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TABLE OF CONTENTS
PAGE
OBJECTIVES, SCOPE AND METHODOLOGY 1
SUMMARY OF FINDINGS 4
ACTION REQUIRED 5
BACKGROUND 6
FINDINGS AND RECOMMENDATIONS
1. AWARD FEES OFTEN FAILED TO ACHIEVE
EXCELLENCE 10
2. EPA PERFORMANCE EVALUATION PROCEDURES
VARIED BY CONTRACT 27
3. LATE APPRAISALS HINDER THE AWARD
FEE PROCESS 32
APPENDIX A - RESPONSE FROM THE OFFICE OF ADMINISTRATION
AND RESOURCES MANAGEMENT 38
APPENDIX B - RESPONSE FROM THE OFFICE OF SOLID WASTE
AND EMERGENCY RESPONSE 48
APPENDIX C - DISTRIBUTION 69
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TABLE OF CONTENTS
PAGE
OBJECTIVES, SCOPE AND METHODOLOGY 1
SUMMARY OF FINDINGS 4
ACTION REQUIRED 5
BACKGROUND 6
FINDINGS AND RECOMMENDATIONS
1. AWARD FEES OFTEN FAILED TO ACHIEVE
EXCELLENCE 10
2. EPA PERFORMANCE EVALUATION PROCEDURES
VARIED BY CONTRACT 27
3. LATE APPRAISALS HINDER THE AWARD
FEE PROCESS 32
APPENDIX A - RESPONSE FROM THE OFFICE OF ADMINISTRATION
AND RESOURCES MANAGEMENT 38
APPENDIX B - RESPONSE FROM THE OFFICE OF SOLID WASTE
AND EMERGENCY RESPONSE 48
APPENDIX C - DISTRIBUTION 69
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We performed the audit, in accordance with the Government
Auditing Standards issued by the Comptroller General of the United
States as they apply to economy and efficiency and program results
audits. Our review included tests of Agency records and other
auditing procedures we considered necessary.
Audit field work was performed at EPA Headquarters (HQ) and in
Region III. We reviewed award fee records compiled by HQ officials
and by Agency personnel in the ten EPA regions. These records
included EPA's evaluation of the performance of various Superfund
contractors over a period that ranged from October 1986 through
February 1989. We also reviewed the Federal Acquisition
Regulations (FAR), directives issued by the Office of Solid Waste
and Emergency Response, contract documents, contract modifications,
and EPA user manuals issued to administer the programs. We
interviewed HQ and regional personnel such as Project Officers,
Contracting Officers, Deputy Project Officers, Contract
Specialists, and Superfund Branch and Section Chiefs.
We examined Agency evaluations of contractor performance to
determine whether award fees actually motivated contractors to
excellence. Our work included reviewing: contractor self-
evaluations; evaluations by Regional Project Officers that were
submitted to HQ program officials; and award fee determinations
made by Performance Evaluation Boards (PEBs). We compared the
award fee process and procedures outlined in the FAR, the
contracts, and the individual user manuals to the actual process
implemented by the Agency to: (1) determine that award fee plans
and procedures were consistent among the Superfund programs; and
(2) establish whether the award fee process was carried out in a
timely manner.
There were 98 active Superfund contracts as of June 2, 1989.
Of these, we reviewed 21 CPAF contracts which supported the
following Superfund programs:
- Technical Enforcement Support (TES)
- Alternative Remedial Contracting Strategies (ARCS)
- Field Investigation Teams (FIT)
- Technical Assistance Teams (TAT)
- Environmental Services Assistance Teams (ESAT)
Our selection of contracts was based on five criteria. We
eliminated from consideration: remedial program contracts addressed
in a General Accounting Office report dated July 1988; contracts
that did not provide for award fees; region-specific contracts
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other than Region III ARCS awards; and contracts with a potential
value of less than $30 million. These parameters yielded 21
contracts potentially worth over $2.2 billion within five Superfund
programs.
Contracts Reviewed
Program Number Potential Value
TES 10 $1,067,000,000
ARCS 5 640,000,000
FIT • 2 278,000,000
TAT 2 219,000,000
ESAT 2 65.000.000
21. $2.269,000,000
The audit disclosed several areas needing improvement which
are discussed in this report. Recommendations were provided to EPA
to enhance the effectiveness of cost-plus-award-fee contracts. As
we did not perform a study and evaluation of internal controls, we
did not include a report on such controls. No other issues came to
our attention which we believed were significant enough to warrant
expanding the scope of this audit.
Our survey for this review began on March 7, 1989 and was
completed on July 12, 1989. As a result of this survey, we
initiated an in-depth review on July 13, 1989. The fieldwork for
this audit was completed on December 14, 1989. We submitted
position papers on potential issues to program officials in EPA
Headquarters during December, 1989.
We issued a draft audit report on January 25, 1990, and
requested responses within 30 days. The Office of Administration
and Resources Management (OARM) responded on March 12, 1990 and the
Office of Solid Waste and Emergency Response (OSWER) submitted
their comments on March 20, 1990. We met with representatives from
both offices to discuss the findings contained in the draft report
on March 13, 1990. On March 22, 1990 we conducted an exit
conference with OARM representatives, and on March 28, 1990 we
conducted an exit conference with OSWER personnel.
To provide a balanced understanding of the issues, we
summarized the applicable responses after each finding, and
included our rebuttal to the responses. Appendix A contains the
complete response received from OARM. The complete response
received from OSWER is contained in Appendix B. OSWER's submittal,
however, contained comments to the recommendations directed to
OARM. We reviewed these and found that they did not change our
position. As a result, we did not formulate a rebuttal to these
comments.
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SUMMARY OF FINDINGS
The findings included in this report are summarized below.
The detailed findings, along with related recommendations for
corrective action, are provided in the "Findings and
Recommendations" section of this report.
The Agency rewarded performance that was less than
satisfactory. This did not conflict with the provisions of the
contracts. However,, we believe the payment of award fees for less
than satisfactory work will not accomplish the intent of the award
fee concept contained in the FAR, that is, to motivate the
contractor to excellence. For this reason the Agency should not
pay any award fees for less than satisfactory work, and only
reduced amounts for work that is no higher than satisfactory.
Initially, we examined the award fee process for 21 contracts,
all of which allowed payment of award fees for virtually any type
performance. Extensive award fee evaluations did not exist for 13
of these 21 contracts because they had been awarded within the year
prior to our audit. Our review of the evaluations under 3 of the
remaining 8 contracts established that EPA rewarded contractors for
work deemed satisfactory and, in some instances, for work
considered to be less than satisfactory. For example, 85 percent
of the work of one contractor was rated as no better than
satisfactory, while 60 percent of the work of a second contractor
was judged as marginal or deficient, yet both received award fees.
Moreover, a third contractor collected award fees despite the fact
that the firm had charged the Government for unreasonable costs.
We believe EPA was overgenerous in this regard, and more to the
point, should have recouped these overpayments.
In addition to the award fees, all 21 contracts reviewed
contained provisions to give contractors base fees; even when
contractor efforts are seriously deficient. However the FAR
provides that EPA may reduce the payment of any fee - base or award
- for performance that does not conform with the requirements of
the contracts.
We recommend the Assistant Administrator for Administration
and Resources Management restrict the payment of base fees in
accordance with the FAR if services performed under any Agency CPAF
contract fail to conform with contract requirements. We also
recommend that all Agency CPAF contracts are restructured to
preclude payment of any award fees for less than satisfactory work,
and allow reduced amounts for work that is considered no higher
than satisfactory.
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other than Region III ARCS awards; and contracts with a potential
value of less than $30 million. These parameters yielded 21
contracts potentially worth over $2.2 billion within five Superfund
programs.
Contracts Reviewed
Program Number Potential Value
TES 10 $1,067,000,000
ARCS 5 640,000,000
FIT ' 2 278,000,000
TAT 2 219,000,000
ESAT 2 65.000.000
21 S2.269.OOP.OOP
The audit disclosed several areas needing improvement which
are discussed in this report. Recommendations were provided to EPA
to enhance the effectiveness of cost-plus-award-fee contracts. As
we did not perform a study and evaluation of internal controls, we
did not include a report on such controls. No other issues came to
our attention which we believed were significant enough to warrant
expanding the scope of this audit.
Our survey for this review began on March 7, 1989 and was
completed on July 12, 1989. As a result of this survey, we
initiated an in-depth review on July 13, 1989. The fieldwork for
this audit was completed on December 14, 1989. We submitted
position papers on potential issues to program officials in EPA
Headquarters during December, 1989.
We issued a draft audit report on January 25, 1990, and
requested responses within 30 days. The Office of Administration
and Resources Management (OARM) responded on March 12, 1990 and the
Office of Solid Waste and Emergency Response (OSWER) submitted
their comments on March 20, 1990. We met with representatives from
both offices to discuss the findings contained in the draft report
on March 13, 1990. On March 22, 1990 we conducted an exit
conference with OARM representatives, and on March 28, 1990 we
conducted an exit conference with OSWER personnel.
To provide a balanced understanding of the issues, we
summarized the applicable responses after each finding, and
included our rebuttal to the responses. Appendix A contains the
complete response received from OARM. The complete response
received from OSWER is contained in Appendix B. OSWER's submittal,
however, contained comments to the recommendations directed to
OARM. We reviewed these and found that they did not change our
position. As a result, we did not formulate a rebuttal to these
comments.
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BACKGROUND
The basic regulatory blueprint for the "Superfund" program is
the National Oil and Hazardous Substances Contingency Plan (NCP)/
40 CFR Part 300, first published in 1968 as part of the Federal
Water Pollution Control Plan.
The Superfund program was established by the Comprehensive
Environmental Response, Compensation and Liability Act of 1980
(CERCLA) Public Law 96-510, enacted on December 11, 1980.
Superfund was created to protect public health and the environment
from the release, or threat of release, of hazardous substances
from abandoned hazardous waste sites and other sources where
response was not required by other Federal laws. A Trust Fund was
established by CERCLA to provide funding for responses ranging from
control of emergency situations to permanent remedies. CERCLA
authorized a $1.6 billion program financed by a five-year
environmental tax on industry and some general revenues.
CERCLA was revised and expanded by the Superfund Amendments
and Reauthorization Act of 1986 (SARA), Public Law 99-499, enacted
on October 17, 1986. SARA reinstituted the environmental tax and
expanded the taxing mechanisms available for a five-year period.
It authorized an $8.5 billion program for the 1987-1991 period. The
Trust Fund was renamed the Hazardous Substance Superfund.
EPA utilizes various types of contracts to implement and
support the Superfund program. Many of these contracts are cost-
plus-award-fee (CPAF) contracts. The Federal Acquisition
Regulations (FAR) addressing such contracts are located at the Code
of Federal Regulations (CFR). The FAR defines a CPAF contract as a
cost-reimbursement contract that provides for a fee consisting of a
base amount (which may be zero), and an award amount to provide
motivation for contractor excellence in such areas as quality,
timeliness, technical ingenuity, and cost-effective management
(48 CFR 16.404-2). The award fee contract 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) (48 CFR 1516.404-272). 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.
Award fee performance evaluations are based on award fee plans
developed by EPA for each of the contracts. These plans stipulate
the various categories of performance and describe the criteria to
be used to evaluate contractor work. The evaluation process
usually begins at the regional level upon completion of the period
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to be evaluated. The evaluation periods for the contracts in our
review ranged between four to six months, and the contractors
initiated the process by submitting self-appraisals to the regional
EPA performance monitors. The EPA monitors subsequently reviewed
the appraisals and rated contractor performance by completing
"Performance Evaluation Reports". Generally, the monitors rated
contractor work as either outstanding, exceeding expectations,
satisfactory, marginal, or unsatisfactory. The monitors then
assembled a "Performance Evaluation Summary Award Fee Report" for
submission to a Performance Evaluation Board (PEB), usually
comprised of EPA HQ and regional personnel. The PEB reviewed the
materials submitted/ and provided recommendations to a Agency Fee
Determination Official, who made the actual award fee decisions.
The chart following was not taken from a single contract, but
rather assembled from the various award fee plans of contracts in
our review. It displays the overall ranges of award fee available
for the various rating categories used by the EPA monitors to
evaluate contractor performance.
Rating
Less Than
Satisfactory
Marginal
Satisfactory
Exceeds
Expectations
Outstanding
Fee Range
Percentage
0-29
20 - 49
1-69
31 - 84
66 - 100
Description
of Performance
Serious mismanagement;
may require termination.
Substandard; immediate corrective
action required.
Performance expected from a
capable contractor.
Superior; exceeds the satisfactory
level.
Excellent; initiative shown under
adverse circumstances.
As previously noted, contractors bear little risk under cost
reimbursement contracts. However, these contracts do not leave the
Government without recourse against contractors. The Government is
required to pay only for allowable, allocable, and reasonable costs
(48 CFR 16.301-1 and 1516.404-272). The Government can also reduce
base and award fees:
If any of the services performed do not conform with
contract requirements, the Government may require the
contractor to perform the services in conformity with
contract requirements, for no additional fee. When the
defects in services cannot be corrected by reperformance,
the Government may (1) require the contractor to take
necessary action to ensure that future performance
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conforms to contract requirements and (2) reduce any fee
payable under the contract to reflect the reduced value
of the services performed (48 CFR 52.246-5(d)).
If the contractor fails to promptly perform the services
again or take the action necessary to ensure future
performance in conformity with contract requirements, the
Government may (1) by contract or otherwise, perform the
services and reduce any fee payable by an amount that is
equitable under the circumstances or (2) terminate the
contract for default (48 CFR 52.246-5(e)).
The 21 contracts we selected for review were all CPAF
contracts and supported the following programs:
TES
In 1986 EPA issued two zone contracts (TES III and TES
IV) to obtain Technical Enforcement Support services
nationwide. In 1989 these were replaced by eight
successor contracts (TES V - XII). TES contractors
support the Superfund and the Resource Conservation
Recovery Act (RCRA) programs by supplying services such
as site inspections, pre-enforcement activities,
litigation support, and oversight of federal facilities
compliance activities.
ARCS
In 1988 EPA awarded five ARCS contracts for Region III.
The contractors provide project management and technical
services to support remedial response activities at
Superfund National Priorities List sites. These services
include conducting detailed studies to help determine
permanent cleanup alternatives, and upon selection of an
alternative, to design its method of implementation.
FIT
In 1986 EPA awarded two zone contracts to obtain the
services of Field Investigation Teams. The Zone I
contract covers EPA Regions I through IV, while the Zone
II contract covers Regions V through X. The contractors
provide the Federal Government's primary investigative
capability, and supply the data base which forms the
foundation of the overall Superfund program. FIT
personnel perform tasks such as preliminary assessments
and inspections in order to determine whether a site
merits placement on the National Priorities List.
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to be evaluated. The evaluation periods for the contracts in our
review ranged between four to six months, and the contractors
initiated the process by submitting self-appraisals to the regional
EPA performance monitors. The EPA monitors subsequently reviewed
the appraisals and rated contractor performance by completing
"Performance Evaluation Reports". Generally, the monitors rated
contractor work as either outstanding, exceeding expectations,
satisfactory, marginal, or unsatisfactory. The monitors then
assembled a "Performance Evaluation Summary Award Fee Report" for
submission to a Performance Evaluation Board (PEB), usually
comprised of EPA HQ and regional personnel. The PEB reviewed the
materials submitted," and provided recommendations to a Agency Fee
Determination Official, who made the actual award fee decisions.
The chart following was not taken from a single contract, but
rather assembled from the various award fee plans of contracts in
our review. It displays the overall ranges of award fee available
for the various rating categories used by the EPA monitors to
evaluate contractor performance.
Rating
Less Than
Satisfactory
Marginal
Satisfactory
Exceeds
Expectations
Outstanding
Fee Range
Percentage
0-29
20 - 49
1-69
31 - 84
66 - 100
Description
of Performance
Serious mismanagement;
may require termination.
Substandard; immediate corrective
action required.
Performance expected from a
capable contractor.
Superior; exceeds the satisfactory
level.
Excellent; initiative shown under
adverse circumstances.
As previously noted, contractors bear little risk under cost
reimbursement contracts. However, these contracts do not leave the
Government without recourse against contractors. The Government is
required to pay only for allowable, allocable, and reasonable costs
(48 CFR 16.301-1 and 1516.404-272). The Government can also reduce
base and award fees:
If any of the services performed do not conform with
contract requirements, the Government may require the
contractor to perform the services in conformity with
contract requirements, for no additional fee. When the
defects in services cannot be corrected by reperformance,
the Government may (1) require the contractor to take
necessary action to ensure that future performance
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FINDINGS AND RECOMMENDATIONS
1. AWARD FEES OFTEN FAILED TO ACHIEVE gTPRT.T.
The Agency rewarded performance that was less than
satisfactory. This did not conflict with the provisions of the
contracts. However, we believe the payment of award fees for less
than satisfactory work will not accomplish the intent of the award
fee concept contained in the FAR, that is, to motivate the
contractor to excellence. For this reason the Agency should not
pay any award fees for less than satisfactory work, and only
reduced amounts for work that is no higher than satisfactory.
Initially, we examined the award fee process for 21 contracts,
all of which allowed payment of award fees for virtually any type
performance. Extensive award fee evaluations did not exist for 13
of these 21 contracts (8 TES and 5 ARCS) because they had been
awarded during the year prior to our audit. Our review of the
evaluations under 3 of the remaining 8 contracts established that
EPA rewarded contractors for work deemed satisfactory and, in some
instances, for work considered to be less than satisfactory. For
example, 85 percent of the work of one contractor was rated as no
better than satisfactory, while 60 percent of the work of a second
contractor was judged as marginal or deficient, yet both received
award fees. Moreover, a third contractor collected award fees
despite the fact that the firm had charged the Government
unreasonable costs . We believe EPA was overgenerous in this
regard, and more to the point, should have recouped these
overpayments .
In addition to the award fees, all 21 contracts reviewed
contained provisions to give contractors base fees; even when
contractor efforts are seriously deficient. However the FAR
provides that EPA may reduce the payment of any fee - base or award
- for performance that does not conform with the requirements of
the contracts .
Award Fees for Satisfactory Performance
Agency evaluations of Camp Dresser & McKee Inc., the TES III
contractor, illustrate that award fees failed to motivate
excellence. None of the evaluations over a two year period were
"outstanding". EPA rated approximately 15 percent of the hours as
"exceeding expectations", however 85 percent, or over a half
million hours were considered no better than "satisfactory". In
return the Agency reimbursed all costs, and paid base fees of
$914,346 and award fees of $678,810. In effect, the contractor
obtained almost 60 percent of the available award fees for
satisfactory performance. At least this contractor's performance
was satisfactory; the performance of one ESAT contractor was not,
yet the Agency paid award fees.
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The Agency paid an estimated $1.9 million of cost/ base fees
and award fees to the Zone I ESAT contractor, Roy F. Weston,
Incorporated, for work rated as less than satisfactory. EPA rated
none of the work performed in Regions II, III and V over the first
18 months of the contract as outstanding, and considered 60 percent
of the work to have been marginal or unsatisfactory. This
situation ensued from Weston's apparent unpreparedness - all of the
regional ESAT team managers, and many of the proposed team members
left upon contract award. As a result, Weston did not fulfill the
contract requirement-, and EPA did not receive the services it
requested. Rather than terminate however, the Agency extended the
contract an additional year, and continued to pay base and award
fees.
The Weston proposal assured EPA that the ESAT teams would be
fully staffed by professionals capable of exceptional performance
of virtually every facet of the anticipated tasks. Unfortunately,
EPA evaluations indicated performance by the zone managers, and
three of the four regional ESAT teams over the first year and a
half of the contract was far less than promised.
Region II
The Agency rated Region II ESAT performance during the initial
six month period as "unsatisfactory". According to the Region the
majority of problems stemmed from the "...totally ineffective
coordination and responsiveness of Weston management to the needs
of the Region...and an overall rude, cavalier, non-caring attitude
of the original Team Leader". Problems began immediately upon
contract award. None of the proposed team reported for work, and
the Team Leader was totally uncooperative, rude at best, and did
not appear interested in offering constructive solutions to the
problems at hand. Also, Weston complained about the work shifts
despite the fact the shifts were the same as disclosed in the
solicitation. The Region's chief concern was the lack of
laboratory personnel. No samples were analyzed during the period,
and in the Region's opinion,"...the ESAT team had been a disaster
from day one. It was poorly conceived with ineffective
implementation and feeble attempts at resuscitation". In short,
the Region concluded that the team was not much closer to being
functional at the end of the six month period, than it had been at
contract award.
Over the next six months Region II ESAT performance improved,
but overall it was still deemed as "unsatisfactory". Weston
provided a replacement Team Leader, but failed to assemble a team
acceptable to the Region. Sample analysis was not performed
because the laboratory was not fully staffed. Losing confidence in
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the team's technical ability, Region II wanted to eliminate the
ESAT. EPA Headquarters, however convinced the Region to reconsider
and reorganize work plans to accommodate the team.
EPA rated period three performance as "marginal" because
Weston spent almost a third of its time restructuring the team.
The second Team Leader was replaced temporarily by a individual who
according to the Region "... got the team turned around and staffed
up". However, the Region's evaluation also noted numerous data
validation mistakes. This was a sore point with Region II because
data review was somewhat of an "Achilles Heel". (We noted that at
about this time another contractor was also tasked with data
validations in Region II).
The primary mission of the Region II ESAT was to analyze
laboratory samples. As seen above the laboratory was not fully
staffed and no samples were analyzed in the first two periods.
Furthermore, part of the "restructuring" during the third period
involved replacing laboratory positions with a "Biological
Technical Assessment Group", which in the Region's opinion would
require "much training and equipment". Thus, instead of working in
the laboratory, this group would "...analyze the species and
diversity of organisms in and around Superfund sites". Another
feature of the "restructuring" involved the Team Leader. Instead
of a full-time manager, Weston temporarily assigned an employee who
commuted from an office in Pennsylvania to the ESAT office in
northern New Jersey. The Region's evaluation criticized this
practice and maintained that the acting manager missed time because
he attended meetings concerning his previous position. Despite the
fact that Weston had assured EPA it would provide a manager within
30 days of contract award, it was now 18 months later, and still no
full-time manager was assigned.
Region III
For the initial six month period EPA rated performance as
"satisfactory", even though the proposed Team Leader also left
immediately upon award of the contract. It is interesting to note
that the team received its highest ratings for merely having an
office and a staff. However, more than half of the team's hours
were not charged to specific projects, and the bulk of these were
charged to "Administrative Support and Management". Several team
members were criticized for deficient performance. Weston
management was criticized for failing to inform EPA of the team's
significant training needs, and for time spent in unnecessary
meetings.
Region III ESAT performance slipped to "marginal" in period
two. The Agency evaluations indicated much of the problem was due
to a lack of support from Weston's corporate office, weak team
management, and a significant turnover of trained personnel.
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Award Fees for Deficient
The Agency paid an estimated $1.9 million of cost, base fees
and award fees to the Zone I ESAT contractor, Roy F. Weston,
Incorporated, for work rated as less than satisfactory. EPA rated
none of the work performed in Regions II, III and V over the first
18 months of the contract as outstanding, and considered 60 percent
of the work to have been marginal or unsatisfactory. This
situation ensued from Weston's apparent unpreparedness - all of the
regional ESAT team managers, and many of the proposed team members
left upon contract award. As a result, Weston did not fulfill the
contract requirement-, and EPA did not receive the services it
requested. Rather than terminate however, the Agency extended the
contract an additional year, and continued to pay base and award
fees.
The Weston proposal assured EPA that the ESAT teams would be
fully staffed by professionals capable of exceptional performance
of virtually every facet of the anticipated tasks. Unfortunately,
EPA evaluations indicated performance by the zone managers, and
three of the four regional ESAT teams over the first year and a
half of the contract was far less than promised.
Region II
The Agency rated Region II ESAT performance during the initial
six month period as "unsatisfactory". According to the Region the
majority of problems stemmed from the "...totally ineffective
coordination and responsiveness of Weston management to the needs
of the Region...and an overall rude, cavalier, non-caring attitude
of the original Team Leader". Problems began immediately upon
contract award. None of the proposed team reported for work, and
the Team Leader was totally uncooperative, rude at best, and did
not appear interested in offering constructive solutions to the
problems at hand. Also, Weston complained about the work shifts
despite the fact the shifts were the same as disclosed in the
solicitation. The Region's chief concern was the lack of
laboratory personnel. No samples were analyzed during the period,
and in the Region's opinion,"...the ESAT team had been a disaster
from day one. It was poorly conceived with ineffective
implementation and feeble attempts at resuscitation". In short,
the Region concluded that the team was not much closer to being
functional at the end of the six month period, than it had been at
contract award.
Over the next six months Region II ESAT performance improved,
but overall it was still deemed as "unsatisfactory". Weston
provided a replacement Team Leader, but failed to assemble a team
acceptable to the Region. Sample analysis was not performed
because the laboratory was not fully staffed. Losing confidence in
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EPA also rated second period performance as "marginal". The
team performed some tasks successfully/ but deficient management
and staff inexperience resulted in poor performance overall.
Region V ESAT personnel who appeared qualified "on-paper" required
extensive training by EPA employees, and even after this training
some team members still could not perform at a satisfactory level.
Moreover, several individuals trained by EPA who left the team were
not replaced by Weston. The Agency evaluators concluded;
As in Region III, there seems to be an attitude that when
something goes wrong it is EPA's fault...and the Team Leader
seems to be attempting to run the EPA program rather than have
EPA's workload direct the work activities of the team.
Meetings to resolve problems with the Team Leader are often
met with obstinacy and hostility.
Region V ESAT performance improved to a "satisfactory" level
during the third period, and even further improvement was expected
if a permanent Team Leader was assigned.
Zone Management Office
EPA rated Weston's Zone Management Office (ZMO) performance as
"unsatisfactory" during the initial six month period. Agency
evaluators noted:
o The Zone- Office seemed unprepared from the start to manage
the contract, and did not report problems until EPA asked
specific questions.
o The Zone Manager traveled excessively between Weston's
corporate and Washington offices.
o Performance at an EPA Deputy Project Officer Conference
was extremely poor and embarrassing.
o The turn-over in the Zone Office was excessive.
o Monthly status and financial reports were confusing and
questionable.
EPA also rated the ZMO period two performance "unsatisfactory"
because for almost eleven months Weston failed to provide -an
effective Zone Manager. The Agency warned that "...continued
substandard management and performance of the Zone I ESAT team
cannot be tolerated." Weston apparently heeded the warning, for in
period three the ESAT team was rated "satisfactory" overall, and
the ZMO "exceeded expectations". Again, we would point out that it
took 18 months to reach this plateau, during which time the Agency
paid Weston over $2.6 million for zone management and ESAT
performance in Regions II, III, and V. Moreover, approximately
$100,000 of this amount represented base and award fees.
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Undeniably the contractor was unprepared to provide the
services required by the contract. We were unable to conclude for
certain that Weston consciously misled EPA, however, Weston did not
supply any of the regional team managers identified in the
proposal; two of the four teams never showed up for work; a third
team as well as the Zone Management Office was replaced entirely;
and two years after contract award half the teams lacked permanent
managers.
We were informed that EPA Headquarters considered terminating
the contract in 1987, but decided not to because of the lead time
to obtain a replacement, and the fear that Weston might be that
replacement. Moreover, had the Agency wished, the contract would
have expired on its own in July of 1989. Instead, EPA extended the
contract for an additional year.
EPA missed an opportunity to send a message to all contractors
that it would not put up with substandard performance. The Zone I
ESAT situation should have prompted the Agency to initiate
immediate corrective action. The period one evaluations made it
appear highly improbable that Weston would provide "outstanding"
analytical assistance. We recognize that procurement lead time was
a factor to consider. However, we do not find it reasonable to
surmise the Agency would be so imprudent to award a contract to a
firm, which had just been terminated for not providing identical
services. It is obvious the contractor did not supply the services
EPA paid for during 18 months of a 24 month contract. We believe
the Agency should have denied most of the base and award fees, or
terminated the contract for default. The rationale for reducing
base fees is that Weston not only failed to provide the services
required under the contract, but it also failed to take necessary
action to ensure their performance met the contract requirements.
Award Fees on Unreasonable Charges
Over a two year period EPA paid another contractor, Ecology
and Environment, Inc. (E&E), $46.5 million for Field Investigation
Team (FIT) services in Regions V through X. Included in this
amount was $4.1 million for E&E's Zone Program Management Office
(ZPMO), and almost $2 million in award fees. We reviewed the
evaluations which generated the award fees and found the contractor
had charged EPA for:
*
o Development of a Management Information System (MIS) that
was not fully operational at the time the contract was
awarded;
o A FIT office that was 20 percent over staffed and;
o Labor and travel expenses of corporate officials who were
explicitly prohibited from working on the FIT contract.
15
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At the time of our review EPA had evaluated six FIT
performance periods over a two year period. These evaluations
disclosed that the Agency had not only paid unreasonable charges,
but had also paid base and award fees on top of the charges. We
believe EPA should have challenged the charges, and refused payment
of their associated base and award fees.
The Management Information System was a ZPMO function that
should have been in operation at the time of contract award. We do
not know how much EPA paid for the development of the system,
because only two of the six evaluations enumerated MIS hours. The
evaluations did indicate the MIS was a problem from the onset of
the contract, as ZPMO period one performance was rated as "less
than satisfactory". This was in part due to the system's failure
to generate timely reports. E&E still received award fees of
$13,668 because even an unsatisfactory rating could generate as
much as 34 percent of the award fee available. In discussion,
Agency personnel stated that these fees were given to the
contractor for "noteworthy mobilization" efforts. We disagree with
the concept of paying any award fees for a segment of contractor
effort when overall performance is deficient.
In period two, with the expenditure of 400 hours, the MIS
improved, and ZPMO overall performance generated award fees of
$20,500. In period three however, despite charges of an additional
4,000 hours at an estimated cost of $325,000, the MIS again
declined. The EPA Headquarters Project Officer noted:
Inconsistency continues to mark the Zone II Management
Information System. Timeliness and quality of Monthly
Progress Reports, financial information, and ad hoc
requests has ranged from excellent to less-than-
satisfactory. After one full contract year, a contractor
of E&E's caliber can be expected to have overcome the
kind of minor problems which plague the ZPMO's MIS.
While further improvements are being implemented to
assist Headquarters in obtaining data, this project is
slowly falling behind schedule. Further improvements in
Monthly Progress reports are also being implemented at
the request of HSED.
Nonetheless, the Project Officer rated the 4,000 MIS hours as
"satisfactory". We believe this rating was overgenerous. „ More
importantly, EPA should have questioned the tenfold increase in
hours. The PEB, who was also overgenerous rated ZPMO overall
efforts as "less than satisfactory" and paid award fees of $13,266.
Discussion with Agency personnel disclosed this was another example
where fees were awarded with a less than satisfactory rating to
recognize other aspects of performance, which included the MIS.
Again we disagree that award fees should ever accompany less than
satisfactory performance.
16
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Undeniably the contractor was unprepared to provide the
services required by the contract. We were unable to conclude for
certain that Weston consciously misled EPA, however, Weston did not
supply any of the regional team managers identified in the
proposal; two of the four teams never showed up for work; a third
team as well as the Zone Management Office was replaced entirely;
and two years after contract award half the teams lacked permanent
managers.
We were informed that EPA Headquarters considered terminating
the contract in 1987, but decided not to because of the lead time
to obtain a replacement, and the fear that Weston might be that
replacement. Moreover, had the Agency wished, the contract would
have expired on its own in July of 1989. Instead, EPA extended the
contract for an additional year.
EPA missed an opportunity to send a message to all contractors
that it would not put up with substandard performance. The Zone I
ESAT situation should have prompted the Agency to initiate
immediate corrective action. The period one evaluations made it
appear highly improbable that Weston would provide "outstanding"
analytical assistance. We recognize that procurement lead time was
a factor to consider. However, we do not find it reasonable to
surmise the Agency would be so imprudent to award a contract to a
firm, which had just been terminated for not providing identical
services. It is obvious the contractor did not supply the services
EPA paid for during 18 months of a 24 month contract. We believe
the Agency should have denied most of the base and award fees, or
terminated the contract for default. The rationale for reducing
base fees is that Weston not only failed to provide the services
required under the contract, but it also failed to take necessary
action to ensure their performance met the contract requirements.
Award Fees on Unreasonable Charges
Over a two year period EPA paid another contractor, Ecology
and Environment, Inc. (E&E), $46.5 million for Field Investigation
Team (FIT) services in Regions V through X. Included in this
amount was $4.1 million for E&E's Zone Program Management Office
(ZPMO), and almost $2 million in award fees. We reviewed the
evaluations which generated the award fees and found the contractor
had charged EPA for:
0
o Development of a Management Information System (MIS) that
was not fully operational at the time the contract was
awarded;
o A FIT office that was 20 percent over staffed and;
o Labor and travel expenses of corporate officials who were
explicitly prohibited from working on the FIT contract.
15
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The MIS was not the only area where EPA was overgenerous. In
period three - a full year into the contract - the Agency learned
that several FIT offices had charged the contract for periods of
inactivity, and that the Region VI office was in fact 20 percent
overstaffed. The PEB rated ZPMO performance as "less than
satisfactory" for several reasons which included the overstaffing
issue. As previously discussed, despite this rating the PEB
awarded fees of $13,266 in recognition of MIS efforts. To
reiterate we believe that paying award fees for the MIS was
overgenerous. Moreover to use the MIS to offset the overstaffing
compounded the situation.
The Region VI FIT fared even better than the ZPMO. Despite
having been overstaffed, and passing the charges along to EPA, the
FIT was rated as "outstanding". Even though the Project Officer
recognized that support activities such as training had consumed as
much as 54 percent of the hours charged in a given month, he
considered overall FIT performance as excellent. As a result, E&E
received an estimated $1.6 million in Region VI costs and base
fees, plus an additional $29,000 in award fees. We have little
doubt that what the FIT produced was probably excellent, but
question whether it was worth the cost. The Agency failed to take
into account the effect of overstaffing. If an office has staff
excess to its needs, it is reasonable to expect that office to
perform in an outstanding manner.
E&E also billed the Agency for unallowable corporate expenses.
In performance period four, the Project Officer noted E&E had
charged EPA for travel expenses of corporate personnel who had no
connection with the contract. He stressed the need for cost
control, but rated ZPMO program management as "exceeding
expectations", and the ZPMO overall as "fully satisfactory". As a
result, E&E received award fees of $19,358.
After the fifth performance period - 20 months into the
contract - the Agency actually denied award fees for ZPMO
management. Even this action was too lenient in light of the
following comments contained in the Project Officer's evaluation.
A further concern is the charging of ex-FIT office
managers to the contract. The contract design
specifically requires a fully dedicated office manager
who directly reports to the Zone Program Manager. The
office managers in most Regions were removed at EPA's
request because as senior corporate officials they were
not fully dedicated to the FIT contract. It has come to
light following several regional reviews that ex-FIT
office managers continue in a decision making role on FIT
activities and simultaneously charge hours to the
contract for these functions. This violates the spirit
and the letter of the contract... It further has the
appearance problem of the FIT contract partially carrying
18
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the cost for corporate personnel who may not be capable
of charging against other accounts. Furthermore, it is
an apparent conflict of interest to have the FIT office
manager receive instructions or influence from a senior
corporate official who may represent interests divergent
from EPA's.
Although the period five evaluation indicated the same
problem existed in several Regions, only Region VII was
specifically identified. The Regional Project Officer's (RPO)
evaluation explained that a former FIT office manager (FITOM) had
continued to charge approximately 20% of his time to the FIT
contract despite the' fact that he was now an E&E corporate
official. The evaluation stated:
This unauthorized charging of hours has occurred in spite
of his removal as FITOM at the Region's request in
January 1987. Based upon a review of records recently
provided to EPA, it was discovered that the former FITOM
has charged, on the average, eight hours per week over a
17-month period after his removal from the FIT. This
dumping of hours on the FIT occurred without the
knowledge or approval of EPA and was done contrary to the
expressed instructions of the RPO. In fact, the present
FITOM, (name deleted), repeatedly assured EPA that no
"significant" hours were being charged to the FIT
contract by E&E's corporate office manager. Records
reveal that during a week in August 1987, seven months
after being removed from FIT management, (name deleted),
charged 43 percent of his time to the FIT contract. As
recently as April 1988, (name deleted) charged 29 percent
of his time to the FIT. It should be reiterated that
this activity occurred against the stated instructions of
the RPO. E&E's Regional corporate office manager is not
a member of the FIT nor is in the position recognized as
part of the zone or Regional management structure. Also,
the corporate office manager has had no FIT-related
contact with EPA since January 1987. Furthermore, an
itemized breakdown of the Regional FIT management hours
which accompanied all management TDDs never identified
the office manager as having any FIT management function
or chargeable time. The present FITOM, (name deleted),
is unclear as to whether these hours were charged to the
FIT contract with his full knowledge and approval. It is
clear, however, that this abuse of management hours has
seriously compromised the credibility and reliability of
E&E's Regional management.
19
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An ancillary problem concerning hours budgeted for site
inspections in Region VII also arose at this time. The RPO
asserted the contractor had inflated budgets to give the appearance
that projects were performed in less time than planned, and thus
deserving of higher award fees.
The Headquarters Project Officer acknowledged the RPO's
comments, but considering the Region VII situation a ZPMO
deficiency, rated the FIT as "highly satisfactory". Thus E&E
received $27,000 in award fees for the efforts of the Region VII
FIT Office. The ZPMO was rated as "less than satisfactory" and
earned no award fees, but E&E received an estimated $695,000 for
ZPMO costs and base fees.
EPA paid the unallowable corporate charges. The Project
Officer noted:
The potential problems related to cost control cannot be
fully discussed at this time. Cost overruns have been
projected for several budget categories for the ZPMO and
all but one FIT Office. The ZPMO has been requested to
provide specific information for each budget category
(e.g. direct labor; equipment; other direct costs; and
indirect costs). Until this information can be
thoroughly evaluated, it is premature to state a serious
problem exists".
By the next performance period, the Region VII FIT Project
Officer had transferred to the Technical Assistance Team (TAT)
contract, also held by E&E. There he learned that the same
corporate office manager - the ex-FIT office manager - had also
charged an unknown amount of unauthorized time to the TAT contract.
Meanwhile, the replacement RPO rated the FIT'S period six
performance as "outstanding". He rated several functions higher
than had the FIT in its own self-appraisal, and praised the FIT for
completing site inspections in less time than budgeted. As a
result, E&E received award fees of $42,396.
The Headquarters Project Officer rated ZPMO performance in
period six as "satisfactory", and E&E received award fees of
$17,674. He noted that in the previous period the Agency
documented serious concerns about the general attitude of the Zone
Program Manager. He cited problems such as poor communications,
lack of responsiveness, insensitivity to Agency concerns and a
general complacency. However, major improvement had occurred this
period i.e. the ZPMO manager had been replaced. The problems have
been discussed and the new manager has moved to effect corrective
actions. However, the Project Officer noted:
20
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Potential problems related to cost control identified in
the previous period still cannot be fully discussed at
this time. Cost issues are being carefully tracked and
evaluated .
By the time of our audit, a year later, the EPA Project and
Contracting Officers had left the FIT program. The MIS, FIT
overstaffing and charges for corporate officers issues were as yet
unsettled. EPA was planning to attempt a reconstruction of all
costs to date because the contract was in an overrun status.
Our review disclosed that the award fees paid to the TES,
ESAT, and FIT contractors were not used effectively to motivate the
contractors. To fulfill the intent of award fees as characterized
in the FAR, we believe that EPA should not have provided any award
fees when a contractor's efforts were considered less than
satisfactory. When a contractor's efforts are no higher than
satisfactory the amount of award fees currently provided should be
reduced .
Eliminating or reducing the amount of award fees provided to
the less productive contractors was not the only action the Agency
should have initiated to more effectively motivate the contractors
to improve poor performance. EPA could have also withheld base
fees when the services provided were deficient. The FAR provides
that if any of the services performed do not conform with contract
requirements , EPA may require the contractor to perform the
services again for no additional fee. If the contractor fails to
take corrective action EPA may either reduce any fee payable by an
equitable amount or terminate the contract for default (48 CFR
52.246-5). This would have been an appropriate action in response
to serious deficiencies noted with the performance of both the FIT
and ESAT contractors. Both contractors received a substantial
amount of base fees, the ESAT contractor received over $90,000 and
the FIT contractor received more than $1.2 million. All or a
portion of these fees should have been withheld because EPA did not
receive the services for which it paid. The rationale for reducing
the fees is that the contractors not only failed to provide the
services required under the contract, but also failed to take
necessary action to ensure their performance met the contract
requirements
RECOMMENDATIONS
We recommend the Assistant Administrator for Administration
and Resources Management (OARM):
1. Monitor future ESAT Zone I award fee evaluations, and
terminate the contract, if future evaluations indicate any
21
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widespread return to the deficient performance situations
that the Agency experienced in the first three performance
periods .
2. Restrict the payment of base fees in accordance with the
FAR if services performed under any Agency cost-plus-awara
fee contract do not conform with contract requirements.
3. Restructure all Agency cost-plus-award-fee contracts to
preclude payment of any award fees for less than
satisfactory work, and allow only reduced amounts for work
that is no higher than satisfactory.
4 . Determine and recoup the actual costs and base fees
inappropriately charged against the FIT Zone II contract
for:
- The Management Information System.
- FIT staff excess to authorized Region VI
levels .
- E&E corporate staff .
5 . Determine and recoup any costs and base fees charged
against the TAT contract for Weston corporate staff in
Region VII.
OARM Response to R8comn|Gndation
We generally agree with this recommendation and took a
proactive position concerning the contractor's poor performance as
early as October 1988 after the second award fee meeting.
Specifically, on October 14, 1988, two meetings were held to
discuss appropriate actions concerning contractor poor performance.
However, considering the positive impact of contractor initiatives,
in response to the first award fee score, Agency officials found it
more advantageous to allow these performance improvements to
continue and the decision was made to stay with the incumbent
contractor .
The chart shown on page 28 of this report indicates that the
contractor's second period performance did not improve as a result
of the first evaluation. The October 14, 1988 meeting discussed in
your response was fourteen months after the award of this contract
which was to be in effect for twenty-four months. Moreover, as
stated in our report the contractor received base and award fees
during this time even though Weston did not supply any of the
regional team managers identified in the proposal; two of the four
22
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teams did not show up for work; a third team as well as the Zone
Management Office was replaced entirely; and two years after
contract award half the teams lacked permanent managers.
The contracts reviewed are cost-plus-award-fee level of effort
contracts where the contractor must make diligent efforts toward
accomplishing assigned work. This does not mean that their
diligent efforts must always result in success. Level of effort
contracts are used in situations where there is considerable
uncertainty. Therefore, I strongly feel we need to consider such
withholdings on a selective basis after examination of the facts
and circumstances surrounding each instance of poor performance.
Where we identify situations which evidence a lack of diligent
contractor efforts, we need to pursue this administrative sanction
and deny payment of base fee on the reperformed work.
The FAR establishes that when a contractor provides deficient
services, EPA may require the contractor to perform the services
again for no additional fee. It is important to note that the
contractor is reimbursed all costs, and receives a base fee for the
initial deficient performance. The contractor is also paid all
costs to remedy the deficiency. If the contractor fails to
adequately reperform the services, the FAR affords EPA the option
to either reduce any fee by an equitable amount, or terminate the
contract for default.
To summarize, a contractor is reimbursed cost in return for
perseverance. "Diligence" has no part to play in the award of
fees. In any case, we are not advocating universally denying the
payment of award fees for reperformed work. We agree that a
selective application is appropriate. However, the attempts by the
ESAT contractor to establish an office and that of the FIT
contractor to develop a MIS were examples where the Agency should
have refused to pay additional fees on top of any fees previously
paid.
'"
We do not agree that all Agency cost-plus-award-fee contracts
need require restructuring. We agree that contractors were remiss
on occasion, but that the situation was not one where all aspects
of performance were deficient. I generally agree to preclude
payment of award fees, but only when the overall performance for an
evaluation category is determined to be unsatisfactory. In this
regard, I have tasked my staff to work on coordinating and
implementing such a proposed policy.
23
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We believe that a reasonable portion of award fee should be
awarded for satisfactory performance. To award only minimal amounts
could prove very detrimental to the already limited base of
competitive Superfund contractors. Since virtually all companies
use their base fee to defray unallowable costs such as interest
expense, advertising and marketing costs and reorganization costs,
all which are legitimate business expenses, the base fee serves
more as a breakeven point than a margin of profit.
Inspector General's Comments
EPA does agree to deny payment of award fees when overall
performance is unsatisfactory. However, the Agency believes that a
reasonable portion of available award fees should be awarded for
satisfactory performance. To award only minimal amounts could
prove detrimental because contractors subsidize unallowable costs
with the base fees.
In rebuttal, we reiterate that the FAR stipulates that award
fee contracts should: (a) provide for the reimbursement of
allowable costs only; (b) fix a base fee amount, which may be zero,
but no more than three percent to compensate for risk; and (c)
motivate excellence, which in turn will generate additional income
in the form of award fees .
We do not know to what extent contractors may have incurred
legitimate but unallowable costs specifically attributable to
government work. We would point out that the ESAT and FIT
contractors received the maximum base fees allowed by the FAR.
Moreover we would also point out that the majority of the available
award fees were reserved for satisfactory or less that satisfactory
work rather than for excellence.
To summarize we do not believe award fees should ever be paid
for work that is unsatisfactory, and believe that EPA contracts
should be restructured to provide less award fees for work deemed
satisfactory, but less than excellent.
QARM Res ^rrnmt**>y
Our findings indicate that the contractor incurred costs
necessary for tailoring its originally proposed MIS to accommodate
enhanced reporting requirements imposed by EPA. We are exploring
this finding and will make a determination once all the facts are
known; however, it appears the costs incurred are legitimate
expenses .
Our position has been that overstaffing, (e.g. Region VI FIT)
is permissible and within the zone program management office
purview when a short-fall in level of effort hours has occurred.
This shortfall can result from attrition or the inability to
24
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rapidly fill positions following the exercise of options or
approved staff increases. Additionally, overstaffing is necessary
to respond to peak workload fluctuations.
We believe the recommendation regarding the FIT corporate
charges may have merit, and requested the contractor to explain why
non-dedicated charges were invoiced for all the regional FIT teams .
However, we maintain the corporate charges against the TAT contract
were appropriate, necessary and reasonable.
Insector en *
We cannot understand how the Agency concluded the MIS costs
appear to be legitimate before all the facts are known. First, the
Agency does not know how many hours it paid for MIS services.
Second, as of October 1989, the FIT contracting officer was unaware
of the MIS issue. Third, it was the FIT EPA Headquarters project
officer who surfaced the issue when he reported that the contractor
was billing EPA for developing the MIS operations to the level they
were claimed to be in the original contract proposal. Thus we
stand by the project officer's position, and maintain that until
the specific types and amounts of charges are identified, it is
premature to assume they are legitimate.
The response asserts that the FIT overstaffing was allowable,
and as a result no further action is warranted. To support this
position the response paraphrased comments submitted to the PEB by
the Headquarters FIT project officer. However the response did not
include the following paragraphs from the project officer's
submit tal:
The current issue in Region VI is considerably
different. Authorized at 54 positions, the ZPMO
has maintained an average Region VI FIT staff of 65
FTEs through September. The situation is
compounded by the fact that information eventually
provided by the ZPMO indicates the FIT in Region VI
to have charged the government for a large amount
of unproductive time due to fluctuations in
assigned work and "overstaffing". It is HSED's
position that the magnitude and duration of this
overstaffing has been inappropriate and has
resulted in excessive costs.
ZPMO had access to management information from
several regions indicating unacceptable levels of
inactivity by the FITs. This information was not
made available to EPA Program Managers until
specifically requested.
25
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Consequently, there was no confusion on our part whether or
not the FIT in Region VI was overstaffed. According to the FIT
project officer, it was. Also Region VI was only one of several
regions with similar unacceptable levels of inactivity.
The Agency position in regard to corporate charges against the
FIT and TAT contracts is incongruous. As pointed out in this
report (page 20) the corporate official charging the FIT contract
and the TAT contract was the same individual. Moreover, anyone
charging either contract is supposed to be 100 percent dedicated to
that contract. No contractor employee can split hours between such
contracts, and certainly no corporate official, whose duties could
potentially result in a conflict of interest situation, should be
allowed to work on government projects.
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2. EPA PERFORMANCE EVALUATION PROCEDURES VARIED BY CONTRACT
The procedures used to evaluate Superfund contractors need to
be revised. Because the evaluation procedures for various
contracts differed the Agency did not provide award fees in a
uniform manner. Moreover, the administrative effort used for
evaluations was not always justified and consistent with the amount
of award fees provided.
The evaluation process used for Superfund contracts is
formalized and lengthy. It is important that the Agency maintain a
well managed performance evaluation process so that the quality of
work received can be assured. In most cases, the administrative
effort used to evaluate contractor performance is needed and
worthwhile. This is especially true when the amount of award fees
provided to the contractors is significant.
We compared the documentation used by the PEB to evaluate ESAT
and ARCS performance for the period which ended in early 1989. It
is important to note that EPA completed evaluations for the four
regional ESAT offices and their zone management office. Similarly,
the Agency completed five evaluations for the five contractors
performing ARCS work. Self evaluations were also completed by the
regional and zone offices of the ESAT contractors as well as the
ARCS contractors.
We reviewed the ten evaluations completed for the ESAT and
ARCS contracts and found that the Agency provided the ESAT
contractor with the least amount of award fees while evaluating the
most documentation. To illustrate, the total number of pages
evaluated for the ESAT contract was 1,064 compared to 228 pages for
the ARCS contracts. The award fee available for ESAT offices was
only $36,865 and the award fee provided was $22,100. The award fee
available for ARCS contractors was $191,735 and the award fee
provided was $173,700.
The Agency needs to ensure that the administrative burden to
provide award fees is consistent. For example, EPA should ensure
that if one PEB evaluates 228 pages of documentation to provide
award fees of over $173,000, another PEB should not evaluate more
than 5 times this amount of documentation to provide award fees of
only $22,100
From the Agency's evaluations discussed previously in finding
number 1 it was obvious that the ESAT award fee strategy for Zone I
failed to motivate the contractor toward exceptional performance.
None of the teams were considered as outstanding during the first
18 months of the contract, and only the Region I team had
consistently performed at an above average level. Overall, 60
27
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percent of ESAT performance was deemed either marginal or
unsatisfactory, for which EPA paid an estimated 1.9 million in
costs and fees.
PERFORMANCE RATINGS AND RESULTANT
AWARD FEES FOR ESAT OFFICES
ESAT
OFFICE
PERFORMANCE PERIOD
REGION
1
REGION
2
REGION
3
REGION
5
ZHO
Exceeds
Expectations
$2,300
Unsatisfactory
$200
Satisfactory
$2,700
Marginal
$1,300
Unsatisfactory
-0-
Highly
Satisfactory
$3,600
Unsatisfactory
-0-
Marginal
$2,600
Marginal
$5,500
Unsatisfactory
$600
Exceeds 1
Expectations 1
$4,600 I
Marginal 1
$2,300 I
Marginal 1
$3,800 I
Satisfactory 1
$10,000 I
Exceeds I
Expectations I
$1,400 I
In the first three performance periods, the award fees paid
totaled $41,000, and averaged $2,700 for each ESAT regional office.
During this same period, the contractor was paid costs of more than
$3 million and base fees of over $90,000. This equates to more
than $26 per hour, while the contractor was paid award fees
averaging 34 cents per hour for mostly marginal or unsatisfactory
work. Had this same contractor provided EPA with all outstanding
work an additional 43 cents per hour would have been paid.
28
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The amount of fees was not the only consideration when
measuring the effectiveness of the award fee process. The Agency
reimburses the contractor for the hours used to complete a self
evaluation. Moreover, the Agency expends a considerable amount of
additional administrative effort and cost to monitor and evaluate
the contractor's performance. For example, each of the
contractor's four ESAT offices and the ZMO completed a lengthy self
evaluation. This information was reviewed by the four EPA RPOs.
These RPOs provided additional comments and the entire evaluation
package was sent to the Performance Evaluation Board (PEB) in EPA
Headquarters. The PEB then reviewed the information to determine
the amount of the award fee to be paid.
Considering the contractor's labor cost, which we estimate at
about $26 per hour, as well as the Agency's labor cost, the amount
expended to provide only $2,700 to each ESAT office appears
counterproductive. Thus, we question whether contracts as small as
ESAT are suitable award fee candidates because of how much it costs
to award the fees. For this reason, award fees should not be used
for contracts such as ESAT.
The rating categories the Agency used to evaluate contractors
were also not consistent. For example, of the 21 contracts
reviewed, 14 contained five rating categories while 7 had only
four. According to the FAR 1516.404-278 the Agency shall observe
the following definitions of contractor performance to report and
judge performance events: superior, satisfactory, and substandard.
Also, the amounts of award fees provided for many of the
categories differed for various contracts. As a result, one
contractor providing unsatisfactory work could receive 20% of the
available award fees while another contractor could receive 35% of
the available fees for unsatisfactory work. Contractors performing
work that was considered marginal could receive as much as 49% of
the available award fees. Details follow.
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LEGEND
I I I II OUTSTANDING
HsH EXCEEDS EXPECTATION
Y/A SATISFACTORY
IH MARGINAL
UNSATISFACTORY
E8A.T TC8 ADO* ARM I
CONTRACTS
The chart above also highlights an inconsistency within the ARCS
contracts. The ARCS contractors received no award fees for
unsatisfactory site specific work. However, the same contractors
could receive as much as 31% of the available award fees, if the
unsatisfactory work was for program management.
RECOMMENDATIONS
We recommend the Assistant Administrator for Administration
and Resources Management (OARM):
1. Require the Procurement and Contracts Management Division
to establish consistent procedures for cost-plus-award-fee
contracts to provide award fees in a uniform manner. To
accomplish this, each contract should have the same number
of rating categories and the percentage of the award fee
available for each category should be consistent.
2. Modify future contracts to eliminate the award fee aspect
when the contract value is small or when expenditures do
not materialize.
OARM ResponBB for RecrnmnQndat.'t
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We do not agree with the proposal that all Superfund award fee
contracts should contain identical award fee plans. Each class of
contracts supports a different program. These programs have
different requirements which necessitate award fee plans
independently tailored to the evaluation of those requirements.
We also realize that our Performance Evaluation Boards and Fee
Determination Officials require the latitude to modify their award
fee plans in order to emphasize new and changing priorities.
Inspector General's Comments
We were aware that the award fee plans for each class of
contracts were virtually identical. Our intent was that all
classes of contracts should have similar award fee plans. This is
required by the FAR. Moreover, we do not agree that the differing
requirements of the various Superfund programs necessitates the
need for different award fee plans. Deleting the performance
categories, exceeds expectations and marginal, as well as
standardizing percentages would not diminish the Agency's latitude.
Because the award fee amounts were proposed by the successful
contractors, we interpret that different companies have different
requirements for margins of profit. Clearly, no firm would
voluntarily propose or negotiate a fee structure which they find
unacceptable. Accordingly, we conclude that these contracts do
motivate contractor performance.
All of our award fee contracts are multi-million dollar
contracts supporting programs within Superfund. We have found that
the award fee process mandates an ever vigilant contract management
initiative which is not otherwise achievable under non-incentive
contract types. Therefore, we will continue to employ cost-plus-
award-fee contracts in support of the Superfund program.
'
We agree no firm would voluntarily propose or negotiate a fee
structure which they find unacceptable. However, our concern is
when a contract value is small or ends up small, such as ESAT. The
effort to evaluate these contractors is not justified by the amount
of award fees. For example, although the ESAT contract had a
potential value of $30 million, it's base period was nearly
complete at the time of our review and only $3 million was
expended. This amount does not appear to justify full scale
evaluation procedures. However, if the Agency believes award fee
contracts are warranted on such small contracts, then the
evaluation procedures should be streamlined.
31
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3. LATE APPRAISALS HINDER THE AWARD FEE PROCESS
The Agency did not effectively use award fee performance
evaluations to provide the contractors timely feedback on their
performance. In some cases, the contractor did not receive
feedback concerning their performance for more than a year. As a
result, contractors continued to provide marginal or unsatisfactory
work without formal notification from the Agency. Moreover, the
contractors were not informed where improvements were needed.
The Federal Acquisition Regulation, Part 16 provides that
contractors performing work under cost-plus-award-fee contracts
should be evaluated at stated intervals. These evaluations are
intended to inform the contractor of the quality of its performance
and the areas needing improvement. Payment of award fees should
generally correspond to the evaluation periods. This enhances the
incentive which the award fee can create by inducing the contractor
to improve poor performance or to continue good performance.
We reviewed the evaluations completed for five categories of
Superfund contracts to determine if the evaluations were completed
in a timely manner. This review encompassed the evaluations
completed for 21 contracts during the past three years. For four
of these contract categories, the Agency stipulated that the
evaluation process should be completed in a specified number of
days after the performance period. For the TAT contracts no time
frame was stipulated, but the contracting officer stated that the
process should take approximately 75 days.
During the period reviewed, 62 evaluations were prepared and
54 were late. These evaluations were from 0 to 246 days late.
Shown below are the time frames applicable to each contract
category and the number of days that the evaluations were late.
Contract Days Stipulated For Days Late
Categories Evaluation Process (Range)
TES 76 48-246
ARCS 28 66-118
FIT 60 0-128
ESAT 75 0-70
TAT 75 0
32
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The evaluations for all of the contracts, except the TAT contracts,
were completed late. Examples are shown below:
Contract:
ESAT
Zone II
ARCS
FIT
TES IV
TES III
Evaluation
Period
Apr 88-Sep 88
Nov 88-Feb 89
Mar 88-Jun 88
Oct 86-Jan 87
Jun 86-Oct 86
Evaluation
Completion Date
Required Actual
Dec 88
Mar 89
Aug 88
Apr 87
Jan 87
Feb 89
Jul 89
Jan 89
Oct 87
Sep 87
Days
Late
70
100
128
172
246
It is important that award fee evaluations are completed in a
timely manner so that contractors know the areas where their
performance needs improvement. To illustrate, the evaluations for
one contractor were generally completed about five months late.
During this time, the contractor expended an average of 135,000
labor hours and earned nearly $142,000 in award fees. As a result,
the contractor provided a significant number of labor hours without
receiving formal feedback regarding his previous performance.
Since this contractor consistently provided satisfactory work, this
lateness minimized or nullified the whole purpose of the award fee
process which is to motivate the contractor toward exceptional
performance.
Another example was the ESAT Zone 1 contractor. The award fee
evaluation process for the first evaluation period was completed in
June 1988, which equates to 68 days late. Overall, ESAT Zone 1's
performance during the period was rated as marginal. A portion of
their efforts were rated unsatisfactory. Despite this performance
the contractor was not given formal notification of its poor
performance until five months after the evaluation period ended.
Agency personnel were aware of the problem but did not take
decisive action. For example, the contracting officer for one of
the TES contracts wrote,
m
The award fee process under this contract has been
chronically late. Because of a lack of input from some
Work Assignments Managers (WAMs) and some Regional
Project Officers (RPOs), we have not received the PEB
package for the seventh period. In fact, the PEB has not
even met. The seventh period evaluation is now
delinquent by more than three months. This record is
sorry. This record is intolerable.
33
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By their delinquency, the non-responsive WAMs and RPOs
are gutting the process, nullifying the benefits while
still incurring the administrative costs associated with
any award fee contract...
We are so concerned about the lateness of award fee
actions, the unfairness of that to the contractor (fee
delayed is interest monies lost), and the contractual
peril in which it places us all, that we have begun to
consider our options. One option is for the people in my
office to sign no work assignments or amendments for WAMs
whose award fee-input is significantly late.
Despite the Agency's concern regarding the late evaluations, the
remedy proposed above was not implemented.
There were numerous reasons why evaluations were habitually
late. Completing the evaluations was not a high priority. Agency
personnel such as the WAM's did not complete Performance Evaluation
Reports and provide these evaluations to the Project Officers in a
timely manner. In some cases, the evaluations were never
completed. The requirement to complete evaluations in a timely
manner was not included in the performance standards of EPA
employees as required by OSWER Directive 9242.5-02. Even the
performance standards of the TES work assignment managers did not
include a requirement to evaluate the contractors in a timely
manner, despite the fact that timely evaluations are required by
OSWER Directive 9871.0.
Once the Project Officers received the evaluations from the
WAM's, they did not consider completing the award fee process a
high priority. For example, one Project Officer spent a
significant amount of time working on a computer tracking system
but did not complete the required evaluations until 270 days after
the performance period. Even after the evaluations were completed,
the award fee process did not always progress expeditiously. The
PEB meetings were difficult to schedule and once scheduled
attendance was a problem.
Region III recently implemented corrective action for the TES
and ARCS contracts. In fiscal year 1990, work assignments will not
be issued unless evaluations are completed. While this is a start,
more action is necessary not only in Region III but in all Regions
to rectify the various other reasons why the award fee process was
not completed in a timely manner. In all regions there needs to be
a major change in outlook toward the award fee process, it cannot
be considered a burdensome paperwork process that will get done
after everything else is accomplished. A renewed enthusiasm must
be instilled. The WAMs, RPOs, Regional Division Directors,
Contracting Officers, Project Officers, PEB members and all
involved with the award fee process need to realize that the
process must be timely for it to be an effective management tool.
34
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RECOMMENDATIONS
We recommend that the Assistant Administrator for Solid Waste
and Emergency Response (OSWER):
1. Emphasize to all personnel involved with the award
fee evaluation process that completing evaluations in
a timely manner is essential.
2. Require that performance agreements, for all EPA
employees participating in the award fee
evaluation process, include the requirement to
complete award fee evaluations in a timely
manner.
3. Require that appropriate personnel not process
any work assignments for managers who are late in
completing their award fee evaluations.
OSWER Response for Recommendation Nmnfrer 1
We agree that it is important that award fee evaluations are
completed in a timely manner. However, OIG's statement that delays
nullify the purpose of the award fee process may be based on
incorrect information. Often, regular feedback is provided in
routine meetings, and copies of award fee evaluations are provided
immediately or even before the Performance Evaluation Board (PEB)
convenes.
We would also like to clarify several situations in which the
Agency's action was reported as not being timely. For example, the
TES IV PEB instructed the CO to conduct a verbal briefing with the
contractor within two weeks after the PEB meeting. PCMD prohibits
the project officer from conducting this meeting. We also proposed
and implemented the decentralization of the award fee process under
the TES V+ contracts. Also, we are revising the responsibilities
of the RPOs and WAMs under the TES V+ contracts to include more
emphasis on the timely completion of award fee evaluations.
To maximize the effectiveness of the award fee process, all
involved parties must provide detailed and timely input to the
evaluation panel. This type of information has been difficult to
obtain from regional program personnel and seldom was obtained from
the CO.
Although the program office agrees with the basic premise of
this recommendation we disagree with several of their statements.
We do not agree that routine meetings and copies of award fee
evaluations provided before the PEB convenes are adequate
35
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substitutes for a completed evaluation. Moreover, the award f®e
plans that we reviewed mandate that evaluations should be completed
within prescribed time frames. These time frames were not met.
Even the Agency's response indicates to us that the informal
meetings were not effective. For example, during your informal
meetings with other contractors you were unable to reveal final
scores.
We addressed this recommendation to OSWER because you are the
program office and have oversight responsibility. However, this is
an Agency problem. Our review indicated that regional, OARM and
OSWER personnel did not fulfill their responsibilities in a timely
manner. Thus we believe the program office should more closely
monitor this problem in the future and initiate corrective action
when needed.
We agree with this recommendation. This has already been
developed into the FY 1990 Zone Project Officer (ZPO) performance
standards. In addition, we will develop a work plan to ensure
implementation of the OSWER Directives requiring timely evaluation
in all CPAF contract Work Assignment Manager's Job Performance
Standards.
Your response is adequate and should alleviate the situation.
anse for Recommendation Number
While we concur with the objective of improving timeliness we
cannot agree with this specific recommendation and we propose an
alternative recommendation. To hold Congressionally mandated
program accomplishments hostage to the timeliness of evaluations
would give improper priority to program goals. We propose as an
alternative recommendation to establish a OSWER/OARM work group to
study contracting issues including evaluation timeliness. We
request that the DIG reword their recommendation to allow
management to implement solutions which have been developed by the
work group.
We do not agree that not processing the work assignments for
managers who are late in completing their award fee evaluations
would give improper priority to program goals. Not processing work
assignments for these managers should highlight the problem to
their supervisors. We would hope that once the supervisor was
aware of this problem they would rectify the situation before
program goals were jeopardized. However, we do agree, to evaluate
36
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the results of your proposed work group to determine if their
recommendations will be effective. Your response to our final
report should indicate when the work study group will complete
their review.
37
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Appendix A
Page 1 of 10
oNiTED STAGES ENVIRONMENTAL PROTECTION AGENCV
.VASHINGTON, D.C. 20460
MAR 1 2 1990
OF? -.E :-
J3MIN STRA' CM
MEMORANDUM MANACEVENT
SUBJECT: Response to Draft Audit of EPA Suparfund Award
Fee Process
FROM: £• Charles L/cJizzie
^ Assistant ftsUninistrator
TO: Kenneth A. Konz
Acting Assistant Inspector General for Audit
I appreciate the opportunity to respond to your draft audit
of the EPA Superfund Award Fee Process and have attached my
response to each recommendation pertinent to the Office of
Administration and Resources Management. Our response has also
been coordinated with the Office of Solid Waste and Emergency
Response.
I am very concerned about several issues highlighted in the
audit findings and recommendations. Chief among these is the
length of time being taken to evaluate contractor performance and
the finding that award fee is being paid for unsatisfactory
contractor performance.
Additionally, I am troubled by the auditors' apparent
misunderstanding of the basis for awarding award fee commensurate
with satisfactory performance. Contractors generally use their
base fee to offset costs which are legitimate business expenses
but which are otherwise unallowable under Government cost
accounting standards. In many ways, the base fee serves more .as
a break-even point than a margin of profit. To award a minimal
award fee for competent performance would not be equitable for
the effort our contractors had expended.
The audit report also implies that EPA paid its contractors
award fee for unsatisfactory performance. I agree that this
should not happen. However, my staff has attempted to identify
instances in the 21 contracts subject to this audit where such an
action occurred. With the exception of the ESAT contract, we do
not believe that any award fee documents generated by the
Performance Evaluation Boards evidence payment of award fee for
unsatisfactory contractor performance without adequate
justification.
38
Printed an flecyoed Pape
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Appendix A
Page 2 of 10
Clearly, I believe there are some misunderstandings and I
feel it is necessary for our staffs to meet and discuss these
areas of concern. I have asked Bill Topping of the Procurement
and Contracts Management Division to arrange a joint meeting with
Carl Jannetti and Jim Maas of your staff.
I appreciate your interest in focusing our attention on some
crucial issues concerning management of the award fee process and
I look forward to an expedient resolution of the concerns your
report raises.
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Appendix A
Page 3 of 10
RECOMMENDATION
Monitor future ESAT Zone I award fee evaluations, and
terminate the contract if future evaluations indicate any
widespread return to the deficient performance situations that
the Agency experienced in the first three performance periods.
RESPONSE
We generally agree with this recommendation and took a pro-
active position concerning the contractor's poor performance as
early as October 1988 after the second award fee meeting.
Specifically, on October 14, 1988, two meetings were held to
discuss appropriate actions concerning poor contractor perfor-
mance. One of the meetings was held with the Contractor to
inform them that EPA was seriously considering not exercising the
first option period but, instead, recompeting this requirement.
However, considering the positive impact of contractor initia-
tives, in response to the first award fee score, Agency officials
found it more advantageous to allow these performance improve-
ments to continue. As a precautionary measure to enable recom-
petition of this requirement should contractor performance once
again lapse, the decision was made to split the first option
period into a 4-month period and an 8-month period. By adopting
this alternative, we were able to monitor the results of the
contractor's corrective action plan. If performance had not
improved, we would have initiated a new competitive procurement
by the end of December 1988. However, performance did improve
and the decision was made to stay with the incumbent contractor.
Clearly, the award fee process highlighted these contractor
performance problems and aided our contract managers' prompt
initiation of corrective measures.
RECOMMENDATION
Restrict the payment of base fees in accordance with the FAR
if services performed under any Agency cost-plus-award-fee
contract do not conform with contract requirements.
RESPONSE
There is a very real vulnerability associated with adopting
this recommendation which we do not believe the auditors fully
understand. All the contracts referenced in this audit review
are cost-plus-award-fee level of effort contracts where the
contractors' obligations are to make diligent efforts toward
accomplishing assigned work. This does not mean that their
diligent efforts must always result in success. Level of effort
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Appendix A
Page 4 of 10
contracts are used in situations where there is considerable
uncertainty. Therefore, considering that the nature of work to
be performed is not definite and contains many unknowns, the
contractors' responsibilities are to put forth their best efforts
toward successful work accomplishment.
By universally denying payment of base fee for reperformed
work we are imprudently exposing the Agency to claims and litiga-
tion. Therefore, I strongly feel we need to consider such
withholdings on a selective basis after examination of the facts
and circumstances surrounding each instance of poor performance.
Where we identify situations which evidence a lack of diligent
contractor efforts, we need to pursue this administrative sanc-
tion and deny payment of base fee on the reperfonned work.
RECOMMENDATION
Restructure all Agency cost-plus-award-fee contracts to
preclude payment of any award fees for less than satisfactory
work, and allow only minimal amounts for work that is merely
satisfactory.
RESPONSE
We do not agree that all agency cost-plus-award-fee con-
tracts require restructuring. To the contrary, the present
structure of our award fee plans provides effective procedures
for evaluating, communicating and rewarding the quality of
contractor performance. We also consider the findings and
recommendations of our Performance Evaluation Boards (PEB),
consisting of senior Agency managers possessing an array of
technical and business management expertise, to be reasonable and
equitable findings which appropriately evaluate deficient as well
as meritorious performance.
The few instances referenced where award fee was paid for
less than satisfactory performance appear to relate to situations
where aspects of contractor performance were in fact remiss, but
the situation was not one where all aspects of performance were
deficient. I reference the example cited in my transmittal
letter where the zone program management office received an
overall evaluation of satisfactory for performance period 6.
This evaluation rating was based on an assessment of five
critical areas. With the exception of only one area, which
received a less than satisfactory rating, the other four areas
were evaluated as satisfactory or better. Accordingly, the PEB
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Appendix A
Page 5 of 10
and the Fee Determination Official (FDO) determined it
appropriate to award some portion of the available award fee
pool. This was an informed business judgment on their part based
upon their independent assessment of contractor performance.
I generally agree with your position to preclude payment of
award fee when overall performance for an evaluation category is
determined unsatisfactory. We took such an action under the FIT
Zone II contract for performance period 5 when Agency officials
determined that the zone program management office performed in
an unsatisfactory manner and awarded no award fee. In this
regard, I have tasked my staff to work on coordinating and
implementing such a proposed policy. Their first milestone,
which is coordination with affected agency organizations is April
30, 1990.
We believe that a reasonable portion of available award fee
should be awarded for satisfactory contractor performance. To
award only minimal amounts could prove very detrimental to the
already limited base of competitive Superfund contractors. Since
virtually all companies use their base fee to defray unallowable
costs such as interest expense, advertising and marketing costs
and reorganization costs, all of which are legitimate business
expenses, the base fee serves more as a breakeven point than a
margin of profit.
RECOMMENDATION
Determine and recoup the actual costs and base fees
inappropriately charged against the FIT Zone II contract for:
The Management Information System.
FIT staff excess to authorized Region VI levels.
E&E corporate staff.
RESPONSE
- The Management Information System
We have looked into this matter in an attempt to determine
the extent of costs that have been charged to the Government for
development of the Management Information System.
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Appendix A
Page 6 of 10
As early as October 1988, we attempted to obtain information
concerning the total hours and costs by P-levels for Program
Management to update standard operating procedures and develop
and operate the management information system. At that time E&E
stated that its data base would not produce this information.
The time reports did not specify the particular function being
performed by the managers and only partially addressed the
generation of the management information system. However, we
have continued our efforts in this area with an emphasis toward
detecting any unreasonableness of invoiced costs.
Our findings indicate that the contractor has incurred costs
necessary for tailoring its originally proposed MIS to accom-
modate enhanced reporting requirements imposed by EPA. These
enhancements consist of ad hoc requests by EPA; modification of
monthly financial management reports; improved operational
routines to identify and report a 1-1 non-dedicated support;
integration between the Work Site Tracking System and the
Comprehensive Environmental Response, Compensation and Liability
Information System; modifications to the Spill/Site Identifier
Invoice System, and continued enhancement of the Regional
Operations System. We are exploring this finding with the
Program Office and will make a determination once all the facts
are known; however, it appears the costs incurred are legitimate
expenses.
- FIT staff excess to authorized Region VI levels
Overstaffing should not be confused with an over ceiling
situation. Our position has been that overstaffing is
permissible and within the zone program management office purview
when a short-fall in level of effort hours has occurred from
attrition or an inability to rapidly fill positions following the
exercise of options or approved staff increases. Additionally,
overstaffing is necessary to respond to peak workload fluctua-
tions.
This contract covers six regions and requires the contractor
to manage the overall resources of the zone. This may
occasionally call for temporary overstaffing or understaffing,
which is considered reasonable.
- E&E Corporate staff
We believe this recommendation may have merit. On December
7, 1989, (see attached letter) we asked E&E to furnish informa-
tion concerning use of corporate staff for dedicated FIT
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Appendix A
Page 7 of 10
activities. Any non-dedicated charges to dedicated FIT teams by
former FIT office managers will be researched with the intention
of recovering related costs should the contractor's action be
determined unreasonable.
RECOMMENDATION
Determine and recoup any costs and base fees charged against
the TAT contract for Weston corporate staff in Region VII.
RESPONSE
We have researched and discussed this issue with the
Emergency Response Division and consider the charges appropriate.
Occasionally, office managers must be involved in specific issues
and activities under the contract. In this instance, the
involvement was necessary and reasonable.
RECOMMENDATION
Require the Procurement and Contracts Management Division to
establish consistent procedures for cost-plus-award-fee contracts
to provide award fees in a uniform manner. To accomplish this,
each contract should have the same number of rating categories
and the percentage of the award fee available for each category
should be consistent.
RESPONSE
We have reviewed the award fee plans for each class of
multiple contracts which provide similar services and found that
the award fee plans are virtually identical. For example, each
award fee plan for each ARCS contract is the same, the award fee
plans for both FIT contracts are the same, the award fee plans
for the TAT contracts are the same, the award fee plans for the
TES contracts are the same and the award fee plans for the ESAT
contracts are the same. Accordingly, since each class of
contracts has its own uniquely tailored award fee plan, we
believe that each class of contracts is, in fact, being evaluated
in a uniform manner.
We do not agree with the proposal that all Superfund award
fee contracts should contain identical award fee plans. This is
because each class of contracts supports a different program
within Superfund (e.g., Remedial, Removal, Enforcement). These
programs have different requirements which necessitate award fee
plans independently tailored to the evaluation of those require-
ments. To recommend that the same performance categories per-
tinent to the enforcement program be used as a measure of
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Appendix A
Page 8 of 10
performance under the removal program is inappropriate because of
the dissimilarities among these principle programs. We also
realize that our Performance Evaluation Boards and Fee Determina-
tion Officials require the latitude to modify their award fee
plans in order to emphasize new and changing priorities.
RECOMMENDATION
Discontinue CPAF contracts that do not provide enough fees
to motivate the contractor.
RESPONSE
We do not believe that fee is the only element of a cost-
plus-award-fee contract which motivates contractor performance.
Another very important motivator is professional recognition that
is achieved for exceptional performance or professional
embarrassment that is received for substandard performance.
Among those contracts which the OIG believes do not contain
sufficient award fees to motivate contractor performance, we have
found that the award fee amounts were proposed by the successful
contractors. Our interpretation of this circumstance is that
different companies have different requirements for margins of
profit. Clearly, no firm would voluntarily propose or negotiate
a fee structure which they find unacceptable. Accordingly, we
conclude that these contracts do motivate contractor performance.
All of our award fee contracts are multi-million dollar
contracts supporting multi-faceted programs within Superfund.
Each of these contracts requires a complex infrastructure of
Government employees monitoring contractor efforts and
accomplishments at all levels of required performance. We have
found that the award fee process mandates an ever vigilant
contract management initiative which is not otherwise achievable
under non-incentive contract types. Therefore, as part of the
Agency's contract management improvement program, we will
continue to employ cost-plus-award-fee contracts in support of
the Superfund program's very large and complex contractual
requirements.
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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
Appendix A
Page 9 of 10
December 7, 1989
Mr. Henry D. Van Cleave
Zone II Program Manager
Ecology and Environment, Inc.
1700 N. Moore Street
Arlington, VA 22209
Dear Mr. Van Cleave:
Rs: FIT Zone II Contract
68-01-7347
An analysis of actual expenses invoiced as of September 1989,
for contract 68-01-7347, compared to the contract amount for the
first three years disclosed overruns in the areas of direct labor,
fringe, non-dedicated overhead, general and administrative. It was
also noted that you are currently overrunning costs for the
subcontractor in Region V. The overruns in other direct costs will
not be addressed in this letter, sine* there is a proposal to
reassign dollars from travel to other direct costs.
Previous explanations for these overruns have included:
\
1. Clerical support currently running at 14% of LOB hours
compared to 8% in the best and final offer (BAFO).
2. Cost growth, currently at 9%, created by early staffing
of high level grades and larger increases in salaries in some
regions than anticipated in the BAFO.
3. Delays by the Government in exercising option increments.
4. Delays by the Government in distributing the LOB to the
regional teams. Zn one instance, you stated that this had caused
as much as 55,000 hours delivered in one year, when they had been
budgeted in the previous year at a lower rate.
It has been determined that as of September 1989, $1,031,046
has been invoiced for non-dedicated overhead and only $361,489 is
in the contract for this element as of the end of the third year.
It is further noted that non-dedicated overhead is shown only for
the Program Management Non-dedicated category, yet non-dedicated
overhead has been invoiced for all of the Regional FIT teams.
Explain why non-dedicated overhead has been charged for the PIT
teams.
mm IBM
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Appendix A
Page 10 of 10
Mr. Van Cleave, E&E Page 2
In the early months of the contract you used non-dedicated
Ecology and Environment, Inc.'staff to fill dedicated FIT team
slots. Did you invoice the Government for these employees at the
Professional/Technical rates bid for the dedicated staff for the
region where they were assigned, or did you invoice at the
"corporate" rate? Did you invoice the Government for non-dedicated
overhead for these individuals, or did you invoice the dedicated
overhead rate?
Your BAFO did not contain anything that would indicate costs
would be incurred under this contract for Equipment Use and
Laboratory Analyses. Explain what is being invoiced under these
categories and why.
Our analysis also indicates that as of September 1989, you
have billed costs and fees for subcontractor C C Johnson in the
amount of $728,005 which is $44,719 excess of the budgeted amount
for the first three years. Please provide an explanation for this
cost overrun, the status of the LQE hours associated with the
overrun, and what steps you are taking to eliminate the overrun.
Please furnish me with an updated Chart of Accounts, and a
definition or listing of all items for account number 70 which you
maintain internally for items which are invoiced as Travel Costs.
I would appreciate it if you would submit a response by
January 8, 1990. Zf necessary, a meeting will be scheduled after
receipt of your response to discuss the issues. Zf you have any
questions, please contact James Morant on 382-3170, or Ann Hamann
on 382-6289.
Sincerely,
Ann L. Hamann
Contracting Officer
Remedial Action Branch
cc: P. HaitMn
J. Jovett
0. Cook
J. Morant
B. Dunn
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r, Appendix B
* UNITED STATES ENVIRONMENTAL PROTECTION AGENCY Page 1 of 21
? WASHINGTON. D.C. 20460
SOLID WAS'E AND €MfsSiSCV
MAR 2 0 J99Q
MEMORANDUM
SUBJECT: OIG Draft Report, "Audit of Superfund Cost-Plus-Award-
Fee Contracts (Audit Number .E1SFF9-03-0144)
FROM: Don R. Clay
Assistant Administrator
TO: Kenneth A. Konz
Acting Assistant Inspector General
for Audit (A-109)
The purpose of this memorandum is to transmit our response
to the subject draft audit. We have restated the finding or
recommendation and then included our response. Thank you for the
-F
opportunity to provide our comments to this document. If you
have any questions, please contact Jose Acevedo, OSWER Audit
Follow-up Coordinator, at 382-4510.
Attachment
cc: Mary Gade
Phyllis Anderson
Henry Longest
Bruce Diamond
Lloyd Guerci
Thad Jusrcza*
Sonya Stelmack
Jose Acevedo
Jim Haas
Cheryl Thomas (PM-208) (w/attachment)
Priscilla Thate (PM-226F) "
48
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Appendix B
Page 2 of 21
RESPONSE BY THE OFFICE OF SOLID WASTE AND EMERGENCY RESPONSE
TO THE OFFICE OF INSPECTOR GENERAL DRAFT AUDIT
ON SUFERFUND COST-PL/OS-AWARD FEE CONTRACTS
Audit Number: E1SFF9-03-0144-DRAFT
Publication Date: 01/25/90
This response by the Of fie* of Solid Waste and Emergency
Response (OSWER) is a compilation of comments from five divisions
within the office of Emergency and Remedial Response (OERR) and
the Office of Waste Programs Enforcement (OWPE). Although the
subject of award fee contracts affects many of our offices and
contracts in different ways, we have attempted to provide a
coordinated response.
OIG FINDING 1 SUMMARY: AWARD FEES OFTEN FAILED TO ACHIEVE
EXCELLENCE (page 3)
The Agency rewarded performance that was less than satisfac-
tory. This did hot conflict with the provisions of the con-
tracts. However, OIG believes the payment of award fees for
less than satisfactory work will not accomplish the intent of the
award fee concept contained in the Federal Acquisition Regula-
tions (FAR), which is to motivate the contractor to excellence.
For this reason, the Agency should not pay any award fees for
less than satisfactory work and only minimal amounts for work
that is merely satisfactory.
Initially, OIG examined the award fee process for 21 con-
tracts, all of which allowed payment of award fees for virtually
any type of performance. Extensive award fee evaluations did not
exist for 13 (8 TES and 5 ARCS) of these 21 contracts because
they had been awarded during the year prior to the audit. 016*5
review of the evaluations under 3 of the remaining 8 contracts
established that EPA rewarded contractors for work that was
deemed as merely satisfactory and, in some instances, less than
satisfactory. For example, 85 percent of the work of one con-
tractor was rated as no better than satisfactory, while 60
percent of the work of a second contractor was judged as marginal
or deficient, yet both received award fees. Moveover, a third
contractor collected award fees despite the fact that the firm
had charged the Government unreasonable costs. OIG believes EPA
was overgenerous in this regard and, more to the point, should
have recouped these overpayments.
In addition to the award fees, all 21 contracts contained
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provisions to give the contractor* base f«Cs. Ev«n when the
contractor* efforts were seriously deficient, the Agency paid
these fees. 010 interprets the FAR to preclude the payment of
any fee - base or award - for performance that does not conform
with the requirements of the contracts.
OSWER RESPONSE
We cannot concur with the finding because we disagree with:
(1) OlG's interpretation of the FAR and the award fee concept;
and (2) the conclusion that 016 makes, based on the premise that
satisfactory performance is less than the level required by
award fee contracts.
Our interpretation of the regulations is that award fee
contracts should provide an incentive to the contractor to strive
for excellence, while recognzing that they may not necessarily
achieve it. This is similar to employee performance standards.
While not all employees will achieve an outstanding rating,
hopefully, the standards will promote the best effort by
employees. We have structured ou-r response to this first finding
under the topics of base fees, award fees, satisfactory
performance, and failure to achieve outstanding performance.
*
Race Feea
A base fee is not "awarded" but is a fixed fee paid in
monthly installments as a part of routine progress payment. The
base fee is a guaranteed, negotiated amount. We pay the base fee
with voucher approval, and there is no Agency discretion regard-
ing base fee as part of the award fee process. Only if costs are
disallowed for any reason on a voucher, or are adjusted later,
would the base fee be disallowed or similarly adjusted. Since
this audit addressed the award fee process, we recommend that the
016 separately evaluate the base fee.
Award Pee
The purpose of the award fee process is to solicit outstand-
ing performance from our contractors, but it is not intended to
award fee for only outstanding performance. As in any human
endeavor many events comprise overall performance. Some discrete
tasks, or events may be considered less than satisfactory, but
must be viewed with other tasks as a composite over a certain
period. This composite should be judged as a whole, and good or
outstanding work can offset poor work or mistakes. The Agency
has worked hard to document strengths and weaknesses in our
contractors1 performance. This begins at the Regional level
where the work is performed and monitored. Detailed reports are
sent to performance coordinators in Headquarters for review,
clarification of issues, and resolution of discrepancies. Then
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formal presentations arc made to the Performance Evaluation
Boards (PEBs), comprised of senior Agency officials with
knowledge and responsibility for program operations. When all
information is carefully evaluated and deliberated, the PEB
through consultation determines its recommended fee. This
recommendation is forwarded to the award fee determination
official for review and approval. This multiple step process of
checks and balances produces a wealth of documentation. It
allows the PEB to evaluate the identified strengths and weak-
nesses in order to. arrive at an overall amount of fee considered
to be fair and reasonable, it also sends a clear message to the
contractor concerning the Agency's appraisal of performance.
Satisfactory Performance
The award fee process, to be most effective, should contain a
range of incentives and disincentives. When a contractor per*
forms in a manner which is less than satisfactory, the award fee
is reduced. The PEB evaluates how much penalty to impose given
other work performed. The evaluation range used by most PEBs
permits a flexibility that is important. If the work assigned
was generally routine (with minimal technical difficulty) and was
performed on time and within budget, an overall rating of satis-
factory could be given. There are, however, many permutations.
For example, some tasks could be totally unacceptable, while
other tasks, technically complex or unique, could be well above
expectation. The overall rating could again be satisfactory.
There have been other occasions, where PEBs have considered one
event so important or considered a service performed poorly for
more than one period with no improvement that they have awarded
zero award fee to send a clear signal to the contractor. The
Agency always considers the range of relevant facts and issues
before determining fee. Fees have never been awarded for defici-
ent performance. Deficient performance may have been identified
and evaluated, but award fee was always based on a composite of
performance, weighing many factors.
We recommend that the 0X6 delete the use of "merely11 satis-
factory from their document and reconsider their assessment using
this approach. We believe that satisfactory performance means
that all contract specifications were met and that performance
was considered acceptable. We do not believe there is any nega-
tive connotation associated with being satisfactory. Similarly,
we recommend replacing the word "reward" with "awarded", since
"awarded* is more consistent with the concept of the award fee
process.
Failure to Achieve Outstanding Performance
A given contractor's failure to achieve excellent performance
is not necessarily due to an ineffective award fee process, in
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fact, the award fee process can be affective, even when outstand-
ing performance is not achieved. For instance, contractors are
expected to submit corrective action plans based upon criticises
identified in the PEB reports. These plans are maintained by the
project officers and are used in subsequent evaluation periods.
The award fee process nay not guarantee outstanding performance,
but it has motivated contractors to better performance. It has
formalized a process that documents contractor strengths and
weaknesses while involving upper management in the oversight of
contractor performance. We believe that the award fee process
does provide a system to encourage or solicit outstanding perfor-
mance. We request that the OIG revise its finding title: "Award
Fees often Failed to Achieve Excellence" to reflect the value of
the process, rather than the results achieved by EPA's contrac-
tors.
In conclusion, we believe that OIG'a review of the evaluation
of three of the 21 Cost-Plus-Award-Fee (CPAF) contracts is not
adequate to substantiate its position on the Agency's overall use
of the Award Fee Process. The Agency has developed and diligent-
ly followed award fee plans for each of its CPAF-type contracts.
This effort has involved much hard work at all levels within each
program, and has been a valuable contract management tool. He
encourage the OIG to audit the entire process, including attend-
ing PEB meetings, in order to develop a more complete understand-
ing of this process.
OIG FIKDZMG 1A SUMMARY: AWARD FEES FOR SATISFACTORY PERFORMANCE
(page 10)
Agency evaluations of Camp Dresser & McKee, Inc., the TES
III contractor, illustrate that award fees failed to motivate
excellence. None of the evaluations over a two-year period were
"outstanding". EPA rated approximately 15 percent as "exceeding
expectations;" however, 85 percent (over a half a million hours)
were considered no better than "satisfactory". In return, the
Agency reimbursed all costs and paid base fees of $914,346 and
award fees of $678,810. In effect, the contractor obtained
almost 60 percent of the available award fees for merely satis-
factory performance. At least this contractor's performance was
satisfactory; the performance of one ESAT contractor was not even
satisfactory, and yet the Agency paid award fees.
OSWE* RESPONSE
We disagree with the conclusions drawn from this finding and
with the suggestion that satisfactory performance is "merely
satisfactory". We believe a category with an overall rating of
satisfactory can contain identifiable superior work that should
be recognized. We believe overall conditions (e.g., change
orders) should not be used to penalize a contractor. We disagree
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with the audit statement that the award fees presented were un-
reasonable. Finally, we disagree that graduated and targeted
award fees do not motivate contractors toward excellence.
Award Fee Plans were included in TES III contracts, as well
as other Super fund contracts. The plans are strictly adhered to
when evaluating a contractor's performance. The plans allow for
a specified amount of award fee based on the contractor's perfor-
mance. The amount is based on the percentage of available award
fee as specified in the contract at each performance level. A
contractor could receive an overall satisfactory score in the
high end of that range (e.g., 3.7) but only receive 45 percent of
the available award fee. (A range 41 to 59 percent is considered
satisfactory.) As such, a contractor can be motivated by receiv-
ing an award fee for that portion of their work within a category
that is satisfactory, exceeds expectations, or outstanding, even
when an overall rating of satisfactory is given for that cate-
gory.
Zn the above-referenced TES III contract, the contractor was
awarded a fee specified in the contract in an amount consistent
with the Award Fee Plan. The PEB evaluation routinely reports
findings or recommendations that require improvement of a con-
tractor's performance (e.g., timely submittal of reports and
deliverable* to Work Assignment Managers (WAKs) that require
improvement) that require immediate attention by the contractor.
The WAMs* changing priorities also affect the performance of the
contractor in providing deliverables. Changed priorities and
schedule adjustments are inherent due to the dynamics of the
Superfund program. The PEB can, and should, recognize these
overall conditions, as well as target outstanding performance
within a category. A PEB may also find it necessary, as they
recently did in the Zone IV TES 11 and 12 contracts, to withhold
the contractor's award fee for satisfactory performance. A joint
TES work group of Headquarters and Regional Project Officers will
address this issue of motivating contractors to excellence.
In regard to the ESAT contract, the award fee was, again,
consistent with the Award Fee Plan of the ESAT contracts. The
contractor encountered significant problems in the start-up of
the contract, as reflected in the low performance ratings ini-
tially given to the contractor. Zn subsequent evaluations, the
PEB recognized that the contractor made significant improvements
to the earlier performance. The improvements were made as a
direct result of the contractor's response to PEB recommendations
and expectations, as expressed in Performance Evaluation Summary
Reports.
Zn summary, we firmly believe that allowing the PEB to award
graduated fees and to target these fees for specific tasks and
teams within a category, even when the overall rating for the
category is satisfactory, provides an effective management tool
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to activate contractor* towards excellence.
OIG FINDERS IB SUMMARY: AWARD FEES FOR DEFICIENT PERFORMANCE
(page 11)
The Agency paid an estimated $1.9 Billion of cost, base
fees, and award fees to the Zone I ESAT contractor, Roy F.
Weston, Incorporated, for work rated as less than satisfactory.
EPA rated none of the work performed by the Zone I ESAT contrac-
tor in Regions II, in, and V over the first 18 months of the
contract as outstanding and considered «0 percent of it marginal
or unsatisfactory. This situation ensued from Weston«s apparent
unpreparedness — all of the regional ESAT team managers, and
many of the proposed team members left upon contract award. As a
result, Heeton did not fulfill the contract requirement, and EPA
did not receive the services it requested. Rather than terminate
however, the Agency extended the contract an additional year, and
continued to pay base and award fees.
The Veston proposal assured EPA that the ESAT teams would be
fully staffed by professionals capable of exceptional performance
of virtually every facet of the anticipated tasks. Unfortunate-
ly, EPA evaluations indicated performance by the zone manager,
and three of the four regional ESAT teams over the first year and
a half of the contract was far less than promised.
OSWER RESPONSE
He agree that none of the work performed was outstanding and
that Weston was having difficulty performing the contract.
However, it should be noted that some of Weston's problems may
have been caused by the Regions, as documented in the PEB
reports. Second, although work was initially deficient, the
Agency's use of the Award Fee Process enabled the PEB to apply
enough pressure that performance of the contractor has
significantly improved. Third, although OIG reviewed Award Fee
information for the first three evaluation periods, it appears
that only final scores were used by the OIG to draw conclusions
for the report. However, to a careful reader of the summary
evaluation reports, it would have been apparent that the PEB
noted, "significant improvements in the performance of the
contractor during the third evaluation period". In addition, the
summary report goes on to state that, "The Board expected sub-
stantial improvement over the last evaluation period and tried to
send a message to Weston Corporate to that effect. It is clear
that the message was received and immediate action taken."
It is also clear from the report that the ESAT Zone I PEB
is very conservative in their recommendations for award fee.
This was most aptly noted during the second performance period,
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when the Fee Determination Official felt that the Board did not
give enough credit for some of the positive steps the contractor
was taking to improve performance. The Fee Determination Offi-
cial increased the recommended score. Since the initial perfor-
mance evaluation period, the contractor has taken heed of the
Board's recommendations and concerns. The Board will not quickly
increase the rating without seeing that remedies have been
appropriate and successful.
It should be emphasized that the PEBs do not recommend award
fee for unsatisfactory work. When a board deliberates a category
that is rated overall as unsatisfactory, there still may be
portions of the work in that category that warrant recognition.
Any award fee reflects the meritorious portion of the work and
not the unsatisfactory portion of the work. We do believe that
the PEB should document and support these decisions.
OIG FINDING 1C SUMMARY: AWARD FEES ON UNREASONABLE CHARGES (page
15)
Over a two-year period EPA paid another contractor, Ecology
and Environment, Inc. (E&E), $46.5 million for Field Investiga-
tion Teaa (FIT) services in Regions V through X. Included in
this amount was $4.1 million for E&E's zone Program Management
Office (ZPMO), and almost $2 million in award fees. OIG reviewed
the evaluations which generated the award fees and found the
contractor had charged EPA for:
o Development of a Management Information System (MIS)
that should have been in operation at the time the
contract was awarded;
o A FIT office that was 20 percent overstaffed; and
o Labor and travel expenses of corporate officials who
were explicitly prohibited from working on the FIT
contract.
OSWER RESPONSE
We are confused by the language used and the point being
made regarding award fees on unreasonable charges. We especially
had concerns with the sentence, "[OIG staff] reviewed the
evaluations which generated the award fee and found the
contractor had charged EPA for ..., * is either misleading or
confusing, it implies that the PEB was either ignorant of these
facts or did not give the information the same weight that the
OIG believes is appropriate.
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If the purpose of the finding is to convey that the OIC has
uncovered numerous errors that have gone uncorrected, we would
have to disagree. The DIG has reiterated, in this section of the
audit, the points Bade by the Project Officers in the evaluation
referenced above. For example, in stating that OIG "found* that
a Field Investigation Team (FIT) office was 20 percent over-
staffed, the OIG implies that they discovered this fact. In
point of fact, the Project Officers and Contracting Officer
assigned to the contract brought this and the other points
presented in the finding to light and initiated corrective
action. These issues were properly brought to the attention of
the PEB and Agency management and were considered when the fee
was awarded.
If the purpose of the finding is to examine the appropriate
amounts of award fees for a contractor's performance, the sen-
tence presented above would be more accurate if it read, "[DIG
staff] read the evaluations that generated the award fees and the
evaluations documented that the contractor had charged EPA for
... • The OIG has taken the same information presented to the
Award Fee Board members and concluded that the award of fee was
inappropriate. The Board has considered all this information and
has acted upon it. Although the OIG may disagree with PEB
recommendations, we believe the Board judgment is reasonable,
fully informed, .and documented in the contract file.
Second, although we do agree with some of the OIG's comments
on alleged mischarges to contracts, we believe that the OIG has
misstated the facts in claiming that the Agency paid
inappropriate charges, base fees, and award fees in relation to
the FIT offices. For example, we question the validity of the
data related to fees paid for training, including their source
and whether all of the monies ($117,000) were actually used
solely for training. The Agency must have prior approval before
making any payments. Also, we question why the OIG doubted the
accuracy of, " ... all financial tracking systems and reports,*1
after finding that a Management Information System was not
properly developed.
Third, we have concerns over the discussion regarding the
performance, of the Zone Program Management Office (ZPMO). The
statement on page 18 of the report (not cited in the summary
finding) stated, "... after the fifth performance period - 20
months into the contract - the Agency actually denied any award
fees for the ZPMO management," is misleading. We recommend that
it be rewritten as follows, "For the fifth performance period -
months 16 through 20 under the contract - the Agency denied all
fees for ZPMO management." As it is currently written, the
sentence implies that no fees were awarded to the ZPMO until
after the fifth performance period. Fees were withheld repeated-
ly during previous periods for problems connected with the ZPMO's
performance. For example, in period five, the Board withheld all
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ZPMO award fees because the deficiencies had not been corrected.
Fourth, we disagree with the OIG suggestion that reducing
fees paid .to the contractor (implying base fee in addition to
reduced award fee) or terminating the contract for default would
have been an appropriate action In response to the deficiencies
noted with the performance of the FIT contractor. While no
services were performed for a second time (as could have been re-
quested, according to the 016), the OIG has provided no indica-
tion that it considered the contractors' reaction (corrective
action) to the award of lower fees. Following the award of zero
fee for the FIT Zone II ZPMO, the contractor dismissed the
Program Manager and reorganized the ZPMO, in consultation with
the Agency. Subsequent evaluations, including period six,
documented a level of improved performance, which demonstrates
that in this instance, low award of fee did motivate the contrac-
tor to improve performance. The mismanagement of contractor
staff in Region VI was also quickly corrected by contractor and
Agency personnel.
Fifth, the issue of whether EfcE billed the Agency for
unallowable corporate expenses is misleading. The former office
manager who charged time to the FIT contract still provided
useful services to the Agency, which is neither explained ex-
plicitly nor implicitly in the audit. Furthermore, it is an
allowable charge under the contract. It was raised as an issue
by the Project Officer, because of a concern for an appearance of
a conflict of interest.
Sixth, regarding the finding that the FIT office was 20
percent overstaffed, this is allowable, as long as the overall
contract was not in an overrun status. The FIT Office was
staffed at a level established at the time of the contract award.
It became apparent that it was underutilized rather than
overstaffed. The Region VI FIT size was reduced in 1988 to
reflect actual workload. Cost of any non-dedicated personnel
under the FIT contract, including corporate officials, has been
forbidden, except when approved in writing by the Project Officer
on a case-by-case basis. In addition, the Procurement and
Contracts Management Division, at OERR's request, is conducting a
"cost incurred audit" of the EiE FIT contract so that any and all
inappropriate charges can be identified and appropriate cor-
rective action taken.
Seventh, while the OIG has accurately cited performance
problems as reported to the PEB, these citations were dispropor-
tionate to overall performance. Overall, the FIT contractor
received a "highly satisfactory" rating based on work performed.
The contractor's final evaluation was not based solely on the in-
cidence of poor performance. A contractor's overall rating
includes consideration of his overall performance (e.g., if ten
events occur, nine of which are outstanding and one of which is
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less than satisfactory, the contractor will not receive the
rating of lew than satisfactory). The PEB's final performance
rating of the contractor, therefore, reflects total perfornance
across several performance categories. For example, the OIG
noted that in performance period 3, the PEB«s exceeds expecta-
tions evaluation of E&E's ZPMO was "generous" considering FIT
inactivity and overstaffing. In fact, the contractor received
the lowest rating (i.e., unsatisfactory) in this particular
performance category. Performance in the other categories of
Health and Safety and Training were sufficiently high so that the
total performance was rated as exceeds expectations.
We do not understand how the OIG can state that, "...
several FIT offices had charged the contract for periods of
inactivity," when these offices are comprised of dedicated
teams. We are also unclear whether the "Project Officer" was the
Regional Project Officer or the Remedial Project Officer.
Finally, we do not understand the relevance or purpose of the
statement that the Agency Project and Contracting Officers left
the FIT program (page 20, last paragraph). Both the Project
Officer and the Deputy Project Officer are in the Office of
Emergency and Remedial Response and are, therefore, still avail-
able to the FIT.
OIG RECOMMENDATION 1 SUMMARY (page 21):
We recommend the Assistant Administrator for Administration
and Resources Management monitor future ESAT Zone I award fee
evaluations and terminate the contract, if future evaluations
indicate any widespread return to the deficient performance
situations that the Agency experienced in the first three perfor-
mance periods.
OSWER RESPONSE
Consistent with the program offices' procedures already in
effect at the time of the OZG audit, should overall performance
by the BSAT Zone I contractor become unsatisfactory, the PEB will
evaluate all facts and alternatives and, if necessary, .the Agency
will terminate the contract or take other action, as appropriate*
Evaluations held subsequent to the three that the OIG reviewed
reveal that the ESAT Zone I award fee evaluations have been
carefully monitored. In fact, they have commanded considerable
attention by Division management, the Contracts office, and the
contractor's corporate office.
OIG RECOMMENDATION 2 SUMMARY (page 21) J
We recommend the Assistant Administrator for Administration
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and Resources Management restrict the payment of base fees in
accordance with the FAR if services performed under any Agency
cost-plus-award-fee contract fail to conform with contract
requirements.
OSWER RESPONSE
we will conform to the Federal Acquisition Regulations
(FAR), as applicable to our contracts, as we do now and always
have done in the past. However, we believe the OIG's statement
that, "... when a contractor's efforts are satisfactory, the
amount of award feet currently provided should be reduced," is
not correct. According to the FAR-based Agency procedure in the
Contracts Management Manual, satisfactory performance can be
rewarded at the same rate as an equivalent fixed-fee contract.
Nowhere does it say that the Agency should reduce fees for
satisfactory performance. We cannot agree with the OIG's inter-
pretation of this portion of the FAR.
FAR Subpart 52.246*5 cited in the position paper requires
the contractor, when services do not conform with contract
requirements, to perform the services again in conformance with
contract requirements for no additional fee. This clause is more
applicable to the completion form cost reimbursement contracts
which contain a performance specification.
In a term-form (e.g., level-of-effort), cost-reimbursement
contract, the contractor's obligation is to provide best efforts
in delivering hour* as tasked within the scope of work. Only
when the hours charged under this form of contract are in pursuit
of work that is beyond the contract's scope of work, can the
hours be classified as not conforming to the contract require-
ments, since the hours delivered were in conformance with the
scope of work, the costs associated with those hours are eligible
for base fee.
This Subpart prescribes no fee when the contractor fails to
provide the service and is directed to redo the task. This is
not the cam* with this contract. The contractor provided his
best efforts without high quality performance results.
OZG RECOMMENDATION 3 SUMMARY (page 21):
We recommend the Assistant Administrator for Administration
and Resources Management restructure all Agency cost-plus-award-
fee contracts to preclude payment of any award fees for less than
satisfactory work and allow only minimal amounts for work that is
merely satisfactory.
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OSWER RESPONSE
w« have a fundamental disagreement with the way the OIG is
interpreting the performance terns "satisfactory" and "less than
satisfactory." The term "satisfactory" means that the performan-
ce of the contractor was as expected and was acceptable. In our
opinion, restricting award fees for satisfactory performance to
minimal amounts would often be inappropriate*
If this redefinition took place, performance ratings might
become more inflated, rather than more reasonable. The amount of
fee awarded is based on the nature of the work and the level of
performance. The PEBs need to have the flexibility to send a
clear message to their contractors. The Board's decisions are
based on a thorough working knowledge of all aspects of perfor-
mance.
The PEB's approach is to set the award fee scale so that
base plus award fee for satisfactory performance approximately
equals the fee that could reasonably be expected under a fixed*
fee contract. This accounts for the possibility of some award
fees being given for less than satisfactory work, although the
amount would still be less than the contractor would get under a
fixed-fee contract. However, the majority of award fee is
available for greater than satisfactory performance. This
creates the incentive to strive for outstanding performance. The
program considers this the appropriate approach and does not
concur with the OXG's recommendation.
The Agency has formed a task force to evaluate the scale
used for award fee in all remedial contracts. This task force is
assessing the concept of deleting a performance category for
anything less than satisfactory. This could result in the first
category being satisfactory, with a range from zero to 30 or 50
points*
OZG RECOMMENDATION 4 SUMMARY (page 22):
We recommend the Assistant Administrator for Administration
and Resources Management determine and recoup the actual costs
and base fees inappropriately charged against the FZT Zone II
contract for:
o The Management Information System.
o FZT staff excess to authorized Region VII level..
o E&E corporate staff.
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OSWER RESPONSE
0ARM'S Procurement Contracts Management Division (PCHD), at
OERR's request, is conducting a "cost incurred audit" of the E6£
Field Investigation Teas (FIT) contract so that any and all
inappropriate charges can be identified and appropriate correc-
tive action taken. The program fully supports any effort by PCHD
to recoup actual costs and fees for all inappropriate charges.
We cannot accept at this tine that these charges were inappro-
priate or unallowable.
OZG RECOMMENDATION 5 SUMMARY (page 22):
We recommend the Assistant Administrator for Administration
and Resources Management determine and recoup any costs and base
fees charged against the TAT contract for Weston corporate staff
in Region VIZ.
OSWER RESPONSE
We believe the charges against the TAT contract were ap-
propriate, corporate office managers must, from time to time, be
involved in specific issues and activities under the contract.
In this instance, the involvement was necessary and reasonable.
Consequently, we believe that the charges should not be recouped.
OZG FINDIWG 2 SUMMARY: EPA PERFORMANCE EVALUATION PROCEDURES
VARZED BY CONTRACT (page 23)
The procedures used to evaluate Superfund contractors need
to be revised. Because the evaluation procedures for various
contracts differed, the Agency did not provide award fees in a
uniform manner. Moveover, the administrative effort used for
evaluations was not always justified and consistent with the
amount the award fees provided.
OSWER RESPONSE
We agree that certain definitions and award fee procedures
can become more consistent between types of contracts. However,
we disagree that all evaluation procedures and administrative
efforts should be the same for all award fee contracts.
The individual types of award fee contracts have various
purposes, different areas of emphasis, and are negotiated separa-
tely. The award fee process must be flexible and somewhat
subjective, in order to meet the needs of the programs it sup-
ports.
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As £or the OIG's criticisms of the administrative effort re-
quired, the «£fort should be based on what is required to do a
proper evaluation, not on the dollar level of the contract.
Certain program areasr by their vary nature, may be acre dynamic,
»ore innovative, or more vulnerable to waste, fraud, and abuse
than others. These program areas, because of their nature, would
need more direction, evaluation, and oversight regardless of the
type or dollar size of their contract vehicle or the size of
their award fee. While we do agree that management should be
mindful of the cost-benefit ratio of each contract's award fee
administrative burden, we do not agree with the finding that,
"The Agency needs to ensure that the administrative burden to
provide award fees is consistent." The award fee process
provides a mechanism to document contractor performance and to
involve upper management in the program operations. This is a
very valuable aspect of the CPAT process that is separate from
the aspect of determining award fee.
016 RECOMMBNDATIOH € SUMMARY (page 26) :
We recommend the Assistant Administrator for Administration
and Resources Management require that the Procurement and con-
tracts Management Division establish consistent procedures for
cost-plus-award-fee contracts to provide award fees in a uniform
manner. To accomplish this, each contract should have the same
number of rating categories, and the percentage of the award fee
available for each category should be consistent.
OSWER RESPONSE
We agree that the evaluation process should be consistent
within each type of award fee contracts. In addition, we agree
that certain portions of the evaluation process should be more
consistent across the different types of Superfund award fee ,
contracts. However, we cannot agree to the same level of consis-
tency between types of contracts as the OIG recommends.
To guarantee further that the process is consistent within a
type of award fee contract, the Zone XV TES contracts (Regions 8,
9, 10) had formed a work group consisting of PEB members to
address the award fee and PEB process and procedures. In
addition, the Project Officer for TES IV has been developing an
operations manual with standards that directly address the PEB
process and identify differences among the zones. Although Zone
IV is preparing a zone-specific PEB process, the contractual PEB
retirements will be adhered to, and this zone-specific informa-
tion will be used, along with specific procedures in Zone I, II,
and III, in a national operations manual that will cover all
aspects of TES V+ contract administration. This concept of
developing standard operating procedures will promote consistency
among all Zones.
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Appendix B
Page 16 of 21
Consistency among different types and sizes of contracts,
however, is not always desirable. The PEB should have the
flexibility to determine (1) the number of evaluation categories;
(2) which categories should be stressed and the appropriate
weight for each category; and (3) the amount of the award fee.
He do not believe that each contract should have the sane
number of rating categories. These contracts provide different
types of services. They merit categories that are tailored in
type and number. The number of categories should depend on what
is appropriate for the type of services the contractor provides,
not some predetermined standard number. Additionally, the PEB
should determine which evaluation criterion must be stressed and
the appropriate weight for each criterion. This flexibility
allows contractors to know that their performance is assessed and
indicates to them what the Board wants to emphasize.
Furthermore, standardizing the percentage of award fee
available from each category is not in the Agency's best inter-
est. The PEB sets these percentages based on the incentives they
are trying to create. These incentives may change over the life
of a contract. For example, it may be appropriate to shift a
greater percentage of fee to a management category from more
technical categories in a contract's final performance period
when it will be especially critical that expected personnel
turnover and project closeout be accomplished in a successful
manner. There is no reason that the Agency's PEBs should lose
their leverage to provide direction by eliminating their ability
to shift award fee percentages as program priorities and emphases
change.
OIG RECOMMENDATION 7 SUMMARY (page 26):
We recommend the Assistant Administrator for Administration
and Resources Management discontinue cost-plus-award fees (CPAF)
contracts that do not provide enough fees to motivate the con-
tractor.
OSWER RES
We do not concur with this recommendation, because we do not
agree with the finding that it currently is a problem. We also
do not believe that the amount of the award fee is the only
motivation toward excellence that the CPAF process provides.
Finally, the analysis, provided in the related finding above,
logically confuses contract size, administrative burden, and
award fee size with the micro-economics of contractor motiva-
tions.
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Appendix B
Page 17 of 21
™ wFJ?*tf lt se-B? cUar in Pindin9 2, listed above, that the
DIG believes that the ESAT Zone I contract i» unsuitable for
award fee. He, however, do not agree with this assessment. The
program office would not have had the power successfully to turn
around the Zone I contractor's performance. For example, subse-
quent to the first evaluation period in which the PEB communi-
cated their displeasure with management performance, the contrac-
tor fired the Zone Manager. From that point on, the contractor's
performance started to improve, since the Agency cannot direct
the contractor to hire and fire, the performance evaluation score
sends a strong message and the evaluations provide vital informa-
tion to the contractor to assist them in making decisions and
changes to improve performance.
In addition, because the modification that officially
notifies the contractor that the award fee earned is public
information, the competition is able to see how the contractor
fares in the Agency's eyes. We disagree that it is the monetary
fee, alone, that motivates the contractor. We believe that the
score received in the CPAF process matters greatly to the con-
tractor, lie also believe that it would be a difficult to define
"enough fees to motivate". The government may be able to stream-
line the Award Fee process for smaller dollar contracts, but we
regard the process as important.
Finally, the analysis of the award fee motivation seems to
confuse contract size, administrative burden, and award fee size.
It is not clear why the 016 cited the ESAT contract as having
fees that are insufficient to motivate the contractor without
including the contracts in the group that was eliminated from
consideration. Contracts that were eliminated included those
with a potential value of less than $30 million. If $30 million
was the cut-off point, and the ESAT contract potential is greater
than that point, why should they not utilize the award fee
process?
CPAF contracts require a higher level of management
attention from both the contractor and the Agency than any other
contract type available. Any implied relation to contractor
motivation is not demonstrated by the report. Any such analysis
would have to account for the inherent administrative burden
difference* between types of contracts.
In summary, the motivation provided by CPAF contracts is not
based solely on the absolute size of the award fee. The motiva-
tion provided is also related to the contractor's assessment of
the return on investment and the complicated impact of the
evaluations on future additional business, we are convinced that
the CPAF process did provide motivation to our ESAT and other
Superfund CPAF contractors.
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Appendix B
Page 18 of 21
OIG FINDING 3 SUMMARY: LATE APPRAISALS HINDER THE AWARD FEE
PROCESS (page 2?)
The Agency did not effectively use award fee performance
evaluations to provide the contractors timely feedback on their
performance. In some cases, the contractor did not receive
feedback concerning their performance for more than a year. As a
result, contractors continued to provide marginal or unsatisfac-
tory work without formal notification from the Agency. Moreover,
the contractors were not informed where improvements were needed.
OSWER RESPONSE
We agree that it is important that award fee evaluations are
completed in a timely manner, if they are to be meaningful
indicators to the contractors of their performance. However, the
OIG'S statement that delays nullify the purpose of the award fee
process may be based on incorrect information. Often, regular
feedback is provided in routine meetings, and copies of award fee
evaluations are provided immediately or even before the PEB
convenes.
In response to the OIG comments on the FIT contract, we note
that FIT contracts state that the award fee process shall be
implemented according to the award fee plan. The government has
the right unilaterally to change this plan at any time. The FIT
Performance Evaluation Plan does not specify a time frame for the
process. It does provide target dates. The program has never
considered these target dates as rigid and schedules PEB miles-
tones in consideration of other ongoing work as appropriate.
It should also be pointed out that the award fee notification
letter is not the first opportunity for the contractor to be made
aware of performance, in addition to day-to-day communication
between the Project Officer and the Zone Project Manager, the
Project Officer conducts a post-PEB meeting debriefing with the
contractor to give immediate performance feedback.
OIG RECOMMENDATION 8 SUMMARY (page 30):
We recommend that the Assistant Administrator for Solid
Waste and Emergency Response emphasize to all personnel involved
with the award fee evaluation process that completing evaluations
in a timely manner is essential.
OSWER RESPONSE
We agree that completing evaluations in a timely manner is
essential. However, w« would first like to clarify several
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Appendix B
Page 19 of 21
. action was reported as not being
First, the recommendation incorrectly implies that the
Project Officer has complete control over the timing of the
evaluation*, in the case of the TES IV contract evaluation
period shown in the audit report (page 14), the performance
evaluation meeting was, in fact, conducted as scheduled by the
PEB on April 22, 1988. However, in order for the contractor to
r* !rU to bil1 th* contract for fee awarded, the Contracting
Officer (CO) must first modify the contract to reflect that
respective awarded fee amount. The CO did not make this modific-
ation until October 1988.
Early in the TES IV contract performance period, the program
office and the PEB recognized the importance of providing the
contractor with timely feedback on their performance. The Board
noted that the issuance of contact modifications associated with
the provision of award fee to the contractor were untimely.
Consequently, the Board instructed the CO to conduct a verbal
briefing with the contractor within a two-week period following
the PEB meeting. PCKD prohibits the OSWER Project Officer from
conducting this meeting.
To maximize the effectiveness of the award fee process, all
involved parties, whether they work for OSWER, OARM, or a Region/
must take seriously the need to provide detailed and timely
advance input to the evaluation panel. This type of information,
in fact, has been difficult to obtain from Regional program
personnel and seldom was obtained from the OARM CO.
In an attempt to remedy these deficiencies, the Headquarters
program office proposed and implemented the decentralization of
the award fee process under the new TES V+ contracts. This
decentralized process will ensure a more comprehensive Regional
involvement. However, without the decentralization of CO respon-
sibilities to the Regions, the problem of timely contract modifi-
cations, which provide the contractor his award fee, will remain,
since the centralized Headquarters CO position will continue to
be overburdened.
In addition, the ESAT Zone II Award Fee Evaluation was late
once because the scheduled Board meeting would have occurred
during the middle of Thanksgiving and would have had to have been
delayed until around the time of the Christmas holidays. Since
there was going to be an ESAT Deputy Project officer (DPO)
meeting at the end of January that many of the same individuals
would attend, the Board made a decision to save the Government
travel money (not a lot of award fee money was involved to
-justify two trips for everyone) and time by holding the DPO and
PEB meetings the same week at the same location. The holiday
situation has been remedied by holding the PEB meeting before it
is due.
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Appendix B
Page 20 of 21
OZG should also note that the program office responded to the
alleged award fee letter to ESAT Zone I by holding an informal
evaluation meeting with the contractor in April to provide
immediate .feedback. Final scores were not revealed, but &
narrative description was provided. ESAT Zone I terminated the
unsatisfactory Zone Manager shortly after the meeting.
Finally, we are revising and redefining the roles and respon-
sibilities of the Regional Project Officers (RPOs) and Work
Assignment Mangers (WAMs) under the TES v+ contracts to comply
with OSWER Directive No. 9871.0. These revisions will include
more emphasis in the area of award fee evaluation and the timely
completion of the award fee evaluations by WAMs and RPOs. This
emphasis has also been developed and written into the performance
standards for each of the Headquarters TES V+ Zone Project
Officers (ZPOs).
OZG RECOMMENDATION 9 SUMMARY (page 30) t
We recommend that the Assistant Administrator for Solid
Waste and Emergency Response ensure that performance agreements
for all EPA employees participating in the award fee evaluation
process include the requirement to complete award fee evaluations
in a timely manner.
OSWER RESPONSE
We agree with this recommendation. This has already been
developed into the FY 1990 Zone Project officer (ZPO) performance
standards. The ZPOs are stationed in the Office of Waste
Programs Enforcement. A provision is written into the standards
that requires ZPOs to provide effective technical assistance on
the evaluation* processing, approval, and justification of zone
work assignments. Also the performance standards include a
statement that the ZPO is also responsible for organizing and
preparing the overall award fee evaluation process for the zone
contracts. Although the award fee process has been delegated to
the Regions under the new TES v+ contracts, the ZPOs will be
responsible for ensuring that the process occurs according to
terms of the contract. In addition, we will develop a work plan
to ensure implementation of the OSWER Directives requiring timely
evaluation in all CPAF contract work Assignment Manager's Job
Performance Standards.
OIG RECOMMENDATION 10 SUMMARY (page 30)}
We recommend that the Assistant Administrator for Solid
Waste and Emergency Response ensure that appropriate personnel
not process any work assignments for managers who are late in
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J^ppendix B
Page 21 of 21
completing their award fee evaluations.
OSWER RESPONSE
While we concur with the objective of improving timeliness,
we cannot agree with this specific recommendation and we propose
an alternative recommendation. To hold Congressionally mandated
progran accomplishments hostage to the timeliness of evaluations
would be to give improper priority to program goals. We question
whether this recommendation could be effectively implemented
without developing extensive waivers that would be nationally
enforceable* In addition, evaluations can be slowed by offices
and events over which the Work Assignment Manager (WAM) has no
control; thus, this recommendation could penalize the wrong
participants.
We recognize the need for high quality and timely award fee
evaluations, and we are studying other approaches for ensuring
effective implementation. We propose an alternative recommenda-
tion that would establish an OSWER/OARM work group to study
contracting issues including evaluation timeliness. We request
that the OIG audit recommendation be reworded to allow management
to implement solutions which have been developed by the work
group. The timeliness solutions will be incorporated into
national guidance which could be implemented consistently for all
contracts.
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REPORT DISTRIBUTION
APPENDIX C
Recipient
Office of the Inspector General
Inspector General (A-109)
Headquarters Office
Assistant Administrator for Solid Waste and
Emergency Response (OS-100)
Assistant Administrator for Administration
and Resources Management (PM-208)
Comptroller (PM-225)
Agency Followup Official (PM-225), Attn:
Director, Resource Management Division
Audit Followup Coordinator (PM-208), Attn:
Program Operation Support Staff
Associate Administrator for Regional
Operations (A-101)
Office of Congressional Liaison (A-103)
Office of Public Affairs (A-107)
Regional Office
Regional Administrator - Region III
Office of Public Affairs - Region III
69
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