Office of Inspector General
Report of Audit
r
REPORT OF AUDIT ON
ICF INCORPORATED
E1SKF3-03-0161-4100233
March 31, 1994
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Inspector General Division
Conducting the Audit: Mid-Atlantic Audit Division
Philadelphia, PA
Program Office Involved: Office of Acquisition
Management
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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
MAR 3 I 1994
OFFICE OF
THE INSPECTOR GENERAL
SUBJECT: Audit Report Number E1SKF3-03-0161-4100233
Final Report of Audit on ICF Incorporated
FROM: Elissa R. Karpf
Associate Assistant Inspector General
for Acquisition and Assistance Audits
TO: Jonathan Z. Cannon
Assistant Administrator
for Administration and Resources Management
Attached is our audit report on ICF Incorporated. Our
overall objective was to evaluate prime contracts awarded to
ICF, and subcontracts awarded by ICF. This report contains
important findings and recommendations.
We found that EPA adhered to the Federal Acquisition
Regulation (FAR) when soliciting competition for contracts
awarded to ICF. For example, the Agency sent out hundreds of
requests for proposals to prospective offerers. Adequate -
competition did exist in the award of most of of the smaller
ICF contracts. However, there was limited competition in the
award of over half of the larger ICF prime contracts. .When
contracts reached the level of $10 million there was less
competition.
This audit contains findings that describe problems the
Office of Inspector General (OIG) identified and the
corrective actions the OIG recommends. This report
represents the opinion of the OIG. Final determinations on
matters in this report will be made by EPA managers in
accordance with established EPA audit resolution procedures
Accordingly, the findings described in this report do not
necessarily represent the final. EPA position.
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ACTION REQUIRED
We have designated the Assistant Administrator for
Administration and Resources Management as the action
official for this audit. In response to the draft report,
your office provided responsive action plans and milestone
dates for correcting the findings. As a result, and in
accordance with EPA Order 2750, we find your response to the
report acceptable. Therefore, we are closing this report in
our tracking system as of this date. Please track all action
plans and milestone dates in the Management Audit Tracking
System. In addition, we request you provide copies of your
guidance documents to our office when they have been
finalized.
We have no objections to the further release of this
report to the public. Should you or your staff have any
questions about this report, please contact P. Ronald
Gandolfo, Divisional Inspector General for Audit, or Michael
Wall, Audit Manager, Mid-Atlantic Division, at (215) 597-
0497.
Attachments
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Audit of ICF Incorporated
EXECUTIVE SUMMARY
PURPOSE
We performed an audit of the active contracts awarded by
the Agency to ICF Incorporated and its subsidiaries. The
primary purpose of this audit was to evaluate the extent of
competition in: (a) EPA's award of prime contracts to ICF;
and, (b) ICF's award of subcontracts to other firms.
BACKGROUND
ICF is the Agency's second largest contractor with 25
actives contracts potentially worth $388 million. The
obligations against these contracts amounted to $112 million.
EPA utilizes ICF to perform various activities in
support of Agency program offices. These activities
included: policy and technical analysis services in support
of the Office of Ground-Water Protection; economics support
for regulatory actions for the Office of Toxic Substances;
support for the Office of Air and Radiation to evaluate the
energy, economic and environmental trade-offs of Government
policies and regulations; support to the Office of Solid
Waste to provide analytical and planning services regarding
the management of Resource Conservation and Recovery Act-
regulated wastes; and, support for the Office of Underground
Storage Tank Recovery Program in establishing a national
program regulating underground storage tanks by developing
standards and procedures.
EPA's award of contracts through negotiation is governed
by the Competition in Contracting Act (CICA) of 1984, and by
the Federal Acquisition Regulation (FAR). Both CICA and FAR
promote the use of full and open competition, i.e., all
responsible sources are to be permitted to compete. The use
of competition is not limited to the award of prime
contracts. It also applies to the award of subcontracts.
According to the FAR, prime contractors are required to
obtain competition among subcontractors to the maximum extent
practical. Contracting Officers are to evaluate the adequacy
of this competition before approving subcontracts.
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RESULTS IN BRIEF
There was limited competition in the award of over half
of the larger ICF prime contracts. While EPA did adhere to
the FAR in regard to soliciting competition for the contracts
awarded to ICF, the level of competition lessened as the
value of the contract reached $10 million. At the time of
our review, EPA had eight such contracts with ICF. In five
of these contracts we found that either there had been no
competition, or what competition existed, had been supplanted
for a variety of reasons. These reasons included:
o the scope of the contracts was too large and
diverse;
o ICF was the only firm to submit a proposal;
o the criteria by which proposals were evaluated
placed too much emphasis on incumbency;
o recommendations to include ICF's competitors in the
"competitive range" were overruled by the
Contracting Officer; and
o ICF obtained access to EPA's evaluation of a
competitor's proposal.
As the Government is best served when all potential
contractors have the opportunity to compete equally for its
business, contracts should be awarded to those submitting the
most advantageous offers. We believe that ICF was given an
advantage over other firms, and that the Agency cannot be
assured that it received all the benefits of the competitive
process.
We also found little, if any, evidence that competition
existed in the award of subcontracts by ICF under its three
largest EPA prime contracts. In fact, for years, EPA placed
too much reliance on: (a) ICF assurances that it awarded
subcontracts on a competitive basis,- and, (b) unsigned and
undated ICF "sole source" justifications. We found little
evidence in the Agency's contract files that such competition
ever took place. Likewise, EPA Contractor Purchasing System
Reviews found little evidence in ICF's files that such
competition ever took place. Nevertheless, EPA Contracting
Officers assumed that competition actually occurred, and
accepted the suggestion that ICF merely lacked the
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documentation to prove so. In our review, we found only one
documented case where ICF awarded a "competitive"
subcontract; however, in this case, ICF had employed
evaluation factors that heavily favored the incumbent - a
firm staffed by' former ICF employees.
The conditions disclosed during our review are
summarized in the following paragraphs and discussed in the
detail in the attached report.
PRINCIPAL FINDINGS
Lack of Competition in the Award of Prime
Contracts
EPA did adhere to the Federal Acquisition Regulation
(FAR) in regard to soliciting competition for the contracts
awarded to ICF. For example, the Agency sent out hundreds of
requests for proposals to prospective offerers. Adequate
competition did exist in the award of most of the smaller ICF
contracts. However, there was limited competition in the
award of over half of the larger ICF prime contracts. When
contracts reached the level of $10 million there was less
competition.
At the time of our review, EPA had eight contracts with
ICF, each with a potential value over $10 million. In three
cases ICF appeared to have won the contracts because its
price and technical proposals were more favorable than that
of its competitors. However, in the other five awards we
found either there had been no competition, or what
competition existed, had been supplanted. As a result, it
appeared that EPA did not receive the full benefits of
competition in the selection of these contracts.
In four of the five awards ICF was the incumbent. In
two instances, ICF was the only firm to submit an offer,
while on the other three awards, only ICF made it to the
"competitive range" category, which in effect made the firm a
sole source. This occurred because EPA: (a) over emphasized
experience as an evaluation scoring factor,- and/or, (b) did
not follow the recommendation of a Technical Evaluation
Panel.
Finally, on two occasions the Agency's stewardship over
competitors' proposals was inadequate.
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Lack of Competition in the Award of Subcontracts
We reviewed subcontracts awarded by ICF under its three
largest EPA prime contracts, and concluded that there was
little,' if any, 'evidence that competition was involved in the
award of these subcontracts. This occurred because: (a) ICF
routinely awarded subcontracts on a "sole source" basis; and,
(b) EPA contracting personnel had various interpretations of
what exactly constituted "competition" in regard to the
assignment of work to "team" subcontractors. As a result,
EPA did not receive the benefits of competition for a
significant percentage of the subcontracts in our review.
Management of the Award Fee Process was Inadequate
Four of the eight ICF contracts in our review were award
fee contracts. In all four cases, EPA experienced some
difficulty in evaluating ICF's performance on a timely basis.
The delays ranged from less than two months, to more than two
years. However, rather than improve its administration of
the award fee process, EPA instead chose to convert three of
the contracts into cost-plus-fixed-fee contracts. We
analyzed the largest of the converted contracts because it
experienced the lengthiest delays. We found that on average
EPA now paid more in fees, even though the requirement to
evaluate ICF performance no longer existed.
All of the EPA contracts with ICF were cost reimbursable
contracts; many were of the "umbrella" type, i.e., their
statements of work were so general that almost no task was
beyond their scope. We also noticed that as the size of a
contract decreased, the amount of the competition increased.
On August 30, 1993, in response to questions posed by a
Senate Committee, EPA's Administrator explained how the
Agency was in the process of breaking up the statements of
work of umbrella contracts into smaller, more manageable
components in order to correct the kinds of difficulties
experienced in the past. Accordingly, we offered examples of
possible breakout candidates that came to light during our
review of three of the larger ICF contracts.
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RECOMMENDATIONS
We recommend that the Assistant Administrator for
Administration and Resources Management have the Director,
Office of Acquisition Management:
o Establish a policy for the percentage of evaluation
points that can be awarded in the area of corporate
experience.
o Issue guidance instructing Contracting Officers to
conduct post-award efforts to determine reasons for.
the receipt of only one proposal when it occurs.
o Emphasize to contracting and program personnel the
need to safeguard all contractor proposals and all
Technical Evaluation Panel data.
o Require the Contracting Officer to review the
awards of all significant subcontractors under EPA
prime contracts to ensure selection on a
competitive basis as prescribed by the FAR.
o Require prime contractors to obtain Contracting
Officer approval before delegating specific work
assignments or portions of work assignments to any
subcontractor.
o Require prime contractors to obtain Contracting
Officer approval of all significant subcontractor
budgets and any subsequent budget revisions.
o Instruct EPA personnel of their award fee
responsibilities, at the time a contract is
awarded.
O Emphasize to the EPA personnel involved in the
award fee process that completing timely
evaluations is essential to the objectives of the
process.
o Inform Contracting Officers that the type of
contract should be changed only when justifiable,
rather than simply to remedy administrative
problems.
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Overall, EPA concurred with our recommendations, but
disagreed with certain aspects of several of the findings.
The details of the Agency's response, and our evaluation of
this response, are contained in the chapters of this report,
We have included as Appendix A a copy of the Agency's
response.
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TABLE OF CONTENTS
Page
EXECUTIVE SUMMARY. , i
CHAPTERS
1 INTRODUCTION 1
PURPOSE 1
BACKGROUND 1
SCOPE AND METHODOLOGY 3
PRIOR AUDIT COVERAGE 5
2 LACK OF COMPETITION IN THE AWARD OF PRIME
CONTRACTS 7
3 LACK OF COMPETITION IN THE AWARD OF
SUBCONTRACTS 21
4 EPA MANAGEMENT OF THE AWARD FEE PROCESS WAS
INADEQUATE 35
5 BREAKOUT OF "UMBRELLA" CONTRACTS 41
APPENDIX A - AGENCY COMMENTS 45
APPENDIX B - DISTRIBUTION 57
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CHAPTER 1
INTRODUCTION
PURPOSE
We performed an audit of the active contracts awarded by
the Agency to ICF Incorporated and its subsidiaries. The
purpose of this audit was to evaluate the following:
•• the circumstances by which the Agency awards prime
contracts to ICF;
-• the circumstances by which ICF then awards
subcontracts to other firms,-
-• the Agency's administration of the award fee process
in regard to ICF contracts; and
- the advisability of scaling down proposed statements
of work into smaller contracts.
BACKGROUND
The Agency awarded contracts at three separate
procurement centers within EPA's Office of Administration and
Resources Management. These centers are located in
Washington, D.C.; Research Triangle Park, North Carolina; and
Cincinnati, Ohio. EPA Contracting Officers are assigned to
ensure that all requirements of law, executive orders,
regulations and all other applicable procedures, including
clearances and approvals, have been met. Contracts may be
entered into and signed on behalf of the Government only by
Contracting Officers. Project Officers and Work Assignment
Managers are usually located in the program offices, and
assist the Contracting Officers in the daily administration
of the contracts and work assignments issued under the
contract.
ICF, along with its subsidiary, Clement Associates, is
the Agency's second largest contractor. According to EPA's
Contracts Information System, as of March 25, 1992, ICF and
Clement had 25 active contracts potentially worth $388
million. The obligations against these contracts amounted to
$112 million.
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EPA utilizes ICF to perform various activities which
support Agency program offices. These activities included:
policy and technical analysis services in support of the
Office of Ground-Water Protection; economics support for
regulatory actions for the Office of Toxic Substances;
support for the Office of Air and Radiation to evaluate the
energy, economic and environmental trade-offs of Government
policies and regulations; support to the Office of Solid
Waste to provide analytical and planning services regarding
the management of Resource Conservation and Recovery Act-
regulated wastes; and, support for the Office of Underground
Storage Tank Recovery Program in establishing a national
program regulating underground storage tanks by developing
standards and procedures.
EPA's award of contracts through negotiation is governed
by the Competition in Contracting Act (CICA) of 1984, and by
the Federal Acquisition Regulation (FAR). Both CICA and FAR
promote the use of full and open competition, i.e., all
responsible sources are to be permitted to compete. The FAR
(Subpart 15.402 (a) and (b)) requires the use of Requests for
Proposals to communicate Government requirements and solicit
proposals from prospective contractors. Upon receipt these
proposals undergo a cost or price evaluation and a technical
evaluation. Based on these evaluations, the Contracting
Officer determines a "competitive range." The Contracting
Officer is then to conduct written or oral discussions with
those offerers whose proposals reach the competitive range.
Upon completion of the discussions, the Contracting Officer
is to request, from all offerers still within the competitive
range, "best and final offers." Following evaluation of
these offers, the Contracting Officer (or other designated
source selection authority) is to select the source whose
offer is most advantageous to the Government, considering
price and other factors included in the solicitation.
The use of competition is not limited to the award of
prime contracts. It also applies to the award of
subcontracts. According to FAR 52.244-5, prime contractors
are required to obtain competition among subcontractors to
the maximum extent practical. Also, Contracting Officers are
to evaluate the adequacy of this competition before approving
subcontracts.
All of the ICF contracts were cost-reimbursement
contracts. As defined in FAR Subpart 16.301-1, such
contracts provide for payment of allowable incurred costs, to
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the extent prescribed in the contract. Nine of the ICF
contracts were also cost-plus-award-fee contracts. As
explained in FAR Subpart 16.404-2, the goal of these
contracts is to motivate a contractor to excellence in areas
such as quality, timeliness, and management. Under this type
contract, the Agency is to evaluate performance at stated
intervals in order to inform the contractor of areas needing
improvement.
SCOPE AND METHODOLOGY
As a result of a March 1992 Office of the Inspector
General audit report, the Agency declared contracts
management to be a new material weakness in its Fiscal 1992
Federal Managers' Financial Integrity Act Report.
Consequently, EPA established the Standing Committee on
Contracts Management (since renamed the Resources Management
Committee). The purpose of this Committee was to study
contract management issues facing EPA, and to make
recommendations as to how improvements could be implemented.
In June 1992, based on an in-depth study the Committee made
40 recommendations to address EPA's contract management
problems. As of December 31,'1993, EPA reported that it had
completed action on 17 of these recommendations, and was in
the process of completing action on the remaining 23
recommendations.
Because of its magnitude we decided to review EPA's
contract activity with ICF Incorporated. Our survey began on
May 18, 1992, and ended on October 26, 1992. As a result of
the survey we decided to initiate an in-depth audit.
However, this audit was delayed in order to complete a series
of reviews of ICF subcontracts, that had been requested by
Congress. Upon completion of these reviews we commenced
fieldwork on the audit in May 1993. Concurrently, the
Agency's Office of Acquisition Management (0AM) examined
selected ICF contracts in order to determine EPA's
vulnerability in regard to how they were being managed.
Although several of these contracts also fell within our
review, we did not duplicate 0AM's efforts.
We performed this 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. Our review included
tests of documents and other auditing procedures we
considered necessary.
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To accomplish our objectives we performed our review at
EPA's procurement centers located at Research Triangle Park,
NC; Cincinnati, Ohio; and Washington, D.C. We interviewed
EPA contracting and program personnel, and examined various
records including: contract solicitations, contract
documents, contract modifications, subcontracts, status
reports, technical activities reports, bid abstracts,
individual work assignments, Technical Evaluation Panel board
reports, and award fee performance evaluation reports.
The scope of our review included 22 of the 25 EPA
contracts with ICF (and its subsidiary) that were in effect
at the time of our survey. During the audit, we added to our
scope the largest and most recent contract because of the
Administrator's concern over the timeliness of audit issues.
In total, we reviewed 23 contracts which had $98 million in
obligations and a potential total value of $216 million.
Our audit disclosed several areas needing improvement
which are discussed in this report. Recommendations are
provided to assist in improving EPA's procurement process and
its award fee process. We reviewed applicable management
controls and procedures specifically related to our
objectives; however, we did not test all of EPA's controls.'
Any material internal control weaknesses disclosed and
related recommendations to strengthen controls were included
in Chapters 2 through 5 of this report. We did not review
the internal controls associated with the input and
processing of information into automated records systems;
although we did verify information used directly in our
review, due to inconsistencies found in the Contracts
Information System. No other issues came to our attention
which were significant enough to warrant expanding the scope
of the audit. •
The audit fieldwork was completed on October 29, 1993.-
We submitted "Position Papers" on potential issues to EPA on
November 15, 1993. EPA responded to these position papers on
January 11, 1994. Their response indicated that they did not
agree with all of the specific findings, but they generally
agreed with the conclusions. Where warranted we made
clarifications; however, the response contained no additional
data to induce us to materially change our positions.
We issued a draft report on February 18, 1994. EPA
submitted their response to us on March 29, 1994. Overall,
EPA concurred with our recommendations, but disagreed with
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certain aspects of the first two findings. We have
summarized the Agency's response after each finding and
included our evaluation. The complete response can be found
in Appendix A.
PRIOR AUDIT COVERAGE
Concurrent with this audit the EPA Office of the
Inspector General is performing an Agency-wide audit of
competition in contracting. Also, several of the issues in
this audit had been addressed by the General Accounting
Office (GAO). In a report issued on January 4, 1985,
(GAO/RCED-85-12) GAO discussed the following:
o Overall, in procuring contract support EPA emphasized
speed and flexibility at the expense of controls
required by Federal procurement regulations.
o EPA used cost reimbursable contracts because they are
easier and more flexible to use. Such contracts,
however, are less preferable than fixed-price
contracts because they provide a contractor little
incentive for efficiency, and place the maximum risk
on the Government.
o Some of the individual assignments tasked under cost
reimbursable contracts appeared suitable for fixed-
price contracts.
o EPA procedures required contractors to obtain Agency
approval of all major subcontracts. However, GAO was
unable to determine the overall extent or cost to EPA
of using subcontractors, because the Agency did not
track subcontracting costs.
o EPA directed its contractors to award sole-source
subcontracts because it was quicker than using its own
procurement office to obtain the services.
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CHAPTER 2
LACK OF COMPETITION IN THE AWARD OF PRIME
CONTRACTS
EPA did adhere to the Federal Acquisition Regulation
(FAR) in regard to soliciting competition for the contracts
awarded to ICF. For example, the Agency sent out hundreds of
requests for proposals to prospective offerers. Adequate
competition did exist in the award of most of the smaller ICF
contracts. However, there was limited competition in the
award of over half of the larger ICF prime contracts. When
contracts reached the level of $10 million there was less
competition.
At the time of our review, EPA had eight contracts with
ICF, each with a potential value over $10 million. The total
obligations of these contracts were $68 million, and their
total potential value exceeded $150 million. We examined the
circumstances in regard to the award of the eight contracts.
In three cases ICF appeared to have won the contracts because
its price and technical proposals were more favorable than
that of its competitors. However, in the other five awards
we found that either there had been no competition, or what
competition existed, had been supplanted. As a result, it
appeared that EPA did not receive the full benefits of
competition in the selection of these contracts.
In four of the five awards ICF was the incumbent. In
two instances ICF was the only firm to submit an offer; while
on the other three awards, only ICF made it to the
"competitive range" category, which in effect made the firm a
sole source. Finally, on two occasions the Agency's
stewardship over competitors' proposals was inadequate.
Reasons for Limited Competition
Competition in regard to the five ICF contracts was
constrained because of a variety -of reasons, among which
were:
o the scope of the contracts was too large and diverse;
o ICF was the only firm to submit a proposal;
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o the criteria by which proposals were evaluated placed
too much emphasis on incumbency;
o recommendations to include ICF's competitors in the
-"competitive range" were overruled by the Contracting
Officer; and
o ICF obtained access to EPA's evaluation of a .
competitor's proposal, thereby compromising the
procurement.
Competition Requirements
Full and open competition, as defined by the Competition
in Contracting Act (CICA) of 1984, means giving all
responsible firms an opportunity to compete for the award of
a contract. The FAR requires "adequate price competition" to
be used in determining whether an offerer must submit
certified cost or pricing data. FAR 15.804-3(b)(1)
stipulates that adequate price competition exists if:
o offers are solicited;
o two or more responsible offerers that can satisfy the
Government's requirements submit priced offers
responsive to the solicitation's expressed
requirements; and
o these offerers compete independently for a contract to
be awarded to the responsible offerer submitting the
lowest evaluated price.
The FAR also prescribes the process by which EPA is to
award prime contracts when contracting by negotiation.
Basically, the Agency solicits proposals from prospective
contractors. Those proposals that are deemed acceptable,
then undergo a series of cost and technical evaluations.
Based on these evaluations, the Contracting Officer decides
on a "competitive range," from which a winning proposal is
selected. According to FAR 15.609(a), this competitive
range:
o shall be determined on the basis of cost and other
factors;
o shall include all proposals that have a reasonable
chance of being selected; and
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o when there is doubt as to whether a proposal is in the
competitive range, that proposal should be included.
The Contracting Officer is then to conduct written or
oral discussion with those offerers whose proposals reach the
competitive range. Upon completion of the discussions, the
Contracting Officer is to request "best and final offers."
Following evaluation of these offers, the Contracting Officer
then selects the offer that is the most advantageous to the
Government, considering price and other factors included in
the solicitation.
As the Government is best served when all potential
contractors have the opportunity to compete equally for its
business, contracts should be awarded to those submitting the
most advantageous offers. We believe that ICF had an
advantage over other firms, and that the Agency cannot be
assured that it received all the benefits of the competitive
process. The following narratives further explain the
circumstances surrounding the award of the five prime
contracts to ICF.
Contract Numbers 68-CO-0083
and 68-WO-0009;
ICF the only Bidder
Although not planned as such, in two of the five awards,
ICF as the incumbent became a de facto sole source because no
other contractors submitted a proposal. Contract Number 68-
CO-0083, valued at $14.4 million, was awarded to ICF to
support the Office of Ground-Water Protection. Although 120
firms were solicited, only ICF responded. Likewise, 88 firms
were solicited on Contract Number 68-WO-0009, yet only.ICF
responded. This contract, valued at $12.5 million, was for~
the Office of Solid Waste Management and Information Support.
Both of these procurements were "umbrella" contracts, i.e.,
contracts with large and diverse statements of work, which we
believe constrain competition.
Contract Number 68-DO-0102;
Over Emphasis on Incumbency Factor
This contract was worth a potential $15.5 million. Its
purpose was to obtain support for the Office of Air and
Radiation to evaluate the energy, economic, and environmental
trade-offs of Government policies and regulations. EPA
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solicited offers from 318 firms, but only 2 firms responded -
ICF and one competitor. Although the competitor's proposed
price was approximately $1.3 million less, ICF was awarded
the contract because it received a much higher score from the
Technical Evaluation Panel that rated the proposals.
However, from our review it appeared that the criteria used
to determine the competitive range for.this procurement
unduly favored the incumbent.
On March 27, 1990, copies of the technical proposals of
both companies were stolen from an EPA employee's private
vehicle. On May 22, 1990, ICF's competitor requested that
the contract:
...Be awarded on initial offers...Although we understand
that this request may not be in our best interest since
there is an incumbent, we strongly believe that this is
the only way to ensure the integrity of this procurement
under such circumstances.
The Contracting Officer denied the request, informing
the firm in a June 15, 1990, letter that:
Your request for awarding a contract...based on initial
offers has been considered. However, this acquisition
does not fit one of the exceptions at FAR 15.610(a) that
allows for award without written or oral discussion. As
I'm sure you can appreciate, to award a contract of this
complexity based on initial offers is not in the best
interests of the government.
However, according to FAR 15.610(b), the Contracting
Officer only had to conduct discussions with offerers, who
submitted proposals that were deemed within the competitive^
range. Accordingly, on June 27, 1990, the Contracting
Officer notified ICF's competitor that:
Upon examination of your proposal...as well as
consideration of your proposed price (estimated cost and
fee), it has been determined that it is not within the
competitive range. Since no further negotiations are
contemplated with you regarding this solicitation, no
revision of your proposal will be considered.
Although the Contracting Officer noted that ICF had
failed to evaluate the subcontractor costs in its proposal,
ICF was still awarded the prime contract. In our opinion,
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the criteria used to determine the competitive range for this
procurement unduly favored the incumbent, because 65 percent
of these criteria addressed factors such as experience or
familiarity with EPA programs. For example, ICF was heavily
favored because it was deemed by the evaluation panel as:
....Extremely qualified to handle a contract of this type
and the project manager has extensive experience with
EPA policies...staff are very familiar with EPA
policies...ICF and proposed team of subcontractors have
lengthy experience in analyzing the significant policy
impacts of numerous EPA programs...emphasis on policy
analysis is superior and long-term knowledge of the
development of policy is significant...proposed manager
appears to be extremely capable of managing a contract
of this type....
(It should be noted that approximately one year after the
award of the contract, ICF replaced this program manager
because his work for private firms posed a potential conflict
of interest.)
On the other hand, the evaluation panel expressed
concern with the competitor's proposal because of:
...Lack of experience, both company and personnel, with
EPA's programs, policies and regulations. This has the
potential for increased time demands on EPA staff as
well as increased charges by the offeror for the time
spent learning the basics necessary to successfully
complete assigned work...Prime contractor has minimal
direct experience with EPA air office regulatory
programs. Subcontractor experience with EPA programs
limited to technical rather than overall policy and
analytical support services or regulatory
development....
We reviewed the tasks assigned under the contract and
concluded that a sizeable portion of the work actually
performed by ICF would not appear to corroborate the comment
that an intimate familiarity with EPA programs was
imperative. For instance, ICF was assigned tasks such as:
providing logistical support for conferences; maintaining an
EPA mailing list; talking with real estate agents about
radon,- training Agency employees how to write regulations,-
producing guidance for building owners on indoor air
problems; and creating directories of indoor air quality
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contractors.
In regard to the potential for increased time demands on
EPA staff, or increased charges for the time spent learning
the basics, we noted that several of the assignments under
this contract were only continuations of tasks previously
assigned under an earlier contract with ICF. They were also
being continued under the successor to this contract. In
other words, projects went years without being completed
despite having been assigned under three separate ICF prime
contracts. For example, under Contract Number 68-02-4601,
ICF was tasked to assemble a Guide by September 1989 to
address indoor air quality problems in new home construction.
However, ICF was still working on the Guide during 1991 and
1992 under Contract Number 68-DO-0102, and during 1993, under
Contract Number 68-D2-0131.
Finally, it should be noted that the competitor's bid
was $1.3 million less than ICF's. Had best and final offers
been obtained, there was a strong possibility that the final
award amount could have been a great deal less. Indeed, in
the award of another contract, ICF reduced its offer by over
20 percent, or almost $3 million, which we surmise was done
in order to re-win a contract.
Contract Number 68-W9-0081;
Technical Evaluation Panel Recommendation not
Followed
Despite being the highest priced of three bidders, ICF
was awarded Contract Number 68-W9-0081. Basically, it
received the contract because EPA procurement personnel did
not follow a recommendation by the Technical Evaluation Panel
to place all three bidders into the competitive range, and
instead, declared ICF as the only viable offerer.
Worth potentially $14.1 million,, the purpose of the
contract was to provide support to the Resource Conservation
and Recovery Act program. EPA received three proposals,
including one from ICF which was approximately $1 million
higher than the lowest bid. Although a Technical Evaluation
Panel comprised of program personnel declared ICF's proposal
as superior, the Contracting Officer rejected this report as
lacking "specific, individual detail," and requested the
panel to re-evaluate the proposals.
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When the panel reconvened, however, it recommended that
all three firms be included in the competitive range, because
the weaknesses found in the competitors' proposals were
potentially correctable. In order to help clarify the
issues, the panel also drafted a series of interrogatories
for each of the three firms. However, the interrogatories
•were never used because a Contracting Specialist did not
follow the panel's recommendation. "To the contrary, in a
memorandum to justify selection of only ICF to the
competitive range, the specialist wrote that the panel had
concluded that: (a) ICF's competitors had no reasonable
chance of gaining the award; and, (b) their proposals were
technically unacceptable. The Contracting Specialist
addressed the fact that ICF's proposal was almost $1 million
higher by noting that "...the differential in technical
scores between ICF and the other competitors was so great
that cost would have had no bearing on the award of the
contract."
ICF's best and final offer amounted to $14.1 million, an
increase of $416,300 over its initial proposal, and $1.4
million higher than that of the competition. Noting that a
year had passed since the initial offers, EPA accepted ICF's
price as fair and reasonable. According to a Business
Evaluation Panel Supplemental Report, a detailed cost
analysis was to have been included in the Post-Negotiation
Memorandum. However, as explained in an earlier memorandum
by the Contracting Specialist, this requirement had been
waived because there was not enough time to complete all of
the required documentation.
Contract Number 68-C2-0107;
ICF Obtained EPA's Evaluation of a Competitor's
Proposal
Contract Number 68-C2-0107, with a potential value of
$34.5 million, was among the largest of the more recent ICF
contracts. Awarded in January 1992, its purpose was to
obtain mission support for the Emergency Response Division
relative to its regulatory development. Although EPA
solicited 255 firms, it received proposals from only ICF and
one competitor, both of whom were subcontractors on the
predecessor contract.
Despite the fact that ICF's offer was $3.6 million more
expensive, and that ICF obtained a diskette containing the
Agency's evaluation of the competitor's proposal from an EPA
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office, ICF was awarded the contract because it was deemed as
the only firm within the competitive range. Based on our
review of EPA's evaluations of the technical proposals, we
believe that: (a) both proposals could have been included
within the competitive range, thereby allowing EPA to at
least reap the cost benefits of obtaining best and final
offers,- and, (b) ICF was awarded the contract because of its
incumbency status as a major subcontractor. We further
believe that under the circumstances this procurement could
have been broken up into smaller segments, so that it could
have been re-competed among a greater pool of contractors.
Missing Diskette
On November 6, 1991, an ICF deputy project manager took
a computer diskette from the desk of an EPA employee. This
EPA employee, now retired, had been a member of the Technical
Evaluation Panel. According to the ICF employee, in October
1991, the EPA employee told him that she had an ICF diskette
that she wished to return. Thus, when in November he noticed
a diskette which, according to him, was wrapped in a piece of
paper with his name on it, he took the diskette from the EPA
office, returned to ICF, and gave it to a co-worker to "look
at it and figure out if it's important." The co-worker
printed a file from the diskette, which turned out to be
EPA's evaluation of the two proposals, and which indicated
that ICF's had been rated far higher than that of its
competitor. That same day ICF mailed the diskette and the
printout of the file to the EPA Contract Specialist in
Cincinnati, Ohio, along with a letter explaining that the
materials had inadvertently come into the firm's possession.
On November 15, 1991, the EPA Project Officer, who was
also the Chairman of the Technical Evaluation Panel, sent a
memorandum to the Contracting Officer reporting that ICF's
proposal was the only one acceptable. There was no mention
of the fact that ICF had been in possession of the panel's
findings one week earlier.
By December 23, 1991, although EPA procurement personnel
decided to refer the "diskette" incident to the OIG, they
awarded the contract to ICF without conducting negotiations
or requesting a best and final offer. To support this
decision they drafted a document entitled "Rationale for an
Award Based on Initial Offers." In this document the EPA
procurement personnel maintained that although ICF's cost was
"slightly" higher, i.e. $3,641,845, its proposal was clearly
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the most advantageous to the Government, and that the
competitor's lower cost was "meaningless" because of its
"...demonstrated lack of competence." Also, the OIG reviewed
all available information pertinent to the incident and
determined the disclosure was inadvertent and had no effect
on whether or not ICF received the contract award.
Technical Evaluation Criteria
According to the Acquisition and Source Selection Plan,
in order to lessen the value of incumbency, "corporate
experience" was to receive a "relative minor weighting" in
the evaluation process for this contract. Nonetheless, we
believe that ICF's status as a major subcontractor on the
previous prime contract was the leading factor in the award
of the contract. According to the Technical Evaluation Panel
write-ups, the panel members - all of whom worked in the
Emergency Response Division - gave ICF the highest ratings
possible in various criteria because ICF:
o currently held 28 active mission contracts with six
Federal agencies;
o had provided a decade of support to the Emergency
Response Division;
o had recruited the current prime contractor to be a
major subcontractor on the new contract; and
o had a number of ex-EPA employees who were
knowledgeable of regulation development.
On the other hand, ICF's competitor consistently
received low ratings, because its proposal was deemed as only
"satisfactory." For example, in one rating category the
Technical Evaluation Panel rated the competitor as only
"satisfactory" because the firm's personnel were considered
to' be over qualified. However,.in the exact same category
the panel gave ICF the highest rating possible because:
The proposed personnel.have superior experience in
establishing central administrative and technical filing
systems, and further demonstrated a unique knowledge of
the EPA filing procedures and requirements, particularly
as related to the filing of rulemaking documents. For
example (employee's name deleted) has assisted ERD in
compiling the rulemaking dockets for three separate
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rulemakings...
In our review of the contract file we noted that the ICF
employee being cited in the above paragraph was the same
individual who:
o had been an EPA employee;
o went to work for ICF as a deputy project manager on
the contract;
o left ICF and became an unjustified sole source
subcontractor, possibly at the direction of an EPA
employee; and
o rejoined EPA as a "Special Government Employee."
As a result of our review, we concluded that ICF was
rated higher simply because it had performed this same work
for the Emergency Response Division over the past decade, and
not because of any demonstrated "lack of competence" on the
part of the competitor, as asserted by EPA procurement
personnel. We also did not agree that the $3.6 million gap
between the offers was "slight." Moreover, we would point
out that an OIG pre-award audit concluded that:
The statements of proposed costs do not represent, in
all material respects, a reasonable basis for
negotiating a contract price in accordance with the FAR,
in conformity with generally accepted accounting
principles.
Conclusion
EPA did adhere to the FAR in regard to soliciting
competition for the contracts awarded to ICF. However,' there
were instances where Agency personnel were less careful in
maintaining a competitive environment after proposals were
received.
EPA over emphasized experience as an evaluation scoring
factor. This in turn influenced the award of prime contracts
to the incumbent. The use of experience as a criterion
becomes more beneficial to the incumbent when EPA experience
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is considered more important than non-EPA experience. While
we do not recommend eliminating legitimate experience
advantages, we do believe the Agency should eliminate any
unnecessary factors contained in the evaluation criteria.
Recommendations
We recommend that the Assistant Administrator for
Administration and Resources Management have the Director,
Office of Acquisition Management:
1) Establish a policy for the percentage of evaluation
points that can be awarded in the area of corporate
experience.
2) Issue guidance instructing Contracting Officers to
conduct post-award efforts to determine reasons for
the receipt of only one proposal when it occurs.
3) Emphasize to contracting and program personnel the
need to safeguard all contractor proposals and all
Technical Evaluation Panel data.
Agency Comments
The Agency concurred with our recommendations and plans
to issue appropriate guidance on each topic in .September,
July, and May 1994, respectively.
OIG Evaluation of Agency Comments
Although EPA disputed several of our facts, the response
contained no additional data to influence us to change our
position. For example, the Agency asserted that the
evaluation criteria used to award Contract Number 68-DO-0102
were not unduly skewed toward the incumbent, and the response
questioned our contention that 65 percent of the criteria
addressed factors such as experience or familiarity with EPA
programs. EPA stated in its response, that a heavy weight
was placed on company qualifications and experience (30
percent), and that its current practice was to limit this
factor to 15 percent. The response also acknowledged that a
weight of an additional 20 percent was placed on personnel
experience and familiarity with EPA programs. The response
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overlooked, however, the additional 15 percent reserved for
overall experience of personnel. Interestingly enough, the
Technical Evaluation Panel awarded ICF the maximum score in
this category because:
Many of the personnel proposed have extensive experience
with EPA programs and analytical efforts. (Name
deleted) as proposed manager, appears to be extremely
capable of managing a contract of this type.
As previously mentioned, approximately one year after
contract award, ICF replaced this program manager because his
work for private firms posed a potential conflict of
interest. In any event, we still believe that 65 percent was
an accurate figure.
To reiterate, we reviewed the tasks assigned under this
contract and found that much of the work did not appear to
require an intimate familiarity with EPA programs. ICF
performed tasks such as providing logistical support for
conferences and maintaining an EPA mailing list. .Therefore,
we remain firm in our belief that the technical evaluation
criteria favored the incumbent.
On Contract Number 68-W9-0081, the response questioned
our assertion that procurement personnel did not follow the
Technical Evaluation Panel's recommendation to place all
three proposals into the competitive range. Rather, the
Agency explained the Contracting Officer concluded that ICF's
competitors would have had to rewrite their entire proposals
to effectively have a chance for contract award. We do not
dispute the Contracting Officer's conclusion, but instead
suggest that it was derived from incomplete data, namely the
recommendation of the Contracting Specialist who drafted the
competitive range document. In this document, the specialist
wrote that the Technical Evaluation Panel had decided the
competitors' proposals would require a major rewrite.
However, as previously noted, this was not the case. The
panel had actually recommended that all three firms be
included in the competitive range. Therefore, we stand by
our original position.
EPA's response also denied the competitive range
document contained the following statement by the Contracting
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Specialist, "...the differential in technical scores between
ICF and.the other competitors was so great that cost would
have had no bearing on the award of the contract." Again, we
stand by this statement and will supply the document if so
requested.
On Contract Number 68-C2-0107, the response disputed our
position that ICF was awarded the contract because of its
incumbency status as a major subcontractor. The Agency
asserted we had ignored the file documentation supporting the
selection of ICF, who had been rated superior against the
evaluation criteria. Again, we agree that ICF was rated
higher. However, we must again point out that much of the
rating was derived from the fact that the technical
evaluation criteria favored the incumbent.
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CHAPTER 3
LACK OF COMPETITION IN THE AWARD OF SUBCONTRACTS
We reviewed subcontracts awarded by ICF under its three
largest EPA prime contracts, and concluded that there was
little, if any, evidence that competition was involved in the
award of these subcontracts. This occurred because: (a) ICF
routinely awarded subcontracts on a "sole source" basis; and,
(b) EPA contracting personnel had various interpretations of .
what exactly constituted "competition" in regard to the
assignment of work to "team" subcontractors. As a result,
EPA may not have received the benefits of competition for a
significant percentage of the subcontracts in our review.
During the period June 1989 and June 1992, ICF had
awarded 31 subcontracts under its three largest EPA prime
contracts. In two instances, the subcontracts were awarded
during a "waiver" period, during which ICF was neither
obligated to notify EPA, nor to obtain consent for their
award. Of the remaining 29 subcontracts:
o 1 was purported to have been awarded competitively;
o 8 were awarded on a "sole source" basis, 1 of which
was awarded to an ICF employee within days of her
separation from the firm; and
o 20 were awarded on a "non-competitive" basis.
The potential value of the 31 subcontracts reviewed was
$9'. 8 million. However, we could not always determine the -
actual amounts invoiced per subcontract, because the Agency
had no reliable means of ascertaining: (a) the exact number
of subcontractors; or (b) the precise amount being invoiced
for each subcontractor by ICF.
Reasons for Lack of Competition
There were two types of ICF subcontractors in our
review: those included as subcontract "team members" by ICF
at the time it submitted its prime contract proposal,- and
those ICF selected subsequent to receiving the prime
contract, for the most part on an unjustified "non-
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competitive" basis. Slightly over one half of the
subcontractors were "team" members, and most of these had
been awarded under EPA prime Contract Number 68-DO-0102.
Although ICF status reports indicated the "team"
subcontractors had worked on specific work assignments, we
were unable to determine what exactly the firms did, or at
what cost, because such information was not submitted to the
Contracting Officer.
In interviews, Contracting Officers provided us several
positions on how they had concluded that ICF had assembled
the "teams" on a competitive basis. One Contracting Officer
simply assumed that ICF had used competitive methods to
assemble its team before submitting its proposal. Another
Contracting Officer surmised that, after ICF submitted its
proposal, its subcontractor team "competed" against teams
proposed by other potential prime contractors. In response
to our position papers, EPA advanced a similar argument,
i.e., "team member subcontract efforts contained in ICF's
proposals to EPA were, in fact, subjected to competition."
Nevertheless, we remained unconvinced.
As explained in Finding Number 1, there was little
competition in over half of the larger prime contracts
awarded to ICF. During our review of the prime contract
awards, we also found little evidence of competition among
team subcontractors. Moreover, the fact that Contracting
Officers advanced different assumptions in respect to
competition in the selection of "team" subcontractors
supports our argument that there is a question over how much
competition was actually obtained. Also, in a "Source
Selection" memorandum that supported the award of Contract __
Number 68-DO-0102 to ICF, the Contracting Officer admitted in
writing that ICF had failed to evaluate its subcontractor
cost proposals.
Finally, the Agency's response to our position papers
did not dispute that ICF failed to justify its sole source
awards to non-team subcontractors.
Competition Requirements
The Federal Acquisition Regulation (FAR) addresses
subcontracting and/or competition under several citations.
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FAR 52.244-5 requires the prime contractor to obtain
competition from among subcontractors to the maximum extent
practical. FAR 44.202-2(a)(5) requires the Contracting
Officer to evaluate the adequacy of the price competition
obtained by the prime contractor. . FAR 15.804-3(b) (1)
stipulates that adequate price competition exists if:
o offers are solicited;
o two or more responsible offerers that can satisfy the
Government's requirements submit priced offers
responsive to the solicitation's expressed
requirements; and
o these offerers compete independently for a contract to
be awarded to the responsible offerer submitting the
lowest evaluated price.
EPA Awareness of IGF Procurement Deficiencies
As stipulated by FAR Subpart 44.3, the Agency conducts a
Contractor Purchasing System Review (CPSR) when a
contractor's annual sales to the Government are expected to
exceed $10 million. The objective of the CPSR is to evaluate
the efficiency and effectiveness with which the contractor
spends Government funds and complies with Government policy
when subcontracting.
Among other issues, during the CPSR special attention is
to be given to the degree of price competition obtained in
the award of subcontracts. If the CPSR discloses that the
contractor's purchasing system is efficient, EPA will approve
it and waive certain subcontractor consent requirements. For
the three year period in our review, however, ICF's
purchasing system was approved only for a one-year period
commencing in April 1991.
Past CPSR reports indicated that Agency reviewers were
well aware of serious subcontracting deficiencies at ICF as
far back as 1989. The most recent CPSR report, dated
September 30, 1993, was a follow-up to determine if
recommendations of an April 1992 review had been implemented.
As they had not, approval of ICF's purchasing system was
again withheld. Specifically, the EPA reviewers found that:
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o Very little improvement had been made since the
previous review.
o There was very little evidence of adequate competition
for the team subcontracts. Nevertheless, these
subcontracts were considered-competitively awarded by
EPA, because they were "subject to the initial
competition of the prime contract."
o ICF essentially did not compete subcontracts that were
not part of the team concept. In the majority of such
awards, the subcontracts were awarded without any
competition. ICF justified these "sole source" awards
by (again) claiming that the subcontractors were
"uniquely qualified." However, there was little
documentation to support this rationale.. Many of the
written ICF justifications still did not contain
signatures and, therefore, did not make any particular
ICF employee accountable.
o Most of the subcontracts reviewed were signed months
after the beginning date of the period of performance.
This irregularity was repeatedly noted in past reviews
and had not improved.
o Some files indicated that there was direct contact
between EPA employees and the subcontractors, thus
lending the appearance of personal services.
Other subcontracting problems, some of which were
identified by the General Accounting Office in 1985, and by
the Standing Committee on Contracts Management in 1992
included:
o ICF subcontract files contained undated and unsigned
sole source justification memoranda;
o ICF neglected to obtain EPA's consent before
authorizing subcontractor work, and then ignored
Contracting Officer requests for documentation to
ratify the procurements after the work was completed;
o work assignment budgets were exceeded without approval
or justification;
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or justification;
o EPA program personnel influenced the selection of
subcontractors; and
o unauthorized program personnel dealt directly with
subcontractors, thus lending the appearance of
personal services.
Current Status
As seen above, the most recent CPSR indicated that ICF
has continued its policy of not competing "non-team"
subcontracts. As for the award of "team" subcontracts, it
appears that what control EPA had in the past, has now
diminished.
On the oldest prime contract we reviewed, ICF was to
obtain Contracting Officer consent before assigning an
individual task to a subcontractor. However, there were
occasions when ICF neglected to request this consent until
after the work was finished, and the subcontractor vas paid.
On the more recent prime contract, instead of dealing with
individual tasks, ICF only needed to obtain the Contracting
Officer's approval of a "pool" of funds for each
subcontractor. But, whereas this process offered the Agency
the opportunity to maintain control over how much work was
being assigned to each subcontractor, on the most recent
prime contract we reviewed, EPA had almost totally delegated
responsibility for subcontracting to ICF.
Under Contract Number 68-C2-0107, ICF received one
single "pool" to fund its team subcontracts. Thus, ICF no
longer had to obtain approval of individual subcontractor
budgets on individual, work assignments. Consequently, EPA
was unaware of how much money, or how many tasks, were being
assigned to each subcontractor. Although $1.6 million had
been invoiced, the only file in the Contracting Officer's
possession was for a $24,960 subcontract, over which the
former Contracting Officer had expressed serious
reservations. This subcontract, as well as some of the other
subcontracts we analyzed, are discussed in the following
narratives.
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Subcontractor "A"
A'former EPA employee went to work for ICF and became a
"key" person under Prime Contract Number 68-C2-0107. Less
than six months into the contract she left ICF to set up her
own firm. Four days later, this firm received a sole source
subcontract from ICF for $24,960, which was $40 below the
threshold that would have required EPA consent.
According to the former Contracting Officer, program
personnel influenced the award of this subcontract, and ICF
managers admitted that the specifications in the
subcontract's statement of work were overly restrictive. As
a result, the Contracting Officer placed the entire contract
under "special surveillance," meaning that all new
subcontracts would be reviewed. In the meantime, the
subcontractor was re-hired by EPA as a Special Government
Employee, although the former Contracting Officer believed
that this could be a conflict of interest.
The special surveillance was subsequently rescinded. As
previously explained, the subcontracts under prime contract
number 68-C2-0107 were now covered by a "pool" concept.
Under this concept ICF now selected which subcontractor would
be assigned work. According to the current Contracting
Officer, much of the work had been assigned to a single
subcontractor, who had been the prime contractor on the
predecessor contract.
The Keystone Center
This, is a case where the evaluation criteria established
by ICF unduly favored the incumbent subcontractor, a firm
staffed in part by former ICF employees. It is also a case
where ICF did not apply the evaluation criteria evenly among
the proposals submitted by the potential subcontractors.
Awarded under prime Contract'Number 68-DO-0102, this
subcontract was the sole incidence of the 31 subcontracts we
reviewed, where ICF solicited bids and proposals. The
purpose of the subcontract was to obtain a "facilitator" for
meetings attended by various Federal agencies and
nongovernmental interest groups. Prior to this time these
services had been supplied by The Keystone Center, a firm
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hired by ICF on a sole source basis.
ICF solicited seven prospective bidders, four of which
submitted proposals. ICF ranked Keystone, with the most
costly proposal, as the most qualified offeror. ICF obtained
"best and final offers" from Keystone and from two of the
other offerers. At $207,000, Keystone's proposal was again
the most expensive; nevertheless, ICF again deemed Keystone
to be the most qualified offerer. The firm considered by ICF
as the second most qualified had submitted a best and final
offer of $124,000, which was also the lowest bid offered.
Advising Keystone that its offer contained costs that
were clearly not allowable under a Government contract, ICF
warned the firm that it may have falsely certified itself as
being in compliance with Federal procurement regulations.
Nonetheless, ICF also informed Keystone that in all
likelihood it would receive the award based on technical
merit. The two parties negotiated for approximately one
month, during which a "best and final offer" was twice
submitted. On January 16, 1992, ICF asked EPA's consent to
award a $164,038 subcontract to Keystone, claiming it had
"...created a total savings of $43,910.08 for the
government." The Agency complied.
Based on our review of the evaluation criteria employed
by ICF, we believe there is a question as to the
"competitiveness" involved in the award of this subcontract.
ICF evaluated the proposals against seven criteria. Five of
these criteria - equating to over 70 percent of the total
score obtainable - dealt directly with experience factors,
such as the offerer's "familiarity with the dynamics of EPA-
program offices." Repeatedly noting that Keystone was the
incumbent, ICF gave it an almost perfect score for these five
evaluation criteria. As for Keystone's apparent lack of
technical experience, this was overlooked because according
to ICF's evaluation report:
Qualified experts can be made available under the ICF
contract... .the subcontractor is not expected to take an
active role in establishing technical approaches...and
the firm has satisfactorily served as the incumbent.
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However, Keystone's competitor was penalized because
according to ICF this firm:
May not sufficiently understand technical matters...its
familiarity with the dynamics of EPA and its direct
experience with senior EPA staff, not to mention senior
staff of outside interest groups appeared minimal... the
firm planned to use a consultant, i.e. a qualified
expert...and in crucial situations EPA's access to the
firm's personnel may be restricted because they were
'senior corporate officers.'
The sixth evaluation criterion addressed potential
conflicts of interest. Although ICF acknowledged that
Keystone's board of directors "had a large participation by
corporate environmental officers, including potential
interest groups," it nevertheless awarded Keystone the
maximum score achievable. By comparison, the competitor was
penalized points because according to ICF:
There appears to be no opportunity for real conflicts of
interest...There may be, however, some perceived
conflicts of interest among outside parties. Firm had
an active role in the technical and economic analysis of
air regulations and is currently under contract to the
State of New Jersey to evaluate air permit
regulations....
The seventh evaluation criterion was price. Although
its proposal was 76 percent higher than that of the low
bidder, Keystone still received points because ICF's scoring
system allowed a set minimum simply for submitting a bid, no
matter how high. Finally, it should be noted that of the
eight Keystone employees being proposed to work on the ICF
subcontract, three were in fact former ICF employees, while
none of the proposed employees, of the low bidder had ever
worked for ICF.
Regulatory Alternatives Development Corporation
On December 21, 1990, EPA issued a work assignment to
ICF under Contract Number 68-DO-0102, to perform tasks in
support of an "Indoor Air Quality Interdisciplinary Forum"
(IAQIF). Specifically, these tasks included identifying new
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groups to be added to the forum, convening meetings with
current groups, and writing reports.
In March 1991, ICF subcontracted the task to the
Regulatory Alternatives Development Corporation (RADC) for a
"fixed price" of $57,000. In October of 1991, program
personnel of the Agency's Indoor Air Division (IAD) issued a
follow-on assignment to continue this support during the next
fiscal year. Subsequent modifications by ICF increased the
subcontract to $157,000, and indicated that the work was due
for completion by September 1992.
The only justifications within EPA's files for the award
to RADC were undated and unsigned "need for services"
memoranda that asserted:
RADC had established contacts with many organizations of
professionals involved in indoor air quality. These
organizations had expressed a willingness to work with
RADC...to explore training and certification issues
relevant to a credentialing program...ICF needs to
subcontract with RADC to continue work on IAQIF....
We found no evidence that the Contracting Officer had
ever consented to either the original agreement or its
modifications. In response to our position papers, 0AM
informed us of the Contracting Officer's determination to
either ratify the subcontract, or disallow the costs, was
pending.
MSB Energy Associates
Under Contract Number 68-DO-0102, in March 1991, EPA
tasked ICF to examine the impact of acid rain provisions of
the Clean Air Act amendments on electric utilities. In May
1991, ICF subcontracted the task to MSB Energy Associates for
•a "fixed price" of $65,000, and requested Agency approval of
the agreement. Noting the subcontractor had not been
competitively selected, the Contracting Specialist asked the
Project Officer to evaluate the procurement. After the
Project Officer certified MSB as a sole source, EPA approved
the subcontract on June 22, 1991. Two days later MSB
received a second assignment. The scope of this assignment
was to: (a) assist State public utility commission staff to
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understand the Clean Air Act; and, (b) develop a handbook for
the staff. The estimated cost of this assignment was
$52,000.
Between June 1991 and May 1992, ICF requested increases
totaling $283,436 on the MSB assignments. There was no
evidence in the files that the Contracting Officer had ever
consented to any of the requested increases. There was,
however, an undated and unsigned sole source justification
memorandum. In response to our requests for clarification,
RTF contract officials informed us that a decision whether to
ratify or disallow the increases would be made.
Bems & Kay, Ltd.
This firm was a "team" subcontractor under EPA Contract
Number 68-DO-0102. The Agency's consent was not initially
required because the subcontract was awarded within a
"waiver" period. Subsequent increases, however, elevated the
subcontract beyond the waiver limit. Nonetheless, the
subcontract and the increases remained unapproved by EPA for
more than two years.
ICF awarded a $20,000 subcontract to Berns & Kay on
April 15, 1991. This was the effective date of a waiver
period, whereby subcontracts under $50,000 did not require
prior approval from EPA. However, by June 1991, the
agreement had increased to $103,472, which was more than
twice the amount of the waiver limit. The modifications to
the subcontract indicated that the work was due for
completion by September 1991.
On October 9, 1991, the EPA Project Officer certified
that the proposed increased charges were commensurate with
the proposed work, and that Berns & Kay was the only
contractor that could perform this work. On November 5,
1991, the Contracting Officer approved the original
agreement, but refused to approve the subsequent
modifications pending the receipt of additional
documentation. This documentation was necessary to support
the sole source determination, and to show that the rates
charged were reasonable. RTP contract officials informed us
that a decision whether to ratify or disallow the unapproved
costs would be made.
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Barakat, Howard ai
BHC was categorized as proficient in the area of "energy
systems" in ICF's proposal for Contract Number 68-D9-0068.
ICP projected that this subcontract team member would cost
$84,169 over the duration of the prime contract. Six months
after ICF was awarded the contract it requested approval to
award an actual subcontract to BHC. .The Contracting Officer
withheld approval of the award until the Project Officer
certified that BHC was the only subcontractor who could
perform the work. Similar certifications supported a series
of approvals that eventually increased BHC's authorized
budget to $685,335.
In our opinion BHC was not a sole source. It was not
even a sole source among the subcontract team. In its
proposal ICF identified 21 other firms who were also skilled
in the field of "energy systems." Moreover, a comparison of
estimated budgets to actual charges indicated that BHC did
not use as many hours as estimated. Nevertheless, it
invoiced a vastly disproportionate share of the money
budgeted.
Work Labor Hours Dollars
Assignment Estimated Used Budgeted Invoiced
1-28 3926 1430 $212,200 $178,906
2-3 1526 813 85,593 81,066
2-57 1602 705 89,856 84,775
3-40 '1807 341 105,167 36,814
2-59 262 56 14,696 13,939
2-64 1009 426 56,695 53,650
2-88 2727 587 ' $152,957 $79,513
3-46 535 258 31,137 29,560
2-93 252 ' 70 14,135 12,894
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Therefore, under work assignment 1-28, BHC used only 36
percent (1,430/3,926) of the labor hours estimated, yet it
invoiced 84 percent ($178,906/212,200) of the dollars
budgeted.
Finally, BHC's performance was-deemed as deficient. As
a result, EPA transferred unfinished work to ICF for
completion, at additional cost, under a new work assignment,
under a new prime contract. At the time of our review, this
work assignment was overdue.
Conclusion
For years EPA has placed too much reliance on: (a) ICF
assurances that it awarded subcontracts on a competitive
basis; and, (b) unsigned and undated ICF "sole source"
justifications. We found little evidence in the Agency's
contract files that such competition ever took place.
Likewise, the Contracting Purchasing System Reviews found
little evidence in ICF's files that such competition ever
took place. Nevertheless, EPA Contracting Officers have
assumed that competition actually occurred and have-accepted
the suggestion that ICF merely lacks the documentation to
prove so. In our review, we found only one documented case
where ICF awarded a "competitive" subcontract; however, in
this case, ICF had employed evaluation factors that heavily
favored the incumbent - a firm staffed by former ICF
employees.
Recommendations
We recommend that the Assistant Administrator for
Administration and Resources Management have the Director,
Office of Acquisition Management:
1) Require Contracting Officers to review the awards
of all significant subcontractors under EPA prime
contracts to ensure selection on a competitive
basis as prescribed by the FAR.
2) Require prime contractors to obtain Contracting
Officer approval before delegating specific work
assignments or portions of work assignments to any
subcontractor.
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3) Require prime contractors to obtain Contracting
Officer approval of all significant subcontractor
budgets and any subsequent budget revisions.
4) Discontinue the use of single, all encompassing
"pools""to fund subcontractor costs under prime
contracts.
Agency
The Agency concurred with our recommendations, except
where they applied to the team subcontractors, and planned to
issue appropriate guidance on each topic in May 1994.
PIG Evaluation of Agency Comments
The Agency took action on most of the subcontracts
identified as examples in the draft report. For instance,
letters were sent to ICF on March 7, 1994, in regard to
disallowing subcontract costs for Berns & Kay Limited, RADC,
and MSB Energy Associates. Concerning Barakat, Howard, and
Chamberlain, EPA directed ICF to explain their apparent lack
of subcontract oversight and to present their position on the
cost overruns and deficient performance.
While agreeing that Keystone had an advantage due to the
fact that it was the incumbent, the Agency maintained this
subcontract was competed on a technical merit basis, and
therefore only as the proposals became technically equal in
merit did cost become a factor. The Agency's response also
stated the documentation submitted by ICF indicated that
Keystone was clearly superior. We disagree. First, cost w~as
a factor in the evaluation criteria; Keystone received points
in this category despite the fact that it's price was 76
percent higher. Second, in our opinion, the summary of the
evaluations performed by ICF did not indicate that Keystone
was "clearly superior." Third, . although the Agency
acknowledged that Keystone's incumbency status lent it an
advantage, it did not acknowledge the fact that this
advantage related to 70 percent of the total score
obtainable. Finally, the response overlooked the fact that
three of the eight Keystone employees were former ICF
employees.
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EPA asserted that team subcontractors were subjected to
competition because they were in ICF's original proposal, and
that ICF would only be required to justify competition for
subcontracts, which were not included in its original
proposal. We disagree.
As discussed in this chapter, different Contracting
Officers had different theories about team subcontract
competition; one simply assumed that ICF competitively
assembled its team before submitting its proposal, while
another surmised that ICF's team "competed" against teams
proposed by other potential prime contractors.
As discussed in Chapter 2, we had serious reservations
about competition in the award of prime contracts. Moreover,
there were instances where because ICF was the only proposer,
there was no subcontract competition due to the fact there
were no other teams to compete against. Most of the team
subcontracts available for our review were awarded under
Prime Contract Number 68-DO-0102, for which the Contracting
Officer admitted that ICF had failed to evaluate its
subcontractor cost proposals.
Finally, EPA's own Contractor Purchasing System Reviews,
as far back as 1989 and as recent as 1993, have repeatedly
criticized ICF's lack of documentation to support that
adequate subcontractor competition was obtained.
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CHAPTER 4
MANAGEMENT OF THE AWARD FEE PROCESS WAS INADEQUATE
Four of the eight ICF contracts- in our review were award
fee contracts. In all four cases, EPA experienced some
difficulty in evaluating ICF's performance on a timely basis.
The delays ranged from less than two months, to more than two
years. However, rather than improve its administration of the
award fee process, EPA instead chose to convert three of the
contracts into cost-plus-fixed-fee contracts.
FAR 16.404-2(a) defines a cost-plus-award-fee contract,
.as a cost reimbursement contract that provides for a fee,
consisting of a base amount and an award amount, to provide
motivation for excellence in such areas as cost-effective
management, quality, and timeliness. The award fee'concept
combines three EPA contracting objectives: (a) it provides
for the reimbursement of allowable, allocable, and reasonable
costs; (b) it fixes a dollar amount beyond the initial
estimate of costs that represents the compensation for risk
(base fee); and, (c) it motivates performance throughout the
life of the contract where success breeds additional income
(award fee). Consequently, the contractor assumes little
cost risk, is virtually assured a set percentage of costs in
the form of base fees, and can obtain additional income in
the form of award fees determined by performance evaluations.
Generally, performance evaluations are based on award
fee plans developed by EPA for each contract. These plans
stipulate the various categories of performance, describe the
criteria by which EPA will evaluate the contractor, and
specify the period of time to be evaluated. Although not
contractually-bound to do so, usually the contractor begins
the process by submitting self-appraisals to EPA evaluation
coordinators. These coordinators review the appraisals, rate
ICF performance, and submit their conclusions to a
Performance Evaluation Board (PEB). This board makes
recommendations to an Agency Fee Determination Official, who
then notifies the contractor of the amount of fee to be
awarded.
We analyzed the largest of the converted contracts
because it experienced the lengthiest delays. We found that
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on average EPA paid more in fees, even though the requirement
to evaluate ICF performance no longer existed. In other
words, under the former process the payment of fees was based
on an evaluation of ICF performance; under the new method ICF
received higher fees simply by performing the work and
submitting an invoice.
Contract 68-D9-0068
Potentially worth $37 million, this was the largest of
the eight contracts in our review. Awarded in June of 1989,
the first evaluation period ended in October of that year.
However, EPA did not evaluate ICF's performance until April
1992, when it not only evaluated this first period, but the
five other performance periods that had transpired since the
contract had been in effect. By the time EPA issued a single
contract modification to address the six periods,
approximately $15 million had been obligated for 174
individual work assignments.
Thus, it was more than two years into a three-year
contract, before ICF received feedback on its performance.
It took ICF a little more than a week, however, to respond to
the Agency. In a letter dated April 23, 1992, the president
of ICF asked EPA's Contract Management Division at RTP to
reconsider the award fee decision on the six performance
periods, noting that the firm:
o Received higher fees on ten other EPA award fee
contracts (three of which were subsequently converted
to cost-plus-fixed-fee contracts).
o Currently had three.large EPA mission support cost-
plus-fixed-fee contracts with fees above 8.25 percent.
o Had already accrued $200,000 on its records - in
excess of what EPA proposed to award for the six
periods.
The president of ICF also complained about EPA's
tardiness in administering the award fee process noting that:
...The contract does not specify exactly how long (EPA)
has to communicate this information to us, but very
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clearly it states a main purpose of the award fee plan
is to provide feedback on strengths and weaknesses,
which will allow the contractor to take appropriate
actions to improve both his performance and ratings. By
waiting almost two and one half years to provide us this
feedback, EPA has violated the spirit of the award fee
plan, effectively taking from us the opportunity to
address directly those perceived performance
deficiencies identified in the first evaluation period,
and to the extent that low award fees for subsequent
evaluation periods reflect the same uncommunicated
concerns, seeks to penalize us for hot correcting these
deficiencies....
On April 29, 1992, the Contracts Management Division
informed the president of ICF:
...That regardless of the fees negotiated on other ICF
contracts, the negotiated fee for the subject contract
was obtained independent of those contracts and was
based on elements specific to the effort to be performed
on contract 68D90068....I remain concerned regarding the
delay....In view of that delay and the other issues
raised in your letter, I am reconsidering the award fee
determinations issued thus far and will keep you
informed as to my decision.
ICF submitted a seventh evaluation package (dated June
4, 1992) which was 103 pages in length. However, the Agency
declined to evaluate this period, as well as the period
following. On the scheduled expiration date of the contract,
September 30, 1992, EPA issued a modification to: (a) extend
the contract for another six months,- (b) add a ninth
performance period; and, (c) note that, "This contract will
be modified to reflect the award fee awarded as award fee
determinations are made."
Less than one month later, however, in response to ICF's
request, the Director of the Contracts Management Division
notified the Chairman of the PEB that: (a) it would be in the
"best interest of the Government" to convert the three
evaluation periods (periods seven through nine) from award
fee to fixed fee,- and, (b) unless written justification was
submitted, the prior six evaluation periods would not be
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converted, and the existing award fee determinations would
stand as issued. Ultimately, the existing award fee
determinations stood as issued.
On March 15, 1993, EPA changed the final three
evaluation periods of the contract from cost-plus-award-fee
to cost-plus-fixed-fee. The Contracting Officer informed us
that this change was made because the Agency was "in arrears"
in the award fee process. In other words, because EPA
declined to evaluate ICF's performance, the contract was
changed two weeks before it expired in order to release the
Agency of this responsibility. As a result, 59 percent of
the costs under the contract ($14.5 million in negotiated
estimated costs of $24.4 million invoiced as of July 1993)
were retroactively switched from coverage under award fee to
coverage under fixed fee. We compared the ratio of the fees
paid to total costs under each coverage, and estimated that
ICF received approximately $300,000 more under the fixed fee
method.
In a March 26, 1993 letter, the president of ICF
complained to the contracting officer that although.he had
been informed that EPA would reconsider the fees for the
first six periods, it was now almost one year later and he
was still waiting. Moreover, in his opinion, because there
was no way to determine a fair award fee for the first six
periods, and because the benefits of an award fee system
under this contract were gone, he now requested that EPA
convert the entire contract into fixed fee, as had been done
for the final three evaluation periods.
Although we were unable to pinpoint exactly why the
award fee system was allowed to lapse on Contract Number
68-D9-0068, we did ask the opinion of those involved.
According to the head of the PEB, he had been unaware of his
part in the process until almost two and a half years into
the contract. The contracting officer disputed this claim,
however, by asserting that the head of the PEB could not have
but realized that this was an award-fee contract. On the
other hand, the contracting officer also admitted that higher
priority work had taken precedence over her award fee duties.
The Office of Inspector General, and the Standing
Committee on Contracts Management, have noted that the Agency
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needs to improve its administration of the award fee process
in order to better monitor contractor performance. However,
in the case of ICF, rather than improve the process EPA has
apparently decided to abandon it. As mentioned previously,
the Agency chose to convert three of the four larger ICF
award fee contracts into fixed fee. Moreover, in his April
23, 1992 letter, the president of ICF listed three other
contracts that had likewise been converted. While we agree
that the costs of administering the award fee process may
outweigh the benefits on smaller contracts, we also believe
that EPA must maintain a practical and timely method to
monitor contractor performance on its larger contracts.
Conclusion
Four of the eight ICF contracts in our review were award
fee contracts. In all four cases, EPA experienced some
difficulty in evaluating ICF's performance on a timely basis.
The delays ranged from less than two months, to more than two
years. However, rather than improve its administration of the
award fee process, EPA instead chose to convert three of the
contracts into cost-plus-fixed-fee contracts.
Recommendations
We recommend that the Assistant Administrator for
Administration and Resources Management have the Director,
Office of Acquisition Management:
1) Instruct EPA personnel of their award fee
responsibilities, at the time a contract is
awarded.
2) Emphasize to the EPA personnel involved in the
award fee process that completing timely
evaluations is essential to the objectives of the
process.
3). Inform Contracting Officers that the type of
contract should be changed only when justifiable,
rather than simply to remedy administrative
problems.
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Agency
The Agency concurred with our recommendations and plans
to issue appropriate guidance on each topic in May 1994.
PIG Evaluation of Agency Comments
The Agency's response adequately addressed our
recommendations.
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CHAPTER 5
All of the contracts with ICF were cost reimbursable
contracts; many were of the "umbrella" type, i.e., their
statements of work were so general that almost no task was
beyond their scope.
To a certain extent, ICF obtained contracts based on
assertions by EPA program personnel that this firm was better
than its lower-priced competitors, because it was more
experienced at performing technical tasks. Based on our
analyses, however, we concluded that many of the actual tasks
being performed were not always technical in nature. We also
noticed that as the size of a contract decreased, the amount
of the competition increased.
The Standing Committee on Contracts Management did
address management difficulties inherent to cost-
reimbursement contracts. In its June 1992 report the
Committee explained that, while the Agency historically had a
proclivity for such contracts, it had by contrast also given
low priority to contract management. And, although these
contracts provided flexibility in supporting program needs,
this flexibility has been expensive because: (a) the sheer
size of the contracts made control of the. contractors a
serious problem; (b) there was little incentive for the
contractors to reduce costs,- and, (c) the contracts only
require the contractors to put forth "best efforts," rather
than to actually complete a specific task, by a specific
date, for a specific amount.
On August 30, 1993, in response to questions posed by a
Senate Committee, the Administrator of EPA explained how the
Agency was in the process of breaking up the statements of
'work of umbrella contracts into smaller, more manageable
components in order to correct the kinds of difficulties
experienced in the past. Accordingly, we offer the following
examples of possible breakout candidates that came to light
during our review of three of the larger ICF contracts:
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Expenditure Tasks
$244,435 Clerical duties, such as maintaining
mailing lists and taking minutes on
conference calls. One such
assignment-had ICF record EPA
conference calls and prepare
summaries reporting their contents.
Another assignment had ICF
maintaining the Agency's Indoor Air
Division's mailing list.
$672,669 To provide various training courses,
one of which instructed EPA
employees on how to write Federal
regulations.
$722,183 Technical and editorial support for
guidance documents.
$905,965 Travel and studies on projects such
as air pollution regulations in
Germany, Japan, Canada, and Mexico.
$1,049,947 Logistics support of various
meetings, conferences, symposiums,
and forums, such as: arranging
hotel reservations; preparing name
tags and registration lists; and
taking minutes at the meetings. In
one particular case, ICF arranged a
conference, an ICF subcontractor
took notes, while a second ICF
subcontractor prepared brochures
outlining the results of the
conference.
$3,315,762 To provide support, graphics,
analyses, and conferences in
connection with EPA's "Green Lights"
program, whose goal is to encourage
corporations to install energy-
efficient lighting technologies.
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Expenditure Tasks
$2,317,537 Analytical and graphics support to
various EPA Headquarters' Divisions
$3,038,100. Travel, studies, and assessments
concerning methane emissions from
cows, coal mines, and landfills
located in the United States,
Poland, Russia, India, Bangladesh,
and the People's Republic of China.
Agency Comments
EPA acknowledged the merits of our suggestion. For
example, the Agency explained that it had initiated a pilot
project to break-up a representative sample of large
contracts with broad statements of work into smaller, more
manageable contracts. Seven contracts from six program
offices (one of them an ICF contract) had been selected as
part of this pilot.
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[This page was intentionally left blank.]
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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
Appendix A
Page 1 of 12
ttAR 20
OFFICE OF
ADMINISTRATION
ANDRESOURCES
MANAGEMENT
MEMORANDUM
SUBJECT: Audit Report Number E1SKF3-03-0161
Dr-ertft Report of Audit on IjCF Incorporated
_ _ #3£*^
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Appendix A
Page 2 of 12
CHAPTER 2
LACK OF COMPETITION IN THE AWARD OF PRIME CONTRACTS
GENERAL COMMENTS
It is also important to note that large, level-of-effort
(umbrella) contracts may not always constrain competition. The
integrity of the technical and scientific requirement may require
that an umbrella contract be utilized. We agree that
indiscriminate use of umbrella contracts.may, under certain
circumstances, constrain competition. However, umbrella
contracts may also increase the subcontracting opportunities for
small and minority owned business firms.
EPA Contract Number 68-DO-0102
Admittedly, a heavy weight was placed on Company
Qualifications and Experience (30%). -Our current practice is
to limit this factor to 15% of the total points. However, we
feel that the evaluation criteria which were used were not
unduly skewed toward the incumbent. Ten percent of the
corporate experience was weighted toward "generic" company
experience, i.e., projects requiring rapid response and
management experience. The other 20% was more project
specific, i.e., experience in prior efforts similar to those
in the SOW (10%) and familiarity with EPA programs,
regulations, and policies (10%).
Many contractors have experience in analyses and evaluations
of energy, economic and environmental issues (including DOE
contractors), and familiarity with EPA programs, regulations
and policies. A weight of 20% was placed on personnel
experience with EPA programs, their regulations and policies.
We feel that this was not an unreasonable weight since many
contractor personnel have this familiarity. Hence, we disagree
with the statement that 65% of the criteria addressed factors
such as experience or familiarity with EPA programs. Only 30% of
the evaluation criteria dealt with familiarity with EPA programs.
While it is true that the competitor's initial offer was
$1.3 million less than ICF's, this is not pertinent to the cost
negotiated with ICF. Negotiations were conducted with ICF based
on an audit of ICF's proposal. All of the questioned costs were
addressed in negotiations. Since EPA specified the number of
hours, labor mix, and other direct costs, there was little to be
accomplished by trying to negotiate a lower cost than could be
reasonably expected, as that would possibly lead to an overrun.
It was also the CD's judgement that the fees as negotiated were
reasonable: a base fee of 3% and award fee of 5.5%.
-1-
46
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Appendix A
Page 3 of 12
CONTRACT NUMBER 68-W9-0081
TECHNICAL EVALUATION PANEL RECOMMENDATION NOT FOLLOWED
The OIG contends that procurement personnel did not follow a
recommendation to place all three proposers into the competitive
range, and instead, declared ICF as the only viable offeror.
The report notes that despite being the highest cost of three
proposers, ZCF was awarded the contract.
The referenced OIG comments contend that the CO should have
taken the TEP recommendation to include all contractors in the
competitive range. However, it was the CO's decision that
neither r nor . had a legitimate chance for receiving
contract award, even it they had been included in the competitive
range. FAR subpart 15.609 states that the CO shall determine
which proposals are in the competitive range for the purpose of
conducting written or oral discussions.
It was evident at that time that both and . had
submitted proposals that were technically unacceptable, not
susceptible to being made acceptable. It was the CO's
determination that both ' anc* would have had to
virtually rewrite their entire proposals to effectively have a
chance for contract award. To allow offerers the opportunity to
totally rewrite their proposals in order to place them in a
competitive position is tantamount to technical leveling, and
prohibited by the FAR.
The original TEP report submitted to the Contracting Officer
was vague and did not support the scores given to the offerers;
it was therefore returned to the panel for revisions. This is a
common practice when technical evaluations are not well-
documented. The CO must ensure that such reports will withstand
scrutiny in the event of a protest. The implication by OIG is
that this practice is wrong. It is the CO's obligation to ensure
that evaluations of proposals are done properly.
Overall, ICF had a 62.9% advantage in technical score over
the next highest rated proposal, and only a 7.68% higher cost
than the lowest cost proposal. The Competitive Range document
stated that the cost difference was insignificant when compared
to~ the tremendous technical value proposed by ICF. It did not
state that cost had no bearing on award, as reported in the OIG's
findings. Costs were analyzed in detail prior to award by the
Washington Cost Advisory Operations, and determined by the CO to
be fair and reasonable based upon this analysis. The rates had
not changed substantially since initial submission of their
proposal. Although the Post-Negotiation memorandum was waived,
there was, a cost analysis which supported the costs proposed by
ICF.
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While the determination of the competitive range and
selection for award decisions are often "judgement calls," in
this instance the facts clearly demonstrated the superiority of
ICF's proposal. To include offerers in the competitive range
which had no chance of receiving award would have left the Agency
open to protests from the other two firms that were forced to
incur costs unnecessarily; the Agency might have been liable for
payment of bid and proposal costs. For this reason, firms who,
in the CD's judgement, have no chance of receiving an award, are
properly excluded from the Competitive Range.
Section M of the solicitation stated that "the Government
will make award to the responsible offeror(s) whose offer
conforms to the solicitation and is most advantageous to the
Government, cost or price and other factors considered. For this
solicitation, technical quality is more important than cost or
price" (emphasis added). The technical superiority of the ICF
proposal was evident and documented.
The competitive range determination was reviewed and
approved by the Office of General Counsel (OGC) and duly approved
and signed by the Source Selection Official, all of whom
concurred in the CD's decision. It is important to note that
while the TEP plays a key role in the acquisition process, they
do not see all portions of the proposals and are not in a
position to render source selection judgements.
EPA Contract 68-C2-0107
Like the situation noted above, it was obvious at that time
that submitted its proposal that it was technically
unacceptable not susceptable to being made acceptable. It was
the CO's determination that *. would have had to virtually
rewrite it's entire proposal to effectively have a chance for
contract award. The argument that with more time could
prepare a better proposal is not valid.
Moreover, given the technical unacceptability of
proposal, the cost difference was not a significant issue. It
was clear that could not perform acceptably at any cost. The
OIG appears to be under the impression that by entering into
negotiations and requiring a contractor to submit a revised
Best and Final Offer EPA would "least reap the cost benefits of
obtaining" best and final offers (BAFOs).
EPA's cost-reimbursement type contracts are awarded based on
technical merit and not necessarily to the offerer proposing the
lowest evaluated cost (greatest value). Moreover, obtaining
BAFOs does not necessarily mean a lower negotiated price. In
this situation where ICF had obtained insight into '
proposal, there was also concern that by opening negotiations and
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calling for BAFOs, ICF could.have actually cone back with a
proposal with little or no technical changes but substantially
increased cost, knowing that technical scores were more important
then cost and knowing that * had initially scored so poorly.
In this case there was enough information to award based on
initial offers and not enter into negotiations.
The issue of the missing diskette was properly discussed and
documented in the contract file. The OIG's assertion that the
technical evaluation report should have dealt with the issue is
incorrect. The technical evaluation panel (TEP) is strictly
instructed prior to beginning the evaluation that the report must
consider only what is included in the proposals being evaluated.
ICF's possession of the panel's findings had no impact on the TEP
report and there was no reason that the report should discuss the
issue.
The OIG's contention that ICF was awarded the contract
because of its incumbency status as a major subcontractor ignores
the file docurentation supporting the selection. ICF was
selected based on its superior rating when rated against the
established technical evaluation plan. , however, was
eliminated from consideration because its proposal demonstrated a
lack of competence iij the technical areas covered in the
technical evaluaton plan.
By way of clarification, we would like to note that
the OIG contract pre-award audit is strictly an advisory
document. It is the responsibility of the CO to determine the
realism and reasonableness of the negotiated cost. Based on
information available at the time of negotiations, a
determination was made that the negotiated cost and fee were
fair, reasonable and realistic. The contract file contains a
detailed discussion of the basis for these determinations.
RECOMMENDATIONS
1. Establish a policy for the percentage of evaluation
points that can be awarded in the area of corporate
experience.
We concur with the recommendation and will issue guidance
September 1994.
2. Issue guidance instructing Contracting Officers to
conduct post-award efforts to determine reasons for the
receipt of only one proposal when it occurs.
We concur with the recommendation and will issue guidance
July 1994.
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3. Emphasize to contracting and program personnel the need
to safeguard all contractor proposals and all Technical
Evaluation Panel data.
We concur with the recommendation and will issue guidance
May 1994.
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PAge 7 of 12
CHAPTER 3
LACK OF COMPETITION IN THE AWARD OF SUBCONTRACTS
GENERAL COMMENTS
We concur with the go.nera?. finding that ICF has failed to
provide the data necessary for the CO to determine the work
performed and the costs incurred by its subcontractors.
We do not concur, however, with the general finding that
ICF's team subcontractors were not properly justified as
competitively awarded. It is our position that the subcontract
efforts contained in ICF's proposals to EPA were, in fact,
subjected to competition. Therefore, it is our position that ICF
would only be required to justify competition (see FAR 52.244-2)
for those subcontract efforts which were not included in its
original proposal.
CONTRACT NUMBER 68-C2-0107
The facts as stated by the audit concerning
Incorporated are correct. The CO made every effort to avoid any
conflict of interest and ensure that all levels of 0AM and
program management staff were aware of the issues at all times.
The ' eventually performed very little
work under this contract (no further subcontracts were issued to
the company) due to the diligence of the CO, and Ms. is no
longer employed by EPA.
EPA CONTRACT NUMBER 68-DO-0102
THE KEYSTONE CENTER
We partially concur with the findings. The CO consented to
the ICF subcontract with Keystone (not a proposed team
subcontractor) in the amount of $164,038 on February 25, 1992.
The facts regarding the competition in the award of the
subcontract are correct. It remains our position that the ~
subcontract was competed on a technical merit basis, and
therefore only as the proposals become technically equal in merit
did cost become a factor. According to documentation submitted
by ICF, Keystone was clearly technically superior to the other
offerers. We do not disagree, however, that Keystone had an
advantage due to the simple fact that they were the incumbent
contractor.
REGULATORY ALTERNATIVES DEVELOPMENT CORPORATION
We concur with the findings. ICF entered into a subcontract
with RAOC (not a proposed team subcontractor) in the amount of
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$57,000. Subsequently, ICF modified (increased) the subcontract
with RADC to $157,000. ICF has failed to provide the CO with the
information required by FAR 52.244-2. The CO has not consented
to the subcontract nor any modification to the subcontract. The
CO issued a letter to ICF dated March 7, 1994, disallowing the
associated subcontract costs until such time as ICF complies with
the FAR requirement.
MSB ENERGY ASSOCIATES
We concur with the findings. The CO consented to ICF's sole
source subcontract with MSB (not a proposed team subcontractor)
in the amount of $65,000 on June 22, 1991. However, ICF modified
(three times) the subcontract with MSB to $212,036. ICF has
failed to provide the CO with the information required by FAR
52.244-2 to support the modifications. The CO has not consented
to any of the subcontract modifications. The CO issued a letter
to ICF dated March 7, 1994, disallowing the associated
subcontract modification increased costs until such time as ICF
complies with the FAR requirement.
BERNS & KAY. LIMITED
ICF had an approved purchasing system during the period of
April 15, 1991 through April 14, 1992. The purchasing system
approval allowed ICF to place subcontracts under $50,000 without
the prior consent of the CO. ICF entered into a subcontract with
Berns & Kay (a proposed team subcontractor) in the amount of
$20,000. Subsequently, ICF modified (increased) the subcontract
with Berns & Kay to $103,472, which exceeded ICF's approved
pyrchasing system limit.
»
ICF failed to provide the CO with the information required
by FAR 52.244-2 and to obtain the prior consent of the CO for the
modification of the subcontract. The CO issued a letter to ICF
dated March 7, 1994, disallowing the associated subcontract
modification increased costs until such time as ICF complies with
the FAR requirement.
EPA CONTRACT NUMBER 68D90068;
BARAKAT. HOWARD. AND CHAMBERLAIN
We concur with the findings. The CO consented to ICF's
subcontract with BHC in the amount of $84,169 on December 26,
1989. This subcontract effort was included in ICF's original
proposal to EPA. The CO also consented to the subsequent
modifications to the subcontract (last modification was consented
to on September 21, 1992) which increased the total subcontract
to $685,335.
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BAge 9 of 12
The CO required that ICF submit sole source justifications
to support their determination that only BHC could perform the
follow-on subcontract work efforts without duplication of costs
to EPA. The sole source justifications were required because the
follow-on subcontract work efforts were not part of ICF's
original proposal. It is noted that the ICF contracts manager
submitted the sole source justifications to the CO in the form of
unsigned memorandums.
It is also noted that the audit found that there may have
been cost overruns and/or deficient performance on the nine work
assignments which ICF assigned to BHC. As the prime contractor,
it is ICF's responsibility to manage the contract work efforts of
BHC. In this regard, the CO sent ICF a letter dated March 7,
1994, directing ICF to explain their apparent lack of subcontract
oversight and to present their position on the cost overruns and
deficient performance. The CO's disposition of these issues is
pending ICF's response.
RECOMMENDATIONS
1. Require COs to review the awards of all significant
subcontractors under EPA prime contracts to ensure selection
on a competitive basis as prescribed by the FAR.
We concur in this recommendation and will issue a memorandum
to remind COs of the information contained in FAR, Part 44
regarding granting consent to subcontractors. Please note,
however, that team subcontractors are competed in the initial
competition.with the prime contractor and would only be required
to justify their competition for those subcontractors and/or
efforts not included in the prime contractor's proposal. This
guidance will be issued May 1994.
2. Require prime contractors to obtain CO approval before
delegating specific work assignments or portions of work
assignments to any subcontractors.
As noted above, COs grant subcontract consent prior to the
use of a subcontractor at the contract level and not at the
individual work assignment level. Contractors are required to
submit workplans identifying how work assigned will be performed
and include budgets for the same, and receive CO approval prior
to the performance of work. The CO may disapprove any aspect of
the workplan that is deemed unacceptable and require that the
prime revise that element of the workplan, e.g., the organization
performing the work is not qualified to perform the work.
However, the CO cannot and will not direct work to a particular
subcontract. In accordance with recommendation two, this
information will be included in the guidance referenced for
recommendation on and will be issued May 1994.
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PAge 10 of 12
3. Require prime contractors to obtain CO approval of all
significant subcontractor budgets and any subsequent budget
revisions.
As part of the workplan approval and amendment process noted
in our response to recommendation 2, COs review and approve
budgets. This will also be a part of the guidance issued Kay
1994.
4. Discontinue the use of single, all encompassing ''pools"
to fund subcontractor costs under prime contracts.
We will remind COs that they are required to grant
subcontract consent and identify the contractor's name and amount
for which subcontract consent was granted each time a
subcontractor is added to the contract (including team
subcontractors). As part of normal contract administration, COs
will monitor the amounts funded for each of these subcontractors
to ensure that the funded amounts do not exceed the consent and
the consent will be modified when needed. This guidance will be
issued May 1994.
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CHAPTER 4
MANAGEMENT OF THE AWARD FEE PROCESS WAS INADEQUATE
EPA CONTRACT NUMBER 68-D9-0068
It is true that the Acting Director of the Contracts
Management Division provided a nemo to the Performance Evaluation
Board (PEB) Chairman on October 26, 1992 recommending the
conversion of the three award fee evaluation periods. It is
important for the OIG to note that ICF had requested the
conversion. It should also be noted that the recommendation was
made after a full consideration of the alternatives and was
considered to represent the best interests of the Agency.
The memo further stated that the prior determined award fees
for the first six evaluation periods would not be converted to
fixed fee. The statement that the existing award fee
determinations would stand as issued is incorrect. The memo
stated that if the PEB desired to reconsider the recommendations
for those evaluation periods, written justification must be
provided to the FDO; otherwise, the existing award fee
determinations would stand as issued.
RECOMMENDATIONS
1. Instruct EPA personnel of their award fee
responsibilities, at the time a contract is awarded.
2. Emphasize to the EPA personnel involved in the award fee
procerr that completing t.mely evaluations is essential to
the oc;-ectives of the process.
3. Inform Contracting Officers that the type of contract
should be changed only when justifiable, rather than simply
to remedy administrative problems.
We concur with all of the recommendations made in this
chapter and will include all guidance in one memorandum to be
issued May 1994.
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CHAPTER 5
BREAKOUT OF "UMBRELLA" CONTRACTS
The Administrator announced an initiative to conduct a pilot
project on umbrella contracts at the hearing before Congressman
Dingell and the Subcommittee on Oversight and Investigations last
March. The purpose of the pilot is to break-up a representative
sample of large multi-function, level of effort type contracts
with broad statements of work into smaller,-more manageable
contracts.
Seven contracts from six different program offices were
selected. ICF contract number 68D20131, indoor air quality
studies for the Office of Air and Radiation, is included in the
pilot. This contract was awarded by the Contracts Management
Division in Cincinnati in 1992 and has a maximum potential value
of $15,155,977 inclusive of all options. Efforts are underway to
divide the statement of work into four distinct requirements. We
plan to issue solicitations for newly structured requirements in
FY 94 and award'new contracts in FY 95.
In addition to the pilot project, each contracting activity
is actively pursuing the break-up of some of its large, level-6f-
effort contracts. For example, the Contracts Management Division
in RTF, received a procurement request with a value of about $10
million for "Technical support for Reducing Methane Emissions
from Coal Mining." This is one of the performance areas in
support of EPA's Global Change Division of OAR cited as an
example for statement of work (SOW) breakout potential. The
program office requested multiple awards and indicated that
performance was within the capability of small businesses if
multiple awards were made.
As a result of the efforts of the Small and Disadvantaged
Business Utilization Specialist, the Project Officer agreed to
further breakout of one SOW performance area for contract award
under the Small Business Administration's 8(a) procedures. The
value of this breakout is about $2 million. The remaining
portion of the SOW is to be contracted under a small business set
aside. This will preclude ICF from competing as a prime
contractor and will build a competitive base for future
contracting support relative to emissions from coal mines.
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Audit of ICF Incorporated
APPENDIX B
REPORT DISTRIBUTION
Office of Inspector General
Inspector General (2410)
Chief, Resources Management Unit (2421)
Divisional Inspectors General for Audit
Headquarters Office
Director, Office of Acquisition Management (3801F)
Director, Office of Research Program Management (8102)
Director, Program Policy Coordination Office (3102)
Director, Cost Advisory and Financial Analysis Division
(3804F)
Agency Followup Official (3304)
Agency Followup Coordinator (3304)
Attn: Managment Controls Branch
Special Assistant to the Director, Office of Acquisition
Management (3801F)
Liaison, Office of Administration and Resources Management
(3102)
Liaison, Office of Acquisition Management (3801F)
Associate Administrator for Congressional and Legislative
Affairs (A-3.03)
Associate Administrator for Communications and Public
Affairs (A-100)
Headquarters Library (PM-211A)
57 •
Report No. E1SKF3-03-0161-4100233
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Audit of ICF Incorporated
EPA Regional Office
Director, Contract Management Division - Cincinnati
Director, Contract Management Division - RTF
External
Liaison, General Accounting Office (3304)
58
Report No. E1SKF3-03-0161-4100233
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