\
o
Office of Inspector General
Report of Audit
Final Report of Audit on
the Establishment of the National
Environmental Supercomputing
Facility in Bay City, Michigan
E1BMF4-22-0359-6100306
September 30, 1996
2
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Inspector General Division
Conducting the Audit:
Program Offices Involved:
Mid-Atlantic Division
Washington Branch Office
Office of Administration and
Resources Management
Office of General Counsel
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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
SEP 30 I996
THE INSPECTOR GENERAL
MEMORANDUM
SUBJECT:
TO:
Final Report of Audit on the Establishment of
the National Environmental Supercomputing Center
in Bay City, Michigan
Audit Report Number EIBMF4-22-03 59-6100306
FredHansen
Deputy Administrator
Attached is our audit report entitled "Establishment of the National Environmental
Supercomputing Center (NESC) in Bay City, Michigan." The purpose of this audit was to
determine whether EPA complied with laws and regulations and whether excessive costs were
incurred in the establishment of the NESC facility. We have designated you as the Action
Official for this report, because of the serious concerns we have with respect to the integrity of
the process and the direct involvement of Agency senior managers in the establishment of the
NESC facility.
We found that EPA bypassed the General Services Administration (GSA) and the intent
of several laws by using an Agency contractor to acquire the building that would house the
supercomputer. The Agency did not have the specific legislative authority to obtain office space
independent of GSA. Also, Agency managers pre-selected the supercomputer site and then
manipulated the procurement process in order for the EPA contractor to lease the desired
building. EPA, by exceeding its authority, paid about $3.8 million more to lease and renovate
the building then it would have cost to purchase such a building outright. In addition, Agency
officials failed to make and retain documentation of significant decisions and activities relating
to the establishment of the facility. The absence of proper in-house records not only impeded our
audit effort, but required us to use subpoenas to obtain records. Therefore, the majority of the
records we used during the audit to reconstruct the establishment of the NESC were provided
through subpoenas issued to contractors, subcontractors, and other organizations not by EPA.
The Acting Assistant Administrator for Administration and Resources Management
(AA-0ARM), in responding to the draft audit report was concerned over the Agency creating
the appearance of pre-selecting the building to house the supercomputer; and over the Agency's
inappropriate handling of official Government documents. The Acting AA-OARM disputed
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many of our findings, while at the same time agreeing to implement the majority of the report's
recommendations. Most of the findings disputed revolved around our and the Agency's different
interpretation and reading of laws, regulations and which documents should have been used for
final Agency decisions. The Agency has stated that the Conference Report contained
contradictory instructions about where the supercomputer was to be located: in Bay City or in the
Bay City vicinity. While we believe the Conference Report was not contradictory we based our
position on the language contained in the Agency's Appropriation Act (Public Law 101-507)
which stipulated that the supercomputer would be located in the "Bay City area."
Also, the Acting AA-OARM strongly disagreed that EPA violated the Antideficiency Act
when it ordered that the Bay City building lease run longer than the available appropriation. The
Agency contends that it was not a party to or bound by the lease for the building and the contract
between the EPA prime contractor and its subcontractor did not legally obligate EPA. Under
different circumstances, we might agree with the Agency's position. However, we believe
subsequent events confirm what the Agency's intentions were at the time the lease was executed.
First, the solicitation for the follow-on contract advised potential bidders to factor in early
termination costs should it (the contractor) choose to relocate the supercomputer to another
facility. Also, EPA incorporated into the follow-on contract a lease assumption clause. We
believe the above actions reflect what EPA intended to do all along. That is, an EPA cost
reimbursement contractor would lease the space which effectively would obligate the Agency for
lease payments throughout the entire 5 year lease. The Comptroller General has held such
termination liability violates the Antideficiency Act because it represents the cost of future years'
needs.
ACTION REQUIRED
The recommendations contained in this report are addressed to either you or the Acting
AA-OARM. As we said earlier, we have designated you as the Action Official for this report,
because of the serious concerns we have with respect to the integrity of the process and the
direct involvement of Agency senior managers in the establishment of the NESC facility. We
believe Agency senior managers need to be held accountable for actions that encourage or
condone the circumvention and manipulation of laws and regulations. Therefore, we have
recommended that you review the involvement of senior management in the establishment of the
NESC facility and determine whether there were any employee conduct violations and whether
disciplinary action is warranted. We request that you respond directly to all recommendations
addressed to you. At your discretion, a separate response by the Acting AA-OARM addressing
the recommendations addressed to him is acceptable.
Following EPA Order 2750, we request that you provide this office with a written
response to this report within 90 days of the final report date. The response should include an
action plan with milestone dates for corrective actions planned but not completed. This report
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represents the opinion of the OIG. Final determinations on matters in this report will be made by
EPA senior managers according to established EPA audit resolution procedures. Accordingly,
the findings contained in this audit report do not necessarily represent the final EPA position.
We have no objections to the further release of this report to the public. Should your staff
require additional documentation, or have any questions regarding this report, please have them
contact Elissa R. Karpf, Deputy Assistant Inspector General for Acquisition and Assistance
Audits on 260-4175, or Kenneth Prather, Supervisory Auditor, Washington Contracts Division,
on (703) 308-8242.
John C. Martin
Attachment
(J John
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EXECUTIVE SUMMARY
PURPOSE
BACKGROUND
RESULTS IN BRIEF
We performed an audit on the establishment of the
National Environmental Supercomputing Center
(NESC) located in Bay City, Michigan. The purpose
of this audit was to determine whether the EPA complied with laws
and regulations and whether excessive costs were incurred.
In 1988, the Agency began planning the acquisition of a
supercomputer to be used to support EPA programs. The Agenc\
had intended to locate the computer in Research Triangle Park.
North Carolina. However, in 1990, when Congress authorized
EPA to lease or purchase the supercomputer, it also stipulated thai
the supercomputer would be located in the vicinity of Bay City.
Michigan. Congress earmarked $8.7 million for the project.
In 1991, EPA directed an Agency contractor to establish and staff
the supercomputer center. In response to a newspaper
advertisement, the contractor received one offer. The offeror, a
"development partnership," proposed to lease a building built in
1910 to the contractor. On October 31, 1991, the contractor and
the developer executed a five-year lease, and on the next day the
developer purchased the building from its previous owner. Over
the course of the next year the NESC building underwent extensive
renovations.
In August 1992, the supercomputer was delivered. In October
1992, it was unveiled to the public in a dedication ceremony. On
July 27, 1995, the provision that had required the computer to be
located in the vicinity of Bay City was rescinded by Congress.
EPA circumvented and manipulated several laws b> having an
Agency contractor acquire the building that would house the
supercomputer, instead of using the services of the General
Services Administration (GSA). If the EPA had followed
applicable laws and regulations, we estimated the Government may
have saved $3.8 million over the 5-year lease period.
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PRINCIPAL FINDINGS
(1) EPA
CIRCUMVENTED GSA
TO ACQUIRE THE
BUILDING
(2) EPA
PRE-SELECTED THE
SUPERCOMPUTER
SITE
(3) EPA EXCEEDED
ITS AUTHORITY
The Agency acquired the use of an office building for the NESC
through a contractor. However, Public Law and implementing
regulations vest most authority for acquiring office space for
Government agencies with the General Services Administration
(GSA). An Agency must have specific legislative authority to
obrain office space independent of GSA. EPA did not have such
ai; aority; therefore, it violated Public Law by using its contractor
to acquire the building for Agency use.
Agency officials visited Bay City and selected the building they
wanted for the NESC. The same officials then manipulated the
procurement process to have a contractor lease that building for
Agency use. These actions not only violated the intent of the
Competition in Contracting Act, but also resulted in the Agency
excluding from competition a second building whose use could
possibly have been acquired at far less cost. These same officials
also provided acquisition information to the selected subcontractor
five months before the procurement was advertised for
competition, and dealt directly with a real estate agent representing
the pre-selected building's owner.
EPA officials exceeded their authority and consequently violated
the Antideficiency Act and the Competition in Contracting Act.
The Antideficiency Act violation amounted to $3.7 million. The
addition of the NESC project to an existing contract violated the
Competition in Contracting Act. Also, by approving permanent
improvements to the NESC building they allowed a "giveaway" of
Government property. Finally, these officials directed the
contractor to: (a) organize a grand opening ceremony for the
NESC, the costs of which were unallowable; and, (b) perform other
work under the contract without first getting the Contracting
Officer's approval. These situations occurred because the officials
believed that it was within their authority to allow them to occur.
In our opinion, they were mistaken.
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(4) ERA'S
SUBCONTRACT
ADMINISTRATION
VIOLATED LAW
(5) EPA FAILED TO
MAINTAIN
DOCUMENTATION
RECOMMENDATIONS
EPA's administration of the NESC subcontract violated law and
the Federal Acquisition Regulation (FAR). This violation exposed
the Government to claims by the subcontractor for excess costs, it
also complicated the recovery of Government property that had
been "given away." The violation occurred because the
Contracting Officer did not enforce the Truth in Negotiations
provision of the Competition in Contracting Act during subcontract
consent.
In addition, the Contracting Officer and the Project Officer did not
ensure that $5 million of Government equipment that was
furnished to the contractor was recorded on property records. This
equipment included the supercomputer. The omission reduced
accountability thereby jeopardizing the equipment. After we
brought the issue to the attention of the Project Officer, the
equipment was added to the records.
Agency officials failed to make and preserve documentation of
significant decisions and activities. Such documentation v\a^
required by the Federal Records Act and the Records Disposal Act
(44 U.S.C. 3101). The undocumented EPA decisions involved the
circumvention of GS A, violation of laws and improper direction
given to the contractor.
The absence of records impeded our audit of the establishment of
the NESC. The lack of Agency records required the use of
subpoenas to obtain the majority of the documents we used from
contractors, subcontractors, and other organizations.
We recommend the Deputy Administrator:
• Review whether any employee conduct violations occurred
and whether disciplinary action is warranted under EPA
Employee Responsibility and Conduct regulations and
related policies and procedures.
• Hold senior managers accountable for compliance with
Public Laws; related regulations, policies and procedures;
and management controls issued pursuant to OMB Circular
Number A-123.
in
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AGENCY
COMMENTS AND
OIG EVALUATION
• Coordinate with EP A's Office of the Comptroller in order
to fulfill the reporting requirements for a violation of the
Antideficiency Act. The Administrator must report all
relevant facts and a statement of action taken to the
President and Congress through the Director, Office of
Management and Budget (OMB).
We recommend that the Acting Assistant Administrator for
Administration and Resources Management:
• Contact GSA to obtain facilities for the National
Environmental Supercomputing Center in accordance with
law and regulations.
• Determine that required facilities will be available at
reasonable cost in accordance with law and regulation when
EPA's access to the current space expires.
• Review all office and other space arrangements where costs
are charged direct to contracts, and ensure the space
arrangements were established and are managed in
compliance with law and regulation. We further
recommend we be provided: (1) the draft plan and
questionnaire for comment prior to implementation and
(2) a copy of each completed review.
• Provide training to Agency officials on: the Federal
Property and Administrative Services Act of 1949; 41
U.S.C. 14; the uses and limitations of appropriations; the
Competition in Contracting Act; the Antideficiency Act;
the Federal Records Act; the Records Disposal Act; and
related regulations, policies and procedures.
We issued a draft report on August 6,1996. We received a
response from the Acting Assistant Administrator for
Administration and Resources Management (OARM) on
September 20,1996. Although the response disputed many of the
issues raised in our draft report, OARM stated that it was in
general agreement with the recommendations of the report. We
reviewed the response and made changes in our report as
warranted. However, we did not materially change our position.
The response can be found in its entirety in Appendix III. Due to
the length of the response, we addressed the Agency's comments
IV
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on our findings and recommendations, including our evaluation of
their comments, after the Chapter's recommendation section.
On September 30, 1996, an exit conference was held with Agency
senior managers from OARM and the Office of General Counsel.
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VI
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TABLE OF CONTENTS
EXECUTIVE SUMMARY *. . , i
CHAPTER 1
INTRODUCTION 1
PURPOSE 1
BACKGROUND 1
SCOPE AND METHODOLOGY 3
SCOPE IMPAIRMENTS 4
AGENCY COMMENTS ON SCOPE IMPAIRMENTS 4
OIG EVALUATION 4
AUDIT COVERAGE 5
CHAPTER 2
EPA CIRCUMVENTED GSA TO ACQUIRE THE BUILDING 7
EPA Circumvented GSA to Establish a Facility for Agency Use .... 8
Rationale For Circumventing GSA 11
Lease Versus Purchase 13
Internal Controls 14
CONCLUSION 14
RECOMMENDATIONS 15
AGENCY COMMENTS AND OIG EVALUATION 15
CHAPTER 3
EPA PRE-SELECTED THE SUPERCOMPUTER SITE 21
BACKGROUND 23
LEASE CHRONOLOGY 23
Bay City Vicinity Site Options 23
Rationale For Site Selection 24
Exclusion of Competition 24
Inappropriate Contacts 25
"Comparable" Rates 28
Building Space Exceeded Requirements 30
CONCLUSION 31
RECOMMENDATIONS 32
AGENCY COMMENTS AND OIG EVALUATION 32
CHAPTER 4 .
EPA EXCEEDED ITS AUTHORITY 37
Antideficiency Act 37
Competition in Contracting Act 39
"Giveaway" of Government Property : 40
Grand Opening Ceremony 42
Unauthorized Work 43
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RECOMMENDATIONS . - 45
AGENCY COMMENTS AND OIG EVALUATION 46
*
i
CHAPTER 5
ERA'S SUBCONTRACT ADMINISTRATION VIOLATED LAW 51
Subcontract Type 53
Subcontract Competition 53
Truth in Negotiations . 54
Determination of Responsibility 55
Administration of Government Property 55
RECOMMENDATIONS 55
AGENCY COMMENTS AND OIG EVALUATION 56
CHAPTER 6
EPA FAILED TO MAINTAIN DOCUMENTATION 59
. CONCLUSION 62
RECOMMENDATIONS • 63
AGENCY ^COMMENTS AND OIG EVALUATION 63
APPENDIX I
RELEVANT LAWS AND REGULATIONS 65
APPENDIX II
ACRONYMS 79
APPENDIX III
AGENCY'S RESPONSE TO THE DRAFT REPORT 81
APPENDIX IV
DISTRIBUTION 167
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CHAPTER 1
INTRODUCTION
PURPOSE
We performed an audit on the establishment of the National
Environmental Supercomputing Center (NESC) located in Bay
City, Michigan. The purpose of this audit was to determine
whether EPA complied with applicable laws and regulations and
whether excessive costs were incurred.
BACKGROUND
The National Data Processing Division (NDPD), of the Agency's
Office of Administration and Resources Management (OARM),
began planning the acquisition of a supercomputer in 1988. This
•plan envisioned placing the supercomputer in Research Triangle
Park, North Carolina, where other Agency computer operations are
located. An August 15, 1989, study concluded that a Government-
owned, contractor-operated facility would be more cost-effective
than a contractor-owned, contractor-operated facility. However,
the Agency, despite several attempts, could not acquire the needed
funding for the project.
On June 26, 1990, the House of Representatives passed the,
"Department of Veterans Affairs and Housing and Urban
Development, and Independent Agencies Appropriation Bill,
1991." This bill included funding for a supercomputer for EPA's
regional acid deposition monitoring (RADM) program. This
program, operated by the Atmospheric Research and Exposure
Assessment Laboratory in Research Triangle Park, North Carolina,
was developed to model the cause and effect relationship between
sources of air pollution and the resulting quantities, locations,
timing, and the resulting types of acidic deposition. The bill also
included funding for an EPA Center for Ecology Research and
Training (CERT) to be established in Bay City, Michigan. The
bill's provision specifically provided:
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$9,700,000 of which $8,700,000 is for the
lease/purchase of a dedicated class VII
supercomputer to support the regional acid
deposition monitoring program, and $ 1,000,000 for
planning and site acquisition for a new EPA Center
for Ecology Research and Training to be established
in Bay City, Michigan.
Subsequently, the Senate passed its appropriation bill which did
not concur with the money for the computer, or with the center to
be located in Bay City, Michigan. The House-Senate conference
committee report that reconciled the two bills stated, "The
conferees agree to siting and acquisition of the computer ... in the
Bay City, MI, vicinity." On November 5, 1990, Congress passed
Public Law 101-507, providing Abatement, Compliance and
Control (AC&C) funds for the computer and the CERT. Congress
also stipulated:
That notwithstanding any other provision of law,
the lease or purchase of a computer, from funds
appropriated under this paragraph, to support the
regional acid deposition monitoring program, and
the planning and site acquisition for a new EPA
Center for Ecology Research and Training, shall be
established in the Bay City, Michigan vicinity
Congress earmarked $8.7 million for the lease or purchase of the
computer in Conference Report 101-900 for fiscal year 1991, but
did not grant authority or funds for EPA to acquire a facility to
house it. Because EPA did not have a facility in the vicinity of
Bay City, it consulted with its Office of General Counsel and
Facilities Management Services Division. As a result, EPA
decided to task a contractor to provide the computing services and
to acquire the use of a facility as "incidental" to providing these
services (this contractor had been awarded a contract in 1987 to
operate and support EPA computers). However, documentation in
regard to this decision was not maintained.
On May 28-30,1991, EPA's contractor advertised in a local Bay
City newspaper for 14,000 square feet of space to be situated in
Bay City. On June 25, a "development partnership" submitted the
only response to the advertisement. The developer offered to lease
to EPA's contractor a building built in 1910 that would require
extensive renovations to meet current local codes. Upon accepting
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the offer, the contractor hired a subcontractor to design the facility
and mechanical and electrical equipment supporting the computer.
The work was added to the contract by a modification dated
August 30,1991. After the design was drafted, the contractor and
the developer executed a five-year lease on October 31,1991.
On November 1, 1991, the developer purchased the building from
its previous owner. On December 2, 1991, EPA's Contracting
Officer consented to the lease as a subcontract under the Agency's
prime contract for computer support services. Over the course of
the next year the NESC building underwent extensive renovations.
The supercomputer was delivered in August 1992 and unveiled to
the public in a dedication ceremony in October 1992.
On July 27, 1995, the provision of Public Law 101-507 that had
required the computer to be located in the Bay City, Michigan
vicinity was rescinded by Congress.
SCOPE AND Our audit was initiated to address concerns regarding the possible
METHODOLOGY misuse of appropriated funds and violations of laws, regulations,
rules, policy, and procedures. We examined EPA's contract
activity related to the establishment of the NESC. We did not
examine the functions, operations, and services of the NESC and
.EPA's management controls taken as a whole. Our audit fieldwork
was conducted between May 16,1994 and March 8,1996.
Except as discussed below, we performed the audit in accordance
with Government Auditing Standards, 1994 Revision promulgated
by the Comptroller General of the United States. We reviewed
sections of OARM's reviews in support of EPA's 1993 Integrity
Act Report to the President and Congress, as required by the
Federal Managers' Financial Integrity Act, in planning our audit.
Our examination included tests of documents and other auditing
procedures we considered necessary. We issued a draft report on
August 6, 1996. We received a response from the Acting Assistant
Administrator OARM on September 20, 1996. Although the
response disputed many of the issues raised in our draft report,
OARM stated that it was in general agreement with the
recommendations of the report. We reviewed the response and
made changes in our report as warranted. However, we did not
materially change our position. The response can be found in its
entirety in Appendix III. Due to the length of the response, we
addressed the Agency's comments on our findings and
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SCOPE
IMPAIRMENTS
AGENCY
COMMENTS ON
SCOPE
IMPAIRMENTS
OIG EVALUATION
recommendations, including our evaluation of their comments,
after the Chapter's recommendation section.
*
On September 30, 1996, an exit conference was held with Agency
senior managers from OARM and the Office of General Counsel.
We were unable to interview a contractor employee who: (a)
managed the solicitation and negotiation of the subcontract to lease
the NESC building facility; and (b) participated in planning the
renovation of the facility. Nor were we able to gain a complete
understanding of the solicitation and negotiation of the subcontract
and the renovation of the facility by other auditing procedures.
Contrary to law, EPA also failed to make and preserve
documentation. This situation impeded our audit to the extent that
the majority of the documents we used to reconstruct the
establishment of the NESC were provided through subpoenas of
contractors, subcontractors, and other organizations; not by EPA.
We do not disagree that the Office of Inspector General's(OIG)
inability to interview a contractor employee involved in the
subcontracting and renovation of the Kahn building has limited the
Agency's understanding-of the establishment of the NESC.
The report, however, reflects a misunderstanding regarding the
Agency's willingness to assist the OIG in this regard. While, as
previously communicated to OIG, EPA cannot, under its contract
with [the contractor], compel the contractor to make a specific
employee available for interview by the OIG. The Office of
Acquisition Management (OAM) has recently written [the
contractor] to urge participation by its employee in the interview
with the OIG in the hope of facilitating the investigation. The
contractor was requested to respond to OAM's letter by October 3,
1996.
We acknowledge the Agency's position that they cannot compel
the contractor to make a specific employee available for interview.
Also, we appreciate OAM writing to the contractor to urge their
employee to consent to the interview.
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AUDIT COVERAGE This audit covered EPA's involvement in the establishment of the
NESC from October 1/1990 through December 31,1992. The
audit also included contracts and EPA actions to establish the
CERT that were related to EPA's involvement in the establishment
of the NESC. In addition to EPA records, we also examined the
records of contractors, subcontractors , and commercial
organizations. Audit work performed at Agency organizations
included: the Office for Administration and Resources
Management; the National Data Processing Division; the Office of
Acquisition Management; the Office of General Counsel; the
Facilities Management and Services Division; the Office of
Administration; the Office of Information Resources Management;
the Cost Advisory and Financial Analysis Division; the Budget
Division; the Financial Management Division; the Research
Triangle Park Financial Management Center; and the Office of
Grants and Debarment. We conducted interviews and other
fieldwork at the following locations during our audit.
San Francisco, California Midland, Michigan
Washington, D.C. Saginaw, Michigan
Beltsville, Maryland Omaha, Nebraska
Laurel, Maryland Durham, North Carolina
Rockville, Maryland Raleigh, North Carolina
Bay City, Michigan Research Triangle Park, NC
Detroit, Michigan McLean, Virginia
Lewistown, Michigan
We interviewed 70 individuals including: current and former EPA
contracting officers; current and former EPA managers; current
and former contractor personnel; current and former subcontractor
personnel; local Bay City Government officials; personnel at
various commercial organizations; and, private citizens. We also
issued 13 subpoenas to obtain data from the contractor,
subcontractors, and other commercial organizations. We examined
the records identified in the following table.
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EPA
Contract Documents
Contract Modifications
Contractor Proposals
Contract Management Work Plans
Financial Management Reports
Award Fee Performance Reports
Project Work Authorizations
Contract Deliverables
Planning and Budget Documents
Realty Acquisition Documents
Correspondence
Brochures
Visitor Registers
Project Status Reports
Travel Documents
Policies and Procedures
Contractor,
Subcontractor, and
Other Commercial
Organizations
Financial Documents
Contract Documents
Consulting Agreements
Leases
Planning and Budget Documents
Property Filing Documents
Real Estate Documents
Appraisal Reports
GoWrriment Property Lists
Bankruptcy Filing Documents
Photographs
Video Tapes
Correspondence
Meeting Minutes
Policies and Procedures
Periodicals and Publications
Our audit disclosed several areas requiring improvement, as well as
violations of laws and regulations that are discussed in this report.
Recommendations are provided to assist the Agency in improving
those areas. We examined applicable management controls and
procedures specifically related to our audit objectives; however, we
did not test all of EPA's controls. Any material internal control
weaknesses disclosed and related recommendations to strengthen
controls are included in Chapters 2 through 6.
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CHAPTER 2
EPA CIRCUMVENTED GSA TO ACQUIRE THE BUILDING
The Agency acquired the use of an office building for the NESC
through a contractor. However, Public Law and implementing
regulations vest most authority for acquiring office space for
Government agencies with the General Services Administration
(GSA). An Agency must have specific legislative authority to
obtain office space independent of GSA. EPA did not have such
authority; therefore, it violated Public Law by using its contractor
to acquire the building for Agency use.
EPA representatives provided various explanations why this
occurred including: (a) EPA was not obligated to utilize GSA
because obtaining the space was merely "incident" to the
contractor's primary role of providing computer support services;
(b) the type of appropriation to fund the supercomputer precluded
GSA involvement; (c) EPA could task the contractor to acquire
space as long as it was not occupied by Government personnel; and
(d) GSA would not have obtained the space in a timely manner.
We disagree with these explanations. The law does not recognize
the legitimacy of some, the facts do not support the rest. Thus, no
legally sufficient explanation exists for EPA's circumvention of
GSA. A fundamental precept of Government operation is that an
Agency cannot do indirectly what it is not permitted to do directly.
Thus, EPA should not have used the contract to accomplish a
purpose it could not do by direct expenditure.
We also determined that had EPA engaged the services of GSA
and bought the building, the Agency could have saved
approximately $3.8 million over the 5 year lease period.
RELEVANT LAWS There are various laws, regulations, and principles that pertain to
AND REGULATIONS this issue. The Federal Property and Administrative Services Act
of 1949 (40 U.S.C. 490) transferred all functions of leasing and
managing building space for use by Government agencies to the
Administrator of General Services in 1950. The Federal Property
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/ - EPA Circumvented
GSA to Establish a
Facility for Agency
Use
Management Regulations, 41 Code of Federal Regulations (CFR)
101-18.101(1990) implement the Act with similar provisions.
Title 41 U.S.C. 14 prohibits the purchase of land for the United
States unless a law authorizes the purchase. Court cases have held
that this section also applies to leasing real estate. The United
States General Accounting Office Principles of Federal
Appropriations Law (page 4-5) stipulates that an agency cannot do
indirectly what it is not permitted to do directly. Thus, an agency
cannot use the device of a contract to accomplish a purpose it could
not do by direct expenditure.
Standards for Internal Controls issued by the Comptroller General
include the following standards:
• Managers and employees are to have personal and
professional integrity and are to maintain a level of
competence that allows them to accomplish their assigned
duties, as well as understand the importance of developing
and implementing good internal controls.
• Transactions and other significant events are to be promptly
recorded and properly classified.
• Qualified and continuous supervision is to be provided to
ensure that internal control objectives are achieved.
The June 21,1995, revision to Office of Management and Budget
(OMB) Circular Number A-123 states:
As Federal employees develop and implement
strategies for re-engineering agency programs and
operations, they should design management
structures that help ensure accountability for results,
and include appropriate, cost-effective controls.
Rather than obtain office space through GSA as required, EPA
acquired its NESC building through one of its prime contractors.
Project Work Authorization 98-91 (dated February 12, 1991)
tasked this contractor to "Establish and Staff Bay City Super
Computing Facility." Project Work Authorization 22-92 (dated
November 22, 1991) tasked the same contractor to "Provide staff,
facility, supplies and other support as necessary to implement and
operate an EPA Supercomputer Center at Bay City." In our
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opinion, the Agency used its contractor to acquire a building for its
own use.
The Agency, on the other hand, contended that it did not have to go
through GSA because the building was acquired as part of
"computer support services" under the contract. In 1992,
according to the Agency's Office of General Counsel, "[T]he lease
of the ... facility to house the Supercomputer was incident to the
provision of computer support services." In effect, EPA argued
that it was buying "computer modeling" and that the contractor
needed a building within which to "model."
We disagree that the building was merely incidental to "computer
support services." The acquisition of the building was a significant
part of the work performed in Bay City. The contractor was tasked
to "Establish and Staff Bay City Super Computing Facility" and
"[T]o implement and operate an EPA Supercomputer Center...",
not provide "computer support services." Therefore, rather than
being a contractor building for computer operations, this building
was established as an EPA center for EPA purposes. Moreover,
other Agency actions also contradicted the notion that the NESC
was merely a contractor building used to provide computer support
services to EPA:
The Director of the NESC, an EPA employee, was on site
for over three years. During our audit; however, he was
moved off site after the Agency determined that obtaining
office space for a Government employee under this contract
was improper. The assignment of the EPA employee
demonstrates that the facility was for the Agency's use.
As will be explained in Chapter 3, the Agency pre-selected
the building it wanted and then instructed the contractor to
go and lease it.
EPA dictated the length of the lease, not the contractor.
Furthermore, the binding commitment was for 5 years with
5 one-year options - while the contract itself had only 11
months until expiration.
• The bulk of the contractor's effort involved renovating the
building. The contractor provided virtually no "computer
support service," because the supercomputer was not
delivered until five weeks before the contract was due to
-------
expire. The contract was extended three months to allow
the contractor to complete the renovation.
EPA took steps to ensure that the building would be
available for EP A's use no matter who the contractor was.
The Agency directed that the lease restrict assignment only
to EPA contractors. An OAM official explained, "We
wanted the building. We insisted on [the restriction]."
Furthermore, EPA's solicitation for the successor contract
required bidders to add approximately $3.8 million to their
bids for termination of the Kahn building lease if the lease
was not assumed.
EPA directed the installation of special features including a
video conferencing room, a training center, and an
auditorium to be used as a visitor center. It would be
unlikely that a contractor buying computer services for
itself would invest in such extra features in someone else's
building.
The Agency directed that building security and
telecommunications be compatible with other Agency
facilities. With proper authorization, the NESC security
access cards can be used at various EPA sites including
Research Triangle Park, North Carolina. The
telecommunications services used Federal
Telecommunications System 2000—the Government's
system. Such compatibility indicates that the building was
for EPA use and not merely a contractor building for
computing services.
EPA openly proclaimed the building as its own. For
example, the Office of Administration identified the NESC
as an EPA facility in a presentation to the Administrator
entitled, "EPA Buildings and Facilities." The NESC
building signs prominently include the EPA and NESC
logo. The NESC FY 1993 Annual Report explained that
the facility was established by the EPA as "our computing
facility."
OAM defended tasking the contractor to lease the building
with a Federal Acquisition Regulation (FAR) provision
addressing Government-operated facilities. OAM asserted:
10
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// - Rationale For
Circumventing GSA
[PJursuant to FAR 45.302-3, the
lease of the building was within the
scope of the contract because the
services and the facilities were used
in connection with the operation of
the National Computer Center.
FAR 45.302-3 states that facilities may be provided to a contractor
when, "the contract is for work within an establishment or
installation operated by the Government." (Italics added.)
Interviews with, and written statements from, Office of
Administration and Resources Management (including OAM and
the Facilities Management and Services Division) and Office of
General Counsel (OGC) officials yielded conflicting reasons why
the Agency bypassed GSA. OARM officials asserted that they
could not have used GSA because the supercomputer project funds
Congress appropriated were part of the Abatement, Control and
Compliance (AC&C) appropriation. According to OARM officials
AC&C funds could not be used for intramural (EPA internal)
activities, including GSA rent for office space. Other OARM
officials claimed that although GSA was an option, GSA would
not have been able to complete the project within the two year life
span of the funds appropriated by Congress. In addition, OARM
and OGC officials gave conflicting accounts as to how the decision
to bypass GSA came about.
In the first instance, the explanation that AC&C funds could not
have been used for GSA rent was not only contradicted by most of
the other EPA officials interviewed, but also by EPA practices.
The Agency used AC&C funds to pay GSA rent for other facilities
since the Bay City project began in Fiscal Year 1991. Admittedly,
a 1987 EPA directive did prohibit using AC&C funds for
intramural activities such as GSA facility rent. However, this same
directive also prohibited using these funds on any part of the
contract that EPA used to acquire the NESC building. In any case,
the point is moot because concurrent Congressional changes to
EPA's appropriation structure made the directive outdated. Thus,
AC&C funds could have been used to pay GSA.
In the second instance, the Federal Property and Administrative
Services Act of 1949 prohibits agencies from obtaining their own
space. There is no exemption for time constraints. Moreover, no
EPA official ever contacted the GSA to determine how long it
11
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would have taken to obtain a suitable facility for the
supercomputer. Although several OARM officials said they
thought others within EPA had contacted GSA, we found no
documentation whatsoever to support that any such discussions
with GSA had ever taken place.
Finally, EPA employees made conflicting statements regarding the
decision to have the contractor rather than GSA obtain a facility to
house the supercomputer. In general, OGC representatives
maintained that:
• Their involvement in the issue was limited.
They had recommended against obtaining the facility under
the contract.
• Their recommendation was overridden by OARM.
An OARM representative informed us that:
• OGC was involved with the plan to have the contractor
obtain the building.
• OGC did not take exception to the plan; if they had, he
would not; have gone against their advice.
The Facilities Management and Services Division (FMSD)
representative informed us that:
* The decision to use the contractor had already been made
FMSD became involved.
• EPA should have obtained the use of the facility through
GSA.
On the other hand, 0AM representatives provided statements that
conflicted with those made by both OGC and FMSD. These
included:
• The decision to have the contractor acquire space was made
after several phone conversations and a meeting with OGC.
12
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• OGC gave them the very clear impression that the
contractor could obtain the space as long as it was within
the scope of the contract, and the space was not for
additional office space for Government employees.
• OGC provided guidance on how the renovation costs
should be included in the lease.
• It was the FMSD employee that eliminated GSA from
consideration.
We were unable to establish the veracity of any of these
statements, because none of the individuals involved were able to
submit any documentation in support of their assertions.
/// - Lease Versus EPA officials not only violated the law, they were inefficient in the
Purchase process. It cost the Govejnment more to renovate and lease the
building than it would have to purchase a comparable building.
We estimate that had EPA engaged the services of GSA and
bought the building, the Agency could have saved approximately
$3.8 million over the five-year lease period. Specifically, EPA will
pay $4.1 million in rent, whereas the estimated cost of Government
ownership would be $300,000 over the same five-year period. (The
$300,000 estimate is based on a total estimated cost of ownership.
including Kahn building purchase and renovation costs. The
estimate is developed by dividing the total $2,188,000 by the 40
year estimated life of the building to estimate the cost of ownership
per year. The yearly cost of ownership, approximately $55,000, is
multiplied by the five years of the lease to develop the $300,000
estimate.) Furthermore, the Government would then have owned a
building.
EPA realized contractor acquisition was more expensive than
Government acquisition long before the project began. EPA
tasked another contractor to study supercomputer facility options
for Research Triangle Park (RTP), North Carolina in 1989. The
study concluded that when the same interest was acquired, be it
lease or purchase, Government acquisition was less expensive
because contractor indirect expense rates and fees were not added.
The study did not compare lease cost to purchase cost.
We estimate that the building owners recouped all their costs by
August, 1995, thus leaving as profit $1.4 million, the payments
over the 20 months remaining on the lease. A portion of this profit
13
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IV - Internal Controls
CONCLUSION
resulted from EPA directing the contractor to accelerate payment
of all general renovation costs. Normally these costs would be
spread over the life of the renovations, or over the 40-year life of
the building, whichever is less; however, EPA directed that the
costs be spread over the 5-year lease period. Consequently, the
building owners received excess profit. Furthermore, at the end of
the lease period, the owners will have a virtually new building-
fully renovated at Government expense—while EPA will either
have to sign a new lease, or obtain space at another facility.
As explained in Chapter 3 of this report, a second facility existed,
which had been described by an Agency official as a "state-of-the-
art computer center." It was sold for $900,000, less than two years
after the Agency rejected it.
The actions taken by EPA officials represent an internal control
failure. Government employees are required to follow Standards
for Internal Controls issued by the Comptroller General to help
prevent illegal, unauthorized, and questionable acts. These
standards require managers and employees to maintain a level of
competence that allows them to accomplish their assigned duties,
as well as to understand the importance of developing and
implementing good internal controls. The standards also require
transactions and other significant events be promptly recorded and
properly classified. Moreover, a June 21, 1995, revision to Office
of Management and Budget (OMB) Circular Number A-123 states
that Federal employees should design management structures that
help ensure accountability for results, and include appropriate,
cost-effective controls when developing and implementing
strategies for re-engineering agency programs and operations.
In regard to the NESC establishment, EPA officials did not
accomplish their assigned duties hi compliance with laws and
regulations. They also did not record transactions and significant
events. Consequently, accountability for decisions and results was
not maintained.
The Agency violated the law and circumvented GSA by instructing
one of its contractors to lease a building for the supercomputing
center. This occurred because EPA personnel were either
uninformed of, or indifferent to, the criterion governing the lease of
office space. Moreover, these Agency employees did not comply
with the standards for internal controls issued by the Comptroller
14
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RECOMMENDATIONS
General in that assigned transactions and significant events were
not promptly recorded, accountability was not maintained, and
internal control objectives were not achieved.
We recommend the Deputy Administrator:
2-1) Provide training to senior-level managers on the uses and
limitations of appropriations.
2-2) Hold senior managers accountable for ensuring documented
management controls are in place and followed in
accordance with OMB Circular Number A-123.
We recommend the Acting Assistant Administrator for
Administration and Resources Management:
2-3) Contact GSA to obtain facilities for the National
Environmental Supercomputing Center in accordance with
law and regulations.
2-4) Determine if required facilities will be available at
reasonable cost in accordance with law and regulation when
EPA's access to the current space expires.
2-5) Review all office and other space arrangements where costs
are charged direct to contracts, and ensure the space
arrangements were established and are managed in
compliance with law and regulation. We further
recommend we be asked to review and provide input, as
appropriate, to the review plan; and be provided copies of
all reviews.
AGENCY COMMENTS
AND OIG
EVALUATION
2-6) Provide training to OARM officials on: the Federal
Property and Administrative Services Act of 1949; Title 41
US Code, Section 14; and, the Federal Property
Management Regulations to ensure that future office and
other space arrangements are obtained properly.
The response by OARM disputed many of the issues in this
chapter, but generally agreed with our recommendations. Based on
the response, we changed recommendation 2-3 {draft report
15
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recommendation 2-1) and inserted a new recommendation 2-4.
We now recommend that the Agency: (a) contact GSA to obtain
supercomputing facilities; and (b) ensure the facilities are available
at reasonable cost when EPA's access to the current space expires.
Otherwise, we did not materially change our position. The
response in its entirety is contained in Appendix III.
OARM asserted that at the time the Agency opted to use its
contractor to acquire the use of the building, Agency officials
legitimately believed that a contract could serve as an acceptable
alternative to acquiring space through GSA. This decision "[W]as
based on the Agency's lack of legal authority to acquire a facility
and its recognition that utilization of the General Services
Administration's (GSA's) acquisition process would entail a
number of months." We agree. EPA does lack the legal authority
to acquire a facility—such authority rests with GSA. We also agree
that going to GSA would probably have entailed "a number of
months" to acquire a facility. However, as previously mentioned,
no EPA official ever contacted GSA to determine how long it
would have taken to obtain a suitable facility for the
supercomputer. Moreover, there is no exemption for time
constraints to the Federal Property and Administrative Services
Act.
OARM also stated that, "[I]t is not improper for agencies to require
contractors to lease space in performance of a contract," and
provided three Comptroller General decisions to support this
assertion. We reviewed these decisions and concluded that they
were not relevant. In two of the decisions, the contractual
situations differed vastly from the EPA situation; in the third
instance, an Office of General Counsel attorney informed us that
the decision had been cited in error.
OARM further stated that the FAR requires contractors to obtain
facilities necessary to perform Government contracts. We agree.
However, we do not agree that this requirement extends to
Government space requirements. We also do not agree with the
implication that space leased by the contractor for Government use
is somehow exempt from the Federal Property Management
Regulations. The law (41 U. S. C. 14) stipulates that, "No land
shall be purchased on account of the United States, except under a
law authorizing such purchase." Court cases have held that this
prohibition extends to lease of real estate.
16
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The OARM response stated that using AC&C funds precluded
going through the GSA to obtain space. We did not discuss this
issue in detail in our draft report, because it was never mentioned
as a justification by any of the principal participants in the
establishment of the NESC, nor was it cited in any
contemporaneously prepared documentation. Only two EPA
officials mentioned AC&C limitations as a reason not to go to
GSA during our interviews, and these officials said they had little
involvement with the establishment of the NESC.
In any case, OARM's explanation of the use of AC&C funding is
contradictory. OARM stated that EPA was prohibited from using
these funds to pay for an "intramural" activity such as paying rent
to GSA for the NESC. It should be pointed out however, that EPA
used "intramural" (salary and expense) funds to pay for ADP
support on the NESC contract Moreover, the classification of
activities as "intramural" is only an EPA policy that the Agency
itself has admitted is confusing. For example, in a December 1988
letter to the Office of Management and Budget, EPA described its
plan to implement a new accounting system:
Also included in this plan is the elimination of the
terms "intramural" and "extramural" from the
budgeting process. These are EPA expressions,
based on object class definitions, which are not used
government-wide and which are frequently
misunderstood within EPA.
Attached to OARM's response, were documents that purported to
show that no AC&C funds were used to pay rent to GSA. We
compared these documents to the actual expenditures reported in
EPA's budget to Congress. We were unable to reconcile these
documents. As such, we could not substantiate OARM's statement
that the use of AC&C funds precluded them from going through
GSA.
OARM defended the use of AC&C funds by stating that EPA was
specifically directed and authorized by Congress to use these funds
for the supercomputer. We agree. However, Congress did not
authorize EPA to use these funds to obtain the use of a facility..
OARM also disputed our positions in regard to both the lease and
the renovation of the Kahn building. Nonetheless, we stand by our
original positions. OARM also questioned the cost savings that
17
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OARM Response to
Recommendation 2-1
'(Draft Report 2-4)
DIG Evaluation
may have been realized had EPA obtained the use of the alternate
site, i.e., the existing computer center. The response maintained
that this site would have required extensive renovation to bring it
up to the minimum standards for housing a supercomputer. In
rebuttal, we would offer the following two statements. First,
according to the OARM-RTF Director, this site was:
[A] 24,000 square feet state-of-the-art computer
center. It would be the envy of every computer
center director or facility manager who saw it.
Second, in a letter from the Chairman of EPA's House
Appropriation Subcommittee to the owner, the Congressman
stated:
This is to confirm our recent conversation regarding
the possible procurement by the U.S. Environmental
Protection Agency of a supercomputer to be housed
in Bay City.
[T]he [name deleted] facility has been visited by
officials of the University of Michigan; and they
have indicated that the facility is very well suited to
the needs of proper maintenance and operation of a
supercomputer. You may expect future visits from
U of M and EPA officials in the near future for a
further on-site inspection of the facility.
The response indicates that an OARM study, due for completion in
December 199.6, will determine the best way to obtain high
performance computing support in the future. Nonetheless, we are
concerned that this study will not enable the Agency to move its
equipment in a timely manner, as the current lease will expire in
April 1997. Consequently, we believe that EPA should contact
GSA as soon as possible.
OARM agreed that Senior Resource Officials will benefit from
training regarding the uses and limitations of appropriations. Such
training will be provided in FY 1997.
The planned training should achieve the intent of the
recommendation. No further action is required.
18
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OARM Response to
Recommendation 2-2
(Draft Report 2-5)
OIG Evaluation
OARM Response to
Recommendation 2-5
{Draft Report 2-2)
OIG Evaluation
OARM Response to
Recommendation 2-6
(Draft Report 2-3)
OIG Evaluation
OARM agreed that senior Federal managers should be accountable
for taking systematic and proactive measures to develop and
implement cost-effective management controls.
OARM's concurrence is noted. EPA by holding its senior
managers accountable will help alleviate the problem. No further
action is required.
During FY 1997, 0AM will review, by program office, a
representative sample of contracts likely to have such office or
other space arrangements, to ensure they were established and are
managed in compliance with law and regulation.
The action planned by OAM should help alleviate the problem.
We request that OAM forward to us a list of the contracts it plans
to review, as well as the results of its review.
OARM agreed that some training or dissemination of information
regarding the cited Act and regulations would be beneficial to EPA
managers, including contracting and project officers. OARM
stated that it would determine an appropriate forum and
mechanism for providing the training or distributing the relevant
information during 1997.
OARM's response did not meet the intent of the recommendation.
In light of the gravity of the issue, we believe that OARM's plan of
action is too vague. Thus, we reiterate that the Agency needs to
provide training—not disseminate information—to OARM officials
on the Federal Property and Administrative Services Act of 1949;
Title 41 US Code, Section 14; and, the Federal Property
Management Regulations to ensure that future office and other
space arrangements are obtained properly.
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[This page intentionally left blank.]
20
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CHAPTER 3
EPA PRE-SELECTED THE SUPERCOMPUTER SITE
Agency officials visited Bay City and selected the building they
wanted for the NESC. The same officials then manipulated the
procurement process to have an EPA contractor lease that building
for Agency use. These actions not only violated the intent of the
Competition in Contracting Act (the Act), but also resulted in the
Agency excluding from competition a second building whose use
could possibly have been acquired at far less cost. These same
officials also violated acquisition regulations when they provided
acquisition information to the selected subcontractor five months
before the procurement was advertised for competition and dealt
directly with a real estate agent representing the pre-selected
building's owner.
In addition, the "comparable" price quotes submitted by the
contractor to the Contracting Officer to justify the rental price of
the pre-selected building were questionable. Moreover, other price
quotes that did not support the rental price of this building were
omitted from the package the contractor submitted to the
Contracting Officer, and were only obtained under an OIG
subpoena. Finally, the pre-selection of the building resulted in
acquisition of a facility twice as large as required.
RELEVANT LAWS,
REGULATIONS, AND
DECISIONS
Competition
The actions by the Office of Administration and Resources
Management personnel associated with the pre-selection of the
supercomputer site violated the principles of various laws,
regulations, and decisions. (For actual citations, see Appendix I).
The Competition in Contracting Act (41 U.S.C. 253) pertains to
executive agencies obtaining contractor services, rather than an
agency's contractor obtaining subcontractor services. However, the
Comptroller General has found that the procedures followed by a
contractor must conform to Federal policy objectives that underlie
Federal statutes. One of the policy objectives of the Competition
in Contracting Act stipulates that in conducting a procurement for
property or services, an executive agency shall specify its needs
and solicit bids or proposals in a manner designed to achieve full
21
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Contacting Potential
Offerers
and open competition. According to the legislative history of the
Act:
Competition is not a procurement procedure, but an
objective which a procedure is designed to attain...
The last, and possibly the most important, benefit of
competition is its inherent appeal of 'fair play."
Competition maintains the integrity in the
expenditure of public funds by ensuring that
government contracts are awarded on the basis of
merit rather than favoritism.... The Attorney
General has interpreted congressional intent as
'preventing favoritism ... and the notorious
mischief of making contracts privately.'
According to the Comptroller General, it is a fundamental principle
of competitive negotiation that offerers must be treated equally by
a procuring activity. The dual purpose of requiring agencies to
obtain full and open competition is to ensure that a procurement is
open to all responsible bidders and to. provide the Government with
the opportunity to receive fair and reasonable prices (Decision B-
265869, January 2,1996).
Moreover, court decisions have maintained that:
Proof of subjective bad faith by procuring officials,
depriving bidder of fair and honest consideration of
its proposal, generally constitutes arbitrary and
capricious action; bad faith includes predetermining
the awardee or harboring prejudice against plaintiff.
Latecoere Intern.. Inc. v. U.S. Dept. of Naw. 19
F.3d 1342(11th Cir. 1994)
Law of procurement does not tolerate actions
reflecting personal predilections of administrative
officials, whether ascribable to whim, misplaced
zeal, or impermissible influence. Parcel 49C Ltd.
Partnership v. U.S.. 31 F.3d 1147 (Fed. Cir. 1994)
The Federal Acquisition Regulation (FAR 15.402) (1990)
stipulates that contracting officers shall furnish identical
information concerning a proposed acquisition to all prospective
contractors. Government personnel shall not provide the
22
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BACKGROUND
LEASE
CHRONOLOGY
/ - Bay City Vicinity
Site Options
advantage of advance knowledge concerning a future solicitation to
any prospective contractor.
Congress funded $8.7 million for an EPA supercomputer to be
located in the Bay City, Michigan vicinity. The acquisition
planning for this computer was carried out by OARM's National
Data Processing Division (NDPD). In order to lease a building to
house the supercomputer, OARM, NDPD, with the assistance of
the Office of Acquisition Management (OAM), utilized the
services of an EPA contractor under contract to operate Agency
computer facilities—not obtain real estate.
The purpose of this chapter is to depict how EPA violated laws and
regulations by: (a) selecting the site it wanted for the NESC
facility; (b) providing details regarding requirements to the site-
owner's agent in advance of the formal solicitation; and (c)
directing the contractor to tailor the solicitation to fit the
characteristics of that site.
On December 20-21, 1990, the then Director, Office of
Administration and Resources Management, Research
Triangle Park, NC (0ARM-RTF), accompanied by the then
Director of the Office of Information Resources Management and
the then Director of NDPD, toured two potential sites within the
Bay City vicinity.
The first site, the Kahn building, was a two-story, 21,000 square
foot building located within Bay City that:
• Had been constructed in 1910.
• Was unoccupied since 1986.
• Did not meet current local building codes.
The owner of the Kahn building was represented by a real estate
agent, who also had a relationship with a developer interested in
purchasing the building.
The second site was a single story building located just outside of
the city limits of Bay City. In the words of the OARM-RTP
Director, it was:
[A] 24,000 square feet state-of-the-art computer
center. It would be the envy of every computer
center director or facility manager who saw it. The
23
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// - Rationale For Site
Selection
III - Exclusion of
Competition
S&L who owns it never moved in and is presently
using it for storage of equipment and fixtures.
The owner of the second site informed the Director, OARM-RTP
that the property could be purchased for substantially less than the
current $2.5 million asking price, or even leased if EPA so wished.
In a January 7, 1991 memorandum, the Director, OARM-RTP
recommended having the EPA contractor lease the Kahn building
or something in the area for the supercomputer. Specifically, he
explained that the other building, the computer center, was ideal
except for:
It was too large for our needs (roughly 5,000 square
feet at this time)....
The second problem is that it is not downtown.
Since the Lake Guardian [the "Lake Guardian" was
a former oil rig supply vessel that had been
converted into an EPA research ship docked along
the Saginaw River] will be moored in the downtown
area it makes no sense to fragment our presence, „
even on a 2-5 year basis. Having been through that,
first in Cincinnati and now in RTP it is worth a lot
to be physically collocated together.
Thus, the Director concluded that the Agency should task the
contractor:
[T]o obtain a 2-5 year lease on the Kahn building or
something in the area for the Supercomputer.
The decision to lease the Kahn building was made almost two
months before the requirement was formally advertised for
competitive bid. We were informed by the Director, NDPD and by
the EPA Project Officer, that the contractor stated that initially
both the owners of both the Kahn building and the computer center
had made offers. However, according to the Director, NDPD, the
requirements were subsequently changed by EPA officials, i.e., to
have the contractor limit the area of consideration to the citv of
Bay City rather than the vicinity of Bay City as stated in Public
Law 101-507. Therefore, the computer center was effectively
excluded from the competition.
24
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However, there was no justification for the restriction. First, the
computer facility that was excluded from competing for the award
was located in the Bay City vicinity as promulgated in the Public
Law. Second, there was absolutely no need to link the
supercomputer to the "Lake Guardian;" the Director of the NESC
stated that the data collected by the ship could be analyzed on a
personal computer.
EPA officials violated the intent of the Competition in Contracting
Act when they unreasonably manipulated restrictive provisions to
exclude a viable competitor.
IV - Inappropriate Throughout the period leading up to the formal advertisement for
Contacts bids in late May 1991, EPA personnel had made inappropriate
contacts with the real estate agent representing the owner of the
Kahn building. The following information was obtained from
various documents we reviewed and interviews we conducted
during the audit.
December 1990
During their visit to Bay City, the OARM officials provided EPA
requirements and requested engineering data as to the strength of
the floor and the electrical grid capabilities for the building. This
data was submitted by the agent in January 1991, along with a
cover letter stating, "Should we receive a tentative commitment
from EPA, we will proceed with the 'coring' to more accurately
assess the 'live load' capacity."
The floor strength and the electrical grid capabilities were key
evaluation criteria in that they were eventually included in the
project requirements of the bid solicitation and the source selection
plan. The "coring" operation commenced in March 1991. By
providing.these project requirements to the owner's agent, EPA
officials violated the FAR requirement to treat all prospective
offerers equally.
January 1991
The Director, OARM-RTP recommended having the EPA
contractor lease the Kahn building or something in the area for the
supercomputer.
25
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T
March 1991
In response to a request from the EPA contractor, the real estate
agent submitted a cost estimate for a 5,000 square foot facility,
noting that the Kahn building's floors were strong enough for the
supercomputer. The agent also sent the Director, OARM-RTP a
letter from a structural engineer concerning the building's floor
strength.
April 1991
A meeting was held to plan the acquisition of the Kahn building,
among other subjects. In attendance were the Assistant
Administrator, OARM, the Deputy Assistant Administrator,
OARM, and the Director, OARM-RTP. As a result of the meeting,
the Director, OARM-RTP notified the Director, NDPD that
pending Contracting Officer approval, it had been decided to lease
the entire Kahn building for five years, with an additional five one-
year options. There was concern over how much it would cost to
renovate the entire building and how to spread the renovation costs
over the lease. (Note: These EPA officials violated the intent of
the Competition in Contracting Act by planning to select the Kahn
building prior to advertising for competition.)
The Director, NDPD notified the EPA contractor of the decision to
lease the Kahn building and commented, "1 assume we can be
flexible with the length of lease right up to signing. I need to see
our plan for negotiating and getting an approved design by some
time next week."
The Director, NDPD and die Director, NESC agreed to budget
$300,000 for partial renovations to the second floor and
telecommunication equipment of the Kahn building.
The real estate agent informed the building owner that, "I expect
any day now to be in receipt of'Program' specifications and
parameters that the building will have to meet. I don't expect any
surprises."
The contractor submitted draft project requirements to the Project
Officer that included a 14,000 square foot leased facility located:
26
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^ [I]n the downtown Bay City area. Locations within
two miles of the existing dock for the Lake
Guardian vessel and the proposed site of the
permanent EPA-owned facility will be given
preference.
The agent informed the owner that the Kahn building was the
desired location for the EPA facility and that:
While there may be competition from the market
place, our friendly Congressman would like to see
this property as the location. Enclosed is an EPA
"Status Report" for your review.
Within 2 weeks we will have to make some quick
decisions on whether to sell the office building
(presumably to the developer) or develop it and
lease it to EPA.
The EPA Project Officer informed the Contracting Officer that: (a)
the project will require a 14,000 square foot leased facility located
within the city limits of Bay City, Michigan; and (b) there would
be only one firm selected for negotiations. The Contracting
Officer approved the project plan.
May 1991
After approving the plan, the Contracting Officer expressed
concern over selecting only one firm for final negotiations. The
Project Officer responded to this concern by asserting that
negotiating with two firms would be cost and time prohibitive.
The developer agreed to purchase the Kahn building, subject to
signing a lease with EPA or the Agency's contractor.
*
On May 10, the real estate agent sent the owner and the developer
a copy of the project's requirements, and mentioned to the owner
that bids would be solicited in the local newspaper at the end of the
month.
During an interview with a local newspaper, an OARM official
explained that the Agency had already ruled out the existing
27
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V- "Comparable"
Rates
computer center as a possible site for the supercomputer facility
because it was located too far from the city.
On May 28-30, the EPA contractor advertised requirements for
14,000 square feet of space to be located within the city limits of
Bay City, Michigan. The bids were due by June 28.
June 1991
A NDPD "task schedule," dated June 3, listed the developer as a
participant in the renovation of the NESC.
On June 25, the developer submitted a bid package for the lease of
the Kahn building at $24.50 a square foot per year. This was the
only offer submitted.
On October 31,1991, the EPA contractor executed a lease with the
developer. On November 1, the developer purchased the Kahn
building. On December 2, 1991, the Contracting Officer consented
to the subcontract (lease) between the contractor and the developer.
Before consenting; however, the Contracting Officer suggested that
the contractor obtain comparable market lease rates for general
office space in other buildings in order to justify the lease rate
proposed for general office space in the Kahn building. In
response, the contractor obtained five such rates from the real
estate agent. However, the contractor only submitted the three
highest rates to the Contracting Officer. Both we, and the
Contracting Officer, only learned of the existence of the other two
rates because of an OIG subpoena served on the real estate agent in
1995.
GENERAL OFFICE RATES
1 COST PER SQUARE
FOOT PER YEAR
Midland #1
Midland #2
Saginaw #1
Saginaw #2
Saginaw #3
$17.48
17.00
14.30
13.00
12.25
28
-------
None of the five buildings were comparable. They were located in
Midland and Saginaw--noJ Bay City. In fact, they were all located
farther away from-Bay City than the computer center, which had
been eliminated from consideration by EPA because of its distance
from Bay City. All five buildings were Class "A" office structures
located in two of the best commercial areas in Midland and
Saginaw (according to a GSA appraiser, Class "A" buildings must
be constructed after 1988 and be located in good commercial
areas). According to a real estate appraisal, the Kahn building was
a Class "C" structure; there were no. Class "A" office buildings in
Bay City.
None of the five rates were comparable to the rates for office space
in Bay City. As seen in the "General Office Rates" chart on the
previous page, the rates for the better commercial areas in Midland
and Saginaw ranged from $12.25 to $17.48 per square foot.
However, the rate for general office space in the Kahn building had
been considered far less by the developer who eventually
purchased the building. In a letter dated September 21, 1990, the
developer asserted to the owner of the Kahn building, that the
market price for general office space in the Bay City area ranged
from only $4.50 to $7.00 per square foot:
We recognize that the remodeling costs are only
relative to the total cost and together with our
purchase price represent a very attractive per square
foot price.... The market price in the area is from
$4.50 to $7.00 per square foot, relatively low. But
its (sic) a matter of supply and demand. At this
time Bay City has more supply of existing office
space than demand, as evidenced by how long this
property has been available.
In discussions with our perspective (sic) client, they
have indicated that they can pay approximately
$7.00 to $7.50 per square foot absolute net. Using
their required layout, we have enclosed an estimate
of remodeling costs of $616,000 and based on the
rent that can be generated plus remodeling costs, we
have $275,000 available for purchase of the
property. We believe that $7.30 per square foot,
like you, is very reasonable, however its (sic) at the
top of the scale in this area.
29
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VI - But/ding Space
Exceeded
Requirements
Pre-selection of the building resulted in acquisition of a facility
twice as large as required. According to GSA regulations in effect
at the time, as well as EPA guidelines that have gone into effect
since, the Agency should have first developed its space
requirements, and then gone through GSA to fill them. Instead, the
Agency circumvented GSA, picked out the building it wanted, and
theq defined and redefined its space requirements. This is
demonstrated in the following chronology and table:
December 1990 - The Director of OARM-RTF began the
search for a building.
March 1991 - The Project Officer increased the
requirements to include an Information Center.
April 1991 - Technical Specifications were drawn up by the
EPA contractor.
• September 1991 - Final requirements were designed by a
subcontractor hired by EPA's contractor. The
subcontractor's report stated:
Currently, it is the intention of the contractor
and EPA to operate a fully functioning
Super Computer which will act as a public
awareness center, educating the public about
the role of the EPA in today's
environmentally conscious society. This site
was specifically chosen for that purpose and
it is the intention of the contractor and EPA
to create an operational showpiece.
SQUARE FOOTAGE ESTIMATES
12/90
Supercomputer ' 5,000
Information-Ctr
Visitor Center
Building Stair
& Elevator
3/91
5,000
6,000
-
-
4/91
9,000
5,000
-
-
9/91 '
9,218
5,033
1,250
3,333
Total 5,000 11,000 14,000 18,834
i. These amounts are expressed in functional gross square feet (FGSF). FGSF is
defined as total building area (20,592 for the Kahn building) less outside wails.
30
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CONCLUSION
Supercomputer. The Agency used 9,218 square feet of space for
the supercomputer, operations staff, telecommunications and other
support requirements. While we believe the change in the usage
for the supercomputer is a result of EPA's desire for an operational
showpiece, we do not question the need for this square footage.
Information Center. The final design included space for a
visualization lab and technical staff, classrooms, and a break room.
The visualization lab and technical staff are not required for
supercomputer operations. We have been informed by operators of
other supercomputers that these functions can be remotely located.
EPA had already established these functions at RTP. Therefore
there was no need to duplicate them in Bay City. The classroom
and break room are not necessary for supercomputer operations
and are used for an EPA public outreach program.
Visitors Center. The visitor center is neither related to the
operation of a supercomputer nor the Regional Acid Deposition
Monitoring program. This area was included to fulfill EPA's
desire to have a public awareness center and an operational
showpiece.
Building Stair and Elevator. The building stair and elevator were
an attribute of the building and not a requirement for the
supercomputer. If a one-story building had been selected, stairs
and the elevator would not be needed.
Almost every action connected to obtaining the building to house
the NESC was questionable. Lacking any procurement authority
whatsoever, EPA program officials: (a) pre-selected the building
they wanted for the supercomputer site; (b) disclosed information
to the site owner; and (c) unreasonably restricted the area of
consideration to exclude the only known competitor. Moreover,
these events all occurred months before the solicitation for
"competition" was even advertised. Also, the provenance of
"comparable" price quotes used to justify the rates paid to rent the
pre-selected building was dubious. As a result, EPA acquired a
facility that was twice as large as the Agency required.
31
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RECOMMENDATIONS
We recommend the Deputy Administrator:
AGENCY COMMENTS
AND OIG
EVALUATION
3-1) Review whether any employee conduct violations occurred
and whether disciplinary action is warranted under EPA
Employee Responsibility and Conduct regulations and
related policies and procedures against EPA officials who
violated the intent of the Competition in Contracting Act
and related Federal policy objectives and regulations.
We recommend the Acting Assistant Administrator for
Administration and Resources Management:
3-2) Require that contract and project officer training courses
emphasize the Competition in Contracting Act and related
Federal policy objectives and regulations in order to ensure
full and open competition is obtained, or its absence is
properly justified.
3-3) Require that contract and project officer training courses
emphasize that acquisition information should not be
released inappropriately.
3-4) Conduct special training courses in Fiscal Year 1997 that
concentrate on the areas discussed in recommendations 3-3
and 3-4 and which must be attended by all contracting and
project officers.
3-5) Issue a memorandum to senior management to reemphasize
that all space requirements on future projects must be
coordinated through the Facilities Management and
Services Division.
3-6) Require OARM staff to comply with GSA regulations and
EPA guidelines in regard to defining space requirements on
future projects.
The response by OARM disputed many of the issues in this chapter
and generally agreed with our recommendations. We analyzed
OARM's response, and we did not materially change our position.
The response in its entirety is contained in Appendix III.
32
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OARM maintained that the Conference Report contained
contradictory instructions about where the supercomputer was to
be located. According to OARM, one section of the report
indicated that it should be in Bay City, while another section
specified that it should be in the Bay City vicinity. Because of this
inconsistency, EPA officials sought and received guidance from
members of the Appropriations Committee and consistently tried
to give meaning to the inconsistent Congressional direction. It was
the understanding of EPA officials that the new facility was to be
located in Bay City.
We disagree with the notion that Congress mandated that the
facility had to be located in Bay City rather than in the vicinity of
Bay City. While the Conference Report admittedly contained both
terms, it concluded with a statement that the supercomputer would
be located in the vicinity of Bay City. More importantly, the Law
that funded the supercomputer specifically stated that it would be
located in the vicinity of Bay City. Furthermore, an EPA
employee, who had helped draft the language that eventually
became law, informed us that they had used the term vicinity in
order to give the Agency the most flexibility possible for
determining a location. In addition, OARM employees, who
assembled the solicitation for the Center for Ecology Research and
Training (CERT) facility project, were told by OGC to use the
term vicinity.
OARM maintained that there were also sound business reasons for
locating the facility in Bay City, i.e., to be near the "Lake
Guardian" and the likely site of the CERT facility. In our draft
report, we explained that there was absolutely no need to link the
supercomputer to the "Lake Guardian." And, because the NESC
facility was only to be temporary, there was also no need for it to
be located near "the likely site" of the CERT. Moreover,
documents we reviewed indicate that this "likely" CERT site was
also being pre-selected by EPA. Although EPA advertised for a
site in October 1991, it had already planned which specific site it
was interested in two months earlier. The August 1991 CERT
project plan stated:
Currently, the 35-50 acre parcel is bounded ... on
the south side by an asphalt plant. The asphalt plant
especially creates a great deal of noise and pollution
that would need to be heavily screened. In addition,
33
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OARM Response to
Recommendation 3-1
OIG Evaluation
the exhaust fumes from the asphalt plant may affect
any future laboratory facility. By acquiring the
entire 78 acres, the EPA avoids any concerns over
its immediate neighbors because the site extends to
the Saginaw River on the west side and to an
existing roadway scheduled for a major
reconstruction on the east. Purchasing the entire 78
acres would ensure EPA that its neighbors are of no
concern....
OARM admitted that in implementing Congressional direction,
EPA officials made some mistakes. For example, OARM believed
that EPA officials played an inappropriately intrusive role in the
contractor's lease of the NESC site. At a minimum, the EPA
officials' conduct created the impression that the site had been
"pre-selected" by the Agency. Moreover, the course of dealing
appeared to have been inconsistent with contracting principles and
Agency policy concerning EPA involvement with subcontractors.
In addition, OARM recognized that records were not properly
created and maintained, as a significant amount of contract related
"business" was conducted orally or via electronic mail.
OARM disagreed that there have been any violation of the
Competition in Contracting Act.
Although OARM agreed that every effort should be made to
encourage competition, it took the position that the Competition in
Contracting Act is not relevant to subcontract awards. We agree
that strictly speaking the Act is not applicable to subcontract
awards. That is why we stated that EPA officials violated the
intent of the Competition in Contracting Act when they
unreasonably manipulated restrictive provisions to exclude a viable
competitor. Moreover, we also agree with OARM's position that
FAR clause 52.244-5, Competition in Subcontracting, does not
extend the Act's requirements to subcontracts—which is precisely
why we did not make this statement.
However, the Comptroller General had found that subcontract
competition is judged using the "Federal norm." OARM project
officials toured Bay City and identified only one potential site.
Comptroller General decisions have held that, under the "Federal
norm," a procurement becomes competitive only when more than
one source that can meet the Government's needs are known. The
34
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OARM Response to
Draft Report
Recommendation 3-2
OIG Evaluation
OARM Response to
Recommendation 3-2
(Draft Report 3-3)
OIG Evaluation
OARM Response to
Recommendation 3-3
{Draft Report 3-4)
fact that only one source was identified should have alerted
OARM's contracting officials that the procurement was sole
source. Furthermore, these officials should have known that an
advertisement that elicited only one bid did not change the
procurement from sole source to competitive. The fact that the
procurement was sole source should have triggered an evaluation
of whether the award was subject to the Truth in Negotiation
provisions of the Competition in Contracting Act and whether a
cost analysis was warranted.
OARM disagreed that there have been any violation of the
Procurement Integrity Act, because the Act does not apply to
subcontracts placed after prime contract award. OARM did agree
to look into possible violations of the standards of ethical conduct
and the contracting principles embodied in Agency policy.
We accept O ARM's explanation at this time and have dropped the
recommendation from the final report.
OARM believed that it had already met the intent of the
recommendation. OAM had begun using standard, Federally-
endorsed (Federal Acquisition Institute) training courses for
contracting personnel, which heavily stressed the Competition in
Contracting Act and related competition issues. OAM also revised
one project officer course and was in the process of revising
another. Both courses emphasized competition and related issues.
In addition, OAM had new Contract Management Manual
guidance, currently undergoing final Green Border review, on the
roles and responsibilities of project officers in subcontract
administration.
We agree that the referenced courses do meet the intent of the
recommendation in regard to procurement integrity and related
ethics issues. No further action is required.
OARM believed the intent of this recommendation had already
been met. A review of the contracting and project officer courses
indicated that procurement integrity and related ethics issues were
addressed.
In addition, and in accordance with the Office of Government
Ethics (OGE), all contracting personnel and project officers are
required to file standard form OGE 450, Confidential Financial
35
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OIG Evaluation
OARM Response to
Recommendation 3-4
(Draft Report 3-5)
OIG Evaluation
OARM Response" to
Recommendation 3-5
(Draft Report 3-6)
OIG Evaluation
OARM Response to
Recommendation 3-6
(Draft Report 3-7)
Report, to determine possible conflicts of interest. Employees who
file OGE 450 are also required to take an annual ethics course,
much of which is dedicated to procurement integrity issues.
We agree that the referenced courses do meet the intent of the
recommendation in regard to procurement integrity and related
ethics issues. No Further action is required.
OARM did not believe that such training was necessary in light of
the emphasis of the Competition in Contracting Act in its training
courses and the Procurement Integrity Act in the annual ethics
training requirement.
We agree that the referenced courses do meet the intent of the
recommendation in regard to procurement integrity and related
ethics issues. No further action is required.
OARM planned to issue a reminder of the requirement to Senior
Resource Officials and their staffs.
The alternative action proposed by OARM should achieve the
intent of the recommendation. We have revised our
recommendation to reflect the proposed corrective action. No
further action is required.
GSA regulations and EPA guidelines will be included in the
memorandum noted in recommendation 3-6, and will be issued to
OARM staff.
OIG Evaluation
The action planned by OARM should achieve the intent of
the recommendation. No further action is required.
36
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CHAPTER 4
EPA EXCEEDED ITS AUTHORITY
EPA officials exceeded their authority and consequently violated
the Antideficiency Act and the Competition in Contracting Act.
The Antideficiency Act violation amounted to $3.7 million. The
addition of the NESC project to an existing contract violated the
Competition in Contracting Act. Also, by approving permanent
improvements to the NESC building they allowed a "giveaway" of
Government property. Finally, these officials directed the
contractor to: (a) organize a grand opening ceremony for the
NESC, the costs of which were unallowable; and (b) perform other
work under the contract without first getting-the Contracting
Officer's approval. These situations occurred because the officials
believed that it was within their authority to allow them to occur.
In our opinion, they were mistaken.
/ - Antideficiency Act EPA violated 31 United States Code (U.S.C.) § 1341(a) (the
Antideficiency Act) by ordering a lease that ran longer than the
available appropriation. The Antideficiency Act prohibits
Government employees from involving the Government in a
contract before funds are appropriated. The NESC building lease
did precisely that by purporting to obligate the Government to
reimburse its contractor $3.7 million over four-and-one-half years
before the funds for those years were appropriated. The multi-year
lease was conceived by OARM managers in order to spread the
cost to renovate the NESC building over five years. Although
OAM contract officials raised serious objections, nevertheless,
they ultimately acquiesced with the plan.
The multi-year lease plan was decided during an April 5, 1991,
meeting of OARM managers. The participants included the
Assistant Administrator, OARM, the Deputy Assistant
Administrator, OARM, the Director, OARM-RTP, and the Deputy
Director, the Office of Administration. On April 26,1991, the
Project Officer issued a project requirement document, under the
Project Work Authorizations (PWA), which directed the contractor
to negotiate a lease that lasted longer than the appropriation.
37
-------
Specifically, the requirements called for a five year lease with five
one-year renewable options, while EPA's appropriation was due to
expire in 17 months.
On October 31, 1991, EPA's contractor signed the five-year lease
with the developer. Then on November 1,1991, EPA's contractor
purchased the NESC building. Initially, OAM balked at the idea of
a five-year lease, because EPA did not have a five-year
appropriation or a five-year contract. As a result, the OAM
contracting officials warned that: (a) the period of performance for
any subcontract could not be longer than the option in which it is
issued; and (b) the contractor would be liable for costs beyond the
first year of the lease. Despite these arguments; however, on
December 2, 1991, the Contracting Officer did consent to the lease.
Although she added a notation to the lease consent that the
Government would not be held liable for the lease beyond
September 30, 1992, this caveat was inexplicably not incorporated
into any contract modification.
On March 30, 1992, an OAM Branch Chief informed the Project
Officer that the five-year lease was approved, but warned that this
was not to occur again. Specifically, the Branch Chief told the
Project Officer that:
We thought through the multi-year leasing issue and
agreed that contracts would go along with it on this
action since these multi-year leases have some
precedent under the [name deleted] contract and
also the CO [Contracting Officer] had approved the
use of a multi-year lease in a work plan. We also
agreed that we would not authorize their use
again. .. . The transfer of the existing leases to the
winner of the FM [Facilities Management] contract
will be the end of this type of arrangement.
All leases done under our contracts will be single
year only, with options to extend built into the
Prime contract!!!!!! We will not approve a work
plan or subcontracting agreement that has multi-
year leases in them.
1 hope the multi-year leases in the existing contracts
don't create expensive problems for us. But if they
38
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// - Competition in
Contracting Act
do, it only illustrates why we should not get into
them in the first place.
Despite obtaining OAM's agreement to the five-year lease, the
Project Officer was not satisfied. In his March 31,1992 reply, he
informed the 0AM Branch Chief that:
I believe this is very short sighted on our part! It is
just not the way most folks in the private sector
work. The price tag the Bay City landlord would
want as a buyout at the end of one year would be
astronomical and I doubt that any of us would have
been willing to have approved it. It would be one
more item for endless negotiation. Most of the
office landlords around here would probably not
even entertain such an option. If you are not willing
to sign a multi-year deal, they will just lease to
someone else. Ultimately, this will cost the
taxpayers more money because the landlord will
negotiate higher lease rates just to play our game.
We have used assignable leases for years. Why has
this suddenly become a problem?
Both the OAM Branch Chief and the Project Officer were in error.
The Antideficiency Act prohibits Government employees from
involving the Government in a contract before money is
appropriated to pay for that contract. The five-year lease of the
NESC building involved the Government four-and-one-half years
beyond the life of the appropriation that funded the contract. As no
funds had been appropriated for those years, the amount of the
violation was $3,706,560 (monthly rent of $68,640 multiplied by
the 54 months remaining on the lease). The intent of the
Antideficiency Act is to prevent executive branch employees from
incurring obligations not authorized by Congress, which has the
sole authority for appropriating funds. EPA officials violated the
Act by agreeing to the five-year lease. The Act requires that such
violations be reported to Congress, and provides that the violators
can be punished by suspension without pay, removal, fines, or
imprisonment.
The addition of the NESC project to an existing contract violated
the Competition in Contracting Act. This Act does not allow for
39
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/// - "Giveaway" of
Government Property
the addition of work that was not within the scope of the
competition of the original contract award. Instead, such
additional work should be competitively procured as a new
contract.
The scope of the contract EPA used to renovate and lease the
NESC building was actually for computer operations and related
services at specific locations. There wa
-------
rule has been upheld to the extent that even an "urgently needed"
emergency landing field at a privately-owned airport was denied
because there was no legislation to allow the permanent
improvement. There was also no such specific legislation
regarding the NESC building. Furthermore, we were unable to
calculate the value of property "given away," because the
Contracting Officer failed to obtain any cost and pricing data
supporting the proposed lease rate. (See Chapter 5 of this report.)
The building selected to house the NESC required significant
renovation in order to meet current building codes, as well as the
additional improvements necessary to accommodate the
supercomputer. The permanent improvements to the building paid
for by EPA included new windows, floors, a roof, an elevator,
walls, carpets, a heating system, electrical wiring, and the removal
of asbestos. As explained in Chapter 2 of this report, the developer
purchased the building one day after EPA's contractor signed the
lease. Also, the developer recouped the initial investment early on
into the lease, a factor that contributed heavily to the $3.8 million
in excess lease costs. Furthermore, although the lease was for only
five years, the improvements "given" to the developer will last
longer.
ESTIMATED LIFE OF "GIVEAWAYS"
ESTIMATED LIFE
7Y«w
y"- /
i5Y«ac&
t
$1,5 Year*
IMPROVEMENTS
Carpet
Computer Floor
Plumbing
HVAC
Temperature Controls
Electrical
Sewers
Site Drainage
Parking Lot
Site Lighting
Building
Roof
Doors
Elevator
41
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IV - Grand Opening
Ceremony
The EPA Contracts Management Manual addresses permanent
improvements. The Project Officer was aware of the manual as he
requested a copy from contracting personnel in an April 1991
memorandum in which he stated:
If any improvements that will cost the Government
money are necessary to [contractor's name deleted] •
acquired Non-Government Realty, all terms of
Chapter 5 of the Contracts Management Manual
will be complied with.
Chapter 5 of the Contracts Management Manual stipulates what is
to occur prior to the award of a contract that envisions permanent
improvements to private property at Government expense.
Basically, the Project Officer is to provide enough information to
enable the Contracting Officer to approve or disapprove the
proposed improvement. Such information includes:
• A description and estimated cost of the improvement.
• The arrangement under which the improvement will be
provided, i.e., lease payment.
• The proposed contract provisions to protect the interests of
the Government. For example, such provisions would spell
out how much money the Government would be
reimbursed for the fair market value of the improvement at
the end of the lease.
In regards to the improvements to the NESC building, the
Government will receive nothing because no EPA official took any
action to protect the Government's interest.
OARM officials exceeded their authority by directing the
contractor to organize a grand opening ceremony for the NESC,
and then charge the costs to the contract. The Contracting Officer
exceeded her authority by accepting these costs as allowable.
However, these costs were ineligible because such events are not
recognized as appropriate by GAO's Principles of Federal
Appropriations Law (page 4-215). We identified $23,540 charged
for a consultant, tents, tables, and chairs. Evidence indicates
additional costs were incurred for food, plaques, and catering staff.
42
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V - Unauthorized
Work
We requested documentation from EPA, th,e contractor, and the
subcontractors; however, none was provided.
The NESC grand opening was held on October 16,1992; planning
for the event commenced several months earlier when the
contractor hired a former EPA employee as a consultant. The
ceremony itself included: a speech by the local Congressman, a
speech by an EPA official, a ribbon cutting, and a barbecue lunch.
Related events included presentation of plaques to dignitaries
(including EPA employees), a Chamber of Commerce breakfast,
and tours of the NESC building.
EPA personnel exceeded their authority by directing the contractor
to perform work without the Contracting Officer's prior approval.
The Director, OARM-RTP, the Director, NDPD, and the Project
Officer orally ordered $43,102 of work despite the fact that they
had no contracting authority. These changes were never submitted
to the Contracting Officer for approval, and hence were never
formally incorporated into the contract. The $43,102 represented:
• $38,051 for a building access cardreader, a closed circuit
television, and a fire alarm system.
• $4,912 to change a conference room into a video
conferencing room.
• $ 139 for clothing storage bins for visiting EPA employees.
Initially, the Director, OARM-RTP and the Director, NDPD
instructed an NDPD employee to obtain price estimates and issue
Government purchase orders to obtain the cardreader, the closed
circuit television, and the fire alarm system. However, the
contractor complained that this was improper because the
contractor could not maintain the appropriate relationship with its
landlord if EPA arranged the work. The contractor also stated that
it would not accept responsibility for work ordered by the Agency.
Subsequently, the Project Officer sent the contractor an electronic
mail message instructing "[Y]ou should consider these
requirements as technical direction." In response, the contractor
issued purchase orders to the developer (the building owner), who
then issued subcontracts to the firms originally selected by the
Agency, one of which informed the developer that EPA already
had approved its bid.
43
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In addition, the Project Officer ordered work to begin prior to the
Contracting Officer giving approval by contract modification. He
issued two PWAs for the establishment of the NESC, amounting to
$2.2 million. Although the contractor began working, it was four
and six months, respectively, until the Contracting Officer
modified the contract to include the two PWAs.
In our opinion, these situations were caused by a misunderstanding
over authority. For example, the Director, NDPD defended
ordering changes to the conference room by asserting that he had
the authority by nature of his position:
I viewed these modifications ... as ... technical
direction ... to insure that EPA received the most
effective renovation of the building to best meet the
Agency's needs It was my understanding ... I
was authorized to expend additional Government
monies as part of my responsibilities in the
technical direction realm ... I did not feel it was
necessary to obtain Contracting Officer approval to
expend the additional funds It was my belief
that... increased costs were acceptable as long as
the additional costs were within the ceiling of the
contract.
It would appear that the Project Officer shared the NDPD
Director's belief. In commenting on the Project Officer's
earlier direction of the contractor, the former Contracting Officer
remarked:
I state without smiling that we people, whose
signature spends the Government's funds, would
like to retain the illusion that we understand and
approve a contract change before the program
manager directs the contractor to do new work.
According to FAR 43.102(a) (1991), only the Contracting Officer
has the authority to modify a contract to add work; other
Government personnel are to limit their technical direction to work
that is already authorized in the contract. New work that could
otherwise be properly added to the contract should not have been
ordered by personnel providing "technical direction."
Unauthorized work diverts funds provided for legitimate contract
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work, effectively "taking from Peter to pay Paul," and can cause a
violation of the Antideficiency Act.
RECOMMENDATIONS We recommend the Deputy Administrator:
4-1) Coordinate with EP A's Office of the Comptroller in order
to fulfill the reporting requirements of 31 U.S. C. § 1351
for a violation of 31 U.S.C. § 1341(a). The Administrator
must report all relevant facts and a statement of action
taken to the President and Congress through the Director,
Office of Management and Budget.
4-2) Review whether any employee conduct violations occurred
and whether disciplinary action is warranted under EPA
Employee Responsibility and Conduct regulations and
related policies and procedures regarding violation of the
Antideficiency Act or the Competition in Contracting Act.
We recommend the Acting Assistant Administrator for
Administration and Resources Management:
4-3) Review all current subcontracts to identify any other
violations of the Antideficiency Act.
4-4) Provide personnel with contract administration
responsibilities training on the Antideficiency Act and
appropriate limits for subcontract periods. This should be
incorporated into the training discussed in recommendation
3-4.
4-5) Develop and implement policies and procedures to ensure
EPA does not direct a contractor to subcontract beyond the
available appropriation or the end of the contract.
4-6) Provide OARM officials with contract administration
responsibilities training on the use of Government fluids for
permanent improvements to private property.
4-7) Reemphasize to project officers and managers the extent
and limits of their contract administration responsibilities,
stressing that they may not direct additional work without
explicit authorization.
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AGENCY COMMENTS
AND OIG
EVALUATION
OARM Response to
Recommendation 4-1
OIG Evaluation
4-8) In each new EPA contract award, define the project
officer's authority and responsibility.
The response by OARM disputed the issues in this chapter and
generally disagreed with our recommendations. We analyzed
OARM's response, and we did not materially change our position.
OARM's response in its entirety is contained in Appendix III.
OARM asserted that EPA did not violate the Antideficiency Act,
since it was not a party to, or bound by, the lease for the Kahn
Building. The subcontract between the subcontractor and EPA's
contractor did not serve to legally obligate EPA. In consenting to
the subcontract, the Contracting Officer specifically noted that the
Government would not be held liable beyond the date of the
expiration of the contract.
We disagree with the OARM's position and continue to believe the
subcontract creates an Antideficiency Act violation. Subcontract
privity is not relevant to EPA's liability for five years of rent costs.
Subsequent events confirmed the intentions that existed at the time
the [the contractor] lease was executed. That is, the termination
reference in the solicitation for the follow-on contract and the lease
assumption clause in the follow-on contract reflected what EPA
intended all along; that an EPA cost-reimbursement contractor
would lease the space for at least five years, effectively obligating
the Agency for lease payments throughout that entire period.
The contract that continued the NESC project included the lease
and stipulated that, "[T]he Contractor shall assume the leases from
the predecessor Contractor." Clause H.3-2, page 112, of this
contract stipulated that, "The successor contractor shall be
responsible for assuming the lease(s)... at the Bay City, Michigan
site from the incumbent contractor." At the time the successor
contract was awarded, over four years remained on the subcontract.
The solicitation for the successor contract advised prospective
bidders that the awardee would have to assume liability for the
lease. The solicitation also advised bidders to factor in $3.8
million in early termination costs should the contractor choose to
relocate the supercomputer to another facility. This $3.8 million
was the estimated liability for lease payments after the existing
contract ended. Thus, this provision had the practical effect of
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OARM Response to
Recommendation 4-2
OIG Evaluation
OARM Response to
Recommendation 4-3
compelling prospective bidders to continue occupancy of the
facility.
Finally, OARM actions demonstrated that it intended for the
supercomputer to be housed in the facility for at least five years.
OARM officials directed that the lease run for five years in order to
spread out the costs for the renovations to the Kahn building.
From the beginning of the NESC project, OARM intended that its
contractors would fulfill the liability for-the lease costs and then be
reimbursed by the Government.
To summarize, insofar as the Agency had available appropriated
funds for only a fraction of the five year lease period, EPA
incurred an obligation in advance of an appropriation.
Consequently, EPA violated the Antideficiency Act and must
report this violation to Congress.
OARM's response stated that the OIG has not, at this time, made
available for Agency review certain Office of Audit work product
materials. The OIG has advised us (1) that our access to such
materials would not advance resolution of any audit report
findings, and (2) that the materials at issue are potentially only
germane to a determination of whether, and to what extent,
personnel actions might be appropriate.
It is our understanding that, after all audit report issues other than
this one are resolved, the OIG will make available to us its work
product materials relevant to the personnel issue. Once the OIG
has released such information, OARM will review it and take
appropriate personnel actions as warranted.
The actions planned by OARM should meet the intent of the
recommendation. We will provide access to the documents
required after all audit report issues are resolved.
OARM disagreed that a review of EPA subcontracts to ensure
compliance with the Antideficiency Act was necessary. These
instruments do not legally obligate Federal funds because there is
no privity of contract between subcontractors and the Agency.
In addition, all of the Agency's cost reimbursement clauses include
FAR clauses 52.232-22 and 52.232-20, Limitation of Funds and
Limitation of Costs, respectively which may provide further
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protection against Antideficiency Act violations. The language in
these clauses makes it quite clear that the Government is not
obligated to reimburse the Contractor for costs incurred in excess
of the total amount obligated by the Government on the contract.
This would include work done by a subcontractor, as well as that
done by the prime contractor. The prime contractor is responsible
for managing its subcontractors in this context. Also, as discussed,
FAR Part 44 expressly states that giving consent to a subcontract
in no way constitutes approval of any terms and conditions of the
subcontract, because there is no privity between the Government
and the subcontractor.
OIG Evaluation
OARM Response to
Recommendation 4-4
OIG Evaluation
OARM Response to
Recommendation 4-5
OIG Evaluation
We disagree with OARM's assertion that subcontracts never
legally obligate Federal funds. As discussed in our evaluation of
OARM's response to recommendation 4-1, Government actions
can create a liability. The Limitation of Costs and Limitations of
Funds clauses did not protect the Government in the cases and
decisions cited in our evaluation of OARM's response to
recommendation 4-1. Therefore, we reiterate our original
recommendation.
OARM agreed that training regarding the Antideficiency Act
would be beneficial. OAM will, in coordination with the Office of
the Comptroller, take advantage of special training opportunities
(such as the annual EPA procurement conference) to conduct
training for contracting and project officers regarding the
application of the Antideficiency Act to Agency contracts. This
training will be accomplished in FY 1997.
The actions planned by OARM and OAM should fulfill the intent
of the recommendation. No further action is required.
The decision to subcontract and who to subcontract with, is a
business decision made by a prime contractor. EPA cannot legally
require a prime contractor to limit the term of a subcontract, since
the subcontract may be in fulfillment of multiple requirements
under several different contracts with several different agencies or
firms. This recommendation conflicts with the well established
legal principle that privity of contract limits an Agency's legal
obligation to subcontractors.
We agree that the decision to subcontract, and who to contract
with, should be a business decision. That is precisely why we
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OARM Response to
Recommendation 4-6
OIG Evaluation
OARM Response to
Recommendation 4-7
OIG Evaluation
OARM Response to
Recommendation 4-8
OIG Evaluation
criticized OARM in Chapter 3 for directing the NESC subcontract,
i.e., pre-selecting the Kahn building. However, we disagree that
the Government is unable to restrict the length of a subcontract,
because of the ramifications of the Antideficiency Act.
Government employees are prohibited by the Act from involving
the Government in a contract before money is appropriated to pay
for the contract. Therefore, we reiterate our position that OARM
needs to develop and implement policies and procedures to ensure
no subcontracts run past the available appropriation or the end of
the contract.
OARM will take advantage of special training opportunities to
offer training regarding using Government funds for permanent
improvements to private property. This training will be completed
in FY 1997.
The action planned by OARM should fulfill the intent of the
recommendation. No further action is required.
With the award of each new contract, the project officer receives a
letter reiterating his/her duties, responsibilities, and authorities.
OARM will revise this document to specify the scope and
limitations of authority of the project officer.
The action planned by OARM should fulfill the intent of the
recommendation. No further action is required.
OARM will look into revising the EPA Technical Direction clause
to identify the scope and limitations of the project officer's
authority. OARM will also consider providing copies of the letter
referred to in recommendation 4-7 to Agency contractors.
The response does not meet the intent of our recommendation.
OARM project officials were inappropriately involved in the
"giveaway" of Government property, the grand opening ceremony,
and unauthorized work. Due to the significance of these actions,
we can not close out this recommendation until OARM takes
action or proposes an acceptable alternative to our
recommendation.
OARM agrees that appropriated funds may not be used for
permanent improvements to private property. However, OARM
maintains, "[Tjhe appropriate time to definitively conduct such an
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analysis is at the end of the contract." We disagree. The
appropriate time to analyze such expenditures is in advance of the
expenditure. OARM offered a Comptroller General decision in
support of its position. In fact; however, this decision did not
support OARM's position. The decision does not state that
contract completion is the appropriate time to analyze permanent
improvement costs. Furthermore, EPA's Contracts Management
Manual requires preaward analysis and approval of all permanent
improvement costs.
The response also questioned the guidelines we employed for
evaluating expenditures for permanent improvements to private
property. OARM offered three other Comptroller General
decisions as appropriate guidelines for such evaluations. One
decision concerned GSA's authority to repair and alter leased
premises. However, this decision is not relevant because, as seen
in our report, OARM circumvented GSA. The other decisions
offered by OARM were in fact derived from the Comptroller
General decision we used, namely, the decision contained in
OARM's Contract Management Manual.
OARM alleges our finding concerning improper use of funds for
the grand opening ceremony was premature and should await final
audit. We disagree. The Contracting Officer was informed of the
scope of subcontracts and consented to them. This informed
consent was sufficient to draw the conclusion that these
expenditures were improper.
We also disagree with OARM's assertion that the determination of
whether OARM personnel took unauthorized actions must wait for
a closeout cost audit.
In summary, we believe that rather than "look into" or "consider,"
OARM should implement the recommendation, i.e., define the
project officer's authority and responsibility in each new contract
award.
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CHAPTER 5
ERA'S SUBCONTRACT ADMINISTRATION VIOLATED LAW
EPA administration of the NESC subcontract violated law and the
FAR. This violation exposed the Government to claims by the
subcontractor for excess costs. It also complicated the recovery of
Government property that had been "given away." The violation
occurred because the Contracting Officer did not enforce the Truth
in Negotiations provision of the Competition in Contracting Act
during subcontract consent.
In addition, the Contracting Officer and the Project Officer did not
ensure that $5 million of Government equipment that had been
furnished to the contractor was recorded on. property records. This
equipment included the supercomputer. The omission reduced
accountability thereby jeopardizing the equipment. After we
brought the issue to the attention of the Project Officer, the
equipment was added to the records.
RELEVANT LAWS Cost-plus-a-percentage-of-cost contracts are prohibited by the
AND REGULATIONS Federal Property and Administrative Services Act of 1949
(41 U.S.C. 254(b)). The Competition in Contracting Act requires
advance procurement planning and market research to achieve full
and open competition (41 U.S.C. 253a(a)(l)(B)). The Act requires
written justification when full and open competition is not
achieved, i.e., sole source award. The following decisions
illustrate the criteria for judging if full and open competition has
been achieved:
The Comptroller General found a competitive procurement
is not converted into a sole source procurement when only
one bid is received if it can be demonstrated that firms
other than the sole responsive bidder could have met the
requirements (Decision Number B-221559.2, July 31,
1986).
The GSA Board of Contract Appeals (GSBCA) found that
a solicitation under which forty-nine firms were solicited.
but only one responsive bid was received, was ill-conceived
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and resulted in less than the full and open competition
required by the Competition in Contracting Act. The Board
concluded the response was so limited as to excite inquiry,
and a full explanation of the limited response disclosed that
in fact full and open competition was not obtained
(GSBCA Number 8329-P-R., April 10,1986).
The Truth in Negotiations provision of the Competition in
Contracting Act stipulates that before a subcontract is awarded the
subcontractor must submit cost or pricing data. The subcontractor
is also required to certify that this data is accurate, complete, and
current (41 U.S.C. 254(d)). The legislative history for the
Competition in Contracting Act states:
In Government contracting, competition is a
marketplace condition which results when several
contractors, acting independently of each other and
of the government, submit bids or proposals in an
attempt to secure the government's business.
[Competition in contracting saves money ...
competition is a powerful motivator for cost control.
[This provision] addressed Congressional concern
over noncompetitive contract prices being
negotiated based on defective data submitted by
contractors.
The contracting officer is responsible for determining price
reasonableness for the prime contract. In order to make this
determination, subcontractor cost or pricing data must be analyzed
(FAR 15.806-1 (a)( 1)(1990)). The prime contractor is required to
conduct a cost analysis of the data submitted by the subcontractor
(FAR 15.806-l(a)(2)(1990)). Cost or pricing data is defined as
facts that prudent buyers and sellers would reasonably expect to
affect price negotiations significantly. These facts include
contractor historical accounting data, vendor quotes, and
management decisions of the prospective contractor (FAR •
15.801(1990)).
FAR 44.202-2 (1990) requires the Contracting Officer consider the
following factors before consenting to a subcontract:
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/ - Subcontract Type
II - Subcontract
Competition
• Is the proposed subcontract type appropriate for the
risks involved and consistent with current policy?
• Was adequate price competition obtained or its
absence properly justified?
• Has the contractor performed adequate cost or price
analysis or price comparisons and obtained
accurate, complete, and current cost or pricing data,
including any required certifications?
• Does the contractor have a sound basis for selecting
and determining the responsibility of the particular
subcontractor?
The subcontract to lease the NESC building was signed on October
31, 1991. On the next day the developer purchased the building.
On November 13,1991, the contractor requested the Contracting
Officer's consent to the subcontract. However, the subcontract
document itself was not received at EPA until January 9,1992, and
then only at the behest of a Contracting Officer not affiliated with
the contract. The Contracting Officer who was affiliated with the
contract informed us that she had never in fact read the
subcontract. Had she read the subcontract, she would have noted
that it contained a provision prohibited by law, i.e., a cost-plus-a-
percentage-of-cost provision. The provision stipulated that the
lease price would be adjusted by cost plus 82.5 percent for material
modifications to the renovation specifications.
As explained in Chapter 3 of this report, there was no subcontract
competition because EPA pre-selected the site. Although the
Contracting Officer informed us that she had been unaware of this
lack of competition, the contractor's consent request did state that
there had been only one bidder. The contractor asserted there had
been competition because the requirement had been advertised in a
Bay City area newspaper. However, an advertisement, by itself,
does not fulfill the requirements for competition. The contractor
should have conducted market research and planning to achieve
full and open competition prior to the advertising. If this research
identified only one bidder, the law required that efforts be made to
enhance competition. If these efforts failed, then the contractor
should have submitted a written justification for a noncompetitive
award. In this instance no efforts were made and no justification
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/// - Truth in
Negotiations
was submitted. During an interview, the Contracting Officer
admitted that when only one bid is received, the process should be
questioned. However, she did not.
The Contracting Officer failed to enforce the Truth in Negotiations
provision of the Competition in Contracting Act, as well as the
related regulations requiring cost analysis. This law requires
subcontractors to submit cost or pricing data and certify it is
accurate, complete, and current. It also allows the Government to
reduce subcontract prices that are inflated because of inaccurate,
incomplete, or noncurrent data. Congress enacted this law to
protect the Government's interest when market competition is not
adequate to motivate a contractor to control costs. By not
obtaining cost or pricing data, the Contracting Officer complicated
the recovery of excess costs paid to the developer. This data also
could have been used to monetize the Government property that
had been "given away" as permanent improvements.
The consent package provided by the contractor did not include a
cost analysis. The cost analysis would have provided the principal
elements of the subcontract price proposed, and the difference
between the price proposed and the price negotiated. Deeming the
subcontract to have been competitively procured, the Contracting
Officer did not request the cost analysis. She was unaware that
there in fact had been no competition. The Contracting Officer-
informed us that she was also unaware that:
• The Law did not require the supercomputer to be
located in the city of Bay City.
• The rates submitted by the contractor as
"comparable" were not; they were for facilities in
better commercial areas outside the Bay City
vicinity.
• The "comparable" rates submitted by the contractor
were not from an independent source, but rather
from an agent of the developer.
• The building listed in the subcontract was 20,600
square feet; the space requirement advertised in the
newspaper was only 14,000 square feet.
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IV - Determination of
Responsibility
V - Administration of
Government Property
RECOMMENDATIONS
The $39.95 per square foot rate that EPA was
paying had been negotiated up from the
subcontractor's initial price proposal of $24.50 per
square foot.
• The Kahn building required extensive renovations.
The Contracting Officer informed us that had she been aware of
the circumstances regarding the subcontract, she would have
required the submission of certified cost and pricing data, and may
not have consented to the subcontract.
As explained in Chapter 3 of this report, the basis of selection was
flawed. EPA program personnel selected the building they wanted
and then manipulated the procurement process to have the
contractor lease it. There was no evidence that the contractor or
the Contracting Officer evaluated the developer's responsibility to
contract pursuant to FAR 44.202-2(a)(7) and 9.106-1. Proper
evaluation of the subcontractor's responsibility would have
disclosed that the developer had no performance record and did not
own the building at the time the subcontract was negotiated and
awarded by the contractor.
FAR 45.505(c)(1990) stipulates that official Government property
records must identify all Government property. EPA relied on the
contractor to maintain the official records. However, the contract
stipulated the Government was to maintain the records. During a
tour of the NESC, we noted property identification numbers on the
supercomputer and its peripheral equipment. We attempted to
trace the numbers to the contractor prepared Government property
records. These records, however, omitted over $5 million of
equipment including the supercomputer, peripheral equipment, and
upgrades to the supercomputer. These omissions reduced
accountability, thereby jeopardizing the equipment. After we
brought the issue to the attention of the Project Officer, the
equipment was added to the records.
We recommend the Acting Assistant Administrator for
Administration and Resources Management:
5-1) Provide Contracting Officers with training on subcontract
consent procedures.
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5-2) Require Contracting Officers to read proposed subcontracts
before granting consent.
«
5-3) Require that Agency personnel maintain official property
records for NESC equipment furnished to the contractor in
accordance with the contract.
AGENCY COMMENTS
AND OIG
EVALUATION
OARM Response to
Recommendation 5-1
OIG Evaluation
OARM Response to
Recommendation 5-2
OIG Evaluation
5-4) Require Government personnel periodically verify
Government property inventories prepared by the
contractor. This can be done by spot checking the
inventory the contractors are required to submit to the CO
by October 31 of each year.
The response by OARM disputed the issues in this chapter and
generally disagreed with our recommendations. We analyzed
OARM's response, and we did not materially change our position.
OARM's response in its entirety is contained in Appendix III.
OAM is currently revising its subcontract consent procedures in
the form of a new chapter to the Contracts Management Manual.
This chapter will be issued for Agency Directives Review (Green
Border) during the first quarter of FY 1997. As an interim
measure, a draft Procurement Policy Notice was issued and
commented on by the OIG and will also be issued during the first
quarter of FY 1997.
The actions planned by OARM will fulfill the intent of the
recommendation. No further action is required.
The assumption that inadequate performance on the part of any one
contracting officer is assignable to all employees is without
support. Although we believe that all EPA contracting officers are
aware of and consistently comply with the requirement that they
read proposed subcontracts before granting consent, this will be
part of the policy noted above.
The action planned by OARM will fulfill the intent of the
recommendation, and no further action is required. However, we
take issue with several of OARM's statements.
We agree that one employee's inadequate performance is not
assignable to all employees. However, we believe a simple
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OARM Response to
Recommendation 5-3
OIG Evaluation
OARM Response to
Recommendation 5-4
OIG Evaluation
reminder can both reinforce good work and help employees who
may need it.
That said, many of the OARM employees that were involved in the
establishment of the NESC were unable to identify problems
requiring corrective action. For example, OARM alleged that we
misinterpreted the FAR by concluding that the NESC subcontract
was sole-source, because only one firm responded to the
advertisement. Our position is that the NESC subcontract should
have been treated as sole-source, because OARM employees
believed only one source was acceptable. Similarly, OARM's
contention that it was reasonable for the Contracting Officer to
exempt the subcontract from the Truth In Negotiation Act
evidences an even larger problem.
In accordance with the FAR, the official property records are
maintained by the contractor. The accuracy of these records is
audited, pursuant to an interagency agreement with the Defense
Contract Management Command. To require Agency personnel to
also maintain records would be duplicative.
OARM's nonconcurrence is noted. Although allowing the
contractor to maintain the records is a generally accepted method
under the FAR, the Regulation also allows the Government to
reserve this function for itself. Both the earlier contract, as well as
the current contract, stipulated that the Government would
maintain the records. Therefore, if EPA wishes to have the
contractor maintain the official property records for NESC
equipment, it should modify the contract. We recommend OARM
provide us a copy of the contract modification when it is executed.
In accordance with the FAR and individual contracts, EPA
contractors are required to inventory and submit an annual report
of Government property in their possession. This report must be
accurate as of September 30, and be submitted to the Contracting
Officer by October 31 of each year.
OARM's response does not address the recommendation. We have
reworded the recommendation to make it more clear. We
recommend that Government employees periodically verify
Government property inventories.
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CHAPTER 6
EPA FAILED TO MAINTAIN DOCUMENTATION
Agency officials failed to make and preserve documentation of
significant decisions and activities. Such documentation was
required by the Federal Records Act and the Records Disposal Act
(44 U.S.C. 3101). The undocumented EPA decisions involved the
circumvention of GSA, violation of the Competition in Contracting
Act, violation of acquisition regulations, and improper direction of
the contractor.
The absence of records impeded our audit of the establishment of
the NESC. The lack of Agency records required the use of
subpoenas to obtain the majority of the documents we used from
contractors, subcontractors, and other organizations.
RELEVANT LAWS 44 U.S.C. 3301 defines records to include all materials made or
AND REGULATIONS received in connection with the transaction of public business as
evidence of decisions or other activities of the Government.
44 U.S.C. 3105 requires Agencies to establish safeguards to
prevent the unlawful removal or destruction of records. It requires
the safeguards include informing officials and employees of the
penalties provided by law for the unlawful removal or destruction
of records.
44 U.S.C. 3101 requires the head of each Federal agency to make
and preserve records containing adequate and proper
documentation of the essential transactions of the agency and to
protect the legal and financial rights of the Government.
18 U.S.C. 641 provides criminal penalties for stealing any record
of the United States.
18 U.S.C. 2071 stipulates criminal penalties for willful destruction
of records or documents including fines, imprisonment, removal
from office and disqualification from holding any office under the
United States.
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Examples of
Documentation
Failures
36 CFR 1222.38 (1990) requires Agencies to create and maintain
records sufficient to: (a) make possible a proper scrutiny by duly
authorized agencies of the Government; (b) protect the financial,
legal, and other rights of the Government; (c) document significant
decisions and commitments reached orally; and (d) document
important meetings.
We were not provided sufficient records related to EPA decisions
and activities, because Agency officials failed to make and
preserve such records. This lack of documentation violated
44 U.S.C. 3101. Examples of activities and decisions that the
Agency failed to document are identified in the following:
• EPA officials decided to circumvent GSA and use an
Agency contractor to obtain the use of the Kahn building.
Representatives of various Agency offices provided us
conflicting accounts of how this decision was made.
However, we were unable to establish the veracity of any of
the accounts, because none of the representatives were able
to submit any documents to support their assertions.
• OARM officials decided to have the contractor lease the
Kahn building. They instructed the contractor to develop a
requirements plan to implement this decision in an April 6,
1991, electronic mail message. Also, on April 10,1991,
OARM budgeted $300,000 to renovate the second floor of
the Kahn building. Both of these decisions took place
almost two months before the requirement was formally
advertised. We learned of this information from contractor
records; EPA had not retained any of the documents related
to these events.
• EPA officials restricted the area of consideration for the
NESC to the city limits of Bay City, Michigan, and
provided conflicting accounts regarding this restriction.
We were told by one official that the House Appropriations
Committee set the location. Other officials told us that the
Public Law required the facility to be located within the
city limits of Bay City. Actually, the Public Law stipulated
the location as the Bay City, Michigan vicinity. As such, a
congressional committee would not be able to override the
law. None of these EPA officials were able to document
their assertions.
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• The Director, OARM-RTP received correspondence from
the agent that represented the owner of the Kahn building.
This correspondence addressed the building's floor strength
and EPA's requirements, months before these requirements
were advertised. Although this correspondence was
received in connection widi public business, we were only
able to obtain it by subpoenaing the agent's records. EPA
did not retain any of the documentation.
• The addition of the NESC project to the existing contract
violated the Competition in Contracting Act. Such
additional work should have been competitively procured
as a new contract. Although OAM officials claimed to
have written a "Justification for Other than Full and Open
Competition," they were unable to provide us a copy.
• The Deputy Assistant Administrator, OARM asserted that
he gave biweekly briefings, on the status of the NESC
project, to the House Appropriations Committee. However,
he was unable to provide any documents in regard to these
briefings.
• The local Congressman requested that the NESC visitor
center auditorium seating capacity be enlarged from 15 to
44 persons, the capacity of a school bus. No
documentation of the decision or its basis was maintained.
• The Director, NDPD orally directed the contractor to
change a conference room into a video conferencing room
without the knowledge of the Contracting Officer. This
decision should have been documented to protect the
financial rights of the Government.
An EPA Contracts Specialist made the following comments:
Some things were not documented. [The
Contracting Officer] directed things not to be
documented. In some cases, it disappeared. Some
key decisions were not documented. It depends on
the CO to document or not.
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CONCLUSION
I am not surprised there is no documentation. He
[the Project Officer] would tell me not to E-Mail
him but to call. Everything was verbal, with no
paper trail.
An 0AM financial monitoring review in 1992 identified problems
with the Project Officer's documentation practices. Although the
Project Officer made a commitment to improve, we found that he
failed to maintain contract files, internal correspondence,
contractor correspondence, or payment files. EPA's "Contract
Administration: A Guide for Project Officers" explains that:
The need to maintain proper records, logs, and
reports cannot be emphasized enough. The Project
Officer's records are considered part of the official
contract documentation.... The Project Officer
should immediately, upon his or her designation, set
up a contract administration and suspense file for
the contract. All documents, including internal
memos, concerning the contract must be contained
in the Project Officer's official files.
Agency personnel provided us the following statements concerning
the preservation, maintenance, and safeguarding of Project Officer
records. Initially they told us that technical direction was verbal.
Next they told us that these files were expendable, i.e., they did not
have to be maintained after the contract ended. However, upon
learning that such records must be retained this argument was
withdrawn. Then they told us, "Right, wrong, or indifferent, we
have no further documentation on the ... contract." Next they told
us that the Project Officer files had been boxed up and sent to the
contracting office. However, there was no record of shipment, the
files were never received, nor were they expected. Finally, they
told us that most of the files had been destroyed at the end of the
contract. If true, this violated 44 U.S.C. 3105.
EPA failed to make and preserve documentation of significant
decisions and activities in accordance with laws, regulations, and
policy. Such documentation was needed to protect the legal and
financial rights of the Government. The conflicting statements by
EPA officials further demonstrate the importance of
documentation.
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RECOMMENDATIONS
We recommend the Deputy Administrator:
6-1) Review whether any employee conduct violations occurred
and whether disciplinary action is warranted under EPA
Employee Responsibility and Conduct regulations and
related policies and procedures against officials who
violated the Federal Records Act and the Records Disposal
Act by concealing, removing, or destroying any records or
documents.
6-2) Hold Agency personnel accountable for the maintenance of
all documents related to decisions and input into the
decision making process.
We recommend the Acting Assistant Administrator for
Administration and Resources Management:
6-3) Provide training to Senior Level Managers, Contracting
Officers, Project Officers, and other staff with contracting
duties on the Federal Records Act, the Record Disposal
Act, implementing regulations, and EPA policy affecting
the retention of records.
6-4) Initiate a review of other EPA contracts to identify
documentation problems and ensure adequate corrective
action is taken.
AGENCY COMMENTS
AND DIG
EVALUATION
OARM Response to
Recommendations 6-1
& 6-3 (Draft Report
6-1 and 6-2)
The response by OARM generally agreed with the findings and the
recommendations. OARM's response in its entirety is contained in
Appendix III.
The OIG has not, at this time, made available for Agency review
certain Office of Audit work product materials. The OIG has
advised us (1) that our access to such materials would not advance
resolution of any audit report findings, and (2) that the materials at
issue are potentially only germane to a determination of whether,
and to what extent, personnel actions might be appropriate.
It is our understanding that, after all other audit issues are resolved,
the OIG will make available to us its work product materials
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O1G Evaluation
OARM Response to
Recommendation 6-2
(Draft Report 6-3)
OIG Evaluation
OARM Response to
Recommendation 6-4
OIG Evaluation
relevant to the personnel issue. Once the OIG has released such
information, OARM will review it and take appropriate personnel
actions as warranted.
The actions planned by OARM should meet the intent of the
recommendations. We will provide access to the documents
required after all audit report issues are resolved.
OARM agreed that training regarding the Federal Records Act and
related requirements would be valuable. OARM will develop
record keeping requirements for documenting important decisions
and conduct training to all level of employees.
The actions planned by OARM should fulfill the intent of the
recommendation. No further action is required.
Beginning in FY 1997, the Office of Acquisition Management
(OAM) will review, by program office, a representative sampling
of contracts for potential documentation problems.
The action planned by OAM should alleviate the problem. We
request that OAM forward to us the results of its review.
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APPENDIX I
RELEVANT LAWS AND REGULATIONS
CHAPTER 1
Departments of Veterans Affairs and Housing and Urban Development, and Independent
Agencies Appropriations Act, 1991, P.L. No. 101-507,104 Stat. 1372 (1990)
That notwithstanding any other provision of law, the lease or purchase of a
computer, from funds appropriated under this paragraph, to support the regional
acid deposition monitoring program, and the planning and site acquisition for a
new EPA Center for Ecology Research and Training, shall be established in the
Bay City, Michigan vicinity....
Conference Report, to accompany H.R. 5158, H.R. 101-900, 101st Cong., 2d Sess. (1990)
$8,700,000 is for the lease/purchase of a high performance supercomputer to
support the regional acid deposition monitoring program....
Emergency Supplemental Appropriations for Additional Disaster Assistance, for Anti-Terrorism
Initiatives, for Assistance in the Recovery from the Tragedy that Occurred at Oklahoma City, and
Rescissions Act, 1995, P.L. No. 104-19,109 Stat. 238 (1995)
$9,806,805 are rescinded: Provided, That notwithstanding any other provision of
law, the Environmental Protection Agency shall not be required to site a computer
to support the regional acid deposition monitoring program in the Bay City,
Michigan, vicinity.
CHAPTER 2
40 U.S.C. 490,1950 Reorganization Plan No. 18, Section 1
All functions with respect to acquiring space in buildings by lease, and all
functions with respect to assigning and reassigning space in buildings for use by
agencies (including both space acquired by lease and space in Government-owned
buildings), are hereby transferred from the respective agencies in which such
functions are now vested to the Administrator of General Services....
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41 CFR 101-18.101(a)(1990)
GSA will perform all functions of leasing building space, and land incidental
thereto, for Federal agencies....
41 U.S.C. 14
No land shall be purchased on account of the United States, except under a law
authorizing such purchase.
United States General Accounting Office, Principles of Federal Appropriations Law, Chapter 4
[A]n agency cannot do indirectly what it is not permitted to do directly. Thus, an
agency cannot use the device of a contract or grant to accomplish a purpose it
• could not do by direct expenditure.
United States General Accounting Office (GAO), "Standards for Internal Controls in the Federal
Government." 1983
Internal control systems are to reasonably ensure that the following objectives are
achieved:
Obligations and costs comply with applicable law.
All assets are safeguarded against waste, loss, unauthorized use, and
misappropriation.
Revenues and expenditures applicable to agency operations are recorded and
accounted for properly so that accounts and reliable financial and statistical
reports may be prepared and accountability of the assets may be maintained.
Internal Control Standards - General Standards
Supportive Attitude. Managers and employees are to maintain and demonstrate a positive
and supportive attitude toward internal controls at all times.
Competent Personnel. Managers and employees are to have personal and professional
integrity and are to maintain a level of competence that allows them to accomplish their
assigned duties, as well as understand the importance of developing and implementing
good internal controls.
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Internal Control Standards - Specific Standards
Recording of Transactions and Events. Transactions and other significant events are to be
promptly recorded and properly classified.
Execution of Transactions and Events. Transactions and other significant events are to be
authorized and executed only by persons acting within the scope of their authority.
Separation of Duties. Key duties and responsibilities in authorizing, processing,
recording, and reviewing transactions should be separated among individuals.
Supervision. Qualified and continuous supervision is to be provided to ensure that
internal control objectives are achieved.
Executive Office of the President, Office of Management and Budget, June 21,1995 revision to
Circular No. A-123
As Federal employees develop and implement strategies for re-engineering
agency programs and operations, they should design management structures that
help ensure accountability for results, and include appropriate, cost-effective
controls. .. .
CHAPTER 3
Legislative History of the Competition in Contracting Act of 1984
[Competition is not a procurement procedure, but an objective which a procedure
is designed to attain.... The last, and possibly the most important, benefit of
competition is its inherent appeal of fair play." Competition maintains the
integrity in the expenditure of public funds by ensuring that government contracts
are awarded on the basis of merit rather than favoritism The Attorney
General has interpreted congressional intent as 'preventing favoritism ... and the
notorious mischief of making contracts privately.'
B-265869, January 2,1996
The Competition in Contracting Act... requires contracting agencies to obtain
full and open competition through the use of competitive procedures, the dual
purpose of which is to ensure that a procurement is open to all responsible sources
and to provide the government with the opportunity to receive fair and reasonable
prices ... it is a fundamental principle of competitive negotiation that offerers
must be treated equally by a procuring activity.
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Latecoere International. Inc. v. IJnitecLStates of America Department of the Navy. 19 F.3d 1342
(11th Cir. 1994)
Courts reviewing award of government contract should be concerned with
whether contracting agency provided coherent and reasonable explanation of its
exercise of discretion. ...
Proof of subjective bad faith by procuring officials, depriving bidder of fair and
honest consideration of its proposal, generally constitutes arbitrary and capricious
action; bad faith includes predetermining the awardee or harboring prejudice
against plaintiff.
Parcel 49C Limited Partnership v. The United States. 31 F.3d 1147 (Fed. Cir. 1994)
Law of Procurement does not tolerate actions reflecting personal predilections of
administrative officials, whether ascribable to whim, misplaced zeal, or
impermissible influence.
t
41U.S.C. 423(b)
Prohibited conduct by procurement officials. During the conduct of any Federal
agency procurement of property or services, no procurement official of such
agency shall knowingly....
(3) disclose any proprietary or source selection information regarding such
procurement directly or indirectly to, any person other than a person
authorized by the head of such agency or the contracting officer to receive
such information.
FAR15.402(b)(1990)
Contracting officers shall furnish identical information concerning a proposed acquisition
to all prospective contractors. Government personnel shall not provide the advantage of
advance knowledge concerning a future solicitation to any prospective contractor.
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CHAPTER 4
31 U.S.C. 1341(a)(l)
An officer or employee of the United States Government... may not... (B)
involve either government in a contract or obligation for the payment of money
before an appropriation is made unless authorized by law.
31 U.S.C. 1349(a)
An officer or employee of the United States Government... violating section
1341 (a) or 1342 of this title shall be subject to appropriate administrative
discipline including, when circumstances warrant, suspension from duty without
. pay or removal from office.
31 U.S.C. 1350 _
An officer or employee of the United States Government -... knowingly and
willfully violating section 1341 (a) or 1342 of this title shall be fined not more
than $5,000, imprisoned for not more than 2 years, or both.
31 U.S.C. 1351
If an officer or employee of an executive agency ... violates section 1341 (a) or
1342 of this title, the head of the agency ... shall report immediately to the
President and Congress all relevant facts and a statement of actions taken.
69 Comp. Gen. 292
In determining the materiality of a modification, we consider factors such as the
extent of any changes in the type of work, performance period ... whether the •
solicitation for the original contract adequately advised offerers of the potential I
for 4he type of changes during the course of the contract... or whether the
modification is of a nature which potential offerers would reasonably have
anticipated under the changes clause.
B-188408, June 19,1978
[A]n existing contract may not be expanded so as to include additional work of
any considerable magnitude, unless it clearly appears that the additional work was
not in contemplation at the time the original contract was entered and is such an
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inseparable part of the original work that it is reasonably impossible of
performance by any other contractor....
35Comp. Gen. 715
It is a well-established rule that appropriated funds may not ordinarily be used for
the permanent improvement of private property unless specifically authorized by
law. This rule is based upon the fact that no Government official, in the absence
of specific legislation, is authorized to give away Government property.
19 Comp. Gen. 679
Practically all air traffic between Panama and points in Central America passes in
the vicinity of the Gulf of Dulce. Because of exceptionally bad weather peculiar
to this locality during the rainy season extending over approximately eight months
of each year, many Army aircraft have experienced considerable difficulty in the
vicinity of the Gulf of Dulce. Recently three airplanes were lost and one fatality
occurred in this area because of dangerous weather conditions.
Your decision is accordingly requested as to whether funds appropriated ... may
be used for the payment of proposed improvements as a temporary emergency
measure ... the fact would still remain that there is involved a proposed
expenditure of public funds on private property and for a purpose for which no
provision is made in the appropriation acts involved.
For the foregoing reasons the question you submit must be, and is, answered in
the negative.
FPA Contracts Management Manual, Chapter 5.5, Improvements to Non-Government Realty,
Section b(l)
D&F. Prior to award of a contract described in paragraph 5.5a above, the
Contracting Officer shall prepare and forward a D&F to the Director, Procurement
and Contracts Management Division (PCMD). The D&F shall be concurred with
by legal counsel prior to submittal to the Director. The D&F shall be based on the
following information which the Project Officer shall provide:
(a) A review of the authorities, policies, and requirements of the appropriate
statutory authority or of 42 Comp. Gen. 480 as applied to the procurement;
(b) A description of the procurement, including identification of the funds to be
used, contract type, property or services being procured, name of Contractor, and
any urgency considerations or special circumstances;
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(c) A description of the research, development or test facilities or equipment, or
other improvement to be provided to or acquired by the Contractor at Government
expense. This description shall include the estimated cost of the improvement;
information regarding ownership of the realty to which the improvement will be
affixed; whether the improvement is severable from the realty without
unreasonable expense or loss of value; whether the proposed improvement has
general utility apart from performance of the instant contract; and an explanation
of why the proposed improvement is necessary for performance of the contract;
(d) Definition of the arrangement under which the improvement will be provided
(e.g., loan, lease, or other arrangement) and a description of the proposed contract
provisions to protect the interests of the Government including:
1. Reimbursement to the Government for the fair value of the
improvement at contract completion; or
2. Options afforded the Government to acquire an interest in the
underlying land; or
3. Alternative provisions to protect the interests of the Government in the
facilities, together with a rationale for considering such provisions to be
adequate.
(e) Documentation of negotiations conducted and arrangements made to segregate
and locate the Government-owned property so that it is readily accessible from
public thoroughfares and to obtain written agreements from the real property
owner that the Government or another Government Contractor will have the right
to use and operate the property upon termination or completion of the contract.
(In cases where such an agreement is not obtained, document the negotiation
effort).
FAR43.102(a)(1991)
Only contracting officers acting within the scope of their authority are empowered to
execute contract modifications on behalf of the Government. Other Government
personnel shall not -
(1) Execute contract modifications;
(2) Act in such a manner as to cause the contractor to believe that they have authority to
bind the Government; or
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(3) Direct or encourage the contractor to perform work that should be the subject of a
contact modification.
CHAPTER 5
41 U.S.C. 254(b)
The cost-plus-a-percentage-of-cost system of contracting shall not be use....
41 U.S.C. 253a(a)(l)
In preparing for the procurement of property or services, an executive agency
shall-
(A) specify its needs and solicit bids or proposals in a manner designed to achieve
full and open competition for the procurement;
(B) use advance procurement planning and market research; and
(C) develop specifications in such a manner as is necessary to obtain full and open
competition with due regard to the nature of the property or services to be
acquired.
41 U.S.C. 253(f)
Justification for use of noncompetitive procedures. (1) [A]n executive agency
may not award a contract using procedures other than competitive procedures
unless-
(A) the contracting officer for the contract justifies the use of such
procedures in writing and certifies the accuracy and completeness of the
justification. . . .
B-221559.2. July 31. 1986
[A] competitive IFB is not converted into a sole source procurement when only
one bid is received if it can be demonstrated that firms other than the sole
responsive bidder could have met the requirements.
GSBCA No. 8329-P-R., April 10, 1986
An automatic data processing equipment solicitation under which forty-nine firms
were solicited, but only one responsive bid was received, was an ill-conceived
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solicitation that resulted in less than the full and open competition required by the
Competition in Contracting Act. The response obtained by the solicitation was so
limited as to excite inquiry, and a full explanation of the limited response
disclosed that in fact full and open competition was not obtained.
41 U.S.C. 254(d)
Submission of cost or pricing data by contractors and subcontractors; certificate;
adjustment of price; inspection of books, records, etc.; necessity of data;
exceptions.
(1) A prime contractor or any subcontractor shall be required to submit cost or
pricing data under the circumstances listed below, and shall be required to certify
that, to the best of such contractor's or subcontractor's knowledge and belief, the
cost or pricing data submitted were accurate, complete, and current....
(2) Any prime contract or change or modification thereto under which a certificate
is required under paragraph (1) shall contain a provision that the price to the
Government, including profit or fee, shall be adjusted to exclude any significant
sums by which it may be determined by the agency head that such price was
increased because the contractor or any subcontractor required to furnish such a
certificate, furnished cost or pricing data which, as of a date agreed upon between
the parties ..... were inaccurate, incomplete, or noncurrent.
Legislative History of the Competition in Contracting Act of 1984
In Government contracting, competition is a marketplace condition which results
when several contractors, acting independently of each other and of the
government, submit bids or proposals in an attempt to secure the government's
business ... competition in contracting saves money.... In 1977, the Defense
Science Board (DSB) examined more than a dozen examples of completed
contracts ... [and] concluded that competition is a powerful motivator for cost
control....
[AJmendments addressed congressional concern over noncompetitive contract
prices being negotiated based on defective data submitted by contractors. This
provision of the amendments, referred to as the Truth in Negotiations Act,
required contracting officers to obtain all 'current, complete and accurate' cost
and pricing data submissions from contractors in certain negotiated contracts....
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FAR 15.806-l(a)(l)( 1990)
The contracting Officer is responsible for the determination of price
reasonableness for the prime contract. In order to make this determination, it is
required that an analysis be conducted of all the relevant facts and data including
subcontractor cost or pricing data required to be submitted, results of the prime or
higher tier subcontractor's analyses of subcontractor proposals, the field pricing
support (if any), and historical pricing data....
FAR15.806-l(a)(2)(1990)
The contractor... shall:
(i) Conduct price analysis and, when the subcontractor is required to submit cost
or pricing data, or if the contractor ... is unable to perform an adequate price
analysis, cost analyses for all subcontracts....
FAR 15.801(1990)
'Cost or pricing data' means all facts that, as of the date of price agreement...
prudent buyers and sellers would reasonably expect to affect price negotiations
significantly... . Cost or pricing data are more than historical accounting data;
they are all the facts that can be reasonably expected to contribute to the
soundness of estimates of future costs. ... They also include such factors as-
(a) vendor quotations;
(c) information on changes in production methods and in production or
purchasing volume;
(h) information on management decisions that could have a significant bearing on
costs.
FAR44.202-2(a)(1990)
The contracting officer responsible for consent shall review the request and
supporting data and consider the following....
(5) Was adequate price competition obtained or its absence properly justified... .
(7) Does the contractor have a sound basis for selecting and determining the
responsibility of the particular subcontractor?
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(8) Has the contractor performed adequate cost or price analysis or price
comparisons and obtained accurate, complete, and current cost or pricing data,
including any required certifications?
(9) Is the proposed subcontract type appropriate for the risks involved and
consistent with current policy?
(10) Has adequate consideration been obtained for any proposed subcontract that
will involve the use of Government-furnished facilities?
(11) Has the contractor adequately and reasonably translated prime contract
technical requirements into subcontract requirements
FAR45.505(c)(l990)
Official Government property records must identify all Government property and
provide a complete, current, and auditable record of all transactions. The
contractors systems of records maintenance shall be sufficient to adequately
control Government property as required by this section.
CHAPTER 6
44U.S.C. 3301
As used in this chapter, 'records' includes all books, papers, maps, photographs,
machine readable materials, or other documentary materials, regardless of
physical form or characteristics, made or received by an agency of the United
States Government under Federal law or in connection with the transaction of
public business and preserved or appropriate for preservation by that agency or its
legitimate successor as evidence of the organization, functions, policies,
decisions, procedures, operations, or other activities of the Government or
because of the informational value of data in them.
44U.S.C. 3105
The head of each Federal agency shall establish safeguards against the removal or
loss of records he determines to be necessary and required by regulations of the
Archivist. Safeguards shall include making it known to officials and employees
of the agency-
(1) that records in the custody of the agency are not to be alienated or
destroyed except in accordance with sections 3301-3314 of this title, and
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(2) the penalties provided by law for the unlawful removal or destruction
of records.
18U.S.C. 641
Whoever embezzles, steals, purloins, or knowingly converts to his use or the use
of another, or without authority, sells, conveys or disposes of any record ... of the
United States or of any department or agency thereof...
Shall be fined not more than $10,000 or imprisoned not more than ten years, or
both; but if the value of such property does not exceed the sum of $100, he shall
be fined not more than $1,000 or imprisoned not more than one year, or both.
18U.S.C. 2071
(a) Whoever wilfully and unlawfully conceals, removes, mutilates, obliterates, or
destroys, or attempts to do so, or, with intent to do so takes and carries away any
record, proceeding, map, book, paper, document, or other thing, filed or deposited
with any clerk or officer of any court of the United States, or in any public office,
or with any judicial or public officer of the United States, shall be fined not more
than $2,000 or imprisoned not more than three years, or both.
(b) Whoever, having the custody of any such record, proceeding, map, book,
document, paper, or other thing, wilfully and unlawfully conceals, removes,
mutilates, obliterates, falsifies, or destroys the same, shall be fined not more than
$2,000 or imprisoned not more than three years, or both; and shall forfeit his
office and be disqualified from holding any office under the United States.
44U.S.C. 3101
The head of each Federal agency shall make and preserve records containing
adequate and proper documentation of the organization, functions, policies,
decisions, procedures, and essential transactions of the agency and designed to
furnish the information necessary to protect the legal and financial rights of the
'Government and of persons directly affected by the agency's activities.
36 CFR 1222.38(1990)
Agency recordkeeping requirements shall prescribe the creation and maintenance
of records of the transaction of agency business that are sufficient to:
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(a) Document the persons, places, things, or matters dealt with by the
agency.
(b) Facilitate action by agency officials and their successors in office.
(c) Make possible a proper scrutiny by the Congress or other duly
authorized agencies of the Government.
(d) Protect the financial, legal, and other rights of the Government and of
persons directly affected by the Government's actions.
(e) Document the formulation and execution of basic policies and
decisions and the taking of necessary actions, including all significant
decisions and commitments reached orally (person to person, by
telecommunications, or in conference).
(f) Document important board, committee, or staff meetings.
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78
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APPENDIX II
ACRONYMS
AC&C
CFR
CO
Comp. Gen.
EPA
FAR
FM
FMSD
FTS
GAO
GSA
GSBCA
NESC
NDPD
CAM
OARM
OGC
DIG
OMB
PWA
RADM
RTP
S&L
u.s.c.
Abatement, Control and Compliance
Code of Federal Regulations
Contracting Officer
Comptroller General
Environmental Protection Agency
Federal Acquisition Regulation
Facilities Management
Facilities Management and Services Division
Federal Telecommunications System
United States General Accounting Office
General Services Administration
General Services Administration Board of Contract Appeals
National Environmental Supercomputing Center
National Data Processing Division
Office of Acquisition Management
Office of Administration and Resource Management
Office of General Counsel
Office of Inspector General
Office of Management and Budget
Project Work Authorization
Regional Acid Deposition Monitoring Program
Research Triangle Park
Savings & Loan
United States Code
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SO
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APPENDIX III
AGENCY'S RESPONSE TO THE DRAFT REPORT
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
PHOU*
OFFICE OF
ADMINISTRATION
AND RESOURCES
MANAGEMENT
[Sep 20, 1996]
MEMORANDUM
SUBJECT: Draft Report of Audit on the Establishment
of The National Environmental Supercomputing
Center in Bay City, Michigan
FROM: Alvin M. Pesachowitz /s/
Acting Assistant Administrator
for Administration and Resources Management (3101)
TO: EHssa R. Karpf
Deputy Assistant Inspector General
for Acquisition and Assistance Audits (242 1 )
Thank you for the opportunity to review the Office of Inspector General (OIG) draft
report on the establishment of the supercomputer center in Bay City, Michigan.
We are in general agreement with the recommendations of the report. As we discussed,
after all of the other audit issues are resolved, the OIG will make available the materials that are
potentially germane to determine whether, and to what extent, personnel actions might be
appropriate. We are particularly concerned with the appearance of the pre-selection of the Kahn
building as the supercomputer site and the treatment of records by EPA officials. We agree that
training is an important part in effecting corrective action. Training, however, needs to be
coupled with increased oversight, management integrity, and accountability.
We have already taken, and continue to take, actions towards this end. These actions
include revamping the Unisys Corporation follow-on contract to require the issuance of
contracting officer-approved work assignments before work is allowed to begin, and making
contract management a key element of the award fee plan. In addition, the administration of this
contract has been transferred to the Contracts Management Division in Research Triangle Park,
North Carolina to increase accessibility to, and customer service from, the contracting office.
Likewise, the Office of Acquisition Management has sent a letter to the Unisys Corporation
(Unisys) requesting that one of its employees participate in an interview to help resolve some of
the issues raised by the audit.
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-2-
The Office of Administration and Resources Management (OARM) and EPA's
Comptroller and Office of General Counsel agree that EPA did not violate the Anti-Deficiency
Act. The lease was a subcontract between the Unisys Corporation and J&K Associates, and did
not legally bind the Government. Regardless, in her consent of the subcontract, the contracting
officer noted that the Government would not be held liable beyond the expiration of the prime
contract. Nonetheless, we believe that training in this area would benefit Agency personnel at all
levels.
The attached comments have been coordinated with the EPA Comptroller and the Office
of the General Counsel. To simplify our response, the findings and recommendations are
discussed by subject in the order of appearance in the report. Thank you for considering our
comments in preparation of the final audit report.
We appreciate your identification of these issues for our attention. As our response
indicates, we have already begun to initiate specific actions on your recommendations. We
welcome any additional comments or suggestions you have concerning our actions.
If you have any questions or comments, please feel free to call me at 260-4600, or have
your staff call Susan Kantrowitz in the Office of Acquisition Management, at 260-8176.
Attachment(s)
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Attachment 1
SUMMARY OF AGENCY POSITION
In fiscal year (FY) 1991, Congress earmarked $8.7 million for the "lease/purchase of a
high performance supercomputer to support the regional acid deposition monitoring program."
The Conference Report contained inconsistent language on the situs of the supercomputer. The
Report contained language that the supercomputer should be in Bay City and other language
specifying the Bay City vicinity. Because of this inconsistency, EPA officials consulted with
members of the Appropriations Committee for guidance.
From the beginning and throughout the National Environmental Supercomputing Center
(NESC) project, EPA officials sought and received guidance from the Committee and
consistently tried to give meaning to inconsistent Congressional direction. We conclude, and as
OIG has observed, in implementing Congressional direction, EPA officials made some mistakes.
The degree of significance that attaches to these errors turns largely on a predicate
question, with respect to which there is fundamental disagreement between the involved offices
and OIG: did the'Agency have the authority to establish the mandated supercomputer facility
through a contract vehicle, or, because establishment of the supercomputer necessarily required a
facility, was EPA constrained to work through GSA to acquire the needed space? In our view,
the facts demonstrate that at the time that the Agency opted in favor of using the Unisys contract
for this purpose, Agency officials legitimately believed that a contract could serve as a acceptable
alternative to acquiring space through GSA.
Indeed, the Agency continues to maintain that, properly executed, contracts can be used
in this manner. Moreover, although, as suggested by the OIG, the extent to which the Agency's
choice turned on the point is unclear, it does appear to be the case that the Agency lacked the
authority to expend AC&C dollars for space rental payments to GSA for a Supercomputing
facility and had not budgeted funds in the S&E account sufficient to cover the costs of such
payments. Thus, as a practical matter, the only viable choices available to the Agency in
following through on the Congressional mandate were to pursue the contract route using AC&C
dollars or to pay to house the supercomputer out of the S&E account, at the expense of other
S&E activities.
If one concludes that the Agency lacked the authority to use a contract vehicle in the first
instance, then the Agency's course of dealing throughout the project, predicated as it was on the
contract theory, was necessarily problematic. If, on the other hand, one concludes that the
contract route was an option that the Agency reasonably relied upon, then the Agency's
implementation errors, while not insignificant, appear less dramatic. We subscribe to the latter
view, believing that, fundamentally, this matter concerns an attempt by the Agency to use all of
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he tools available to it to deliver on a congressional mandate using the funds specifically
earmarked for that purpose.
This being said, we do believe that EPA officials played an inappropriately intrusive role
in the contractor's lease of the interim NESC site. At a minimum, the EPA officials' conduct
created the impression that the interim site had been "pre-selected" by EPA. Moreover, the
course of dealing appears to have been inconsistent with contracting principles and Agency
policy concerning Agency involvement with subcontractors. In addition, we recognize that
some documents of records were not properly created and maintained. As it appears that a
significant amount of contract related "business" was conducted orally or via the electronic mail
system without a permanent written record created.
On the other hand. OARM and EPA's Comptroller and General Counsel agree that EPA
did not violate the Anti-Deficiency Act. The subcontract between Unisys Corporation (Unisys),
the Agency's primary computer center management contractor and J&K Associates (J&K) did
not legally obligate EPA to make lease payments for any period of time. Additionally, although
one pricing feature of the Kahn building lease may have been excessive, we believe that the cost
of the interim NESC facility is comparable to other leased supercomputer facilities. The Agency
is presently completing an evaluation of the most cost effective way to satisfy all of its high
performance computing support needs.
We agree with most of the report's recommendations for training and guidance. In some
cases, we believe we have already met the intent of the recommendations). Pursuant to our
agreement with the OIG, OARM will address the accountability associated with these issues
once the other audit issues are resolved.
SCOPE IMPAIRMENTS
We do not disagree that the OIG's inability to interview a contractor employee involved
in the subcontracting and renovation of the Kahn building has limited the Agency's
understanding of the establishment of the NESC.
The report, however, reflects a misunderstanding regarding the Agency's willingness to
assist the OIG in this regard. While, as previously communicated to OIG, EPA cannot, under its
contract with Unisys, compel the contractor to make a specific employee available for interview
by the OIG, OAM has recently written Unisys to urge participation by its employee in the
interview with the OIG in the hope of facilitating the investigation. (See Attachment 2).
FACTUAL OVERVIEW
The Agency's FY 1991 appropriation, Public Law 101-507, provided $8,700,000 in two-
vear AC&C funds "for the lease/purchase of a high performance supercomputer to support the
regional acid deposition monitoring program. "The Conference Report contained contradictory
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instructions about where the supercomputer was to be located: one portion of the report
indicated that it should be located in the vicinity of Bay City, while another section stated that
the facility should be located in Bay City. EPA officials consulted with members of the
Appropriations Committee about the contradictory guidance, and it was their understanding that
the intention was to have the new facility located within Bay City.
In the winter of 1990-91, EPA officials visited Bay City and contacted a local realtor
about the availability of suitable space for the interim NESC facility. The realtor identified two
properties, only one of which (the Kahn building) was located inside the boundaries of Bay City.
The Kahn building was a vacant factory. The other property, located near Bay City, was being
used as a central banking computer center. Agency officials concluded that in addition to our
understanding of the Congressional direction to locate the NESC in Bay City, there were sound
business reasons for locating the interim facility near the Research Vessel Lake Guardian and the
likely permanent site of the Center for Ecology Research and Training (CERT) facility.
Accordingly, it was decided that the Agency's requirement could be satisfied only by a site
located in downtown Bay City.
EPA officials decided in early 1991 that Unisys, would be tasked to "[p]rovide staff,
facility, supplies and other support as necessary to implement and operate an EPA supercomputer
center at Bay City." The EPA decision to provide the supercomputer to a contractor and to task
the contractor to properly house the supercomputer was based on the Agency's lack of legal
authority to acquire a facility and its recognition that utilization of the General Services
Administration's (GSA's) acquisition process would entail a number of months. Accordingly, on
February 22, 1991, EPA issued PWA 98-91 tasking Unisys to establish supercomputing services
in Bay City.
In the ensuing months, EPA officials communicated directly with the real estate agent,
the Kahn building owner, the prospective developer, and Unisys about the evolving plans for
renovating that site for the NESC. These communications appear to have been premised on the
EPA officials' assumption that the Kahn building, which would require extensive renovations,
was the only suitable, available structure in Bay City for the interim NESC site. On May 28,
1991, Unisys published a newspaper advertisement seeking approximately 14,000 square feet of
space in a single facility to house a supercomputer center within the city limits of Bay City. By
the closing deadline of June 28, 1991, Unisys had received only one expression of interest—from
the Kahn building owner and developer.
Subsequently, Unisys conducted lease negotiations with the Kahn building developer.
Although these negotiations were closely coordinated with EPA officials, the transaction itself
was between Unisys and J&K Associates (J&K), the building owner. The lease provided for a
base period of five years with five one-year options to extend the lease. The lease included an
assignment clause which allowed the lease to be assigned to a successor contractor in the event
Unisys did not win the recompete of their contract with the Agency when it expired in 1992.
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The CO consented to the lease on December 2,1991. The CO included a provision that
the Government would not be liable for any lease costs after September 30, 1992, the expiration
date of the contract with Unisys.
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CHAPTER 2
EPA CIRCUMVENTED GSA TO ACQUIRE THE BUILDING
The OIG maintains that EPA circumvented GSA by acquiring space for its own use
through a contractor. In so doing, the OIG believes the Agency violated the Federal Property and
Administrative Services Act of 1949, and further alleges that EPA paid approximately $3.8
million more to lease and renovate the Kahn building than it would have cost to purchase such a
building outright.
As an initial matter, EPA did not lease, sublease, or acquire any other interest in the real
property under the subject computer support services contract. The lease for the NESC facility,
executed on October 31,1991, was a binding agreement between Unisys and J&K Associates.
The lease was subsequently assigned by Unisys to Martin Marietta Technical Services when
Martin Marietta won the recompete of the Unisys contract. The United States is not a party to
the lease, is thus not liable under the lease, and has no standing to contest or enforce the
provisions of the lease.
The FY 1991 funds for the Bay City project were appropriated in the Abatement,
Compliance, and Control (AC&C) account. EPA could not use the AC&C account to pay for
rent to GSA because EPA had already committed itself to using Salary and Expense (S&E) funds
for such purposes during this time frame. The 1987 EPA Directive the OIG relies on to support
the availability of other accounts was superseded in 1989 with the implementation of the
Integrated Financial Management System (IFMS). Consequently, the only viable means
available to the Agency to secure space for housing the supercomputer was through a contract
vehicle using AC&C dollars such as the Unisys contract. In addition, EPA had no authority to
acquire any real property for the purpose of housing the supercomputer.
I. Alleged Circumvention of GSA
Comptroller General decisions establish that it is not improper for agencies to require
contractors to lease space in performance of a contract.1 EPA's project work authorizations
(PWAs) for the subject procurement required the contractor to provide supercomputing services.
PWA 98-91 specifically tasked the contractor to, "jp]rovide staff, facility, supplies and other
support as necessary to implement and operate an EPA supercomputer center at Bay City." The
purpose of the subject contract was not to provide general purpose space for the primary use of
EPA. Rather, its purpose was to acquire supercomputing support services. As such, the leasing
'See e.g., Metropolitan Federal Network. B-232096, November 21,1988, 88-2 CPD para.
495; Canaveral Maritime. Inc.. Request for Reconsideration, B-231857.6, 89-2 CPD para. 330;
Department of Health. Education and Welfare. 46 Comp. Gen. 25 (1966).
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of the space by Unisys was not prohibited or inconsistent with Federal property regulations.
Moreover, contractors are required to furnish all facilities required for the performance of
Government contracts. FAR part 45 specifically states that Agencies shall not furnish facilities
to contractors for any purpose except as specifically allowed by FAR subpart 45.302. Likewise,
space leased by private sector entities performing work on Government contracts is expressly not
considered to be Federal space for purposes of the FPMR. The fact that there is space within the
contractor's leased facility for EPA employees to use for purposes of managing the contract does
not make such space "Federal" space under the guidelines of the FPMR. Likewise, we find that
inclusion of the teleconferencing facilities and auditorium as part of the NESC was appropriate
since these spaces were used primarily by the contractor in the performance of the contract,
including collaborative efforts with non-Government researchers, symposia, and user support.
At the time of the decisions at issue, only two appropriations were theoretically available
to pay for the housing of the supercomputer: the Buildings and Facilities account (B&F)
(available for purchase or construction of a facility) and the S&E account (available to pay rental
charges). However, no budgeted amounts for this purpose had been included in either of these
accounts. The nonavailability of the B&F and S&E accounts meant that the only monies
available to facilitate the housing of the supercomputer were the AC&C monies contained in the
appropriation authorizing the acquisition of the supercomputer. However^ EPA was prohibited
from using AC&C fluids to pay for intramural (EPA internal) activities; including rent to GS A
for space. AC&C monies were available for payment of contract related activities. Agency
officials concluded that to the extent that the supercomputer was provided to Unisys as
government furnished property, the costs Unisys incurred for housing the computer were
allowable for payment under the account using AC&C monies.
The OIG maintains that AC&C monies were available to pay GSA for rental of space for
the supercomputer; that the Agency previously paid GSA rent out of AC&C funds; and mat it
was only Agency policy that prohibited the practice. The OIG relies on summary level budget
documentation (Attachment 3) which shows direct obligations within summary object
classification 23.1, "Rental Payments to GSA." This document summarizes and includes
obligations in the sub-object classes that are merged into 23.1, and makes it appear that EPA did
pay rent to GSA out of the AC&C account. The OIG asserts that EPA selectively enforced this
policy by abiding by the prohibition on using AC&C funds to pay GSA for rent, and ignoring it
to pay for ADP contracts. We disagree. EPA's financial structure and policies must reflect
Congressional appropriations and laws. Even if EPA's policy prohibited use of AC&C funds for
the ADP Contract as the OIG believes, that policy would have been superseded by the
appropriation for the supercomputer. Authorizing language in EPA's FY 1991 AC&C
appropriation stated that the computer was to be leased or purchased "notwithstanding any other
provision of law" and with AC&C funds. Therefore, EPA was specifically directed and
authorized by Congress to use the AC&C appropriation for the supercomputer.
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By way of clarification, we have attached several documents to show that no rent
payments were made out of the AC&C account during FYs 1991 and 1992. Attachment 4
provides a cross reference of several different EPA sub-object classes that are merged into the
single 23.1 object class. Besides the Standard Level User Charges (sub-object class 23.10), these
include communication sub-object classes, such as 23.11 for local and 23.13 for long distance
telephone service. Attachment 5 defines some sub-object classes that were in effect during FY
1991. The proper code for GSA rental assessments for space and related services is the
previously mentioned 23.10, "Standard Level User Charges." All space rental payments to GSA
should have been charged to this code. Attachment 6 provides detailed sub-object class charges
within various appropriations for the 23.00 summary object class "Rent, Communication &
Utilities" for FYs 1991 and 1992. In neither year is any charge made to the Standard Level User
Charges sub-object class (23.10) out of the AC&C appropriation. In contrast, 23.10 is used for
rental payments to GSA under other appropriations, such as the Program, Research and
Operations account. Additional discussion of this issue is contained at Attachment 7.
II. Lease versus Purchase
As stated above, EPA had two choices in determining the manner in which the
supercomputer should be housed, maintained, and operated. The OIG asserts that EPA's
decision not to seek a procurement of leased space from GSA was "inefficient," and a violation
of law. The OIG asserts that "had EPA engaged the services of GSA and bought the building, the
Agency could have saved approximately $3.8 million over the five year lease period." OARM
takes exception to the OIG's claim that the Government paid $3.8 million more to lease and
renovate the building than it would have cost to purchase such a building outright.
As we have noted above, EPA did not have the legal authority or the appropriate funding
to purchase a building. Even if EPA had been delegated the legal authority and the funding to
purchase real property for housing the supercomputer, there is no information to conclude that
EPA paid $3.8 million more under its contract with Unisys for the lease and renovation of the
Kahn building than it would have cost to purchase such a building outright. As we will explain
in our response to Chapter 4, EPA's interpretation of the language from Conference Report 101-
900 for fiscal year 1991 led us to pursue a location within the citv limits of Bay City. Hence, the
second (bank) facility referred to by the OIG which was located outside the city limits of Bay
City, did not fulfill what we understood to be the intent of the FY 1991 appropriations act.
This notwithstanding, the cost to purchase the second (bank) facility identified by the
OIG at the time of the consummation of the Unisys lease was approximately $2.5 million. The
fact that the building sold for $900,000 two years later is irrelevant. The reduction in price did
not accurately reflect what EPA might have paid for the facility at the time of the commencement
of the lease. Such a drastic reduction likely was due to a declining economy and depressed real
estate market during that two year period. Regardless, we believe extensive renovations to the
second facility would have been required to bring it up to the minimum standards for housing a
supercomputer. Furthermore, there would have been additional costs associated with a
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fragmented presence in the Bay City area (shuttle buses, security services, etc.) or a presence not
closely located to the likely site of the CERT.
Secondly, if the Agency had elected to request that GS A seek a procurement of leased
space, the requirements of 40 U.S.C. § 606 si seq. would have been triggered. These
requirements, generally referred to as the "prospectus" requirements, would have required a
lengthy and involved prospectus application, and the approval of two committees of Congress.
A realistic estimate of the time needed for the preparation, submission and approval of a
prospectus for ADP leased space is eighteen (18) to twenty four (24) months. Thus, even if the
AC&C appropriation for the supercomputer had been available for the payment of rent to GSA,
their availability would have expired prior to the award of any GSA lease. Further, the OIG
ignores the fact that a GSA lease procurement in Bay City, Michigan would have included the
same above standard, unique costs related to housing the supercomputer facility.
We agree with the OIG's assertion that acquisition of leased space by a contractor is more
expensive than direct acquisition by the Government. This is one of die primary reasons that
construction of a permanent supercomputer facility was under consideration for inclusion in the
proposed CERT. This did not change the fact, however, that the appropriation for the
supercomputer was limited in time, and had to be acted upon by the Agency immediately. Thus,
the decision was made to provide for the interim housing of the supercomputer under the subject
computer support services contract.
The OTG asserts that the costs of preparing the leased facility for the supercomputer
should have been spread over the "40-year life of the building." Notwithstanding the fact that
the useful life of such a facility is more likely 20-30 years, the OIG completely ignores the
typical manner in which space renovation costs are allocated over the term of a lease. Base
building costs, which are the costs to bring a facility up to basic habitability, are typically borne
by the lessor and spread over the useful life of the facility, regardless of an existing lease term.
Above standard costs, unique to a particular leasehold interest, are always allocated over the
specific term of the lease. The unique and special renovations made to the subject lease space to
accommodate the unique requirements of Unisys to house the supercomputer were allocated over
the term of the lease, as is typical for real estate industry practice. As such, it is appropriate that
the above standard changes directed by Unisys were amortized over the term of the lease.
RECOMMENDATIONS
The draft audit report recommends the Deputy Administrator require the Acting
Assistant Administrator for OARM to:
2-1) Contact GSA to arrange for an immediate transfer of management of the
NESC building to that Agency.
EPA does not own the building that houses the NESC facility, nor is the Agency a party
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to the lease for said building. The lease was an agreement solely between Unisys and J&K, (now
an agreement between J&K and Martin Marietta Technical Services). Accordingly, EPA has no
authority, contractual or otherwise, to transfer management of the NESC building to GSA.
OARM has initiated a study to determine the best way to obtain in the future, high
performance computing support. The study should be completed in December 1996.
2-2) Review all office and other space arrangements where costs are charged
direct to contracts, and ensure the space arrangements were established and
are managed in compliance with law and regulation.
Each year, OAM plans its Acquisition Management Review (AMR) program. Oversight
reviews of EPA regional offices, program offices, and contracting activities are conducted as part
of OAM's management control procedures. Management, operational, and procedural issues are
evaluated, including staffing, workload, and compliance with Federal and Agency acquisition
regulations, policies and procedures.
As a consequence of the AMR, OAM issues a written report to the Senior Resource
Official (SRO) with findings, observations, and recommendations. The SRO is required to
respond with an action plan with milestones. Corrective action plans are validated by OAM
upon re-review of the relevant office.
Beginning with our FY 97 AMR program, OAM will review, by program office, a
representative sampling of contracts likely to have such office or other space arrangements, to
ensure they were established and are managed in compliance with law and regulation.
In addition, OAM will also take advantage of special training opportunities (such as the
annual EPA procurement conference) to conduct special training for contracting and project
officers regarding space arrangements. Training will be accomplished in FY 1997.
2-3) Provide training to OARM officials on: the Federal Property and
Administrative Services Act of 1949; Title 41 US Code, Section 14; and, the
Federal Property Management Regulations to ensure that future office and
other space arrangements are obtained properly.
We agree that some training or dissemination of information regarding the cited Act and
regulations would be beneficial to EPA managers, including contracting and project officers.
Accordingly, we will determine an appropriate forum and mechanism for providing the training
or distributing the relevant information during FY 1997.
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The draft audit report recommends the Deputy Administrator:
2-4) Provide training to senior-level managers on the uses and limitations of
appropriations.
We agree that Senior Resource Officials will benefit from training regarding the uses and
limitations of appropriations. We will provide training in FY 1997.
2-5) Hold senior managers accountable for ensuring documented management
controls are in place and followed in accordance with OMB Circular
Number A-123.
We agree that senior Federal managers should be accountable for taking systematic and
proactive measures to develop and implement appropriate, cost-effective management controls.
The Agency has made great strides in strengthening management integrity at EPA since the time
the Bay City events took place. The OMB Circular A-123 was modeled after EPA's "new"
management integrity process (established 6/6/94), and was strengthened by, and is consistent
with the EPA Order 1130.2, Senior Resource Officials (SROs) and Resource Management
Committee, dated-March 22, 1994.
SROs are the primary point of accountability for management integrity and are
responsible for coordination of all integrity issues in their offices. Control problems which have
been identified through internal, program, GAO, or OIG reviews are addressed and resolved at
the appropriate levels. These issues are then routinely identified and reported on, through the
Agency's normal management framework of the Mid-Year Report and the Agency's annual
Assurance Letter which are provided to the Administrator and Deputy Administrator.
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CHAPTER 3
EPA PRE-SELECTED THE SUPERCOMPUTER SITE
The audit report asserts that Agency officials visited Bay City, selected the building they
wanted for the NESC, and then manipulated the procurement process to have an EPA contractor
lease the building for Agency use. In so doing, the OIG maintains that Agency officials violated
the intent of the Competition in Contracting Act (CICA) and the Procurement Integrity
provisions of the Office of Federal Procurement Policy Act (Procurement Integrity Act).
We also believe that the communications between Agency officials and the
subcontractors were inconsistent with the sound contracting principles embodied in Agency
policies and raise concerns under the Agency's ethics rules. We agree that there is an appearance
of pre-selection regarding the Kahn building. We disagree, however, that the Agency's actions
resulted in violations of CICA or the Procurement Integrity Act.
I. Bay City Options
Congress earmarked $8.7 million for the lease or purchase of a supercomputer in FY
1991, but did not grant EPA the authority or funds to acquire a facility to house it. In PWA 98-
91, EPA tasked Unisys to provide the staff, facility and other support necessary to operate the
supercomputer. As discussed in Chapter 2, due to conflicting language in the Conference
Report, EPA officials sought and obtained guidance from members of the Appropriations
Committee regarding the location of the supercomputer. Our understanding of the direction
received from members of the Committee, as well as EPA's good faith interpretation of the
language from the Conference Report, led Agency officials to pursue a site within the city limits
of Bay City.
The limited number of available facilities in Bay City, coupled with the special
environment required by a supercomputer (e.g., chillers, uninterrupted power supply, generators,
monitoring systems, etc.), significantly limited the availability of appropriate buildings.
Additionally, because the appropriation provided to purchase/lease the supercomputer was "two-
year" contract money, Unisys was required to establish the supercomputer center, provide staff,
and install the supercomputer and long-lead equipment within the eighteen months remaining in
the funding period. In their effort to fulfill the intent of Congress and avoid the loss of the two-
year funds then available for only 18 months, it appears that EPA personnel engaged in some
premature market research and inappropriately inserted themselves in the contractor's acquisition
of the leased space.
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II. Alleged CICA Violation
We agree that every effort should be made to encourage competition at the subcontract
level. It is incorrect to say, however, that FAR clause 52.244-5, Competition in Subcontracting,
extends the CICA requirement of full and open competition to the award of subcontracts. CICA
applies to the award of Federal contracts by COs, not to the award of subcontracts by prime
contractors. The FAR coverage of these two different situations is explicit.
FAR subpart 6.101 entitled "Policy" under FULL AND OPEN COMPETITION, states
that "... contracting officers shall promote and provide for full and open competition in
soliciting offers and awarding Government contracts (emphasis added)." FAR clause 52.244-5,
Competition in Subcontracting, states that, "The contractor shall select subcontractors on a
competitive basis to the maximum practical extent consistent with the objectives and
requirements of the contract (emphasis added)."
These are two very different mandates. The FAR does not extend the CICA requirement
for full and open competition to the award of subcontracts. If that were the intent of the FAR,
the clause cited above would require contractors to select subcontractors through full and open
competition. It does not do so, but merely encourages competition "to the maximum practical
extent." It also does not require prime contractors to obtain the approval of the Agency
Competition Advocate for subcontracts awarded by other than full and open competition, nor
does it require prime contractors to advertise their subcontracting opportunities in the Commerce
Business Daily. Both of these are requirements for COs awarding Federal contracts.
HI. Alleged Procurement Integrity Violation
Likewise, the Procurement Integrity Act applies only to procurements for Federal prime
contracts. Sucontractors are subject to Procurement Integrity requirements when they are
participating (e.g., as proposed team subcontractors with the prime contractor) in a procurement
for a Federal prime contract. The subsequent award of a subcontract by a prime contractor is not
covered by the Procurement Integrity Act.
The OIG draft audit report asserts that EPA officials violated statutory and regulatory
Procurement Integrity requirements by disclosing source selection information to one source,
months before Unisys Corporation advertised the need for supercomputer space. There is
documentary evidence that EPA officials disclosed internal information about the space
requirement to the Kahn Building owner and developer, and to the real estate agent. Such
conduct did not violate the Procurement Integrity Act however, since the lease was a subcontract
awarded subsequent to the award of the prime contract with Unisys.
Nonetheless, the disclosures may have violated 5 CFR § 2653.703, "Use of Nonpublic
Information." This ethical conduct standard prohibits Federal employees from making knowing
unauthorized disclosures of nonpublic information to advance the private interest of another
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party. On the basis of the material in the draft audit report and the limited documentation
furnished by the OIG, OARM is not, at this time, in a position to determine whether the EPA
officials' disclosures were "knowing," or whether the status of the disclosed information was
"nonpublic."
Assuming there may have been more than one suitable site in Bay City for the
supercomputer, the conduct of the Agency project officials could have affected Unisys' ability to
have a fully competitive acquisition. Advance disclosures to only one potential subcontractor
source clearly would have conferred an unfair advantage and compromised the integrity of the
subcontract competition Unisys conducted. This issue will be addressed in the Agency's naming
of project officers regarding proper interactions with subcontractors.
IV. Subcontract Consent
While it is clear that EPA project officials took an active role in locating and acquiring a
suitable building for the Bay City supercomputer, we do not believe their conduct was intended
to or resulted in a manipulation of the procurement process conducted by Unisys. Based on their
firm belief that the supercomputer had to be located in Bay City, EPA project officers surveyed
available sites located within the city limits. Only one potential site was identified. Later, when
Unisys published an announcement in the Bav Citv Times on May 28-30, 1991, seeking sources
for the NESC space, the only response was from the previously identified source. The fact that
there was only one response, supported the findings of the market research conducted by Agency
officials, i.e., that there were few, if any other buildings available for housing a supercomputer.
Nonetheless, the CO made a good faith effort, based on data submitted by Unisys, to
determine that the negotiated lease cost was reasonable before consenting to the subcontract.
The price of real estate is controlled by elements other than incurred costs plus profit or fee. The
demand, uniqueness, and availability of property are all non-cost elements that control the price a
lessor can obtain from the market. We believe the CO's decision to require Unisys to support its
fixed-rate leasing cost by performing a price analysis, in the form of a comparison of rates, was
reasonable.
V. Building Space Requirements
We disagree with the OIG, that the apparent pre-selection of the Kahn building resulted
in an acquisition of a facility twice as large as required. The initial square footage estimates
represents the Government's best estimate during the early stages of planning. For example, the
5,000 square footage estimate allowed only enough room for the supercomputer "foot print," that
is, the actual supercomputer "box" or space upon which the actual supercomputer would sit, and
not the requisite surrounding area necessary for the operation of such a supercomputer.
Specifically, this initial estimate did not include area for the support equipment (chillers,
water storage tanks, computer air conditioners, uninterrupted power source, etc.), or office space
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•'1
for staff required to run the supercomputer center. The second estimate of 14,000 square feet
represented "usable space" and did not include the estimated 20% of non usable space needed for
restrooms, storage, hallways, etc. The second and third square footage figures correctly state the
facility size requirement as 20,600 feet and include the square footage needed for the actual
supercomputer, support equipment, staff offices, reception area and nonissuable space.
RECOMMENDATIONS
The draft audit report recommends the Deputy Administrator:
3-1) Hold senior OARM officials who were responsible for the pre-selection of the
NESC site accountable in accordance with the Agency's disciplinary
guidance for noncompliance with the Competition in Contracting Act and
related Federal policy objectives and regulations.
3-2) Review whether any employee conduct violations occurred and whether
disciplinary action is warranted under EPA Employee Responsibility and
Conduct regulations and related policies and procedures.
While we disagree that there have been any violations of CICA or the Procurement
Integrity Act, we will look into possible violations of the standards of ethical conduct and the
contracting principles embodied in Agency policy.
The OIG has not at this time made available for Agency review, certain Office of Audit
work product materials. The OIG has advised us (1) that our access to such materials would not
advance resolution of any audit report findings, and (2) that the materials at issue are potentially
only germane to a determination of whether, and to what extent, personnel actions might be
appropriate.
It is our understanding that, after all other audit report issues are resolved, the OIG will
make available to us its work product materials relevant to the personnel issue. Once the OIG
has released such information, OARM will review it and take appropriate personnel actions as
warranted.
The draft audit report recommends the Deputy Administrator require the Acting
Assistant Administrator for OARM to:
3-3) Require that CO and PO training courses emphasize CICA and related
Federal policy objectives and regulations in order to ensure full and open
competition is obtained, or its absence is properly justified.
We believe we have already met the intent of this recommendation. OAM has recently
begun using standard, Federally-endorsed (Federal Acquisition Institute) training courses for
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contracting personnel. A review of these materials indicates that CICA and related competition
issues are heavily stressed.
OAM has also recently revised one project officer course and is in the process of revising
another. Both courses currently emphasize, and will continue to emphasize, competition and
related issues. In addition, OAM has new Contract Management Manual guidance, currently
undergoing final Green Border review, on the roles and responsibilities of project officers in
subcontract administration.
3-4 Require that contract and project officer training courses emphasize the
Procurement Integrity provisions of the Office of Federal Procurement
Policy Act to ensure source selection information is not released
inappropriately.
We believe that the intent of this recommendation has already been met. A review of the
contracting and project officer courses noted above indicates that Procurement Integrity and
related ethics issues are also addressed.
In addition, and in accordance with the Office of Government Ethics (OGE), all
contracting personnel and project officers are required to file standard form OGE 450,
Confidential Financial Report, to determine possible conflicts of interest. Employees who file
OGE 450 are also required to take an annual ethics course, much of which is dedicated to
Procurement Integrity issues,
3-5) Conduct special training courses in Fiscal Year 1997 that concentrate on the
areas discussed in recommendations 3-3 and 3-4 and which must be attended
by all contracting and project officers.
In light of the emphasis of CICA in our training classes and the Procurement Integrity
Act in the annual ethics training requirement, we do not believe that such training is necessary at
this time.
3-6) Issue an EPA Order directing, senior management that all space
requirements on future projects must be coordinated through the Facilities
Management and Services Division (FMSD).
We currently have an Agency policy which requires that all space requirements be
coordinated through FMSD. We will, however, issue a reminder of the requirement to Senior
Resource Officials and their staffs. A copy of the policy can be found at Attachment 8.
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3-7) Require OARM staff to comply with GSA regulations and EPA guidelines in
regard to defining space requirements on future projects.
GSA regulations and EPA guidelines will be included in the memorandum noted in
recommendation 3-6 above, and will be issued to OARM staff.
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CHAPTER 4
EPA EXCEEDED ITS AUTHORITY
The OIG maintains that EPA officials exceeded their authority and consequently violated
the Anti-Deficiency Act and CICA. The OIG also maintains that EPA "gave away" Government
property and authorized work without the proper authority.
I. The Anti-Deficiency Act (ADA)
The OIG contends that EPA violated the ADA by ordering a lease that ran longer than an
available appropriation. Specifically, the OIG contends that the lease between J&K Associates
(J&K) and Unisys violated the ADA "by purporting to obligate the Government to reimburse its
contractor $3.7 million over four-and-one-half years before the funds for those years were
appropriated." According to the OIG, the ADA violation stems from the fact that EPA officials
"agreed" to the five year lease. On this basis, the OIG has recommended that EPA file a report of
an ADA violation pursuant to 31 U.S.C. Section 1351.
We do not agree with the OIG's interpretation of the facts, or its recommendation. The
EPA Comptroller, who is delegated the authority to make such determinations for the Agency,
has concluded that there is no ADA violation. EPA's Office of General Counsel agrees.
In response to task order PWA 98-91, Unisys entered into a contract with J&K to lease a
building for five (5) years. By letter dated November 13, 1991, Unisys sought EPA's consent to
the subcontract as required by Federal Acquisition Regulation (FAR) clause 52.244-2,
Subcontracts (Cost-Reimbursement and Letter Contracts), which is incorporated into and part of
the prime contract between EPA and Unisys.
The CO consented to the subcontract on December 2, 1991. In consenting to the
subcontract, the CO noted "The Government shall not be held liable, beyond 9/30/92, for this
lease." The CO put her initials below the statement. The time period up to September 30,1992
coincided with: 1) the availability of the appropriation provided in Public Law 101-507; 2) the
availability of the funds obligated on the prime contract associated with the J&K subcontract.
and; 3) the term of Contract No. 68-01-7437, which was in the last option period.
The CO did not "involve" the Government in a contract or obligation in advance of
appropriations by consenting to the subcontract between J&K and Unisys. FAR subpart
44.203(a) expressly provides that "The contracting officer's consent to a subcontract... does not
constitute a determination of the acceptability of the subcontract terms... unless the consent or
approval specifies otherwise." In this regard, the CO clearly took an affirmative act to disavow
any intention to establish a liability on the part of the Government in advance of the availability
of appropriations or beyond the duration of Unisys' current contract.
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In a legal opinion dated June 29,1995, OGC determined that the lease between J&K and
Unisys was a subcontract within the meaning of the FAR. EPA was not a party to the lease with
J&K, nor are there any facts supporting the premise that privity of contract existed between an
authorized EPA official and J&K. Unisys, not EPA, was bound by the terms of the lease.
Finally, Unisys reserved the right to assign the lease in the event that it ceased to be the
EPA contractor for the establishment of the NESC. This agreement between J&K and Unisys
did not legally obligate EPA to make lease payments to J&K for a five year period. In
conjunction with the lease, EPA's contractual obligations to Unisys in connection with the
Unisys Subcontract with J&K would expire at the end of the Unisys contract.
Compliance with the ADA is determined when an obligation occurs. Although the role
that EPA personnel played in Unisys' decision to lease space from J&K raise genuine issues
relating to the appearance of subcontractor pre-selection, EPA did not violate the ADA by
approving the subcontract between Unisys and J&K. Rather, the CO took an affirmative step to
make it clear to Unisys that in approving the subcontract with J&K the Government was not
incurring any financial obligations beyond September 30,1992. An essential element of the
ADA violation that the OIG alleges is a legally binding obligation of Federal funds in advance of
appropriations. No such obligation has been identified. Accordingly, EPA did not violate the
ADA by approving the subcontract between Unisys and J&K.
II. The Competition in Contracting Act (CICA)
The draft audit report states that the addition of the NESC project to an existing contract
violated CICA because the work was not within the scope of the contract under which it was
. placed. The OIG states that the contract used to lease and renovate the NESC building was for
computer operations and related services. The OIG concludes that the work should have been
procured by use of a new competitively let contract.
It is our position that the work for the NESC was proper and within the scope of the
Unisys contract. The contract statement of work was for computer operations and support
services and provided:
The contractor shall establish, implement, manage, and maintain a facilities management
service that is, on a continuing basis, responsive to the EPA data processing community.
(Pagel)
The contractor... shall provide technical, administrative and managerial support in the
planning, management, and implementation of major program initiatives as identified ...
that may include, but are not limited to planning and implementing a major support
program responsive to EPA users located throughout the United States and planning and
coordinating the installation of mainframes and/or large scale processors at the central
and/or regional sites. . .
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In support of such efforts, the contractor shall be required to develop detailed technical
and strategic plans, develop operational, technical and managerial policies and
procedures, and oversee and coordinate management, technical and operational activities
to ensure successful and timely completion. (Paragraph 2.2.2)
We believe the project was within the scope of the contract statement of work as noted
above. The lease and renovations of the building were appropriate and legally permissible
because they were incidental to, and essential for the effective accomplishment of the properly
authorized work assignment to provide super computer support services.
III. Alleged "Giveaway" of Government Property
We agree that generally, appropriated funds may not be used for improvements to private
property unless specifically authorized by law. Government funded improvements to private
property, however, have been deemed legally permissible in many cases. The Comptroller
General has set forth guidelines for analyzing the circumstances under which an expenditure for
impr6vements to private property is appropriate.2 According to these guidelines, the appropriate
time to definitively conduct such analysis is at the conclusion of the contract.*
The draft audit report makes no effort to compare the guidelines established under these
decisions with the facts of the present case. Upon careful analysis, it may be determined that the
improvements to the leased facility were appropriate and legally permissible because (i) the
improvements were incidental to and essential for the effective accomplishment of the authorized
purpose of the appropriation; (ii) at the tune, expenditures were considered reasonable in amount;
(iii) improvements were used for the principal benefit of the Government; and (iv) at the time the
expenditures were made, to the best of the CO's knowledge, the interests of the Government were
fully protected (both the lease and the contract require that the contractor return Government
furnished property to EPA).
We will undertake a thorough analysis of the "improvements," in light of the tests of the
applicable Comptroller General decisions at the end of the prime contract, now with Martin
Marietta Technical Services, to determine whether they are consistent with public policy.
2Department of Health. Education, and Welfare. 46 Comp. Gen. 25 (1966). See e.g., Home
and Automobile Security Systems For U.S. Customs Service Personnel (1993) Lexis 867; The
Committee on Environment and Public Works. 65 Comp. Gen. 722 (1986); B-187482 (1977),
Lexis 2907.
3See Department qf Health. Education, and Welfare. 46 Comp. Gen. 25 (1966).
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IV. Grand Opening Ceremony
The OIG alleges that EPA officials exceeded their authority by directing and accepting
the costs of a grand opening ceremony for the NESC. The report notes that unallowable charges
of $23,540 were identified for a consultant, tents, tables, and chairs, and that evidence indicates
additional costs were incurred for food, plaques, and catering staff.
The OIG further asserts that EPA officials, including the CO, exceeded their authority by
accepting the NESC opening ceremony costs as allowable. The OIG bases its conclusion on
copies of Unisys' invoices provided to the OIG by Unisys. We believe that prior to obtaining the
results of an appropriate financial audit, such a conclusion is premature. The vouchers submitted
to EPA by Unisys and consequently paid in accordance with the standard procedures at that time,
lacked the appropriate detail to conclude that EPA accepted unallowable costs. The vouchers fail
to provide itemized lists of:
1. costs by P WA to specify the work that is being invoiced; and
2. work by subcontractor, to specify the work being invoiced.
Lacking such information, it is impossible to know, from reviewing the invoices, exactly what
was included in the costs claimed by the prime contractor.
In addition, a prime contractor cannot invoice costs until they have been paid. The lag
time involved with the process of the prime contractor receiving and paying subcontractors'
invoices and then invoicing the Government, may result in costs being invoiced by Unisys in a
month different from that in which the cost was incurred. In light of the above, it appears that
the OIG's conclusions are premature.
The OIG also believes that by consenting to the subcontract, the CO exceeded her
authority and unallowable costs were accepted. FAR subpart 44.203, [Subcontract] Consent
Limitations, notes:
"[T]he CO's consent to a subcontract... does not constitute a determination of the
acceptability of the subcontract terms or price, or of the allowability of costs..."
The OIG concludes that EPA paid for food, specifically a barbecue lunch, at the
ceremony based on a statement made by a subcontractor. There is no documentary evidence,
however, to indicate that EPA paid for a barbecue lunch. In fact, it appears that the Bay Area
Chamber of Commerce paid for the lunch. Several EPA employees indicated their recollection
that the Bay City Chamber of Commerce helped sponsor the event and sold tickets to the
barbecue lunch. A copy of the invoice and the check from the Bay Area Chamber of Commerce
to "Billy Bones B.B.Q." for the EPA dedication can be found at Attachment 9.
In summary, the OIG's's conclusions about the allowability of the various NESC opening
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ceremony costs are premature. The issues the OIG has raised about these costs can be resolved
after the closeout financial audit of the Unisys contract is completed.
V. Unauthorized Work
Finally, the OIG believes EPA personnel exceeded their authority by directing the
contractor to perform work without the CO's prior approval. We agree that it appears that EPA
personnel may have provided more than technical direction to the contractor. Lacking final cost
audits, however, we cannot make such a determination at this point in time. Once we receive the
final cost audits, we will determine whether ratification actions are appropriate and necessary.
RECOMMENDATIONS
The draft report recommends the Deputy Administrator:
4-1) Coordinate with EPA's Office of the Comptroller in order to fulfill the
reporting requirements for a violation of the Anti-Deficiency Act. The
Administrator must report all relevant facts and a statement of action taken
to the President and Congress through the Director, Office of Management
and Budget.
EPA did not violate the ADA, since it is not a party to, or bound by, the lease for the
Kahn building. The subcontract between J&K and Unisys did not serve to legally obligate EPA.
In consenting to the subcontract, the CO specifically noted that the Government would not be
held liable beyond the date of the expiration of the contract.
4-2) Review whether any employee conduct violations occurred and whether
disciplinary action is warranted under EPA Employee Responsibility and
Conduct Regulations and related policies and procedures.
As noted earlier, the OIG has not, at this time, made available for Agency review certain
Office of Audit work product materials. The OIG has advised us (1) that our access to such
materials would not advance resolution of any audit report findings, and (2) that the materials at
issue are potentially only germane to a determination of whether, and to what extent, personnel
actions might be appropriate.
It is our understanding that, after all audit report issues other than this one are resolved,
the OIG will make available to us its work product materials relevant to the personnel issue.
Once the OIG has released such information, OARM will review it and take appropriate
personnel actions as warranted.
. The draft report recommends the Deputy Administrator require the Acting
Assistant Administrator for OARM to:
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4-3) Review all current subcontracts to identify any other violations of the Anti-
Deficiency Act.
A review of EPA subcontracts to ensure compliance with the ADA is not necessary.
These instruments do not legally obligate Federal funds because there is no privity of contract
between subcontractors and the Agency.
In addition, all of our cost reimbursement clauses include FAR clauses 52.232-22 and
52.232-20, Limitation of Funds and Limitation of Costs, respectively which may provide further
protection against ADA violations. The language in these clauses makes it quite clear that the
Government is not obligated to reimburse the Contractor for costs incurred in excess of the total
amount obligated by the Government on the contract. This would include work done by a
subcontractor, as well as that done by the prime contractor. The prime contractor is responsible
for managing its subcontractors in this context. Also, as discussed, FAR Part 44 expressly states
that giving consent to a subcontract in no way constitutes approval of any terms and conditions
of the subcontract, because there is no privity between the Government and the subcontractor.
4-4) Pcovide personnel with contract administration responsibilities training on
the Anti-Deficiency Act and appropriate limits for subcontract periods. This
should be incorporated into the training discussed in recommendation 3-5.
We agree that training regarding the ADA will be beneficial. OAM will, in coordination
with the Office of the Comptroller, take advantage of special training opportunities (such as the
annual EPA procurement conference) to conduct training for contracting and project officers
regarding the application of the ADA to EPA contracts. Training will be accomplished in FY
1997. As noted above, the length of EPA subcontracts does not necessarily implicate the ADA.
4-5) Develop and implement policies and procedures to ensure EPA does not
allow a contractor to subcontract beyond the available appropriation or the
end of the contract.
The decision to subcontract and who to subcontract with, is a business decision made by
a prime contractor. EPA cannot legally require a prime contractor to limit the term of a
subcontract, since the subcontract may be in fulfillment of multiple requirements under several
different contracts with several different agencies or firms. This recommendation conflicts with
the well established legal principle that privity of contract limits an Agency's legal obligation to
subcontractors.
4-6) Provide OARM official with contract administration responsibilities training
on the use of Government funds for permanent improvements to private
property.
OAM will take advantage of special training opportunities to offer training regarding
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using Government funds for permanent improvements to private property. Training will be
completed in FY 1997.
4-7) Reemphasize to project officers and managers the extent and limits of their contract
administration responsibilities, stressing that they may not direct additional work
without explicit authorization.
With the award of each new contract, the project officer receives a letter reiterating
his/her duties, responsibilities, and authorities. We will revise this document to specify the scope
and limitations of authority of the project officer.
4-8) Define the project officer's authority and responsibility in each new EPA
contract award.
We will look into revising the EPA Technical Direction clause to identify the scope and
limitations of the project officer's authority. We will also consider providing copies of the letter
referred to in recommendation 4-7 above to contractors.
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CHAPTERS
EPA'S SUBCONTRACT ADMINISTRATION VIOLATED LAW
The OIG believes that the Agency's administration of the NESC subcontract violated the
FAR, insofar as there are alleged problems with the subcontract type and competition, a failure to
enforce the provisions of the Truth in Negotiations Act (TINA), and a lack of a positive
responsibility determination.
In addition, the OIG correctly noted that Government equipment that had been furnished
to the contractor was not recorded on property records. This situation has been remedied.
I. Subcontract Type
According to the OIG, the subcontract contained a prohibited cost-plus-percentage-of-
cost provision which stipulated that the lease price would be adjusted by cost plus 82.5 percent
for material modifications to the original renovation specifications.
The lease jigreement was a fixed-rate arrangement for space. The lack of habitable space
for a supercomputer necessitated that the facility be renovated. The 82.5 percent "add-on" clause
in the agreement provided for changes outside of the building specifications. It is not atypical
that a fixed-price contract is subject to adjustments based upon changes in the Government's
technical requirements. Typically these changes are implemented through the changes clause. It
should be noted that the 82.5 percent add-on clause included in the lease applied to decreases as
well as increases resulting from change orders.
II. Subcontract Competition
The OIG report states that because only one company responded to Unisys' advertisement
soliciting offers for space, the resulting selection of J&K Associates was a sole-source, non-
competitive procurement. The OIG's conclusion misapplies the definition of a sole-source
acquisition found in FAR subpart 6.003, which is as follows:
" .. a contract for the purchase of supplies or services that is entered into.. by an Agency
after soliciting and negotiating with only one source."
In the subject case, more than one source was solicited. In fact, an advertisement was
placed in the "Bay City Times" soliciting offers for space to house EPA's supercomputer; the fact
that only one offerer responded does not support the conclusion that it was a sole source
procurement.
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III. Truth in Negotiations Act (TINA)
The OIG asserts that the CO failed to enforce TINA by not obtaining certified cost or
pricing data from Unisys regarding its proposed subcontract. The record, however, indicates that
the CO made a good faith determination that the subcontract satisfied the "market price"
exemption authorized by TINA. The CO's determination to apply an exemption of TINA does
not, in and of itself, establish a failure to enforce the provisions of the Act.
TINA requires that Government contractors and their subcontractors provide cost or
pricing data to enable the Government to perform cost or price analysis and negotiate fair and
reasonable prices. TINA also requires a certification that, to the best of the contractor's or
subcontractor's knowledge and belief, the cost or pricing data submitted are accurate, complete
and current.
FAR subpart 15.804-3(a)(2)(1991) addresses the circumstances under which cost or
pricing data are required and reiterates the exemptions to TINA. It states that:
"[T]he CO shall no\ require submission or certification of cost or pricing data when the
CO determines that prices are... (2) based on established catalog or market prices of
commercial items sold in substantial quantities to the general public [.]" (Emphasis
added.)
"Established catalog or market price" is subsequently defined at FAR subpart 15.804-
3(c)(2)(1991)as:
" .. a current price that (a) is established in the course of ordinary and usual trade
between buyers and sellers free to bargain and (b) can be substantiated by data from
sources independent of the manufacturer or vendor.
The price of real estate is definitely the result of "ordinary and usual trade between buyers and
sellers free to bargain." Moreover, real estate market values can easily be substantiated by
sources independent of the manufacturer or vendor. A price comparison of similar types of real
estate is easily accomplished. In the subject case, Unisys provided a market price analysis which
contained data regarding a similar facility built-out to house a supercomputer. Unisys also
provided additional data with which an adjustment for regional differences between the two
facilities could be made. Upon receipt and review of this information, the CO made the arguably
reasonable determination that the information submitted by Unisys fit within the "established
catalog or market price" exemption of TINA.
The fact that Unisys' analysis may have been flawed does not necessarily mean that the
CO's determination that a TINA exemption applied was tantamount to a failure to enforce the
Act. In fact, the CO's analysis and subsequent determination indicate that she was well aware of
TINA's requirements and the FAR's guidance regarding the Act's applicability.
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IV. Administration of Government Property
As noted by the OIG, irregularities regarding the administration of Government property
have been corrected.
EPA has recently entered into an interagency agreement with the Defense Contract
Management Command (DCMC) to perform property administration duties, reducing the
Government's vulnerabilities by enforcing FAR compliance and increasing contractors'
accountability.
RECOMMENDATIONS
The draft audit report recommends the Deputy Administrator require the Acting
Assistant Administrator for OARM to:
5-1) Provide Contracting Officers with training on subcontract consent
procedures.
OAM is currently in the process of revising its subcontract consent procedures in the
form of a new chapter to the-Contracts Management Manual (GMM). This chapter will be issued
for Agency Directives Review (Green Border) during the first quarter of fiscal year 1997.
As an interim measure, a draft Procurerttent Policy Notice was issued:and*commented on
by the OIG. This point will also be issued in the first quarter of fiscal year 1997.
5-2) Require Contracting Officers to read proposed subcontract* before granting
consent.
The assumption mat inadequate performance on the part of any one contracting officer is
assignable to all employees is without support. Although we believe that all EPA COs are aware
of and consistently comply with the requirement that they read proposed subcontracts before
granting consent, this will be part of th^oticy noted above.
j; —
5-3) Require that Agency personnel maintain official property records for NESC
equipment furnished to the contractor in accordance with tbe contract.
In accordance with the FAR, the official property records are maintained by the
contractor. The accuracy of these records is audited, pursuant to an interagency agreement with
the Defense Contract Management Command. To require Agency personnel to also maintain
records would be duplicative.
fS - -*.-' ji
5-4 Require periodic inventories of equipment furnished to the contractor be
conducted at the NESC by Agency personnel.
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In accordance with the FAR and their individual contracts, EPA contractors are required
to inventory and submit an annual report of Government property in their possession. The report
must be accurate as of September 30, and submitted to the CO no later than October 31 each
year. >
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1
CHAPTER 6
EPA FAILED TO MAINTAIN DOCUMENTATION
The OIG maintains that EPA official? failed to create and maintain documentation of
significant decisions and activities, and also alleges that documents were destroyed.
EPA acknowledges that records were not properly created and maintained. It appears that
a significant amount of contract related "business" was conducted orally or via the electronic
mail system without a permanent written record being created.
In regard to the destruction of records, because the OIG has not indicated with specificity
what documents were destroyed, or allowed OARM access to individuals' statements provided to
the OIG regarding this issue, at this time we are unaware of any instance of purposeful
destruction of documents to impede the OIG's review. We will take action to ensure that
personnel do not inappropriately destroy records and that the FAR procedures for disposal of
contracting records are followed.
- •* +
It is also important to note that the contract files have been subjected to any number of
reviews and audits by a variety of parties. In addition to this, and related audits regarding the
NESC project which have been ongoing for anejrtemded period of time, the General Accounting
Office, OAM's Quality Assurance Branch, and otiWindividuals have reviewed the files for
various reasons. It is likely that as a result of such extensive handling of the documents that
some have been misplaced, lost or incorrectly filed. In this regard, a previous CO and contracts
specialist has stated with certainty, that documents that were once in the file prior to these
reviews, can no longer be located.
Since the time of the Unisys contract, records disposition schedules have been updated to
clearly state that records held by the CO, PO, and delivery order project officer/work assignment
manager are all necessary to document contract management. The new schedules also contain
information about the types of records that should be included in the file. In addition, Chapter 10
of the Information Resources Management Manual has been recently revised to clarify the degree
to which staff must record their activities and decision making processes.
OIRM has conducted a good deal of training, averaging 25-30 sessions a year, including
training for most Office of Research and Development laboratories, EPA offices in Cincinnati,
and all but one EPA regional office, Headquarters offices, etc. Records liaisons in the program
offices have provided additional training. OIRM has also worked with the OIG to develop
Awareness Bulletin 95-1, "Management and Disposition of Federal Records," distributed to staff,
and also distributed to staff OGC memoranda on e-mail and other record keeping issues. Since
1992, we have sent notices to senior managers about their records management responsibilities
and distributed copies ofNARA's "Personal Papers of Executive Branch Officials." OIRM has
also provided raining opportunities for senior managers on various occasions and advertised the
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availability of training and guidance through II-Bits, a newsletter published by OlRM's
Enterprise Technology Services Division. Currently, records management policy and guidance
is available through EPA's Internet web site.
RECOMMENDATIONS
The draft audit report recommends the Deputy Administrator:
6-1) Take appropriate action against officials who violated the Federal Records
Act and the Records Disposal Act by concealing, removing, or destroying any
records or documents.
6-2) Hold Agency personnel accountable for the maintenance of all documents
related to decisions and input into the decision making process.
The OIG has not, at this time, made available for Agency review certain Office of Audit
work product materials. The OIG has advised us (1) that our access to such materials would not
advance resolution of any audit report findings, and (2) that the materials at issue are potentially
only germane to a determination of whether, and to what extent, personnel actions might be
appropriate.
It is our understanding that, after all other audit issues are resolved, the OIG will make
available to us its work product materials relevant to the personnel issue. Once the OIG has
released such information, OARM will review it and take appropriate personnel actions as
warranted.
The draft audit report recommends the Deputy Administrator require the Acting
Assistant Administrator for OARM to:
6-3) Provide training to Senior Level Mangers, Contracting Officers, Project
Officers, and other staff with contracting duties on the Federal Records Act,
the Record Disposal Act, implementing regulations, and EPA policy affecting
the retention of records.
We agree that training regarding the Federal Records Act and related requirements will be
valuable. We will develop record keeping requirements for documenting important decisions
and conduct training to ail levels of employees.
6-4) Initiate a review of other EPA contracts to identify documentation problems
and take corrective action.
Each year, the OAM plans its Acquisition Management Review (AMR) program.
Oversight reviews of EPA regional offices, program offices, and contracting activities are
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conducted as part of OAM's management control procedures. Management, operational, and
procedural issues are evaluated, including staffing, workload, and compliance with Federal and
Agency acquisition regulations, policies and procedures.
As a consequence of the AMR, O AM issues a written report to the Senior Resource
Official (SRO) with findings, observations, and recommendations. The SRO is required to
respond with an action plan with milestones. Corrective action plans are validated by OAM
upon re-review of the relevant office.
Beginning with our FY 97 AMR program, OAM will review, by program office, a
representative sampling of contracts for potential documentation problems.
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ATTACHMENT 2
UNITED STATES ENVIRONMENTAL PROTECTION
OFFICE OF TOE INSPECTOR GENERAL
, MID-ATLANTIC DIVISION
Chestnut Building gos) 30*4242
Philadelphia, P«nmylvwite 19107-4431
(215) 597-0497
February 22, 1996
CONFIDENTIAL INFORMATION
MEMORANDUM
SUBJ2CT: Request for Contracting Officer Assistance in Resolving
an Access to Record Problem
F&OH: Kenneth G. PratEer
Audit Manager
TO: . Valerie Garcia
Contracting Officer
We request your assistance in resolving an access to record
problem we have encountered on Contract No: 68-01-7437. We have
been pursuing the interview of one of the Unisys Corporation's
(Unisys) employees, since this employee is very knowledgeable of
the events resulting in the establishment of the National
Environmental Supercompttting Center.
We have had several conversations with Unisys concerning this
topic; however, we have been denied access to this employee by
Unisys. We were informed by Unisys it will not compel one of its
employees to be interviewed by our office. According to Unisys,
the employee refuses to be interviewed by our office. Please see
the attached letter from Unisys.
We understand a company has an obligation to make its
employees available to be interviewed under PAH 52.215-2 {Audit and
Records — negotiation) . We also understand a company cannot force
an employee to waive the r-ights afforded to it under the Fifth
Amendment, but it could make talking to Government representatives
a condition of one '3 employment. Therefore, we request you take
appropriate action to resolve Unisys' s violation of FAR 52.215-2.
Your prompt attention to this matter is greatly appraci-ated .
If you have any questions, nlease contact me or Julio Arias at
telephone number (703) 308-8242 or (703) 308-8221.
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STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
MM i I 1996
OFFICE OF
ADMINISTRATION
AND RESOURCES
MANAGEMENT
MEMORANDUM
SUBJECT: OIG Request £or Contracting Officer Assistance
FROM: Betty L.
Office of Acquisition ManagementJ(3801F)
TO: Kenneth G. Prather, Audit Manager
Mid-Atlantic Audit Division
This is in response to. your memo of February 22, 1996 to
Valerie Garcia, and your memo of March 1, 1996 to Carol Fagnani.
For your information, Ms. Garcia no longer works for OAM.
Specifically, you request their assistance in gaining acces
to a contractor employees regarding the establishment of the
National Environmental Super computing Center. You cite Federal
Acquisition Regulation (FAR) clause 52.215-2 {Audit and Records-
Negotiation) , as the means by which you believe a contracting
officer can compel access to a contractor's employees.
We disagree with your contention that FAR clause 52,215-2
requires a contractor to make its employees available to
Government representatives to be interviewed. The clause gives
the contracting officer the right to examine and audit books,
records, documents, and accounting procedures and practices
related to establishing costs-relative to contract performance.
While the clause may give the Agency the right to seek
explanation of such documents, the clause does not give the
agency guaranteed access to specific contractor employees. Any
conversations are incidental to the examination of records.
We are happy, however, to help you in any way possible to
help you get the required information. If we can be of .further
assistance, please call Susan Kantrowitz at 202/260-8176.
cc: C. Cowgill
K. Pakula
J. Gherardini
S. Kantrowitz
C. Fagnani
114
-Printed with Vegctatfe Oi Bas«l InKs on 100% fl«cye*Hl Paptr {«% Po*eansam«)
-------
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
/1PR -I
OFFICE CF
THE INSPECTOR GENERAL
MEMORANDUM
SUBJECT: Response to Request for Assistance and Access to Records Issues
FROM: Elissa R. Karpf,
Deputy Assistant Inspector Genef al
for Acquisition and Assistance Audits
TO:
Betty L. Bailey, Director
Office of Acquisition Management
We request clarification of statements in your memorandum of March 11, 1996,
provided in response to Kenneth G. Prather's request for assistance in resolving access to
records problems. Specifically, we request clarification of the statements, "We disagree
with your contention thai FAR clause 52.215-2 requires a contractor to make its
employees available to Government representatives to be interviewed." and "While the
clause may give the Agency the right to seek explanation of such documents, the clause
does not give the agency guaranteed access to specific contractor employees.- Any
conversations are incidental to the examination of records."
Government contract administration officials' have long held that interviewing
specific employees is a Government right under FAR clause 52.215-2. For example, the
Defense Contract Audit Agency's Contract Audit Manual section 1-504.1 b states, "In
addition to access to specific cost records, access to records refers to the contractor . . .
personnel . . . which affects and reflects the incurrence, control and allocation of costs to
contracts." An interpretation of the clause that excludes the best source of explanation
and gives the contractor the nght to pick and choose what support to provide, would
render the clause meaningless. Therefore, we believe there is a miscommunication
between vour office and mine.
115
I • /•
Recyclatl/Hecyciable
Pflnwc wnn Say/CW* I™ on pa
C=rru.n» tt So«l SC% r
-------
Please explain your understanding of the distinction between-areas where the
contractor must provide specific employees to answer questions under the clause, as
opposed to areas where the Government is precluded from specifying which employee
must explain. Once you provide your understanding of the distinction, and we have had
an opportunity to review it, we will contact you to arrange a meeting to discuss any
further areas of potential disagreement
Should you have any questions, please contact Gary R. Greening at
(202) 260-6125 or Kenneth G. Prather at (703) 308-8242.
116
-------
JUL '5.1996
MEMORANDUM
SUBJECT:
FROM:
TO:
Response to Request for Assistance and Access to Records Issue
Betty L. Bailey, Director \CA
Office of Acquisition Management^ 80 IF)
Elissa R. Karpf
Deputy Assistant Inspector general for Acquisition and Assistance Audits
This is in response to your memo of April 2, 1996 requesting clarification of statements in
my March 11, 199.6 memo to Kenneth G. Prather. Mr. Prather requested assistance in resolving
access to records problems.
In his February 22, 1996 memo to Valerie Garcia, and march 1, 1996 memo to Carol
Fagnani, Mr. Prather requested OAM's assistance in gaining access to contractor employees
regarding the establishment of the National Environmental Supercomputing Center. Federal
Acquisition Regulation (FAR) clause 52.215-2 (Audit and Records — Negotiation) was cited as
the means by which Mr. Prather believed a contracting officer could compel access to a
contractor's employees.
In your April 2, 1996 letter addressing our March 11,1996 response to Mr. Prather, you
further cite the Defense Contract Audit Agency's (DCAA) Contract Audit Manual section
1-504. l(b). Please note that we are not bound by DCAA's audit manual. Even if OAM were
bound by DCAA's policies and procedures, we disagree with your interpretation that the clause
gives an agency access to specific contractor employees. We believe that there must be a nexus
between the documentation requested and the contractor's employee. Even so, officials at DCAA
concede that even when the request for a specific individual is made, contractors are not required
to provide the specific individual, as long as they a source of explanation to the requester.
Again, we are happy to help you in any way possible to get the information you require. If
we can be of further assistance, please call Susan Kantrowitz at 202/260-8176.
117
-------
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RESOUftCCS MANAGfMENT DMfCTIVCS
RM« OBJECT CLASS COCO AND TTTL£S
NUMBCH TITLE ABBREV.
21 PIT
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33 OPFT OPFT
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44 R«ntComm&Util RENT
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47 S«JP04I«S & M«d3 SUPPL
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43 Land & Structure LAND
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120
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PLANNING AND BUOGET1NG
PHASE THREE: BUDGET SXEOJTION
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ALLOWABLe OajECT CfASSES AfiO PROGRAM ELEMENTS 8Y APPROPRIATION
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122
TOTft. P.84
-------
CROSSWALK OF RMIS OBJECT CLASSES
TO
EPA APPROPRIATIONS
APPROPRIATION: (A) SAURIES 4 EXPENSES 68502CO(FY 1985}
Attachment 3
CHARGEABLE CODES: FOR ALL PROGRAM ELEMENTS EXCEPT FOR THOSE PROGRAM
IN 'HE MANAGEMENT AND SUPPORT MEDIA; ALL REIMBURSABLE PROGRAM
FMS
ELEMENTS.
OBJECT CLASS
PERS CCMP 4 SEN
TRAVEL 4 TRANSP PERS
TRANS? OF THINGS
RENT COMMUN 4 REPRO
PRINTING i REPRO
OTHER CONTR SERVICES
SUPPLIES 4 MATERIALS
EQUIPMENT
INSURANCE
ADP CONTRACT SERVICES
(42)
(43)
(44)
(45)
(46)
(47)
(48)
(50)
(53)
11.00
12.00
13.00
21.00
22.00
23.00
24
25
25
25
25
25
.CO
.24,
• 27,
.46,
.SO,
.00
31.00
42
25
25
25
.01
.13,
.13,
.96
- 11.99
- 12.99
- 13.99
- 21.99
- 22.99
- 23.99
- 2
25
25
25
25
X
T
.
.
.
.
- 25
- 31
25
25
.
.
.99
25
38
47
81
t
t
>
t
25.
25.
25.
25.
25,
40,
49,
82,
25.
25.
25.
25.
29,
44,
50,
97,
25.
25.
25.
25.
36
45
Si
58
.99
.99
14
20
,
»»
25.
25.
is,
21,
25,
17,
25.23,
25.
25.
18
27
FOR THOSE PROGRAM ELEMENTS IN THE MANAGEMENT AND SUPPORT MEDIA AND ALL
REIMBURSABLE PROGRAM ELEMENTS - ALL RMIS & FMS COOES EXCEPT LAND AND
STRUCTURES (RMIS-49; FMS-32.00-32.99) ARE ACCEPTABLE AGAINST THE SALARIES
4 EXPENSES APPROPRIATION. CHARGES TO THE LAND AND STRUCTURES. OBJECT
CLASS IN THIS APPROPRIATION REQUIRE PRIOR APPROVAL FROM THE OFFICE OF THE
COMPTROLLER AND THE FACILITIES AND SUPPORT SERVICES DIVISION. CHARGES
TO THIS OBJECT CLASS ARE APPROPRIATE IN THE BUILDINGS AND FACILITIES
APPROPRIATION AND ONLY BY EXCEPTION IN THIS APPROPRIATION.
12J
-------
ATTACHMENT 4
ACTION: R TABLEID: BOCT USERID: RICK
BODGET OBJECT CODE REFERENCE TABLE
KEY IS BFY, OBJECT CLASS
MAJ BOC SUB .
OBJECT OBJ PS BOC 1099 P/A BUDG TRVL BUDG BUDG POST REF
BFY CLASS BOC CLS IND IND IND IND TYPE FLAG FLAG BOC FLAG BOC
01-
02-
03-
04-
05-
06-
07-
91
91 _J
91
91
91
91
91
2300.
NAMEr
2301
NAME":.
—2-3-O2-
NAME:
2303
NAME:
2304
NAME:
2305
NAME:
2306
NAME:
23
N
N
N
N
231 23 N N C P
LAND > STRUCTURES
-Z3'2 23 N N C P N
ADP SOFTWARE PACKAGES
232 23 N N C P N
ADP COMPUTER SYS & EQUIP
232 23 N N C P N
TELECOMMUNICATION EQUIPMENT
232 23 N N C P N
WORD PROCESSING RENTAL
232 23 N N C P N
DEMURRAGE ON GAS CYLINDERS
N N
SHORT:
N ' N
SHORT:
N N
SHORT:
N N
SHORT:
N N
SHORT:
N N
SHORT:
N N
SHORT:
27
N
N
27 N N
LAND & STRUG
27 N N
ADP SOFTWARE
27 N N
ADP EQUIP
27 N N
TELEC EQUIP
27 N N
WP RENTAL
27 N N
DEMUR ON GAS
ACTION: R TABLEID: BOCT USERID: RICK
BUDGET OBJECT CODE REFERENCE TABLE
KEY IS BFY, OBJECT CLASS
MAJ BOC SUB BOC BOC=
OBJECT OBJ PS BOC 1099 P/A BUDG TRVL BUDG BUDG POST REF
BFY CLASS BOC CLS IND IND IND IND TYPE FLAG FLAG BOC FLAG BOC
01-
02-
03-
04-
,
05-
06-
07-
91
91
91
91
91
91
91
2307
NAME:
2308
NAME:
2309
: NAME:
2310
' NAME:
1 2311
\ NAME:
2313
NAME:
2314
NAME:
232 23 N N C P N
RENTAL OF OTHER EQUIPMENT
232 23 N N C P N
RENTAL OF PHOTOCOPY EQUIPMENT
232 23 N N C P N
DATA PROCESSING FACILITIES
231 23 N N C P N
STANDARD LEVEL USER CHARGES
231 23 N N C P N
LOCAL TELEPHONE SERVICE
231 23 N N C P N
LONG DISTANCE SERVICE
231 23 N N C P N
FTS SERVICE
N N
SHORT :
N N
SHORT :
N N
SHORT:
N N
SHORT:
N N
SHORT :
N N
SHORT :
N N
SHORT:
27 N
OTHER RENTAL
27 N
RENT PHOTO E
27 N
DP FACILITIE
27 N
USER CHARGE
27 N
TELEPHONE
27 N
LONG DIST
27 N
FTS
N
N
N
N
N
N
N
124
-------
• • f f
ACTION: R TABLEID: BOCT USERID: RICK
BUDGET OBJECT CODE REFERENCE TABLE
KEY IS BFY, OBJECT CLASS
MAJ BOC SUB BOC BOC=
OBJECT OBJ PS BOC 1099 P/A BUDG TRVL BUDG BUDG POST REF
CLASS BOC CLS IND IND IND IND TYPE FLAG FLAG BOC FLAG BOC
01-
02-
03-
04-
05-
06-
07-
91
91
91
91
91
91
2315 231 23
N
N
TELEPHONE INSTALLATION
P
N
N
2320 233 23 N N C
NAME: UTILITY SERVICES
2325 233 23 N N C
NAME: PENALTY MAIL
2327 233 23 N N C
NAME: OTHER COMMUNICATIONS
2397 233 23 N N C
NAME: PROMPT PAY INTEREST PAYMENT
2398 233 23 N N C P N
NAME: MAIL CHARGEBACK
2400 240 24 N N C P N
NAME:
N
N
N
N N 27 N N
SHORT: PHONE INSTAL
N N 27 N N
SHORT: UTIL SERVICE
N N 27 N N
SHORT: PENALTY MAIL
N N 27 N N
SHORT: OTHER COMMUN
N . N 27 N N
SHORT: PROMPT PAY
N N 27 N N
SHORT: MAILCHARGEBA
N N 27 N N
SHORT:
125
-------
V i i rvvxi uvmiN I J
RESOURCE MANAGEMENT DIRECTIVES 25?
BUDGET AND ACCOUNTING INFORMATION BY FISCAL YEAR
OBJECT CLASS CODES - FISCAL YEAR 1992
SUMMARY OF CHANGES IN OBJECT CLASSIFICATION CODES
DURING FISCAL YEAR 1991 INCLUDED IN THIS UPDATE
ADDED CODES
11.97 Interest Penalty - Personnel Compensation. A late payment
charge added to the amount of a bill relating to
compensation for services rendered to the Government by
experts and consultants or other non-Federal employees, as
authorized by Public Law 97-177 (Prompt Payment Act), as
amended by Public Law 100-496, when payment of a bill is
made more than 30 days after the start of the payment
period.
21.92 Local Travel (Superfund/Solid Waste)
32.04 Leasehold Improvements. The cost of improvements
(including such improvements as carpeting, space.
partitions, soundproofing of ceilings or walls, and
alterations) which have an estimated useful life longer
than 1 year and are made to leased properties or to
occupied properties owned by another Government agency.
41.64 Radiation Program Grants. Awards to states for the
establishment and operation of programs to prevent or
eliminate unreasonable risks associated with radioactive
substances.
AMENDED CODES
25.17 Telecommunication Services and Contracts. ADP and
telecommunication contracts to provide communication
carrier services such as would be available from a
microwave, circuit switching, or telephone company, and
telecommunications support services including planning,
'design, installation, management and analysis.
26.04 ADP and Telecommunications Supplies. Examples of ADP
supplies are printer paper and special forms, magnetic
tapes and disks, ribbons and ink, punched cards, and
in-house training. Examples of Telecommunications supplies
are cable, fax paper, connectors, cords, tape, face plates,
fuses, power supplies, adapters, card sets, and circuit
packs.
31.03 Purchase of ADP and Telecommunications Related Equipment
Valued at $5,000 or More. Equipment includes central
processors, memory, channels, peripheral devices,
controllers, interactive and batch terminals, voice and
integrated voice/data premise systems, electronic Key
systems, PBX'S, and radio systems.
126
-------
23.00 RENT, COMMUNICATIONS AND UTILITIES
RENTS. Charges for possession and use of land, structures,
or equipment (other than transportation equipment) owned by
another person. It also includes periodic charges under
purchase rental agreements for equipment prior to the time
the title to the equipment is acquired. (Payments
subsequent to the acquisition of title should be classified
as equipment) It excludes payments under lease-purchase
contracts for construction of buildings (included in major
object class code 32).
COMMUNICATION SERVICES. Includes the transmission of
messages from place to place, such as contractual charges
for land telegraph service, telephone and teletype service;
charges for postage (other than parcel post); contractual
messenger service; and rental of post office boxes, postage
meter machines, mailing machines, and teletype equipment.
It also includes switchboard and service charges and
telephone installation costs.
UTILITY SERVICES. Charges for heat, light, power, water,
gas, electricity, and other utility services exclusive of
transportation and communication service.
23.01 Land and structures. Rental use of land and
buildings owned by another except rentals for data
processing facilities (object class code 23.09) and
other rentals included in Standard Lever User Charges
Assessed by GSA (object class code 23.10).
23.02 ADP Software Packages. Lease or rental of
commercially available software packages.
Maintenance is included when it is part of the lease
arrangement.
23.03 ADP Computer Systems and Equipment. Lease/rental or
user charges for all general purpose computer systems
and equipment regardless of capacity and cost.
Computer systems are defined to include CPU(s),
memory, channels, and electronically :connected
devices such as printers, tape and disk controllers
and drives, ADP equipment includes interactive and
batch terminals, plotters, bursters, decollaters,
performance monitors, and special furniture.
23.04 Telecommunications Equipment. Lease/rental or user
charges for all data phones and other equipment
associated with ADP telecommunications networks.
23.05 Word Processing Rentals. Charges for all leased word
processing equipment, including software, and
accessories furnished as part of rental contracts.
23.06 Demurrage on Gas Cylinders
23.07 Rental of Other Equipment. Rental of other equipment
not included in any other object, e.g., postage
meter, post office boxes, excluding communication
127
-------
equipment.
23.08 Rental of Photocopy Equipment. Rental of
photocopiers such as Xerox, thermafax, etc.
*
23.09 Data Processing facilities. Lease/rental data
processing facilities. Data processing facilities
are defined to include computer rooms, tape
libraries, off-site storage, office and training
areas.
23.10 Standard Level User Charges. Charges for rental of
space and related services assessed by the General
Services Administration as Standard Level User
Charges (SLUC).
23.11 Local Telephone Service. Rental of telephone and
charges related to local service, e.g., switchboard
charges, excluding installation charges.
23.13 Long Distance Service. Rental of leased lines or
dedicated lines for long distance service including
toll calls.
23.14 FTS Service.
GSA.
Rental of FTS lines and services from
23.15 Telephone Installations.
telephones.
Charges for installing
23.20 Utility Services. Charges for heat, light, power,
water, gas, electricity and other utility services.
(Does not include the purchase of raw fuel used for
heating, etc., which is properly chargeable to object
class code 26.08).
23.25 Penalty Mail. Payment made to the U.S. Postal
Service for the cost of mailing normal Government
correspondence, including U.S. Postal Service Express
128
-------
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[This page intentionally left blank.]
140
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ATTACHMENT 7
ADDITIONAL DISCUSSION FROM CHAPTER 2:
ALLEGED CIRCUMVENTION OF GSA
PROPER USE OF APPROPRIATIONS
The documents provided by the OIG show RMIS object class codes and titles. Code 63
specifies "ADP Contracts." Other OIG documents indicate that this code did not appear as an
allowable object class under the AC&C appropriation in 1987, but did appear under the Salaries
and Expense appropriation. Therefore, the OIG concludes that EPA was prohibited from using
AC&C funds forthe Bay City project via an ADP contract. Page 5 of the reference has been
provided to show more clearly that under the S&E appropriation, the "ADP Contract Services"
object class 63 was linked to numerous Financial Management System (FMS) sub-object classes.
including 25.13, 26.16, 25.19, and 25.20.
During FY 1989, EPA aggregated eighteen of the existing budget classes into six for the
purpose of funds control and budgeting, and to accommodate the IFMS implementation. By
memo dated December 2, 1988, (Attachment 10), EPA's Comptroller notified OMB of the
change and explained on page 2 (Enclosure A of Attachment 10) that, similar to OMB's Circular
A-l 1 Object Classification structure, the change would classify all contracts and interagency
Agreements as object class 25.0. Enclosure B to that memo shows that the old code 63 was
merged into the new code 25. An allowance inquiry table for the NESC contract, Attachment 11,
shows the Bay City ADP FY 1991 funds under the 25 budget object class.
In a January 11,1991 memo from EPA's Budget Director concerning FY 1991 Advice of
Allowance Letter, Attachment 12, on page 4, ADP Contracts is shown as being in the 25 object
class code for Budget and the 25.00 code for Finance. Finally, a FY 1991 object class
description for AC&C, Attachment 13, shows the major object class 25, "Other Contractural [sic]
Services." It also has many of the same sub-object classes shown under the 63 code for the S&E
appropriation mentioned above.
141
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[This page intentionally left blank.]
142
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ATTACHMENT 8
APR 2 I* 1S93
MEMORANDUM
SUBJECT: EPA Real Property Acquisition and Management Authority
_,_jp.,^_ i-i _• _t_ T __i _.. r\-t ^-.i^4-nf* ' nicn LSI
.-. TO:
Rich Lemley, Director -
Facilities Management and Services Division
•
Addressees (See attached listing)
We have been receiving numerous questiqps concerning the use
of trailers or other temporary buildings to meet rapidly increasing
housing needs. There are' several issues involved.
EPA does not have generic statutory authority to acquire real
property; i.e., we cannot acquire, build or increase our space
inventory with general purpose/office space, or, in many cases,
special purpose space. This includes the purchase or lease of
trailers or modular buildings. It makes no difference whether the
building or trailer is -intended to be leased or purchased,
temporarily installed, or carried, as personal property. These
actions are all outside of our authority except under limited
circumstances. Currently, our authority to acquire or construct
special purpose space is limited to program functions authorized
under the Clean Air Act, Federal Water Pollution Control Act and
Comprehensive Environmental Response, Compensation and Liability
Act (limited to specific Superfund sites necessary for removal or
remedial actions).
In addition to the required statutory authorities, certain
design criteria must also be met. This includes such things- as
conformance with the facility's master plan, compliance with
prevailing safety guidelines for utility connections, and a
determination as to whether or not the unit meets fire and safety
codes.
In view of the foregoing concerns, I am issuing the following
guidance.- Trailers, temporary buildings, modular construction,
etc. may only be acquired when certification can be provided that
the unit is needed to meet programmatic requirements authorized
under the Clean Air Act, Federal Water Pollution Control Act and
Comprehensive Environmental Response, Compensation and Liability
Act. Furthermore, the units may only be used as special purpose
space. Funding must be consistent with EPA guidelines. Finally,
the units must be approved by FMSD. All other prerequisite
approval within appropriate channels remains the same.
• -•. —.
143
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Further, the Real Estate and Space Hanagement Branch is not
involved in the approval process in the event that the unit is to
be " acquired by a contractor . You must have the approval of the
contracting officer that this is allowable under the terms and
conditions of the contract and certification from the finance
officer that funds can be expended for this purpose. Upon request,
RESMB will supply a license which must be completed between the EPA
facility manager/director and the contractor allowing the
contractor to .-hook up' the unit on Government property. This
license can be "incorporated into the contract. 'The agreement will
require the contractor to remove the trailer (s) and restore the
Government's property promptly upon termination of the license.
As a final reminder, when dealing with existing space, IMSD
.notification :and approval is necessary before space changes or
alterations which affect the classification of space can be made.
Examples of space changes which require prior approval from my
office would be the conversion of office space to laboratory, from
laboratory to office, office to a computer facility, etc. " Though
you may have the legal basis" to make these changes, prior approval
.from my office is required since real estate authority rests with
FMSD. . "
" ' If you have any questions . concerning this . matter, please
contact Michael Penn, Chief, RESK3, on telephone (202) 260-2027.
' . •
PM-215:JLevin:hm:260-2022:04/08/93:G013NEMall:spellcheck:S:memo#3
144
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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, O.C. 20460
ocr
1003
OFFICE OF
MEKORANDOM
AND RE SOURCES
UANAGEMENT
SUBJECT: Prpcedural Guidance For Expansion Of Office Space At
.Laboratories
FROM:
TO:
icHJLeialey, Director
.Facilities Management and Services Division
See Addressee List
We have received numerous questions concerning expansion/
replacement of office space at existing EPA laboratories. This
memorandum is specifically directed at laboratories which support
programs established under-the Federal-Water--Pollution--Control
Act, Clean Air Act, and Comprehensive Environmental Response,
Compensation, and -Liability Act onlv and provides information and
guidance to be used when submitting requests involving office
space.
We define laboratories to include any space required to
directly support the research/analytical function of the
laboratory, provided, however, that the facility is intended and
dedicated to a programmatic function authorized by one of these
Acts. I can authorize the expansion of existing laboratory
office space provided the request is justified by the master plan
and the agency space utilization rate; i.e., the utilization'rate
based on the total number of people directly assigned to support
the programmatic function at an existing laboratory. The request
must also make sense in terms 'of maintaining the programmatic
functional integrity of the laboratory.
Additionally, funds must be available. Projects of $75,000
or less will be funded out of available program appropriations.
Requests should contain certification from the financial officer
that an appropriation exists which may -be used for this purpose
and that funds are available. Projects in excess of $75,000,
must be funded from the B&F appropriation and approval of
expansion space requests will be on a case-by-case basis based en
the availability of funds.
If you have any questions concerning this matter, please
contact Michael Penn, Chief, Real Estate and Space Management
Branch on telephone (202) 260-2022. ••
145
Recycled/Recyclable
PrtnM "tut SoyiOnola Ifttt on gaeer thai
contain* at lust !0% nteyctM fl&w
-------
/.Mb.
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON. D.C. 20460
MAR 3 1993
MEMORANDUM
SUBJECT:
FROM:
TO:
* OfrCSOF
ADMINISTRATION
AND RESOURCES
MANAGEMENT
sitzion of Space for Short-Term Use
Lesley, Director.
lities Management and Services Division
Addresses (See attached list)
. I want to taJce this opportunity to clarify EPA's policy
'regarding contracting for outside facilities. This includes, but
is not limited to, conference and meeting rooms. .*
The Agency's policy, contained in EPA's Facilities Manual,
Volume 4840-2, follows that contained in Federal Propert
Management Regulations, Temporary Regulation D-76. In brief, this
regulation requires that a reasonable effort be. made to uti
available government controlled facilities before contracting
any outside facility. To meet this requirement, you should fi
review your existing space to determine whether or not suitable
space is available. If none is available, you must contact your
GSA regional representative regarding space which may be available
through their office. Document your files to' show the date of
contact and the name and position- of the GSA individual contacted.
At this point, if suitable Government controlled space is still -not
available, you may use your own procurement authority to acquire
the space for a period not to exceed 180 days.
Although the regulation calls for the submission of an SF-81,
our experience has been that, in cases involving short term needs,
a telephone call to GSA will suffice. If an SF-81 is required, my
staff will be glad to assist you in its preparation.
I am attaching the pertinent portions of 4840-2 and D-7€ for
your information. However, if you. have any questions concerning
this policy, please contact ' Michael Penn of my staff on
202-260-2022.
Attachments
146
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Addresses List:
Robert J. Coetzl, EPA Region I
James Foley, EPA Region II
John Krakowiak, EPA Region III
Gary White, EPA Region IV
Fred Woods, EPA RTP
Thomas C. Wysoglad, EPA Region V
Dave Cowles,. EPA Cincinnati
Gladean Butler, EPA Region VI
Mark" Hague, EPA Region VII
Mel McCottry, EPA Region VIII
Nick Tolve, EPA NEIC
Joyce Byers, EPA Region IX
Jonell Alamano, Region X ...
Barbara Bonofiglio, EPA Headquarters .
Severa Wilson, EPA Headquarters
Candace Castillo, EPA Headquarters ORD ..
Michael E. Bower, EPA Office of Acquisition Management
John Gherardini, EPA Office of Acquisition Management
Don Sullivan, EPA!CMD/RTP . •
Mark Kellerman, EPA CMD/Cincinnati
147
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148
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18:38
7777
BAX UiTY
ATTACHMENT 9
BAY AREA CHAMBER OF COMMERCE
* •"•O. BOX SM
BAY CITY. UJ
•AY
1448:
PAY
THE
««««
SILLY BONES 8.B.Q.
4326 No. Sagtaav Rd
Midland, Ml 48640
BAY ARE* CHAMBER OP COMMERCE '
AUTHO01ZBD S1QNATUF
BAY AREA CHAMBER
OP COMMERCE
DELUXE-FORM WVW V-7
EPA Dedication (240 P*pJ.) «,220,00 a/C 806
This is your invoice
NET DUE ON DELIVERY
149
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[This page intentionally left blank.]
150
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ATTACHMENT 10
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON. D.C. 20460
DEC .021388
OFFICE OF
ADMINISTRATION
AN0 flSSOURCES
MANAGeMENT
Mr. Robert Fairweather
Chief, Environment Branch
Natural Resources Division
Office of Management and Budget
Washington, D.C. 20503
Dear Mr. Fairweather:
The purpose of this letter is to notify you of budget object
class changes necessary for efficient implementation of EPA's
Integrated Financial Management System (IFMS) . ..The changes will
create minor alterations in the information you receive, although
no less information will be provided than you are receiving now.
We are planning an aggregation of the existing eighteen (18)
budget object classes into six (6) more meaningful object classes
for Funds Control and budgeting. This change in no way affects
EPA's sub-object class accounting or our compliance with OMB's
Circular A-ll Object Classification structure. This plan has
received Agency-wide support and has been necessitated by'our IFMS
Implementation effort.
Enclosure A provides a brief-explanation of the changes
associated with this plan and Enclosure B provides a crosswalk from
the old to the new structure.
Please call Rick Peterson
or if we can provide any additional
you have questions
Enclosures
SJ
151
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ENCLOSURE A
Currently, we manually review spending at the
Appropriation/Allowance Holder level and withdraw obligational
authority to an Allowance Holder if an overcommitted condition
occurs. Lower budget levels such as program element (P.E.) and
object class within an allowance can be monitored but not
effectively controlled. IFMS allows for funds control down to the
Appropriation/Allowance/P.E,/Object Class level. We want to
institute these controls. However, locking out on the existing
eighteen (18) object classes currently used for budgeting, is
unrealistic. Operating Plan object class spreads are best
estimates and locking programs into eighteen (18) sub-estimates
will delay spending actions and skyrocket reprogramming volume
unnecessarily.
The planned budget object classes for the purpose of this
funds control lockout feature are:
PC&B
Travel (Ceiling)
Site-Specific Travel (Non-Ceiling)
Other Expenses
Contracts/lAGs
Grants
Attachment B provides a crosswalk between the eighteen (18)
current object classes and the six (6) planned. The OMB prescribed
object classes are also displayed. The most notable aggregation
is for other expenses. The planned change will preclude the need
to lock programs into a controlled amount of expense dollars for
such items as printing and supplies. Without this change., the
Program Office would need to reprogram frequently as their
estimates change.
Also included in this plan is the elimination of the terms
"intramural" and "extramural" from the budgeting process. These
are EPA expressions, based on object class definitions, which are
not used government-wide and which are frequently misunderstood
within EPA. For example, the distinction between intramural and
extramural contracts is not made by A-ll which classifies all
contracts and LAGS, "not otherwise classified", as object class
25.0. This change would group all object class-25.0 resources as
A-ll does and eliminate the unnecessary distinction within EPA.
Again, no accounting changes are planned, only budget object class
groupings.
EPA products which will have minor changes to their appearance
or production include the BUD 1 and BUD 1A forms in the OMB
submission. The Object Classifications by Appropriations in the
152
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President's Budget Appendix would still appear the same, however,
the methodology used to estimate these amounts would be different.
The change to each of these products .is as follows:
BUD fl Form - where in the past, budget authority
has been displayed by intramural,
extramural and1 total, it would now
be displayed by specific appropria-
tions with a total.
BUD 1A Form - where narratives in the past
sometimes referenced the BUD 1
extramural total as the program or
research contract component, the
narrative would now speak to
specific amounts for program
contracts associated with a planned
activity.
President's
JJudget Appendix - no visible change will occur but
the manner in which the object
class estimates are produced would
be different. Currently, the prior
year column is drawn from account-
ing data and the current year and
outyear columns are educated
• estimates. The expanded appendix
object class spread would be
produced through a proration. The
six (6) aggregated budget object
classes would be prorated into the
OMB object classification from the
prior year object class actual
accounting data. We tested
historical prior year actuals as a
predictor of outyear object class
estimates for a five (5) year
period. The results showed this
methodology to be an equally valid
predictor for every year for every
appropriation.
In terms of timing for implementation, we are planning no
change at all for FY 1989. Operating Plan development is already
well under way using the existing eighteen (18) budget object
classes. For FY 1990, we are already into formulation using the
eighteen (18) and would continue through the President's Budget
Request in January 1989, using the existing structure. We would
then aggregate to the six (6) object classes for Operating Plan
development and budget execution. The FY 1991 budget would be both
formulated and executed using six (6) object classes, for the first
*» 4 •««
time.
153
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In conclusion, the features of this plan are:
o Closer conformance to A-ll object classification
structure.
o More accurate estimates of dollars by object class
being provided to OMB than is available now.
o An ability to explode from six (6) to eighteen (18)
object classes based on current year or prior year
actual prorations when needed.
o No changes in our products to OMB before September
1989.
o Only minor"changes in our submissions to OMB when
implementation does occur.
o Improved funds control within the Agency.
154
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156
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AiiACHMtm 11
ACTION: R TABLEID: ALLT USERID: RICK
*** ALLOWANCE INQUIRY TABLE ***
fS, APPR, RPIO, ORG, PE, BOC
APPR: IB RPIO: 16 ORG: 540AAW PE: B4HX5A (BOC: 25
IND: A SPENDING CONTROL OVR:
WDVED IND: Y POST QTR: 4 TRANS TYPES - PENDING: PS APPROVED: AP POSTED: 01
APPROVED ALLOW AMT:
YTD UNLIQ COMM AMT:
YTD UNLIQ OBLG AMT:
EST REIM TC/TT:
ACT REIM AMT:
QTR ORIG ALLOW AMT
1 4,850,000
2 3,560,000
3 0
4 0
QTR UNLIQ COMM AMT
1 0.00
2 0.00
3 426,554.44
4 -426,554.44
8,410,000.00
0.00
119.99
YTD ALLOW AMT:
AVAILABLE AMT:
EXPENDED AMT:
EST REIM AMT:
0.00 UNDISTRIB EST REIM:
PEND ALLOW AMT
0
0
0
0
UNLIQ OBLG AMT
0.00
0.00
0.00
119.99
APPRV ALLOW AMT
4,850,000
3,560,000
0
0
EXPENDED AMT
0.00
0.00
0.00
710,210.05
8,410,000.00
7,699,669.96
710,210.05
0.00
0.00
SUBALLOW AMT
0
0
0
0
UKSUBALLOW AMT
4,850,000
3,560,000
0
0
157
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158
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ATTACHMENT 12
tot,
r
•*•
UNITED STATES ENVIR.ONMENTAL PROTECTION AGENCY
WASHINGTON. D.C. 20460
JAN I I 1991
QFFiCc Of
ACMlNlSTaATSQN
MEMORANDUM MANAGEMENT
SUBJECT: FY 1991 ,Adv&e of Allowance Letter
FROM: Richard^TJaozenTTDirector
Budget
TO: Assistant Regional Administrators/Management
Division Directors (Regions I-X)
Senior Budget Officers
This memorandum is your formal notification of the Advice of
Allowance levels based on FY 1991 VA, HUD-Independent Agencies
Appropriations Bill (P.L. 101-507). The allowances reflect your
Operating Plan including Congressional actions (add-ons and
reductions).
Imcact of the FY 1991 Enacted Budget
The FY 1991 Enacted Budget incorporates Congressional changes
to our FY 1991 President's Budget Request. The legislative history
behind our appropriations, including provisions and language, are
contained in The Analysis of EPA's FY 1991 Aoorooriatians Bill,
which will be provided to you under separate cover within the-next
few weeks. The analysis will constitute your notification of
specific limitations and earmarks to your programs. It reflects
in-depth congressional intent for the resources in your programs.
As Allowance Holders, you are responsible for adhering to the
provisions of the House, Senate, and the Conference reports. The'
importance of providing ccngressionally required reports in a
timely manner cannot be understated.
The following are general limitations found in P.L. 101-507
that apply to the Agency.
1. Renrocrammina in Excess of $250,000
This year the Appropriations committees have net
exempted EPA from the standard appropriation
language limiting reprogrammings into or cut of any
program element to $250,000 or more. There are no
exceptions to this limitation sand, the Committee
159
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staff has reiterated their desire to closely
monitor this limitation. We have appealed this
decision and will notify you if we are successful
in our attempt to return to the $500,000
limitation.
2. Personnel Compensation and Benefit (PC&B) Reoroaramming
A General Provision of the Bill states that no part
of any appropriation for PC&B may be used for any
other object class. This limitation established a
floor on Agency PC&B. Funds may be moved into PC&B
using IFMS reprogramming process. Later in the
year, if the Agency is above the PC&B floor and
your worJcyears are fully funded, in total, we will
approve'reprogramming requests to move excess funds
out of PC&B.
3. Repair and Improvement Projects
Specific language in the Bill allows $75,000 for
Repair and Improvement (R&I) projects that can be
funded from the Salaries and Expenses
appropriation. R&I projects in excess of $75,000
must be funded from the Buildings and Facilities
(B&F) appropriation.
Advicesof Allowance/Operating Plan
The FY 1991 Operating Plan, as reflected in the attached
Advices of Allowances (Attachment A) and in the Integrated
Financial Management System (IFMS), has not yet received
Congressional approval. Any changes raised by the Committees will
be discussed with the appropriate NPMs. The latest Operating Plan
can always be viewed on screen on the (IFMS) ALLT table or through
reports pulled from the report menu. Your Advice of Allowance is
shown on the SALC Table in IFMS and can be viewed or printed out
with spending to date included. The hard copy quarterly Advice of
Allowance is for the start of the second quarter on January 1,
1991. •
The IFMS flag which required budget review of all
reprogrammings into the grants object class has been removed for FY
91. The 'audit trail that the restriction provided in FY 90 was
essential to the issue of legal implications imposed by authorizing
levels. The authorized funding levels, including grants, were
printed and circulated during FY 90 and Jcnowledge of those levels
should be incorporated into your budget planning in FY 1991.
160
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Aaencv Ceilings
Wfcile the Agency must operate under Congressional and/or OMB
ceilings, each RPlo/Region must also operate within their sub-
ceilings. You must operate under the ceilings for workyears,
travel, and Superfund and LUST administrative dollars as well as,
quarterly apportioned dollar totals. IFMS will monitor ceilings in
the Operating Plan but you must monitor your spending against the
plan.
Attachment B provides the current ceilings for each RPIO.
Please review these totals carefully and reprogram in the event
that your Operating Plan already exceeds a ceiling.
The following are brief discussions of selected ceilings:
I. Workvears: Workyear ceilings are issued by
appropriation and RPIO and are not transferrable between accounts.
II- Travel: There are two budget object classes for travel;
ceiling travel (21) and site-specific travel (2B). Site-specific
travel can only be used for site-related travel for Superfund and
RCRA (S&E) . The travel budget object class (21) should not exceed
your travel ceiling. To obtain additional travel ceiling requires
a written request to the Budget Division. Approval must be
received before incurring obligations. After approval is received
a reprogranuning document may be entered into IFMS to reprogram
travel dollars. Reprogrammings which transfer travel ceiling
between RPIOs must be clearly stated on the reprograauaing document.
III. Administrative Expense Ceilings; EPA's FY 1991 enacted
appropriation includes a limitation on administrative expenses in
the Superfund and LUST appropriations.
The ceiling encompasses the following abject classes for which
a crosswalk is provided between IFMS budget object classes and the
IFMS Finance sub-object class accounting series.
3
161
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CATEGORY/OBJECT CLASS
Included in the ceiling:
Personnel compensation & benefits
Travel & transportation of persons
Travel & trans, of pers.-site-related
Transportation of things
Rent, communications. & utilities
Printing & reproduction
Supplies & materials
Equipment
Land & structures
Insurance claims & indemnities
Excluded from the ceiling:
Other contractual services
R&D contracts
Inter-agency agreements
Program contracts
AOP contracts
Research grants
Demonstration grants
Grants to State & local governments
Other grants
BUDGET
10
21
28
27
41
FftMCE
11.00
12.00
13.00
21.00
22.00
23.00
24.00
26.00
31.00
32.00
42.00
25.00
.41.00
The administrative ceiling is equal to the total dollars in
the Operating Plan administrative object classes. Please monitor
your actual obligations for these object classes to ensure that
they do not exceed your administrative, ceiling. Unlike travel
ceiling, if additional administrative ceiling is needed a request
to the Budget Division can be made through an IFMS reprogramming
document. If there is sufficient ceiling available to cover your
reprogramming request, the Budget Division vill approve and update
your reprogramming in IFMS. The approval of the reprogramming will
constitute the approval of additional ceiling.
Superfund and LUST reprogrammings should net to zero between
administrative expenses object classes unless you are requesting
additional ceilings. Please note that Superfund site-related
travel, which does not have to be covered by your travel ceiling,
must be covered by your administrative ceiling.
162
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IV. R & D Appropriation Expense Celling; EPA's FY 1991
enacted Research and Development appropriation limits the agency to
$34,600,000 as the amount available for laboratory equipment,
supplies, and other operating expenses in support of research and
development. No expenses may be charged to ORO'S Salaries and
Expenses account in FY 91, only PC&B and travel.
Tracking Specifically Funded Items
EPA's policy and procedure for tracking specifically funded
items was issued under Comptroller Policy Announcement No. 91-01
(Attachment C) . We believe this process will allow the Agency to
track the budgeting and spending status of items of add-ons and
other items of particular interest more efficiently.
Constructirbn Grants
Construction Grant Advice of Allowance for FY 1991 New
Obligational Authority (NOA) was released to the Regions on
November 20, 1990. As a result of changes made to the
reprogramming process we were able to enter these funds directly at
the state level. In addition, we have developed a new IFMS coding
system that will identify issuance by -type of funds, such as,
carryover, reallotment, recoveries, and NOA. These changes will
greatly enhance the ability to track issuance of funds, as well as
providing direct control of state levels to the Regions.
Attachment D provides detailed information on the procedures for
implementing these changes.
Personnel Security Clearances
' As a reminder, individual Allowance Holders must assume the
cost of personel security clearances for their respective offices.
IFMS Operating Plan and Reproaramming
We have obtained some major enhancements to the IFMS
reprogramming. process for FY 1991. Attachment E highlights some of
the new procedures for utilizing the adaptations.
Thank you for your patience and cooperation during this
difficult start of the new fiscal year. In an effort to keep the
appropriate audience informed, please provide a copy of this
memorandum to your Allowance Holders and appropriate program and
administrative staff.
5
163
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Any questions concerning^ this memorandum should be directed to
your assigned Budget Control'Section contact.
Jean Price
Albert Brown
Tricia Gaghan
Peggy Maclin
Attachments
cc: Harvey Pippen
David J. O'Connor
Kenneth F. Oawsey
Dave Ryan
Rich Bashar
382-5672
382-4207
382-4210
382-4213
OARM
Regions VI,VIII,IX,X
OPTS,OA,OIA
Regions II,V,VII
OW,OSWER,OAR,OIG,OE
Regions I,III,IV
OGC,OPPE,ORD
6
164
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ATTACHMENT 13
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166
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APPENDIX IV
REPORT DISTRIBUTION
Office of Inspector General
Inspector General (24 1 0)
Deputy Inspector General (2410)
Office
Deputy Administrator ( 1 1 02)
Acting Assistant Administrator for Administration and Resources Management (3101)
Acting Chief Financial Officer (3101)
General Counsel (2310)
Agency Follow-up Official (3101), Attn: Acting Chief Financial Officer
Agency Follow-up Coordinator (3304), Attn: Acting Director, Resource Management
Division
Comptroller (3301)
Director, Financial Management Division (3303F)
Director, Budget Division (3302)
Director, Program and Policy Coordination Office (3102)
Director, Office of Administration (3201)
Director, Facilities Management and Services Division (3204)
Director, Office of Information Resources Management (3401)
Director, Office of Acquisition Management (380 IF)
Special Assistant, Office of Acquisition Management (380 IF)
167
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Director, National Data Processing Division (MD-34)
Director, Executive Support Office (1104)
Director. Office of Grants and Debarment (390 IF)
Associate General Counsel for Finance and Operations (2376)
Associate Administrator for Congressional and Legislative Affairs (1301)
Associate Administrator for Communications, Education, and Public Affairs (1701)
Headquarters Library (3304)
Regional Offices
Regional Administrator, Region 1
Regional Administrator, Region 2
Regional Administrator, Region 3
Regional Administrator, Region 4
Regional Administrator, Region 5
Regional Administrator, Region 6
Regional Administrator, Region 7
Regional Administrator, Region 8
Regional Administrator, Region 9
Regional Administrator, Region 10
External
General Accounting Office
Office of Management and Budget
General Services Administration
168
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