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                    UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
                               WASHINGTON, D.C. 20460
                                SEP  18 1995
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fv.
                                                                 OFFICE OF
                                                             THE INSPECTOR GENERAL
      MEMORANDUM
      SUBJECT:
      FROM:
      TO:
          Report  on EPA's Acquisition of Analytical Support
          Report  No.  E1SKF4-07-0053-5100483

          Elissa  R.  Karpf ^-^* ^jg.^ -*'-  st
          Deputy  Assistant Inspector GeneraJ
             for Acquisition and Assistance Audits
          Sallyanne Harper,  Acting
          Assistant Administrator
             for Administration and Resources Management

          Elliott  P.  Laws
          Assistant Administrator
             for Solid Waste  and Emergency Response

We reviewed  the Environmental Protection Agency's  (EPA)
acquisition  of  analytical support services at Region 7 and
Headquarters, and  identified that acquisition of analytical
support services was  not adequately planned.  Our objective was
to determine whether  EPA's contracting strategy to obtain
analytical support services  was efficient and effective.  We
evaluated available planning information and concluded'the review
at the end of survey.

In our opinion,  acquisition  planning represents a potential
weakness in  EPA contracts management.  The Office of Acquisition
Management should  address acquisition planning as part of their
upcoming fiscal year  1996 systematic review strategy, since
similar deficiencies  may exist in acquisition planning for other
contracts.
      RESULTS IN BRIEF

      EPA has not properly planned for the upcoming Environmental
      Services Assistance Team  (ESAT)  contract replacement or for
      overall analytical services  acquisition.  The Federal Acquisition
      Regulation (FAR) requires  EPA to plan acquisitions and conduct
      market surveys to ensure that it meets its needs in the most
      effective, economical, and timely manner.
         NOV  2 9 1995
                    US EPA Headqxiarters
                          vi4, MI'.ilcode 3404
R«cyctod/R*cyc!abte
Printed with Soy/Cancta Ink on paper that
contains * least 50% recycled fiber

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The Office of Emergency and Remedial Response  (OERR) within the
Office of Solid Waste and Emergency Response  (OSWER) prepared a
Superfund long-term strategy for analytical services to support
its programs.  However, the strategy did not adequately address
how to obtain the services economically and efficiently.

The Office of Acquisition Management (OAM) within the Office of
Administration and Resources Management (OARM) completed the
individual written acquisition plan for the ESAT contracts in
April 1995.  The plan was based on estimated contractor support
hours and skills needed, instead of estimated sample analyses.

Although OSWER and OARM have taken positive action to improve the
ESAT contracts, actions planned in response to the
recommendations were not adequate.  OSWER and OARM needed to seek
information from the analytical services industry and the regions
to make cost comparisons and write better contracts.  OSWER needs
to track historical services to estimate the quantities of
analytical samples needed.  It needed to use"market research to
develop specific services descriptions and performance
requirements.  In addition, it needed to compare cost data to
analyze Government versus contractor performance.  OSWER should
be working toward buying sample analyses at specific quality
levels instead of buying contractor hours.  Buying clearly
defined services shifts the burden of performance risk to
contractors while reducing EPA's contract administrative burdens.
ACTION- REQUIRED

This report makes several recommendations to the Assistant
Administrator for Solid Waste and Emergency Response and the
Acting Assistant Administrator for Administration and Resources
Management.  We are designating the Assistant Administrator for
Solid Waste and Emergency Response as the primary action
official.  As such, the primary action official should take the
lead in coordinating the Agency's official response to this
report so that the 90-day timeframe for response is met.  Thus,
the Acting Assistant Administrator for Administration and
Resources Management is a secondary action official and should
coordinate with the primary action official.

In accordance with EPA Order 2750, the primary action official is
required to provide this office a written response to the audit
report within 90 days of the final report date.  For corrective
actions planned but not completed by your response date,
reference to specific milestone dates will assist this office in
deciding whether to close this report.  If you do not agree with
the proposed recommendations, we will consider other actions you
propose in order to correct the deficiencies noted in the report.
We have no objections to the further release of this report to
the public.

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This audit report contains findings that describe problems the
Office of Inspector General (OIG) has identified and corrective
actions OIG recommends.  This audit report represents the opinion
of OIG.  Final determinations on matters in this audit report
will be made by EPA managers in accordance with established EPA
audit resolution procedures.  Accordingly, the findings described
in this audit report do not necessarily represent the final EPA
position and are not binding upon EPA in any enforcement
proceeding brought by EPA or the Department of Justice.

Should you or your staff have any questions about this report,
please contact Bennie Salem, Acting Divisional Inspector General
for Audit, Central Division, at  (913) 551-7878.

Attachment

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                        TABLE OF CONTENTS

BACKGROUND	   1

SCOPE AND METHODOLOGY	   3

FINDINGS AND RECOMMENDATIONS  	 	   5
     OERR and 0AM Should Use Acquisition History and Market
          Research to Plan Acquisition of Analytical Support
          Services  	   5
     Tracking Historical Services Helps Quantify Needs  ...   6
     Market Surveys 	   8
     Cost Comparisons Identify Economical Sources 	   9

CONCLUSION	11

RECOMMENDATIONS	13

APPENDIX I	17
     OARM Response	17

APPENDIX II.	29
     OSWER Response	29

APPENDIX III	51
     ABBREVIATIONS	51

APPENDIX IV	53
     DISTRIBUTION 	  53

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BACKGROUND

EPA collects, analyzes, and evaluates sample data from many
pollution sources in its administration of environmental laws.
To accomplish this, EPA operates its own laboratories with in-
house personnel and onsite ESAT contractor personnel.  EPA also
obtains support through the Contract Laboratory Program (CLP) and
various other analytical support contracts including the Regional
Environmental Collection and Analysis Program (RECAP) contract in
Region 7.

In 1987, EPA developed the ESAT contracts because EPA's in-house
resources and contractor laboratories did not meet Superfund's
analytical needs.  EPA"has always provided the contractor with
laboratory equipment and facilities.  Currently, two ESAT zone
contracts provide analytical support for EPA's ten regions.  In
addition,  ESAT provides support for the Resource Conservation and
Recovery Act program and other non-Superfund analytical efforts.
Through December 1994, total costs for the two ESAT zone
contracts were over $67 million.  The existing contracts expire
in September 1995 and EPA plans larger replacement contracts.

The National Academy of Public Administration (NAPA)
November 1994 report, Getting the Job Done, emphasized that
acquisition planning is a critical element in the contracting
process.  The report emphasized that contracting personnel should
be involved early in the acquisition process.  NAPA reported that
a fundamental cause of contract management problems was a
division of contract authority between program and contracting
offices, and that program offices institute and virtually
complete acquisition planning before they involve contracting
personnel.

OARM implements policies and procedures governing EPA's
acquisition management.  Within OARM, OAM's Contracts Management
Division (CMD) at Research Triangle Park, North Carolina,
organizes and directs EPA's procurement support function for the
analytical support services contracts.  CMD provides guidance and
contract assistance to EPA's programs, and assures compliance
with laws, procurement regulations, and policy.

OSWER provides technical support and evaluation of solid waste
and emergency response activities for EPA's ten regions.  Within
OSWER,  OERR's Analytical Operations Branch is responsible for
identifying analytical support requirements.
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OERR issued its Long-Term Contracting Strategy (LTCS) on
August 31, 1990, to:   (1) analyze the long-term contracting needs
of the Superfund program, and (2) design a Superfund contracts
portfolio to meet needs over a ten year period.  The LTCS
recommended decentralizing the ESAT contracts in 1995 to enhance
competition and provide flexibility to respond to specific
regional needs.  However, the LTCS did not address acquisition
planning beyond the decentralization issue.

In April 1991, OERR established the Delivery of Analytical
Services  (DAS) task force to develop the Superfund strategy for
analytical services delivery.  In a January 1993 memorandum, the
OERR Director approved a DAS strategy for the regions to obtain
and manage 75 percent of analytical services, including regional
ESAT contracts.  The DAS task force had three goals:  (l) to
assess Superfund's long-term needs for analytical services;
(2) to establish the roles and responsibilities of private
parties, EPA contractors, and EPA staff in addressing these
needs; and (3) to provide the framework for Superfund analytical
services delivery to Superfund over the next decade.  However,
the final DAS report did not address these three goals.

Both the LTCS and DAS proposed regionalizing the analytical
services contracts to improve competition.  OERR attempted to
move in this direction with regional ESAT  (RESAT) contracts.
However, disagreement between OERR and the regions regarding
additional contract support personnel caused OERR to abandon its
plans to completely regionalize the contracts.

In June 1993, OSWER established a national workgroup to develop
strategies for the RESAT contracts.  The workgroup identified
procurement milestones, developed the solicitation and statement
of work, and developed a strategy to address contract
vulnerability issues.  The workgroup did not take full advantage
of its opportunity to do the following:

          identify performance requirements,
          analyze government versus contractor performance,
          determine a cost effective provider of services,
          develop a detailed analytical support history,
          determine whether supplying Government-furnished
          property is in accordance with the FAR, and
          improve contract type and method.
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In August 1993, OERR and 0AM established a workgroup to review
the LTCS.  The workgroup evaluated analytical services needs
considering capacity, number of contracts required, placement and
management of contracts, and workload and resource distribution.
The workgroup concluded that the existing portfolio of contracts
was adequate, although the number of contracts would be
decreased.  The workgroup generally recommended against
decentralizing the ESAT. contracts.  In a June 30, 1994
memorandum, the OSWER Assistant Administrator stated that two
regional pilot ESAT contracts would be awarded.  Two zone ESAT
contracts would be awarded to cover the remaining regions.
SCOPE AND METHODOLOGY

To identify Region 7 analytical support contracting strategies,
costs, management controls, and contractor work allocations, we
reviewed contract documents from October 1992 through March 1993
and interviewed key Environmental Services Division and Contract
Operations and Management personnel at Kansas City, Kansas.  To
assess national strategies for Superfund analytical support, we
reviewed the LTCS and DAS files and RESAT workgroup planning
documents in Washington, D.C;  the Superfund Lead Region
Coordinator's files at Region 8, Denver, Colorado; and ESAT
contract files in Research Triangle Park, North Carolina.  Region
8 represented the other regions as the Superfund Lead Region for
fiscal 1993 and 1994.   Also,  we interviewed key personnel at the
Analytical Operations Branch and 0AM in Washington, D.C., and CMD
in Research Triangle Park, North Carolina.  We performed
fieldwork from June 1994 to November 1994.

We conducted our survey in accordance with Government Auditing
Standards (1988 Revision) issued by the Comptroller General of
the United States.  Issues identified in our survey of Region 7
activities concerned national analytical support strategies and
contracting activities.  Accordingly, we expanded our survey and
evaluated those strategies.  No other significant issues came to
our attention that warranted expanding the scope of our review.
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FINDINGS AND RECOMMENDATIONS

OERR and QAM Should Use Acquisition History and Market Research
to Plan Acquisition of Analytical Support Services

OERR and OAM have not adequately planned either the ESAT
replacement contracts or the overall analytical support services
contracting strategy.  Current planning deficiencies mirror past
analytical services acquisition practices.  The FAR requires
agencies to perform advance planning to develop item descriptions
and performance requirements, conduct market research, and
consider Government versus contractor performance when planning
major acquisitions.

OERR did not sufficiently evaluate its acquisition history to
define its requirements and integrate in-house and contractor
efforts or perform required market research.  Instead, OERR
relied on justifications which were appropriate when it first
began contracting for analytical services, but which may no
longer be relevant.  Analysis of EPA uses of analytical services
and an expanded analytical services industry should provide a
better base for decisions and allow OERR and OAM to address FAR
and EPA requirements to obtain products and services fairly and
economically.

Major acquisitions should be supported by plans that address all
significant considerations affecting the acquisition.  FAR
7.104(a) recommends that EPA begin acquisition planning as soon
as the need is identified, and review and revise its plans as
significant changes occur.  FAR 7.102 requires EPA to conduct
market surveys and plan its needs in the most effective,
economical, and timely manner.  FAR 7.103(c) and (d) requires the
agency head to establish criteria and thresholds at which
increased detail is required as acquisitions become more complex
and costly and to establish procedures for writing plans either
on a system basis or on an individual basis, depending on the
acquisition.  The FAR gives EPA latitude for acquisition
planning.  FAR 7.104(b) and  (c) recommend that the planner
consult appropriate personnel to determine type, quality,
quantity, and delivery requirements; and coordinate with and
secure the concurrence of the contracting officer in all
acquisition planning.

EPA's Contracts Management Manual, chapter 1, paragraphs'1.9(a)
and  (b), require the contracting officer to prepare written
acquisition plans for Superfund acquisitions with a threshold of


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$25 million and to obtain input from the program office, legal
counsel, and a cost/price analyst.  Also, the Manual requires:
(1) annual acquisition plans,  (2)  individual acquisition plans,
and (3) an individual contract management plan.  The Manual
indicates that acquisition planning is applicable on a system
basis.

OERR and 0AM said they did long-term planning, but did not
complete the individual written acquisition plan for the ESAT
contract until April 1995.  OERR and 0AM did not determine the
performance and delivery requirements for the replacement
contract, nor fully analyze and document technical, business, and
management issues that might affect the acquisition.  OAM stated
it waited for information from OERR before it drafted an
acquisition plan.  However, the need for the contract was known
as long ago as 1990 when the LTCS recommended the 1995 contracts
be decentralized.

OERR's and OAM's prior history with ESAT contracts did not
reflect better planning than the current planning.  The offices
approved the 1991 written acquisition plan on February 19, 1991,
after the solicitation package was issued February 15, 1991.  The
1995 acquisition plan was approved on April 6, 1995.  It provided
for the issuance of the solicitation on April 17, 1995, with an
award date of December 15, 1995, over 2 months after the current
contract expires.

Tracking Historical Services Helps Quantify Needs

Although EPA issues sample protocols widely used by industry, the
1995 ESAT contracts will be a cost reimbursement level-of-effort
contracts because specific performance requirements were not
developed.  The acquisition plan stated that performance
requirements were too broad, varied, and uncertain to define.
The 1995 ESAT contracts will include broad, umbrella statements
of work similar to the 1991 contracts.

FAR 7.105(b)(6)  and 10.002(b) require EPA to describe the
products to be used in the acquisition and whenever practicable
to state requirements in terms of functions to be performed or
performance required.  Furthermore,  FAR 16.103(c) advises that
contracting officers should avoid protracted use of cost-
reimbursement contracts after experience provides a basis for
firmer pricing.
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The 1995 ESAT solicitation resembled the 1991 contracts.  Similar
to the 1991 contracts, the solicitation described a broad range
of work requiring many skills, such as analytical support, data
review, quality assurance, and training, to cover the varying
regional requirements.  The 1995 solicitation and the 1991
contracts listed the contractor personnel education and
experience requirements, estimated workyears by labor
classification in general terms, and obligated the contractor to
devote a specified level of effort for a stated time.

Although OERR recognized a need for long range planning in
developing the LTCS and forming the DAS task force, the results
stopped short of identifying technical, business, management, and
other significant considerations necessary to support an overall
or individual acquisition plan.  OERR did not devise procedures
or systems for analyzing.type, appropriateness,  or cost of
current analytical services.  The DAS workgroup attempted to
gather information to determine whether current analytical
support services sources were appropriate or cost effective.  It
concluded that the desired information was incomplete on in-house
and contracted activities, total quantities, and costs.  OERR was
tracking the cost of analytical services provided by the CLP
contractors, but was not tracking services provided by other
contractors.  Consequently, DAS did not conclude whether one
provider was more cost effective than another provider.

OERR did not develop information to make informed decisions
regarding the regions' analytical support services contract
needs.  OERR did not request input on detailed regional
analytical support services specifications, products, services,
estimated quantities, contract history, categorizing or packaging
the sample work, and delivery timeframes.  OERR requested the
regions to provide estimated ESAT workyears of 'effort for
analytical support.  Thus, OERR could not state its requirements
in terms of required performance.

Our Region 7 review disclosed that the Region's Environmental
Services Division did not perform an in-depth analysis of the
activity and related cost among its four providers of analytical
services.   We were unable to determine the cost per sample or
perform any comparative analysis because the Environmental
Services Division did not track activity and related costs on a
sample type basis.

OERR could have, used some analysis performed by the DAS task
force and information available in the regions to develop


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descriptions of analytical tests and/or functional requirements.
The DAS task force collected information on the available
analytical resources, numbers of samples, complexity of analyses,
and costs that it could have used to define contract
requirements.

OERR could benefit from Region 7's experience with its RECAP
contract and its own CLP contracts.  Although we acknowledge
RECAP has problems and is a time and materials contract, it may
be a step in the right direction because the Region issued
performance-based statements of work and some fixed price
delivery orders.  The contractor was given greater freedom in
choosing the most appropriate analytical method, and assumed more
responsibility to deliver analyses that met the Region's
analytical seirvices needs.  OERR's procedures to identify routine
analytical services for its CLP contracts may also be a step in
the right direction.  The CLP contracts are fixed price
contracts.  However, OERR did not incorporate this approach into
an overall acquisition strategy to improve acquisitions.  OERR
may be subject to criticism because adequate information was not
collected and analyzed to support and justify the ESAT
acquisition efforts.

Several options to specify work may better describe the sample
analysis products.  Analysis could be grouped by organic and
inorganic analysis; by media such as water, solids, or gas; or by
type of equipment needed to perform analysis.  Delivery
timeframes could provide another means to categorize the
requirements.

Market Surveys Help Package Requirements

OAM did not perform market research to package requirements to
appeal to expanded industry capabilities.  Advance market surveys
could have helped package the contract to appeal to potential
contractors,  take advantage of existing suppliers, and reduce
costs.  FAR 7.102 and 7.105(b)(2)(i)  require agencies to conduct
market surveys to promote and provide for full and open
competition.   FAR 7.105 (b)(l)  states that if all or part of the
acquisition is for commercial products, EPA should address the
results of market research and analysis and show their impact on
various parts of the plan.

In its January 1994 Competition Report, OAM committed to planning
as required by the FAR.  OAM stated it would conduct market
research,  package requirements to appeal to industry
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capabilities, conduct surveys of present and potential
contractors to determine how EPA could increase competition, and
take proactive measures to increase the number of proposals
received.

0AM's market research did not carry forward the recommendations
of the DAS Future Directions workgroup.  In 1992, the workgroup
noted that analytical methods, instruments, and data handling
systems were continually improving, and recommended that any
effort to improve delivery of analytical services include the
flexibility to take advantage of these improvements.  0AM's
market research consisted of publishing a synopsis in the
Commerce Business Daily prior to the release of the proposal
request in order to ascertain interest among potential offerers.
A Commerce Business Daily synopsis was published on December 19,
1994, requesting small business input.  OERR stated the ESAT
contract solicitation provided flexibility because the contractor
was onsite and could provide analysis on short notice.  However,.
by requiring contractors to use Government facilities and
equipment, the ESAT contract solicitations did not provide the
flexibility to take advantage of improved industry technology.

Cost Comparisons Identify Economical Sources

OERR did not compare costs to support mixed use of in-house and
multiple contractor sources to do similar work.  This mixture
evolved as EPA and the commercial industry grew.  OERR continued
to rely on its initial justifications for mixing in-house
workyears, onsite contractors, and external contractors to
perform similar sample analysis without considering cost.
Because it did not analyze costs, OERR continued practices which
might not provide EPA the best quality service at the most
economical price.

Generally, Government policy is to rely on commercial sources to
supply the products and services it needs.  When commercial
sources are available, the Government should perform a cost
comparison between contracting out and performing the work in-
house to determine who should do the work.  If the cost estimates
to perform the work commercially are less than the cost to
perform the work in-house using Government personnel, equipment,
and facilities, then the work should be performed commercially.
If certain functions are inherently Governmental in nature, these
functions should be performed by Government employees.  The 1993
National Performance Review supports this policy and encourages
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moving toward practices which will allow Government personnel to
choose the "be:st value" products.

OERR never justified that performing some sample analysis in-
house was less costly or that contracting out certain functions,
such as quality assurance, was not contrary to inherently
governmental functions policies.  Instead, OERR originally
decided to contract for onsite contractors because it lacked the
resources to do all of the work in-house and had excess
facilities and equipment.  However, it continued to use both in-
house personnel and contractors for similar analytical services.
The 1991 ESAT acquisition plan stated that because the Government
did not possess the capability to do all the work, requirements
for cost comparisons did not apply.  The 1995 acquisition plan
stated a cost comparison was not anticipated because it was
believed that the contract costs would be found reasonable.  The
latter judgment was not sufficient because it assumed OERR had
performed an initial cost comparison between performing the
analysis in-house or contracting for the services.

OERR did not define which work was more economical and
appropriate under which method.  OERR had not requested the
regions to track the cost of performing sample analysis
activities in-house versus using the ESAT contractors and various
external commercial sources to determine their cost
effectiveness.  OERR based its determination to retain some work
in-house on a desire to maintain some technical expertise.  In
Region 7, cost to perform the specific sample types was not a
primary factor in determining which source to use, although
prices varied, substantially among the various sources.  The
Region did not monitor the cost on a per sample basis for the
various sources to perform similar analyses.  In addition, the
DAS workgroup was unable to obtain sufficient information from
the regions to perform any cost comparisons of its own.
Different contracts and in-house personnel were both identified
as the most cost beneficial by various OERR and Region 7 staff,
but none of the parties could provide a documented, detailed cost
comparison by sample type or other documented justification for
their statements.

OERR and OAM provided equipment for in-house contractors without
considering the FAR provisions governing Government-furnished
equipment.  OERR and OAM did not direct recent planning efforts
toward increasing reliance on contractors to furnish equipment
and reducing equipment furnished by EPA.  A General Accounting
Office report criticized the National Aeronautics and Space
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Administration for not complying with FAR provisions intended to
ensure that the Government provided equipment only when
contractors could not provide it, and EPA may be vulnerable to
similar criticism for the ESAT contract.  FAR 45.302-1(a) states
that agencies shall not furnish equipment for any purpose, except
for five specific exceptions.  The ESAT contract did not appear
to meet the requirements of any of the exceptions.  However,  EPA
has recognized there is a problem with their utilization of
Government-furnished equipment and is currently addressing this
property issue and planning corrective action

The 1995 and 1991 acquisition plans did not document how
providing equipment would reduce costs.   EPA provided Government
facilities and equipment to the ESAT contractors but not to other
commercial sources for analytical support services.  Decisions
related to facilities and equipment will directly impact cost
considerations related to continuing to use the support services
of onsite contractors.  OERR and 0AM should justify any
decisions, such as providing facilities and equipment, which
impact the contract cost.


CONCLUSION

Although OERR expended considerable resources in developing
analytical support services strategies,  results of the efforts
did not provide for improved services.  In developing the
strategies, OERR recognized that it needed to identify its future
analytical needs, but stopped short of doing so.  Instead, it
focused on decentralizing the services.

OAM did not develop an adequate acquisition plan to replace the
expiring ESAT contracts.  The decision to break the ESAT
replacement contracts into two zone and two regional contracts
may improve competition by providing more contracts to compete
among contractors, but without further analysis, neither the
contracts nor competition can be significantly improved.
Requirements for analytical services need to be better defined to
achieve desired contract goals and reduce cost.

OERR and OAM need a strategy to develop a contract history vital
to specifying the types and quantities of analytical tests EPA
needs to support its programs.  OERR and OAM did not conduct
market research and perform cost comparisons that would aid in
designing contracts to obtain better results at cheaper prices
while transferring more of the risk to the contractor.
Consequently, EPA may be wasting valuable resources by paying
more for services than necessary.


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RECOMMENDATIONS

We recommend that the Assistant Administrators for OSWER and OARM
require OERR and 0AM to:

1.   Work together to develop an analytical support services
     acquisition strategy.  The first step should be to gather
     services needs information and costs of current services
     from all program offices to develop the strategy.

2.   Plan future analytical services acquisitions to address the
     technical, business, management, and other significant
     considerations required by the FAR.  Specifically,

          clearly define analytical services type, quality,
          quantity, and delivery requirements and develop a
          system for regions to track costs to obtain these
          services;

          survey the analytical support industry to determine how
          private industry describes its requirements in
          contracts for services, and then use this information
          to describe EPA heeds;

          identify the services that should be performed in-house
          and exclude them from contract considerations;

          compare the current cost of services that can be
          contracted out and identify the most economical
          alternatives; and

          document significant decisions such as market survey
          results; service descriptions; and in-house performance
          versus contractor performance, including contractor use
          of Government-furnished facilities and equipment.

3.   Plan to meet minimum analytical services needs with
     replacement ESAT contracts until better needs determinations
     can be developed.

          Reconsider contract options before the end of the first
          year and document justifications for extending ESAT
          replacement contracts if new procurement actions are
          not initiated;

          analyze the work currently done by the ESAT contractor
          to estimate work on a sample basis, not workyears, and
          to identify work that should be done by other
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          contractors, work that should be done in-house, and
          work that, must be done by the ESAT contractor;

          determine whether the work must be done at an EPA
          facility using EPA equipment; and

          develop plans to improve the contract method and type.
AGENCY COMMENTS AND QICEVALUATION

OSWER RESPONSE:  OSWER disagreed with the report and stated the
OIG report did" not reflect the manner in which analytical
services acquisitions are planned and carried out, and did not
adequately acknowledge the comprehensive strategy that was
developed and implemented.  OSWER stated replacement ESAT
contracts provide EPA with a cost-effective approach for
maximizing the use of regional equipment; providing needed
flexibility in sample analysis; providing the ability to use
improved methods, instruments, and data handling systems; and
minimizing the risks to data integrity.

OSWER stated estimating work on a sample basis for ESAT is not
realistic, since a very large number of variations can exist for
a particular type of analysis.  The ESAT analytical support tasks
are best performed onsite to conserve cost, maximize the use of
regional laboratory facilities and equipment, and minimize the
risk to the Government for obtaining unusable data.

QARM RESPONSE:  OARM disagreed with the report and stated that
the overall analytical support services strategy was extensively
planned in accordance with the FAR.  OARM stated the ESAT
statement of work contained narrowly focused, analytically based
tasks.  It could not define performance further, due to the
uncertainties inherent in the regions' requirements and the need
to provide flexibility in these contracts.

The RESAT workgroup considered the exact issues which the draft
report contends were not analyzed, including developing the
performance and delivery requirements.  OARM further stated it
complied with requirements regarding market surveys, contract
types, and justification for providing the contractor with
facilities and equipment.  OARM cited A-76 that allows continuing
existing contracts, if cost is reasonable and performance is
satisfactory.
                                14
                                Report No. E1SKF4-07-0053-5100483

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PIG EVALUATION:  Although OSWER's and OARM's responses referenced
various planning documents including results of the DAS and RESAT
workgroups, the two offices had not adequately planned
acquisitions of analytical support services.  We agree that the
RESAT and DAS workgroups identified most of the issues we
reported, but their results did not evidence the market research
and cost analysis needed to improve acquisitions.  Further, the
workgroups were not held accountable for resolving identified
issues.   DAS was not intended or carried out as a comprehensive
acquisition strategy.  RESAT was directed more at refining the
contract terms to eliminate past criticisms, rather than to
improve contracting.  OARM's market surveys did not address the
intent of our issue or our recommendation.  Our issue is that
OARM should ask industry to help identify the best way to
contract for analytical services.  How does private industry
categorize its sample work and define its contract requirements?
After OARM obtains this information, it will be in a better
position to help OSWER define analytical services contract
requirements.
                                15

                                Report No. E1SKF4-07-0053-5100483

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                 16



                  Report  No.  E1SKF4-07-0053-5100483

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                                                       APPENDIX I
                                                       Page 1 of 12
             UNITED STATES ENVIRONMENTAL PROTECTION AGENCY

                         WASHINGTON, D.C. 20460
                                    7 1995
                                                           OFFICE OF
                                                         ADMINISTRATION
                                                         AND RE SOURCES
                                                          MANAGEMENT
MEMORANDUM

SUBJECT



FROM:



TO:
OARM Response to OIG Report on Survey of Acquisition of
                                E1SKF4-07-0053-XXXX
                            nt Administrator
                        in and Resources Management.  (3101)

Elissa R. Karpf,  Deputy Assistant Inspector General
Acquisition and Assistance Audits (2421)
     Thank you for the opportunity to review the subject  draft
report.   The attached comments reflect our response.  We  ask that
you give these comments careful consideration In the preparation
of the draft survey report.  -        •

     My  staff met with your staff on several different occasions
to discuss the findings ofzthe survey.  There remain, however,
two broad issues of concern in the draft report.  We.believe the
OIG has  generally confused the issues of advanced acquisition
planning with the specific documentation requirements of  the
Federal  Acquisition Regulation (FAR).  It also appears that  the
OIG has  inappropriately mixed issues regarding OMB Circular  A-76
cost comparisons with other FAR-related cost benefit decisions.

     Consequently,  we disagree with the majority of the findings
as presented in the draft report and with the conclusion
concerning the serious.nature of the findings.  While we
basically agree with the intent of the recommendations, we have
complied with those that are applicable to the current
Environmental Services Assistance Team (ESAT)  solicitation,  and
mechanisms are in place.to ensure that the other recommendations
are followed.                   .

     The cover memo reflects your belief that the deficiencies
cited in the draft report related to acquisition planning
represent a significant weakness in Agency contract management.
We strongly disagree with the contention that any of the
deficiencies noted in the report represent reportable material
weaknesses for the Agency, especially since only five of
approximately 650 active contracts were reviewed.   We anticipate
                                17
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                                                       APPEMHX I
                                                       Page 2 of 12
                                -2-
that you will reach  this  same  conclusion after you review  our
response and the response from the Office of Solid Waste and
Emergency Response  (forwarded  under separate cover).

     To simplify our response,  the findings and recommendations
are discussed by subject  in the order of appearance in the
report.  We have only addressed the findings applicable to the
Office of Administration  and Resources Management (OARM).  We
hope that you will conclude that the report can be closed  with no
further action required.              .                      .

     Should you or your staff  have any questions or need
additional information regarding this response, please contact  .
Betty L. Bailey, Direqtor, Office of Acquisition Management, on.
202/260-5020.                                            -.,,
Attachment
                                18

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                                                       APPENDIX I
                                                       Page 3 of 12
                    OARM RESPONSE TO THE PIG'S
                   FINDINGS AND RECOMMENDATIONS
 BACKGROUND                                            --—

      By  way  of  clarification,  it is important to note that the
 ESAT  contracts  (both the current two existing contracts as well
 as the on-going new acquisitions)  include other tasks in addition
 to analytical services.   The ESAT contracts  also provide quality
 assurance  support and data validation activities to  the Agency.
 In addition, the ESAT contracts are utilized more for the
 analysis of  high visibility or difficult/unusual samples  (Special
 Analytical Services)  than for routine sample analysis.   T£is  has
 always been  the case and is not true only for the new ESAT
 acquisition  as  the Office of Inspector General (OIG)  contends in
 the Background  statement of its report.


 ACQUISITION  HISTORY AND  MARKET RESEARCH SHOULD BE USED TO PLAN
 ANALYTICAL SUPPORT SERVICES ACQUISITION

 FINDINGS

      The draft  report states that  the. "Office of Emergency and
 Remedial Response (OERR)  and the Office of Acquisition Management
 .{OAM) have not  adequately planned  either the ESAT replacement
 contracts  or the overall analytical  support  services  contracting
 strategy."   it  further cites the FAR requirements (subparts
 7.102, 7.103, and 7.104)  regarding acquisition planning,  and
 states that  OAM and OERR did not prepare a written acquisition
 plan.  The report states that  OAM  and OERR had not "determined
 the performance and delivery requirements.for the replacement
 contract,  nor analyzed and documented technical,  business,  and
 management issues that might affect  the  acquisition."  , ~

 RESPONSE

     We  believe that  the overall analytical  support services
 contracting,  strategy has been  extensively planned by OERR with
 input from the  ten EPA Regions and OAM.  Since  it is our
 understanding that the OSWER response will address the  overall
 contracting  strategy  in  detail,  we will  not  address it  any
 further  here.                                    • •

     While acquisition planning for the upcoming  ESAT
 reprocurement could have been  better documented, we are concerned
that the OIG audit team  did not request, review or consider,
evidence of the  extensive planning that has taken place for this
                                19

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                                                       APPENDIX I
                                                       Page 4 of 12

 major acquisition effort.  We believe EPA fully complied with FAR
 7.104(a),  which recommends that an agency begin acquisition
 planning as soon as the need is identified.

      The Regional Environmental Services Assistance Team was
 formed in August 1993 to plan the follow-on ESAT'awards  to the
 current" contracts which expire September 30,  1995.   Theuwjorkgroup
 considered the exact issues which the draft report  contends were
 not analyzed,  including developing various pieces of the
 acquisition package which would set forth the performance and
 delivery requirements.                               .

      One of the workgroup's primary .goals was to define   the
 Government's requirements without restricting'competition while
 addressing issues of potential vulnerability.   Subgroups worked
 on  the statement of work (SOW)  and labor classifications,  the
 advisory and assistance services memorandum and the technical
 evaluation criteria, issues dealing with conflicts  of interest,
 and reporting  requirements.  Participants included  regidna^T
 proj ect officers; personnel in the Analytical  Operations Branch
 and the Hazardous Site  Evaluation Division;  contracting"officers
 from headquarters,  the  regions and the Contracts Management
 Division,  Research Triangle Park (CMD-RTP);  and long term
 contracting strategy regional liaisons.
  *                    V
      Likewise,  we believe EPA fully complied with. FAR 7,102.
 regarding  market surveys and enhancing competition.   This  is
 typically  accomplished  by EPA (and other agencies)  in accordance
 with  FAR 5.101.   A synopsis is  published in the Commerce Business
 Daily (CBD)  prior to the release of a  Request  for Proposal in
 order to ascertain interest among potential offerers and to
 notify  them of  an upcoming solicitation.   In addition, when
 deemed  appropriate,  EPA searches the market via "Sources Sought"
 announcements  in the CBD.   This market-search mechanism
 identifies  potential sources to  determine 'if an acquisition  or
 any portion thereof should be set-aside  only for small business
 participation.                   '             .        .

      In  November 1994,  the Small Business Administration
 Procurement .Center  representative  recommended that EPA consider
 the Region  4 portion of the acquisition  for award to a small
 business firm.   A sources  sought synopsis was published  in the
 CBD on December  19,  1994,  which requested interested small
 businesses  to submit a  statement of  their capabilities to.perform
 the effort.  As  a result of that synopsis and a  review of the
 capability  statements received,  the  Region 4 requirement is
 set-aside for small  businesses.

     The CBD announcement  for the  entire ESAT requirement was
published on February. 3, 1995.   It should be noted that  FAR
 5.203(a) requires that  such announcements be published at least

          •      -       -         -2-
                                20

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                                                        APPENDIX I
                                                        Page 5 of 12


 15 days  prior to solicitation release.   In this case,  the
 February CBD notice preceded the solicitation release  by almost
 90 days.   We believe that as a result of these CBD announcements
 and  our  efforts to break-up the requirement,  we received, over 240
 requests for the solicitation.

     As  noted by the OIG,  the EPA Contracts Management-Manual
 requires the preparation and approval of an individual
 acquisition plan for all Superfund acquisitions in excess of
 $25,000,000.   It is EPA's normal practice to  prepare the
 individual acquisition plan after receipt of  a complete .
 procurement request (PR)  package.   Regardless of the amount  of
 advance  planning that goes into an acquisition;  it is  almost
 impossible to complete the formal,  written acquisition plan  un,til
 the  complete package has been  approved by the program office and
 sent to  OAM.   This is due to the fact that the acquisition plan
 must include budget and funding information,  the finalized SOW,
 finalized technical evaluation criteria,  etc.             -^...

   ,  The FAR recognizes this situation  at subpart  7.105,,  which
 states that,  "(t)he specific content  of plans  will  vary,
 depending on the nature,  circumstances,  and stage .of the
 acquisition."  Hence,  the individual, written  acquisition plan
 that is  reviewed,  approved,  and placed  in the  contract file  is
 simply a  documentation of all the  advance planning  that has  been
 done, as  well as the strategy that will be followed until  award.
 In this  case,  the final PR package was  delivered to CMD-RTP  in
 November 1994 and the. acquisition  plan  was approved by the Chief
 of the Contracting Office  on April  6, 1995.

     All  actions taken by  the Agency  related to  the creation of
 an individual acquisition  plan as  well  as the  requirement  to
 conduct market research were-in full  compliance  with the FAR, the
 Environmental Protection Agency Acquisition Regulations, and all
 currently existing EPA policy and  guidance.
           - "          '        if              '

 FAR  LINKS IDENTIFYING NEEDS  TO IDENTIFYING PRODUCT  SOURCES

 FINDINGS

   .  The  draft report states that OERR  expected  the 1995 ESAT
 replacement contracts  to contain broad, umbrella statements  of
 work and  that OAM expected to write a level of effort contract
because definitive analytical, service requirements were not
 developed.  The report also  states  that umbrella contracts can
 lead to personal  service relationships, and> although not  ,
directly  stated,  the  report  implies that  neither an umbrella
 contract  nor  a level  of effort contract  is  appropriate for this
acquisition.
                               -3-

                               21

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                                                       APPENDIX I
                                                       Page 6 of 12

      The  report  further notes  that  the  FAR  "requires an agency to
 describe  the  products to be  used  in the acquisition and whenever
 practicable to state requirements in terms  of functions to be
 performed or .performance required."  The report also cites FAR
 11.003 which  states that "the  acquisition of commercial products
 begins with a description pf the  Government's needs stated in
 functional terms  in sufficient detail so that market research and
 analysis  can be used to help determine  commercial sources."
 Again, there  is the implication that had we complied with  these
 regulations, the  resultant solicitation would have been
 structured differently.

      There is also mention of  the fact  that the FAR advises that
 contracting officers should  avoid protracted use of
 cost-reimbursement contracts.  ' Although never directly stated,  it
 appears that the  OIG's  contention is that the new ESAT contracts
 should be fixed price rather than cost  reimbursement type.-


 RESPONSE                          '•'*•."'

      We cannot comment  on whether OERR  "expected" a broad,
 umbrella SOW.  Regardless, the use  of "umbrella" contracts are
 not prohibited by the FAR.   In addition, the SOW for the ESAT
 contracts has been reviewed  and modified to eliminate many of the
 perceived contracting vulnerabilities associated with such
 contracts.

      The current  ESAT solicitation* meets the requirement at FAR
 10.002 to state requirements in terms of functions to be
 performed or performance required.  The ESAT SOW is comprised of
 narrowly focused, analytical-based tasks that complement each
 other.  Each task was scrutinized carefully and thoroughly to
 ensure that it was well defined and that vulnerabilities such as
 personal services and inherently Governmental functions were
 eliminated or reduced as much  as possible.   Due to the
 uncertainties inherent  in the  regions' requirements and the need
 to provide flexibility  in these contracts,  performance cannot be
 further defined.      '

     Moreover, we believe the  OIG's reference to FAR subpart
 11.003 regarding  commercial products to be in error.   FAR 11.001
 defines a commercial product as:     *v

      "A product,   such/as an  item,  material,  component,  subsystem,
     or system,  sold or traded to the general public in the
     course of normal business operations at prices based on
     established catalog or market prices."

     We do not believe this section of the FAR applies to the
ESAT acquisition since the purpose of the ESAT contract is to

                               -4-
                                22

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                                                        APPENDIX I
                              i                          Page 7 of 12


provide technical  support services rather than items,  materials,
components, etc.,  which are .sold or traded to  the  general public
in the course of normal business operations.

     The OIG suggests  that the  new ESAT  contracts  should
be fixed price rather  than cost type, but fails to support this
contention in any  way.   FAR 16.301-2 states that-	
cost-reimbursement contracts are suitable for  use  when
uncertainties involved in contract performance do  not  permit
costs to be estimated  with sufficient accuracy to  use  any type of
fixed-price contract.   There are many variables in the ESAT SOW
that cannot be predicted with any degree of confidence.   For
example, the ESAT  contractor may be required to develop/adapt
methods for special analyses.   There is  no way to  predict what a
particular region's needs may be in this area.  We are also
unable to anticipate where the  ESAT contractor'may be  needed to
perform on-site field  analysis,  or the nature  or type  of support
needed.                                                  .•""-,.-

     If we. force .this  type of acquisition into a fixed priced
arrangement, offerers  will have to build in allowances for
excessive cost risk, making prices unreasonable.   We believe that
the only reasonable choice for  this acquisition is a cost type
contract, and the  contract file is so documented.

     It should be  noted that in separate contracts for routine
analytical services where we have very well-defined, standardized
requirements, we have  created firm, fixed price, indefinite
delivery/indefinite quantity contracts.   However,  the  nature of
ESAT work is such  that it dannot be standardized.
FAR LINKS POLL AND OPEN COMPETITION WITH MARKET SURVEYS

FINDINGS

     The draft report notes a number of actions which OAM stated
it would undertake in its January 1994 Competition Report in
order to enhance competition.  The.draft report concludes that
OAM did not meet its commitments since it "did not perform any
market research to support the new ESAT acquisition."  In
addition, the report contends .that recommendations from the OAS
Future Directions workgroup have not been implemented by OAM.

RESPONSE

     The OIG's assertion that OAM has not met its commitments as
noted in the January 1994 Competition Report to plan the
acquisition in order to increase competition is without merit.
                               -5-
                                23

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                                                        APPENDIX I
                                                        Page 8 of 12

 In accordance  with the recommendations  of  the  report,  several
 steps'were  taken"to ensure that competition  is enhanced to the
 greatest  extent .possible.

     As noted  above,  the Agency began planning this acquisition
 early in  the acquisition cycle,  and  satisfied  the  FAR  requirement
 for market  surveys to promote and  provide  for  full and _ope_n
 competition.   As .a result of the synopsis  published for this
 acquisition, GAM received and filled over  240  requests for the
 solicitation.  The acquisition was broken  into two zone (Eastern
 and Western) and two  region-specific pilots  for Regions 4 and 7.
 The Region  4 requirement is 100% set-aside.for small business
 firms.

     To eliminate  any incumbent bias, the  SOW  and  technical
 evaluation  criteria have been reviewed  to  ensure that  they are
 non-restrictive.   Corporate experience  represents  only 10% of the
 total evaluation criteria  and is not required  to be EPA-specific.
 Two pre-proposal conferences are being  conducted to answer- ~
 questions from potential offerers.   One-was held in Athens, GA,
 for the Region 4 award and the other will  be held  in Research
 Triangle Park, NC,  for the other three  awards.

     The DIG also  contends that the  DAS Future Directions
 workgroup recommendation that any  effort to improve the delivery
 of  analytical  services should .include the  "flexibility"  to take
 advantage of improvements  in methods, instruments  and  data
 handling systtims as they occur,  has  not been implemented.  The
 recommendation was  applied in the  case of  ESAT by  virtue of the
 fact that the  SOW  is  not SCK rigid  that these improvements cannot
 be  implemented during contract  performance.  The very  fact that
 we  are utilizing a  cost reimbursement,  level of effort  contract
 rather than a  fixed price,  indefinite quantity contract  allows .
 the program this necessary flexibility.


 COST COMPARISONS IDENTIFY  ECONOMICAL SOURCES

 FINDINGS                           '    -

     The draft report states that when commercial  sources are
 available, the Government  should perform a cost comparison
 between contracting but and performing the work in-house to
 determine who  should  do the work.  The report  notes that the  1991
 ESAT acquisition plan stated that because the  Government did not
possess the capability to  do all the' work, requirements  for cost
comparisons did not apply.   The  OIG  contends that OAM personnel
made similar statements concerning the ESAT replacement
contracts.
                               -6-
                                24

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                                                        APPENDIX I
                                                        Page 9 of 12


     Additionally,  the report states that the Agency should
justify any decisions, such as providing space and equipment,
which impact  the contract cost.

RESPONSE

     It appears  that the 1991 ESAT acquisition plan and-the
statements of 0AM employees regarding the inapplicability  of cost
comparisons were in error.   In accordance with OMB Circular. No.
A-76, existing contracts should be continued  if the cost is
reasonable and performance is satisfactory.   The circular
provides, that if contract costs obtained through competitive
solicitation  are reasonable,  the another contract  should be
awarded.  If  the costs obtained are not  reasonable,  then a
determination should be made to see if in-house performance by
Government employees would be feasible.   If in-house performance
is feasible,  then the requirement should be scheduled for"a cost
comparison review.                                      .-'"'-,.-

     It appears  that the OIG has inappropriately mixed  issues
regarding OMB Circular A-76 cost comparisons  with  the cost
benefit decisions to provide government  property under  the
contract.  We disagree with the OIG draft report's findings that
there is no justification for the decision to provide space and
equipment for its onsite contractor.   The justification is
provided .in the  contract files in accordance  with  FAR
requirements.


RECOMMENDATIONS            -
          i                                       ,
     That the Assistant Administrators for Administration  and
Resources Management and for Solid waste and  Emergency  Response:


     1.  work together to develop an analytical support services
     acquisition strategy.   The  strategy can  be divided into a
     short-term  plan to serve expiring ESAT contracts needs and a
     long-term plan to serve EPA's overall analytical support
     service  needs.   The first step should be to .gather product
     needs information from all  program  offices to develop  the
     long term acquisition  plan.

     OARM feels  that an analytical support services strategy in
accordance with  the FAR already  exists.   In the .future,  OAM will
coordinate more  closely with OERR and the regions  in an attempt
to develop individual acquisition plans  earlier in the process
whenever possible.   The formation of  the individual plans will be
triggered by  annual acquisition  plans submitted by the program
offices in accordance with  Chapter 1  of  the EPA Contracts
Management Manual.        .

                               -7-
                                25

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                                                       APPENDIX I
                                                       Page 10 of 12

     Each Region  has  already performed a needs analysis which fed
 into the procurement  request for the current ESAT solicitation.
 This information  was  used to prepare the individual acquisition
 plan for the  new  ESAT contracts which was approved April 6,  1995.


     2.  Plan to  meet the minimum analytical service suppojrt
     needs for the replacement ESAT contracts.

     — Analyze the work being done by the ESAT contractor
     to identify  non-analytical work; work that can be done  by
     other contractors; work that should be done in-house; and
     work that must be done by the ESAT contractor and estimate
     work on  a sample basis, not work years;

     .-- determine whether the work must be done at an Agency
     facility;  and                                       -

     — justify the contract method and type.           • ~

     As discussed above, the ESAT SOW is narrowly focused and
contains analytical-based tasks that complement each other.   At
this time, it  is  not  considered to be in the Government's best
interest to break out any of the tasks for separate procurements
or to bring .-any of the work in-house.

     Due to the uncertainty of the types' of analysis and related
support that may  be required under this effort; it is not
reasonable to  estimate the work on a per sample basis.  .The types
of sample analysis are generally not routine and may involve  any
number of standard and non-standard methods to be performed.

     The determination has already been made that Task 1 must be
done at an Agency facility.  This determination is in response to
a FMFIA finding and recommendation.  It has also already been
determined that a cost reimbursement, level of effort,  work
assignment contract is the most appropriate type for this
acquisition, and  the  appropriate written determinations have been
prepared,  signed, and placed in the contract file.  No further
justification .or  action is needed or warranted.       ,       •
   I                               "             • i

     3.  Flan  future  analytical services acquisitions to address
     the technical, business, management,  and other significant
     considerations required by the FAR.

     — clearly define analytical services type,  quality,
     quantity,  and delivery requirements and develop a
     system for Regions to track costs to obtain these services;

     — conduct market surveys to determine the. best method to •

                               -8-
                               26

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                                                       APPENDIX I
                                                       Page 11 of 12
     package requirements for contracting;
     •-- identify the services that should be performed in-house
     and exclude them from cost comparisons;

     — compare the costs of services that can be contracted out
     and identify the most economical alternatives; and	

     — document significant decisions such as market survey
     results; product descriptions; in-house performance versus
     contractor performance, including contractor use of
     Government-furnished property and equipment.

     As in the past, OAM will assist its customers in their-
continuous efforts to more clearly define their analytical
service requirements.  OAM will also continue to conduct market
surveys to promote and provide for full and open competition.
The documentation for this will be included in contract files and
detailed in individual acquisition plans as required by the "
FAR.  OMB circular A-76 procedures will be followed as
appropriate. Contractor use of Government-furnished property and
equipment will be justified in accordance with the FAR.
                               -9-
                                27

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                   28

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  UNITED STATES ENVIRONMENTAL PROTECTION AGENCY

             WASHINGTON, D.C. 20460
                                                        APPENDIX II
                                                        Page 1 of 22
                                                        . JDFFICEOF
                                                    SOLID WASTE AND EMERGENCY
                                                          RESPONSE
MEMORANDUM
SUBJECT:
FROM:
TO:
Response to the Office  of  Inspector General Draft
Report on Survey  of Acquisition of/Analytical Support
Report No; ElSKF4-07-<

Timothy Fields, Jr.
Deputy Assistant  Admi'

Elissa R. Karpf
Deputy Assistant  Inspector General
     for Acquisition  and Assistance Audits
     The  purpose of this memorandum is to transmit the  Office of
Solid Waste and Emergency Response (OSWER) comments on  the Office
of Inspector General (OIG) Draft Report on Survey of Acquisition
of Analytical Support,  Report.No. E1SKF4-07-0053-XXXX.  We
reviewed  the OIG, draft report to insure that it is factual and is
presented in a fair and equitable.manner.

General Comments on Draft Report

     In general, we disagree with the findings and recommenda-
tions that are cited in the OIG draft report.  The report  does
not present any in-depth analysis or statistics to support its
conclusions.   It does not reflect the manner in which analytical
services  acquisitions, are planned and carried out, and  does not
adequately acknowledge the comprehensive strategy that  has been
developed and which is being implemented in delivering  analytical
services  to EPA for the Superfuhd program.

     The  EPA Superfund analytical services support strategy is
well defined,  coordinated, and serves the program in a  cost-
effective manner,  while providing flexibility where needed.
Superfund's analytical support strategy uses the roost diverse
types of  contracts of any program in EPA.  Costs, quantities,
specifications,  products, packaging,  and delivery time  frames are
known by  Headquarters for the Headquarters Contract Lab Program
Routine Analytical Services (CLP RAS)  contracts, and this
information is used in fixed price CLP RAS contracts.   Such
information,  if applicable, is also maintained by the Regions for
their Environmental Services Assistance Team (ESAT) contracts and
        Recycled/Recyclable • Primed wish Vegetable Oil BasttUnKs on 100% Recycled Paper (40% Postconsumer)

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                                                       APPENDIX II
                                                       Page 2 of 22

 Delivery of Analytical services (DAS)  program.  According to the
 General Accounting Office (GAO),  the CLP RAS program pays the
 lowest sample prices in the commercial marketplace and among
. other governmental agencies which perform the same work.

      Each major acquisition is carefully planned to determine the
 most appropriate contracting mechanism, while taking into
 consideration important programmatic issues, such as analytical
 flexibility and available Federal personnel resources.  A
 procedure exists for converting higher cost, repetitive Special
 Analytical Services (SAS) analyses into lower cost, low risk CLP
.RAS analyses, and this strategy is being used as a model by other
 governmental agencies.  Improved methods, instruments, and data
 handling systems are incorporated into the national CLP RAS
 contracts, as well as in Regional DAS  programs.   The ESAT
 contracts, which are part of the overall analytical services
 strategy,  have been developed to eliminate or minimize potential
.contracting vulnerabilities, and provide EPA with a cost-
 effective approach -for maximizing the  use of the Regional-^....
 laboratories, fully utilizing state-of-the-art Regional
 equipment, providing needed flexibility in sample analyses,
 providing the ability to used improved methods,  instruments,  and
 data handling systems,  and minimizing  the risks  to data
 integrity.

      We are concerned that the OIG review team does not clearly
 understand the Superfuhd analytical services program,  including
 the associated complexities.  The analytical .services  program has
 undergone extensive acquisition planning,.taking into  account
 virtually all the issues that the OIG  draft report identifies,
 including acquisition1 history,  determination of  performance and
 delivery requirements,  and cost comparisons,  as.well as
technical, business,  and management issues.

  :    Because virtually all the concerns which are cited in the
OIG draft report are already adequately addressed by the Office
 of  Emergency and Remedial Response (OERR),  and we have not been
able to identify any issues  of concern at the national level,  we
request that the OIG discontinue  its review of acquisition of
analytical support at the national, level.
                                                    \
General Comments on Auditors Approach

      We would also like to point  out several issues regarding  the
OIG draft  report and audit approach that raise serious concerns
for us.   First,  in the  entrance conference,  the  OIG did not
indicate that acquisition planning was the focus of the review,
but rather analytical' costs.   Had  the  OIG indicated that it was
interested in.acquisition planning,  we would have explained the
analytical services  program,  its history,  and programmatic
issues.  Had the OIG also indicated that it was  focusing on items
such as sources,  quantities,  specifications,  packaging,  data
                                30

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                                                              n
                                                       Page 3 of 22

handling, and delivery  time  frames, we would have provided'the
OIG with that information  as well.

     In fact, we first  learned that the OIG review team had
changed the direction' and  scope of its review at the .debriefing
meeting, after the OIG  review team's field work had been
completed.  In the attached  document, we have provided section-
by-section factual information on the topics discussed--ia-the OIG
draft report.  We request  that the OIG review this information,
and reflect these facts in the appropriate sections of the  OIG
report.  We are willing to provide additional assistance to the
OIG staff to clarify  any issues or provide further information to
ensure the final report, when published, accurately states  the
facts.

     Second, many of  the issues that are raised in the OIG  draft
report are not national issues.  The division of.responsibility
between Headquarters  and the Regions, which is an integral  part
of the DAS strategy,  has been explained previously to the^OIG
review team.  Third,  Region  VII stated that the OIG failed  to
take its comments -into  consideration before issuing the, OIG draft
report.  Fourth, in some cases, the OIG has not considered
legitimate issues that  caused the analytical services program to
be developed in a particular manner.  We are also concerned that
the OIG did not provide supporting statistics or an in-depth
analysis to support its findings that EPA may be paying more for
analytical services than necessary, other than providing
theoretical arguments',  drawing unsubstantiated, conclusions, and
quoting from the Federal Acquisition Regulations (FAR)."•     ;

     The OIG draft report  further concerns us because the review
should have been confined  to Region VII, as the OIG review  team
indicated, and not escalated to the national level.   Both Region
VII and Headquarters  were  never initially questioned on
acquisition planning  during  the review period,  It was our
understanding that the  focus of the audit was on analytical
costs.  All of the information that the OIG says is lacking is
maintained in Headquarters for the Headquarters contracts, but
the OIG review team never  asked us for it.  This same information
for Regional contracts  is  only maintained at the Regional level.
                      1   .  .
Specific Comments on  Findings and Recommendations

     Our responses to the  specific findings and recommendations
contained in the OIG  draft report are presented below.   -  .      !

OIG Finding l;

     Acquisition history and market research should be used to
     plan analytical  support services acquisition.
                               31

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 OSWER Response;
                                                       APPENDIX II
                                                       Page 4 of 22
      OSWER has always built on the past acquisition history'to
 plan new analytical services acquisitions.   For both CLP RAS and
 ESAT contracts, the contracts are continuously evaluated with
 Regional input, and improvements are made to the. contracts.   For
 CLP RAS contracts, analytical methods and new equipment are
 evaluated for technical merit, and where appropriate,  are
 incorporated into the contracts.  For the ESAT contracts, the SOW
 has been evaluated several times and improvements have been
 continuously made to eliminate potential contracting
 vulnerabilities.   The fixed price mechanism for CLP RAS contracts
 and the cost-reimbursable mechanism for the ESAT contracts have
 been determined to be the best vehicles for these contracts.   The
 CLP RAS contracts are low cost,  low risk contracts,  while .the
 ESAT contracts provide.essential flexibility for providing non-
 routine analyses.  EPA Regions also use acquisition histories to
 plan their analytical support service acquisition strategies.
 This information on Regional analytical acquisitions is only
 maintained at the ..Regional level.                       •  -"-

 OIG Recommendation from Finding it                   .  ''

      OARM and OSWER should work together to develop  an analytical
      support services acquisition strategy.   The strategy can be
      divided into a short-term plan to serve expiring  ESAT
      contracts needs and a long-term plan to serve EPA's  overall
      analytical support service needs.   The first step .should be
      to gather product needs information from all program offices
     "to.develop the long-term acquisition plan.

 OSWER Response to Recommendation from Finding It

      Superfund's  analytical services strategy is  not ESAT-
 specific since EPA laboratory personnel  and various other .
 contract vehicles in addition to ESAT are also involved.   The
 OERR short-term analytical acquisition strategy  is based, on the
 Office  of Acquisition Management (OAM)-mandated annual
 acquisition  plan.   The long-term acquisition plan is based on the
 DAS  strategy.
 - L         '            i     '
      The short-term needs  of the ESAT replacement contracts will
 be met  by the  base period  of each of the  contracts.  Any  changes
 in the•configuration of the contractor teams, including size  and
 composition, will be justified by the Regions.  These team
 configuration  changes will then  be  incorporated into the  option
years of the contracts.          .              '

      In  the  future,  we will coordinate more  closely with OAM  on
the development of  the annual  acquisition plan, so that these
acquisitions will be started earlier.  OERR  is actively
implementing the  DAS  strategy  by decentralizing the national  SAS
                               32

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                                                        APPENDIX II
                                                        Page 5 of 22

 program,  working with the Regions to identify the most promising .
 contractual vehicles, and providing an analytical budget to each
 Region to encourage only analyses of samples that are needed.
 The long-term acquisition plan may not have been conveyed through
 OERR's annual acquisition plan.  We will also convey this
 information to the Regions so that they may incorporate the
 results of implementing the DAS strategy into their annual
 acquisition plans.	

 OI6 Finding 28

      FAR links identifying needs to identifying  product sources.

 OSWER Response:

      OSWER has always made an effort to determine the .analytical
 needs of  the Regions before working with 0AM in  determining the
 most appropriate type of analytical services contract.   The CLP
 RAS program uses fixed price contracts,  the largest number^ ..of
 such-preferred contracts in a single program in  the Agency.,  that
 minimize  costs and  risks to the-government.   The CLP RAS fixed
 price contracts are based on specifications,  products;  services,
 estimated quantities,, contract history,  packaging sample work,
 and delivery time frames.   Because the  ESAT analytical  services
 task is used mainly for. non-routine analyses, the ESAT  contracts
 are also  based on the'Regions' .needs for flexibility in providing
 those types of analytical services,  for  quality  assurance and
 integrity of data,  and for maximizing the use of  the Regional
 laboratories.   The  above specifications  are provided in    .
 individual work  assignments.

      The  DAS effort amassed an enormous  amount of  information  on
 the current state,  customer needs,  future directions, resources,
 vulnerabilities,  and efficiencies,  and this effort  identified  the
 Superfund analytical needs for the long  term.  Superfund's  long
 term needs for analytical  services were  addressed by the  future
 directions workgroup,  which projected future  Superfund
 activities,  estimated future directions  in  the marketplace, arid
 considered the impact of policy and legislative activities on
 future  analytical services.

      The  ESAT analytical services  task works  best on-site to
maximize  the use of the  Regional laboratories, to save
unnecessary equipment; costs which  would be  required for having
the work  performed  off-site,  to continue  the  appropriate  -
management that  is  provided by  the Region,  and decrease,the
 likelihood of laboratory fraud.  It also  provides EPA with
instantaneous access to  the raw data  so that the contractor
cannot  falsify analytical  data, helps to  maintain the quality  and
integrity, of analytical  data,  allows  EPA  to make course
corrections  during  an: analytical project, and generally minimizes
risks to  the government  for obtaining unusable data.  If we did
                                33

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                                                       APPENDIX II
                                                       Page 6 of 22.

 not use our own facilities,  our costs and risks would necessarily
 increase.

      RECAP is a pilot contract that is being evaluated for its
 ability to provide Regional  control for analytical services at
 comparable or lower costs than the traditional program.   While
 Region VII favors it, the contract nevertheless has many
 disadvantages.   As a result  of the OSWER decision to decentralize
 the national SAS program, several  Regions are learning from the
 RECAP experience to develop  improved Regional contracts.

 OIG Rft«g>Tnnieiida,tion from Finding Z* •

      Plan to meet minimum analytical service support needs for
      the .replacement ESAT contracts.

 •     Analyze the work being  done by the ESAT contractor  to
      identify non-analytical work;  work that can be done by other
      contractors; work that  should  be done in-house;  and Work
      that must  be done by the ESAT  contractor and estimate work
      on a sample basis,  not  workyears;

 •     Determine  whether the work must be done at an Agency
      facility;  and
                      >
 •     Justify the contract method and type.

 OSWER Response  to Recommendations from Finding 2;
     Each Region has  a  decision tree that outlines the order  in
which sample  analyses work^ls distributed.  Distribution of
sample analyses  is  a  Regional responsibility.  Generally, the
Regions provide  work  to their in-house employees first,, then  non-
routine analyses to ESAT, routine analyses to the CLP, and non-
routine sample overflow from ESAT is accommodated by the Regional
DAS program.  The specifics of information on sample distribution
is maintained in the  Region.  In fact/Region VII provided the
OI6 review team  with  its standard Operating Procedures for
selecting its sources'of analytical services.  ESAT capacity  in
the analytical services task is maintained by providing services
to other EPA  programs through buy-ins, and by the ability to
shift technical  personnel to related technical tasks.

     The CLP  RAS analytical service comprises fixed-price
contracts in  which  work is estimated on a sample basis.
Estimating work  on  a  sample basis for ESAT or other contract
vehicles that provide-non-routine analysis is not a realistic
option, since there is  a very large number of variations that can
exist for a particular  type of analysis.  Basing non-routine  work
on a sample basis would severely restrict EPA's ability to
provide timely analyses for situations that do not perfectly  fit
the corresponding SOW.  These situations cannot be predicted  in
                                34

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                                                       APPENDIX II
                                                       Page 7 of 22
 advance,  and numbers of non-routine  SAS  samples are often not
 known until  work begins on a site.   In some cases,  in which
 Headquarters attempted to convert repetitive SAS analyses to
 well-defined HAS analyses,  the Regional  demand for  the HAS
 service did  not materialize,  and the HAS service had to  be
 discontinued.   This situation occurred for  several  analytical
 services.  It may,  however,  be possible  for a Region to  provide a
 Region-specific,  multi-site analytical service for  a particular
 type  of analysis,  in which quantities, specifications, products,
 packaging, demand for the service, and .delivery time frames are
 more  defined.   This information is only  maintained  in the Region.

      Regarding justifying the contract method and type,  we will
 analyze the  tasks under ESAT to determine the most  appropriate
 contract method and type for the next procurement cycle.   We will
 also  convey  this information to the  Regions,  which  are
 responsible  for justifying the contract  method and  type  for the
 analytical services contracts under  their DAS programs.

 PIG Finding  4;                                          ' '*"""

      Cost comparisons identify economical sources.
                *
 OSWER Response;

      The CLP RAS  analytical  service  is the  most cost-effective
 analytical service  among several government agencies  that  perform
 similar analyses.   It-provides the least  expensive price with the
 least risk to the government.  GAO. is recommending that  other
 governmental agencies-adopt  the same 'approach.

      When the SAS program was centralized in  Headquarters,
 several detailed compilations of SAS utilization were provided to
 the Regions  between 1993  and  1994,  including  information on
 costs, quantities,  analytical procedures, and delivery time
 frames.  This information on  the Regional DAS programs is
 maintained within the Region.  Although this  information is  known
 for past SAS events,  requirements continually change as  site
 conditions change and new projects are initiated.

   ,   While analytical costs are important,  such costs may  not be
 the controlling factor for choosing one analytical source  over
 another.  The controlling factor is the need  to obtain data  of
known and documented  quality  so that the  responsible parties can
 continue to'provide most  of the costs for cleanup of hazardous
waste  sites.  Non-routine SAS analyses often  depend on demand,
delivery time frames,  Region-specific needs,  the availability of
qualified laboratories, the need for appropriate management,
 laboratory performance, sample matrix,  flexibility,  and
availability of an  acceptable analytical method.,
                                7.

                                35

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                                                       APPENDIX II
                                                       Page 8 of 22
 PIG Recommendation from Finding
      Plan future analytical services  acquisitions  to  address the
      technical,  business,  management, and other  significant
      considerations  required by the FAR.

      Clearly  define  analytical services type, quality,  quantity,
      and  delivery requirements and develop a system •for_.Begions
      to track costs  to obtain these services;

      Conduct  market  surveys to determine the best  method  to
      package  requirements  for contracting;

      Identify the services that should be performed in-house and
      exclude  them from cost comparisons;

      Compare  the cost  of services that can be contracted  out and
      identify the most economical alternatives;  and

      Document significant  decisions such as market survey^
      results;  product  descriptions; in-house performance  versus
      contractor  performance,  including contractor  use of
      Government-furnished  property and equipment.
                     i
            is 6 to RecoynTnenda1
     The CLP RAS contract, which is procured and managed by
Headquarters, is a several-hundred page document that contains
information on quantities, specifications, products, packaging,
and delivery time frames.  This information is comprehensively
documented.               ~
                                       /
     As stated above, each Region is responsible for making
sample distribution decisions and has a decision tree that
outlines the order in which sample analyses work is distributed.
The specifics of this information are only maintained in the
Region.

     Establishment 'of'Regional analytical budgets has increased
Regional awareness of analytical costs, and the Regions are
becoming more cost conscious when determining the number of
samples and analyses to be collected..  As a result, we are seeing
more use of ESAT for non-routine analyses and some shifting of
demand to the lower cost, low risk CLP RAS service.  As part of
our effort to continue to improve our analytical services-
program, we will issue guidance to the Regions, when appropriate,
requesting them to track analytical costs when obtaining
analytical services.

     The fact that analytical costs are not necessarily the
controlling factor for choosing one analytical source over
                                8 .

                                36

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                                                      APPENDIX II
                                                      Page 9 of 22.

another must also be taken into account.  The reasons for  this
fact is described above and in Attachment I.

     As stated above, the ESAT analytical support task is  best.
performed on-site in order to conserve costs, to maximize  the use
of Regional laboratory facilities and equipment, and to minimize
the risk to the government for obtaining unusable data.  During
the next ESAT procurement cycle, we will continue to document our
key decisions.

     We appreciate the opportunity of being able to provide
comments on the draft OIG report on the survey of Acquisition of.
Analytical Support.  We hope that you will take our comments and
additional information into consideration as this review nears
completion.  If you have any questions about our response  or wish
to arrange a meeting, please have your staff contact Larry Reed,
Director, Hazardous Site Evaluation Division, at (703) 603-8850,
or Hans Crump, Chief, Analytical Operations Branch, at (703) 603-
8821.                                                  :"~z.--

Attachments                  .                   ,       -         .

cc:  Tim Fields
     Johnsie Webster '
     Becky Brooks
     Sharon Hallinan
     Hans Crump
     Howard Fribush
                                 9


                                37

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                                           APPEMHX II
                                           Page 10 of 22
[This page intentionally left blank.]
               38

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                                                       APPENDIX II
                                                       Page 11 of 22

                                                   Attachment I
 Superfund Analytical  Services Program
    .  This discussion describes the overall  analytical  services
 support strategy for the Superfund program.  A knowledge of this
 strategy is essential for understanding the development and flow
 of information that  is used to support and  continually-Improve
 the Superfund analytical services program.

      The Superfund analytical services program is comprised of -
 two major components,  routine analytical services  (RAS)  and
 specialized analytical services (SAS).  These two components are
 accommodated by a variety of analytical service mechanisms,
 including the Regional laboratory,  the Contract Laboratory
 program (CLP),  the Environmental  Services Assistance Team (ESAT)
 contracts,  and various types of Regional contracts.  The Regional
 laboratory,  which is staffed by EPA chemists, typically retains
 the right of first refusal in accepting samples for analysis.
 When  the Regional laboratory,  which serves  a multitude  of :-EPA
 statutory programs in addition to Superfund, has reached
 capacity,  the sample overflow is  accommodated among the various
 other analytical support services which are mentioned above.

      The CLP is a nationally managed program which accepts
 samples for routine  analyses.   The CLP provides these routine
 analyses for a  high  volume of organic and inorganic samples  for
 which the analyses are standardized. . The CLP RAS program uses
 fixed price contracts,  therlargest number of such preferred
 contracts in a  single  program in  the Agency, that minimize costs
 and risks to the government.   A recent review of analytical  costs
 by the  General  Accounting Office  (GAO) has shown that EPA's  CLP
 RAS costs are as much  as.220 percent lower than the costs paid by
 other governmental agencies  for similar analyses.

      Unlike RAS,  which are routine, standardized analyses, SAS
 analyses are non-routine,  highly  specialized and depend on site-
 specific conditions.   As such,  SAS  analyses may require uncommon
 analytical  procedures,  low detection limits-, analyses for
 individual  contaminants,  considerations of unusual matrices, and
 specialized quality  control  requirements.  It is important to
 note  that SAS requirements often  change as a sampling project
proceeds,  since newly; collected information during the  project
may require  a change in the  analytical approach.  Therefore, SAS
 analyses are best administered and  managed by the Regions-, which
are most familiar.with site-specific circumstances, such as
choice  of analytical method,  the  complexities of mixed waste
 sites,  and Regional  enforcement policies that may require one
approach over another.   In fact,-  there are many differences among
Regions in their non-routine SAS  analytical needs.  For  example,
one Region may  be mainly concerned  with low concentration
volatiles analysis in water  matrices, another Region may  be

               .                 10                -
                                39

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                                                       APPENDIX II
                                                       Page 12 of 22

 mainly concerned with low detection limits for all analyses, and
 another Region may be mainly concerned with difficult sample
 matrices.  Due to the non-routine nature of SAS analyses,
 management and procurement .of such analyses were reassigned to
 the Regions by an OSWER Decision Memorandum which is dated
 January 27, 1993.

      The ESAT contracts are cost-reimbursable contracts""whose
 primary purpose is to provide the Regions with.a cost-effective
 mechanism to maximize the use of the Regional laboratories.   The
 ESAT contracts provide chemists to provide analytical support to
 the Regional laboratory,  since the Regions have insufficient
 chemists to fully staff .their own laboratories.   As such, the
 work assigned to the on-site ESAT chemists are under Regional
 control,  and the Region can provide appropriate management of the
 sample analyses.   The overflow of samples from EPA chemists is
 typically assigned to ESAT chemists for non-routine SAS analyses,
 or to the CLP.for RAS analyses.   In terms of the number of.
 parameters which are analyzed,  the CLP RAS program typically
 analyzes  about ten times  the number of parameters in a CLP RAS
 sample than is typically  analyzed in a non-routine SAS -sample.
 While each type of sample may be labeled as RAS  or SAS,  the  two
 types of  samples are vastly different, in terms of number of
 parameters analyzed,  matrices, analysis requirements,  analytical
 procedures used,  and other factors.

      In addition to ESAT  and CLP RAS,  the overflow of  SAS samples
 from the  Regional laboratory is  directed to the  various   .
 mechanisms of analytical  services that may be maintained  in  a
 particular Region.   These sources were established as  a result of
 the  DAS strategy,  which culminated in  a shift of the ratio of
 Headquarters-managed services to Regionally-managed services from
 50:50 to  25:75.   The Regional DAS program includes subcontracting
 using field contracts-(e.g.,  Alternative Remedial  Contracts,  -
 Technical  Assistance Team contracts),  small purchase orders,
 blanket purchase  agreements,  and interagency agreements.  Some
 Regions are developing their own Regional analytical support
 contracts.   This  strategy provides the Region's with more  control
 and  flexibility to acquire non-routine SAS analyses, which are
 site-specific and which the Regions  are in the.best position to
 administer and manage;

      Once  a non-routine SAS analysis achieves a  sufficient demand
 by a  majority of  the  Regions, Headquarters  will  convert the  SAS
 analysis into a fixed, price CLP  RAS  service,- provided the" service
 can be  standardized.  Headquarters is  currently  in  the process of
 converting two SAS  analyses into RAS services.   These SAS
 analyses include  Low  Concentration Organics and  Water Quality
 Parameters.  Specific criteria for converting SAS  analyses into
RAS services have been established by  the  CLP'.
                                11

                               40

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                                                       APPENDIX II
                                                       Page 13 of 22

      It is important to note that the Region VII analytical
 support contract,  Regional Environmental Collection and Analysis
 Program (RECAP),  is a pilot contract that was initiated by the
 Region with Headquarters support.  One purpose of the RECAP
 contract is to determine if an alternate mechanism for providing
 Regional control over, its analytical services also provides a
 Region with greater flexibility in acquiring RAS and SAS_services
 at comparable or lower costs than the traditional program.

      We would also like to emphasize that,  while analytical costs
 are important, the chpice of analytical services is not
 necessarily cost-driven.  An emergency response, for example, may
 require the Agency to expend greater financial resources to  ,
 acquire the analyses in a manner that is more timely than the
 conventional sources.  Regional enforcement policy may dictate
 that EPA use the same procedure as the Potentially Responsible
 Party for comparison purposes,  even though a different analytical
 procedure is better or'more cost-effective.  These factors were
 explained to the OIG review team during the entrance conference;
 unfortunately, the OIG draft report does:hot take.into   :
 consideration these programmatic issues.  Beginning in -FY 95,
 however,  we instituted a change in the analytical services
 program that is resulting in. a greater Regional awareness of
 analytical costs.   This change j.s discussed below.

 Acquisition History                .

      We disagree with the OIG finding that the ESAT replacement
 contracts and the overall analytical support services have not
 been adequately planned.  Extensive planning was conducted
 beginning about two years before the expiration of the current
. ESAT contracts,  but we were not asked about it by the OIG review
 team.   We also disagree with the statement that EPA's planning
 effort was primarily focused on decentralization.  To improve
 understanding for the purpose of acquisition plans,  however, we
 will cross-reference our planning documents' to indicate the
 various steps we have taken to implement our analytical services
 strategy.                       •

      We do know that the demand for samples analyses far exceeds
 our in-house capacity.  Consequently,  the majority of sample
 analyses work needs to be performed via a variety of appropriate
 contract mechanisms.  The Regional laboratories would be
 overwhelmed by the volume of sample analyses that need to be
 performed for the Superfund program.  Furthermore,  non-routine
 SAS analyses.comprise procedures that are not well defined,  since
 they are site- and project-specific as stated previously in our
 response.   Contracts such as ESAT or RECAP cannot be defined in
 terms of quantities, specifications, products, packaging, and
 delivery time frames except on a prpject-by-project basis.  This
 is why the RECAP contract is a delivery'order contract, and every
 project must be negotiated with the laboratory before; analysis

                                12
                                41

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                                                       APPHODC II
                                                       Page 14 of 22

 can begin, or why the delivery requirements for the ESAT
 replacement contracts are defined in work assignments.  Where SAS
 analyses are similar to CLP RAS analyses, the various well-
 defined CLP PAS Statements of Work (SOWs) are used as the basis
 for the ESAT analysis.  However, many non-routine SAS procedures
 do not have highly definitive SOWs in comparison to RAS analyses.

      As stated previously in our response, while analytical costs
 are important, they may not be the controlling factor for
 choosing one analytical source over another.  Non-routine SAS
 analyses often depend on capacity (demand for the service),
 delivery time frames, Region-specific needs, the availability of
 qualified laboratories, the need for appropriate management,
 laboratory performance, sample matrix, flexibility, and
 availability of an acceptable analytical method.  Therefore, the
 SAS program needs to have the flexibility to provide technical
 direction to the contractor to change the approach during, an
 analytical project if the analytical method is not amenable to
 the sample matrix.                                     .  V.--

      A recent change in the analytical services program-has
 resulted in a greater'Regional awareness of analytical costs.   j;n
 the 1991 Agency Review of the Contract Laboratory Program (the
 CLP FMFIA review), the Agency Task Force found that because CLP
 analytical services were paid from a Headquarters account,  the
 CLP was viewed as a free good,  and little incentive existed for
.the Regions to carefully control the number of samples and the
 number of analyses completed per sample.   As a result, .the Task
 Force recommended that OSWER consider the use of a Regional
 analytical budget to act as. an incentive to collect only needed
 data.   In FY 94,  Regional analytical budgets were established  and
 were fully implemented in FY 95.   Regional analytical budgets  s
 comprise costs associated with CLP RAS,  ESAT,  and the Regional
 DAS program.   Expenditures are provided to the Regions on a
 monthly basis so that*the Regions can track their analytical  >
 costs.   As a result,  we are seeing more use of ESAT services for
 non-routine analyses,  and some shifting of demand to the  lower
 cost,  low risk CLP RAS service.               .

      Projecting non-routine SAS -analyses on a sample basis  is  not
 a realistic option,  since a large number of variations can  exist
 for a particular type'of analysis.   If the ESAT contracts were
 based on the.sample instead of workyears,  EPA would be incapable
 of  providing timely analyses for  situations that do not perfectly
 fit the corresponding SOW.  ' These situations cannot be predicted
 in  advance,  and numbers  of non-routine SAS samples are often not
known until work begins  on a site.   In some cases,  in which
Headquarters  attempted to convert repetitive SAS analyses to
well-defined RAS  analyses,  the Regional  demand for the RAS
service did not materialize,  and  the  RAS  service had to be
discontinued or cancelled.   This  situation occurred for ambient
air analyses,  high concentration  organics  and  inorganics, TCLP

                                13          •           - ' .  " '
                                42

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                                                       APPENDIX II
                                                       Page 15 of 22

organics and inorganics,  and quick turnaround organics.   It  may,
however, be possible  for  a Region to provide a Region-specific
multi-site analytical service for a particular type of analysis,
in which quantities,  specifications, products, packaging,  demand
for the service, and  delivery time frames are more defined.   Such
specific information  is only maintained at the Regional level.

     Contrary to what was stated in the OIG draft report—^the
planning for ESAT did, not rely on justifications which were
appropriate when EPA  was  a new agency.  EPA was a new agency in
1970, Superfund started in 1981,. and the first ESAT contracts
were awarded in 1987.  The original ESAT contracts were carefully
planned and configured to complement the unique Regional
analytical service needs  in the most cost-effective manner.
Consequently, the ESAT contracts are still relatively new
contracts, and any standardization of approach on the ESAT
contracts is only beginning to be realized.  Extensive planning
was undertaken for the ESAT replacement contracts, which included
formation of a national workgroup of Regional and Headquarters
Project Officers, the, Contracting Officer, and Long-Term  :.
Contracting Strategy  representatives.  The planning also involved
refining the ESAT SOW to  minimize and eliminate, where possible,
potential contracting vulnerabilities that were identified during
the administration of the previous ESAT contracts.  This effort
included narrowing the scope of the ESAT SOW, excluding certain
activities that may be construed as personal services or
inherently governmental,  and moving certain functions off-site.
It is important to note that the ESAT replacement contracts  are,
in effect, Regional contracts; each Region has tailored its.ESAT
to perform those tasks of the ESAT SOW that it desires.  For
example, one Region activates the quality assurance task, but not
the analytical services task.  Another Region uses ESAT primarily
for methods refinement.   Some Regions use ESAT primarily to
provide on-site analyses,  our EPA Regions depend on the ESAT
contracts as the primary  contract mechanism for providing or
assisting in non-routine  SAS analyses.
                      i      .     *.    .
     Regarding acquisition planning for other analytical service
sources, we continually evaluate the CLP RAS contracts to
determine if other contracting or packaging mechanisms are more
appropriate than the  current system.  This is a constant,
iterative process.  Recently, for example, we undertook a
comprehensive study to determine if contracting mechanisms,  other
than fixed price contracts, would provide the Regions with
increased flexibility  in  the CLP RAS. program.  We are also
evaluating the feasibility of combining similar.CLP RAS services
in the same Invitation for Bid.  In addition, we perform
technical evaluations; of  laboratory results on quality control
and quality assurance1 samples in an effort to improve our
analytical procedures- so  that they are more amenable to varying
sample matrices.
                                14
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                                                       APPENDIX II
                                                       Page 16 of 22
      We disagree with the OIG draft report that states that OERR
 relied primarily on decentralization as its method of acquisition
 planning.  Decentralization of SAS was undertaken to meet the
 goals of the DAS strategy by shifting more of the responsibility
 for analytical services from Headquarters to the Regions, since
 the Regions are more familiar with the specific requirements of
 non-routine analyses.  Decentralization of ESAT would encourage
 greater Regional responsibility for their on-site contrarrtor
 teams, which is more difficult to provide at the national level.
 Decentralization is not a goal in itself.  Instead, it provides
 more flexibility to the Regions, gives more Regional control and
 responsibility over programs that are Regionally driven, reduces
 organizational layers, minimizes, contracting vulnerabilities, and
 encourages better management.

 IdentifJLcation of Needs and Product Sources

      In 1993,  the International Association of Environmental
 Testing Laboratories (IAETL)  issued a comprehensive market .-survey
 which is publicly available.   The DAS Task Force and CLP have .
 saved considerable money and time by using it in planning and in
 designing its  delivery of analytical services strategy.   The
 IAETL report describes in detail the projected analytical service
 needs of EPA,  other Federal agencies,  and the private sector.  It
 also describes and identifies the current and projected  community
 of environmental testing laboratories which are and will be
 available to meet future analytical service demand.  Business
 decisions regarding the CLP are made using the best information
 available and  are'based on a  variety of sources,  such as the
 IAETL report.   ..._'••

      We disagree with the OIG draft report that the ESAT
 contracts are  broad,  umbrella contracts.   The ESAT contracts are
 jfocused contracts that contain tasks that complement each other.
 The ESAT contracts are used mainly to  make full use of the
 Regional laboratories,  to conduct on-site measurements (field
 analyses),  and to perform quality assurance reviews of CLP RAS
 and other analytical  data.  Furthermore,  some Regions use the
 ESAT contract  to  refine analytical methods to make them  more'
 amenable to various matrices.   The analytical services and
 quality assurance tasks are interrelated;  technical personnel can
 be shifted between tasks to keep the contract fully utilized at
.all times.   In addition',  the  Regions use  the ESAT contracts  to
 support other  EPA programs, such as Toxic Substances,  Solid
 Waste,  Water,  and Air.   These "buy-ins" also help to keep the
 ESAT fully utilized.   In the  absence of national  contracts for
 SAS and quality assurance data review, these related tasks were
 combined into  the same SOW to both conserve scarce Federal
 personnel  resources and to fill an essential need at the Regional
 level.
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                                                       APPENDIX II
                                                       Page 17 of 22
      We have also recognized the potential for the ESAT contracts
 to expose the Agency to a risk of providing personal services and
 performing inherently governmental functions.   To ;address these
 concerns,  ESAT employees are segregated from EPA employees,  and
 ESAT employees wear .identification badges  so that they may not be
 mistaken for EPA employees.  .In addition,  the Contracting Officer
 undertook a major on-site review of the Regional ESATs in 1992-
 1993,  and the ESAT SOW has been revised several times ^bo—
 eliminate contracting vulnerabilities.   Furthermore,  costs  are
 decreasing as we have provided the ESAT contractor with automated
 tools.   One Region has estimated,  for example,  that utilizing the
 EPA-developed Computer-Aided Data Review and Evaluation (CADRE)
 program is saving the Agency about 50. percent of the ESAT level
 of effort hours as compared to a full manual quality assurance
 review.

     We also disagree that the DAS Task Force  did an inadequate
 job of  identifying analytical  needs.  The  DAS  Task Force amassed
 an enormous amount of information over  a two-year period -through
 workgroup meetings,  steering committee  meetings,  Regional:,visits,
 interviews,  surveys,  and conference 'calls.   This effort, collected
 information on the current state,  customer needs,  future
 directions,  resources,  vulnerabilities,  and efficiencies.
 Superfund's long-term needs  for analytical services were
 addressed  by the future directions workgroup, which projected
 future  Superfund activities, estimated  future directions in the
 marketplace,  and considered  the impact  of  policy'and  legislative
 activities on future analytical services.   The  final  product  of '
 the DAS  Task Force was a framework for  the delivery of  Superfund
 analytical services  for the  next decade.
                      *     ~       '  •        .
     The DAS workgroup on customer needs stated.that  the current
 system provides a more reasonable  pricing  of analytical  services,
 that customers preferred less  paperwork, that the future
 analytical delivery  system should  be designed with more
 flexibility,  and that customers believed that the EPA Regional
 laboratories deliver reliable  analytical services.

     This  last finding is especially important  because
 elimination of' ESAT  analytical services  fx*om the EPA  Regional
 laboratory would have several  adverse consequences.   First, the
 Regional laboratories would  be underutilized, which is not cost-
 effective.   Second,  the government would be responsible  for costs
 associated with additional laboratory facilities and  equipment,
 even though the equipment, including state-of-the-art EPA-
 equipment,  is  already maintained in the  Regional laboratories.
This may lead  to situations  in which EPA-owned  equipment would
not  be fully utilized.   Third,  there would  be a decrease in the
amount of  management  of CLP  and non-CLP  labor that is provided  by
the  Region which,  in  turn, may increase  the risk of laboratory
 fraud.   We would like'to stress that laboratory fraud was the
most significant •concern that  was  raised in the CLP FMFIA review.
                      i
                                16
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                                                       APPENDIX II
                                                       Page 18 of 22

      Fourth, performance of the ESAT analytical services task on-
 site, provides EPA with instantaneous access to the raw data, and
 makes falsification of data more difficult.   Because the
 Superfund program is an enforcement-based program,  and due  to
 Superfund's actual experience with laboratory fraud cases,  it is
 imperative that the quality and integrity of analytical data not
 be compromised.  Fifth, having the ESAT analytical  services task
 on-,site allows EPA .to make course corrections during an-—
 analytical project, for example,  for unforeseen sample matrix
 problems.   Moving the ESAT analytical services task off-site
 would,  therefore,  increase the costs to the  government and'would
 provide an increased risk to the government  for obtaining
 unusable data.   So far, we have had no evidence of  falsification
 of laboratory data which were produced by the ESAT  contractors.

      The DAS Task Force gathered all the information on
 analytical services support that existed,  and utilized the  best
 information that the Agency had at that time.   It should be noted
 that  6AO is recommending that other agencies emulate the'CLP RAS
 program of centralizing routine analyses,  since it  provides high
 quality data at low costs and with the -least risk to the
 government.           ,       •
                      4                             S
      The OIG draft report states  that OERR can benefit from
 Region  VII's experience with its  RECAP contract.  As stated
 previously,  the RECAP contract is still  a  pilot project to
 determine  if an alternative delivery of  analytical  services
 mechanism  can be utilized in ah efficient  and  cost-effective
 manner.'  Contrary  to the OIG' s apparent  favorable endorsement of
 this  contract,.Headquarters and interested Regions  have
 reservations about expanding the  use of  this contract type.
 While the  RECAP approach has advantages, especially in providing
 Regional control over its analytical services,  its  disadvantages
 include a  commitment of large Federal  personnel  resources and a
 high  overhead on negotiating every  delivery  order.   As a result,
 most  Regions ,ar.e reluctant to  initiate this type of  contract..
 Region VII  estimated that managing  the RECAP contract required
 2.7 FTE for  writing the requirements,  reviewing  the  contractor
 work  plans,  negotiating the delivery orders, managing each
 delivery order,  and closing out each delivery  order.   Region VII
 also  disagreed  with the options -that were  cited  in  the draft OIG
 review for specifying:work under  the RECAP contract,  since the
 cited options would not,accomplish  the major programmatic
 objectives of achieving the data  quality objectives  of the
projects,  facilitating cost recovery  information, organizing
 scheduling and  close-out of tasks,  and managing, the  Region's
 analytical funding.   More specific^information on the  RECAP
 contract is maintained in Region VII.  -_
                                17

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                                                       APPENDIX II
                                                       Page 19 of 22
 Market Surveys
      In addition to the FAR requirement to conduct market
 surveys,  this section of the DIG draft report raised several
 related issues.   We disagree with the OIG draft report that
 states that OERR did not implement the DAS recommendation,
 presumably in the ESAT contracts, to improve flexibility in
 choosing improved methods,  instruments,  and data handting-
 systems.   While  the DAS Task Force did not specifically recommend
 that these items be incorporated into the ESAT contracts, the
 cost-reimbursable mechanism of the ESAT contracts allow for the
 flexibility cited.  In fact, some Regions are currently
 evaluating new technologies through the ESAT contracts,  including
 the use of immunpassay test kits to perform site
 characterizations and the use of portable gas chromatography/mass
 spectrometry.  Second>  the ORD Environmental Monitoring Systems
 Laboratory in Las Vegas assists the Superfund' program in
 developing methods and evaluating new technologies.   As these new
 methods and technologies become standardized,  they are , %.-
 incorporated into the CLP RAS contracts.   Third,  extensive  data
 handling systems exist in the CLP RAS program.   CLP RAS data are
 evaluated for contract compliance using  the Contract Compliance
 Screening program,  CLP RAS  data are stored in a database, and the
 Regions have been provided  with the CADRE program to perform
 quality assurance reviews of CLP RAS data.   The CADRE program
 also offers the  Regions an  ability to perform quality assurance
 reviews of electronic data  which are collected under their  DAS
 programs.   Fourth,  we have  undertaken a  major review to
 streamline the data handling process by.shifting computer
 programs  from the EPA mainframe to PC-based systems.   Finally,
 the Regional DAS program provides the Regions  with the
 flexibility to choose new or improved methods,  instruments,  and
 data handling systems.   More specific information on Regional DAS
 programs  is only maintained at the Regional level.

 Cost Comparisons     :=                          .       .

      We disagree with the OIG draft report  that  states that  OERR
 has not performed any cost  comparisons between the various
 delivery  of analytical  services mechanisms.  The  CLP RAS
 analytical service  is1 the most cost-effective  analytical service
.among several  governmental  agencies that  perform  similar
 analyses.   It  provides  the  least expensive  price  with the least
 risk to the government.   GAO is recommending that other
 governmental agencies-adopt the same approach.  We know the  price
 of  a CLP RAS analyses on a  per sample basis, as well as the
 quantities,  specifications,  products,  packaging,  and delivery
 time frames, but the  OIG review team never  asked  us  for this
 information.   As previously stated,  the CLP RAS contract is  a.
 several-hundred  page  document that contains  all the  above product
 specifications.
                                18
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                                                       APPENDIX II
                                                       Page 20 of 22

      The OIG draft report states that costs and other  factors for
 analytical service sources are not known.   Several  detailed
 compilations of SAS utilization were provided to the Regions
 between 1993 and 1994.   These compilations include  costs,
 quantities, analytical  procedures,  and delivery time frames.   We
 have attached examples  of these documents.  Specific information
 for the Regional DAS programs is only maintained at.the Regional
 level.   Although these  factors, are known for past SAS "events,
 requirements continually change as site conditions  change  and new
 projects are initiated.
                                          ^
      We disagree with.the OIG draft report regarding the extent
 of justifications required for determining the source  of
 analytical services.  We do know that the demand for s*ample
 analyses far exceeds our in-house capacity.   Consequently,  the
 majority of sample analyses needs to be procured via outside
 sources.   We have no other option.   Unless there is a
 Congressional mandate to convert contractor laboratory services
 personnel to civil servants in order to perform in-house'"•*,.-
 laboratory analyses,  we  will have to continue to contract  for  '
 these analyses.   The Superfund programme DAS strategy  uses  the
 most diverse types of contracts of  any program in EPA,  and  it
 provides  the flexibility that the Regions  need for  obtaining
 special analytical services at reasonable  costs.  It should be
 noted,  however,  that the recent contractor conversion  initiative
 in the  Agency is intended for the conversion of those  ESAT  PTE
 which are associated with potential  contracting vulnerabilities
 to Federal FTE.   However,  none of the .ESAT conversion  FTE involve
 laboratory functions, since these functions  are not considered to
 contain inherently governmental functions.   Region  VII  has  stated
 that cost considerations are factored into its decision tree for
 selecting its sources of analytical  services,  and the Region
 provided  the OIG review  team with its Standard Operating
 Procedures.   More specific information  on  the Regional  process
 for selecting sources of analytical  services  is only maintained
 at the  Regional  level.

      We also disagree•with the OIG draft report's assertion that
 there is  no  justification for the government  to continue to
 provide space and,equipment for ESAT.  As  we  have stated before,
 the equipment that  ESAT  uses  in the  Regional  laboratory is  not
 government furnished.  It is  government-owned equipment, and the
 Regions typically schedule it in 'specific  shifts  so that both  EPA
 and ESAT  chemists can'use it  at separate-times  to perform
 specialized  analyses.' Also,  the Regional  laboratories  have
 state-of-the-art analytical  equipment, which  is used by Superfund
 and all other statutory  programs for  which EPA  is responsible.
 EPA Regional laboratories fulfill a  key  role  in delivering
 analytical services to all  EPA programs, maintaining the ability
 to  be smart  purchasers of analytical  services,  providing an in-
 house capability for  performing enforcement-sensitive work,
maintaining  in-house  experience for providing Regional  quality

                                19
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                                                       APPENDIX II
                                                       Page 21 of 22
 assurance oversight,  and addressing occasional conflict  of
 interest situations that may arise.   The necessity of the
 Regional laboratories to support EPA program offices in
 regulatory development and enforcement  was  also documented in a
 comprehensive August 10,  1994,  report entitled "EPA Laboratory
 Study."

      Furthermore,  in the CLP FMFIA  review,  it was  recommended
 that  EPA consider  the usefulness of  Government-Owned Contractor-
 Operated (GOCO)  facilities to provide analytical services.  . The
 CLP FMFIA review specifically linked GOCOs  with the proposed
 decentralization of the ESAT contracts.   The DAS Task Force
 developed a number of options for analytical services, including
 the use  of GOCOs.   They are generally recognized as effective  and
 cost-effective contract vehicles for procuring services by
 governmental  agencies.   The DAS  Task Force  found,  however,  that
 high  start-up costs and long implementation time frame for  GOCOs
.would be unsuitable for delivering analytical  services for  the
 Superfund program.  While the ESAT contracts are not truerGOCOs,
 the contractor does use government space  and equipment, and this
 approach provides  a cost-effective means  for performing js ample
 analyses under EPA oversight while greatly  minimizing the
 potential for fraud.  "'Justification  for utilizing  EPA space and
 equipment by  the ESAT contractor is  provided in  the  DAS, CLP
 FMFIA and EPA Laboratory  Study reports.
                               20

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                                             APPENDIX II
                                             Page 22 of 22
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                                                APPENDIX III



                     ABBREVIATIONS


CLP       Contract Laboratory Program

CMD       Contracts Management Division

DAS       Delivery of Analytical Services

EPA       Environmental Protection Agency

ESAT      Environmental Services Assistance Team

FAR       Federal Acquisition Regulation

LTCS      Long-Term Contracting Strategy

NAPA      National Academy of Public Administration

OAM       Office of Acquisition Management

OARM      Office of Administration and Resources Management

OERR      Office of Emergency and Remedial Response

OIG       Office of Inspector General

OSWER     Office of Solid Waste and Emergency Response

RECAP     Regional Environmental Collection and Analysis
          Program

RESAT     Regional Environmental Services Assistance Team
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                 Report  No.  E1SKF4-07-0053-5100483

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                                                      APPENDIX  IV
                           DISTRIBUTION
Headquarters Office
Inspector General   (2410)
Director, Resource Management Division   (3304)
Headquarters Audit Followup Coordinator  (1104)
Director, Facilities Management and Services Division   (3204)
Associate Administrator for Regional Operations and State/Local
  Relations    (1501)
Headquarters Library   (3401)
Director, Office of Emergency and remedial Response  (5201)
Director, Hazardous Site Evaluation Division, Office of Emergency
  and Remedial Response  (Superfund) (5201G)
Audit Liaison, Office of Solid Waste and Emergency Response
  (5101)
Director, Office of Acquisition Management (3801F)
Audit Liaison, Office of Acquisition Management  (3801F)

Region Offices
Regional Administrators
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                                Report No. E1SKF4-07-0053-5100483

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