the Agency reviews contractor's COI plans on a regular basis. We also examine
the implementation of our contractor's procedures. Since COI was first identified as an Agency
level weakness, we have selectively audited several contractors' COI procedures. Our most
recent audit was conducted in August 1997.
We feel the example cited on page 7 in the survey, which describes specific details on a pre-
award conflict, shows the proper procedures that the Contracting Officer should take when
confronted with a potential COI issue. In addition, this example demonstrates that EPA's COI
prevention system works and prevents conflicts from occurring.
C. The existence of several "cradle to grave" contracts that may allow the same contractor to
help EPA both define and implement requirements.
We concur that the Agency has several contracts which have a potential for conflicts of interests.
However, we are confident mat we have the appropriate mechanisms in place to prevent COI.
Our contracting Officers actively enforce the limitation of future contracts clause and continue to
take corrective actions to eliminate potential COIs.
Given our COI procedures are the most comprehensive within the Federal Government, we do
not believe mat COI should be included as an issue in the OIG's recommendation to maintain
contract management as an Agency-level weakness.
4. Appendix D
Recommendation No. 35, Note C - The report indicates that CMD-RTP agreed to pilot an
acquisition (multiple awards with competing work assignments) but the program had not agreed
to the pilot. It is unclear where mis information was obtained. CMD-RTP had obtained a
commitment from the program office.
The report is accurate in that the selected acquisition for the pilot was overcome by FASA.
Although no longer called a pilot, the acquisition was processed as originally envisioned under
the planned pilot, i.e., multiple awards with competing task orders. It is unclear how "treating
the acquisition as a pilot" would have resulted in different actions or results. It should also be
noted that guidance has been issued by the Agency - Chapter 16 of the Contracts Management
Manual, entitled Issuance of Task or Delivery Orders Under Multiple Award Contracts.
We thank you for the opportunity to discuss the issues contained in this survey. Should
you or your staff have any questions or need additional information regarding this response,
please contact Betty L. Bailey, Director, Office of Acquisition Management at (202) 564-4310 or
her staff, Joan Roberts, at (202)564-4310.
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Appendix 2
Pagel of I
Report Distribution
Office pfjpspector General
Inspector General (2410)
Deputy Assistant Inspector General for Internal Audits (2421)
Headquarters Office
Acting Chief Financial Officer (2710)
Associate Administrator for Communication, Education, and Public Affairs (1701)
Director, Office of Acquisition Management (3801R)
Director, Office of Policy and Resources Management (3102)
Special Assistant to the Deputy Administrator for Management Issues (1103)
Special Assistant to the Comptroller (2731)
Special Assistant, Office of Acquisition Management (3801R)
OAM Audit Liaison (3801R)
OARM Audit Liaison (3102)
Agency Followup Coordinator (2724)
Regional Office
Regional Administrators
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