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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
fe
SEP 29 J995
OFFICE OF
THE INSPECTOR GENERAL
MEMORANDUM
SUBJECT:
EPA' s Management and Oversight of
Eastern Zone .Environmental Services Assistance Team
(ESAT) Contractor .
Report No. E1SKF5-02-0010-5100515 .
FROM: Elissa R. - Karpf
Deputy Assistant Inspector Genera
for Acquisition and Assistance -Audits
TO: Sallyanne Harper
Acting Assistant Administrator
Office of Administration and Resources Management
Elliott P. Laws
Assistant Administrator
Office of Solid Waste and Emergency Response
Attached is pur final audit report on EPA' s Management and
Oversight of the Eastern Zone Environmental Services Assistance
Team (ESAT) Contractor1. The overall objective of this audit was
to evaluate the effectiveness of EPA' s management and controls
over ESAT contract activities in Region 1, (Lexington, MA) and
Region 2, (Edison, NJ) . This report contains important findings
and recommendations ' '
ACTION REQUIRED
This report makes several recommendations to the Acting Assistant
Administrator for Administration and Resources Management and the
Assistant Administrator for Solid Waste and Emergency Response.
We are designating the Acting Assistant Administrator for .
Administration and Resources Management as the primary action
official. As such,- the primary .action official should take the.
lead in coordinating the Agency' s official response to this
report so -that the 90-day timeframe for response is met. Thus,
the Assistant Administrator for Solid Waste and Emergency
Response is a secondary action official and should coordinate
with the primary action official :
Primed wtth Soy/Canoia Ink on pap«r that
contain! at iMtt 50% racyctod fibor
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In accordance with EPA Order 2750, the primary action official,
is required to provide this office a written response to the
audit report within 90 calender days of the final report. For
corrective actions planned but not.completed by your response
date, please include and Action Plan with specific milestone
dates. This information will assist this office in deciding
whether to close this report.' Also, please track all action
plans and milestones in the Management'-Audit Tracking System.
This audit report contains findings that describe problems the
Office of Inspector General (OIG) has identified and corrective
actions the OIG recommends. This audit report represents the '
opinion of the OIG. Final determinations on matters in this
audit report will be made by EPA managers in accordance with
established EPA audit resolution procedures. Accordingly, the
findings contained in this audit report do not necessarily
represent the final EPA position and are not binding upon EPA in
any enforcement proceeding brought by EPA or the Department of
Justice. - .. '
Should you or your staff have any questions about this report
please contact Paul McKechnie, Divisional Inspector General for
Audit at (617) 565-3160 or Herb Maletz, Audit Manager at (212)
637-3058.
Attachments
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EXECUTIVE SUMMARY
PURPOSE
The Office of. Inspector General (DIG) has completed an audit of
EPA' s management and oversight of the Environmental Services
Assistance .Team (ESAT) contractor. The purpose of this audit was
to evaluate EPA's management and oversight of the contractor's
activities in Region 1 .{Lexington, MA) and Region 2 (Edison, NJ) .
Specific objectives were to: . .
1 . evaluate EPA' s management and controls over contract
activities; / .
2. .. ensure contractor .compliance with contract terms;
3. ensure contractor accountability and Agency management, of
government furnished property; and ' . . "
4. identify any improper or unreasonable costs charged to the
- ESAT contract . ' "-.'".
BACKGROUND
s
In response to the 1986 Superfund Amendments and Reauthorization
Act (SARA) and other EPA programs needing analytical services,
EPA must maintain state-of-the-art' analytical methodologies,-
procedures,- and continued excellence in the environmental
sciences, while generating tens of thousands of sample analyses
and data reviews. To meet this increased analytical output
demand, expending resources on contractors became necessary.
Environmental Services Assistance Teams were contracted to assist
EPA Headquarters and regions in meeting these requirements by
increasing the Agency's analysis -related capabilities. The first
two ESAT contracts were, awarded in 1987 and extended' through
September 1991. Two new cost -plus-award-fee contracts were
awarded, in September 1991. The ESAT contract responsibilities
are divided into two. zones. Zone 1 consists of Regions 1, 2, 3,
and 5.' Zone 2 consists of Regions 4, 6, 7, 9, and 10, the
National Enforcement Investigations Center, and EPA Headquarters .
. " .
ESAT's primary goal, is to provide -quick and efficient services to
EPA Headquarters and regions by assisting in many analysis-
related activities to protect human health and the environment .
The major role of this contract is to ;assist the Agency in
fulfilling SARA requirements for increased cleanup activity ,( .
including more samples and more extensive laboratory analysis to
provide data for remedial decisions.
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EPA's MANAGEMENT and OVERSIGHT of the ESAT CONTRACTOR
RESULTS-IN-BRIEF ,
Many aspects of the ESAT contract management activities performed
at EPA's Lexington and Edison facilities were well managed. We
found award fees were effectively administered and no conflict of
interests existed in contract performance. Additionally,, we
noted contractor work space was well defined and contractor
employees worked independently from EPA employees. The
separation of contractor and EPA employees work space limited the
possibility of a personal services contract. However, we believe
that improvements can be made in certain areas. Specifically,
contract financial management could be improved to ensure
regional and national project officers adequately^ review
contractor invoices to determine the reasonableness of billed >
amounts. Also, Government furnished property should not be
routinely provided, annual inventories should be performed and .
reconciled, and additional controls implemented. In addition,
improved planning and evaluation of contractor tasks is
necessary.
The conditions disclosed during our review are summarized in the
following paragraphs and discussed in detail in the attached
report. -" '
PRINCIPAL FINDINGS
ESAT Contract Financial Management Needs Improvement
Improvements could be. made in the financial management of the
ESAT contract at the Lexington, MA and Edison, NJ laboratories.
We found that regional project officers (RPO) and the national
project officer (NPO) did not. adequately review contractor
invoices and associated documents to determine whether billed
amounts were reasonable and appropriate prior to recommending
payment. Specifically, these individuals did not always:
1. recommend suspending questionable costs until the contractor
provided necessary supporting documents;
2. request and obtain necessary supporting documents to
substantiate the validity of questionable costs prior to
recommending payment;
3. effectively monitor service center costs;
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EPA's MANAGEMENT and OVERSIGHT of the ESAT CONTRACTOR
4. provide adequate oversight of labor charges;
.5. .ensure costs were incurred only for ESAT employees;. or
6. - determine allowable bottled drinkingrwater charges.
These conditions were^caused by inadequate implementation of the
Federal Acquisition Regulation (FAR), EPA's Project Officer's
Handbook, and Contract Administration Manual requirements. In
addition,, the RPOs and, NPO did .not always comply with the
oversight roles and responsibilities in the ESAT Contract
Management Manual. These individuals did not always use all
available tools to systematically review and approve the
contractor's monthly invoices. .They generally relied on1 the
contractor's submission without performing independent
verifications for .questionable, items. Also, there was
insufficient or undocumented communication between these
individuals and contractor officials to resolve concerns.
Moreover, the Agency's emphasis on prompt payment may have led
the RPOs to restricted or .limited the necessary invoice review
process to obtain supporting documents, to justify.costs claimed.
As a result, we have inconsistent ESAT financial management and
oversight controls at the Edison and Lexington laboratories. We
also .have inadequate assurance that, only"reasonable and
authorized contractor'charges were paid. : - ,
Better Controls Over Government Furnished Property Needed
<'.','
Our review of Government furnished property (GFP) provided to the
Zone 1.ESAT contractor at the Lexington facility disclosed that
adequate controls were generally in place. However, a similar
review at the Edison facility disclosed that certain improvements
were necessary. Specifically, we found that: ~
1. annual inventories were ,not performed at the
contractor's facility until 1993;
2..' an unannounced OIG- inventory revealed missing items and
other discrepancies; , .
3. inventory lists provided to the RPO differed from those
provided to the ESAT business manager in Virginia;
4. EPA initiated the replacement of new computers and
security .system after two thefts at, the off-site
contractor office;
1 ' ' .
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EPA's MANAGEMENT and OVERSIGHT of the ESAT CONTRACTOR
5. ESAT automobiles were prematurely auctioned without the
- RPO or contracting officer's (CO) knowledge/ and
6. general purpose equipment was routinely provided to
contractors at both facilities without meeting Federal
Acquisition Regulation requirements.
These conditions were caused by "inadequate oversight, controls,
and the low priority over GFP accountability. Also, EPA did not
take effective action to require the contractor to comply with
the FAR and contract requirements for property accountability.
Specifically/ clear roles and responsibilities of the RPO, NPO,
CO,.and PA were not sufficiently 'defined. EPA also did not
review, approve, or perform periodic analysis of the contractor's
property control system.' In addition, the RPO, at both
facilities, had limited knowledge of GFP procedures and
regulations. Finally, providing the contractor with EPA property
decals at Edison contributed to inaccurate inventory reports. As
a result, we have limited'assurance that GFP was properly
accounted for, maintained, safeguarded, reported and used for its
intended purpose. . .
Controls Over Contractor's Work Products Need Improvement
Our review .of work assigned to the ESAT contractor at the
Lexington,,MA facility disclosed that certain improvements were
necessary in the planning, monitoring and evaluation process used
for contractor work products. We found that:
1. actual'time charged for tasks could not be accurately .
1 - measured, and controls did not ensure that estimates
were adjusted for future similar tasks;
2. procedures were not followed for labor hour estimate
overruns; and
3. task monitors did not always rate completed tasks in a
. timely manner.
These conditions were caused by inadequate priority, oversight
and control over technical instruction documents (TID) .; As a
result, estimated and actual hours were not effectively tracked
and .did not reflect the actual time used to complete a task.
Also, there was not an effective system to track the status of
TIDs and acknowledgment of completion forms, which contributed to
the RPO's inability-to effectively oversee task monitor
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EPA's MANAGEMENT and OVERSIGHT of the ESAT CONTRACTOR
workloads. Also, untimely rated deliverable^ minimized the value
of any rating provided. '
RECOMMENDATIONS
We have made numerous recommendations to improve the management
and controls over ESAT activities and "account ability over
Government furnished property. Some of the more _ significant.
recommendations are included in this section. The specific
recommendations are at ' the end of chapters II through IV. .
We recommend that the" Assistant Administrator, Office of
Administration and Resources Management : '
1. Clearly define the roles and responsibilities of \ EPA
contract management officials to provide effective
administrative oversight of financial management activities,
Government furnished property, and contractor work
assignments . - . -
-
2.' Develop and implement an Agency strategy for Government
furnished, property that (i) complies with the FAR, (ii)
minimizes provision of general purpose items unless properly
justified, Ciii) addresses incentives to encourage
contractors to provide their own equipment, (iv) includes
review and approval of contractor's management system, and
(v) requires contractor to perform an accurate annual
" inventory and reconcile it against property records.
We recommend that the Assistant Administrator, Office of Solid
Waste and Emergency Response: , .
1. Enforce the controls directing the RPOs and NPO to not
recommend 'or authorize the payment of questionable"
contractor costs until all such costs have been documented
as valid charges.
2. Instruct RPOs to track estimated and actual hours assigned
and used to complete contractor work assignments. .This will
aid -in ensuring that .reasonable estimated hours are assigned
to future similar work assignments.
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EPA's MANAGEMENT and OVERSIGHT of the ESAT CONTRACTOR
TABLE OF CQNTENyS
''-.' . ' ' Page
EXECUTIVE SUMMARY . ;' i
CHAPTER I ...'.....'./ '..... "l
-INTRODUCTION ....'..' 1
PURPOSE '. , 1
. BACKGROUND . '. '. . . ; . '1
SCOPE AND METHODOLOGY . . . 4
PRIOR AUDIT COVERAGE . . . -- 5
CHAPTER II . 7
ESAT CONTRACT FINANCIAL MANAGEMENT '
NEEDS IMPROVEMENT ........' 7
BACKGROUND . .. 8
INVOICE REVIEW AND APPROVAL PROCESS NEEDS -
IMPROVEMENT % 9
AGENCY'S COMMENTS AND OIG EVALUATION 27
. , RECOMMENDATIONS . . . 35
CHAPTER III ... ..........:... 39
BETTER CONTROLS OVER GOVERNMENT
FURNISHED PROPERTY NEEDED . 39
' ', BACKGROUND . , 40
CONCLUSION '. 53
AGENCY'S COMMENTS AND OIG EVALUATION ....;.. 53
RECOMMENDATIONS" ....... 55
. CHAPTER IV 57
CONTROLS OVER.CONTRACTOR'S WORK NEED
IMPROVEMENT ' . . . . 57
AGENCY'S COMMENTS AND OIG EVALUATION '61
RECOMMENDATIONS . . 64
EXHIBITS
EXHIBIT 1 . ' ' 65
EXHIBIT 2 '....-.. ~ 67 ,
A .'-.' '
APPENDICES ,; ,
APPENDIX I .."... 69
f APPENDIX II . . . . - . :-.-.'. . . - - - . 113
APPENDIX III ' . . . . . ... -.«.'. - 115
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CHAPTER I
INTRODUCTION
PURPOSE
We performed an audit of EPA' s management and oversight of the
Zone I Environmental Services Assistance Teams (ESAT) contractor
The purpose of this audit was to evaluate EPA's management and
oversight of the contractor's activities in Region 1 (Lexington,
Ma) 'and Region 2 (Edison, NJ) . . ' >
The overall objective of the audit was to evaluate whether EPA's
management of ESAT Zone 1 contract activities was in compliance
with applicable laws, regulations, and policies. Specific .
objectives were to:
' '.,' '
1. evaluate EPA management and controls over contract
activities; -
1 r ,
2. . ensure contractor compliance with contract terms;
3 , ensure contractor accountability and Agency management of
Government furnished property; .and . / '
4 . identify any improper or unreasonable costs charged to the
ESAT contract. ' . .
BACKGROUND
1, (
In response to the 1986 -Superfund 'Amendments 'and Reauthorization
Act (SARA) and other EPA programs ' needing analytical services,
EPA must maintain' state-of-the-art analytical methodologies,
procedures, and continued excellence in environmental science,
while generating tens of thousands of sample analyses and data
reviews. To meet this increased analytical output demand,
expending resources on contractors became necessary..
Environmental Service Assistance Teams were contracted to assist
EPA Headquarters and regions in meeting these requirements by
increasing the Agency's analysis-related capabilities. The first
two ESAT contracts were awarded in 1987 and extended through
: ' -1 ..
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EPA's MANAGEMENT and OVERSIGHT of the ESAT CONTRACTOR
September 1991. Two new contracts were awarded in September
1991. The ESAT contract responsibilities are divided into two
zones. Zone 1 -consists of Regions 1, 2/3, and 5. Zone 2
consists of Regions 4, 6, 7, 9, and 10, the National Enforcement
Investigations Center, and EPA Headquarters.
ESAT's primary goal is to provide quick and efficient services to
EPA Headquarters and regions by assisting in many high visibility
or difficult, ,as well as routine, analysis-related activities to
protect human health and the environment. -The major role of this
contract is to assist the Agency in fulfilling SARA requirements
for increased cleanup activity, including more samples and more
extensive laboratory analysis to provide data for remedial
decisions. The contract also includes other tasks such as
.quality, assurance support and data validation activities.
The ESAT contract is a cost-plus-award-fee which consists of a,
base fee and an award fee. Unlike the base fee, which does not
vary with performance, the award fee is a financial incentive
earned in part"or in whole based on contractor performance. The
award fee process is comprised of two evaluations per year.
These -evaluations begin at the end of each six-month evaluation
period and last.for 60 calendar days. The purposes of this
process are to evaluate and document contractor performance and
management, and provide performance incentives to the contractor.
This contract requires the contractor to establish and staff
teams'in approximately five geographically distinct locations to
perform the following tasks:
Task I - Analytical Support
Task II , Data Review -
Task ,111 Logistical and Administrative Support
Task 'iV QA/QC Support . . .
Task .V Other Task-Related Activities
Task VI Managing and Reporting
While EPA Headquarters is responsible for zone-wide oversight of
the ESAT contract, regional offices/administer the day-to-day
operations of the contractors' work on site. Regional EPA staff
oversee financial and technical management and evaluate'the
performance and productivity of each-ESAT work team. The
regional project officer (RPO), the task monitors, and the' branch
chief are the key regional staff, and the contracting officer
(CO), and the national project officer (NPO) are the key EPA
Headquarters personnel involved in contract oversight.
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EPA's MANAGEMENT and OVERSIGHT of the ESAT CONTRACTOR
The CO has.primary responsibility for ensuring that ESAT
contractors adhere.to the terms and specifications of the
contract and provide necessary personnel, equipment,; and services
as specified in the statement of work. The NPO is the lead
oversight person at Headquarters. He is involved in all aspects
of the ESAT contract and is the central point of contact- for the '
CO, the two zone managers, and the RPOs. The RPO is required to
monitor the contractor's performance from a technical and :
functional standpoint. His primary responsibility is to ensure
that program policies and procedures are carried out and the
contractor meets the project goals of specific technical
instruction documents (TID). <
The ESAT contractor's management structure is parallel to that of
EPA. The contractor has individual regional ESAT team managers
similar to the EPA counterpart, the RPO-. The ESAT work team is
generally divided into different groups, the responsibilities of
which vary with each Region. Each group is headed up by a group -
_ leader. The two zone managers coordinate ESAT activities with .
the NPO. . The zone 'manager is the management equivalent of the
NPO and is responsible for the successful technical and
administrative performance of all contractor activities. Each
zone manager acts as the overall manager of the ESAT contract.
The ESAT team' manager manages the technical and administrative
. performance of the region's ESAT and may be aided by an
. assistant. The ESAT team manager's main responsibility is to
execute a'task in accordance with the TID.
The period of performance for the-base year of the ESAT contract
was from October i, 1991 through September 30, 1992. EPA also
exercised the option to extend the term of contract as shown in
the chart below. i( . '
OPTION PERIOD START DATE END.DATE
Option Period I 10/01/92 9/30/93
Option Period II 10/01/93 9/30/94
Option Period III 10/01/94 ' 9/30/95
EPA will request 256,500 level of effort (direct labor) hours for
-% the Zone 1 -base period and 254,600 for each of the option .
periods. The level of effort (LOE)' for the base year may be
increased by 15,200.hours. In addition, a contract modification
may be issued to^increase the estimated LOE by 34,200 for option
. period I, 38,000'for option 'period II, and 62,700 for. option
period III. ,
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EPA's MANAGEMENT and OVERSIGHT of the ESAT CONTRACTOR
The total contract amount (estimated cost, base'fee, award fee
pool available, award fee awarded) was $6,727,420 for the base ,
period; $7,434,753 for option period I; $8,135,217 for option
period II; and.$8,929,696 for option period III. The actual
amount paid as of February. 6, ,1995, for the base period was
$7,075,816; $7,836,346 for option period I; and $7,783,.821 'for
option period II. The amount for option period III will be
determined at the end of the period.
SCOPE AND METHODOLOGY
We performed the audit in accordance with the Government Auditing
Standards issued by the Comptroller General of the-United States
as they apply to economy and efficiency and program results
audits. We began fieldwork for. our review on October 18, 1994,
and completed the review on June 2, 1995. Our review included
tests of the program records and other auditing procedures we
considered necessary. Our review concentrated on the Agency
procedures to administer the contract during the period of
October 1, 1991 through June 1, 1995.
To accomplish our objectives, we performed our review at EPA's
Environmental Services Divisions in Lexington, MA and Edison, NJ.
Specifically, we reviewed such records as monthly.financial
status reports; RPO voucher review checklists and other files;
GFP inventory lists and purchase invoices; contract documents
including modifications; statements of work; ESAT manuals,
policies, procedures and guidance; TIDs and work unit documents;
contractor payment invoices; acknowledgment of completion forms/-
correspondence between RPO and contractor; various Defense
Contract Audit Agency (DCAA) reports; award fee documents; and
Federal Manager's Financial Integrity Act (FMFIA) documents.
At Regions <1 and 2, we interviewed the RPOs, task monitors, FMFIA
monitors, property administrators (PA) as well as pertinent
contractor officials. We also reviewed EPA's overall contract
management activities at Headquarters and Research Triangle Park
(RTP) and interviewed the current and former CO; current and
former NPO; Chief, Management Section A, Contract Management
Branch, RTP;, and the Chief, Contract Payment Section, Financial
Management Center at RTP. . '
We did not perform a detailed financial and compliance audit of
the contract. However, we requested that the DCAA perform a
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EPA's MANAGEMENT and OVERSIGHT of the ESAT CONTRACTOR
review of service center costs. They provided us with the
results of their review on November 10, 1994. Nothing else came
to our attention that would warrant us .to expand the scope of the.
audit.
PRIOR AUDIT COVERAGE
i
The OIG's Western'Audit Division issued an Early Warning report
number 4400025 on January 3i, 1994, relating to a conflict of
interest resulting from ESAT contracting activities.
In September 1993, the General Accounting 'Office (GAO) issued a
comprehensive report to the chairman, Subcommittee on .
Investigations and Oversight, Committee on Science, Space and
Technology,. House of Representatives (GAO/NSIAD-93-191) regarding
the National Aeronautics and Space Administrations' (NASA)
management-of Government equipment provided to contractors. The
report showed that it had become standard practice for NASA to
provide contractors with general purpose equipment without .
meeting any of the FAR exceptions or receiving approvals to
deviate from the FAR. Also, some procurement and program
personnel were not adequately * trained on property issues, and
oversight and policy guidance was ineffective.
On September 18, 1995, the 'OIG's Central Audit Division issued
report number 5100483, on "EPA's Acquisition of Analytical
Support." The report showed that -EPA had not adequately planned
either the ESAT replacement contracts or the overall analytical
support services contracting strategy.
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EPA's MANAGEMENT and OVERSIGHT of the ESAT CONTRACTOR
CHAPTER H
ESAT CONTRACT FINANCIAL MANAGEMENT
NEEDS
improvements could be made in-the financial management of the
ESAT contract at the Lexington, MA and Edison, NJ laboratories.
We found that regional project officers (RPO) and the national
project officer (NPO) .did not adequately review" contractor
invoices and associated documents.to determine whether, billed
amounts were reasonable and appropriate prior ,to recommending
payment. Specifically, these individuals did .not always:
1. recommend suspending questionable costs until the contractor
provided necessary supporting, documents; /
2. request and obtain necessary supporting documents to
substantiate the validity of questionable costs prior 'to
recommending payment;' . . ^
3. effectively monitor service center costs;
i *n -''*.
4. provide adequate oversight of.labor-charges;
5. ensure costs were only incurred for ESAT employees; and
6. determine allowable bottled drinking water charges. "
These conditions were caused-by inadequate implementation of the
FAR, EPA's Project Officer's Handbook,.and Contract
Administration Manual requirements. In addition, the RPOs and
NPO did not always comply with the. oversight roles and
responsibilities outlined in the ESAT Contract Management Manual.
These individuals did not always use all available1tools to
systematically review, and approve the contractor's monthly
invoices. They generally relied on the contractor's submissions
without performing independent verifications for questionable.
items. Also, there was.insufficient, or undocumented
communication between these individuals and contractor officials
to resolve concerns:' Moreover, the Agency's emphasis on prompt
payment may have led the RPOs to restrict or limit the necessary
invoice review process to obtain support ing-.documents to justify
costs claimed. However, this is a misconception by the RPOs,
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EPA's MANAGEMENT and OVERSIGHT of the ESAT CONTRACTOR
since it is possible to suspend or set-aside certain costs. As
a result, we have inconsistent ESAT financial management and
oversight controls at the Edison and Lexington laboratories. We
also have inadequate assurance that only reasonable and
authorized contractor charges were paid.
BACKGROUND
FAR 16.301-2 indicates that a cost reimbursable contract may be
used only when the uncertainties of contract performance do hot
allow costs to be estimated with sufficient accuracy so that a
fixed price contract may be used. A cost-reimbursement contract
places a significant burden on the Government to monitor billings
because the contractor does not have the incentive to maximize
profits by minimizing costs.
The EPA Contract Administration Manual (Manual) states that under
cost-type contracts, the contractor has little incentive to
control costs. He or she will be reimbursed for whatever is
spent doing the work, barring a determination that costs are
unreasonable or unallowable. ., The Government bears most of the
risk and significant oversight is required. The Manual requires
Federal employees to monitor contractor performance to prevent
waste of public funds and obtain required services within the
amount budgeted. Although diligent financial, management of
contracts cannot be emphasized too strongly, we found areas that
needed to,be strengthened.
The EPA Project Officer's Handbook (Handbook) addresses the
relationship between cost responsibility, risk and administrative
oversight. The degree of Government contract oversight is
directly related to the assumption of risk. The Handbook states
that in a cost-reimbursable contract the contractor is entitled
to compensation for allowable, allocable and reasonable costs.
Additionally, a performance type statement of work may be used
because of the difficulty in describing what needs to be done.
Accordingly,. the contractor has broad authorization to perform
work and .charge for it, yet the work may not be exactly what is
envisioned. Therefore, it is obvious that close monitoring is
essential.
The Handbook also states, "Administration of a cost-reimbursement
contract requires Project Officers to avoid waste of public funds
and obtain the contracted services within budget. Inefficient or
misguided performance may result in other contracts being robbed
to provide* additional funding, or failure of the program to
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EPA's MANAGEMENT and OVERSIGHT of the ESAT CONTRACTOR
obtain needed services." Monitoring cost-reimbursement contracts
is probably the most challenging task faced by project officers:
Further, the Handbook allows the project officer to take
exception to any services or items invoiced, and prepare a
memorandum outlining the reasons for the recommended disallowance
or suspension, and the payment amount recommended. We found the
RPO .and the NPO did not always comply with these requirements.
Finally, the ESAT Contract Management Manual {ESAT Manual), draft
dated August 1993 and final dated July 1994, states, "Both the
RPO and NPO are responsible for approving and initiating the
documentsv,which allocate, commit, or obligate contract funds.
This responsibility entails the approval of the contractor's
monthly invoices and the shifting of funds among activities and
sites, as necessary. While, the NPO is responsible for invoice
certification, it is the RPO who is most closely associated with
the ESAT contract and the first line of invoice review."
' ' !
The ESAT Manual also describes the roles, responsibilities,
procedures and requirements for managing' the contract. It
provides that the RPOs and task monitors (regional staff) should
regularly communicate"with contractor'managers to identify and
resolve problems. Under.a formal communication system, weekly
meetings should be held at a minimum, an agenda should be used,
and minutes taken. Under an informal system, daily contact
should be initiated with contract managers. Documentation of
communication with contractors is required'and a daily log should
track such correspondence. This log ,helps refresh the RPO's
memory concerning activities and.decisions. Also, a filing
system is required for recorded meetings and telephone calls.
The Manual"provides a suggested format for recording meetings and
discussions. We found, instances of non-compliance with these
guidelines. , , .
INVOICE REVIEW AND APPROVAL PROCESS NEEDS
IMPROVEMENT
RPO procedures "used at Lexington and Edison to review and
recommend approval of contractor claimed costs needs improvement.
RPOs ..were generally conscientious in performing their duties, and
used a voucher review checklist to determine whether claimed
costs were reasonable. However, we believe RPOs and the NPO
should take further action when reviewing questionable costs.
Details of our findings and recommended corrective action follow:
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i. Questionable Costs Not Recommended To Be Suspended
The ESAT Manual permits the RPO to periodically question
contractor costs. This procedure maintains a healthy
client/contractor relationship and provides necessary
supplemental data to make a fully informed determination of the
reasonableness of charges. The ESAT Manual indicates that the
RPO should recommend in writing the suspension of unsubstantiated
or out of line charges. Also, the RPO should make every effort
to obtain the rationale for .costs that do not appear reasonable.
If supporting information is lacking, the. RPO should -recommend
the suspension of costs in question,, but recommend, payment of the
remainder of the voucher (less the suspended costs).
Furthermore, the CO can suspend payment until the contractor
provides explanations of the charges. The process for
questioning voucher charges is outlined in Exhibit 1.
Lexington Laboratory
The RPO did not recommend suspension of questionable costs until
items were resplved. Our review of the contractor's monthly
financial reports for July 1993 through June 1994, disclosed RPO
concerns about costs of $18,723 for 9 of the 12 months reviewed.
However, the RPO always recommended payment of the invoice,
including questionable' items, prior to receiving documentation to
validate the reasonableness and appropriateness of these cost's.
Although the RPO requested clarification of these costs, he did
not receive the contractor's reply prior to recommending payment.
The RPO said that he had very seldom, if ever, recommended
suspending questionable costs and did not totally understand the
suspension process.
The RPO stated the he recommended approval of questionable costs
because he was required to comply with the p'rompt Payment Act
requirements. EPA allows only five days for the RPO's review and
approval. The RPO believed that the NPO enforced the five day
policy and that invoice adjustments could be made upon receiving
the contractor's reply. He also believed a final audit would
identify any .questionable costs at contract termination.
The NPO believed the RPO procedures were proper, and suspending
questionable costs created unnecessary paperwork.. We noted that
no costs were suspended during his period of appointment.
However, the former and current COs believed payment of
questionable items should be suspended until the /contractor
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EPA's MANAGEMENT and OVERSIGHT of the ESAT CONTRACTOR
provides documentation to support'these costs. The current CO
believed that payment should be withheld until the RPO determined
that costs were appropriate and everything possible should ,be
done to ensure only appropriate.costs are paid.
The former CO stated that payment of questionable items should be
withheld until the RPO resolves the matter. She further stated
that the RPO was not and should not be limited to five days to
perform a 'financial review of the contractor's claimed costs.
Also, the RPO's'thorough review is essential as the NPO relies on
the RPO's recommendation before authorizing payment. The RPO did
not comply with the ESAT Contract Management Manual or Project
Officers Handbook provisions for suspending questionable items.-:
Suspending costs, until'receipt of supporting documentation,
deters.the contractor's submission of inappropriate costs, and
helps prevent payment of potential unallowable claims.
Edison Laboratory , ' ;
The RPO did not recommend suspension of payment of questionable
charges but rather submitted his concerns ,to'the NPO for
resolution. These actions were not in compliance with the ESAT
Contract Management Manual or the Project Officers Handbook. Our
review of the contractor's monthly financial reports for July
1993 through September 1994, disclosed the ,RPO had.notified the
NPO of his concerns regarding $31,'115 but recommended payment
before items were resolved.
The RPO believed that upon informing the NPO of his concerns, he
was not responsible for recommending the suspension of costs or
obtaining explanations to resolve them. The RPO also believed it
was the NPO's responsibility to take further action to determine
the allowability of these charges. The RPO had not established a
tracking system to ensure the NPO notified him of the resolution
of his concerns. In fact, he''indicated that he generally was not
informed of'the final status of his concerns.
The Chief, Management Section A,' Contract Management Branch, RTF
indicated that the RPO should have known: and has been reminded
that it'Was not the NPO's responsibility to determine
reasonableness of questioned charges. The Chief also mentioned
that the current NPO had been providing the RPO with .contractor
correspondence covering cost questions.
The NPO disclosed that the RPO's procedures were acceptable,..
suspending costs before resolution created unnecessary paperwork,
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EPA's MANAGEMENT and OVERSIGHT of the ESAT CONTRACTOR
and the contractor provided accurate information. Our review of
theNPO's files disclosed that he never recommended suspending
but always recommended payment of questionable costs before
receiving documentation to determine the appropriateness of these
charges. " . .
The RPO's recommending and the NPO's suspending questionable
costs until supporting documentation is received could help
prevent unnecessary payment of Government funds. It also acts to
deter the contractor's submission of inappropriate costs and
helps prevent payment of potential fraudulent claims.
In response to the draft report the Edison RPO's August 1, 1995
memorandum to the NPO discussed modifications to the "Checklist
for Voucher Review,", to clarify whether payment for charges
should be suspended. He suggested that adding an additional
question to the checklist would be helpful in addressing- the
OIG's concerns. We strongly agree that this'modification would
prompt the RPOs to directly address the suspension issues.
2. Supporting Documentation Was Not Always Obtained
Under a cost-reimbursement contract, the contractor is paid for
specific costs up to a predetermined maximum in return for its
best efforts to perform the work. Costs incurred must be
allowable, allocable and reasonable. Therefore, the NPO and RPOs
should obtain necessary documentation when applicable to absolve
questionable costs before payment. Although the NPO and RPOs
believe .they and the .contractor had good internal controls to
ensure costs were accurately reported, improvements can be made.
N '
Lexington Laboratory
The RPO did not always obtain information to determine whether
questionable charges were reasonable and appropriate. The RPO.
had concerns of $18,723 in 9 of 12 months reviewed. Our review
disclosed that bills, vendor invoices or purchase receipts
supported only $8,213 of this amount. When the RPO had concerns
he requested an explanation from the contractor. However, when
applicable he did not always request supporting documents to
substantiate these costs. The RPO stated that he used his best
judgement to determine when supporting documents were necessary.
The following are examples where we believe additional
documentation would have clarified questionable costs.
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EPA's MANAGEMENT and OVERSIGHT of the ESAT CONTRACTOR
For September 1993, the RPO requested documentation for the
Stratford site. The contractor provided an employee list, hours
used, 'and cost per individual with-a total cost of $5,774.
Although the contractor's ESAT team manager stated that copies of
weekly time cards containing some information could also be
provided, the RPO did not request them to validate the claim.
The RPO also questioned the reasonableness of $904 for September
1993 travel costs. For March 1994, the RPO requested an
explanation of travel costs of $750, Federal Express charges of
$83, and petty cash supplies of $54. For April" 1994, the RPO.
requested information regarding the $313 correction for AT&T
charges. Finally, for June 1994, the RPO requested an
-explanation of $2,128 of-telephone charges. Although the
contractor provided a written explanation the RPO did riot request
nor did the .contractor provide applicable documents to verify
these costs. We found no evidence that the RPO took, further
action to substantiate these expenses. However, the RPO's August
2, 1995, memorandum indicated that he requested and received four
invoices to verify certain other direct cost charges.
The RPO allowed payment of these items without necessary
documentation to determine the accuracy or reasonableness.
Supporting documents such as time cards, ''telephone bills, travel
vouchers, or purchase, orders might have eliminated any concerns;
The RPO accepted the contractor's explanation and believed
additional information was unnecessary. However, the ESAT
Contract Management Manual states the RPO should request backup
documentation when there are questionable costs. Also, the
Contract Administration Manual requires .the project officer to
request an explanation from the contractor and backup
documentation if further "detail is necessary. , We recognize that
in some cases explanations, clarifications or other appropriate
information was acceptable. However,- we believe reviewing an
invoice or receipt (where applicable) would verify .the charge and
provide additional assurance of reasonableness. . -
The NPO believed the RPO was doing an effective job. He also
believed the contractor's procedures and internal controls
ensured billings were accurate, and the contractor could be
trusted to provide accurate information. However, a DCAA audit
report on the contractors billing system (October 12, 1994)
disclosed significant billing process errors as a result.of
inadequate written procedures and internal '.controls. Internal
control weaknesses.which allowed submission of incorrect vouchers
for payment included: ,
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EPA's MANAGEMENT and OVERSIGHT of the ESAT CONTRACTOR
lack of documentation to reflect the vouchers were reviewed
for errors before or after submission for payment;
vouchers were submitted without verifying amounts or rates;
incorrect billing rates;
. failure to prevent billings over contractual ceilings; and ,
failure to deduct unallowable direct costs.
The report recommended that the contractor's billing procedures
should: '
describe the duties/responsibilities of all personnel in the
billing department;
outline procedures for verifying billed cost and rates
before the voucher is submitted for payment, and the
documentation required to support this verification; .
describe the data required for adjusting indirect rates and
the personnel required to have access to this data to ensure
rates are correctly adjusted on a timely basis;
update billing system procedures to provide instructions and
identify the data required for deleting unallowable costs;
and
ensure that the billing department tracks all unallowable
, 'costs and any cost subject to contract limitations. . Any
cost incurred over contract limitations should 'not be billed
until a contract modification has been received.
The weaknesses identified in the contractor's billing process
further emphasize EPA's need to strengthen its cost review
procedures.
The RPO did not always request documentation to support
questionable items because he believed DCAA's review at- contract
expiration would resolve any questioned costs. The cognizant
DCAA audit supervisor (Houston, Texas) disclosed there was no
assurance that DCAA would perform such an audit and EPA should
identify and resolve questionable costs as they arise. Also, EPA
should not rely on another agency to resolve questionable charges
but should act independently to resolve them as. they occur. In
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EPA's MANAGEMENT and OVERSIGHT of the ESAT CONTRACTOR
response to a position paper, the Chief," Management Section A,
Contract Management Branch, RTF stated that the NPO and RPOs make
every effort to identify and resolve questionable costs a's they
arise and do not rely on another agency to resolve them.
Chapter.9 of the ESAT Contract Management Manual states RPOs
should be ready to;supply financial data in support of cost
recovery activities. Specifically, contractors must maintain
sufficient documentation to reconstruct costs incurred on a site-
specific basis for the purpose of cost recovery litigation.
Frequently cost recovery questions will be addressed' to the RPO
who should verify that the contractor is reporting correct
information. Accurate financial data is essential for cost
recovery activities-. . ' ' , '
Obtaining supporting documentation to validate that questionable
costs are reasonable and appropriate is a good business,practice.
A thorough review of such documents helps ensure the Government
only pays for those contractor costs which are substantiated and
authorized within the contract's scope.
Edison Laboratory
The RPO .did not request or obtain supporting documents to .
substantiate questionable costs. Because of the time
requirements, the RPO recommended approval and sent concerns to
the NPO to determine whether the claim should be paid. The RPO
did not correspond directly with the contractor to obtain an
explanation of questionable charges because this caused
unnecessary payment delays. He said that it was a lengthy
process because he must channel all such correspondence through
his Region 2 supervisors. The RPO indicated that in some
instances he tried to clarify costs with the contractor over- the
telephone but did not document these conversations as required by
the ESAT Contract Management Manual.
From July 1993 through September 1994, the RPO provided the NPO
with concerns.for 17 items ($31,115). However, the NPO had only
requested documents to resolve 11 items. Although the NPO may
have requested the contractor to provide information, he did not
always receive necessary documentation prior to authorizing
payment. Adequate documentation was not on file for 12 of the 17
questionable items. For example, although the NPO questioned
certain travel costs, he did not always request or receive
receipts to verify these costs. The NPO stated that he checks
the bills for reasonableness. He relies on the contractor's
i '
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EPA's MANAGEMENT and OVERSIGHT of the ESAT CONTRACTOR
information, and DCAA's audit at contract expiration to resolve
questionable charges.
The NPO and RPO are the primary Agency officials responsible for
monitoring contractor performance and evaluating the
reasonableness and allowability of billings. EPA's Project
Officer's Handbook requires the project officer to verify
contractor invoice/vouchers and to obtain additional
documentation to support charges. The Contract Administration
Manual also states that if further detail is necessary, the
project officer should request an explanation from the contractor
and backup documentation. The NPO and RPOs did not always comply
with these requirements.
A helpful tool to monitor the contractor's progress and resolve
items of concern is1 the practice of having meetings or telephone
conversations. The ESAT Contract Management Manual requires
written documentation of such meetings and conversations.
Failure of the RPO and NPO to document these discussions can
leave the EPA staff vulnerable to allegations of changes made by
EPA in such conversations or meetings.
The NPO also did not have a tracking system to ensure
questionable costs were resolved. He relied on his memory,
correspondence, or changes on monthly financial reports.
Implementation, of a, tracking system would help the NPO resolve
questionable costs and inform the RPO of the final determination.
The NPO also did not routinely verify overhead and general and
administrative rates because he believed this was the CO's
responsibility. Also, the CO informed him that EPA's Financial
Management Center's-controls ensured correct billing rates were
used. However, the Chief, Contract Payment Section, Financial
Management Center, RTP stated there were no internal controls to
ensure the contractor used correct billing rates. The NPO was
responsible for ensuring the contractor used correct billing
rates as he authorized payment of claimed costs. In October
1994, DCAA reported that the contractor did not bill correct
indirect rates to Government contracts and rates were not
verified before submission for payment. DCAA concluded that this
condition was due to inadequate contract management oversight
during voucher preparation. Therefore, EPA should place little
if any reliance that indirect rates were correctly billed to the
ESAT contract. The NPO should verify the accuracy of claimed
rates to ensure the Government pays only allowable costs.
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EPA's MANAGEMENT and OVERSIGHT of the ESAT CONTRACTOR
3. Service Center/Program Or Regional Support Costs Approved
Without Support
Service center/program or regional support costs generally
include labor and other expenses related to the contractor's
business manager, finance/accounting, human resources, property
management, and purchasing departments. These direct costs are
allocated to benefit contracts using a direct labor base similar
to the allocation of overhead costs. EPA approved-payment of
approximately $1.6 million for service center/program or regional'
support costs from October 1, 1991 through June 30, 1994, without
reviewing supporting documentation. The NPO and RPOs did not
have an adequate method to determine the reasonableness of
contractor claimed service center/program or regional support
costs. Therefore, there was inadequate assurance that such
services were provided or were allowable-under contract terms.
DCAA's November 10, 1994, audit report, disclosed that for the
period of October 1991 through June 199.4, other direct costs
(ODC) incurred exceeded the amount proposed, resulting-in a cost
overrun of approximately $1 million. Service center/program or
regional support costs comprised 53 percent of the ODCs. DCAA
offered two recommendations to avoid any cost dispute in final
cost settlement and ways to control contract costs.
(1) Even if the Request For Proposal (RFP) specifies a proposed
ODC amount, the RFP should still require the contractor to
. provide a breakdown by cost element up to the RFP specified
amount. This will give.the procurement office a visual
composition of the ODC and dollar amount proposed.-
(2) To,control cost reimbursable contract charges, the
procurement office may include contract dollar
limitations/ceilings on costs which the CO may want to. limit
(such as travel, relocation, or service center costs). The
contract may require CO approval for purchases at a
specified amount or approval of significant expenditures
that significantly exceeds Government funding. The contract
may stipulate disallowances of such costs without prior
approval. . ...'..
The Lexington RPO also had concerns about service center costs.
He stated the contractor's ESAT Zone 1 manager in Washington,
D.C. pro-rated charges to'each region, but he did not know the
composition or method used to allocate these costs. Although
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EPA's MANAGEMENT and OVERSIGHT of the ESAT CONTRACTOR
these costs appeared on monthly financial reports, the RPO
neither requested nor did the contractor provide documentation to
determine their reasonableness. The RPO recommended payment of
these costs even though supporting documents were not available.
Therefore, unreasonable or inappropriate contract costs could be
charged without the RPO's knowledge.
The Edison RPO also stated that the ESAT zone manager allocated
service center costs to each region, but did not know the
allocation method. He believed the allocation was based on
direct labor costs. He also stated that he did not request nor
did the contractor provide necessary documentation to determine
cost reasonableness. The RPO indicatedrthat the NPO would be in
the best position to evaluate these costs as he had a better
understanding of the contractor's cost allocation method and
might,have a listing of these costs. The RPO recommended payment
of these costs without reviewing supporting documents.
The former NPO stated that unreasonable and unallowable service
center costs could not be identified as the. contractor did not
submit supporting documentation. She also said that such
unallowable items as a television/VCR monitor, paper shredder,
and sales and use taxes have been charged as service center costs
and were subsequently removed at her urging. The current NPO was
only slightly familiar with service center costs and trusted the
contractor to accurately charge the contract. The former CO also
indicated the potential .for charging unallowable service center
costs. She believed this was a vulnerable.area because the
contractor did not provide documentation to support these
charges. By approving these costs without obtaining supporting
^documents, the Agency may have paid for unreasonable or
unsupported items. The Chief, Management Section A, Contract
Management Branch, RTP also believed this was a vulnerable area
which will be addressed. The contractor will be requested to
provide information on these charges.
We recognize that the NPO or RPOs should not be primarily
responsible for verifying the methodology to allocate service
center/program or regional support costs. However, the Agency
should request that adequate documentation is obtained so Agency
officials may 'be adequately assured that charges are reasonable
and supportable. Since unallowable service center/program or
regional support costs have previously occurred, the NPO and RPOs
should more thoroughly review these costs to ensure they are
reasonable and appropriate. Chapter 9 of the ESAT Contract
Management Manual requires the RPO to determine whether
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EPA's MANAGEMENT and OVERSIGHT of the ESAT CONTRACTOR
contractor costs are reasonable, appropriate or unreasonable.
"Reasonable" charges are those charges that have values that
appear to be justified and legitimate. '
i
In September 1994, an EPA Office of Administration and Resources
Management contract voucher review and payment process Quality '
Action Team (QAT) found major invoice review deficiencies. The
QAT found that the Agency had insufficient guidance and internal
controls.to ensure sound contract invoice reviews which total
approximately $1 billion per year. Also, updated guidance was
needed regarding the roles and responsibilities' of participants
in the process.' Many.of the QAT recommendations pertained to
ESAT invoice review weaknesses including:
(1) invoice review guidance lacked clarity on contract.
management officials roles and responsibilities,-
(2) no individual took responsibility for.the accuracy of the
invoice review process;
(3) inadequate verifications that invoices contain correct
1 "' indirect cost rates; ' .
(4) contractor 'invoice data' were not consistent or sufficiently
detailed to enable an adequate review;
(5) sharing review responsibilities between the NPO and RPO
creates responsibility, communication, and funding issues
which were not always addressed;
(6) annual and final audits did not provide adequate assurance
that costs are allocable, allowable and reasonable. EPA's
payment review process must provide such assurance if
adequate audit coverage was not provided;
(7) questions regarding the allowability, allocability and
reasonableness of billed costs must be raised as invoices
are being paid or they may never be raised; '
(8) EPA participants assume reviews are being performed by
others, causing gaps in coverage, and the potential for
incorrect payments, and poor documentation of which review
was/was not performed. . ' -
t
Management roles and.responsibilities must be" clearly defined to
provide, effective contractor cost oversight. Currently, the QAT
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EPA's MANAGEMENT and OVERSIGHT of the ESAT CONTRACTOR
is finalizing a training and reference guide entitled "Invoice
Review Guide." This guide will provide a detailed description of
the roles and responsibilities of various contract officials and
will prescribe the proper contract voucher review and approval
process.
4. Oversight Of Contractor Labor Costs Needs Improvement
The Lexington RPO should improve oversight of contractor labor
costs. We found a significant difference in the method used by
Lexington and Edison RPOs to monitor those costs. The Edison RPO
implemented adequate controls to verify claimed labor costs. He
received a weekly contractor report detailing the previous week's
activity by task area which was distributed -to each task monitor
for review and comments. The Edison RPO stated that he and the
task monitor reviewed 100 percent of the labor printouts and
ensured charges were made to the work assignments. The
contractor was notified of errors and requested .to make
appropriate corrections. The RPO verified hours charged on the
acknowledgment of completion form (completed at the end of each
assignment) with hours assigned on the TID (prepared at the start
of each assignment). We believe this procedure provided adequate
oversight of labor charges.
The Lexington RPO's process to verify contractor labor costs
needed improvement. The RPO stated he verified hours'charged on
the acknowledgment of .completion form with hours assigned on the
TID on an ongoing basis. He also stated that a 10. percent
sampling of all completion forms (400-600 per period) is compared
against the monthly financial report entries. This is an
additional step to verify the accuracy of the financial report
entries with previously completed forms. In addition, comparing
all monthly financial report entries with all completion forms
could not be completed in a timely manner and believed it was
more efficient to verify this information on an ongoingmanner.
The Lexington RPO did not routinely send the contractor's monthly
financial reports to task monitors for review. He alone normally
reviewed the 'labor mix contained in the financial report to
determine.cost reasonableness. Task monitors were only provided
labor mix information and asked for input as-needed or when there
were performance problems. _
The contracf's statement of work, section III, Program Structure,
states that task monitors may be designated to assist the RPO in
contractor performance monitoring duties. The task monitor is
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EPA's MANAGEMENT and OVERSIGHT of the ESAT CONTRACTOR
the primary Agency contact point with the contractor in the
performance of specific assignments. The task monitor assists
the RPO in reviewing relevant portions of monthly technical and
financial reports and contractor invoices.
-,
The Chief, Management Section A', Contract Management Branch, RTF
provided additional information:
; s
(1) Task monitors provide estimates on each Tib for
completion of projects. The TID can be modified only
upon the task monitor's concurrence.
(2) Upon project completion, the task monitor receives; the
acknowledgment of completion forms with the deliverable
and-reviews them including labor hours. The RPO also
reviews, compares and verifies all acknowledgment of
completions with. Tibs.
«
(3} .10 percent of the 400 to 600 TID and acknowledgment of
completion entries per performance evaluation period
4 are reviewed against financial reports. It would be
impossible to verify 100 percent of financial report
entries given the five day review period. '
(4) Labor charges in financial reports are verified to.
assure level of effort ceilings are not exceeded.
Labor cost oversight and verification of hours' expended
is an ongoing process.
The Lexington RPO should more effectively use the task monitor's
skills and knowledge to monitor 'contractor performance. The task
monitor should review contractor reports monthly, atia minimum,
to assist the RPO in determining the accuracy and validity of
reported labor and other, costs. Although reviewing and verifying
the accuracy of labor hours on an ongoing basis is a good
practice we believe greater emphasis should be placed on
verifying the accuracy of hours reported in the monthly financial
report. The contractor 'is paid based on the charges .reported.
In our opinion, a 10 percent sampling of entries reported in the
monthly financial statement is insufficient to verify the
accuracy of reported contractor costs. We believe consideration
should be given to reviewing costs on a weekly rather than
monthly basis and increasing the labor charges reviewed from 10
to 50 percent.' These, actions will provide greater assurance that
the Agency pays for only reasonable and supportable costs.
Further, as demonstrated in Edison, with the coordination between
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EPA's MANAGEMENT and OVERSIGHT of the ESAT CONTRACTOR
the task monitor and the RPO, this process could work in
providing additional assurances that only appropriate costs are
billed to the Agency.
Regarding the.first four areas of concern, the Chief, Management
Section A, Contract Management Branch, RTF indicated that cost
allowability and allocability are primarily determined by
auditors. However, the CO, NPO, and RPOs are not absolved of
their responsibility to verify cost allowability and allocability
whenever possible. He also believed RPOs and the NPO have
frequent communication with the contractor, but can not be
expected to document each one or always develop an "auditable"
documentation trail. We believe that the ESAT Contract
Management Manual documentation requirements must be met and more
thorough documentation of contractor communication is necessary.
The Chief also stated that the CO"will remind the NPO and RPOs to
examine and evaluate direct labor, travel, equipment, other
direct costs, and subcontractor costs. Also, it is never too
late to question charges (including charges on previously paid
invoices), and'the importance of staying on top of financial
management of the contract. In addition, the NPO and RPOs will
be sent a memorandum reminding them that questionable items
should not be recommended.for payment prior to receiving
documentation to validate reasonableness'of these costs. They
will also be reminded that it is the RPO's responsibility to take
necessary action to determine reasonableness of charges, and
involving the NPO when necessary. Moreover, they will be
reminded of the importance of thorough documentation.
5.
Charges Incurred For Non-ESAT Employee
Inappropriate and unallowable other direct cost charges were made
for a non-ESAT employee. The RPO's review of the contractor's
monthly financial report and file correspondence disclosed that a
non-ESAT contractor employee had occupied ESAT office space in
Bedford, MA since July 1993 without EPA's knowledge or,approval.
The contractor's ESAT team manager indicated that this individual
moved to Bedford for her own convenience to be with her husband.
Since ESAT is a 100 percent fully dedicated contract, charges are
only allowed for employees working on the ESAT contract.
The RPO became aware of this situation on February 24, 1994,
prior.to the OIG's audit but more than seven months after this
incident first occurred. Responding to.the RPO's concerns about
a high January 1994 telephone bill, the ESAT team manager
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EPA's MANAGEMENT and OVERSIGHT of the ESAT CONTRACTOR
indicated this charge was due to a non-ESAT employee's use of an
ESAT telephone. Contractor documentation indicated that from
July through December 1993, $1,575 of AT&T {telephone and fax)
and lease charges were inappropriately charged for the non-ESAT
employee's expenses. The contractor stated this amount was
credited to the contract in March 1994. The phone charge credits
were determined by reconciling log records. The rent credits
were based on apportioning the Bedford office space.
Additionally, the ESAT team manager stated that a separate
telephone line was installed for the non-ESAT employee in March
1994. Although the contract was credited for July to,December
1993 AT&T charges, we ~found no documentation to show that credits
were made from January 1994 until her phone was installed. Our
review did not disclose any other items used by,the non-ESAT
employee that were billed to the contract.
The RPO notified the NPO of this situation on February 24, 1994,
and requested assistance. The RPO stated, "Given the
circumstance, and the potential for utilizing ESAT- funded
equipment, supplies, clerical support, etc., are there any
additional steps that need to be taken at the regional level to
assure accurate financial reports? .I have been told that...[the
contractor] will notify you of this situation and correct the
errors in its financial reports." The RPO did not take any
further action to resolve this situation.
The former CO {July 1993 through May 1994) was unaware of this
situation until April 1994, eight months after the individual was
at the location. The former CO believed the contractor acted
unethically by permitting a non-ESAT employee to occupy this
space and that similar conditions could exist at other contractor
locations. The current CO (as of May 1994) became aware of.this
situation in September 1994. She stated that the contractor did
not have EPA's permission to co-locate a non-ESAT employee,.and
believed the contractor acted unethically..
The NPO believed the non-ESAT employee inappropriately used an
ESAT telephone and fax machine and that lease charges were
inappropriately charged. However, in March 1994 the contractor
provided the non-ESAT employee with her own telephone, telephone
number and fax machine, office rent was charged to the corporate
office. . , . ..
We asked .the NPO if additional procedures should be implemented
to identify and eliminate this situation in the future.
Specifically, whether the RPO should make semi-annual time and
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attendance or floor checks at the contractor's facility to ensure
only ESAT employees occupy space and authorized charges are made.
The NPO did not believe that the RPO was responsible for making
these checks, and trusted the contractor to perform in a
professional manner and accurately charge the contract.
The NPO believed the .situation had been corrected and the
contractor had credited the overcharges to the contract^ He
stated, "although I have not reviewed these costs, it is my
opinion that the contractor has accurately corrected their error.
This would be a good audit area." To assume the contractor
credited the correct amount, without independently verifying the
charges, is not a good business practice. An independent review
is essential to ensure the contract was properly credited.
Additionally, the Agency should consider implementing procedures
which directs the contractor to request and receive approval to
place a non-ESAT employee in ESAT office spacev
In response to a position paper the Chief, Management Section A,
.Contract Management Branch, RTP indicated the rental charge
through September 1993 was $4,086.61. However, beginning in
October 1993, it was reduced to $3,995.25, reflecting the
allocated cost for the non-ESAT employee's office space. On the
March 1994 financial report,, the contract received credits of
$131.36 for July, August and September 1993. In addition,
correcting credit entries for facsimile charges were included in
the March 1994 report. However, the specific amounts and periods
affected were not noted. The response agreed that the
contractor's handling of this situation was probably "unethical".
Although EPA may not be able to require that only "dedicated"
persons occupy the contractor's space, they could request the
contractor to charge that portion of the lease cost commensurate
with the number of ESAT people housed there.
The response also stated that RPOs will be reminded to make
periodic visits to the contractor to discuss administrative
matters, walk through the facility, perform floor checks> and
meet or speak with those persons "dedicated" to the ESAT
contract. In addition, the contractor will be reminded that each
lease agreement is in fact a subcontract, and EPA should be
notified of any changes in the terms of the subcontract.
Furthermore, EPA will advise in writing, that since the lease
amount is a direct ESAT charge, that only that portion of the
lease amount necessary to house ESAT "dedicated" personnel may be
charged to the contract. Finally, while the NPO reviewed the
March 1994 credits, we did not find any indication of independent
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EPA's MANAGEMENT and OVERSIGHT of the ESAT CONTRACTOR
verification that appropriate corrections were .made for the
entire period until the non-ESAT employee obtained her own fax
line and machine in March 1994. .
OARM officials did not believe it was necessarily unethical for
contractors to locate other than ESAT dedicated employees in
their own off-site space. However, they agreed that since this
space was fully dedicated to the ESAT contract, direct and
indirect costs for this employee should not have been charged.
It is the RPO, NPO and CO responsibility to ensure that credits
have been obtained. Also, OARM was concerned about-the RPO
walking through the contractor's facility to perform OIG
recommended floor checks and speaking to "dedicated" people.
This amount and type of 'interaction may be viewed as supervisory
in nature and therefore, personal services. However, the
contractor will be reminded that only the amount of their
facility lease necessary to house ESAT dedicated staff is
chargeable to the contract.
6. Unallowable Bottled Drinking Water Charges
i
At Lexington and Edison unreasonable and unallowable bottled
water was charged to the ESAT contract. The Lexington RPO's May
13, 1994, letter to the contractor's ESAT team manager concerning
the April 1994 financial report, questioned $64.11 for Belmont"
Springs.Water. The RPO stated that the contractor believed the
water was not drinkable, but it was unreasonable for EPA to pay.
the water charges. Therefore, in May 1994 the contractor stopped
billing EPA for water. The RPO disclosed -that during the
contract period EPA paid $2,841 (the'Chief, Management Section A,.
Contract Management Branch, RTF response to .the position paper
indicated the amount was $2,796) for bottled water. The RPO
informed the NPO of this condition, but was unaware if the NPO
had taken corrective action to credit the contract. We,found no
evidence that these charges were credited.
In response to a position paper, the Chief, Management Section A,
Contract Management Branch, RTP indicated there was no mention of
any questioned bottled water charges on the RPO's voucher review
checklist from September 1991 to May 1994 (32 months). Also
there was no evidence that the RPO ever recommended suspending
payment or recovering these bottled water costs, which should
have been questioned earlier.
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EPA's MANAGEMENT and OVERSIGHT of the ESAT CONTRACTOR
Charges were also made to the ESAT contract to provide bottled
drinking water to Edison ESAT contract employees. The RPO
disclosed that from February 1993 through February 1994, EPA paid
$2,562 for bottled water at an off-site ESAT location. Although
these charges were subsequently stopped, we found no evidence
that the contract received credit for these charges.
ESAT employees were originally located in a trailer without
plumbing. Therefore, it was feasible to provide bottled water
for the contractor. However, in February 1993, most ESAT
employees moved to an off-site facility (Raritan Center) with
plumbing facilities. However, the contractor continued to,bill
for bottled water until informed by the CO that these charges
were no longer permitted. The. NPO indicated no action, was- taken
to recoup funds previously expended for bottled water.
In response to a position paper, the Chief, Management Section A,
Contract Management Division, RTP stated .that in early 1994, the
contractor was told,to stop billing for bottled drinking water at
the Raritan offices. However, since the previous charges of
$3,286 were not recovered, EPA will be sending a letter to the
contractor requesting credit for-these charges.
We believe both RPOs could have more timely identified and
resolved these conditions by more efficiently reviewing the
contractor's financial reports and performing site visits. The
.lack,of timely cost oversight resulted in $6,978 of unnecessary
Government expenditures as summarized below.
Per Audit Per Position Paper
Non-ESAT employee expenses $1,575
Bottled drinking water, Lexington 2,841
Bottled drinking water, Edison 2.562
Total . " > $6,978,
$1,575
2,796
3.286
$7,657
The above conditions demonstrate a need for improved management
controls. This cost-reimbursable contract requires diligent cost
management as most risk is borne by the Government. We are most
concerned with the NPO's tendency to rely on contractor's
statements without making independent reviews to ensure correct
charges are made. We also believe the NPO should review the non-
ESAT employee's charges to ensure the correct amount was credited
to the contract.
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AGENCY'S COMMENTS AND OIG EVALUATION
OSWER COMMENTS
On August 30, 1995, the Assistant Administrator of the Office of
Solid Waste and Emergency Response . (OSWER) responded to the draft
report. He stated that suspending questioned costs until
necessary supporting documents are provided is always an option
and RPOs and the NPO' are "now aware of this effective cost
management tool and have been encouraged to use it, when
appropriate." However, suspension of costs should be based on
"substantive reasons" and should be the "exception rather than
the rule.." The contract management team (RPOs, NPO, CO) has
implemented a process where costs may be questioned prior to
recommending payment until issues are resolved satisfactorily in
the allocated amount of time. If not resolved timely, costs will
be suspended when "substantive reasons exist." The response also
indicated a conceptual difference between the program office and
OIG on the roles and responsibilities, of RPOs and the NPO. The
program office indicated that RPOs and the NPO are not auditors
or responsible for allocability and allowability determinations.
Regarding recommendation 1, the response indicated that the RPO's
and NPO will be required to suspend payment on all questioned
items of a substantive nature until they are determined to be
valid charges.. Also, RPOs and the NPO will be required to
request and review supporting documents when questions can be -
answered by. such documents. The RPOs .and NPO will be required to
document -reasons for acceptance of questioned costs which appear
to be non-substantive. This documentation may consist of
additional documents (bills or invoices), contractor
correspondence, telephone conversations or meetings, or
information from other contract management sources. Also, the
voucher review checklist may be amended to clarify available
decision options and facilitate the voucher review process.
Regarding recommendation 2, the RPOs and NPO will be instructed
to document contractor conversations and meetings in which
resolution of questioned costs is determined. Also, they will be
instructed to implement a tracking . (filing) system to effectively
monitor contractor .requests and replies to questioned costs. In
addition, RPOs and. the NPO have been reminded to- develop.
necessary documentation to complete the record on questioned
costs and to adequately support their decisions.
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OSWER officials did not agree with recommendations 3 and 4 and
believed there was no "reasonableness" determination for program
or Regional support charges, and validation of charges was an
audit function. According to Chapter 6 of the Contracts
Management Manual, validation of indirect billing rates is the
function of the Servicing Financial Office.
OSWER officials generally agreed with recommendation 5 and will
remind and encourage RPOs to ask task monitors to assist in ,
determining the reasonableness of costs. Since task monitors may
,not be as knowledgeable as the RPO about costs, it would be
unreasonable to make consultation on cost issues mandatory.
Furthermore, the new ESAT contract will be a Work Assignment (WA)
contract which will, use WA managers in lieu of task monitors.
OSWER officials-did not agree with recommendation 6. They
believed time and attendance or floor, checks was a
supervisory/management function which could place the RPO in a
"personal services relationship" with the contractor. -The
response stated that accountability for not charging the Agency
for non-ESAT employees always rests, with the contractor.
How.ever, the award fee process is an effective tool to indicate
to the contractor that such improper charges will not be 's
tolerated. OARM officials indicated that the contractor will be
reminded that .only the amount of their facility lease necessary
to house ESAT dedicated staff is chargeable to the contract.
Regarding recommendation 7, the response indicated that th"e NPO
has verified that the non-ESAT employee's costs' had been credited
to the contract. The contractor has been instructed that office
leases are considered subcontracts and require the CO's approval.
This includes charges (e.g. sharing space) in previously ESAT-
dedicated locations which must be approved in advance. '
Regarding recommendation 8, on August 7, 1995, the CO disallowed
certain bottled water charges and the contractor was directed to
credit the contract for such charges. The NPO will ensure that
charges of $4,729.52 are credited to the ESAT contract.
OIG EVALUATION
We are. pleased that OSWER indicated that suspending questioned
costs until the contractor provides necessary supporting
documents is an effective cost management tool, and the RPOs and
NPO are now aware and have been encouraged to use this tool.
However, we do not believe that suspension of costs should be the
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EPA's MANAGEMENT and OVERSIGHT of the ESAT CONTRACTOR
"exception rather than the rule." Also, we are concerned about
the statements that suspension of costs should be based on
"substantive reasons." This concept will have to be clarified.
We also recognize that suspending costs is a'time-consuming ,
process,'and RPOs and the NPO are not auditors and not .
responsible for allocability and allowability determinations.
s . .
Regarding 'recommendation 1, we recognize that responsible Agency
officials could disagree on the type of documentation to
determine reasonableness, of invoiced amounts. We are not
asserting that "all questioned costs must and can be answered
with an additional document".(emphasis added).. However, payment
of questionable costs, whether substantive or non-substantive,
should be suspended until applicable supporting 'documents verify
these items. We do not agree that correspondence, telephone
conversations, meetings or information from other contract
management sources will always be sufficient to validate
questionable costs. 'The ESAT Contract Management Manual requires
the 'RPO to request backup documentation when there are
questionable costs. Also, the Contract Administration Manual
requires the NPO to request contractor explanations and backup
documentation if further detail is necessary (e.g. copies of
invoices, breakdown of direct labor charges, etc). ESAT is a
cost type contract where the contractor has little incentive to
control costs. Therefore, diligent contractor oversight is
required as he/she will be reimbursed for whatever is spent doing
the work, barring a determination that costs are unreasonable or
unallowable. We concur with the contract management team',s
considerat-ion of amending the voucher review checklist.
We concur with the.proposed actions regarding recommendation 2.
However, we request that the Agency reconsider implementing
recommendations 3 and 4. We believe RPOs and the NPO should
periodically review program or regional support documentation to
determine reasonableness and appropriateness of such charges.. To
strengthen invoice review the Agency should request adequate cost
documentation to ensure charges are reasonable and supportable.
Chapter 9 of the.ESAT Contract Management Manual requires the RPO
to determine whether contractor costs are reasonable'. appropriate
or unreasonable. .and whether invoice costs are commensurate with
the work performed. The Manual .defines "reasonable" charges as
charges ,that have values that appear to be justified-and
legitimate. We strongly believe that additional details ,or
information will be helpful to the RPO's review of costs
incurred. , , '
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We believe it was unacceptable for EPA to approve $1.6 million
for service center/program or regional support costs from October
1, 1991 through June 30, 1994, without reviewing some supporting
documentation. Therefore, there was no assurance that these
costs were reasonable, and services were performed or. were
legitimate under contract terms. The former NPO stated that
unreasonable service center/program or regional support costs
could hot be identified as the contractor did not submit
supporting documentation. She said that such unallowable items
as a television/VCR monitor, paper shredder and sales and use
taxes were charged as service center costs and subsequently
removed at her urging. Review of such costs would help ensure .
only reasonable and legitimate charges were made. The Chief,
Management Section A, RTF also recognized this vulnerable area
and stated that the contractor will be requested to provide
information on these charges. As a result of approving invoices
without obtaining supporting documentation, the Agency may have
paid unreasonable or unsupportable costs.
We agree that validation of indirect billing rates is a
Servicing Finance office function. However, since the NPO
authorizes payment of claimed costs he/she is ultimately.
responsible for verifying that correct indirect billing rates are
paid.. The Chief, Contract Payment Section, Financial Management
Center, RTP stated there were no internal controls to ensure the .
contractor usedcorrect billing rates. He also said the NPO was
responsible for ensuring the contractor used correct billing
rates as he authorized payment of claimed costs. Additional
management controls are needed to ensure correct indirect billing
rates are paid, and the NPO should coordinate with the Chief,
Contract Payment Section to strengthen such review procedures. .
We are not requesting RPOs or the NPO to audit service
center/program support costs or to determine overhead rates. We
have modified recommendations 3 and 4 to clarify these matters.
Regarding recommendation 5, we agree that RPOs should ask and
encourage.task monitors to assist in reasonableness
determinations. It is in the Agency's interest for the RPO to
use the knowledge and experience of task monitors to review the
reasonableness of contractor costs. Chapter 11 of the EPA
Contract Administration Manual states, "Project Officers should
also request Work Assignment Managers and Delivery Order Officers
to review and sign off on contractor invoices routinely, since
these individuals are most likely to be aware of contractor
performance." Task monitors are well aware of contractor
performance and in the best position to evaluate cost
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EPA's MANAGEMENT and OVERSIGHT of the ESAT CONTRACTOR
reasonableness. Task Monitor review of contractor costs helps
ensure- the Agency pays only for costs which are reasonable,
legitimate and within the scope of the contract.
i.
The/fact that the new ESAT contract will be a work assignment
contract does not alter our-opinion that'WA managers should
review and assess the reasonableness of contractor costs. See
reference to Chapter 11 of the EPA Contract Administration Manual
cited above. .Also, it was noted that: the Edison RPO requires
task monitors to review contractor costs for reasonableness on a .
weekly basis. The RPO stated that task monitor reviews have
identified questionable or unreasonable costs which required
further clarification. .
We request OSWER ,to reconsider recommendation 6 to periodically
visit the contractor's site to ensure authorized individuals
occupy ESAT areas. From July 1993 to February 1994 a non-ESAT
employee made unauthorized charges without the knowledge of the
"RPO or Agency, officials. This situation-could have been detected
if the RPO had made periodic visits, rather than relying on the
contractor to report accurate information. We believe that the
Agency should establish and implement additional controls to
ensure that similar mischarges do not recur. In addition to
other monitoring activities, periodic visits (i.e. semi-annually)
would be an effective-method to improve contract oversight and
identify non-ESAT employees. We strongly disagree that
performing such activities as time and attendance reviews or
floor checks is a supervisory/management function which could -
place the RPO in.a personal services relationship.
t '
EPA Order 1901.1A - Use of Contractor Services to Avoid Improper
Contractor Relationships, as mentioned by the Edison RPO, does
not conflict with the OIG recommendation. The Order defines a
personal services contract as a contract which, by its terms or
as administered, results in contractor personnel being subject to
.relatively continuous supervision and direct control by a
Government official or employee. Appendix A of the Order
provides 10 personal services examples to clarify prohibited
activities. None of these examples remotely pertain to the OIG
recommendation. Any limited RPO visit should be coordinated with
the contractor's point of contact. Contractor personnel will not
.be subject to continuous (or any) supervision or direct (or
indirect) control by the RPO's visit. We agree the award fee
process can be one way to show the contractor that improper
charges will not be tolerated. .However, increased contractor
monitoring will aid in eliminating improper charges.
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In response to a position paper, the Chief Management section A,
Contract Management Branch, RTF stated that RPOs will be reminded
to make periodic visits to the contractor to discuss
administrative matters, walk through the facility, perform floor
checks, and meet or speak with those people "dedicated" to the
ESAT contract. The contractor will be reminded that each lease
agreement is in fact a subcontract, and EPA should be notified of
any changes in the subcontract terms. Furthermore, EPA will
advise in writing, that since the lease amount is a direct ESAT
charge, only that portion of the lease amount necessary to house
ESAT "dedicated" personnel may be charged to the contract. We
agree with these actions. " '
Since the Agency has completed actions pertaining to draft
recommendation 7 we deleted it from the final report. We are
also pleased that the CO has initiated actions to address
recommendation 8. - '
OARM COMMENTS
OARM's September 10, 1995 response to the draft audit report
concurred with some recommendations and provided additional
comments for the OIG to consider. The response agreed that the
contractor should be required to identify the total direct labor
base for contracts using the service center in order for the
Government to determine if it is carrying the appropriate amount
of burden for these costs. Also, OARM does not believe that the
NPO or RPO should be primarily responsible for verification of
the methodology used to allocate indirect support charges.
Regarding .recommendation 1, the response stated that the
contractor is required to report charges by cost category and
dollar amounts in its monthly financial report. The CO will
clarify that the Prompt Payment Act does not compel RPOs or the
NPO to accept work or services, approve expenditures, or
authorize payment prior to fulfilling invoice review
responsibilities.
The response indicated it should not be a general practice to
require offerers to provide ODC breakdowns for level of effort,
cost type contracts. . While appropriate in select cases, it does
not make sense when the exact work will not be specified until
work assignments are issued. Whenever possible, RTP
solicitations include itemized lists of anticipated ODC elements
rather than dollar amounts for proposal purposes. However, for
the ESAT recompetition, the program office could not reasonably
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EPA's MANAGEMENT and OVERSIGHT of the ESAT CONTRACTOR
estimate itemized quantities nor do most offerers have a basis on
which to estimate them. " - '
The response indicated general concurrence with recommendation 2.
The RPO previously resolved contractor issues telephonically
because he was required to send formal correspondence through his
supervisors which often exceeded the five day voucher review
time. The RPO indicated that he had not always documented these
discussions. The 'CO has reminded the RPO that he is to
expeditiously resolve questionable costs and all contractor
discussions should be documented.
For the new ESAT contract the CO had considered dollar
limitations/ceilings to limit ODCs. However, since OARM believes
the precise work" can not be described at the time of award they
do not believe ceilings constitute an effective control mechanism
for this contract. Instead of ceilings, OARM determined that
stringent monthly ODC reporting requirements would allow improved
management oversight. Contractors will be required to break out
by work assignment all previous month's ODCs by type and ,
description. Also, the contractor must report cumulative ODCs
incurred from the contract's effective date and estimated travel
costs during the next two reporting periods. In addition, the
contracts will include EPAAR clause. 1552.245-72 which .prohibits
the contractor from fabricating or ^acquiring non-expendable
property without the CO's written approval. The "Limitation of
Funds" or "Limitation of Cost"- clause will also be included which
requires the contractor to notify the CO in advance if they
believe contract costs incurred in the next 60 days, when added
to previous costs, will exceed 75% of the funding provided, or
estimated contract cost. OARM believes the'se clauses as. well as
the standard clauses provide the Agency with adequate protection.
CMG EVALUATION
We agree that the NPO or RPOs should not be primarily responsible
for verifying the methodology used to allocate service
center/program or regional support costs. However, the ESAT
Contract Management Manual requires the RPO to determine whether
contractor costs are reasonable, appropriate or unreasonable.
Reasonable charges as those charges that have values that appear
.to be justified and legitimate. EPA approved $1.6 million for >
service center/program or regional support costs from October 1,
1991, through June 30, 1994, without determining if they were
reasonable, justified or legitimate. ;
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The Lexington RPO's March 3, 1992 memorandum expressed concerns
to the ESAT CO, NPO and the Acting NPO about the appropriateness
of service center costs. While reviewing the January financial
report the RPO'had concerns about unnecessary equipment costs and
believed an $813.00 VCR/TV was unreasonable and unallowable. The
contractor's business'manager said these costs should not have
been charged directly but instead to "Service Center ODC". The
RPO believed "this was an even more serious concern since service
center costs are not broken out and could contain other hidden
unreasonable costs." . .
The RPO also stated that using the current service center cost
reporting format, they could not adequately determine the
reasonableness of contract costs. 'If the contractor had
purchased the unnecessary VCR/TV and charged EPA via the service
center charge, "it would have gone undetected" (emphasis added).
Additionally, the RPO believed the government could be unfairly
sharing the costs of operating the contractor's private {non-
government)' business operations through this charge..- Moreover,
unnecessary equipment, travel, or virtually any unreasonable
charge against any of the contractor's contracts (government or
private) would be undetected if this mechanism is continued.
The OIG's August 31, 1995, discussion with the NPO disclosed that
he never requested or received any supporting documents to
determine the reasonableness or appropriateness of service center
costs. The NPO stated that the reasonableness of these charges
was an audit function and was beyond the scope of his duties and
responsibilities. We disagree. Also, discussions with the
contractor's Business Manager on the same day disclosed that
additional information to determine the reasonableness of these
costs would have been made available to the NPO upon request.
OIG recommendation 1 has been modified since it did not clearly
indicate that it specifically pertained to service center/program
or regional support charges. We believe that the-contractor
should provide a breakdown of monthly service center costs by
category to aid the RPO or NPO in making reasonableness.
determinations and identify any significant cost variances.
DCAA's November io, 1994, audit report disclosed that from
October 1991 to June 1994 ODCs exceeded the proposed amount
resulting in an overrun of approximately $1 million.: Since the
current ESAT contract has been in place for more than -four years,
we believe the program office has an adequate history to
reasonably estimate ODC co'sts for the new contract. We also
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EPA's MANAGEMENT and OVERSIGHT of the ESAT CONTRACTOR
believe that establishing"ODC costs by category rather than in
total will aid contract management and prevent cost overruns. We
agree that certain new offerers may have a more difficult basis
on which to estimate the composition of the ODC amounts'.
OARMs actions pertaining to recommendation 2 generally satisfy
our concerns. Additionally, OARM considered recommendation 3,
but proposed an alternate approach which generally satisfied our
concerns. 'However, some of these proposals were included in the
current contract and ODC overruns still occurred. Therefore, the
CO, NPO and RPO must take precautions, as outlined in EPA's
Contract Administration Manual, to refrain from encouraging any
continuance of work once funds have been exhausted. The courts
and the Board of Contract Appeal's have ruled that "such action - .
(or inaction) effectively obligates -the Government to' reimburse
the contractor, for the additional costs." We have modified
recommendation 3 to address OARM's proposed actions.
RECOMMENDATIONS
1 r
We revcommend that the Assistant Administrator,, Office of
Administration and Resources Management instruct the Director,
Office of Acquisition Management to implement the following . .
procedures to improve management oversight of contractor costs.
1. Require the contractor to report service center/program or
regional support charges by cost category and dollar amount
if they continue to be separately charged to the EPA
contract. This will enable the NPO and RPOs to more easily
determine reasonableness and identify questionable items
requiring further clarification.
2. Advise EPA management to permit the Edison RPO to correspond
directly with the-contractor's ESAT team manager to resolve
/ matters. Current procedures require.the RPO to send all
ESAT correspondence through- regional officials.
3. Require' the contractor to break out by work assignment all
previous months ODCs by type and description. . The
contractor should also report cumulative ODCs since
inception and estimated travel costs for the next two
reporting periods.. Moreover, EPAAR clause 1552.245-72
(Fabrication or Acquisition of Nonexpendable Property), the
Limitation of Funds/Limitation of Cost clause, and clauses
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requiring CO approval for contractor purchases exceeding
certain dollar limits and/or of a certain contract type
should be included. Furthermore, Agency contract officials
must carefully monitor and tract the reported ODCs.
We recommend that the Assistant Administrator, Office of Solid
Waste and Emergency Response instruct the Director, Hazardous
Site Evaluation Division to implement the following procedures to
improve management oversight of contractor costs.
1. Require the .RPO and NPO to suspend payment on all
questionable items until documented as valid charges.
Supporting.documentation should be requested and reviewed.
Such documentation should include, but not be limited to,
receipts for travel expense, air fare, rental car, telephone
calls, and hotel'bills.
2. Instruct the RPOs and NPO to document telephone calls and
meetings with the contractor to resolve questionable costs.
Communications should outline topics of conversation,
information requested and provided, and decisions made.
Also, require the NPO and RPOs to implement a tracking
system to effectively monitor contractor requests and
replies to questionable costs.
3. Direct the NPO and RPOs to periodically (i.e. quarterly)
review program or regional support documentation to validate
the reasonableness and appropriateness of these charges.
4. Instruct the NPO to review indirect billing rates prior to
authorizing payment. The contractor could be instructed to
place the billing rates .on payment invoices to assist the
NPO in determining the accuracy of these rates.
5. Instruct the RPO to use task monitors to review and certify
the reasonableness and appropriateness "of claimed .costs on
financial reports prior to recommending approval. Task
monitors.are most familiar with the contractor's work and in
the best position to determine the reasonableness and
appropriateness of charges
6. Direct the RPO to periodically visit the contractor's
location and perform such activities as time and- attendance
,or floor checks to identify unauthorized individuals
occupying ESAT space. Such visits would be made with a
contractor supervisor present.
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7. Agency ,has completed actions pertaining to draft
recommendation 7.
f
8. Instruct the NPO to determine whether unreasonable bottled
water charges were accurately credited to the contract.
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CHAPTER
BETTER CONTROLS OVER GOVERNMENT
FURNISHED PROPERTY NEEDED
Our review of Government furnished property (GFP) provided to the
Zone I ESAT contractor at the Lexington facility disclosed that
adequate controls were generally in place. However a similar
review at the.Edison facility disclosed that certain improvements
were "necessary. Specifically, we found that: '
1. annual inventories were not performed at the
contractor's facility until 1993; . .
2. an unannounced OIG inventory revealed missing items and
other discrepancies; . ;
3. inventory lists provided .-to the RPO differed from those
provided to the. ESAT business manager in Virginia; , .
4. EPA initiated the replacement of new computers and the
installation of a security system after two thefts at
the off-site contractor office;
5. ESAT automobiles were prematurely auctioned by GSA
.without the1RPO or contracting officer's knowledge; and
6. general purpose equipment was generally provided to the
contractor at both facilities without meeting FAR
requirements.
These conditions.resulted from inadequate oversight and controls,
and a low priority over GFP accountability. Also, EPA did not
take effective action to require the contractor to comply with
the FAR and contract requirements for property accountability.
Specifically, clear property control roles and responsibilities
of the RPO, NPO, CO, and PA were not sufficiently defined. EPA
also did not review, approve, or perform periodic analysis of the
contractor's property control system. In addition, the RPO, at
both facilities, had limited knowledge of GFP procedures and
regulations. Finally, providing the contractor with EPA property,
39
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decals at Edison contributed to inaccurate inventory reports. As
a result, we have limited assurance .that GFP was properly
accounted for, maintained, safeguarded, reported or used for its
intended purpose.
BACKGROUND
Under certain circumstances agencies may provide GFP to
contractors to carry out specific tasks outlined in the contract.
EPA can provide property to a contractor in two ways. EPA can
purchase the equipment and lend,it to the contractor, and/or the
contractor can directly purchase the equipment at Government
expense. According to the ESAT Contract Management Manual if the
equipment cost exceeds $1,000 'it is generally preferable for EPA
to purchase 'the equipment and furnish it to the contractor,
rather than have the contractor purchase it as a direct charge at
Government expense. Also, agencies can frequently purchase
equipment at better prices due to their competitive procurement
position. In addition, using contract funds for equipment
purchases may give the Appearance that the Agency is bypassing
budget ceilings. '
When providing equipment to contractors, the Government incurs
additional costs not charged directly to specific contracts.
These include substantial indirect administrative costs that
contractors pass on to the Government for maintaining an approved
property control system, safeguarding the equipment, and
disposing of excess. The Government also generally pays for
replacing lost or damaged GFP. In contrast, contractors are
responsible for replacing their own lost or damaged equipment.
At Lexington, GFP was transferred-to the contractor from the
prior ESAT contractor. This inventory, worth approximately
$70,000, consisted of 198 items including such general purpose
items as office furniture and computers.
Some of the contractor's inventory at Edison, NJ was transferred
from the former Field Investigation Team contract. This
inventory consisted of general office equipment, computers,
mobile laboratories, self contained breathing apparatus, etc.
Additional items were subsequently acquired including computers,
and a $4,000 telephone system. The 1994 zone inventory lists
valued the total Government property located at Edison at
approximately $296,000. ' However, there are no assurances that
all the items are still in the contractor's possession since the
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'contractor inventory lists do not recognize subsequent transfers
or new additions.
The ESAT Manual requires "careful management" of property
provided either directly by the Federal government or produced
through the ESAT contracts. The RPO is responsible for providing
an inventory list of Government property used by the.contractor
and the contractor must conduct an internal audit to verify the
inventory list. In addition, the RPO should be notified of any
problems.
GFP transactions must be recorded In the original contract or
added or deleted through a written contract modification to
ensure items are effectively monitored. The RPO must .prepare a
seven point justification memorandum to obtain approval of a
Government purchase or 'loan of equipment. The CO approves and
authorizes the transactions and the PA monitors, coordinates and
manages property requirements. Once the PA approves the
justification, the contract is modified. ...
The PA should ensure that the contractor (1) is adequately
controlling, protecting, preserving, maintaining,'using, and
reporting Government property in accordance with the contract and
the FAR and (2) complies with its approved property control
system. PAs should perform these functions by conducting.
periodic analyses of the contractor's property control system.
The purpose'of this analysis is to ensure that the contractor is
complying with established internal controls, property management
regulations, and.contract provisions.
The August 14, 1994, Procurement Policy Notice by way of a
'contract modification transferred PA responsibility for the ESAT
contract to the Defense 'Contract Management Command (DCMC) in San
Antonio, TX. Previously, an EPA Research Triangle Park employee
with the Facilities Management and Services Division (FMSD) was
the PA. Former FMSD staff work in.newly established Contract
Property Coordinating Offices (CPCO). Contract property
coordinators (CPC) act. as. liaisons between the CO, DCMC and
contractors.
FAR REQUIREMENTS NOT MET ON GENERAL PURPOSE
EQUIPMENT
The value of GFP, especially general purpose equipment, has grown
substantially in recent years despite the Government policy to
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minimize providing equipment to contractors. General purpose
equipment should be provided on an exception basis only - such 'as
when the contractor is unable to buy it and the contract can not
be performed without it. In many cases EPA's standard practice
has been to .provide contractors with general purpose equipment
without meeting the FAR requirements or receiving approvals to
deviate from the FAR. The implementation of policies to limit
such equipment was impeded because some EPA procurement and '
program personnel were not adequately trained in property issues
and EPA's. procurement oversight and policy guidance was
ineffective. Weaknesses in the ESAT policy and oversight areas
indicate systemic property management problems.
The FAR establishes the overall policy on providing equipment to
perform Government contracts. FAR 45.302-1(a) provided the basic
Government policy regarding the provision of general purpose"
equipment to a contractor and the limited circumstances under
which such equipment may be provided. The FAR prescribed that
agencies shall not provide general purpose equipment to
contractors for any purpose, including restoration, replacement
or modernization except:
(1) for use in a Government-owned, contractor-operated
plant operated on a cost-plus-fee basis;
(2) for support of industrial preparedness programs;
(3) as components of special tooling or special test
equipment acquired "or fabricated at Government expense;
(4) when, as a result of the prospective contractor's
written statement asserting inability to obtain
facilities, the agency head or designer issues a
Determination and Finding that the contract cannot be
fulfilled by any other practical means or that it is in
the public interest to provide the facilities; or
(5) as otherwise authorized by law or regulations.
If one of the above exceptions applies, FAR 45.302-l(d) still
prohibits the Government from providing any item of general
purpose equipment costing less than $10,000 unless the
contractor:
r
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(1) is a. nonprofit institution of higher education or
nonprofit organization that conducts scientific
research;
(2) is operating a Government -owned plant on a cost-plus-
fee basis;
(3) is performing on a Government establishment or
'installation; . .
(4) is performing under a contract that specifies that the
contractor may acquire or fabricate special test'
equipment or special tooling and related components
after obtaining contracting officer approval; or
(5) cannot obtain the equipment from other than Government
sources. ' .
FAR 45. 302-1 (d) merely provides additional restrictions on
providing equipment with a unit value of under $10,000 if an
agency determines that a 45. 302-1 (d) exception applies.
Decisions to not comply with FAR policies require appropriate
deviations.
Our review disclosed that EPA routinely provided general purpose
GFP to the ESAT contractor at both Edison and Lexington. Such
equipment (i;e. -office furniture and computers) having a unit
value .of less than $10,000 were provided without either meeting
any of the FAR exceptions that permit such actions or receiving
approvals to deviate from the FAR. The Agency recognizes there "
is a problem with their utilization of GFP and is currently
addressing this property issue and planning corrective action.
ANNUAL INVENTORIES WERE NOT PERFORMED
The ESAT contract requires annual contractor. inventories to be
performed and submitted to the PA on the- anniversary date of the
contract award. At . the Lexington facility, the contractor .
submitted an annual inventory, list to the RPO and the contractor
zone Headquarters in Virginia. This list was then forwarded to
the PA. However, at Edison, an annual inventory list was not
provided to the RPO or the zone office. ' In fact, in .1993 the PA
requested that the contractor conduct an inventory because one
had not been done since the contract's inception. Neither the
Edison RPO nor the PA had requested required annual inventories'
until 1993. The contractor team manager disclosed that, the
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contractor had never taken a physical inventory of GFP in their
possession. However, upon transferring GFP to ESAT, the
contractor's Las Vegas office performed a start-up -inventory in
1991. Therefore, between the start-up inventory and September
1993i annual inventories were not conducted.
The Contractor's Guide for Control of Government Property
(December 1988) referenced in the ESAT contract states, "A
physical inventory of accountable Government property must be
conducted annually on the anniversary date of the contract." FAR
45.505(a) also requires the contractor to establish and maintain
adequate control records for Government property.
\
A comparison of the contractor's 1993 arid 1994 inventories
revealed that 30 similar items worth approximately $11,500 were
missing in both years, including three self contained breathing
apparatus (SCBA), a laserjet printer, two key service units
(KSU), telephones, and other office furniture. However, in 1994,
additional items were missing including a lettering system,
Polaroid slidemaker, monochrome monitor, dot matrix printer, and
other office furniture.
Though some items may be deemed immaterial, EPA Procurement
Policy Notice 94-06 dated August 16, 1994, states that under the
FAR all property is accountable. The contract requires the
contractor .to immediately report .to the PA any items missing,
stolen or damaged. However, the zone coordinator only reported
stolen computers,(two desks .and a chair as missing. Two of the
ten EPA items reported stolen (a LaserJet printer and a 486/20
computer)'remain on the zone inventory list.
FAR 45.102 states that, "Contractors are ordinarily required to
furnish all property necessary to perform Government contracts."
Furthermore, according to the contract statement of. work, other
than equipment provided through the contract, all office
facilities and other general purpose equipment will be provided
by the contractor for administrative and operational functions of
ESAT. We found that.the Edison inventory consisted largely of
general purpose office equipment (desks, chairs, tables,
computers, telephones). Specialized equipment was located on-
site, while the off-site location maintained general purpose
office equipment in its inventory. .
Required annual inventories should be taken and submitted to the
PA to properly account for Government property in the
contractor's possession. Missing items should be resolved
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properly and promptly to ensure that GFP is appropriately
accounted for and safeguarded.
PIG INVENTORY DISCLOSED MISSING ITEMS AND
DISCREPANCIES
A November 1994, DIG inventory found 15 of 77 items missing (1-9
percent) with an acquisition cost of $13,757. These items
included SCBAs, lettering.system, slidemaker, laserjet printer,
KSU unit, etc. The FAR 45.505(a) requires the contractor to
maintain a property control system^which should be able to locate
all Government property.within .a reasonable period of time. The
contract further stipulates that the property control system
should be able to locate all Government property within two days.
Also, if items are missing, stolen, or damaged, a description of
these items, the date of the last inventory, cost, etc. must be
reported to the PA. The contractor's 1993 inventory disclosed
-that 13 of 15 missing items were not located. . Only the lettering
system and slidemaker were found in 1993. Although the 1993
inventory was provided to the RPO and the- contractor's zone
office, none of the items missing were reported to the PA.
We questioned four individuals regarding the missing items,, and
received four different responses. The contractor team manager
stated that all missing items were transferred to Puerto Rico.
The RPO said that only furniture -was sent to Puerto Rico, but no
computers. The alternate RPO said that computers and printers,
were sent. Facilities management personnel provided a list of
items sent to Puerto Rico, but computers and printers were not
included. Our .comparison of .the property list and the.missing
items found during the OIG inventory revealed that none of the
missing items were transferred to Puerto Rico. Furthermore, if
ESAT property was involved, there were no required contract
modification documenting this transfer. These inconsistent
statements and other data indicate inadequate oversight,and
.accountability for property in the contractor's possession.
Also, the Agency did not ensure that all property furnished to
the contractor was recorded in contract records as required by
EPA procedures.
* .*
\«
The OIG inventory disclosed other discrepancies, including
improperly tagged GFP, and items not listed in the contract or
any modifications. The EPA Contractor's Guide for Control of
Government Property, requires equipment to be properly classified
and labeled with an EPA property decal. This was not always
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done. For example, we found a $71,235 Government furnished ITT
telephone system without a required EPA decal. This.system was
acquired through modification 26 (March 9, 1993) and decal number
428795 was assigned but not placed on the'system. The contractor
team manager agreed with this.observation. We also found two
monochrome Government computers located in two different
contractor offices had the same decal number. One computer,
previously transferred from the FIT contract, had an EPA decal
whereas the'other had a handwritten number on it.
The contractor's 1994 inventory showed 72 additional items with
EPA decals not listed in the contract or subsequent
modifications. The RPO took action on three items. An EPA
mobile telephone (decal # 731697) was in the contractor's'
possession without the RPO's knowledge. He immediately regained
possession of the telephone when notified. Also, a contractor
purchased an AST Premium 486 computer {decal # 703687) used for
- administrative purposes -and will be given to EPA at the end of
the contract. According to the contract's statement of work, EPA.
cannot provide computers solely for administrative purposes. The
contractor claimed it was EPA's and placed a decal on it.
However, the RPO found that a decal number had not been assigned
to this property.
The third item, an Epson Equity III+ computer (decal # 691124)
should have been in the Virginia zone office. Although there was
no official transfer document, the RPO believed that it probably
was transferred as a result of the April and May 1994 thefts.
Since none of the remaining 69 items on the list exceeded $1,000,
the RPO decided not to take'any action. Although the EPA
Contractor's Guide requires the contractor to provide property
acquisition information and justification for its continued
needs, this was not done for the 72 additional items..
Providing the contractor with EPA property decals contributed to
these conditions.1 Without sufficient controls, the contractor ,
used these decals to improperly tag certain Government or non-
Government property. Since annual inventories were not taken or
incomplete, the contractor may not have been aware of which items
were Government property and required an EPA decal. EPA should
develop and implement procedures to ensure the contractor
properly labels and accounts for.all GFP. Neither the
contractor's property control system nor EPA's oversight have
ensured accurate or reliable reporting of GFP. We believe that
continuous accountability will substantially reduce inventory
reconciliation problems when the contract expires.
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RPO AND ZONE OFFICE MAINTAINED DIFFERENT INVENTORY
LISTS
We reviewed the contractor's November 1994', inventory taken as a
result of the Office of Inspector General's review. In addition,
the contractor's business manager located in the Virginia zone
office provided a different Edison inventory list which was
revised one week later.
However, we found many discrepancies between these lists. The
zone list included a $200,000 air monitoring system previously
transferred to Region 5 by modification 49 (February 25, 1994)
and two weather stations worth over $13,000 deleted by
modification 61 (July 26, 1994). These transfers and deletions
were accurately reflected on the RPO's inventorylist. We also
.found that seven computers, worth $14,700 purchased under
modification 28 (April 29, 1993) and a $71,000 telephone" system
acquired through modification 26 were excluded from the zone
list. 'These illustrate discrepancies between the lists. Since
the zone's list was sent to the PA, there was no assurance that
accurate GPP inventory in the contractor's possession was being
reported.
Accordingly,- FAR 45.505 (a), and (c). requires the contractor to
establish and maintain adequate control records for all
Government property.- These records must identify all such
property and provide a complete, current, auditable record of all
transactions. The discrepancies noted could be attributed to the
contractor's inadequate property management and inventory records
and procedures, and EPA personnel's inadequate knowledge of
responsibilities to effectively administer GFP. Inaccurate
records also make it difficult tov reconcile items and could
ultimately result in the loss of Government, property.
EPA REPLACED STOLEN COMPUTERS AND PROVIDED A
SECURITY SYSTEM
j
April and May 1994, thefts at off-site Edison offices resulted in
the loss of approximately $34,000 of computer equipment,
.including seven portable computers, a fax-machine, printer and
modem. However, during the November 1994 OIG inventory, we found
in the contractor's office the modem reported stolen. Another
modem not found during the contractor's inventory was later
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EPA's MANAGEMENT and OVERSIGHT of the ESAT CONTRACTOR
believed to be the one which was probably stolen. However, both
modems were in the off-site location during OIG's inventory
check. This illustrates.additional inadequate controls over GFP.
As a result of the thefts, EPA allowed the contractor to replace
all stolen computers and paid $1,500 (and $38.00\month for
monitoring) to install a security system at the off-site office
leased by the contractor. EPA did not receive reimbursement for
the stolen computers because of the contractor's $500,000
insurance deductible. According to FAR 45.502(a) and (b), the
contractor is directly responsible for Government property until
released from liability. Since the contractor is not released
from liability, because these incidents are still under review by
the CO, EPA should not have incurred these replacement costs at
the off-site facility. \ -, .
Furthermore, the contract's statement of work requires the
Government to provide building security to contractors at EPA
facilities. It also states that tasks II - VI Region 2 are
performed at a contractor provided facility within commuting
distance of EPA's Edison facility (Raritan Center). Since these
thefts occurred at the contractor provided facility, the
contractor should have provided building security. Therefore,
we do hot believe that EPA should have incurred costs for a
security system at this off-site contract facility.
CONTROL OF GOVERNMENT VEHICLES NEEDS IMPROVEMENT
Seven EPA vehicles from the FIT contract were transferred to the
ESAT Zone 1 (Region 2) contract under modifications 12 and 26
(October 13, 1992 and March 9, 1993). The vehicles were used for
Field Analytical Services Program activities. Since Region 2
subsequently discontinued these activities, the vehicles remained
idle at Edison. As a result, the RPO's October 7, 1993,
memorandum to the NPO requested removal of the seven vehicles and
other ESAT property. He stated that the vehicles were not
needed, and it would be in the Government's interest to remove
them from the contract. He concluded that they could be made
available'to Government personnel or other contractors.
Two of the seven vehicles were to be transferred to ESAT Region 5
under contract modification 49 dated February 25, 1994. However,
the vehicles were actually transferred on June 16, 1994, more
than eight months after the initial request. Also, EPA paid for
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more than $6,000 in repair costs ESAT incurred, between April and
June 1994, to make the two cars operable.
The remaining five vehicles were deleted frpm ESAT Region 2
property under modification 61 (July 26, 1994). Two vehicles
{1974 Mobile Laboratory and a 1987 CMC Van) were auctioned
through General Services Administration (GSA) Region 2 without
the knowledge of the RPO. The EPA Headquarters PA transferred
the 1974 Mobile Laboratory (cost of $25,725) to Region 2 on.
December 28, '1993. On.January 28, 1994, Region 2 informed GSA of
this excess vehicle. The transfer was made six months before
contract modification 61 (July 26, 1994) deleted the vehicle from
the ESAT contract. The RPO could not tell us- why it was
transferred to Region 2 without his knowledge. Moreover, GSA
auctioned the vehicle on September 27, 1994, without knowing the
keys were in the RPO's possession. This illustrates inadequate.
control and coordination between the Headquarters and ESAT PAs.
the second vehicle, a 1987 van (cost of $20,836) was auctioned by
the EPA .Headquarters PA through GSA Region 2 on February 25,
1994. The auction occurred about five' months before modification
61 deleted it from the ESAT contract. The RPO searched for the
vehicle (EPA 793) when he received modification 61 but did not
know it was removed from Edison and auctioned. The Edison
facilities management technician could only inform the RPO that
it was auctioned through EPA Headquarters.. Also the technician,
could not tell us how the van was auctioned and could only
provide GSA's copy "of the purchaser's receipt sent to Region 2.
As of February 8, 1995, no action was taken on the three
remaining vehicles (two 1989 Chevy step vans and a Chevy 4 by 2
van), with a total acquisition cost of more than $67,000.
Therefore,, they remained idle at Edison for .more than 15 months
after the RPO's deletion request, and seven months after the
modification. The RPO did not know why action to transfer,
auction, or find another user was hot taken on these vehicles.
Since they were deleted from the ESAT contract, he believed he
could not do anything.about them.
The Edison facilities'management technician indicated that the
three vehicles were not transferred to Region 2 but were in the '
custody of the ESAT property administrator. We were informed
that the custodian was responsible for either transferring the
vehicles to the Region or selling them. The RPO subsequently
received modifications PM 1 and'PM 2 {April 21 and May 24, 1994)
concerning the transfer of the property administrator
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responsibility to DCMC, We believe the RPO should coordinate
with the new PA to dispose of or transfer these vehicles .before
they further deteriorate and lose their resale value.
The RPO did not require the contractor to keep utilization logs
for the EPA-owned vehicles to record trips taken as required for
GSA leased vehicles. The EPA Order R-4900.5 requires utilization
records to ensure Government equipment is properly authorized and
used. All divisions or branches located at the Edison facility
require utilization logs for both its EPA owned or GSA leased -
vehicles. Without adequate utilization data, the PA has little
basis on which to question retention of infrequently used items.
We believe such logs or other records should be required to
assure that vehicles are used for Field Analytical Services
Program activities or other intended purposes.
We concluded that there was inadequate control of Government
vehicles. The auction of two vehicles without the RPO's
knowledge, who had possession of the keys, was one such example.
EPA Headquarters transferred the Mobile Laboratory to Region 2
six months before it was deleted and the 1987 van was auctioned
by EPA Headquarters five months before it was deleted from the
contract. We also found a lack of coordination between ESAT and
Headquarters PAs, the CO, the NPO and the RPOs. It appears that
these individuals 'did not know their roles and responsibilities
regarding excess vehicles. In addition, the transfer of the PA
function to DCMC contributed to the lack of action to dispose or
transfer the three Edison vehicles, which continue to lay idle.
We strongly believe that improved controls over GFP deleted or
transferred from contractors are necessary.
PA FUNCTION TRANSFERRED TO DCMC
On September 30, 1993, EPA entered into an Interagency Agreement
which designated DCMC as the PA for Government furnished property
and set up CPCOs to act as liaison between the contractor and the
PA. The PA, formerly an EPA employee, was changed without the
RPO's knowledge. Lexington and Edison RPOs believed that EPA was
still- overseeing the PA's role. Neither the RPOs nor the NPO
knew the name of the new PA. Although FAR 45.5 defined the PA as
the authorized representative to administer Government property
contract requirements and obligations, modification PM 1 did not
designate a specific employee. Instead, only a DCMC San Antonio
address was stated.
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The-CPC was the only person who received correspondence from
DCMC. The CPC stated that there were contract problems since the
PA is located in San Antonio, Texas and the property is in
Edison, NJ, and Lexington, MA. The CPC said that DCMC usually
sub-delegates the PA role to one of .their offices located closer
to the property in order to administer and oversee GFP issues.
However, DCMC had not done this for the ESAT contract. Based
upon concerns brought to DCMC during our review, we were notified
that plans were under development to redelegate the PA's roll to
an office located within the ESAT Zone 1 geographic area.
We found inadequate communication and coordination between the
PA, RPOs and NPO. The Edison RPO stated he previously called the
EPA PA when a property issue was raised-. Since the contract
modification did not delegate a DCMC person (only an address),
the RPO could not get proper direction for property related
issues. Other than the lack of awareness that the Interagency
Agreement transferred the PA function from EPA, we found ho other
concerns at Lexington. To effectively control GPP in the future
or resolve procedural issues, we believe that a point of contact
must be designated to .resolve questionable GFP issues.
GFP PROBLEMS HAVE A VARIETY OF CAUSES
ESAT contract property administration differed between.the
Lexington and Edison facilities. We believe that a higher
priority, as'well as additional controls and oversight, are
needed regarding GFP located at Edison. The conditions found
were caused by various contractor and Agency weaknesses. EPA did
not fully comply with the FAR and take effective-.actions to
require the contractor to comply with Agency and contract
property accountability requirements.
Specifically, the Agency did not ensure that: (i) contract
officials had adequate knowledge of GFP procedures and
'regulations, clearly defined roles and responsibilities, and
effective coordination; (ii) the contractor's property management
system was reviewed and approved as required; (iii).annual
inventories were performed, reconciled to property records, and
missing property properly reported; and'(iv) contract
modifications were timely issued .for items added or deleted.
The contractor's mislabeling property with EPA decals contributed
to the various conditions reported. EPA's inadequate controls
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over these labels allowed contractor.personnel to improperly tag
certain property. Other contributing factors included the
communication problems caused by transferring the PA duties to a
DCMC San Antonio, Texas address, and the belief that all property
discrepancies would be identified and resolved at contract close-
out. Many of these causes are discussed in various sections.of
this audit report.
One significant area not previously discussed was EPA's lack of
review and approval of the contractor's property management
system. FAR 45.104(b) and EPA's Contractor's Guide for Control
of Government Property, requires PAs or a designated
representative to review and approve the contractor's property
control system following contract award and to perform periodic
property system analyses thereafter. The purpose of .the system
analysis is to ensure that the contractor is complying with
established internal controls, property management regulations,
and contract provisions. However, neither the PA nor any
designated EPA representative reviewed and approved the
contractor's property system.
The contractor's zone business manager and zone coordinator both
stated that EPA had never reviewed their system. The new DCMC PA
also stated that there was no evidence in the property files to
show that EPA reviewed and approved the contractor's system. We
found that DCMC advised the zone coordinator to continue using
the same property system until he coordinated this area with
other DCMC officials and initiated- a review. Without such a
review and certification, there was no assurance that GFP was
adequately safeguarded and controlled. The ESAT contract
requires the property system to be reviewed and approved to
determine whether it is sufficient to assure compliance with
Government regulations and contract terms, and that property is
adequately accounted for, protected, maintained, and utilized.
In response to a position paper, RTP Contract Management Branch
personnel stated they had no evidence to contradict the majority
of the findings. Specifically, the response indicated that on .
January 13, 1995, the contractor provided-DCMC an Edison GFP
inventory and disagreed that EPA should not have incurred
computer replacement costs at the off-site facility. The
response also explained the property administration duties
transferred to the DCMC San Antonio office. It continued that
the PA should have contacted EPA and the affected company to
explain DCMC's process, but this was not done. Also, the RPOs
should have called the CO for property information matters.
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CONCLUSION
EPA's practice of routinely providing GFP gives contractors
little incentive or motivation to invest in equipment needed for
this contract. EPA could provide incentives to encourage
contractors to furnish their own equipment. Such incentives
could include increasing fees to reward contractors for investing
in, equipment, paying contractor's cost of borrowing money, or
using a fee arrangement. EPA could also negotiate a modification
of the existing contract requiring the contractor to replace
current GFP with contractor equipment as Government equipment
becomes obsolete or unusable. This requirement, which has been
embraced by other agencies, could be included in future
contracts until all GFP is replaced bywcontractor-owned
equipment. .
AGENCY'S COMMENTS AND PIG EVALUATION
OARM COMMENTS
in response to the draft report, OARM indicated that in the
Spring of 1994, GFP responsibility was transferred from the
Fa'cilities Management Division to the Office of Acquisition
Management (OAM). Since this transfer, 0AM has reviewed and
analyzed GFP management and action is underway to improve the
many weaknesses found. A draft policy guidance memo and proposed
FAR Class Deviation was distributed in June 1995. Comments
1 received are* being reviewed and addressed. OARM.recognized that
'EPA's management of GFP needs improvement and has taken necessary
steps to remedy the problem. , -
/ . ' '
OARM generally concurred with the OIG's recommendations. OARM is
preparing Agency policy that complies with the FAR to reduce GFP
provided to contractors and to provide criteria for situations
where GFP is needed. A CO/PO Guide was also drafted to provide
clearer roles and responsibilities for GFP management. In
addition, EPA offices were provided with DCMC Directories in
accordance with the OIG recommendation. The.CO is requesting
that DCMC perform a special review of the contractor's property
management system and- will require correction of any deficiencies
noted. Finally, the CO will require -the contractor to inventory
all Government property and submit results to the CO, NPO, and
DCMC for review. After receipt and review, the contractor will
be required to reconcile the physical inventory to property
s -
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EPA's MANAGEMENT and OVERSIGHT of the ESAT CONTRACTOR
records. Also, contracts will be modified to accurately reflect
GFP currently in the contractor's possession and which is
required for contract performance. Moreover, OARM is examining
the use of incentives to encourage contractors to provide their
own equipment.
Regarding draft recommendation 8 (controls over EPA decals), OARM
agreed that FAR 45.502(a) requires that contractors establish and
'maintain a system to control, protect, preserve, and maintain
GFP. Although contractors routinely assign a unique property
identification number, they are not required to use EPA provided
decals. OARM believed that the contractors own property control
system rather than EPA decal usage, contributed to any perceived
'problems. The CO will request DCMC to conduct a special property
review and require the contractor to correct any deficiencies.
Regarding draft report recommendation 9 {control of Government
vehicles), OARM generally agreed with the OIG concerns. They
concurred that two of five deleted vehicles were prematurely
disposed of and not in accordance with established procedures.
As a result, the CO will reemphasize the importance of following
established procedures. However, OARM believed the three
remaining vehicles were properly deleted and neither the RPO, NPO
nor CO had any continuing responsibilities.
OSWER's response to the draft report indicated that annual
property inventories are the contractor's responsibility which
should be submitted to the PA. Also, the ESAT Contract
Management Manual erroneously states that the RPO provides a GFP
inventory list to the contractor. This error will be corrected
in the next revision.of the Manual. The OSWER contract
management team agreed that overseeing GFP is an important
function that extends beyond the scope of 'the ESAT contract and
should be addressed'on an Agency-wide basis.
OIG EVALUATION
We are pleased that OARM agrees with- the OIG's recommendations to
improve controls over GFP. We believe that the actions proposed
and taken to date will improve and strengthen these activities.
We recognize that the overall property control system weaknesses
contributed to GFP management concerns. However, we.believe
controls over decals, a component of the property control system,
needs improvement. This issue should be addressed as part of the
proposed DCMC property system review. Therefore, we have
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EPA's MANAGEMENT and OVERSIGHT of the ESAT CONTRACTOR
eliminated recommendation 8 and included these concerns' as part
of recommendation 4.
Regarding controls over Government vehicles we are pleased.that
the CO will reemphasize with the RPOs the importance of following
established procedures for excess contract, property. Although
the remaining three vehicles were properly deleted from the
contract, they should have been transferred in a timely manner to
Region 2 since they were not needed for other ESAT activity. As
of February 8, 1995, Edison officials stated that these vehicles
had not been transferred to Region 2 and therefore could not be
.disposed of or excessed. The RPO's August 1, 1995, memorandum to
the NPO indicated 'that- paperwork to excess these vehicles was
completed in June 1995 and are scheduled to be sold by September.
30, 1:995. We believe the RPO, NPO or CO had a further
responsibility to timely transfer or dispose of deleted property,
rather than let it lie idle and lose any market value.
We strongly believe that, the following recommendations will ' . .
strengthen the Agency's controls over Government property that
has been or will.be furnished to contractors.
RECOMMENDATIONS
We recommend that the Assistant Administrator, Office of
Administration and Resources Management instruct the Director)
Office of Acquisition Management to: "
1. Evaluate the propriety and cost effectiveness of
providing GFP (especially general purpose items) to
ESAT staff, particularly at off-site locations.
\
2. Develop and implement an Agency strategy that (i)
complies with the FAR and minimizes the amount of
general purpose equipment provided to contractors, (ii)
includes criteria when equipment should be provided,
, and (iii) addresses the use of incentives to encourage
contractors to provide their own equipment. For
example, contractor acquired equipment could be sold to
the successor' contractor at the depreciated value.
This could save administrative costs of controlling GFP
and replacement costs for stolen, lost, or-damaged
items. .' '
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EPA's MANAGEMENT and OVERSIGHT of the ESAT CONTRACTOR
3. Provide regional project officers, national project
officer, and contracting officer with additional
guidance of their roles and responsibilities regarding
GFP. This guidance should be coordinated with the DCMC
property administrator. These individuals should also
be informed of. the property administrator's and
contract property coordinator's names, addresses, and
telephone numbers to establish a point of contact for
problem resolution. .'
i
4. Direct .that the contractor's property management system
be reviewed and approved to comply with EPA and
contract requirements. Such a review will substantiate
. that property is adequately controlled, protected,
preserved, maintained, used, and reported. This review
should also determine whether improved controls over
property decals are needed.
5. Require contractors to conduct accurate annual
inventories and submit a certificate of completion of
inventories to comply with property regulations and
conditions of the contract. These inventories should
be reconciled to property records.
6. Coordinate with the DCMC property administrator to
perform periodic independent reviews of GFP provided to
contractors. ' This review should be reconciled against
contractor property lists to verify the items reported
are accurate.
7. .Require the contracting officer to modify the ESAT
contract to include all GFP in the contractor's
possession as required by EPA procedures.
8. Encourage continuous coordination between the
contracting officer, national project officer,
regional project officer and property
administrator regarding control of Government
vehicles. The three idle Edison vehicles should be.
transferred or auctioned before they become
inoperable or lose their resale value. Also,, the
contractor -must maintain vehicle utilization logs
to record the date, driver, beginning and ending
mileage, and destination.
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EPA's MANAGEMENT and OVERSIGHT of the ESAT CONTRACTOR
CHAPTER IV
CONTROLS OVER CONTRACTOR'S WORK NEED
IMPROVEMENT
Our review of work assigned to the ESAT contractor at the
Lexington, MA facility disclosed that certain improvements were
.necessary in the planning, monitoring, and evaluation process for
contractor work products. We found that:
1. .actual time charged for tasks, could not-be accurately
measured, and controls did not exist to ensure that
time estimates were adjusted for future similar tasks/
2. procedures requiring Agency approval through
modifications of existing tasks were not being followed
for labor hour estimate overruns; and
\ ' '
3. task monitors did not always rate completed tasks in a
. timely manner as required.
i
These conditions, were caused by inadequate oversight,and control
over TIDs and the low priority they were given. As a result,
estimated and actual hours were not effectively tracked and did
not reflect the actual time spent, to complete a task. Also, an
effective system was not available to track the status of TIDs
and acknowledgment of completion forms, which contributed to the-
RPO's inability to effectively oversee the task monitors'
workloads.' In addition, untimely rated contractor deliverables -
minimized the value of any rating provided.
EPA task monitors utilized TIDs ,to inform the ESAT contractor of
a specific task to be performed. Approximately 600 TIDs were
issued at the Lexington facility during a semiannual reporting
period {March1 31st and September 30th) . TIDs must, be approved
(signed) by the RPO, before they are sent to the ESAT team
manager. If the contractor does not agree with the budgeted
labor hours for the task, they can request a TID modification.
In general, the RPO modifies,a TID if the time the contractor
needs exceeds'the original budgeted labor hours by 10 percent.
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iTELY MEASURED
We found that actual time charged for tasks were not properly
tracked and therefore, could not be accurately measured. ,-
Further, controls, did not exist to ensure time estimates were
adjusted for future similar tasks. For 541 tasks we reviewed,
301 (58 percent) were completed in less time than budgeted.
However, our analysis of task folders for performance period five
disclosed these statistics to be misleading because some tasks
extending over a six month award fee reporting period were closed
out and reopened as new tasks. As a result, it appeared these
tasks were completed in a timely manner, when in fact they were
continued as new tasks. Acknowledgement of completion (AOC)
forms were generated by the contractor, even though the task work
was not completed.
The Lexington RPO advised that the only way to determine if a
task was closed out and reopened in a subsequent performance
rating period would require reviewing individual folders. The
closed out tasks are reopened under new assignment numbers. The
RPO's manual log system did not contain this information.
We judgmentally selected five tasks closed at the end of rating
period number '7 (March 31, 1995) and reopened" for rating period
number 8 (April 1, 1995). In two of these cases, we found that
the task appeared to be timely completed when in fact it was not.
For example, 50 hours were estimated for TID #01-95-0321 dated
March 17, 1995, with a proposed completion date of April 4, 1995.
Because this TID extended beyond the March 31, 1995 performance
period it was closed and the.contractor issued an acknowledgment
of completion form on April 4, 1995. The acknowledgment stated
the TID was completed March 31, 1995, using 47.5 of the 50
budgeted hours. On March 31, 1995, a new TID was issued, (#01-
95-044'0) , starting April 1, 1995., with a proposed completion date
of April 4, 1995 (original completion date .established in.TID
#01-95-0321). The new TID provided for 18 hours and the
acknowledgment of completion form showed that 18 hours were used.
On face value it appeared that two TIDs were timely completed,
with 47.5 of 50 estimated hours utilized to complete TID #01-95-
0321, and 18 of 18 estimated hours utilized for TID #01-95-0440.
In fact, 65.5 hours were used to complete the same work initially
estimated for 50 hours, (31 percent increase).
The lack of tracking continuity, from work assigned to work
actually completed, prevented the RPO,from accurately knowing how
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EPA's MANAGEMENT and OVERSIGHT of the ESAT CONTRACTOR
long a task took. Additionally, this prevented the utilization
of historical data when establishing estimates for future tasks.
MODIFICATIONS NOT PROVIDED FOR LABOR HOUR OVERRUNS
We found that procedures were not being followed for 'labor hour'
estimate overruns. Of 541 tasks reviewed for the period of
October 1, 1993 through March 31, 1994, there were 116 tasks
where the contractor exceeded the estimated budget by 10 percent.
Our analysis of a random sample of 39 of the 116 tasks disclosed
that 26. (67 percent) were not modified by EPA. For example,
although TID#01-93-ll44 (incorrectly identified as #01-9.4-1144 in
draft) was budgeted for 25 hours, the acknowledgment , of
completion detailed that 54 hours were used {a 116 percent
increase} . The TID was not modified as required.
The ESAT Contract Management Manual requires the RPO to track the
time necessary to complete a task to ensure that appropriate
estimates are budgeted for future similar tasks. "The RPOs must
approve (sign) TIDs before they are sent to the contractor's ESAT
team . manager . If the contractor does not agree with the task's
budgeted labor hours, they can request a modification. In
general, the RPO modifies a TID if 'the time needed will exceed
the original budgeted hours b'y 10 percent. A task monitor stated
that modifications are always given to the contractor, regardless
of whether they are justified, because "EPA needs the work done."
We believe that when the contractor exceeds the budgeted labor
hours and no EPA modification is given, the task monitor should
reduce the contractor's rating for the completed task.
The RPO stated that he did not review the task monitor's
estimated hours established for each task. Further, he placed
full reliance on the task monitor and was not aware of the use of
historical -data to formulate estimates. The RPO questioned the
importance of budget estimates for each TID because "we have to
pay the contractor if he is working or not working because it's a
dedicated contract." He further stated he was more concerned
that the contractor met the contract's established minimum
baseline hours than the time required to complete individual
tasks. .
Other EPA laboratories have developed successful monitoring
tools. For example, the. Annapolis Laboratory established an
estimating model for use in developing task budgets using
historical data. . '
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EPA's MANAGEMENT and OVERSIGHT of the ESAT CONTRACTOR
In our opinion, the manual log system currently utilized by the
RPO does' not provide rudimentary information necessary to
effectively plan, manage and evaluate work provided to the
contractor. Therefore, the RPO does not have the ability to
utilize historical data without reviewing every file for each one
of the 600 TIDs generated every six months.
Unless Lexington improves the current system, unnecessary Agency
costs could result. Under the current system, different task
monitors could provide different labor hour estimates for the
exact same work. Further, the possibility exists that a
contractor could complete tasks ahead of time, over report time
usage, use the remaining time for their own benefit, and submit
increased costs to the Government for reimbursement. Without
adequate controls and concern over potential overbilling of time,
the Agency has limited assurance that all costs incurred are
necessary and reasonable.
TASK DELIVERABLE EVALUATIONS NEED TO BE MORE TIMELY
Our review of 541 TIDs issued for period number five (10/1/93 to
3/31/94) disclosed that 232 TIDs (43 percent) were not reviewed
and evaluated by task monitors until at least 30 days after task
completion. In addition, 27 of these TIDs' (13 percent) exceeded
90 days, some as long as 180 days.
The ESAT Management Manual and Award Fee Coordinator's Guide
require ratings to be determined as close as possible to the
completion of the .task. : This would ensure that the contractor is
informed of their performance, especially if it is poor, and
enable them to take timely corrective action.
Task monitors in Lexington sometimes reviewed the work as' much-as
.150 to 180 days after it was completed. A deliverable received
before the March 31st or September 30th rating period might not be
rated until the end of the rating period. For example, although
eight tasks,were completed in October 1993, they were not rated
until March 1994 (the end of the rating period). At that point,
we believe any rating or financial review is of marginal benefit.
Task monitors advised that ratings were delayed in some cases
because acknowledgement of completion (AOC) documentation gets
separated from the rest of the TID documentation or deliverables
get misplaced. At the end of each rating period, the RPO advises
task monitors of the need for ratings for award fee purposes.
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Another concern we have about untimely reviews was the.task
monitor's methodology of comparing acknowledgment of completion's
to TIDs to ensure appropriate hours and labor costs. The RPO
stated .that the task monitor's review of these documents was the
primary oversight effort to ensure costs were correct for
individual tasks. However, task monitors did not perform any
analysis to ensure hours claimed on the monthly financial.report
were supported by the hours reported on the acknowledgment of
completion or in line with the TID time estimates. The RPO
believed there was no benefit to having task monitors review this
data. Further, the RPO believed that the task monitor should not
.have access to the financial reports because the reports
contained confidential business information. Conversely, at the
Edison facility we found that detailed contractor weekly
information was provided to task monitors to oversee their
specific tasks. The Edison RPO advised that weekly information
was more current and made reviewing labor charges much easier.
The lack of an effective perpetual system to track acknowledgment
of completion status, the low priority the acknowledgment of
completion process was given, .and the RPO's inability to
effectively oversee task monitor's workloads seriously detracted
from timely reviews of task completions.
In conclusion, our review of work assigned to the ESAT contractor
at the Lexington facility "disclosed that certain improvements
were necessary in the planning, monitoring and evaluation
processes used for contractor tasks. Based on the current
system, we believe there was a need for increased assurance that
contractor work was adequately planned, managed, evaluated and
costs were controlled.
AGENCY'S rOMMTCNTS AND OIG EVALUATION
OSWER COMMENTS
On August 30, 1995 the Assistant Administrator of the Office of
Solid Waste and Emergency Response (OSWER) responded to the draft
report. He stated that he believed the "RPO has an effective
system for controlling and tracking contractor work...." The
reply stated that since the new ESAT contract will shift from
TIDs to work assignments there was no benefit gained by
implementing the OIG recommendations. OSWER advised they will
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EPA's MANAGEMENT and OVERSIGHT of the ESAT CONTRACTOR
analyze the WA process to determine if the recommendations were
applicable.under the new system.
Regarding recommendation 1, the Lexington RPO advised that much
of the work was of a non-routine nature and did not lend itself
to an estimation by formula. The RPO also advised that
performing a trend analysis of completed work was "highly
inappropriate". The RPO stated that this presumes that the
contractor's time spent for the completion of projects is the
best gauge of time required. Further the RPO believed this would
lead to a lack of incentive on the part of the contractor to
complete work in a timely manner.
Regarding recommendation 2, the RPO advised the draft report was
incorrect that there was a "lack of tracking of incomplete
projects scheduled into a subsequent period." He also stated
that incomplete tasks were tracked. Regarding recommendation 3,
the RPO indicated that he maintained a complete database of
pending and completed AOCs. The RPO advised the Region has
always utilized manual and computer systems to track contract
information.
PIG EVALUATION
In our opinion, improvements are needed over the planning,
monitoring, and evaluating process for contractor work products.
We disagree that because the contract was shifting from a TID to
a Work Assignment contract OIG concerns are of no benefit.
Under all types of cost reimbursable contracts the RPOs are
responsible for developing cost estimate's for work to be ,
completed, controlling work assigned, ensuring timely review of
deliverables as well as providing ratings for the award fee
process. This is true for contracts utilizing the work
assignment format.
We agree that some of the work was of a non-routine nature.
However, task monitors and RPOs advised that much of the work was
very definable to the point that the contractor utilized standard
operating procedures (SOP) or protocols to carry out the analysis
for much of the ESAT analytical services. We strongly believe
that if formulation of SOPs was possible because the analysis or
task was repetitive.in nature, that development of a estimation
model was feasible in many cases. Additionally, other
laboratories utilizing the same SOW as Region 1 have developed
estimation models based on review of historical data. RPOs
should use their expertise together with the trend analysis
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results to provide more reasonable estimates for specific tasks.
These estimates should be flexible and modified based on actual
results.
Regarding tracking historical data, the ESAT Contract Management
Manual Chapter 9-11 .states: "to aid you in assessing the
reasonableness of contractor charges, you should consider" "
tracking costs for similar activities over time.to provide a
.comparative baseline...Tracking historical costs and LOE is also
useful in developing the estimates for future TIDs or WUDs [work
unit document]-." We also believe that tracking such costs is a
highly appropriate tool to help carry out the oversight
responsibilities'of the ESAT contract. '
The draft report indicated a lack of tracking continuity from
assignment of work to its actual completion if it extended over
two rating periods. The RPOs manual log did not delineate that a
project was initiated in a prior period, under a different task
number, or the hours estimated and used in the prior period under
the original task number. During the review the RPO advised that
to obtain this information he would have to review each task
file. In our opinion, the current RPO log was not fully
effective in tracking the status of work from assignment to
completion. 'Also rudimentary information such as estimated time,
and start date; actual start date, time spent, and completion
date; date AOC received; and date task was rated was not included
in the RPO's log.
The responsesindicated a log was. maintained for projects that
would extend into a subsequent period. This was contrary to
information provided during a May 5, 1995, interview with the
RPO. Additionally, in followup discussions the RPO advised that
he used a log that the contractor generated and maintained to
control the tasks assigned bv EPA. The RPO was unable to provide
us with the excerpts of the contractors log for time frames
requested. The RPO advised that the log was of minimal value
"after a new performance period was underway, therefore it was
probably destroyed.
Although the-Lexington RPO advised there was a complete database
to track AOCs, this was not consistent with what we observed
during our fieldwork. Upon request, the'RPO could not provide us
with evidence of the existence of an Agency-maintained database
that tracked the status of pending or completed AOCs.
Based" on the response we have deleted recommendation 4 from the
final report. . . !
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EPA's MANAGEMENT and OVERSIGHT of the ESAT CONTRACTOR
RECOMMENDATIONS
We recommend that the Assistant Administrator, Office of Solid
Waste and Emergency Response instruct the Director, Hazardous
Site Evaluation Division to require:
1. The RPO to perform a periodic trend analysis of
completed TIDs or WAs to ensure that ,task monitors/work
assignment managers give more appropriate estimates for
tasks. It is possible that a contractor could complete
a task before the budgeted time, use the remainder of
the time for their own benefit, and charge the
Government for increased direct costs.
2. The RPO to .develop an improved system to maintain more
effective control when a TID or WA overlaps two rating
periods. Acknowledgment of completion forms should not
be used for incomplete tasks that are not completed.
3. The RPO to maintain a manual or automated database to
facilitate the timely review of completed tasks.
Management reports should be generated which shows the
status of TIDs or WAs, deliverables, and ratings. To
assure timely ratings, reasonable time frames should be
established.
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EXHIBIT 1
Process for Questioning Voucher Charges
Review invoice
us i ng check 11st
Are costs
within the scop*
of work?
Are there
quest!enable
charges?
Request back-up
documentation and
recommend
suspension.
Inform Contracting
Officer of
recommendation and
approve the balance
for payment.'
NO
Recommend
dlsallowance.
Action
taken by
Contracting
Officer
NO
Approve invoice.
for payment.
' \
Is back-up >y NO
adequate? ^^
^ /
Recbmend
suspended charges
/ Action by
I Officer
V ;
Request contractor
resubmlt suspended-
charges for payment
65
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EPA's MANAGEMENT and OVERSIGHT of the ESAT CONTRACTOR
EXHIBIT 2
Finding No.
i
SCHEDULE OF FINDINGS
Description
Facility
Contract Financial Management
Needs Improvement
Better-Controls Over Government
Furnished Property Needed
Controls Over Contractor's Work
Needed Improvement
Both
Edison, NJ
mainly
Lexington, Ma
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EPA's MANAGEMENT and OVERSIGHT of the ESAT CONTRACTOR
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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON. D.C. 20460
-APPENDIX I
Page 1 of 44
AUG 30 1995
V
y
MEMORANDUM
OFFICE OF
. SOLID WASTE AND EMERGENCY
' RESPONSE
SUBJECT: Response to the Office of Inspector General Draft
Report'on Audit of EPA.'s Management and Oversight of
Eastern Zone Environmental Services Assistance Team
(ESAT) Contractor, eport No/E1SKF5-7P2-0010
PROM: Elliott :P> Laws
Assistant Admini
TO: El'issa R. Karpf
Deputy Assistant Inspector General
for Acquisition and Assistance Audits
The purpose of this memorandum is to transmit ,the Office of
Solid Waste and Emergency Response's (OSWER) comments on the
Office of Inspector General (OIG) draft Report on Audit of EPA's.
Management and Oversight of Eastern Zone Environmental Services
Assistance Team ,(ESAT) Contractor, Report No. "E1SKF5-02-0010. We
reviewed the draft OIG audit report to ensure that, it is factual '
and is presented .in a fair and equitable manner. Below are our
specific comments on the OIG's findings and recommendations and
some general observations on the draft report's conclusions and
methodology. , . .
Specific Comments on Findings and Recommendations. . .
*
OIG Finding l;
i \ '
ESAT contract financial management.needs improvement.
OSWER Response: .
Suspending questioned costs until the contractor provides
necessary supporting documents is always an option, and the
Regional .Project Officers (RPOs) and Project Officer (PO) are now
aware of this effective cost management tool and have been
encouraged to use it, when appropriate. Suspension of costs
should be based on substantive reasons it-shquld-.be the
exception rather than the rule. As described in Attachment I, \
the contract management team (RPOs/PO/Contracting Officer (CO))
has implemented a process where costs may be questioned prior to
recommending payment until the cost issues are .resolved
satisfactorily in the allocated amount of time. If resolution is
not achieved within the allocated amount of time, the contract
Recycled/Recyclable . Primed with Vegetable Oil Bas£9ks on 100% Recycled Paper (40% Postconsumer)
-------
APPENDIX I
Page 2 of 44
2 .
management team will take action to suspend questioned costs when
substantive reasons exist. For obtaining documents to
substantiate the validity of questioned costs, the contract
management team has been instructed to only see!-: those documents
which are responsive to its inquiry. We do not support the
routine collection of airline tickets, telephone bills, time
cards, and other such documents, unless they are responsive to
the questions being asked. We also do not support the OIG's
assertion that because costs have not been suspended in the past,
the internal- cost control and payment procedures in the ESAT
contract are weak.
There appears to be a major conceptual difference between
the program office and the OIG on the roles and responsibilities
for making determinations regarding the reasonableness,
allocability, and allowability of costs. Consistent with OSWER
Directive 9200.5-401, the RPOs and PO are only responsible for .
making reasonableness of cost determinations. They are not
auditors and, therefore, should not determine the allocability
and allowability of costs. Determining allocability and
allowability of costs is the function of an auditor at the
direction of the CO. Although reasonableness pi charges should
always be questioned, an analysis of the service center charges
shows that they are outside the purview of the P.POs and PO.
Since Region I was not given an opportunity to comment on
the OIG position papers, we recommend that the OL,'G auditors
review its comments on the draft audit report wh.Lch are presented
in Attachment II.. We hope that after careful review, the OIG
will correct many of the misstatements, errors, a.id omissions in
the final OIG report'. In our judgment, the Region I RPO is
providing adequate oversight of ESAT contractor 'labor costs.
,We believe that the ESAT contract contains adequate
provisions for insuring that the Agency does not. incur, charges
for non- ESAT. employees. As suggested by the" OIG, we believe that
additional procedures, such as periodic floor and time and
attendance checks, are not warranted." Such checks would
potentially place Agency employees in a supervisory/subordinate
relationship with the contractor and may be an indication of
personal services. Accountability for not charging the Agency
for non-ESAT employees always rests with the contractor. If it
happens again, the award fee process is an effective tool to
indicate to the . contractor that such improper charges will not be
tolerated. ', . ' . '
Proper invoice review and payment procedures have been
followed to detect and determine' the allowability of bottled
drinking water charges. On August 7, 1995, the CO made a
determination that certain bottled water, charges are disallowed.
Consequently, . the RPO and PO will verify the recovery of
$,4,729.52. .
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C
PIG Recommendations from Finding 1
j
"Recommend that the AA OSWER instruct the Director, Hazardous
Site Evaluation Division (HSED) to 'implement the following
procedures.to improve management, oversight of contractor costs."
PIG Recommendation 1; ,
"Require the RPO and National Project Officer (NPO) to
suspend payment on all questionable .items until documented
as valid charges. Supporting documentation should be
requested and reviewed. Such documentation should include,
but not be limited ,to, receipts for travel 'expense, air
. . fare, rental car,'telephone callsj and hotel bills."
OSWER Response: , .
We will ' require the RPOs and PO to suspend payment on all
questioned items of a substantive nature until they are
determined to be valid charges. We will further require
that the RPOs and PO request and review supporting
documentation, when their question(s) can be answered by
such documents'. We will' require that the RPOs and PO
document their reason for acceptance of,questioned costs ,
which appear to be non-substantive. This documentation may
be in the form of additional documents (bills or invoices),.
correspondence from the contractor, records of telephone
conversations or meetings, or information from other
contract management sources (e.g., PO or"CO).
PIG Recommendation 2;
'x., ' . - ' , ' '
"Instruct the RPOs and NPO to document telephone calls and
meetings with the contractor to resolve questionable costs.
. Communications should outline topics of conversation,
information requested and provided, .and decisions made.
Also, require the NPO and RPOs to implement a'tracking
; system to effectively monitor contractor requests and
replies to questionable costs." ' '.
i _ .
. OSWER Response: . . ;
We will instruct the RPOs and PO to document telephone calls
and meetings with, the contractor in which resolution of
questioned.cost's is determined. -We will also instruct the
RPOs and PO to implement a tracking (filing) system to
' effectively monitor contractor requests and replies to
questioned costs. ' . '
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APPENDIX I
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OIG Recommendations 3 & 4; ' '
"Direct the NPO and RPOs to periodically (i.e.
quarterly) review program or regional support
documentation to validate the reasonableness and
appropriateness of these charges."
"Instruct the NPO to validate indirect billing rates-
prior to authorizing payment. The contractor could be
instructed to place the billing rates on payment '
invoices to assist the NPO in determining-the accuracy
of these rates."
OSWER Response;
We cannot concur on OIG Recommendations 3 & 4. There is no
"reasonableness" determination to be made for program or
Regional support charges. The RPOs and PO do not validate
charges. Validation of charges is an audit function. .
According to Chapter 6 of the Contracts Management Manual,
validation of indirect billing rates is the function of the
Servicing Financial Office.
OIG Recommendation 5:
"Require the RPO to use task monitors to review and certify
the reasonableness and appropriateness of. claimed costs on
financial reports prior to recommending approval. Task
monitors are-most familiar with the contractor's work and in'
the best position to determine the reasonableness and
appropriateness of charges."
OSWSR Response:
We will remind and encourage the RPOs to ask the task
monitors to assist them in determining the reasonableness of
costs. Although task monitors may have direct knowledge of .
the contractor's work, they may not be as knowledgeable as
the RPO-about costs. Therefore, it would be unreasonable
to make consultation of the task monitor on cost issues a
mandatory requirement. Furthermore, the new ESAT contract
will be.a Work Assignment (WA) contract which will use WA
managers in lieu of task monitors.
OIG Recommendation 6:
"Direct -the RPO to periodically perform time and attendance
or floor checks to verify the accuracy of labor' charges and
identify unauthorized individuals occupying ESAT space."
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j 'OSWER Response:
We nonconcur on OIG Recommendation 6. Penormance 'of time
and attendance or .floor checks is a supervisory function
which could place the RPO in a vulnerable ..perspnal services
relationship.with the ESAT contractor.
QIG Recommendation 7;
"Instruct the NPO to independently determine whether the
contractor's hon-ESAT employee's charges have been correctly
| \ . 'credited to the contract.- Also, establish and implement
i. ' procedures for prior approval before the ccatractor places
i - non-ESAT employees in ESAT office space."
. OSWER Response: - t '
' . The PO has already verified .that the non-ESAT employee costs
' , . had been credited to the ESAT contract. The contractor has
/"" ' been instructed that office leases are considered
' subcontracts and, as such, require the CO's approval. .This
'includes changes (e.g., sharing space.) in previously ESAT-
dedicated locations. Establishing additional procedures
j which require the contractor to follow those already in
place is redundant,' inefficient, and unnecessary. Because
OIG Recommendation ,7 has been addressed, we recommend that
it be deleted from the final OIG report. . .
OIG Recommendation 8; -' :
"Instruct the NPO to determine whether unreasonable bottled
water charges were accurately credited to the contract."
. . <
. OSWSR Response;
, ' On August 7, 1995, the CO disallowed certain bottled water
charges. The ESAT contractor has been directed by the CO to
credit the contract for bottled drinking water charges that
were disallowed. The PO will ensure that rthe bottled water
;_ charges: are credited to the ESAT contract.
i. . . .
OIG Finding1 -2: '
Better controls over Government furnished property needed.
OSWER Response: . ,
OIG Finding 2-and the associated recommendations will be
addressed^ by the Office of Administration and Resources
Management (OARM). -. ' , ,
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APPENDIX I
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OIQ Finding 3:
Controls over contractor's work products n'-'id improvement.
OSWER Response: ' .
Specific comments on OIG Finding 3 are described in Regions'
I and II response to the draft audit report (see Attachments I.I
and III) . - .
OIG Recommendations from Finding 3 . . .
OIG Recommendations- 1-4 ;
"Recommend that the AA OSWER instruct the Director HSED to
require: ' .
, The RPO to perform periodic trend analysis of completed
TechnicalInstruction'Documents (TIDs) to ensure that"
task monitors give appropriate estimates for tasks. It
is possible that a contractor could complete a task
before the budgeted time, use the remainder of the time
for their own benefit, and charge the Government for '
increased direct costs. i
The RPO to develop a system to mainta'n effective ,
control when a TID overlaps two rating periods.
Acknowledgment of completions should .uot be used for
incomplete tasks. . ,-
The RPO to maintain a manual or automated database to
facilitate the timely review of completed tasks.1
Management reports should be generated that show the
status of TIDs. To assure timely ratings, reasonable
time frames should be established. ' . '
. The RPO to reduce contractor ratings when budgeted
labor hours are overrun, arid no TID modification was.
issued." .
, . i
OSWER Response;
Since the, new ESAT contract will shift .from a TID to a WA
contract in a few months, there is no benefit to be gained
by implementing the above OIG recommendations. We will
analyze the WA process to determine the extent to 'which any
of the OIG recommendations are still applicable. If any of
the OIG recommendations are applicable, we will incorporate
them in the new ESAT contract WA system.
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APPENDIX I
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!
OIG. Find-ing 4: , , -'".
Federal Managers' Financial Integrity Act contract,
management reviews not performed, . -
Proposed new ESAT contract.
OSWER Response: ' . «.-.. . /
. we would like to note that the Federal Managers' Financial
Integrity Act {FMFIAJ, requires .that event cycles'be reviewed at
least every 5 years, not in 2 years as implied in the draft OIG
audit report. The issues regarding the proposed, new ESAT , '
contracts have already been .'raised, in the OIG Draft Report on
Survey of Acquisition of Analytical Support. Report No.' E1SK4-07-
0053, dated March 16, 1995. , '. .
1 * '
OIG Recommendation from Finding 4 .
- / ' '
Although the following recommendations are directed to the
AA OARM, we have provided a few comments on these
recommendations. > ,
OIG Recommendations: - ' '' .
Establish and implement procedures to ensure contract
management reviews are conducted as an event cycle
under FMFIA. This action should be accomplished as
soon as possible. . . . ! '
(s * * '
The proposed new statement of work should clearly
delineate between acceptable and unacceptable
practices. .
Contracting officials for the new ESAT procurement -. - -
should consider.other types of. contracting mechanisms
(i.e., fixed-price or hybrid cost reimbursement
. ' contract). . , ,
OSWBR Response; -
Contract management reviews were conducted by the
Headquarters program office in Region I in .August 1994, and
in Region II in May 1995. The contract management review
reports for both Regions, have been completed and were
submitted to the Regions for implementation- We believe
these contract management reviews fulfill the requirements
under FMFIA. With respect to the proposed new ESAT
contracts, OSWER has extensively commented on the QIG Draft
Report on Survey of Acquisition of Analytical Support.
Because the findings and recommendations in Chapter V. Other
Matters.' have already been addressed, we recommend that they
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r
APPENDIX I
Page 8 of 44
be deleted from the final OIG audit.
General Comments on Draft Report
Although there are some valid suggestions, we disagree with
some of the findings and recommendations which are contained in
the draft report. After review of the draft report, we have
concluded that it contains many inaccuracies and does not present
the facts in a fair and equitable manner". These inaccuracies or
errors may be due to the OIG's omission to give OSWER and Regions
I and II an opportunity to comment on the Position Papers on
which-the.draft report was based. Consistent'with the OIG's own
policy to permit audited parties an opportunity to furnish
written comments on tentative report material, we asked the RPOs,'
who are most familiar with^the day-to-day operations of the
Eastern Zone ESAT contract, to provide written comments on the
draft report. We have attached their comments (Attachments II &
III) to our response and hope that the OIG will consider them in
correcting many of the documented inaccuracies and omissions in
the draft report. * . '
We would also like to note that there is a major conceptual
difference between .the OIG and-the Agency on the.roles and
responsibility for making cost determinations. . The PO and RPOs
only have- a responsibility to determine reasonableness of cost,
they do not make allowability or allocability determinations.
The PO and RPOs are not trained or expected to y «»rf orm as
financial auditors. They are the CO's technical' representatives.
They know how to write, task and' evaluate technical support and
have a responsibility for determining the reasonableness of the
costs which are charged for such support. They are not trained
to audit financial reports, nor are they trained to audit the
service center/program support cost or to determine overhead
rates. These audit functions are included in allowability. and
allocability determinations which are within the purview of the
CO. ' ' ,
We belieVe that discussion of the proposed new ESAT contract
under the section entitled Other Matters repeats the same issues
which are the subject of an ongoing OIG audit, Report No. E1SKF4-
07-0053, on the Survey of Acquisition of Analytical Support. We-
also would like to note that the OIG auditors should rely on
their own financial and compliance audits instead of depending on
Defense Contract-Audit Agency reports which are .already being
used internally by the Agency to address contractor cost issues.
.Furthermore, repeating .the recommendations of EPA's Office of
Administration and Resources Management Quality Action Team on
voucher review duplicates ongoing efforts on improving the
voucher review process within the Agency.
From our review of the OIG's findings and recommendations
'for which OSWER is responsible, we believe that most of them are
>
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APPENDIX I
Page 9 of: 44
relatively minor in scope, such as requiring some? new procedures,
refinements of existing procedures, better documentation, or
verification of costs. Therefore, we recommend -r.iat it may be
advantageous for the OIG 'to adopt a process of instituting on-
the-spot corrections in lieu of proceeding through a time-
consuming full-fledged audit which Usually requires more than a
year to complete,. Written audit reports and program
review/concurrence on recommendations would still be required.-
We,believe such an audit strategy,may also be much better
received by the audited parties. Furthermore, it would result in
quicker implementation of recommendations for existing procedures
and would not risk the .possibility of recommendations be'ing no
longer applicable because of a major shift in program management
procedures: '. -
Conelus ion . .
.We are always striving to incrementally improve the
management and operation of the ESAT contract. Many of the OIG's
recommendations in the 'draft report will assist us in managing
the ESAT contract better. Based on the OIG findings, we believe
that the Eastern Zone ESAT contract is' well managed and that
there are no significant internal management weaknesses.
;
We appreciatethe opportunity of being able to provide
comments on the draft OIG report on EPA's Management and.
Oversight of the Eastern Zone Environmental Services Assistance
Team Contractor. We hope that you will incorporate our comments
and make the necessary factual corrections as thrs review nears
completion. If.you have any questions about our response or.wish
to'arrange a meeting, please have your staff contact Larry Reed,
.Director, Hazardous Site Evaluation Division, at (703) 603-8850,
or Hans Crump!, Chief Analytical Operations Branch, at (703) 603-
8821. .
Attachments . .
'cc:, Tim Fields. , . ' .
Ika Joiner .
Larry Reed - . ,
Hans Crump ' ,
Howard Fribush '
Johnsie tWebster '..... '.
Becky Brooks x
Sharori 'Hallinan
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APPENDIX I
Page 10 of 44
Attachment I
COMMENTS ON OI6 FINDINGS
Chapter II:
ESAT Contract Financial Management Needs
Improvement
1.
Questionable Costs Not Recommended to be Susoended
r
We agree that suspension of contractor costs is an option
that should be used when warranted. Recommending suspension of
questioned costs is a time-consuming process for the contract
management team (RPOs/PO/CO) because it automatically leads to
more, work, i.e., the resubmittal of invoices. There also may be
a reluctance to suspend costs because most of the time the costs
are later determined to be reasonable and justified. The voucher
review process is carried out on an extremely tight schedule
(Prompt Payment Act), and knowing that incorrect costs can be
recovered on subsequent invoices., the RPOs and PO prefer the
deferral option. Because it is difficult to review the.monthly
progress and"financial reports, identify questioned costs, as.k
for and receive an explanation from the contractor before sending
a recommendation to the PO, the RPOs occasionally recommend
payment while awaiting an explanation.
In our judgment, deferring a decision on questioned costs
does not occur 'as frequently as stated in the draft report-. We
disagree with the OIG auditors' assertion that
costs must, and can be answered with an addition-.
believe that questions concerning the reasonable
.1 questioned
I document. We
less of costs can
frequently be answered by written or telephonic explanations from
the contractor. We believe that an explanation was obtained in
most instances before invoices were paid. We do not believe that
our current voucher review and payment practices' support a
finding of weak internal management controls.
Because of their technical expertise and knowledge of the
nature of Regionally contracted services, responsibility for
determining reasonableness of contractor costs rests with the
RPOs. . We will reemphasize to the RPOs and PO that questioned
costs which have not been resolved satisfactorily must be
suspended. We will also remind RPOs that they1must document the
reason(s) for accepting costs which are questioned by them. We
are also considering,amending the voucher review checklist to
clarify available decision options and to facilitate the voucher
review process.
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APPENDIX I
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2. Supporting Documentation 'Was Not Always Obtained
As-explained, above, we do not believe that ail questioned
costs need to be- justified by. an-additional bil'. vendor invoice,
or purchase receipt. If the RPO questions the /.iason .for a
travel charge, an,airline ticket'receipt is not necessarily a
responsive explanation. A copy of a Federal Express bill is not.
an explanation of. what was. sent, or why. .
The OIG draft report states that, 1'The RPO allowed payment
of these items without necessary documentation to determine the
accuracy or reasonableness." We believe that as the technical
expert and representative of the CO, the RPO had the information
he needed to determine reasonableness. Conversely, 'it may be
desirable for an OIG auditor to have access to more information"
for auditing purposes. Although we agree that an RPO should be
able to support his decision, he cannot be expected to know what
documentation an auditor may find necessary in a subsequent audit
many years hence.' Requesting and filing copies of all receipts,
bills, invoices', or time cards, is clearly excessive and is
counter to the Agency's mandate to reduce the'paperwork burden.
The RPOs and PO have been reminded to develop documentation
which is necessary to "complete the record" on questioned costs
and to adequately support their decisions. Such documentation
may consist of another receipt, a letter of explanation from the
.contractor, a copy of a LAN message, a record ol: a telephone
conversation or meeting, or note of explanation crom the RPO/PO.
The draft report states that the PO did not routinely verify
overhead and general and administrative (G&A) fates because ,it is
the CO's responsibility. It.also states the CO's belief that
EPA's .Financial Management Center controls ensured correct
billing rates were used. This paragraph also includes the
Contract,Payment Section Chief's statement that there were not
internal controls to, ensure correct billing rates are used. In
response to these seemingly conflicting statements, we offer the
following citations: ..- .
. Chapter 6 of the Contracts Management Manual,; paragraph
6.4 f(l) (e) Indirect Cost Rates " the Servicing
Financial Office (SFO), ascertains that indirect costs
claimed are being billed'at contractually established
. . fates.-" . .'-.
OSWER Directive 9200.5-401, May 1989, explains the
. following: . ' ' " -
Only reasonableness is the responsibility .of
contract monitors (PO/RPO/WAM). "Allowability and
allocability of costs are determined by auditors."
2
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APPENDIX I
Page 12 of 44
".Specific line items to be examined [by PO/RPOs]
iii evaluating an invoice include. Direct Labor;
travel; equipment; other direct ' nst, which may
include photocopying and communif .ution;
subcontractor costs. . '
The [PO/RPO] must examine each direct cost line
item in a contractor voucher. Certain items, such
as labor rates and indirect cost rates (overhead &
G&A), should not be of concern to the [PO/RPO],
since these charges are subject to audit at the
direction of the-CO.". »,
Consistent with OSWER Directive 9200.5-401, which is also
endorsed by the Office of Acquisition Management, the PO/RPOs do
not verify the accuracy of claimed rates to ensure the government
pays only allowable costs. Clearly, the PO and RPOs are not
trained to audit financial documents for "allowable" costs.
3. Service Center/Program or Regional Support Costs Approved
Without Support
According to the OIG draft report, these cc.ats are '
"allocated to'benefit contracts using a direct labor base similar
to the allocation of overhead costs." We believe an analysis of
the costs which make up these charges will indi< ate that there, is
no "reasonableness" determination necessary. A determination
must be made with respect to their "allocability" and
"allowability." . Such determinations are the functions of an
auditor. ,
4, Oversight of Contractor Labor Costs Needs !'; iprovement
We disagree with draft report's description of the Region I
RPO's oversight of contractor labor costs. We believe that the
OIG auditors either misunderstood or failed to fully comprehend
the breadth and depth of the RPO's ongoing review. We also
believe that misquoting the Contracts Management Division's
response to the OIG Position Paper further led to the OIG's
mistaken conclusion of superficial oversight.
We recommend that the OIG reevaluate the procedures which
are described in Region I's response to the OIG draft report .
(Attachment II). - In our judgment, the RPO is conscientiously and
diligently "overseeing the contractor's expenditures of resources,
both hours and dollars.
s
5. . Charges Incurred for Non-ESAT Employee
The en.tire issue of costs incurred for a non-ESAT employee
was addressed by the ESAT contract management team prior to the
OIG's audit. All of the information which was cited by the'
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APPENDIX I
Page 13 of 44
auditors in.the draft report was taken from the" files and records
.of the contract management team. - ' "
In fact, the RPO discovered this problem because he was
questioning the "reasonableness" of .telephone cTirges. The RPO
and PO realized that these non-ESAT costs were probably
"unallowable" and took appropriate .action to ensure this problem
was corrected.; As wrongly stated in the draft report, these
charges were not for employee services.,but were for Other Direct
Costs "(rented space, phone, and 'fax) consumed. All of the
questioned costs have been recovered through subsequent invoice'
credits. Instead of supporting the report's conclusion of weak
internal management controls, we believe that his points to an,
effective system, of invoice cost review. The OIG auditors did
not identify any unreasonable., or unallowed charges which were not
previously addressed by the contract management team. -
We dp not believe any benefits would be gained with respect
to the recommendation that the PO should conduce an independent
review of telephone bills/ facsimile machine charges, .and rental
allocation. A review of the bills will riot.identify the caller,
nor the purpose (ESAT-related) of the call or fax. The only way
to verify the'rental allocation would be to .measure the entire
leased space, and then approximately aportion tlxe space being .
occupied by a non-ESAT.employee.
We strongly disagree with the OIG's suggestion that RPOs
periodically perform time and attendance or floov checks. Time
and attendance verification is a supervisor/management function
for which the contractor is responsible. Additionally, this
could potentially place the RPO in a personal services relation- '
ship with contractor employees and may lead to an indication of a
personal services contract.- We do not believe that spending time
in the contractor's leased space would be effective in identify-
ing ,non-ESAT employees, or in determining the appropriate
-allocation of non-ESAT. costs. The contractor will' be reminded
that leases are considered subcontracts and must be approved by
the CO. Changes to these subcontracts, such as sharing, space
with non-ESAT employees, must be approved in advance. .
6.
Unallowable Drinkincr Water Charaes
' Similar 1 to the non-ESAT employee charges,.all of the
information on dr-inking water charges, which is cited in the
OIG's draft report, was taken from the contract management teamfs
files. Instead of supporting the contention of weak internal
management controls, we believe this is clear evidence that
invoiced costs are being effectively reviewed.. The RPOs
identified and questioned these charges and discussed them with
the PO.. The CO informed the contractor that the Government would
no longer pay for drinking water for employees (except in
unplumbed trailer) . - . ."
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APPENDIX'I
Page 14 of 44
The correct bottled drinking water charges, for water
provided to contractor employees not working in an unplumbed
trailer, are $2,795.98 in Region I and $1,933.5'' in Region II.
The present CO notified the .contractor on Augus; 7, 1995, that
these charges are disallowed and that credit invoices must be
submitted." The RPO and PO will be directed to ;-erify that these
credit invoices are received and administered ts recover these
amounts. The other bottled drinking water charges are for water
which was-provided for health and safety reasons to contractor
employees in the trailer in Region II.
Chapter III:
Better Controls Over Government Furnished Property
Needed
,' EPA's Contractor's Guide for Control of Government Property
states that annual property inventories are the responsibility of
the contractor, and should be submitted to the Property
Administrator. Clause G.9 of the ESAT contract identifies the
Property Administrator as the CO's designated representative for
property matters. It is the Property Administrator,'s ,
responsibility to check that the contractor has conducted an
annual inventory of Government Furnished Property (GPP). If the
.contractor has'failed to perform the annual inventory, the
Property Administrator should notify the CO. The ESAT Contract
Management Manual is in error'by stating that the.RPO provides an
inventory list of government property to" the contractor-. We
intend to correct this error in the. next revision of the ESAT
Contract Management Manual. A GFP list is part of the ESAT
contract and is. modified by the CO only. -We nr,? unaware of any
other Agency guidance which assigns responsibility, to the RPO or
PO for property in the contractor's control/possession.
We agree that overseeing GFP is an important function.
Since it is an issue that extends beyond the scope of the ESAT
contract, the Agency should consider addressing it on an Agency-
wide basis. A more detailed response on better controls over GFP
will be provided by the Office of Administration, and Resources
Management.
Chapter IV;
Control Over Contractors Work Need Improvement
We disagree with the draft report's description of the
Region I RPO's control over the'contractor's work. We believe
that the OIG auditors did not understand the thorough and
effective TID management process the RPO has instituted in
Region I.. We believe that after careful review of the
information which is contained in the attached RPO's response
(Attachment II), the OIG should eliminate this chapter from the
final report.
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APPENDIX I
Page 15 of 44
We would like to note that the recommendations at the end of
Chapter IV are no longer necessary because the new ESAT contract
will institute a WA system for contract work management. The new
WA system will require independent government cost estimates of
hours and dollars before work is begun. The CO'will have to
approve these estimates and the corresponding contractor Work.
Plans prior to beginning- work, and the CO must approve, amendments
to WAs-before the contractor may exceed the approved hours. Work
Assignment Managers, who will replace the Task Monitors,, will-be
required to evaluate contractor.performance at the completion of
each WA. While we believe that'the RPO already has an effective
system for controlling and tracking contractor work, we also
believe that it would be inappropriate -and inefficient to
consider new procedures for TID management at this late stage in /
the contract, given that -there are only a few months remaining
before the new WA system will be implemented. We have already.
held discussions, and we are planning on conducting training
sessions for the WA Managers to familiarize them,"with the new WA
system. )
Chapter V: ' Other Matters
Neither the Federal Managers' Financial Inregrity Act \
(FMFIA)' Contract Management Reviews nor the proposed new ESAT
contract are identified as specific objectives of this audit.
. i
t *»
The OIG'draft report states that neither the Lexington nor
the, Edison facilities have adequately implemented FMFIA as it .
'applies to contract management. Although both facilities
identified contract management as.a FMFIA event cycle, management
has not reviewed this area during the past two years or in 1995.',
We would like to note that contract management reviews were not
scheduled in 1995 under the Region I FMFIA Management Control
Plan. However, ,in August of 1994 the Superfund Revitalization .
Office conducted a contracts management review in Region I,
including the ESAT contract.' Likewise,.in May of 1995, the OSWER
Acquisition Staff conducted a contract management review-of the
ESAT contract in Region II at the Region's laboratory in Edison,
New Jersey. The- contract review findings have been completed and
recommendations were submitted to both Regions for implementa-
tion. , - ' . -
The new ESAT contracts are the subject of review in the QIG
Draft Report'on 'Survey of Acquisition of Analytical Support.
Report-No E1SKF4-07-0053. OSWER has extensively commented on the-
draft report,,'and we believe that-raising .the same issues in
another audit is duplicative and unnecessary. ..
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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
REGION I
ENVIRONMENTAL SERVICES DIVISION
60 Westview street, Lexington, MA 02173-3185
APPENDIX I
Page 16 of 44
MEMORANDUM:
Date: August 2, 1995 .
Subj: Comments on Draft OIG Report of ESAT contract Management
and Oversight . ,/
/.
From: Tony Palermo, RPO f
To: Jim McMaster, PO
I have reviewed the Draft OIG Audit Report of ESAT management and
oversight. I believe that while there are some valid suggestions
contained in the report, there are many errors and omissions that
result in faulty .conclusions and inappropriate recommendations.
The following are my comments on the report that I hope will be
considered to assure a complete and accurate report:
FINANCIAL MANAGEMENT
1.) INVOICE REVIEW '
The OIG report states, that Region I did not always obtain
information to determine whether questionable charges were
reasonable and appropriate. To support this conclusion the OIG
report states that there were'"... concerns of $18,723..." but the
RPO obtained invoices or receipts "...supporting only $8,213 of
this amount." The OIG report presumes that all of the questions or
concerns relating to the ESAT financial report were of a nature
that required or could be answered by an invoice or receipt. This
is an inaccurate presumption.
Upon review of each month's financial report, any questions that
the RPO .has are transmitted to the ESAT ETM via LAN. There are-
questions that arise that can not be answered by an invoice or
receipt. In such cases, an explanation, clarification, or other
appropriate information is sought. In fact, the OIG report
references the Contracts Administration Manual as requiring
11 backup documentation if further detail is necessary." When
there are questions relating to a specific charge, and the validity
of that charge needs to be verified, then invoices or similar
supporting documentation is sought. In either case, a written
record is maintained in the file of the appropriate monthly
financial report.
The OIG report cited examples of three months- September 1993,
April 1994 and June 1994- where invoices were not obtained for all
questions raised,. However, some of those questions could best be
84
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, , APPENDIX I
, , Page ,17 of 44
answered by an explanation from the ESAT Team Manager (ETM) , not a
document. For example, the question relating to the September 1993
travel costs were for an explanation of how the travel costs were
calculated and charged, so that the RPO could determine
"reasonableness." The ETM provided an adequate explanation, and
this was documented in the file.. - . . .
Another example in the OIG report related to "Stratford site"
costs. The RPO requested information on team members and hours arid
costs to determine if levels of suppprt were consistent with work
products and to provide the site management with cost information.
Time cards or other records would not have provided all the
required information. The" ETM provided the information that the
RPO requested, and it was determined that the charges were
reasonable. Again, -this is documented in the file.
For the three months 'that the OIG report cited, it .should be noted
that the RPO did request and received four invoices to verify ODC
charges to the -contract. The OIG report.-failed to note this
documentation. "*' ' .
. ' <
2) SERVICE CENTER COSTS . ' ' '
Service center costs are those costs, incurred by the ESAT Zone One
contract as a whole, not by .the regional teams directly. The
reasonableness and appropriateness of these costs can not be
determined by the regions, individually.
3) OVERSIGHT OF CONTRACTOR LABOR COSTS . !
The OIG report states "The RPO . determines the accuracy of
contractor labor charges by sampling the charges," and that "...10%
of the reported labor hours (are reviewed) for each task area."
These statements are incorrect. The RPO reviews 100% of each
monthly financial and progress report. This includes the
verification of all , labor charges for each team member and the
labor mix for every TID and AOC. The review verifies that only
team members are charged to. the contract within the hours, specified
in TIDs, modifications and the LOE summary, for. each team member,
and that appropriate team members are charged to' appropriate task
.areas. The- review also verifies that authorized LOE is not
exceeded on a monthly basis.
In addition to review of monthly reports, upon completion of each
project, the 'appropriate task monitor receives an AOC with the
deliverables. The AOC indicates the number of hours authorized and
utilized. The appropriate task monitors review each AOC, including
labor hours. '.It there are any discrepancies, the RPO verifies the
hours with- the ETM.
The RPO also reviews, compares and verifies all AOCs with TIDs upon
project completion, on an ongoing basis, to determine, among other
things, the accuracy.of hours. Discrepancies are brought to the
attention of the ETM for verification,and correction. In addition, V
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j ' . APPENDIX I
I Page 18 of 44
s . .
the task monitors are notified when discrepancies could affect
project ratings. . . .
I believe that the above steps adequately allow us to determine the
reasonableness and appropriateness of labor charges.
The OIG report reference of the-10% sampling is presented out of
context. All AOCs and TIDs are compared on an'ongoing basis to
verify their accuracy with reported hours as tasks and AOCs are
completed. However, a sampling of all AOCs (400-600 per PE period)
is compared each month with the monthly financial report entries.
The 10% sampling of these entries is a additional step taken to
verify the accuracy of the financial report entries with previously
completed AOCs. A comparison of all entries in each monthly
financial report with all AOCs (up to 600) could not be completed
in a timely manner. It is more efficient to verify this
information on an ongoing basis.
It should further be noted that, while .not part of the .monthly
financial' report review process, at the end; of each PE period,
hours reported on each-AOC are compared With the contractor's final
LOE report for each TID. This further assures that the contractor
charges only for hours the contractor reports it expends on each .
AOC.
Also, on the issue financial report review, the draft OIG report
references information that "The Chief, Management Section A,
Contract Management Branch, RTP..." provided to the OIG. This
information is stated in the OIG report as follows: "...It would be
impossible to verify 100% of financial reports." However, the
actual statement provided to the OIG was as follows: "...to perform
a 100% verification of all entries in the monthly financial report
would be impossible, given the 5-day financial report review
period.". There are significant differences between the two
statements. I presume the misstatement in the draft OIG report was
accidental. Nevertheless, I believe that it taints the conclusions
made in the OIG report.
4) CHARGES FOR NON-ESAT EMPLOYEE . "~ 7 ' '
The.RPO review of the January 1994 financial report revealed that
ODC charges were made to the ESAT contract by a non-ESAT employee..
This was discovered by a "reasonableness" review of the ODC
charges. This issue was brought to the immediate attention of the
NPO... . .
The OIG audit report could be misleading in that it states that
"...charges were made for non-ESAT employee services." The charges
were not for the employee services, but the ODCs that the employee
consumed. While these charges were not appropriate, review of the
financial report did detect the inappropriate charges, and the
charges were recovered. This suggests that the Region's review of
financial reports is effective in detecting unreasonable and
inappropriate charges to the contract.
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APPENDIX I
Page 19 of 44
5) BOTTLED DRINKING WATER CHARGES
The ESAT Region I team discontinued charging bottled water to'the
contract well before the initiation of the OIG audit. However,
early in the contract, the purchase of bottled water was considered
to be .a reasonable charge because of the high levels of TCE in the
public drinking water supply in Bedford, MA. The Town of Bedford
is now connected to the MWRA water system.
We disagree that our handling of the.water charges.demonstrates
"...weak internal management controls:11 as the OIG'report states;
CONTROLS OVER CONTRACTOR'S WORK
The OIG. report states that controls over contractor's work products
need improvement. While I'would not dispute that any process could
be improved upon, many of the facts and statements referenced in
the report are inaccurate, and I disagree with .many of the
conclusions that "are based on the erroneous information and
omissions. These issues are detailed as follows: "*
, . N ' >
1) INACCURATE TIME ESTIMATES . < "'
' ' I
The OIG report.states that "time estimates for certain tasks were
inaccurate..." This appears to be an oxymoron. When tasks are
initiated, the EPA' task monitor estimates the hours -that are
appropriate for the work specified in the TID. Much of the work
required is of.a non-routine nature and does not lend itself to an
estimation by formula. .Time estimates are based on the task
monitor's expertise in the subject matter and the work product the
task monitor requests through the Tip. Task monitors that task for.
routine work, do utilize consistent methods for estimating time.
In many cases, the .complexity of. tasks can expand beyond what could
be reasonably anticipated. This can typically occur in the.
laboratory setting. , In such cases, where additional hours are
required to complete tasks, ESAT is required to notify the RPO
prior to exceeding estimated hours. This notice requires ESAT to
indicate hours required, proposed schedule, and reasons for the
additional time'. The RPO immediately notifies the appropriate task .
monitor, and a decision is made by EPA regarding any additional
time that may be necessary to complete the project, .considering the
work required. The TID is then modified accordingly. , '
The OIG report recommends that the Region perform an analysis, of
completed tasks and the hours utilized by the contractor to provide
more "accurate'estimates" of hours. I believe that this is highly
inappropriate. It presumes .that the contractor's time .spent for
completion of projects is the best gauge of the time required.
This would lead to a lack of incentive .on the part of the
contractor to complete work in the most efficient and timely
manner. ' . . «
, T
The OIG report sites 301' tasks being completed under budget, out of
- V 87
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APPENDIX I
Page 20 of.44
(the 541 tasks over the last performance evaluation (PE) period as
an example of "inaccurate estimates." I .disagree that this
statistic supports the OIG conclusion. Most tasks are completed
within very close proximity to task monitor estimates, including
the 301- tasks the OIG report references. However, there would be
concern if the contractor reported utilization of the exact number
of hours estimated by the task monitors for every task.
. ' . , " ^
The OIG report further states that the 301 tasks completed under
budget were misleading because it included incomplete tasks that
were scheduled to be completed during' the next PE period. (Those
tasks have to be terminated, at the end of the PE' period and
restarted through a new TID into the next PE period.) However,.
there were only nine such projects during the past PE period. .It
is hard to believe that a difference of 9 out of 301 projects-could
influence any conclusions one would reach, when you are comparing
301 tasks or 292 tasks to the total of 541. (In any case, it is
unclear what conclusions the OIG report wishes to draw from the 301
tasks that it references.)
»
The OIG report states that there is* a lack of. tracking of
incomplete projects that are scheduled into a subsequent PE period.
This is incorrect. Prior to the end of each PE period a log of
tasks that need to be extended into the next PE period is
maintained. (The OIG auditors were shown a copy of this log.)
Extensions into a subsequent PE period are generally required, not
necessarily because .of a failure of the contractor to meet
schedules, but' because certain tasks are initiated late in the PE
period, and, the nature of the tasks require completion into the
next PE. Prior to the continuation of tasks into a subsequent PE
period, task monitors are always consulted. Contrary to the
statement in the OIG report, incomplete tasks are tracked, and the
task monitors are made aware of the total hours that are utilized
for completion of these projects, and this information is
considered in task .monitor ratings.
The OIG report includes several other inaccuracies that require
clarification. The OIG report indicates that the RPO stated he
does not review task monitor estimated hours. The RPO~d6es review,
estimated hours,'as well as all other information contained in the
TIDs and AOCs. Contrary to what is .stated in the OIG report, the
RPO does believe that budget estimates are important. However,
there are other elements of contract management that are important
to assure that resources are appropriately utilized. Managing team
size is extremely important because, as a dedicated contract, the
government pays for .the hours ordered and provided through the ESAT
contract, whether the team performs tasks or not. I believe that
we have effectively managed team size to efficiently utilize
resources.
2) MODIFICATION OF LABOR HOUR OVERRUNS
TIDs are modified when the task monitors' believe that additional
hours are necessary to complete projects. As stated above, when
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APPENDIX I
Page 21 -of 44
ESAT determines that estimated hours are inadequate to complete
tasks, ESAT sends a "Variance Notice" to the RPO. This is then
forwarded to the appropriate task .monitor for ' approval of any
changes in the TID. Currently, all-Tips are modified,, when
appropriate, to reflect the need for additional.hours.
Contrary to the OIG report, task monitor ratings do reflect the
number of hours ESAT utilizes to complete required tasks. The RPO
has provided each task monitor with rating guidance. This guidance
is consistent with the ESAT Award Fee -Plan. In rating individual
' projects, the task monitors consider notonly the number of hours
spent in completing projects, but also the actual amount>of work
required to complete the tasks specified in the TID. Projects can
) become more difficult and time consuming than originally estimated,
i. and uncontrollable events, such as equipment failures can occur.
These "events should be and are considered in the task monitor
' ' ratings. , . , . ;
'J- . The OIG audit report cites an example of a-TID No. 01-94-1144, tha^t
f . was not modified by EPA' (and presumably should have been). Our
records indicate there was no such TID ever issued. '
The OIG report further states that the RPO was more concerned with
the contract's minimum baseline hours than with individual tasks.
This is also incorrect. Both are important. The contractor is
contractually .obligated to provide , the LOE . specified in the
contract and also to perform tasks that are ordered through .TIDs,
consistent with the SOW. The RPO and task monitors monitor
individual projects and overall regional contrac't requirements.
.3) TASK DELIVERABLE EVALUATIONS '
All completed tasks are evaluated by the appropriate task monitor
, upon completion of the performance evaluation period. Evaluations
are necessary in determining the award fee, and contrary to the
audit report conclusion, a rating at the end of the PE is not "of
marginal benefit." All ratings are incorporated into the overall
regional rating, which is considered in determining award fee.
Evaluations are also important ,to assure that the Region receives
; quality deliverables in an efficient manner, by providing input to
the contractor and obtaining corrective action for deficient
products. it is the goal of the Region to evaluate projects as
soon as possible after completion of the project. However, some
i projects are of a complex nature with lengthy deliverables. Task
monitors are unable to effectively evaluate projects until there is
a complete review of the deliverables. This can be time consuming,
and many times reviews must be performed in connection with other
work products. This can .sometimes lead to delays.
While evaluations of some projects may be delayed, the goal of
providing timely input and corrective act.ion is accomplished in
that work product deficiencies are brought to the immediate
attention of the ETM for corrective action; either at weekly
-6- 89
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APPENDIX I
Page 22 of 44
meetings that are held regularly with several task monitors or in
daily conversations between the ETM and RPO. Completion of AOCs is
not a low priority as the OIG report indicated.
The OIG report is incorrect in its statement that there is no
database to track AOCs. The RPO maintains a complete database of
pending'and completed AOCs. Cumulative ratings are calculated on
a periodic basis throughout the PE period for each task area in
order to track overall performance and initiate improvements as
necessary. .
The OIG report is also incorrect in the statement that task
monitors' review of TIDs and AOCs is the primary oversight effort
to ensure costs are correct. TIDs are prepared by the- task
monitors to order work. AOCs are prepared by ESAT and used by the
task monitors to record their evaluations of ESAT deliverables.
Task monitors utilize the information contained in these documents
to evaluate contractor performance. Information such as hours
estimated and utilized to accomplish the work are reviewed by the
-task monitors. When the hours utilized appear to be unreasonable,
the task . monitor may consult with 'the RPO to verify the
information. This is generally done by review of TID charges in
the financial report, but additional supporting data may be
requested from the ETM. While task monitor review of TIDs and AOCs
is important, it is not the primary mechanism to oversee costs.
Oversight of costs is discussed as a separate topic in this
response. . - ,
The OIG report concludes that reissuing TIDs from one PE to another
may contribute to "...failure to rate all tasks in a timely
manner." I fail to see the connection between these two issues.
Projects- that are not completed at the end of a PE period are
generally not rated in that PE period, because there are no
deliverables to evaluate. However, they are rated upon their
completion in the next PE period. As previously stated/ there were
9 incomplete projects out of a total of 541 in the past PE period,
representing 222.5 hours that could not be rated out of a total of
20,870.5 hours. . ._ _
(
The OIG report cites weekly reports utilized by Region II for
review by the task monitors in overseeing tasks. While Region I
task monitors, who utilize ESAT on a routine basis, are provided
weekly status reports of open projects and/or attend weekly
meetings with the RPO and ETM to track progress, there is a major
difference in tasking by Region I and II. Region I issues separate
TIDs for each individual project. This can result in the issuance
of over 600 TIDs in a PE period. Task monitors receive an AOC for
each TID issued, upon completion'of each individual project. On
the other hand, Region II issues TIDs for many projects within
groupings, and. as a result, may have a tenth of the number of TIDs
and AOCs as Region I. There may be advantages and disadvantages to
each system. I believe that for Region I, the issuance of separate
TIDs for each individual project provides an effective level of
project oversight and input on performance, since each separate
-7-
90
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APPENDIX I
Page 23 of 44
prpject is evaluated, and this is often more frequently than on a
weekly basis. However, the difference in tasking is going to
require that we monitor performance-differently. I believe that we
are monitoring contractor performance in a highly effective manner.
The DIG report suggests that the RPO should oversee task monitor
workloads. This is a role of the task monitor's supervisor, rather
than the RPO,, The RPO is not in the position to evaluate program
priorities. The RPO advises the appropriate supervisors of
contract requirements and needs for effective contract 'management.
-^ ''"..
I believe .that some of the recommendations contained in Chapter IV
of the OIG report are .appropriate. However, because of the errors
and^omissions in the report, the OIG should have found that many of
these recommendations are already a part of our ESAT contract
management. - , -
Task Monitor ratings do consider budgeted and utilized hours. The
complexity of the tasks and deliverables . and unforeseen
circumstances are also .considered. The task monitor is the primary
evaluator of work products. However, raftings .are monitored by the
RP.O, and subject to revision, hot unilaterally by the RPO, but in"'
consultation Vith the task monitor, prior to RPO . approval and
submission to the ETM.
The Region has always utilized manual and. computer systems, to track
contract data, including all TIDs, project status, AOCs, completion
status, task monitor ratings, estimated and actual hours, and
incomplete tasks.
As.previously stated, I disagree that a trend analysis should be
utilized to estimate hours. The OIG report suggests that we should
base estimates on the time actually utilized by the contractor in
past tasks. I believe this is highly inappropriate. . The EPA task
monitors are experts in their fields. They utilize their expertise
to determine an appropriate estimate the time required for a
particular task. Few tasks are repetitive and lend themselves to
formula estimates, and unforeseen circumstances can occur.. However,
hours utilized are closely monitored, as detailed above7
FMFIA CONTRACT MANAGEMENT REVIEWS '.""
Contract management reviews are not scheduled for 11995 under the
Region I FMFIA Management Control Plan. However, in August of 1994
the Superfund Revitalization Office conducted a review of contracts
management in Region.I, including the ESAT contract.
I believe that the OIG audit 'and the audit report can be an
effective tool in improving the way we manage the ESAT contract,
and to reinforce effective techniques. Unfortunately, the errors
and omissions, as well as some faulty conclusions in this.report
will significantly reduce its effectiveness, unless appropriate
corrections are made. .
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DATE:
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
AIR 0 I 1995 REdlON "
APPENDIX I
Page 24 of 44
Draft OIG Audit of EPA's Management and Oversight
SUBJECT: of the Eastern Zone ESAT Contractor
FROM:
Richard Coleates, Regional Project Officer
Surveillance & Monitoring .Branch
TO: James McMaster, Project Officer
Analytical Operations Branch, MD-1A
As requested by Howard Fribush's memo of July 24, 1995, I have
reviewed the OIG's Draft Audit Report regarding management and
oversight of the Eastern Zone ESAT Contractor. The following
comments are provided in order to assist you in preparing a
response to the Draft Audit Report.
1. Page 11 - The report discusses at length the fact that, "The
RPO (Edison) did not recommend suspension of questionable
costs" The impression left, here is a bit misleading. On page
14, the report notes that the Edison RPQ questioned 17 items
totalling $31,115. The Checklist for Voucher Review concludes
with the question, "Should the voucher be approved?" The
checklist provides only for a yes/no answer. In each case where
the Edison RPO questioned specific costs, this question was
answered yes, with an asterisk. The asterisk instructed the
reader to see the attached comments which discussed the cost
concerns. The intent here was to indicate that the bulk of the
voucher could be approved, with the questioned cost being set
aside for resolution before payment. I agree with the OIG report
that the written materials do not make this intent clearly
obvious. However, if I checked the No box for this final
question on the checklist, would that be interpreted to mean that
the entire voucher be disapproved pending resolution of one ODC
issue? I agree that the attached, comments rarely directly stated
that suspension of payment for the questioned item was
recommended. It is suggested that a modification to the
Checklist for Voucher Review could be helpful in directly
addressing the OIG's concerns. It is recommended that an
additional question be added to the checklist: "Do you recommend
that payment be suspended for any charges/items listed in the
voucher/invoice? If so, provide an explanation on an attached
additional page." The modification would prompt the RPOs to
directly address the primary issue raised in this section of the
OIG report. . ,
2. Page 11 - At the beginning of"the fourth paragraph, it is
stated, "The RPO (Edison) stated he spends 90 percent of his time
reviewing and. verifying the accuracy of financial statements."
This is incorrect. I do not spend anywhere near 90% of my time
on financial statements. Perhaps the reference here should be to
the NPO. .
92
REGION II FORM 132O-1 (8/869
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APPENDIX I
Page 25 of 44
3. Page ~25 - Recommendation No. 6 indicated, that the RPO should
perform periodic - time and attendance checks of contractor
personnel. Does this recommendation conflict with EPA Order
1901.1A - Use of Contractor Services to Avoid Improper Contractor
Relationships? Would implementation,of Recommendation No. 6,. run
' the risk of causing the RPO to fall into a personal services
j relationship with the contractor? _ ' ,
S '. 4. .Page 31 - The Contractor's Guide for Control of Government
\ Property (December 1988) indicates that annual property
j inventories should be taken and submitted to the Property
' Administrator. Clause G.9 of the contract indicates that the
I Property Administrator is the Contracting Officer's designated
representative for property matters. The Property Administrator
1 is responsible for ensuring that he/she has received annual
inventories. This is not'the RPO's responsibility as suggested
on page 31. ;
i _ . . '
5. Page 33 .T The top paragraph on this page discusses the
transfer of some items of-government property to Puerto Rico.
The PIG notes that their examination of .the list of property »'
transferred by the Region to Puerto Rico did not include any
items missing from ESAT's property inventory. The OIG report.
goes von to state that "there were no required contract
modifications documenting this .transfer." .The reason that there
were no contract modifications is that none of the regional
property, transferred to Puerto Rico was ever assigned to the ESAT
contractor. If the property was never assigned to the ESAT
contractor, there would be no need for contract modifications.
/ f
6. Page 35 - The OIG report asserts that EPA should not have
replaced government owned computer equipment which was stolen
from the contractor's off-site facility in April and May 1994.
To support this opinion, the OIG cites FAR 45.502 (a) and (To).
At FAR 45.500, .it is stated, "If there is any inconsistency.
between this subpart and the terms of the.contract under which
the Government property is provided, then the terms of the
contract shall 'govern." This leads to consideration of FAR
52.245-5, which is incorporated into the contract by_ reference
(see Clause 1-1 of the contract). A reading of this section,
seems to clearly indicate that the contractpr is not liable for
- the loss of government equipment, unless such loss is caused by -
the willful misconduct on the part of the contractor. FAR
52.245-5 further seems to indicate, that the government is
obligated to replace such lost equipment. It is recommended that
the OIG review FAR 52.245-5, and reevaluate their conclusions
regarding replacement of the stolen computer equipment.
t , ' ( .
: 7. Page 35 - .The OIG report criticizes EPA's decision to provide
a security system at the contractor's off-site faciility. The
decision to provide a .security system (i.e. a burglar alarm)
needs to be fully considered in the context of the situation at
the time. The contractor facility is located in an industrial
park type area, with very little traffic and activity after dark.
93
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APPENDIX I
Page 26 of 44
The contractor's facility had been burglarized twice within a two
month period, and government property with an acquisition value
of over $34,000 had been lost. The cost of the security alarm,
including monitoring, was less than the cost of a single
computer. This seemed to be a reasonable measure to protect
government property at the contractor's facility.. I am curious
as to what the OIG positon would have been if we had declined to
install the burglar alarm, and if additional government property
had been lost in a third burglary. Would there have been
criticism of the failure to provide additional security measures
for government property?
8. Page 36 - Regarding the three remaining vehicles from the
ESAT contract (two 1989 Chevy step vans and one Chevy 4X2 van),
.paperwork to excess these, vehicles was completed in June 1995.
The vehicles are scheduled to be sold by GSA within the next
month. Proceeds from the sales of these vehicles will be
returned to EPA's Superfund account.
9. Page 37 - The second paragraph on.this page indicates that »
the Vehicles assigned to ESAT were GSA leased vehicles. This is
incorrect. All vehicles were EPA-owned, not GSA. leased. Please
provide a specific reference for the statement that vehicle logs
are required. Does this also apply to EPA owned vehicles?
' . / .
I trustithat you will find the above comments helpful. If you
have any questions, please contact me at (908) 321-6662.
cc: Howard Fribush, 5204G
94
-------
K.
UNITED STATES ENVIRONMENTAL PROTECTION AGENC <
WASHINGTON, O.C. 20460 ' '
APPENDIX I
Page 27 of 44
^
9 t995
OFFICE OF
ADMINISTRATION
AND RESOURCES
MANAGEMENT
MEMORANDUM
SUBJECT:
FROM:
TO:
OARM Response to OIG Report on Draft Audit of EPA's
Management and Oversight of Eastern Zone Environmental
Services Assistance Team (ESAT Contractor)
!lSKF5-0,2 '
Administrati
Acting AsXstant Administrator
and Resources Management
Elissa R. Karpf ' '
Deputy Assistant Inspector General
Acquisition , and Assistance Audits (2421)
Thank you for the opportunity to'review the subject draft
report. The. attached comments reflect our-response. We ask that
you give these "comments careful'. consideration in the preparation
of the .final report. ' ,
Generally, while we concur with some aspects of the report,
there are numerous findings and recommendations that we have
commented upon in the attached memorandum.
. To simplify our response, the findings and recommendations
are discussed by subject1 in the order of appearance in the
report. We have only addressed the findings applicable to the
Office of, Administration and Resources Management (OARM).
Should you or your staff have any questions or need
additional information regarding this response, please contact
Betty L. Bailey, Director; Office of. Acquisition Management, on
(202) 260-5020.
Attachment
Recycled/Recyclable . Printed with Vegetable Oil Based^iSfe on 100% Recycled Paper (40% Postconsumer;
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APPENDIX I
Page 28 of 44
Attachment
OARM'S RESPONSE TO THE OIG'S
FINDINGS AND RECOMMENDATIONS
EXECUTIVE SUMMARY
Background (Page i) , '
The ESAT contracts -(both the existing contracts as well as
the ongoing new acquisitions) include tasks in addition to
analytical services. Examples of these are quality assurance
support and data validation activities. In addition, the ESAT
contracts are utilized more for the analysis of high visibility
or difficult/unusual samples rather than for routine sample
analysis. This clarification regarding the scope of the ESAT
contracts is provided in our response dated June-7, 1995, to the
OIG "Report of Acquisition of Analytical Support, Report No.
E1SKF4-07-0053-XXXX)."
CHAPTER I - INTRODUCTION
. This chapter does not contain any recommendations for OARM.
CHAPTER II - ESAT CONTRACT FINANCIAL MANAGEMENT NEEDS IMPROVEMENT
Service Center/Program or Regional Support Coats Approved Without
Support (Page 16)
FINDING: "Service center/program or-regional support costs
generally include labor and other expenses related to the
contractor's business manager, finance/accounting, human
resources, property management, and purchasing departments . . .
The NPO and RPOs did not have anadequate method -to determine the
accuracy of contractor claimed service center/program or regional
support costs." ,
96
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APPENDIX I '
Page 29 of 44
i \
OARM RESPONSE: These costs are associated with
administrative support in' the areas-of property management,,
payroll, purchasing, finance, human resources, contracts and
safety. Labor hours, labor dollars and Other Direct Costs (ODCs)
are allocated on a year-to-year basis to all contracts
(Government as well as, Non-Government private contracts) based
'on each contract's direct labor-base relationship to the total
labor base of all contracts using the service center. Thus, if .
ESAT direct labor dollars'are 20% of the total direct labor base,
.then 20% of the service center costs will be allocated to the
ESAT contract. ' . . ,
:We agree that the contractor should be required to identify
the'total direct labor base for all contracts using the service
center in order for the Government to determine if it is carrying
the appropriate amount of burden for these cost. '
i '
Service center/program support costs are routinely audited
by the,DCAA. The auditor's evaluation includes the allowability
and allocability of the cost'>as well as the methodology the
contractor uses to develop them. While DCAA has recommended
ceilings on these amounts, there has been no indication that the
contractor's cost .allo'cation methodology is inappropriate.
Additionally, .DCAA audit report No. 3521-95C28000013, dated July
26, 1995 -states "Based on a recent revision to the contractor's
' ,
disclosure statements,1 the contractor will be including the
program-office expenses in the:overhead pool starting CY 1996."
As a result, 'service center support costs will no longer be
separately charged to EPA contracts.
DCAA routinely performs annual incurred cost audits, which
include an examination of the contractor's cost presentations,
public vouchers and incurred cost proposals to express an opinion
as to whether these costs are reasonable, allocable and
allowable. These audits are used by DCAA to issue.the contract
closing statements. Gross misrepresentations of costs should be
revealed during these audits, and appropriate action will.be
taken by the Contracting Officer (CO). We do not concur with the
OIG's position that the National Project Officer (NPO) or
Regional Project Officer (RPO) should be primarily responsible
for verification of the methodology used to allocate indirect
support charges. /Based on the foregoing, we request that this
finding be deleted from the audit report.
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FINDING: The .OIG agrees with DCAA's recommendation that:
"Even if the Request for Proposal (RFP) specifies a proposed ODC
amount, the RFP, should still require the contractor to provide a
breakdown by-cost element up to the RFP specified amount. This
will' give the procurement office a visual composition of the
Other Direct Costs (ODC> and dollar amount proposed."
OARM RESPONSE: We ,disagree with this finding as worded
since it implies that it should be our general practice to
require-offerers to provide ODC breakdowns for our level-of-
effort, cost type contracts. While it may be appropriate in
select cases to request that offerers provide ODC breakdowns, it
is not appropriate to do so,when the exact work to be performed
will not be specified until the issuance of Work Assignments
(WAs). For the majority of the ODC.costs in a level-of-
effort/work assignment (LOE/WA) contract the offerers, other than
the incumbent, have no reasonable basis on which to estimate the
composition of the ODC amounts. . , .
Whenever possible, CMD-RTP solicitations include itemized
lists of anticipated ODC elements rather than dollar amounts for
proposal purposes. However, for the ESAT recompetition, the
program office could not reasonably estimate itemized quantities
nor do most offerers have a basis on which to estimate them.
FINDING: The OIG agrees with DCAA's recommendation that
"To control cost reimbursable contract charges, the procurement
office may include contract dollar limitations/ceilings on costs
which the. CO may want to limit (such as travel, relocating, or
service center costs). The contract may require CO approval for
purchases at a specified amount or approval of significant
expenditures that significantly exceeds Government funding."
OARM RESPONSE: Limitations imposed in a cost type contract'
require that CO approval be obtained before the limitation is
exceeded. If the cost is reasonable and allocable, there would,
be little reason for non-approval; -For the ESAT recompete, the
CO has considered including dollar limitation's/ceilings in an
attempt to limit ODCs. However, since we are unable to describe
the precise work at the time of award, we do not believe ceilings
constitute an effective control mechanism for this contract.
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'
Instead .of ceilings, it was determined that stringent
monthly ODC Reporting requirements would allow improved
management oversight of, ODCs. The contractors will, be required
to break out 'by WA. all ODCs incurred during the previous month by
type (reproduction, lab, supplies, office supplies, recruiting,
rent, etc.) and by description (vendor, individual traveler,
etc1. ) .
'
In addition, the contractor must report cumulative ODCs
incurred from the effective date of the contract. Travel costs
estimated to be ^incurred during the next two reporting periods
must also be 'reported! ' ' '
The ESAT recompete contracts will also include1 EPAAR clause
1552.245-72, FABRICATION OR ACQUISITION OF NONEXPENDABLE
PROPERTY, which prohibits the contractor from fabricating or
acquiring, either directly or indirectly-; any item of >
nonexpendable property without written approval from the CO . The
LIMITATION OF FUNDS/LIMITATION OF COST clause (whichever is '
applicable} will also be included in any resultant contract.
These clauses specifically require the contractor to notify the
CO in advance when they have a reason to believe that, the costs
they expect to incur under the contract in the next 60 days, when
added, to all costs previously incurred, will exceed 75% of the
amount of funding provided, or the estimated cost specified in , '
the. contract. These clauses also state that the Government is
not obligated to reimburse the contractor for costs incurred in
excess of the' amount of funding provided or the total estimated ,
cost. . .' . ' '''.
' ' I .".--.'.
Standard contract clauses require CO approval for contractor
purchases which exceed certain dollar limits and/or are of a
certain contract type. It is not believed that any particular
benefit would* result from additional limits. Please note that a
CO may not approve any' expenditure which "exceeds Government
funding." To do so would violate the Ant i- Deficiency Act.,
Additionally, individual cost categories are not funded. In a
level-of-effort contract ,' funding is at the contract level rather
than for particular cost elements. Even if limits are set for
certain cost elements whereby CO approval is required before the
limits are exceeded, the limits do not represent "funded" '.
amounts . . ' ' . '
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FINDING: The OIG cites invoice review deficiencies found by
an OARM contract voucher review and payment process Quality
Action -Team (QAT) .
RESPONSE: We agree with the OIG that the Agency's process
for review and-approval of contract vouchers can be strengthened.
The Office of Acquisition Management (0AM) had a QAT review the
Agency voucher review and approval process. This QAT recommended
actions to strengthen and streamline the process. Currently the
QAT is finalizing a training and reference guide entitled
"Invoice Review Guide". This guide will provide a detailed
description- of the roles and responsibilities of the PO, CO, RTF-
PMC, the Work Assignment Manager, and auditor and will prescribe
the proper contract voucher review and approval process.
Charges Incurred For Non-ESAT Employee (Page 20)
FINDING: Reference is made to the contractor placing a non-
ESAT employee in contractor owned/leased space. Further
reference is made to CO statements indicating that this "co-
location" was unethical.
OARM RESPONSE: It is not necessarily unethical for
contractors -to locate other than ESAT dedicated employees in
their own off-site space. We agree, however, that, since this
contractor space was fully dedicated to the ESAT contract, costs .
for this employee, both direct .and indirect, should not have been
charged to the ESAT .contract. Although an independent audit will
verify that credits are received, it is the responsibility of the
RPO, NPO and CO to ensure that credits have been obtained. A
separate invoice will be required for the amount to be credited.
/
Additionally, the OIG recommendation that the RPO walk
through the contractor's facility to perform floor checks and
meet or speak to those people "dedicated" to the .ESAT contract
may be viewed as supervisory in nature and therefore, indicative
of.a personal services contract. The contractor, however, will
be reminded that only the amount of their facility lease
necessary to house ESAT dedicated staff is chargeable to the
contract...
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Unallowable Bottled Drinking Water (Page 23)
FINDING : ' Unallowable Drinking Water - "However, since the
previous charges of $3,286 were not recovered, EPA will be
sending a letter to the contractor requesting credit for these
charges." '. ;
OARM RESPONSE: We acknowledge that the costs of $3,286 for
bottled drinking .water previously charged to the contract needs
to be recovered. The CO has requested that the contractor submit
separate credit invoices to ensure that, the credits are applied
to the appropriate fiscal year. Once these invoices'are
received, they will be reviewed by the RPO, NPO, and CO.
Recommendations (Page 24)
\ . '
1. Require the contractor to report charges by cost
category and dollar amounts to enable the NPO and RPOs to more
easily identify questionable items. . '
OARM RESPONSE:' This information is currently required by
the .contract. Contract clause G.2., entitled "Submission of
Invoices", EPAAR 1552.232-70 (Sept. 1990) contains detailed
instructions on the invoice content requirements. Additionally,
the contractor provides a Monthly Financial Report-which contains
detailed information to support contract expenditures. The *
requirements of the Prompt Payment Act do not compel the RPOs or
the PO to accept work or services,, approve contractor
expenditures, or authorize payment prior to fulfilling their
invoice.review responsibilities." The CO will clarify this point
to . the RPOs and PO. .
2. Advise EPA management to permit the Edison RPO to
correspond directly with the contractor's ESAT team manager to
resolve, matters.. Current procedures require the. RPO to send all
ESAT correspondence through regional officials.
OARM RESPONSE: Current procedures require the RPO to send
formal correspondence through his supervisory chain prior to
releasing it to the contractor.- Because this process often ,
exceeds the five day voucher review time required by the Finance
Office, the RPO occasionally resolves, issues telephonically with
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the contractor. The RPO indicated that he has not always
documented these .discussions. In order to preclude this problem,
the CO has'reminded the RPQ that he is required to expeditiously
resolve questionable costs and that all discussions with the
contractor should be documented.
3. Advise the CO to consider including contract clauses to
provide dollar limitation/ceilings to limit travel, relocation,
and program or regional support costs.. The contract could also
require CO approval for purchases at a specified threshold
amount, or a large expenditurethat significantly exceeds
Government funding. Without prior approval, the contract could.
stipulate that such costs are disallowed.
OARM RESPONSE: See OARM response on page 3, paragraph 2.
CHAPTER III - BETTER CONTROLS OVER GOVERNMENT FURNISHED PROPERTY
NEEDED , .
In order to put our comments into perspective, it is
necessary to provide a brief overview of the current state of
Government property management at EPA, prior to addressing the
.findings in the draft report.
In the spring of 1994, EPA instituted an organizational
change. The responsibility for Government Furnished Property
(GFP) was transferred from the Facilities Management Division to
the 0AM. Since inheriting responsibility, 0AM has undertaken a
complete review and analysis of the Agency's management of GFP.
This review revealed several weaknesses in EPA's policy regarding
Government property, and action is underway to correct these
deficiencies. In June 1995, OAM distributed a draft policy
guidance memo and a proposed FAR Class Deviation on this topic
for comment. The draft policy represents a major change in the
way EPA does business, and consequently, it has generated much.
comment. At the present time, OAM is reviewing the comments and
conducting in-depth interviews with many of the respondents. It
is anticipated that as a result,of these interviews, the draft
policy and the proposed FAR Class Deviation will be revised to
accommodate some limited circumstances where it is imperative to
provide GFP to accomplish the Agency mission. We expect to issue
such policy in the near future.
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It is recognized that EPA's management of GFP needs to be
improved and, as discussed, the process of doing so is well
underway. We concur with several of the OIG's findings, and are
pleased that the OIG noted our recent efforts in the area of
Government property. However, we find some of the statements in
the draft report'to'be incorrect or unclear. . .
Background (Page 28)
The report states that "At Lexington, Massachusetts- the
contractor acquired all GFP from the prior ESAT contractor."
[Emphasis added]. Contractors, however, do not acquire GFP from
previous contractors, the GFP is transferred between firms. We
request that' the word "acquired" be revised to read
"transferred." . ' .'
* ' - ' i
Additionally, the. report :states -- "The August 14, 1994,
Procurement Policy Notice transferred Property Administration
(PA) responsibility for the ESAT contract to, the Defense Contract
Management- Command (DCMC)." Procurement Policy Notices (PPN)
only prescribe policy. This policy was the result of an
interagency agreement with the DCMC. The policy was implemented
by issuing a 'contract .modification. .Therefore, the(PPN did not
transfer PA responsibility .for the ESAT contract to DCMC, but
rather was followed by a contract modification which transferred
this responsibility to DCMC. .
Recommendations (Page 40) ..
1.. Evaluate the propriety and. cost effectiveness of
.providing GFP (especially general purpose items) to ESAT staff,
particularly at off-site locations.
x
," i . '
, OARM RESPONSE:, The COs for both the current and the follow
on ESAT'contracts will.ensure maximum compliance with FAR policy,
, and forthcoming EPA policy. The CO for the new ESAT contracts is
currently reeyaluating what, if any, GFP should be furnished to
the'ESAT .contractors. The decision as'to whether to provide GFP,
however, is not based entirely on cost effectiveness. Per FAR
Part'45, it is the Government's policy to require contractors to
;furnish all facilities required for performing Government
, . ; 8 ' ''-
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APPENDIX I
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contract's except when certain circumstances are met. To provide
GFP under any other circumstances requires a FAR deviation. If
it is determined to be in the best interest of the Agency to
furnish GFP under the ESAT contracts, FAR Part 45 will be
followed, or if necessary, a deviation to'the FAR will be
requested from the Head of the Contracting Activity.
2. Develop and implement an Agency strategy that '
(1) complies with the FAR arid minimizes the amount of general
purpose equipment.provided to contractors, (2) includes criteria
when equipment should be provided, and (3) addresses the use of
incentives to encourage contractors to provide their own
equipment. For example, contractor acquired equipment could be
sold to the successor contractor at the depreciated value. This
could save administrative costs of controlling GFP and \_]
repl-acement costs for stolen, lost, or damaged items.
OARM RESPONSE: As discussed above, we are preparing an
Agency policy that complies with FAR and which 'will reduce
Government property.provided to contractors and provide criteria
for establishing when equipment should be provided. We agree
with the OIG that such guidance is clearly needed. We are also
examining the use of incentives to encourage contractors to
provide their own equipment. . .
3. Provide RPOs, the NPO, and the CO with additional .
guidance of their roles and responsibilities regarding GFP. This
guidance should be coordinated with the DCMC PA. These
individuals should also be informed of the PA's and property
contract coordinator's names, addresses, and telephone numbers to
establish a point of contact for problem resolution.
OARM RESPONSE: In conjunction with the policy guidance to
be released shortly, 0AM has drafted a CO/PO Guide for the
management of Government property. This guide is expected to -
replace the current Chapter 5 of the Contracts Management Manual
(CMM), and will provide COs and POs with guidance on their roles
and responsibilities. .
All employees involved in Agency management of Government
property have access to the PAs. The,contract, or contract
modification, assigning property administration indicates the
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cognizant DCMC office. (All EPA offices were recently provided
with DCMC Directories). 'Further, the CO receives, .and files in .
the official file DCMC's acknowledgment of administration
assignment. This acknowledgment lists the individual PA and
Plant Clearance Officer by name, and. provides addresses and
telephone numbers for these individuals. , .
. / i '
4. Direct that "the contractor ' s > property management system
be reviewed and approved to comply with EPA_and contract
requirements. Such a review will substantiate that property is
X properly controlled, protected, preserved, maintained, used, and
\ reported. ,
* '
-V ' ' ' ' ' " '
* OARM RESPONSE: We concur. Standard procedures require DCMC
to conduct this review annually., -Additionally, EPA may request
DCMC to perform a special review at any time. Based upon the
OIG's recommendation, the CO will request that DCMC perform a
special review of the contractor's property management system.
!
5 . Require contractors to conduct accurate annual
inventories and submit a certificate of completion of inventories
to comply with property regulations and conditions of the
contract. Th
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APPENDIX I
Page 38 of 44 $
OARM RESPONSE: We concur with this recommendation. Our.
interagency agreement with DCMC and the individual letters of
delegation specific to each contract do require DCMC to perform
periodic independent reviews of the Contractor's property control
systems. DCMC follows standard DOD procedures when performing
their reviews, but a sampling of records comparison to actual
inventory is a component of each review;
7.. Require the CO to modify the ESAT contract to include
all GFP in the contractor's possession as required by EPA
procedures.
OARM RESPONSE: 'After the contractor completes the physical
inventory and reconciliation, the contract will be modi-fied to
accurately reflect the GFP currently required for contract
performance and in the contractor's possession.
8. ,Place improved control over EPA decals. Decals should be
maintained by EPA and only provided to the contractor when new
property is acquired.
OARM RESPONSE: FAR 45.502(a) requires that contractors
establish and maintain a system to control, protect, preserve,
and maintain all Government Property. Contractors routinely
assign a unique number to their property for identification
purposes'. Contractors are not required to use EPA provided
decals. EPA, however, routinely provides decals to contractors'
who request them. In the subject case, we believe the
contractor's own property control system may have contributed to
any perceived problems. Accordingly, and as discussed in our
response to recommendation 6 above, the CO will request DCMC to
conduct-a special property system review to identify
deficiencies. The CO will then require the contractor .to correct
these deficiencies;
'
9. Encourage continuous cooperation between the RPO and PA
regarding control of Government vehicles. The three idle Edison
vehicles should be transferred or auctioned before they become
inoperable or lose their resale value. Also the contractor
should maintain vehicle utilization logs to record the date,
driver, beginning and .ending mileage, and destination.
11
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OARM RESPONSE: 0AM generally concurs with the concerns
raised' regarding the control of government vehicles. As noted
in the report, of the seven vehicles discussed, five vehicles
were ultimately deleted from the contract. Of these five, two
vehicles were disposed of prematurely and not in accordance'with
established procedures regarding contract property. The CO will
reemphasizevwith all RPOs the importance of following the
established procedures for excessing. contract property. The
remaining three vehicles, however, were properly deleted from the
contract when it became apparent that there was no continuing
need under the' contract. Any further disposition or action^
related to these three vehicles is not an issue under the
contract, as neither the RPO, PO nor CO have any continuing
responsibilities once the. property was returned. It is
recommended that further inquiries concerning these, three
vehicles be addressed with the region's facilities staff. '
CHAPTER IV - CONTROLS OVER CONTRACTOR'S WORK NEED IMPROVEMENT
This chapter does not contain any recommendation's for OARM.
' ; i
CHAPTERV - QTRER MATTERS
Federal Managers' Financial Integrity Act, Contract Management
Reviews Not Performed (Page 49)
FINDING: The report states that "although both facilities
identified contract management as an FMFIA event cycle,
management had not reviewed this area during .the past two years
or during 199S." " ' ' .
<" ,
OARM RESPONSE: This finding addresses'process requirements
'associated with former Office of Management and Budget (OMB)
guidance no longer in effect. OMB.revised its governing'Circular
A-123, Maqagement Accountability and Control (June-. 29, 1995),
eliminating requirements for Management Control Plans, Event
Cycle Documentation, Management Control Reviews and Alternative
Management Control Reviews, arid Vulnerability Assessments. At
the core of both OMB and Agency integrity policy guidance is
management judgment and flexibility for assessing the
effectiveness of program management controls based on all
credible sources of information available. .
12 . -/'
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. In addition, the finding does not reflect the following
management review activity: OSWER's acquisitibn staff performed
a review at the Edison facility in FY 95,v and a review at the
Lexington facility in FY 94. These reviews were documented by
entrance conferences, written recommendations, and exit
conferences, and are available for review by the auditors.
\ ,
For the above reasons, we recommend that this finding and
the recommendation that follows be deleted.
Recommendation (Page SO)
The Assistant; Administrator, OARM should work with the .
directors of the Lexington and Edison laboratories to establish
and implement procedures to ensure contract management reviews
are conducted as an event cycle under FMFIA. This action should
be accomplished as soon as possible.
OARM RESPONSE: OAM/OARM established a baseline in its 1992
contract management review and has continuously monitored its
findings related to contract management issues since that time.
Additionally, OSWER's accountable units are responsible for
establishing an OSWER-specific management control plan.for
monitoring vulnerabilities. We will continue to work with
OSWER and the Directors of the Lexington and Edison laboratories
on contract management vulnerabilities raised during the these
reviews, and advise them to consider including the ESAT contract
in their FY 96 systematic review strategy in order to ensure
prompt attention to potential vulnerabilities. . -
Proposed New ESAT Contract (Page 50)
(a) Statement of Work (Page 50) .
FINDING: The OIG report states.that the Agency discarded
the October 1992 modification that was instrumental in
strengthening our ability to ensure that the ESAT work was
properly executed. It further states that the SOW being used for
the ESAT recompete "does not provide sufficient detail for the
13.
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APPENDIX I
Page 41 of 44
contractor personnel to independently perform tasks . . . and
that modifications made to the original SOW which corrected
deficiencies were not incorporated in the proposed SOW."
OARM RESPONSE: We disagree with this finding. In
developing'the new SOW, CMD-RTP did not "discard" the
modification to the SOW in the current contracts. The reason the
SOW in the current contracts (as modified in October 1992)
delineates what is acceptable and unacceptable is because changes
were made to the SOW during the term of the contract as a result
of a review performed by 0AM. This review identified some
vulnerable areas in,specific tasks/functions which some program
officials believed were within the scope- of the contract, -but
which the CO believed were.not within the scope, or constituted
prohibited contracting areas. To ensure that all parties,
including the contractor, clearly understood that these
unacceptable tasks/functions.were no- longer to be, performed, they
were identified as "unacceptable" in the modified SOW. These
"unacceptable:" activities are by no means all inclusive of work
which cannot be performed under the contract. Rather they were
intended to clarify'and correct misconceptions which existed.
'l " , " ' *
Rather than discarding the SOW in the current contracts as
modified, the program office and CMQ-RTP used it as the starting
point for the* development of the SOW for the new ESAT
solicitation. The CO has carefully reviewed the SOW'and further
strengthened the language'areas perceived to be potentially
vulnerable. While the SOW does*not delineate the unacceptable
practices, the language has been strengthened so that it is very
clear what activities are to be performed.
The new SOW was crafted to reduce ambiguities in Quality
Assurance Project Plan reviews, Regional.Sample Control Center
activities, Special Analytical Service functions, Equipment
Maintenance, Field Sampling, Data Review, and Pre and Post-Award
Audits. For example, in the field support task, language was
specifically clarified by stating.that field sampling and
analytical support shall be provided only for the .listed areas.
As with the current contract, the new contract will contain a
clause delineating prohibited contractor activities.
A cpntract's SOW should delineate, as specifically as
possible what a contractor must do to successfully execute the
' . - - 14 ' ' '-''
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APPENDIX I
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contract. CMD-RTP has worked closely with the program office to
make the new SOW as detailed as possible. We believe that the .
new contracts should state only what work is to be performed by
the, contractor rather than calling out what they will not be
required to do. Under the new ESAT contract, the contractor will
be tasked by the issuance of WAs issued by the .CO rather than by
Technical Instruction Documents (TIDs). By creating detailed' and
specific WA SOWs, the program office and 0AM will ensure that
only acceptable tasks/functions are performed. issuance by the
CO will provide an added measure of review and control not
included in the current contracts.
Recommendation (Page 52) .
The Assistant Administrator, OARM should instruct the Director,
0AM to carefully review the proposed SOW and clearly delineate
provisions for the acceptable and unacceptable practices under
the proposed contract.
OARM RESPONSE: The SOW used in'the new solicitation was
developed as described previously. Prior to issuance of the
solicitation, the SOW was reviewed and approved by the Acting
Assistant Administrator, OARM, as well as the Director, OAM.
Cost-Plus-Award-Fee Contract (Page 52)
FINDING: The DIG contends that.the Agency.did not consider
the benefits of using a fixed-price or hybrid cost reimbursement
contract 'for the follow-on ESAT contracts. The report further
states that former COs, NPOs, and current RPOs indicated that a
fixed price contract was never considered because the time
required to formulate a fixed price proposal was not available.
OARM RESPONSE:. It is the sole responsibility of the current
CO. to consider all contract types before determining which best
fits the requirement. As documented in the approved Acquisition
Plan for the ESAT, recompete, all contract types were fully.
considered before making the final determination,to use cost
reimbursement type contracts.
15
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APPENDIX I
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, Once the decision had been made that a cost reimbursement
type contract was appropriate, it was incumbent upon the'CO to
consider incentive type contracts. The, current ESAT contracts
.provide incentives through the award fee process. For the new
ESAT ,contract's, it was determined that the Eastern Zone {Regions
1, 2, 3 and 5')" and the Western Zone {Regions 6,8, 9 and 10)
contracts would be suitable for a cost-plus-award fee
arrangement. " However, for Regions 4. and 7 it was'determined that
the expected benefits would not warrant the additional cost 'and
effort involved in administering this type of contract,''
therefore, these contracts will be cost-plus-fixed fee.
,Recommendation (Page 53) ,, ' -
The Assistant Administrator, OARM should instruct .the
Director, OAM to give full consideration to all types of .
contracting mechanisms, not only those of the. preceding ^
contract, when new or follow on contracts are procured.
OARM RESPONSE: In accordance with FAR 16.104, DAM'S-policy
is to give full consideration to all contract types 'for "each new
acquisition. No action is necessary. , '
'
16
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EPA's MANAGEMENT and OVERSIGHT of the ESAT CONTRACTOR
[This page intentionally left blank] L
112
Repoft No. E1SKF5-02-0010-5100515
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EPA's MANAGEMENT and OVERSIGHT of the ESAT CONTRACTOR
. APPENDIX II
ABBREVIATIONS
,AOC
CO
CPC
CPCO
DCAA
DCMC
EPA ,
ESAT
FAR
EMFIA
FMSD
GAO
GFP
GSA .
KSU
' LOE
MCP
NASA
NPO
OAM
Acknowledgement of Completion
Contracting Officer
Contract Property Coordinator
Contract Property Coordinating Officer
Defense .Contract Audit Agency . ,
Defense Contract Management Command
Environmental Protection Agency
Environmental Services Assistance Team
Federal Acquisition Regulation
Federal Managers' Financial Integrity Act
Facilities Management and~Services Division
Government Accounting Office
/
Government Furnished Property
General Services Administration
"X , *
Key Service Unit
Level of Effort
Management Control Plan
National Aeronautics and Space Administration
National Project Officer
Office of Acquisition Management
113
Report No. E1SKF5-02-0010-5100515
/I
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EPA's MANAGEMENT and OVERSIGHT of the ESAT CONTRACTOR
OARM
ODC
DIG
OSWER
PA
RFP
RPO
RTP
SARA
SCBA
SOW
TID
WA
;
WUD
Office of Acquisition and Resources
Management '
Other Direct Costs
Office of Inspector General
Office of Solid Waste and Emergency Response
Property Administrator '
Request for Proposal
Regional Project .Officer
Research Triangle Park
Superfund Amendments and.Reauthorization Act
Self Contained Breathing Apparatus
Statement of Work
Technical Instruction Document
Work Assignment
Work Unit Document
114
Report No. E1SKF5-02-0010-5100515
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.§'
o
'
e
EPA's MANAGEMENT and OVERSIGHT of the ESAT CONTRACTOR
APPENDIX III
DISTRIBUTION
Headquarters Office . . ,
Inspector General (2410)
Associate Administrator for Regional Operations and State/Local
Relations (1501)
Director, Resource Management Division (3304)
Director, Facilities Management, and Services Division (3204)
Director, Office of Emergency and Remedial Response (5201)
Director, Office of Acquisition Management (3801F)
Director, Contracts Management Division (MD-33)
Director, Hazardous Site Evaluation Division,
Office of Emergency and Remedial Response (Superfund) (5201G)
Headquarters Library (3401)
r
Headquarters Audit Followup Coordinator (1104)
1
Audit Liaison," Office of Solid Waste and Emergency
Response (5101)
Audit Liaison, Office of Acquisition Management (3802F)
Region Offices
Regional Administrators .
115
Report No. E1SKF5-02-0010-5100515
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