UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
MAY 31990
OFFICE OF
SOLID WASTE AND EMERGENCY RESPONSE
MEMORANDUM
SUBJECT: DIG Final Report, "Report on Survey of the Alternative
11 Remedial Contracting Strategy: Contract Bidding and
-
TO: Henry Longest, Director \y
Office of Emergency and Remedial Response
The purpose of this memorandum is to transmit to you the
subject Final Audit for your review.. Please respond to the OIG
recommendations on pages 13, 18, and 22. The Procurement and
Contracts Management Division has the lead responsibility for
coordinating the Agency response. We would appreciate your
response by Mav 17. 1990. Please include milestones and
approximate dates to implement the recommendations.
If you have any questions, please contact Jose Acevedo at
382-4510.
Attachment
cc: Mary Gade (w/o attachment)
Phyllis Anderson "
Johnsie Webster "
Jose Acevedo "
(w/attachment)
i HEADQUARTERSUWttRY
ENVIRONMENTAL PROTECTION AGENCY
- WASHINGTON, D.C. 20460
fruited on Recycled Paper
c.r>
-3 r- ,
-------
YtM32A KOtT99TCff
-------
TABLE OF CONTENTS
PAGE
SCOPS AND OBJECTIVES 1
SUMMARY OF "FINDINGS 3
ACTION REQUIRED 6
BACKGROUND 6
FINDINGS AND RECOMMENDATIONS 9
1. ARCS CONTRACTS WERE AWARDED CONSISTENT WITH
ACQUISITION REGULATIONS 9
2. ARCS CONTRACTS WERE GENERALLY AWARDED TIMELY 10
3. ARCS INCREASED COMPETITION 10
4. INDEPENDENT COST ESTIMATE FOR FUTURE ARCS
CONTRACTS NEEDED 11
5. BETTER DOCUMENTATION OF ESTIMATED ARCS ZONE
REQUIREMENTS IS NEEDED 13
6. GUIDANCE NEEDED FOR USE OF SMALL AND DISADVANTAGED
BUSINESSES 18
OTHER COMMENTS
ADDITIONAL INITIATIVES COULD BE EXPLORED TO
INCREASE THE COST EFFECTIVENESS OF THE REMEDIAL
CONTRACTING PROGRAM 22
APPENDIX 1 - JANUARY 26, 1990, RESPONSE TO DRAFT AUDIT
REPORT FROM THE DIRECTOR, PROCUREMENT AND
CONTRACTS MANAGEMENT DIVISION . 33
APPENDIX 2. - JANUARY 16, 1990, RESPONSE TO DRAFT AUDIT
- V?"; REPORT FROM THE DIRECTOR, OFFICE OF SMALL
-uo;. AND DISADVANTAGED BUSINESS UTILIZATION 40
APPENDIX 3 - MARCH 5, 1990, RESPONSE TO DRAFT AUDIT
REPORT FROM THE ASSISTANT ADMINISTRATOR
FOR SOLID WASTE AND EMERGENCY RESPONSE.... 41
APPENDIX 4 - DISTRIBUTION OF REPORT 49
-------
-------
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON. D.C. 20480
n
OPPICE OP
THE INSPECTOR GENERAL
MEMORANDUM
SUBJECT:
FROM:
TO:
Audit Report E1SGB9-11-0021-0100274
Survey of the Alternative Remedial Contracting
Strategy: Contract Bidding and Award Process
Kenneth D. Hockman
Divisional Inspector General for Audit
Internal Audit Division (A-109)
David J. O'Connor, Director
Procurement and Contracts Management
Division (PM-214F)
Henry L. Longest II, Director
Office of Emergency and Remedial Response (OS-200)
John M. Ropes, Director
Office of Small and Disadvantaged Business
Utilization (A-149C)
SCOPE AND OBJECTIVES
We conducted an audit survey of the Agency's bidding and award
process for the Alternative Remedial Contracting Strategy (ARCS)
contracts. The objectives of our survey were to determine if:
(1) ARCS contracts were awarded in accordance with Federal and
EPA acquisition regulations; (2) ARCS contracts were awarded
timely; and (3) the ARCS program resulted in a greater number of
firms participating in the remedial program. Our fieldwork was
performed •Etiarily from April to September 1989. We judgemen-
tal ly aelJfckl two ARCS contracts from the second cycle of the
ARCS procuKjnnt process for review. Contracts were selected in
this middlV cycle based on our assumption that Procurement and
Contracts Management Division (PCMD) and Office of Emergency and
Remedial Response (OERR) personnel would have identified areas in
the first cycle that could improve the procurement process in
subsequent cycles. The survey's intent was to identify control
weaknesses or make observations for change early in the ARCS
process.
-------
To accomplish our objectives, we conducted our work in the:
OERR, PCMD, Administrator's Office of Small and Disadvantaged
Business Utilization (OSDBU), and Office of General Counsel. At
our request, auditors from the Mid-Atlantic Division, Office of
Inspector General, conducted work in Region 3 to determine the
projected and actual ARCS workload and the status of ARCS
implementation in Region - 3.
We interviewed various senior officials from the above
Headquarters offices who were involved in the ARCS program and
senior regional managers in Superfund who were responsible for
administering ARCS contracts in Regions 3, 4, 5, 7 and 8. We
reviewed contract files and other ARCS records we deemed
necessary that were located at Headquarters and Region 3.. To
assess actions to introduce new firms into the remedial program,
we reviewed ARCS bidding and award requirements and PCMD records
regarding firms with prior experience in the program. Concerning
timeliness of contract awards, we reviewed PCMD records to
determine when each Request for Proposal was issued in the
Commerce Business Daily and the date each contract was awarded.
Finally, we reviewed General Accounting Office (GAO) reports and
studies from other agencies related to the Superfund procurement
process.
We evaluated the steps taken during the procurement process with
the acquisition steps and other requirements contained in the
Federal Acquisition Regulations (FAR), the EPA Acquisition
Regulations (EPAAR), EPA's Contract Management Manual (CMM),
Superfund Amendments and Reauthorization Act of 1986 (SARA), and
other relevant guidance and procedures.
We conducted our survey in accordance with the Government
Auditing Standards (1988 revision) issued by the Comptroller
General of the United States. Our examination included tests of
the general internal controls that were in place for awarding
contracts and other auditing procedures we considered necessary
in the circumstances. The internal control documents we reviewed
were in compliance with current EPA Internal Control Guidance for
Managers and Coordinators. Within the scope of this survey, we
had no indication of further weaknesses beyond those described in
the Findinsjp and Recommendations section of the report.
The scope, •Rour work was limited primarily to the procurement
process leJHng up to award of an ARCS contract. We did not
review the implementation of ARCS contracts in the regions.
-------
SUMMARY OF FINDINGS
The ARCS was a major procurement process which involved a
tremendous amount of planning, coordination and effort by various-.
EPA officials. The ARCS procurement process resulted in 45
contract awards-with a potential contract value of'^$6.6 billion.
ARCS contracts are to provide EPA with the necessary resources to
obtain project management and technical services supporting EPA's
remedial response activities at uncontrolled hazardous waste
disposal sites.
With one exception, the ARCS bidding and award process complied
with Federal and EPA acquisition regulations. We also concluded
that the ARCS contracts were awarded timely and resulted in new
firms (11 prime contractors and 52 team subcontractors) working
in EPA's remedial programs. In addition to these positive
aspects resulting from the ARCS procurement process, we are
making recommendations that, if implemented, will:
(1) further increase the future assurance that a fair and
reasonable price was obtained by independently preparing
a Government cost estimate as is required by FAR;
(2) enhance management's planning decisions by document-
ing initial estimates of regional technical hours and
contract costs as a base against which periodic analysis
and measures of program success and problems can be
made; and
(3) ensure that EPA contracting officers use consistent
criteria and procedures for evaluating a prime
contractor's "good faith" effort in complying with its
subcontracting plan goals for use of small and
disadvantage*! businesses.
We are also providing other comments and suggestions EPA
management should consider, if an opportunity is available,
for further improving the cost effectiveness of the remedial
contracting program. These comments involve working with
Congress to amend the Superfund Amendments and Reauthorization
Act of 1986 to allow the use of cost competition as a key selec-
tion critex&A in awarding future ARCS contracts. In addition, we
believe BFfK*hould request that the Civilian Agency Acquisition
Council_gxflb the Agency a waiver from the Federal Acquisition
Regulation^Lnspection clause for cost reimbursement contracts
which requires the Government to reimburse a contractor's cost to
repeat unacceptable work. However, since these two areas are
part of a Government-wide procurement policy and require action
outside EPA for implementing changes, we.are not recommending
specific action by Agency management. However, we are making
suggestions for Agency management to consider.
r
-------
Agency Comments and PIG Evaluation
We received informal comments from OERR, on November 13, 1989,
and met with senior PCMD officials on November 17, 1989, to
informally discuss the draft report findings. Comments from both
program offices were incorporated in the draft report issued on
December 27, 1989.
The Directors of che OSDBU and the PCMD provided formal written
comments on our draft audit report on January 16 and 26, 1990,
respectively. The Assistant Administrator for Solid Waste and
Emergency Response (Assistant Administrator) also provided formal
written comments on March 5, 1990. We discussed our conclusions
with Agency officials in an exit conference on April 4, 1990.
The Director, PCMD, agreed with our recommendation that, for "
future architect-engineer (A&B) contract awards, PCMD officials
would comply as necessary to ensure independently prepared
government cost estimates are prepared in accordance with FAR
requirements.
Concerning our findings and recommendations on documenting
estimated ARCS requirements, both the Director, PCMD and the
Assistant Administrator believed no useful purpose would be
served by providing additional support for planning estimates of
labor effort needed and cost estimates for previously awarded
ARCS contracts. For future procurements, however, the Director
stated that PCMD officials would endeavor to ensure that adequate
planning estimates are prepared as early in the procurement
process as practicable and meaningful.
The Assistant Administrator stated that! (1) detailed documenta-
tion was not available to support past planning estimates,
(2) the present ARCS workload is substantially different than was
originally envisioned and (3) the 016's focus should be on
improving future performance. Accordingly, his office was not
willing to recreate historical records. Further, the Assistant
Administrator said his office was in the process of analyzing
current workload to achieve a better balance within the existing
ARCS contracts.
The Director, OSDBU agreed with our findings and recommendations
regarding, ^» utilization of small and disadvantaged businesses
iii the Agaqpy's ARCS activities. The Director believed that the
recommendations, if implemented, would help maximize the use of
small and disadvantaged firms in all areas of the ARCS program.
The Assistant Administrator agreed in principle with our findings
and recommendations but had concerns about the practical effects
of implementing changes in light of the diminished workload since
the inception of the ARCS program. Accordingly! any evaluation
of contractor performance in the use of small and disadvantaged
-------
businesses would have to be flexible and take into consideration
changing workloads and budget realities.
The Director, PCMD, generally disagreed with our findings and
recommendations on guidance for use of small and disadvantaged
business. The Director believed there was no need to define
"good faith effort" or to establish additional guidance in this
area because of the many variables involved by an ARCS contractor
and the types of work assignments issued. Concerning the evalua-
tion of an ARCS contractor's performance in complying with the
goals of subcontracting plans, the Director believed existing
evaluation procedures were sufficient to monitor such compliance.
Finally, concerning our other comments on Government-wide pro-
curement policy issues, the Director, PCMD, believed further
effort by EPA management would not result in changed legislation
by Congress. Accordingly, the Director believed the Congress
would not add cost competition to A&E contracts and the Civilian
Agency Acquisition Council would not grant EPA a waiver from the
inspection clause which requires the Government to reimburse.a
contractor's cost to repeat unacceptable work.
The Director believed that contractors were responsible for
delivering their "best efforts" in providing the specified level
of effort. If the Government could demonstrate that a contractor
did not provide its "best effort" then EPA could disallow any
costs that are not reasonable, allowable and allocable. The
Director believed that the key to good contractor performance
would not be found in contract clauses but rather in the quality
and skill of Agency officials charged with the responsibility for
monitoring contractor performance.
The Assistant Administrator intended to publicize our issue on
adding cost competition in future A&B procurements to Agency
staff and management during Superfund reauthorization activities.
However, he did not anticipate undertaking an initiative to lobby
the Congress for changes to the Brooks Act or other Government-
wide procurement policy issues. He believed that such an
initiative was the role of OMB's Office of Federal Procurement
Policy. Concerning the FAR inspection clause, the Assistant
Administrator acknowledged problems with this clause. He agreed
with our suggestion to monitor the implementation of the
inspection^clause and document instances in which EPA is required
to pay foiTf)poor quality work.
After evaluating the responses from the three offices, we have
retained our recommendations for obtaining independent cost
estimates and establishing additional guidelines for evaluating
contractor performance in meeting subcontracting plan goals. In
addition, we have modified our recommendations on documenting
resource needs to focus on documenting the planning estimates of
hours and costs for future procurements and the current analysis t.-,
-------
of contract workload. We have also retained our suggestions that
EPA management should consider for improving the cost effective-
ness of the remedial contracting program.
To provide a balanced understanding of these issues, we have
summarized managements' positions and our evaluation at
appropriate locations in the report. The verbatim comments are
provided in Appendix 1 for PCMD, Appendix 2 for OSDBU, and
Appendix 3 for the Office of Solid Waste and Emergency Response
(OSWER).
ACTION REQUIRED
In accordance with EPA Directive 2750, the primary action offi-
cial is required to provide this office with a written response
to the audit report within 90 days of the audit report date. The
Director, PCMD is designated the primary action official for this
report. OERR and OSDBU officials should coordinate with the
primary action official in resolving the findings and recommenda-
tions. For corrective actions planned but not completed, the
response should include specific milestone dates. This will
assist in closing the report in the Prime Audit Tracking System.
We would also appreciate receiving final response to the issues
raised in the other comments section of this report.
BACKGROUND
SARA provided EPA with an additional $8.5 billion for a 5-year
period, of which a substantial amount will go to contractors for
site cleanups. Past audits have identified various contractual
problems that, according to OSWER personnel, were caused by the
length of time required to process a Superfund contract or to
change a task order. Additionally, the General Accounting Office
and Office of Inspector General audits of Superfund contracts
have identified problems related to the lack of competition in
the award of contracts and the heavy use of subcontractors.
Overview of ARCS
ARCS is BPJya updated approach for providing the necessary
resources? ||g. obtain project management and technical services in
support ofafcfc's remedial response activities at uncontrolled
hazardous iRte disposal sites. Superfund provides for two types
of cleanup*. Removal actions are short-term responses that are
not necessarily permanent solutions. On the other hand, remedial
actions are long-term, usually more expensive projects aimed at
permanent remedies for sites that are on the National Priorities
List. ARCS services include site management, remedial
investigation and feasibility studies, engineering services in
design of remedial actions, and construction management for
-------
implementing.remedial actions, including support in
subcontracting for the construction of the selected remedy and
engineering services in overseeing construction.
All ARCS contracts have a 10-year period of performance for two
functional activities: program management (performed as a
completion effort) and remedial planning (performed on a level of
effort term basis). The 10-year period of performance is to
provide site continuity, increase accountability, and reduce the
number of "hand offs" of assignments to other contractors during
the average 7-year site clean-up time. ARCS contracts will
supplement and eventually replace the existing national and zone
Remedial Planning Contracts (REM) which will expire in September
1990.
ARCS contracts differ from the previous REM contracts in that the
ARCS contracts provide EPA with support by one contractor during
all phases of site cleanup. According to EPA managers, ARCS
contracts also incorporate innovative performance incentives that
are intended to maintain competitive pressures on contractors
throughout the 10-year period of performance. ARCS performance
incentives include award fee incentives and increased work
assignments. Unlike REM, EPA will issue work assignments to ARCS
contractors based on past contract performance and the region's/
zone's workload for the coming year. Work assignments will be
distributed to the ARCS contractors when the contracts are
awarded and annually when assignments are made for new projects.
In addition, work may be assigned to enable contractors to
continue their efforts at ongoing projects.
ARCS contracts are awarded under a cost-plus-award-fee arrange-
ment, a standard incentive contracting vehicle under the FAR.
This arrangement allows for a base fee that is fixed at the time
of contract award and an additional award fee above the base fee
that is allocated based on EPA's subjective evaluation of the
contractor's performance.
At the end of the first year and each subsequent year of the
contract term, EPA contract managers will use the performance
evaluations to determine not only how much award fee a contractor
has earned, but also to determine how many new site assignments
will be mad* to contractors.
•*••-
OERR managiflpnt believes that the ARCS concept of allowing site
managers to order discrete work elements under a very broad
contract statement of work achieves two important goalss (1}
flexibility - the Agency only orders needed services from the
ARCS contractor; and (2) continuity - ARCS' 10-year period of
performance and broad technical scope will help ensure that a
contractor who is performing successfully during early remedial
activities can be retained through site completion.
-------
Another key element of ARCS' performance-based strategy is
regional contract management. The major technical and
administrative contract management responsibilities for most
Superfund contracts are retained by EPA Headquarters personnel in
Washington, D. C. However, under ARCS, all direct contract
administration authority and responsibility is delegated to EPA
regional offices.
ARCS contracts represent the most significant procurement area
within the Superfund program. By July 1989, EPA awarded 45 ARCS
contracts with a potential value of about $6.6 billion. These
contracts were awarded in three cycles (several regions in each
cycle) beginning January 1, 1988 and ending June 28, 1989.
8
r
-------
FINDINGS AND RECOMMENDATIONS
1- ARCS CONTRACTS WERE AWARDED CONSISTENT WITH ACQUISITION
REGULATIONS
PCMD's procurement process for awarding ARCS contracts was in
accordance" with-the applicable Federal and EPA Acquisition
Regulations (EPAAR). With the exception of preparing an
independent cost estimate, PCMD complied with or obtained an
approved deviation from FAR.
To accomplish our objectives, we evaluated the steps taken during
the procurement process with the acquisition steps contained in
FAR, EPAAR, EPA's Contract Management Manual (CMM), SARA, and
other relevant guidance and procedures. For example, PCMD and/or
OERR:
o Synopsized the proposed contract actions in the Commerce
Business Daily for each of the three cycles (per FAR
5.002);
o Developed and .approved the acquisition objectives in a
written plan addressing the technical, business,
management and other significant considerations
controlling the acquisition (per FAR 7.105);
o Developed and approved the acquisition objectives in
various steps in the process such as the Architect and
Engineer Evaluation Board (AEEB) Chair and members for
the technical evaluation of proposals and source
selection and reports (EPAAR 1515.612 and 1536-602);
o Obtained cost or pricing data from proposed contractors
(FAR 15.804-2);
o Requested preaward audits of cost proposals by the Cost
Review and Policy Branch, PCMD [CMM, Chap. 10, Section
4.C.(2)(b)(3)J;
o Conducted pro- and post-award reviews of all 45
contracts; and
. '^i?-1*^
o Enattred a legal review of contract terms and clauses by
the?Contracts Law Branch, Office of General Counsel [CMM,
Chap. 10, Section 2.b.(2)(d}].
In addition, the two contract files reviewed contained the
required documentation such as the summary of negotiations, the
approved deviations from prescribed regulations, and determi-
nations and findings statements. The contracts also contained
the clauses required by the FAR for cost-plus-award-fee
-------
contracts. PCMD further enhanced the ARCS acquisition process by
requiring all AEEB members to complete separate financial
interest statements. Both OSWER/PCMD personnel held several
symposia to brief industry about the new contracting strategy.
2. ARCS CONTRACTS WERE GENERALLY AWARDED TIMELY
Although PCMD's time goals were exceeded, the ARCS contracts were
generally awarded timely. Additionally, the awards exceeded
Superfund program requirements to have a new contract mechanism
in place before the REM contracts expired in September 1990.
PCMD established three procurement cycles and a timeliness
milestone of 9 elapsed months from receipt of acceptable
procurement rationale documents to the first ARCS contract award
in each of the three procurement cycles; Included in the overall
milestone of 9 months were interim milestones for: (1)
conducting industry symposia explaining EPA's new contracting
mechanism; (2) issuing requests for proposals; (3) evaluating and
ranking offerers' statements of interest and technical
qualifications; (4) obtaining cost proposals and conducting cost
analysis; (5) negotiating a fair and reasonable "price; and (6)
reviewing and awarding a contract. The entire ARCS bidding and
award process lasted 26 months; beginning with the April 1987
receipt of a planning procurement request and ending in June 1989
with the final ARCS contract award.
PCMD's 9-month goal was exceeded in all three cycles from 5 days
to 3 months. Although the self-imposed milestone of 9 months was
not strictly met, OERR and regional officials involved with each
of the three cycles (Regions 3, 4, 5, 7 and 8) could not identify
any adverse effects to the remedial program. In fact, OERR
officials and regional officials were generally complimentary of
PCMD's efforts to award ARCS contracts as quickly as possible.
Any exceedance of PCMD milestones was likely lessened by the fact
that the REM contracts were still active. PCMD awarded 45
contracts beginning January 1, 1988 and ending June 28, 1989, an
elapsed time of 18 months. PCMD met its overall time goal for
awarding all ARCS contracts despite the complexities inherent in
a new contract mechanism and the tremendous effort to conduct
cost and price analysis of over 100 firms associated with the
prime ARCS^cpntractors.
EPA met an overall goal of increased competition in awarding 45
ARCS contracts to 23 firms. Although a majority of ARCS contract
awards went to firms that had EPA remedial experience under the
previous REM contracts or other Superfund contracts, a number of
firms new to Superfund were awarded an ARCS contract. According
tbxPCMD statistics, of 23 prime contractors awarded contracts, 11
10
-------
of these firms were new to Superf.und. The 11 firms were awarded
13 ARCS contracts. Additionally, 52 team subcontractors new to
Superfund were associated with ARCS prime contractors.
The ARCS program was structured to ensure a much larger number of
contracts than existed under the three large REM contracts (one
nationwide" and two zone contracts). Under ARCS, each region or
zone of regions had two sizes of contracts with multiple contract
awards for each contract size. However, prospective offerers
could bid on only one size of contract and could receive only one
contract per zone. EPA's 10 regions were divided into seven
zones with each region being a zone except for Regions 6, 7 and 8
which were combined as one zone, and 9 and 10 as one zone. Five
different sizes of ARCS contracts were awarded by EPA. Each zone
received from 17 to 48 interest statements (SF 254/255 Qualifi-
cations and Experience Statements) from firms, and, nationwide,
EPA reviewed and evaluated 195 interest statements. As was
expected, ARCS increased the industry base of firms available to
perform remedial response services.
ARCS was also structured so that after award, competitive
pressure would.be maintained because the annual assignment of
work would be based on the quality of past performance. Each
ARCS contractor was told that its performance, as judged by the
subjective award fee evaluation process and the associated
analysis of project and cost management, would influence EPA
decisions on rewards of additional work assignments and the
exercise of contract options. Conversely, if a contractor
performs poorly, EPA would not provide additional work assign-
ments and will not exercise available contract options. Because
each ARCS contract is intended to have built-in excess capacity,
other contractors in a zone should be able to absorb the workload
of poor performing contractors. By having multiple contractors
within a zone, EPA officials believed that additional cost
savings should result because of reduced management and learning
curve expenses when work must be switched from one contractor to
another due to poor performance or organizational conflicts of
interest.
4. INDEPENDENT COST ESTIMATE FOR FUTURE ARCS CONTRACTS HEEDED
OERR personnel did not independently prepare cost estimates for
ARCS contracts, as required by the FAR. Doing so would have
provided additional assurance that a fair and reasonable price
was negotiated. PCMD should request OERR to prepare an
independent estimate prior to future contract awards. If this is
not possible, PCMD should obtain a deviation from the FAR
requirement.
11
-------
Part 36, Section 605(a) of the FAR requires that:
An independent Government estimate of the
cost of architect-engineer services shall be
prepared and furnished to the contracting
officer before commencing negotiations for
each proposed contract or contract
modifications expected to exceed $25,000.
The estimate shall be prepared on the basis
of a detailed analysis of the required work
as though the Government were submitting a
proposal.
OERR prepared a one page analysis of the major cost categories
for various sizes of ARCS contracts prior to negotiations, but it
did not include sufficient detail to be considered an independent
Government estimate. Essentially, EPA contract negotiators
relied on other means to negotiate what they considered to be a
fair and reasonable price. Each cost proposal received a
technical review and was compared with other offerers' cost
proposals submitted for a region or zone. In addition, as was
brought to our attention by a senior placement contracting
officer, the solicitation of cost proposals from 23 different
firms could be construed as a nationwide market survey.
According to Attachment A of EPA's Contracts Management Manual, a
comparison of established market prices can be used to determine
a "fair and reasonable" price. Contract negotiators believed
that the cost analysis work performed was sufficient to reach a
"fair and reasonable" price.
We recognize the substantial amount of cost analysis work done
prior to contract award. However, the preparation of a detailed
EPA cost estimate, as if the Agency were bidding on an ARCS
contract, would have provided additional assurance that the price
negotiated was "fair and reasonable".
AGENCY COMMENTS AND PIG EVALUATION
The Director, PCMD agreed to comply as necessary with the
requirements of FAR 36.605 for future remedial procurements. The
Director also provided important background information and the
circumstances under which the original estimate was prepared.
The Director believed that the process EPA followed for determi-
ning costi-reasonableness resulted in a reliable estimate of cost
for ARCS contracts.
Although we recognize the significant amount of work done to
obtain a reliable estimate of cost for ARCS contracts, the
process followed by EPA was not completely in accordance with the
FAR provisions for procuring A&E services. Since the FAR
requires an independent estimate be prepared and additional ARCS
awards are expected/ we are making the following recommendation.
!' '
12
4
T
-------
RECOMMENDATION
We recommend that, for future architect-engineer contract awards
^& 2ifeCtor< PCMD comPlies with, or requests a deviation from,
the FAR requirement for conducting independently prepared
Government cost estimates.
5. SETTER DOCUMENTATION OF ESTIMATED ARCS ZONE REQUIREMENTS IS
NEEDED
Documentation supporting OERR's calculations of annual technical
hours needed and estimates of contract costs for each ARCS zone
was not available. Additionally, individual.acquisition plans
(LAPs) prepared jointly by OERR and PCMD for each of the three
ARCS procurement cycles did not consistently identify estimated
resource requirements. Without this information, EPA managers
lack basic data for justifying contract needs or for comparing
estimated planned program requirements with actual contract award
results and analyzing the reasons for variances. Sound manage-
ment practice requires that planning decisions and information be
documented and retained to serve as a base against which periodic
analysis and measures of program success and problems can be
made.
A. Calculation of zone requirements
OERR officials did not retain documentation supporting each
zone's estimated technical hour requirements and the details
supporting the cost estimates for the different sizes of ARCS
contracts. However, a senior OERR official advised us of the
information and factors used in calculating regional technical
hour needs and estimating contract costs for each zone. These
factors included:
historical cost data from current remedial contracts,
SARA mandated goals of annual remedial projects,
- „ projected growth of sites on the National Priority List,
Superfund Comprehensive Accomplishment Plan goals of
remedial activities to be achieved each year,
input from regional officials on their regions needs, and
arbitrarily determined excess regional capacity of 50
percent or more in order tot
13
-------
1) absorb the work of poor performing contractors if
necessary,
2) provide for unanticipated capacity needs,
3) absorb work assignments due to organizational
conflicts of interests of ARCS contractors within a
given zone, and
4) offset past criticisms of using up all technical
hours before a contract's period of performance
expired.
EPA made certain assumptions about the estimated technical hours,
labor category mix and other costs to perform various remedial
activities. The estimate of hours needed was used in deter-
mining what contract sizes and how many contracts would be needed
to fulfill the regions' capacity. Since neither PCMD or OERR
could provide documentation supporting how the regions' contract
hour needs and estimated contract costs were calculated, we
contacted three regions and asked how their regional needs were
calculated. The Superfund officials we spoke to in Regions 3, 5
and 8 could not tell us the number of level-of-effort (LOE) hours
agreed upon for the region, and only one official could remember
participating in any discussion involving regional needs.
We recognize the tremendous amount of planning throughout the
ARCS procurement process by OERR and PCMD. ARCS was a major EPA
undertaking which required strong coordination between all groups
involved. Despite the close coordination, a few steps may not
have been as well documented as planned, or the need to document
was not apparent at the time. We believe the calculation of LOE
hours needed and planned contract cost estimates for each region
should have been documented and retained to justify contract
needs and provide for information that might be useful in the
next ARCS cycle. We believe that documenting this type of
information La critical and provides an important historical base
in analyzing EPA's success in structuring and implementing the
remedial response program.
Individual Acquisition Plans Were Inconsistently Prepared
And Reasons For Not Meeting Objectives Were Not
B.
lAPs developed for Cycles II and III did not contain the
estimated contract value and/or the estimate of technical hours
needed by the regions. In addition, the reasons for large
variances in planned versus actual procurement awards were not
sufficiently documented. This information would be useful for
EPA management to measure their success in planning and
implementing the ARCS procurement process and to decide what
changes, if any, would enhance subsequent contract awards.
14
r
-------
Section 7.105 of FAR outlines the various procurement information
to be supplied for costly and complex procurements. EPA followed
FAR in preparing the IAP for Cycle I. The approval of the Cycle
I IAP on July 1, 1987, also constituted approval for all three
ARCS procurement cycles. After completion of Cycle;!, EPA found
it necessary to amend the IAP for the subsequent cycles but only
in specific sections. These amended sections related to RFP
numbers for that cycle, changes in contract sizes and LOE hours,
and sources of potential offerers through the scheduling of
industry symposia. For Cycle II, the addendum of November 2,
1987, was silent on the annual LOE needs of the five regions in
that cycle, and in the Cycle III addendum of March 11, 1988, both
the LOE hours and estimated costs were omitted. Neither addenda
or other documents explained the reasons why the estimated
planned hours/costs were so vastly different from the actual
contract awards made, and we are unaware of any requirements to
do so.
We developed the following table from the IAP, the addenda and
actual award information.
Cycle
I
II
III
Totals
Estimated
Planned
LOE Hours
.7 billion
Unstated
Unstated
Estimated
Planned
Contract
Dollars
$0.4 billion
$0.5 billion
Unstated
Actual
Potential
LOE Hours
Awarded
Actual
Potential
Contract .
Dollars Awarded
.4 billion $1.9 billion
.6 billion $2.7 billion
.5 billion S2.0 billion
1.5 billion $6.6 billion
We believe a subsequent memorandum to the file, prepared shortly
after the last contract negotiation for each cycle, would be
appropriate to explain the differences and changes pertinent to
the cycles. When comparing Cycle I planned hours and dollars
with actual results, we noted 50 percent less LOE hours was
obtained coating 400 percent more than was planned. We asked
PCMD officials why they thought there was such a difference in
actual potential costs versus planned contract cost estimates.
They attributed it to the special subcontracting pools (said to
account for 80 percent of all contract costs) and the fact that
multiple contractors rather than one were providing technical
services. We believe an explanation to the files for such a
noticeable variance would have been useful. *
15
-------
In a meeting with senior PCMD officials, they indicated they
could not project in the IAP the number of contracts actually
needed. At the time the IAP was prepared, there was no
indication of the number of firms who would submit offers.
CONCLUSIONS
Although most of the events in the ARCS procurement process were
well documented/ decisions on regional needs and why adjustments
to the cycles were necessary should have also been documented.
The lack of this relevant information hampers management's
analytical process in deciding why, where and what adjustments
are needed, particularly when the contracts are to be recompeted
in a few years. The documentation also provides historical
reference which EPA has relied on in other decision-making
activities. Such documentation would also identify significant
elements of the negotiations upon which the contracting officers'
decisions were made and provide an official record of key deci-
sions, thus preventing a loss of knowledge should key personnel
leave the Agency.
AGENCY COMMENTS AND PIG EVALUATION
The Director, PCMD, did not completely agree with our recommenda-
tions. The Director believed that the incorporation of planning
estimates of LOE hours needed and cost estimates for Cycles II
and III, after the completion of procurement cycles, would serve
no useful purpose. The Director stated that the planning
estimates which could be compiled today would in no way reflect
the Agency's actual knowledge at the time the procurement cycles
were initiated. Further, the Director believed that incorporat-
ing such data at this time would serve only to confuse the ex-
haustive process of cost analysis employed to determine a
reasonable estimate of contract performance costs. Nevertheless,
in future remedial procurements, the Director stated that PCMD
would endeavor to ensure that adequate independent estimates are
prepared as early in the process as practicable and meaningful.
The Assistant Administrator did not agree with our recommenda-
tion to provide additional support for planning hour/cost esti-
mates for ARCS Cycles II and III. The Assistant Administrator
stated it would not be an efficient use of resources to recreate
such documentation. He stated that EPA intentionally did not try
to define*precise technical hour requirements that would then
require extensive documentation, because external variables (such
as fluctuations in budget allocations and policy approaches)
always affect the Agency's ability to predict workload with
accuracy.
16
r
-------
The Assistant Administrator specifically mentioned three factors
that affect the ARCS workload and ARCS contractors' utilization.
First, the Agency's, new "One Program/Enforcement First" approach'••
will encourage potentially responsible parties to take the lead
role in an increasing number of response actions. Second, the
policy establishing a stable, long-term relationship between the
Agency and"the U.S. Army Corps of Engineers (COE) will allow the
COE to take the lead role on all remedial designs that cost more ;'
than $5 million. Finally, budget constraints and a reduction in
RI/FS activities to fully support ongoing projects will decrease
the number of response actions undertaken, as a whole.
The Assistant Administrator stated that the present ARCS workload
was substantially different from that envisioned at the ARCS
program's inception. He also stated that his office was in the
process of analyzing current workload to achieve a better balance
within the existing ARCS contracts.
As stated in our finding, neither PCMD or OERR officials could
provide documentation supporting calculations of contract hour
needs and estimated contract costs. Additionally, officials from
three regions could not tell us the number of hours agreed upon
for each region.
We believe good planning requires estimates and decisions to be .
documented and retained as a historical reference point in time,
especially for a $6.6 billion program. As circumstances such as
budget restraints, policy changes and increased costs come into
play, then a comparison with past decisions can be made to
analyze the appropriateness of current decisions. We believe it
is very important to document, as soon as possible, the LOE hours
needed, cost estimates and the number of various phases of site
cleanups expected to be completed by EPA. Such estimates clearly
relate to the number of work assignments and amount of contract
effort expected to be used for site clean-up effort during the
ARCS contracts 10-year life.
Given that the Assistant Administrator confirmed that documen-
tation was not available to support past planning estimates, we
believe the current analysis of ARCS contract workload should be
documented.; and retained as a reference point to aid future man-
agement analysis and decisions. Accordingly, we are modifying
our recommendations to focus on future improvements.
Concerning our recommendation that the reason for variances
between planned hours/costs and the actual ARCS contracts awarded
be documented, the Director, PCMD stated such documentation
already exists in the summaries of negotiation which specifically
address all differences between the Government's recommended
costs and those costs actually negotiated for each cost element.
17
r
-------
We agree with the Director that the summary of negotiation docu-
ments contain information on the difference between the pre-
negotiation cost objectives and the actual cost for individual
contracts. However, this document does not address the differen-
ces or variances between the overall estimated planned LOE hours
and estimated planned contract dollars for the entire procurement
cycle. The overall estimates for each cycle were established
before establishing pre-negotiation cost objectives on an
individual contract basis.
As part of sound management practices, we believe it is important
to document the reasons for the variances in each cycle of ARCS
awards. Significant variances between overall planned hour/cost
estimates and actual overall procurement results should be
documented and retained as a historical reference point.
Accordingly, we are making the following recommendations.
RECOMMENDATIONS
We recommend that the Director, PCMD, for future procurements:
o Require OERR to provide support for planning estimates of
LOE hours needed and cost estimates before accepting the
procurement planning request.
o Document and retain as a historical reference point the
reasons for variances between overall planned hour/cost
estimates and the actual overall procurement results of
potential hours/costs obtained in ARCS contract awards.
We recommend that the Director, OERR require that the current
analysis and decisions on ARCS contract workload be documented
and retained to assist future management analysis and decisions.
6.
While EPA required every firm bidding on an ARCS contract to
submit a subcontracting plan addressing the use of small or
disadvantaged businesses, criteria and procedures were not
established to define and evaluate a contractor's "good faith"
efforts and to ensure consistency of EPA actions when actual
performance is determined. Unless specific.guidance is provided,
the regions, may evaluate the same quality performance differently
or inconsistently .reach award fee determinations.
Small or Disadvantaoed Businesses Are Involved In ARCS
Each firm bidding on an ARCS contract was required to submit a
subcontracting plan. EPA's OSDBU reviewed the plan. The 45 ARCS
contracts resulted in 113 team subcontractors, of which 49 (or 43
18
-------
percent) were small or disadvantaged businesses. While this
number is encouraging, there are no guarantees that these firms
will actually be assigned work.
Recent Legislation
t
The need for specific guidance for evaluating "good faith"
efforts becomes more important for ARCS contracts awarded after
August 15, 1989. On that date, subpart 19.705 of FAR became
effective. This subpart describes the amount of liquidated
damages which can be assessed, and other remedies which can be
taken, when contractors fail to make a "good faith" effort to
comply with their subcontracting plan. The subpart was to
implement a requirement of Public Law 100-656 entitled the
Business Opportunity Development Reform Act (Reform Act). This
legislation required a liquidated damages clause be included in
all contracts in order to encourage prime contractor compliance
with their subcontracting plan. A senior PCMD official told us
that the division had not developed guidance to implement the FAR
requirements, and that future contracts would contain a liqui-
dated damages clause. The present 45 ARCS contracts were awarded
before the effective date for the FAR subpart and do not contain
a liquidated damages clause.
Award Fee . Determinations Should Address The Use of Small
Disadvantaoed Businesses
and
The existing ARCS award fee evaluations could be used as a means
of documenting and rewarding a contractor's "good faith" efforts
in fulfilling the subcontracting goals during the 10-year life of
the contracts. The determinations of award fee and provisions
for additional work assignments are subjectively determined
incentives by EPA contract managers that are not subject to
contract disputes or appeals by the contractors. These
subjectively determined evaluations could be modified to include
subcontracting incentives as rewards for exceeding goals . The
evaluations could also be used by the contracting officer when
making decisions on future contract awards with these contractors
as is required by the new FAR provisions implementing the Reform
Act [Section 19. 705-4 (d) ].
A mandatory, section of EPA's award fee evaluation of a contrac-
tors' performance should be devoted to a brief discussion of the
contractors^; compliance with the subcontracting plan and the
actual use of small and disadvantaged businesses. Addition-
ally, because the current ARCS contracts do not have a liquidated
damages clause for failure to meet the goals for subcontracting
plans, we believe that the Director, PCMD, in conjunction with
officials from the OSDBU and OERR should consider implementing an
appropriate level of incentives as encouragement for current as
well as future ARCS contractors to exceed their subcontracting
goals.
19
f"
-------
During our fieldwork, both PCMD and OERR officials commented that
the evaluation is sufficiently covered during the trimester
contractor performance reviews by the contracting officers. PCMD
also said the OSBDU receives regular reports from che contrac-
tors, which are also considered by the contracting officers, and
that the subcontracting goals are presented to the evaluation
board. OERR's informal comments also pointed out that the
expected funds for the ARCS contractors has been reduced, and
accordingly, their ability to give subcontracting work to small
and disadvantaged businesses will also be limited.
Nevertheless/ we note that the present Performance Evaluation
Board's report does not contain a mandatory section requiring
specific comments on the subcontracting plan goals. Providing a
section in this report would ensure contractors were aware of a
need to provide "good faith" efforts in this area.
AGENCY COMMENTS AND PIG EVALUATION
The,Director/ OSDBU, agreed with our findings and recommendations
regarding the utilization of small and disadvantaged businesses
in the Agency's ARCS, activities. The Director believed that the
recommendations, if implemented/ would help maximize the use of
small and disadvantaged firms in all areas of the ARCS program.
The Assistant Administrator agreed in principle with our findings
and recommendations but had concerns about the practical effects
of implementing changes in light of the diminished workload for
ARCS contractors since the inception of the ARCS program. He
stated that the ability of the contractor to accomplish
subcontracting plans were often obsolete because of the drastic
workload fluctuations which occur frequently in the ARCS program.
Therefore, any evaluations of performance in this area would have
to be flexible and take into consideration changing workloads and
budget realities.
The Director/ PCMD/ generally disagreed with our recommendations.
The Director believed there was no need to define "good faith
effort" or to establish additional guidance in this area. The
Director believed each CO must exercise considerable judgment in
evaluating;;? prime contractor's "good faith" efforts based on the
types of work assignments available for using small and dis-
advantaged^irasinesses. Concerning the evaluation of an ARCS
contractor's performance in complying with the goals of sub-
contracting plans, the Director believed existing evaluation
procedures were sufficient to monitor such compliance.
Without specific criteria and guidelines/ we are concerned that a
contractor's performance in meeting subcontracting goals will be
evaluated differently by Agency personnel in the seven zones of
ARCS contract performance. Most ARCS contractors have contracts
20
r
-------
in more than one ARCS. zone. it is because of the multiple
contracts, the many variables involved, and the types of work
assignments, that we believe evaluations of contractor per-
formance in meeting subcontracting goals must be consistent in
all seven ARCS zones.
— t
A mandatory section in EPA's Performance Evaluation Board's
report on award fee determination will focus attention on the
importance of subcontracting goals. Current evaluation proce-
dures consider subcontracting goals as a subsection under over-
all program management and is not otherwise highlighted by EPA
management. A mandatory section will enable EPA personnel, with
minimal effort, to quickly determine the overall success and
problems in meeting subcontracting goals throughout the ARCS pro-
gram and to quickly capitalize on the success of some contractors
that might be applicable to other contractors. By focusing
attention on subcontracting goals, Agency personnel will also
demonstrate to the Congress the high importance EPA places in
providing procurement opportunities to small and disadvantaged
businesses.
By considering an appropriate level of incentives to encourage
ARCS contractors to exceed realistic subcontracting goals, EPA
might lessen the possible adverse impact of future ARCS contracts
which will contain a liquidated damages clause compared to
current ARCS contracts which do not have this clause.
It has long been a government policy (FAR Subpart 19.2) to place
a fair proportion of its acquisitions with small and dis-
advantaged businesses. Such businesses shall also have the
maximum practicable opportunity to participate as subcontractors
in contracts, consistent with efficient contract performance.
Heads of contracting activities are responsible for achieving
program goals in this area and for ensuring contracting and
technical personnel take all reasonable action to increase small
business participation in their activities' contracting
processes.
We note that President Bush supports . strongly increased minority
business development efforts by the federal government. In a
speech at Central State University's Commencement exercises
(Wilberforce, Ohio, June, 1988), President Bush stated:
must bring Black Americans and other
minorities into the free enterprise system,
as we must into the government — not just
because it is right, but because it is good
for us — all of us. As we prepare for the
year 2000, America will have to field a full
team if we're going to remain competitive.;
It's not just in the interest of Blacks; it's
not just in the interest of Hispanics; it's
21
r
-------
not just in the interest of women; it's in
the interest of America to help economically
empower all.
In conclusion, the actions we propose for the potential $6.6
billion ARCS program are reasonable, can be implemented with
minimal eff.ort and are consistent with government policy and the
thrust of recent legislative initiatives.
RECOMMENDATIONS
We recommend that the Director/ PCMD:
o Establish written evaluation criteria, with the advice of
the Director, OERR and the Director, OSDBU, for defining
what constitutes "good faith" efforts towards meeting
subcontracting goals.
o Provide written guidelines to assist contracting officer
evaluations of a contractor's compliance with a subcon-
tracting plan consistent with the new FAR provisions.
o Require all Performance Evaluation Boards to include a
mandatory section in each award fee evaluation of a
contractor's performance. The mandatory section should
include a brief discussion of the contractor's compliance
with the contract's subcontracting plan including
specific comments on factors affecting the contractor's
"good faith" efforts.
o Coordinate with the Director, OSDBU, the Director, OERR
and other appropriate officials and determine the
desirability and feasibility of providing current and
future ARCS contractors with additional incentives
(consistent with the new FAR provisions) as encouragement
to exceed subcontracting plan goals.
r
OTHER COMMENTS
ADDITIONAL INITIATIVES COULD BE EXPLORED TO INCREASE THE COST
' .•"*>"- ^.
We noted twoCareas that EPA management should consider for
further improving the cost effectiveness of the remedial
contracting program. These areas aret
o requesting the Congress to amend SARA to allow EPA to use
cost competition in future Superfund A&E procurements.
o requesting, from the Civilian Agency Acquisition Council,
(CAAC), a deviation from the FAR inspection clause which
22
r
-------
requires that the Government must reimburse a
contractor's cost to repeat work that was determined
unacceptable.
By exploring these initiatives, we believe EPA'could enhance
the cost-effectiveness of the remedial and other EPA programs.
A leadership role by EPA management in these areas would demon-
strate to the Congress, the contract community/ and the public,
that EPA was attempting every reasonable option, including
legislative changes, for curtailing unnecessary cost growth in
cleaning up the nation's hazardous waste disposal sites. These
areas are discussed in greater detail below.
1. Cost Competition Not Used as a Selection Factor in
Awarding ARCS Contracts
EPA, consistent with the SARA requirements to follow the Brooks
Act requirements under the FAR, did not use cost competition as
a selection factor in evaluating offerers with which to negotiate
ARCS contracts. PCMD officials believed fair and reasonable
prices were negotiated and obtained for each ARCS contract
consistent with FAR requirements. Without cost competition as a
selection factor, we believe assurance is lessened that the
resultant ARCS contracts were awarded at the lowest possible cost
consistent with receiving high quality technical services. In
light of current fiscal realities, we believe that the Congress
should reexamine the SARA requirement to follow the Brooks Act in
awarding ARCS contracts. Such a reexamination should consider
allowing EPA to include cost competition as a selection factor in
awarding Architect-Engineer (A&E) contracts, at the lowest
possible cost, consistent with obtaining high quality technical
services.
The Comptroller General made a similar recommendation that the
Congress considered and rejected in 1972. The Comptroller
General recommended that the selection process for A&E services
follow a competitive pricing procedure under which the fee to be
paid would be considered a selection factor.
In rejecting the Comptroller General's recommendation, the House
Committee on Government Operations observed that "The system
favors selection of the most skilled and responsible members of
these professions .... Under this system, A&E's are under no
compunctioh-:to compromise the quality of the design or the level
of effort they will contribute to it in order to meet the lower
'fee' quotations of other A&Es. They are free to suggest optimum
design approaches that may cost more to design, but can save in
construction costs and otherwise increase the quality of the
building or facility to be constructed."
23
r
-------
Notwithstanding the committee's deliberations on this matter, we
believe the absence of cost competition represents a potentially
inefficient and uneconomical use of limited funds available for
cleanup of numerous sites and could have adverse financial
effects on the Trust Fund in future periods.
Section H9(f) of SARA requires that response action contractors
and subcontractors be selected in accordance with Title IX of the
Federal Property and Administrative Services Act of 1949. Public
Law 92-582 of October 27, 1972, amended Title IX (also referred
to as the Brooks Architect-Engineers Act) and declared a Govern-
ment policy of negotiating contracts for A&E services on the
basis of demonstrated competence, qualifications, and at fair and
reasonable prices. Cost was not a factor in the six selection
criteria for evaluating potential A&E contractors (FAR 36.602-1).
The selection criteria were:
- professional qualifications;
- specialized experience and technical competence;
- capacity to do the work in the required time;
- past performance on other contracts in terms of cost
control, quality and compliance with schedules;
- location in the general geographic area of contract
assignment; and
- other appropriate criteria.
During an informal discussion with PCMD officials, the Agency's
representative on the CAAC advised us that several other agencies
proposed similar exemptions from the Brooks Act in 1983 or 1984
but were rejected; and presently the CAAC is seeking to add
(rather than subtract) more professions to the Act. PCMD
officials suggested that they lacked the resources to devote to
lobbying Congress. In light of the past Congressional rejection,
PCMD would not devote resources even if resources were available.
PCMD personnel, including placement contracting officers, said
they followed FAR 36.602-1 selection criteria in negotiating the
ARCS contracts. Interest statements from firms were solicited by
the RFP, evaluated by the EPA A&E Evaluation Board (AEEB), and
the most technically qualified firms singled out (short-listed)
to continue the selection process. If the short-listed firms
were successful in presenting their management proposals to EPA,
they were invited to submit a cost proposal.
The technical ranking factors and available points EPA used in
evaluating ARCS proposals were:
24
-------
!
- Adequate capacity to perform, 20 points;
- Corporate experience and capability/ 25 points;
- Key personnel experience and availability, 25 points; and
- Management plan, 30 points.
PCMD personnel advised us that in the A&E evaluation process
there was no correlation between a technical score and cost in
arriving at decisions for awarding a contract. If a firm was
considered technically qualified by the AEE8, the firm was short
listed for conducting negotiations. Once short-listed, all firms
were considered capable of performing as an ARCS contractor
regardless of individual technical scores. Each firm's cost
proposal was then evaluated individually based on that firm's way
of conducting business. PCMD negotiators told us that additional
Government savings were negotiated when offerors bid on more than
one contract. Negotiators also advised us that for each ARCS
contract they negotiated a lower price than was originally
submitted by an offerer; and we commend EPA negotiators for the
potential cost savings they were able to obtain.
A firm's cost proposal will be reflective of how they conduct
business, and we realize that each company has its own way of
doing business. For example, it may be standard operating
procedure for a company to use overnight Federal Express service
when communicating with its clients instead of regular postage.
Another firm may maintain extremely luxurious furnishings and
accommodations for office space, and may provide bonuses or
higher salaries to employees compared to another firm. Our
position is that some of the firms' methods of conducting busi-
ness, although fair and reasonable for an individual firm, may
be too costly for Government use when other equally technically
qualified firms with less costly ways of doing business are
available. We understand that some private sector firms obtain a
few price quotes and then select the contractor based on both
technical and cost considerations.
Analysis of Technical Scores and Potential ARCS Contract
Costs
We reviewedtcontract award information after all 45 contracts had
been awarded^to determine the types of observations we could make
relating -torthe potential $6.6 billion cost. We did not conduct
a full analysis; we.did not evaluate the individual details that
make each contract and each firm's costs different. Our inten-
tion was to broadly look at the technical scores, negotiated
potential contract costs, and contract sizes to determine what
observations we could make. We made the following observations:
25
r
-------
- By comparing the same size contracts awarded in
each zone, we noted 12 instances, amounting to $115.1
million, representing the total potential difference
between the highest cost contract awarded and the lowest
cost contract awarded. (Nationwide, the maximum cost
differences for all 45 contracts could be $404.3 million
if-all contracts were awarded using the lowest price for
each of the five contract size categories.)
- By region and contract size, there were six instances
where the firms that received the lowest technical scores
were awarded a higher dollar contract than the firms that
received the highest technical scores. The potential
difference between the contract awards totaled $22
million.
- By region and contract size, there was one instance where
a firm with a low technical score will potentially cost
EPA $21 million more than a firm with a higher technical
score.
- By contract size, the lowest technical score did not
always result in the lowest contract price for that
contract size; in two instances, firms with the lowest
technically qualified scores received contract awards
with potential costs of $160,000 and $9.5 million more
than the highest technically qualified firms.
During our informal discussions, PCMD officials pointed out that
some potential cost variances may be due to some firms proposing
fewer or no subcontractors; and that having subcontractors will
increase the cost. Additionally, they pointed out that if a firm
has standard operating procedures that would not be favorable to
the Government, these items could be brought up and negotiated
out of the contract. They also advised us that having cost as a
selection criterion may have prevented EPA from introducing new
firms to the remedial program, thus limiting the Agency's ability
to increase competition.
CONCLUSIONS
From our observations of potential contract costs and technical
scores of'awarded ARCS contracts, we noted substantial variances
in potential* costs among firms awarded the same size contract
even in the same region. We also confirmed PCMD's statements
that there was no correlation between a technical score and cost
for awarding an ARCS contract.
We are unable to project or determine potential cost savings in
the remedial contracting program if EPA were to add cost competi-
tion as a key selection criteria. To do so, EPA would have to
26
r
-------
conduct parallel acquisition strategies, one strategy using fair
and reasonable price, the other using cost competition. Never-
theless, cost competition should be considered in light of fiscal
realities-. If cost competition provided as little as a one per-
cent reduction in the potential $6.6 billion costs, EPA could
potentially have $66 million more to fund additional site clean-
ups . .
AGENCY COMMENTS AND PIG EVALUATION
The Director, PCMD, strongly disagreed with our conclusion that
the lack of cost competition lessened the assurance that the
resultant ARCS contracts were awarded at the lowest possible cost
consistent with receiving high quality technical services. The
Director repeated many of the same arguments that we presented
above and concluded that he did not intend to pursue this issue
through the active lobbying of the Congress.
The Assistant Administrator intended to publicize our issue on
adding cost competition in future A&E procurements to Agency
staff and management during Superfund reauthorization activities.
However, he did not anticipate undertaking an initiative to lobby
the Congress for changes to the Brooks Act or other Government-
wide procurement policy issues. Such an initiative was the role
of OMB's Office of Federal Procurement Policy. The Assistant
Administrator also stated that we did not provide adequate proof
that changing the Brooks Act would produce quality work at a
lower cost.
Both the Director and the Assistant Administrator believed we had ,
made a specific recommendation addressing this issue. Our draft
report did not contain a recommendation on this issue. We made a
suggestion because we recognize that EPA management is not solely
responsible for changing Government-wide procurement policy.
Nevertheless, we believe our comments on this issue warrant
attention and possible further study by senior level EPA
management.
We continue to believe that cost competition should be considered
in light of fiscal realities and the multi-billion dollars
involved in the ARCS program. Accordingly, we are pleased that
the Assistant Administrator intends to publicize this issue
during Superfund reauthorization activities. Perhaps the
Congress- will allow EPA, in the next reauthorization of
Superfund, to experiment with acquisition strategies that allows
cost competition in A&E procurements. An experiment might
provide stronger evidence that a change to the Brooks Act was or
was not warranted.
27
r
-------
We suggest that the Director, PCMD and the Director, OERR contin-
ually assess the need to amend SARA to add cost competition as a
selection factor in A&E procurements.
2- Inspection Clause Could Be Strengthened
EPA might-pay contractors unnecessary costs for poor quality work
that must be redone. A standard FAR inspection clause included
in all ARCS contracts states that if a contractor's work is not
acceptable and must be redone/ the Government must pay the
contractor in order for the Government to obtain acceptable
quality work. As a result, the Government absorbs the cost no
matter how many times it takes the contractor to provide an
acceptable product or service.
All ARCS contracts, which are cost-reimbursable contracts/ have a
standardized FAR inspection clause, Inspection of Service-Cost
Reimbursable, Part 52.246-5. This clause provides that if any of
the services performed do not conform with contract requirements,
the Government may require the contractor to perform the services
again in conformity with contract requirements. If the services
must be redone, the Government will reimburse the contractor's
cost without an additional fee.
Cost-reimbursable contracts provide that whenever work or service
is performed, the Government bears all the cost risks and the
contractor bears all the performance risks. In fixed-price
contracts, however, the FAR inspection of services clause
requires the unacceptable work to be redone at no additional cost
to the Government. PCMD officials advised us that the reason
that the services can be redone at no cost to the Government
under fixed-price contacts is because everything is known about
the kind of services needed (i.e., specifications for a building
design has a known quantity and quality of materials needed). An
inspection by a qualified person under these circumstances could
determine if the contractor complied with specifications.
we are aware of the many existing administrative aspects in
the ARCS contracts which provide incentives to do quality work.
These aspects include base fee, award fee and additional work
assignments for demonstrated high performance. For poor per-
formance, BPA can terminate the contract if necessary. The
Government's-interests could be better protected if the inspec-
tion clause-was changed so that clear instances of mistakes or
poor or unacceptable quality work would be done over at no cost
whatsoever to EPA. We note that the Brooks Act requires the
selection of the most skilled and responsible members of these
professions. Accordingly, these members should be held
accountable for the quality of their services.
28
r
-------
We believe such a change would also encourage EPA remedial
project managers, project officers and contacting officers to
monitor contracts more effectively if the managers knew adverse
consequences could result from unacceptable contract work. A
change would also appear prudent in light of current fiscal
constraints. Likewise, if contractors were aware that poor or
unacceptable quality work had a real cost consequence, the con-
tractors would take more care in assigning and performing work
to ensure that poor or unacceptable work is not done. In circum-
stances where both parties - the contractor and the Government -
were to blame for unacceptable services, then a negotiation could
be entered into that would share the cost for redoing the work in
a equitable manner between the Government and the contractor.
GAP and OTA Evaluations of Superfund Contracts
In GAO's audit of Superfund contracting costs (Superfund
Contracts; EPA Needs to Control Contractor Costs. July 1988,
GAO/RCED-88182), GAO reported EPA's views that inadequate con-
tractor performance led to increased costs of performing remedial
studies at 22 of 43 sites reviewed. GAO found no evidence that
EPA challenged the increased costs at 18 of the 22 sites, because
EPA employees believed cost-reimbursable contracts required that
all costs incurred be paid.
In a February 1989 hearing before the Subcommittee on Federal
Services, Post Office, and Civil Service (Committee on Govern-
mental Affairs, U.S. Senate), the Project Director, Office of
Technology Assessment, U.S. Congress, testified on the Office's
background paper entitled Assessing Contractor Use in Superfund.
The Project Director expressed concerns with contractor
performance including:
"... when mistakes are made at Superfund sites the
contractors essentially make more money because the work is
constantly being repeated."
In his prepared statement he also stated:
"... contractor mistakes are not prevented or caught
early, and . . . contractor work that is too often poor,
requiring work to be repeated ..."
More recently, GAO performed an audit of civilian agency procure-
ment and noted improvements were needed in contracting and con-
tract administration (September 1989, GAO/RCED-89-109). GAO
found that nearly all of the contracts it reviewed (EPA contracts
were not included in their review), had either time increases,
cost increases, or a contract item that was not completed.
Recurring deficiencies in the contracts were in planning contract
29
r
-------
work and writing the specifications and contract clauses; program
and contracting office contract administration; and contractor
performance.
Although GAO concluded additional rules and regulations were
not required, they believed that the identified deficiencies
warranted attention. GAO recommended that the Administrator,
Office of Federal Procurement Policy, work with the heads of
civilian agencies and initiate a concerted effort to improve
civilian agency contracting and contract administration.
During our fieldwork, PCMD officials stated that, as with the
cost competition argument previously discussed, this issue would
also fail to be waived by the CAAC for the same reason—lack of
Congressional support. In addition, PCMD officials stated if
site conditions were known, EPA could use fixed-price rather than
cost-reimbursable contracts and would not need this clause. PCMD
suggested use of more appropriate existing administrative
remedies other than denying costs.
CONCLUSIONS
We recognize that, in cost-reimbursable contracts, the risk of
performance rests with the contractor, while the Government
assumes the risk of cost. However, studies by GAO and other have
shown that contractors are rewarded for their continued poor
performance.
AGENCY COMMENTS AND PIG EVALUATION
The Director, PCMD stated that our discussion of this issue
revealed a lack of understanding of the contractor's responsi-
bility under a cost-reimbursement contract, and he disagreed with
our contention that the "Government absorbs the cost no matter
how many times it takes the contractor to provide an acceptable
product or service."
The Director explained that EPA employs the use of level-of-
effort, term-type contracts for these types of remedial services
since the exact nature and extent of activities to be performed
cannot be determined prior to contract performance. Given this
limitation^contractors are responsible for delivering their
"best effort*" in providing the specified level of effort. If
the Government can demonstrate that the contractor did not
provide its "best effort" then the Government
-------
officers and site managers work closely with the contracting
officer to insure that the contractors are providing their best
efforts. PCMD, together with OERR and Regional program officials
has long focused on this aspect of contract management in the
training and guidance provided to the contracting officer's
technical representatives. For these reasons, the Director did
not find it appropriate to request a deviation from the CAAC.
The Assistant Administrator acknowledged problems with the FAR
inspection clause and was aware that a change might be contrary
to the philosophy of cost-reimbursement contracts and existing
regulations. In an attempt to resolve this issue, the Assistant
Administrator strongly suggested that .PCMD incorporate into all
ARCS contracts the "responsibility of the A&E contractor" clause
(FAR 52.236-23). The Assistant Administrator believed this
clause would provide EPA with a contract requirement that
unacceptable work could be redone without additional compensa-
tion. PCMD however, rejected this suggestion for various
reasons.
The Assistant Administrator agreed with our suggestion to monitor
the implementation of the inspection clause during the perfor-
mance of contract requirements and to document instances in which
EPA is required to pay for poor quality or unacceptable work. If
it was found that paying for such work was a regular practice,
appropriate action would be taken at that time. The Assistant
Administrator noted that FAR requires EPA to pay allowable, allo-
cable, and reasonable costs incurred in cost-reimbursement
contracts. FAR provisions state that if the services provided do
not conform to the contract requirements, the contractor must
perform them again without receiving an additional fee. The
Assistant Administrator explained that the term "contract
requirements" refers to "scope of work" in level-of-effort
contracts. The OIG finding, however, does not refer to scope of
work, but to the quality of work. In addition, contractors are
obligated only to deliver their "best effort" hours. If their
best efforts result in poor quality work, EPA must still pay for
the work. The Agency's only recourse in such a situation Is to
prove that the contractor did not provide his best efforts,
which requires an expenditure of resources beyond what EPA can
usually afford to bear.
During our~fieldwork, we discussed the omission of FAR clause
52.236-23 ;frbm ARCS contracts with PCMD's general counsel. We
were advised that this clause was legally enforceable only in
fixed-price contracts. Accordingly, counsel recommended that
this clause not be included in the ARCS cost-reimbursement
contracts.
Notwithstanding the many legal and contract technicalities
surrounding this issue, the bottom line is that .the inspection
clause requires that if a contractor's work is not acceptable and
31
-------
must be redone, the Government must pay the contractor in order
for the Government to obtain an acceptable quality of work. In
our discussion of this issue we cite GAO and OTA evaluations
which expressed concerns with the quality of contractor
performance.
We are pleased that the Assistant Administrator agreed with our
suggestions to monitor this situation. As we stated in the
previous issue, we are making the following suggestions for EPA
management to consider.
We suggest that the Director, PCMD and the Director, OERR,
monitor implementation of the inspection clause during the
performance of ARCS contracts. We also suggest that the
Director, PCMD, and the Director, OERR, request the CAAC to grant
SPA a deviation from the FAR inspection clause, if the results of
analysis warrants such action.
32
r
-------
APPENDIX 1
Page 1 of 7
UNITED STATES ENVIRONMENTAL PROTECTION AGE.'. - • 1
WASHINGTON, D.C. 20460 ~ 1
JAN 26 1990
MEMORAMDDM
SUBJECT: Draft Response to Audit Report No. E1SGB9-11-0021
Alternative Remedial Contracting Strategy:
Contract Bidding and Award Process
/ / i ^ j S*\
PROM: David J. O'Connor, Director L\Jfl,4'W y
Procurement and Contracts Management Division
TO: Kenneth D. Hockman
Divisional Inspector General for Audit
Internal Audit Division
I appreciate the opportunity to respond to your draft audit
of the Alternative Remedial Contracting Strategy bidding and
award process and have attached my response to each
recommendation pertinent to the Office of Administration and
"Resources Management.
- I noted with satisfaction the observations that the ARCS
contracts were awarded consistent with acquisition regulations
and that they were awarded in a timely fashion. We were also
pleased to note that the ARCS procurements increased competition
as this was one of our fundamental goals during the acquisition
process.
I also?appreciate your interest in focusing our attention on
some important issues that will improve our future solicitations
for remedial activities.
Attachment -
33
-------
APPENDIX
Page 2 c:
•?.CM ARCS 2P.AF7 A^IT S:
. 3.G 39-11-3321
4. INDEPENDENT COST ESTIMATE FOR FUTURE ARCS CONTRACTS NEEDED
RECOMMENDATIONS;
We recommend that, for future architect-engineer contract
awards, the Director, Procurement and Contracts Management
Division complies with, or requests a deviation from, the
FAR requirement for conducting independently prepared
Government cost estimates.
We will comply in the future as necessary to insure that the
requirements of FAR 36.605 are met for future remedial procure-
ments.
The circumstances under which the original independent
government estimate was prepared, however, should be examined to
determine if the lack of detail in the independent estimate was
detrimental to the determination of cost reasonableness. This is
clearly not the case.
Because the ARCS process was fundamentally different from
the previous remedial strategy which employed large national and
zone contracts, relying on historical data to establish an
independent government estimate for multiple region-specific
contracts was undesirable. During the early planning stages of
the ARCS process, the final reauthorization of Superfund was
still under debate in Congress. The Superfund Amendments and
Reauthorization Act (SARA) was finally enacted in December, 1986.
SARA established new mandates as to the number of specific
remedial actions to be completed within given time frames. Given
the impending expiration of the first and second generation
remedial contracts, it was critical to have adequate contract
capacity to perform the required work. While an independent
government estimate was prepared prior to the issuance of the
RFP, the placement contracting officers understood that addi-
tional stops would b« needed to update the estimate to changing
government;; requirements.
action was taken by PCMD, OSWER and regional
program officials to use other methods to increase the accuracy
of the original independent estimate. One of these methods was
the technical review of cost proposals. The evaluation was
conducted in each Region/Zone by the HQ PCO, regional contracting
officers, regional project officers and auditors. While cost
proposals from the technically most highly qualified firms had
been received, the evaluation panel reviewed specific regional
needs before reviewing the costs proposed by offerers. This fine
tuning of the original Government estimate resulted in a much
more accurate and reliable estimate of cost. It should be noted
that the regional infrastructure which permitted this evaluation
34
• r
-------
APPENDIX 1
Page 3 of 7
process was not in place when the original cost estimate was
prepared. Further, the multiple-award aspect of the ARCS
procurements in which multiple firms submitted cost proposals
addressing a common contract delivery schedule allowed the ?COs
to conduct what was, in fact, a market survey which further
enhanced the cost information available to the PCO in determining
cost reasonableness.
5. BETTER DOCUMENTATION OF.ESTIMATED ARCS REQUIREMENTS IS
NEEDED
A. Calculation of zone requirements
B. Individual acquisition plans were inconsistently-
prepared and reasons for not meeting objectives were
not documented
RECOMMENDATIONS!
We recommend the Director, Procurement and Contracts Manage-
ment Division:
1. Request OERR to provide additional support for
planning estimates of LOE hours needed and cost
estimates for Cycles II and III; and, in future
procurements, ensure this information is provided
prior to accepting the procurement planning
request.
2. Document the reasons for variances between planned
hours/costs and the actual ARCS contract award for
i the above ARCS acquisition plans and future
procurements.
Concerning the recommendation that PCMD request that OERR
provide additional support for planning estimates of LOE hours
needed and cost estimates for Cycles II and III, the incorpora-
tion of such estimates after the completion of both procurement
cycles would serve no useful purpose as the data which could be
compiled now would in no way reflect the Agency's actual.
knowledge^at.the time the procurement cycle was initiated. The
independ«at; government estimate provided in the procurement
rationale^dlbcument is a standard of measurement and comparison.
It serves no other purpose. Further, the incorporation of such
data at this time would serve only to confuse the exhaustive
process of cost analysis employed to determine a reasonable
estimate of contract performance costs. In future remedial
procurements, PCMD will endeavor to insure that adequate indepen-
dent estimates are prepared as early in the process as prac-
ticable and meaningful.
Concerning the recommendation that variances between
planned hours/costs and the actual ARCS contract awards
be documented, such documentation already exists in the
3
'.I
35
r
-------
APPENDIX 1
Page 4 of 7
summaries of negotiation which specifically address a"'
differences between the Government's recommended costs'
and tnose costs actually negotiated for each cost e:eT,ent
6> GUIDANCE NEEDED FOR LJSE OF SMALL AMD DISADVANTAGED BUS I
NESSES ——— _ .
RECOMMENDATIONS;
We recommend that the Director, Procurement and Contracts
Management Division:
o Establish written evaluation criteria, with the
advice of the Director, Office of Emergency and
Remedial Response and the Director, Office of
Small and Disadvantaged Business Utilization, for
defining what constitutes "good faith" efforts
towards meeting subcontracting goals.
o Provide written guidelines to assist contracting
officer evaluations, of a contractor's compliance
with a subcontracting plan consistent with the new
FAR provisions.
o Require all Performance Evaluation Boards to
include a mandatory section in each award fee
evaluations of a contractor's performance. The
mandatory section should include a brief discus-
sion of the contractor's compliance with the
contract's subcontracting plan including specific
comments on factors affecting the contractor's
"good faith" efforts.
o Coordinate with the Director, Office of Small and
Disadvantaged business Utilization, the Director,
Office of Emergency and Remedial Response and
other appropriate officials and determine the
desirability and feasibility of providing current
and future ARCS contractors with additional
incentives (consistent with the new FAR
> provisions) as encouragement to exceed
.^i» subcontracting plan goals.
•-' • •-,£_,,
Concerning the recommendation that written evaluation
criteria b* established to define "good faith "efforts towards
meeting subcontracting goals it should be noted that FAR 19.705-
4(A) states that "no detailed standards apply to every
subcontracting plan. Instead, the contracting officer must
consider each plan in terms of circumstances of the particular
acquisition." FAR 19.705-7 states that "in determining whether a
contractor failed to make a good faith effort to comply with its
subcontracting plan, a contracting officer must look to the
totality of the contractor's actions, consistent with the infor-
mation and assurances provided in its plan." This section
36
-------
APPENDIX 1
Page 5 of 7
further defines what constitutes a "good faith effort" gener;-
cally. While it might appear that an improved "class" def ir.i r; ;r.
of good faith efforts might be developed and applied to all ARCS '"''
contractors/ this would be a misconception. The S3/SDBE oppor-
tunities-available to an individual ARCS contractor vary greatly '
as a result of the type of work assignments issued. For example,
an ARCS contractor conducting a Remedial Investigation/Feasibi-
lity Study (RI/FS) would have significantly greater opportunities
to let subcontracts with SB/SDBEs than an ARCS contractor con-
ducting a Remedial Design (RD). Given this and other variables,
the AGO needs to retain a judgmental role in establishing the
sincerity of a firm's "good faith" efforts.
It should also be noted that the Civilian Agency Acquisition
Council (CAAC) has specifically refused to define "good faith"
efforts in this area beyond the guidance provided by FAR.
Concerning the recommendations that PCMD provide written
guidance to assist contracting officer evaluations of a contrac-
tor's compliance with a subcontracting plan consistent with the
new FAR provisions and that PCMD coordinate with the Director,
OSDBU and the Director, OERR and other appropriate officials to
determine the desirability and feasibility of providing current
and future ARCS contractors with additional incentives as
encouragement to exceed subcontracting plans, we believe that a
review of our Regional Contracting Officers' award fee perfor-
mance evaluations will evidence our continual effort to monitor
such compliance. Accordingly, I do not believe this recommenda-
tion is necessary. - ^
Concerning the recommendation that all Performance Evalua-
tion Boards include a mandatory section in each award fee evalua-
tion of a contractor's performance relating the contractor's
' compliance with the established goals of the subcontracting plan,
such a process already exists and is an integral part of the
evaluation criteria.
The evaluation of all contractor subcontracting efforts,
including an evaluation of a contractor's "good faith" effort to
achieve the goals of the SB/SBDE subcontracting plan, is a .
specific lubcriteria of overall program management which is
evaluated by^the contracting officer each trimester. Specific
recommendations are then made to the PEB. We feel that this is
the most appropriate method to evaluate this aspect of contractor
performance and do not feel the need to mandate a special and
separate consideration of this issue by the PEB.
7. OTHER COMMENTS;
This area contains two recommendations concerning additional
initiatives that could be explored to increase the cost effec-
tiveness of the remedial contracting program. Specifically, the
report recommends:
37
-------
APPENDIX 1
Page 6 of 7
1. requesting Congress to amend the Brooks Ar,-:'iitect-
Engineers Act by adding cost competition as -5
-------
APPENDIX' 1
Page 7 of 7
managers work closely with the contracting officer to insure -^3-
tne contractors are providing their best efforts. PCMD -oce*:-'*-%
with OERR and Regional program officials, has long focused on"
this aspect of contract management in the training and guidance
provided to the contracting officer's technical representatives.
For these reasons I do not find it appropriate to request a
deviation from the Civilian Agency Acquisition Council.
39
-------
r
-------
APPENDIX 2
\
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON. D C 20.160
JAN I 6 1990
OrrrcE OF
THE AOMIMISTW ATO<*
MEMORANDUM
SUBJECT: Drafr. Report ElSGB9-ll-002l"TSurv«y of the Alternative Remedial
FROM:
TO:
.
Contracting Strategy; Cootracip Bidding and Award Process
John M. Ropes, Director I
Office of Small and Disadva
Business Utilisation (A-V49J&
David O'Connor, Director
Procurement and Contracts'Management
Division (PM-214F)
We have carefully reviewed the subject report and concur with its
purpose, scope and recommendations regarding the utilization of Small and
Disadvantaged Businesses in the Agency's Alternative Remedial Contracting
(ARCS) activities.
We believe that the proposed recommendations if put into effect,
will goal long way towards maximizing the utilization of small and small
disadvantaged firms in all areas of the ARCS program.
We would like to have the opportunity to meet with you or a designated
member of your Policy Staff to discuss the appropriate language for
incorporation into the evaluation criteria for defining what constitutes
"good faith" efforts towards meeting subcontracting goals. It is our
view that rh« evaluation criteria will be a critical factor in strengthening
the involvewmt; of these concerns in ARCS program.
We greatly appreciate your assistance in the past and look forward to
the continuing cooperation in the months ahead to further small and small
disadvantaged subcontracting utilization in the ARCS program.
cc; Diane Bazzle
40
-------
APPENDIX 3
Page 1 of 8
SE
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460 "UBW-T
1990
OFFICE Of ;
SOLID WASTE AND EMERGENCY HESf>OSi€
MEMORANDUM
SUBJECT:
FROM:
TO:
OIG Draft Report, "Alternative Remedial Contracting
Strategy: Contract Bidding and Award Process11
(Audit Number I1SGB9-11-00?!)
Don R. Clay*
Assistant Administrator
Kenneth D. Hockman,—^
Divisional Inspector General for Audits
Internal Audit Division (A-109)
The purpose of this memorandum is to transmit our comments to
the subject draft report. He have restated the findings and
recommendations that pertain to OSWER and have provided our
response after each OIG statement. A copy of this response will
be transmitted to the Procurement and Contracts Management
Division.
Finding 4. Independent Cost Estimate for Futyre ARCS' Contracts
-Needed (page 11)
4
OERR personnel did not independently prepare its own cost estimates
•for ARCS contracts, as required by the FAR. Doing so would have
provided additional assurance that a fair and reasonable price was
negotiated. PCMD should request OERR to prepare an independent
estimate prior to future contract awards or obtain a deviation from
the FAR requirement.
OSWER Response
personnel did not independently prepare cost estimates
for ARCS contracts, as required by the FAR. Doing so would have
provided additional assurance that fair and reasonable prices were
negotiated.
Finding 5,
Better Documentation of Estimated ARCS Zone
Requirements Is Needed (page 13) and Conclusions (page 16)
Documentation supporting OERR's calculations of annual technical
hours needed and estimates of contract costs for each ARCS zone was
not available. Additionally, individual acquisition plans (lAPs)
prepared jointly by OERR and PCMD for each of the three ARCS
procurement cycles did not consistently identify estimated resource
requirements. Without this information, EPA managers lack basic
41
-------
APPENDIX 3
Page 2 of 8
- 2 -
data for justifying contract needs or comparing estimated planned
program requirements with actual contract award results and
analyzing the reasons for variances'. Sound management practice
requires that planning decisions and information be documented and
retained to serve as a base against which periodic analysis and
measures of program success and problems can be made.
Although most of the events in the ARCS procurement process were
well documented, decisions on regional need and why adjustments to
the cycles were necessary should have also been documented. The
lack of this relevant information hampers management's analytical
process in deciding why, where, and what adjustments are needed,
particularly when the contracts are to be recompeted in a few
years. The documentation also provides historical reference which
£PA has relied on in other decision-making activities. such
documentation would also identify significant elements of the
negotiations upon which the contracting officers' decisions were
made and provide an official record of key decisions thus
preventing a loss of knowledge should key personnel leave the
Agency.
OSWER Response
We do not accept this finding. The Agency deliberately
established excessive capacities within each Region to ensure that
contractors who perform poorly could be identified and denied
future awards. Furthermore, the Agency did not try to define
precise technical hours requirements that would then require
extensive documentation, because external variables, such as
fluctuations in budget allocations, always affect the Agency's
ability to predict workload with accuracy. The present workload
is substantially different from that envisioned at the ARCS
program's 'inception. The number of hazardous waste problems in
need of remediation is large and appears to be increasing, but it
is not always possible for Agency managers to predict fluctuations
in policy appoaches or budget allocations that impact the Agency's
ability to address then.
Although" detailed documentation is not presently on file, each
Region had clear concepts of reasonable costs to be incurred during
negotiations, and the contracting officer's summary of negotiations
is available for review. He believe that the OIG's focus should
be on what we can do to improve performance in the future; we are,
therefore, not willing to recreate our historical Regional ARCS
records. We are presently analyzing our current workload to
achieve a better balance within the existing contracts. Looking
to the future, we agree that the contract files should reflect the
rationale for each decision made during negotiations. He feel that
the contracting officer's summary of negotiations should be revised
to assure that each decision and its rationale are adequately
documented.
43
r
-------
APPENDIX 3.
Page 3 of S
- 3 -
Q.I.G Recommendation (page 16)
That the Director, Procurement and Contracts Management Division:
1. Request OERR to provide additional support for planning
estimates of LOE hours needed and cost estimates for cycles
II and III; and, in future procurements, ensure this
information is provided prior to accepting the procurement
planning request.
OSWER Response
We do not accept this recommendation. We believe this
recommendation would create superfluous records, and it would cause
an inefficient expenditure of resources to implement the
recommendation. We are presently developing and evaluating a
strategy to manage the ARCS contracts in light of the present
constraints on the capacity of the remedial pipeline, which present
a significantly different situation from the one that existed
during the ARCS procurement process.
OIG Re?fl|»ffl"fndati,on (page 16)
That the Director, Procurement and Contracts Management Division:
2 . Document the reasons for variances between planned hours/costs
and the actual ARCS contract awards for the above ARCS
acquisition plans and for future procurements.
OSWER Response
We do not accept this recommendation. Three factors effect
the ARCS workload and ARCS contractors' utilization. First, the
Agency's new "One Program/Enforcement First" approach will
encourage potentially responsible parties to take the lead role in
an increasing number of response actions. Second, the policy
establishing a stable, long-term relationship between the Agency
and the U.S;a_Army Corps of Engineers (COE) will allow the COE to
take the-l«ad role on all remedial designs that cost more than $5
million. Finally, budget constraints and a reduction in RI/FS
activities to fully support ongoing projects will decrease the
number of response actions undertaken, as a whole, currently, we
are developing a multi-year implementation strategy for the ARCS
contracts to utilize them effectively in light of the current
constraints on remedial project workloads.
\
Finding 6. Guidance Needed for Use of Small and Disadvantaaed
Business (page 17)
While EPA required every firm bidding on an ARCS contract to submit
a subcontracting plan addressing the use of small or disadvantaged
businesses, criteria and procedures were not established to define
43
r
-------
APPENDIX 3
Page 4 of 8
- 4 -
and evaluate a contractor's "good faith" efforts and to ensure
consistency of EPA actions when actual performance is determined.
Unless specific guidance is provided, the regions may evaluate the
same quality performance differently or inconsistently reach award
fee determinations.
OSWER Response
While we agree conceptually with this finding, we have
concerns about its practical impact. The use of award fees to
promote minority business subcontracting is normally addressed by
the Performance Evaluation Board. It is important to acknowledge
that both the amount and type of work envisioned for prime and
subcontractors have fluctuated radically since the inception of the
ARCS program. Recently, the workload has diminished. Thus, the
overall ARCS workload must be balanced and assigned accordingly.
Evaluations of how well contractors are complying with their plans
must include considerations of the diminishing ARCS workload.
OIG Recommendation (page 18)
That the Director, Procurement and Contracts Management Division:
o Establish written evaluation criteria, with the. advice of the
Director, Office of Emergency and Remedial Response and the
Director, Office of Small and Disadvant^ged Business
Utilization, for defining what constitutes "good faith"
efforts towards meeting subcontracting goals.
OSWER Response
We agree in principle with this recommendation, but we have
concerns about its practical effects. We will continue to use
award fees to subjectively assess and encourage minority business
subcontracting, but we need to maintain flexibility in this
endeavor to respond to changing workloads and budget realities.
QTG
(page 19)
That the Director, Procurement and Contracts Management Division:
o Provide written guidelines to assist contracting officer
evaluations of a contractor's compliance with a subcontracting
plan consistent with the new FAR provisions.
OSWER Response
We agree conceptually with this recommendation. However,
drastic workload fluctuations, which occur with some frequency in
the ARCS program, would make any such plans obsolete. Therefore,
there is a need to maintain a high degree of flexibility in this
area.
44
r
-------
APPENDIX 3
Page 5 of 3
- 5 -
QIG Recommendation (page 19)
That the Director, Procurement and Contracts Management Division:
o Require all Performance Evaluation Boards to include a
mandatory section in each award fee evaluation of a
contractor's performance. The mandatory section should
include a brief discussion of the contractor's compliance with
the contract's subcontracting plan including specific comments
on factors affecting the contractor's "good faith" efforts.
OSWER Response
We believe that such a process is already in place. The
contracting officer's evaluations of contract . performance address
the issue of "good faith" efforts.
We also would like to note that both the amount and type of
work envisioned for prime and subcontractors has fluctuated
radically since the inception of the ARCS program. Recently, the
workload has diminished. Thus, the overall ARCS workload must be
balanced and assigned accordingly. Evaluations of how well
contractors are complying with their plans must include
considerations of the diminishing ARCS workload.
OIG Rgctpumendation (page 19)
That the Director, Procurement and Contracts Management Division:
p Coordinate with the Director, Office of Small and
Disadvantaged Business Utilization, the Director, Office of
Emergency and Remedial Response and other appropriate
officials and determine the desirability and feasibility of
providing current and future ARCS contractors with additional
incentives (consistent with the new FAR provisions) as
encouragement to exceed subcontracting plan goals.
OSWER
We accept this recommendation with comment. The ability of
the contractor or subcontractor to accomplish plan goals is often
dictated by external circumstances beyond his control. Any
evaluation of performance must include an assessment of these
circumstances .
. Other
~ Addiional Initiatives Could Be Exlored To
Increase the Cost Effectiveness of the Remedial Contracting Program
(page .20)
we noted two areas that EPA management should consider for further
improving the cost effectivess of. the remedial contracting program.
45
r
-------
APPENDIX 3
Page 6 of 3
- 6 -
These areas are:
1. requesting the Congress to amend the Brooks Architect-
Engineers Act by adding cost competition as a key selection
criteria.
OSWER Response
We do not accept this recommendation. The OI6 report does not
provide adequate proof that changing the Brooks Act will produce
quality work at lower cost. However, regardless of the cost issue,
we do not feel it is appropriate for the Agency to request that
Congress amend procurement legislation. This is the role of OMB1s
Office of Federal Procurement Policy and not the role of a single
Agency.
Other Comments - Additional Initiatives Could Be Explored To
Increase the Cost Effectiveness of the Remedial Contracting Program
(page 20)
We noted two areas that EPA management should consider for further
improving the cost effectivess of the remedial contracting program.
These areas are:
2. requesting, from the Civilian Agency Acquisition Council, a
deviation from the FAR inspection clause which requires that
the Government must reimburse a contractor's cost to repair
* work that was determined unacceptable.
OSWER Response
While this is a PCMD issue, we believe that this
recommendation may be contrary to the philosophy of cost
reimbursement contracts and existing regulations. Nevertheless,
we are aware that many Agency staff have interpreted the inspection
clause to mandate the Agency must pay for unacceptable work to be
done agaiii.te. In order to resolve this issue, we drafted a
memorandum^t'o. PCMD in which we strongly suggested that the
"responsibility of the architect-engineering contractor" clause
(FAR 52.236-23) be incorporated into all ARCS contracts, while
PCMD has rejected this suggestion for various reasons, we continue
to believe that the acceptance of the suggestion is necessary. It
would provide for unacceptable work to be redone without additional
compensation by the Government.
Other Comments 1.Cost Competition Not Used as a Selection Factor
in Awarding ARCS Contracts (page 21)
EPA, consistent with the SARA requirements to follow the Brooks
Act requirements under the FAR, did not use cost competition as a
selection factor in evaluating offerors with which to negotiate
46
-------
APPENDIX 3
Page 7 of 8
- 7 -
ARCS contracts. PCMD officials believed fair and reasonable prices
were negotiated and obtained for each ARCS contract consistent with
FAR requirements. Without cost competition as a selection factor,
we believe assurance is lessened that the resultant ARCS contracts
were awarded at the lowest possible cost consistent with receiving
high quality technical services. In light of current fiscal
realities, we believe that the Congress should re-examine the SARA
requirement to follow the Brooks Act in awarding ARCS contracts.
Such a re-examination should consider allowing EPA to include cost
competition as a selection factor in awarding Architect-Engineer
(A&E) contracts, at the lowest possible cost, consistent with
obtaining high quality technical services.
OSWER Response
We concur with this finding and intend to make this known to
Agency management and staff during the Superfund reauthorization
activities. However, it is not our intent to lobby Congress for
changes to the Brooks Act or other government-wide procurement
policies.
CONCLUSIONS 2. Inspection Clause Could Ba Strengthened (page 25)
EPA might pay contractors unnecessary costs for poor quality work
that must be redone. A standard FAR inspection clause included in
all ARCS contracts states that if a contractor's work is not
acceptable and must be redone, the Government must pay the
contractor in order for the Government to obtain an acceptable
quality of work. As a result, the Government absorbs the cost no
matter how many times it takes the contractor to provide an
acceptable product or service.
OSWER Response
We concur with comments to this finding. We are willing to
monitor the implementation of the standard FAR inspection clause
during th«L\performance of contract requirements. We also will
monitor and^document instances in which the Agency is required to
pay for what we believe to be poor quality products and services.
If we find that it is not only in the exception cases that the
Agency is paying for such work, but, instead, that paying for such
work is a regular practice, we will take appropriate action at that
time. However, it is important to note that to be in compliance
with the FAR, the Agency must pay allowable, allocable, and
reasonable costs incurred in cost-reimbursement contracts. The FAR
states that if the services provided do not conform to the contract
requirements, the contractor must perform them again, without
receiving an additional fee.
The OIG should note that the term "contract requirements"
refers to "scope of work" in level of effort-contracts. The OIG
47
-------
APPENDIX 3
Page 8 of 3
- 8 -
finding, however, does not refer to the scope of work, but to the
quality of.work. in addition, our contractors are required to
provide their "best effort." If their best efforts result in poor
quality work, the Agency must still pay for the work. The Agency's
only recourse in such a situation is to prove that the contractor
did not provide his best efforts, which requires an expenditure of
resources beyond what the Agency can usually afford to bear.
Thank you for the opportunity to provide our comments to this
draft report. If you have questions, please contact Jose Acevedo,
OSWER Audit Follow-up Coordinator, at 382-4510.
cc: Mary Gade
Henry Longest
Sonya Stelmack
Jose Acevedo
Jim Maas
David O'Connor, PM-214P
48
r
-------
r
-------
APPENDIX 4
DISTRIBUTION OF AUDIT REPORT
Assistant Administrator for 'Administration
and Resources Management (PM-208)
Director, Office of Administration (PM-217)
Comptroller, Office of the Comptroller (PM-225)
Associate Director for Superfund/RCRA Procurement
Operations/ PCMD (PM-214F)
Chief, Remedial Action Branch, PCMD (PM-214F)
Audit Followup Coordinator, PCMD (PM-214F)
Agency OIG Liaisons, OARM (PM-225)
Audit Followup Coordinator, OARM {PM-208)
Assistant Administrator for Solid Waste
and Emergency Response (OS-100)
Director, Office of Program Management
and Techno1ogy, OSWER {OS-110)
OIG Liaison, OSWER (08-110)
Director, Office of Program Management, OERR (OS-240)
Director, Hazardous Site Control Division, OERR (OS-220)
Associate General Counsel, Grants, Contracts and General Law
Division (LE-132G)
OIG Liaison, Office of the Administrator (A-101)
49
-------
-' -.-*
------- |