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I UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON. D.C. 20460
OFFICE OF
THE INSPECTOR GENERAL
July 7, 1992
MEMORANDUM
SUBJECT: Audit Report No. E1JBF1-05-0175-2100443
Contracting Activities at Environmental
Laboratory - Duluth
FROM: Kenneth A. Konz
Assistant Inspector General for Au
TO: Christian R. Holmes
Assistant Administrator for
Administration and Resources Management
Erich W. Bretthauer
Assistant Administrator for
Research and Development
Gerald H. Yamada
Principal Deputy General Counsel
Designated Agency Ethics Official
Attached is our report entitled "Contracting Activities at
Environmental Research Laboratory - Duluth11. The overall
objectives were to:
o evaluate the development and award of Duluth's support
service contracts,
o determine the use and control of work assignments
issued under the Duluth toxicological support service
contracts, and
o determine if Duluth employees' Confidential Statements
were being appropriately filed and reviewed.
The report contains important findings and recommendations
regarding the subject area.
Action Required
In accordance with EPA Order 2750, we have designated the
Assistant Administrator for Administration and Resources
Management as the Action Official for this report. As the Action
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Official, he is to provide this office with a written response to
the audit report within 90 days of the final audit report date.
For corrective actions planned but not completed by the response
date, reference to specific milestone dates will assist this
office in deciding whether to close this report. We have no
objections to further release of this report to the public.
This audit report contains findings and recommendations that
describe problems the Office of Inspector General has identified
and corrective actions that we recommend. The audit report
represents our opinion. Final determinations on matters in this
audit report will be made by EPA managers in accordance with
established EPA audit resolution procedures. Accordingly, the
findings described in this audit report do not necessarily
represent the final EPA position.
Should you have any questions about this report, please
contact me at 260-1106 or Anthony C. Carrollo, Divisional
Inspector General for Audit, Northern Audit Division, at 312-353-
2503.
Attachment
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EXECUTIVE SUMMARY
PURPOSE
The Office of Inspector General decided to perform a review of
contracting at the Agency's Environmental Research Laboratory
Duluth, Minnesota (Duluth) as a pilot effort for EPA research
facilities. Our decision was based on indicators found during
an initial joint survey conducted by our Northern Audit and
Investigations Divisions. Our specific audit objectives were
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to:
evaluate the development and award of Duluth's support
service contracts,
determine the use and control of work assignments
issued under the Duluth toxicological support service
contracts, and
determine if Duluth employees' Confidential Statements
of Employment and Financial Interests (Confidential
Statements) were being appropriately filed and
reviewed.
BACKGROUND
Duluth, one of twelve Office of Research and Development (ORD)
laboratories, conducts research in aquatic toxicology and
freshwater ecology. Duluthfs mission is to develop a scientific
basis for EPA to create environmental policies concerning the
use of freshwater resources. The Office of Administration and
Resources Management (OARM), Cincinnati Contracts Management
Division (Cincinnati) has contracting officers who award and
administer Duluth's contracts, with the assistance of project
officers and work assignment managers (WAMs) in Duluth. Both
Duluth and Cincinnati receive guidance on ethics from the
Designated Agency Ethics Official (DAEO), who is located within
the Agency's Office of General Counsel (OGC).
Since 1986, EPA has contracted with AScI Corporation (AScI) to
provide scientific support services for Duluth.1 AScl's six
Duluth contracts have maximum values totalling about $21 million
(see Exhibit l) . Some of AScl's contracts fall under the Small
Business Administration's (SBA) Section 8(a) Contracting and
Business Development Program (8(a)).
JAScI was originally incorporated as American Scientific
International, Inc. In March 1989 it changed its name to AScI
Corporation. For clarity, we use AScI throughout this report.
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RESULTS-IN-BRIEF
Neither Duluth nor Cincinnati officials fulfilled their
responsibilities to ensure that AScI contracts were awarded and
monitored in the best interests of the Government. Without
adequate pre-award review of identified potential conflicts of
interest, Cincinnati officials recommended that AScI receive a
$1 million non-competitive contract in 1986. The contract was
awarded only eight months after AScI's owner left the Agency.
In 1989, EPA allowed the remaining two years on an existing
three-year contract with the University of Wisconsin-Superior
(UWS) to lapse and awarded AScI a $4.5 million contract to
perform essentially the same services. UWS became AScI's prime
subcontractor under the new contract. Then, in 1990, under the
guidance of the Duluth Director, Duluth officials split a $9
million requirement into three contracts to deliberately avoid
competition requirements. As a result, AScI received over $9
million in contracts without competition. Duluth project
officers also proposed work for AScI that was not within the
scope of the contracts. Cincinnati contracting officers
approved Duluth's proposals without careful review.
Since 1985, when AScI made its initial efforts to solicit a
contract at Duluth, there has been a series of actual or
apparent conflicts of interest involving this contractor and EPA
program officials. Agency files contained evidence of each of
these conflicts. Yet, neither contracting nor ethics officials
took an aggressive stance to review or take appropriate actions
to prevent such conflicts. For example, in 1986, prior to AScI
receiving its first Duluth contract, Cincinnati contracting
officials:
o became aware that AScI's owner was a former EPA
employee, but did little to investigate or ameliorate
the apparent conflict of interest.
o did not realize that AScI's contract proposal showed
that AScI offered the Duluth Director's former spouse
employment, even though their files included the
employment offer. The Duluth Director (at the time in
an acting capacity) was actively involved in this
procurement.
AScI was awarded a three year follow-on contract for Duluth in
1987. In 1989, without adequately inquiring into the nature of
the Duluth Director's role in relation to AScI, Agency ethics
officials approved the Duluth Director's request for permission
to have his current spouse become an AScI employee. The Duluth
Director had a major role in recommending contract awards to
AScI and performance award fees to AScI under those contracts.
* *
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The overall result of EPA's actions summarized in this report is
that (i) the integrity of its acquisition process has been
compromised and (2) its general credibility with the public, and
its 8(a) Program in particular, have been tarnished.
EPA has acted swiftly to change contracting practices for its
laboratories. The Agency, at ORD's reguest, has chosen not to
exercise its option to extend the AScI Duluth contracts.
Instead, these contracts are being rebid as a single,
competitive procurement. As a broader measure, ORD has directed
that competitive solicitations be initiated to replace all ORD
sole-source contracts, to the extent possible and appropriate.
Also, laboratory directors must now approve all work assignments
and technical directives. Finally, OARM intends to issue
additional guidance to contracting officers, and the DAEO
intends to issue an additional Ethics Advisory.
The Agency's actions, summarized above, will help (1) assure
that support contracts at Duluth and other laboratories are
awarded and managed in accordance with Federal contracting
regulations and (2) restore the integrity of its acquisition
process, its general credibility with the public, and the
credibility of its 8(a) Program.
PRINCIPAL FINDINGS
Potential Conflicts Of Interest Not Investigated In
The Award of AScI's 1986 Duluth Contract
In 1986, AScI, a firm owned by a former high-level ORD employee,
received a non-competitive contract at Duluth. The former
employee solicited ORD contracts on behalf of his wholly-owned
company while working for EPA. Cincinnati contracting officials
knew of these potential conflicts of interest, but did not
resolve the issues this raised prior to awarding the contract.
This condition occurred because of Cincinnati's reliance on
Duluth's statement that OGC approved the contract submittal.
However, we found no evidence of any OGC approval. As a result,
without proper review, EPA awarded a $1 million non-competitive
contract within eight months after AScI's owner left the Agency.
EPA regulations prohibit non-competitive contract awards to
former employees within one year of leaving the Agency, unless
the OARM Assistant Administrator waives the prohibition. The
former EPA employee acted improperly and may have violated
Federal law by representing AScI in dealings with SBA and EPA
during the time he was an Agency employee.
In addition, AScI offered employment to spouses of Duluth
employees, contingent on receiving the contract. In one
instance, Cincinnati contract files clearly demonstrated that
AScI intended to offer such employment to the Acting Duluth
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Director's former spouse and that this Director was actively
involved in the procurement. However, the files showed no
action by Cincinnati to resolve this additional conflict.
Existing Chemical Analysis Contract Allowed To Lapse And $4.5
Million Contract Awarded To AScI In 1989
In 1989, EPA allowed the remaining two years of an existing
three-year contract with UWS to lapse. Concurrently, EPA
awarded AScI a three-year contract worth about $4.5 million to
perform similar work at Duluth. UWS became AScI's prime
subcontractor on this new contract. The contract provided
Duluth with essentially the same services that it received under
the UWS contract, but at a higher cost to the Government. The
condition occurred because the Duluth Director became involved
in the bidding process and discouraged UWS from submitting a
bid. He also encouraged UWS to become a subcontractor to AScI.
As a result, AScI gained a competitive advantage over other
potential bidders.
At the time of the award, the Duluth Director's spouse served as
AScI's registered agent. Immediately, after EPA awarded AScI
the contract, the Duluth Director's spouse was hired as the
firm's only in-house attorney. The Duluth Director's actions
resulted in, or created the reasonable appearance of, giving
preferential treatment to AScI. As a result of allowing the UWS
contract to lapse, we estimate that the Government paid about an
additional $300,000 for essentially the same services.
$9 Million In Toxicolocrical Contract Awards To AScI
In 1990 Were Not Competitively Bid
In 1990, EPA (through SBA) awarded AScI, an 8(a) contractor,
three sole-source contracts that totalled over $9 million,
deliberately avoiding competition. Duluth officials proposed
multiple contracts because the Duluth Director wanted: (l) the
incumbent contractor to continue working at Duluth on all three
contracts, and (2) to avoid worrying contractor personnel about
job security. The Duluth Director's actions result in, or
create the reasonable appearance of, giving preferential
treatment to AScI, which employed his current spouse.
Contracting officials approved and processed the three contracts
as a group, knowing that Duluth's estimates were just under the
competitive threshold. In doing so, the contracting officials
did not fulfill their responsibilities to ensure adherence to
applicable laws and regulations before entering into contracts.
As a result of awarding the contracts sole-source, EPA did not
provide other 8(a) firms the opportunity to bid, and cannot be
assured that the contracts were awarded in the best interest of
the Government. The Business Opportunity Development Reform Act
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of 19882 requires that the Government competitively bid all 8 (a)
service contracts that have an estimated value over $3 million.
EPA's actions in awarding the contract are particularly
questionable in light of personal conflicts of interest created
by the Duluth Director in procuring and managing the AScI
contracts. Even though his spouse has served as AScI's only in-
house attorney since October 1989, the Duluth Director did not
distance himself from issues which might create a conflict of
interest. Instead he specifically involved himself in the
procurement and management decisions which led to AScI's being
given more than $142,000 of award fees.
Work Assigned To AScI Was Not Included
In Work Assignments Or The Scope Of The Contracts
For several years, Duluth and Cincinnati officials allowed AScI
to conduct work at Duluth that was either not included in the
contracts' scope of work or in work assignments. This work
included remodeling and maintenance tasks for AScI, the
toxicological support services contractor. Duluth officials
believed that their actions were justified as long as Duluth
benefitted. Cincinnati contracting officers: (1) did not
enforce Agency regulations prohibiting work to start prior to
their written approval; and (2) approved the work assignments
without reading them, even though the work was not allowable
under the contracts' terms. As a result, contracting officers
committed the Government to expend funds for unauthorized
services. The Duluth contracts clearly forbid AScI from
performing: (1) work until the contracting officer gives written
authorization, and (2) additional duties not within the scope of
the contract.
Duluth Employees' Confidential Statements Were Incomplete
The Deputy Ethics Official (DEO), who is the Duluth Director,
did not direct project officers at or below the grade 12 level
to file Confidential Statements. Additionally, the DEO did not
ensure that Duluth employees disclosed their spouses' employment
with organizations doing business with Duluth. Because
statements were (1) not filed, or (2) incomplete as to spousal
employment, the DEO could not determine whether actual or
apparent conflicts of interest existed. Therefore, Duluth's
1990 annual certification was inaccurate and incomplete. EPA
regulations and an Agency Ethics Advisory both emphasize to DEOs
that employees, such as project officers, whose duties directly
affect the financial interests of specific parties, should be
required to file Confidential Statements.
2P.L. 100-656, Sec. 303(b), codified at 15 U.S.C.
637(a)(l)(D)
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In addition, the Agency did not require WAMs to file
Confidential Statements. WAMs prepare work assignments for
contractors, and monitor the contractors' performance.
Therefore, WAMs can influence a contractors' work and award
fees.
AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL EVALUATION
The OARM and ORD Assistant Administrators and the DEAO were in
substantial agreement with our report, and have already acted,
or have agreed to act, to resolve the issues raised in this
report.
The only substantive area of disagreement concerned the awarding
of the $4.5 million 1989 contract for chemical analysis to AScI.
OARM and ORD disagree with our finding that the contract was for
essentially the same work that had been performed under the UWS
contract. Our main point remains that both before and after the
new contract, the same UWS employees continued to perform
essentially the same work, but at an increased cost. This
higher cost, which we estimate at about $300,000, went to AScI.
This is a firm with which the Duluth Director had a conflict of
interest.
RECOMMENDATIONS
OARM and ORD actions have resolved the issues raised in this
report that relate to them. The Designated Agency Ethics
Official has proposed actions that, when implemented, will
resolve many of our concerns. In part, the additional actions
depend upon the Office of Government Ethics, another government
agency, issuing new regulations. These regulations are expected
shortly, but since their issuance is outside EPA's control, the
DAEO has agreed to put in place interim measures if the
regulations are not issued by August 15, 1992. However,
additional actions on his part are needed. Our recommendations
are summarized below and are detailed in the body of our report.
We recommend that the Designated Agency Ethics Official:
1. Define substantive ethics advice, and require that
Deputy Ethics Officials maintain written records when
they give employees substantive ethics advice.
2. Put in place interim procedures or Ethics Advisories,
if the Office of Government Ethics proposed
regulations are not finalized by August 15, 1992.
3. Establish a procedure that requires
supervisors of Senior Executive Service
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employees to be informed, in writing, of any
discussions or decisions regarding potential
conflicts of interest.
Require the Deputy Ethics Officials to be at least
biannually trained and certified regarding Government
ethics laws and regulations.
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TABLE OF CONTENTS
Page
EXECUTIVE SUMMARY i
CHAPTERS
1 INTRODUCTION 1
PURPOSE 1
BACKGROUND 1
SCOPE AND METHODOLOGY 2
2 POTENTIAL CONFLICTS OF INTEREST NOT INVESTIGATED IN
THE AWARD OF ASd's 1986 DULUTH CONTRACT 5
CONTRACTING OFFICIALS DID NOT INVESTIGATE AN EPA
EMPLOYEE'S SOLICITATION OF EPA CONTRACTS 5
ASCI OFFERED EMPLOYMENT TO THE ACTING DIRECTOR'S
FORMER SPOUSE 8
AGENCY ACTIONS TAKEN DURING OUR REVIEW 9
CONCLUSIONS 10
AGENCY COMMENTS AND ACTIONS 10
OIG EVALUATION AND RECOMMENDATIONS 11
3 EXISTING CHEMICAL ANALYSIS CONTRACT ALLOWED TO LAPSE
AND $4.5 MILLION CONTRACT AWARDED TO ASCI IN 1989 . . 13
IN 1989 DULUTH SWITCHED CONTRACTORS 13
DULUTH DIRECTOR INTERFERED IN THE BIDDING PROCESS
AND HAD A CONFLICT OF INTEREST 15
DULUTH'S REASONING FOR THE NEW CONTRACT MAY NOT
BE JUSTIFIABLE 19
AScI CONTRACT CONTAINED ADDITIONAL COST ELEMENTS . . 21
AGENCY ACTIONS TAKEN DURING OUR REVIEW 22
CONCLUSIONS 23
AGENCY COMMENTS AND ACTIONS 23
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TABLE OF CONTENTS (Continued)
OIG EVALUATION AND RECOMMENDATIONS 24
4 $9 MILLION IN TOXICOLOGICAL CONTRACT AWARDS TO AScI
IN 1990 WERE NOT COMPETITIVELY BID 27
DULUTH OFFICIALS SPLIT ONE CONTRACT INTO THREE
TO AVOID COMPETITION 27
CINCINNATI CONTRACTING OFFICIALS APPROVED DULUTH'S
ACTIONS WITHOUT QUESTION 31
AGENCY ACTIONS TAKEN DURING OUR REVIEW 31
CONCLUSIONS 32
AGENCY COMMENTS AND ACTIONS 33
OIG EVALUATION AND RECOMMENDATIONS 34
5 WORK ASSIGNED TO AScI WAS NOT INCLUDED IN
WORK ASSIGNMENTS OR THE SCOPE OF THE CONTRACTS ... 35
WORK CONDUCTED WITHOUT CINCINNATI'S APPROVAL ... 35
BEGINNING IN FISCAL 1989 DULUTH INITIATED
WORK ASSIGNMENT TASKS OUTSIDE THE CONTRACTS'
STATEMENTS OF WORK , 36
PROJECT OFFICERS KNEW WORK ASSIGNMENTS WERE
OUTSIDE THE CONTRACTS' SCOPES 39
CONTRACTING OFFICERS SIGNED WORK ASSIGNMENTS
WITHOUT REVIEW 40
AGENCY ACTIONS TAKEN DURING OUR REVIEW 41
CONCLUSIONS 41
AGENCY COMMENTS AND ACTIONS . .• 42
OIG EVALUATION AND RECOMMENDATIONS 43
6 DULUTH EMPLOYEES' CONFIDENTIAL STATEMENTS
WERE INCOMPLETE 45
DULUTH DEO DID NOT REQUIRE PROJECT OFFICERS
TO FILE 45
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TABLE OF CONTENTS (Continued!
DULUTH DEO FILED AN INACCURATE ANNUAL
CERTIFICATION ,
DULUTH EMPLOYEES DID NOT DISCLOSE THEIR SPOUSES'
EMPLOYMENT WITH CONTRACTORS
WORK ASSIGNMENT MANAGERS NEED TO FILE
AGENCY ACTIONS TAKEN DURING OUR REVIEW . . . . ,
CONCLUSIONS
AGENCY COMMENTS AND ACTIONS
OIG EVALUATION AND RECOMMENDATIONS
EXHIBITS
EXHIBIT 1 MAXIMUM DOLLAR VALUE - DULUTH CONTRACTS .
EXHIBIT 2 AScI CONTRACTS WITH THE DULUTH LABORATORY
EXHIBIT 3 AScI CORPORATION CONTRACT REVENUES . . . .
EXHIBIT 4 WORK ASSIGNMENTS NOT AUTHORIZED
IN THE CONTRACT
APPENDIXES
APPENDIX 1: OFFICE OF RESEARCH AND DEVELOPMENT'S
RESPONSE TO THE DRAFT REPORT
APPENDIX 2: OFFICE OF ADMINISTRATION AND RESOURCES
MANAGEMENT'S RESPONSE TO THE DRAFT REPORT
APPENDIX 3: DESIGNATED AGENCY ETHICS OFFICIAL'S
RESPONSE TO THE DRAFT REPORT ,
APPENDIX 4: ABBREVIATIONS ,
APPENDIX 5: DISTRIBUTION ,
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CHAPTER 1
INTRODUCTION
PURPOSE
The Office of Inspector General decided to perform a review of
contracting at Duluth as a pilot effort for EPA research
facilities. Our decision was based on indicators found during
an initial joint survey conducted by our audit and
investigations staffs. Our specific audit objectives were to:
o evaluate the development and award of Duluth's support
service contracts,
o determine the use and control of work assignments
issued under the Duluth toxicological support service
contracts, and
o determine if Duluth employees' Confidential Statements
were being appropriately filed and reviewed.
BACKGROUND
Duluth, one of twelve ORD laboratories, conducts research in
aquatic toxicology and freshwater ecology. Duluth's mission is
to develop a scientific basis for EPA to create environmental
policies concerning freshwater resources. Cincinnati
contracting officers award and administer Duluth's contracts,
with the assistance of project officers and WAMs in Duluth.
Both Duluth and Cincinnati receive guidance on ethics from the
DAEO.
EPA contracted with SBA to have a small, disadvantaged firm,
AScI, provide on-site toxicological support services for Duluth,
The contractor was to provide research support services
including: (1) general culturing and animal care, (2) biology
and chemistry support, and (3) program support. EPA contracted
these services under the 8(a) Program. One of the purposes of
the 8(a) Program is to foster business ownership by individuals
who are socially and economically disadvantaged.
EPA supports the 8(a) Program by contracting, through SBA, with
qualified firms. In fiscal 1990, EPA reported to SBA that it
awarded about $98 million under the 8(a) Program. This was
about 8.7 percent of the Agency's procurement contract awards,
and meant that EPA exceeded its 8(a) goal of 6.5 percent.
In addition to the 8(a) contracts which EPA awarded to the
disadvantaged firm, AScI, EPA competitively awarded AScI $4.5
million chemical analysis support contract. This contract was
open to all interested bidders, including non-8(a) firms.
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SCOPE AND METHODOLOGY
To accomplish our first objective, we reviewed the development
and award of Duluth's on-site toxicological support service
contracts. We discussed with OARM's Procurement and Contracts
Management Division (PCMD) officials in Washington and
Cincinnati the process for awarding non-competitive sole-source
contracts. We also reviewed Cincinnati's negotiation and award
files.
To accomplish our second objective, we examined all work
assignments that Duluth proposed and Cincinnati approved for
these contracts. We compared the work assignments to the
contracts' statements of work and reviewed whether the various
support services were within the terms and conditions of the
contracts. We discussed work assignments with the contracting
officers responsible for the prior and current AScI Duluth
contracts, who had the sole authority to issue work assignments.
To accomplish our third objective, we obtained Confidential
Statements for those Duluth employees who filed. We examined
the procedures and guidance for having employees file. We also
compared Agency and contractor employee lists to determine if
EPA employees disclosed their spouse's employment. In addition,
we met with the Alternate Agency Ethics Official in Washington.
We discussed the Agency's position on requiring individuals
involved in preparing procurement requests and assessing
contractors' performance to file.
We performed our audit in accordance with the Government
Auditing Standards issued by the Comptroller General of the
United States (1988 revision). This audit is a result of a
joint effort between the Office of Inspector General's Northern
Audit and Northern Investigations Divisions. The joint effort
was an outgrowth of hotline complaints the Office of
Investigations received. Some of the information that we used
in developing this report was obtained from the Northern
Investigations Division. None of this information was obtained
through the Grand Jury process.
We did not perform a comprehensive evaluation of Duluth's
internal controls and did not verify data from any management
information system. However, we did assess the process for
preparing contracts and work assignments. We also reviewed
Duluth's compliance with the Agency's procedures for disclosing
potential conflicts of interest. Additionally, we reviewed the
fiscal 1990 annual FMFIA report on internal controls for: (1)
the Agency, (2) ORD, and (3) Duluth.
No prior reports on Duluth, Cincinnati, ORD or contracting in
general were used as background for this audit.
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We conducted our audit between March 14, 1991, and May 1, 1992.
We discussed our findings and recommendations with OARM, ORD,
and OGC officials in Headquarters during the course of our
audit. These discussions included formal briefings about our
interim findings during January and February 1992. On February
12, 1992, we issued position papers to these Offices. ORD and
OGC formally responded in March and April, respectively. While
we were conducting our audit, many corrective actions were
initiated. Those actions are described throughout this report.
On May 29, 1992, we issued our draft report. ORD and the DAEO
responded on June 29, 1992. OARM responded on June 30, 1992.
We held exit conferences with ORD and OARM officials on June 30,
1992. OGC officials were unable to attend. After reviewing the
responses and conducting the exit conferences, we made
appropriate changes and finalized the report. Agency comments
and corrective actions to date are discussed in the body of this
report. The Agency responses are included as Appendices 1
through 3 in this report.
On June 4 and June 11, 1992 the Northern Investigations Division
issued investigative reports regarding activities at Duluth and
Cincinnati. Although the Northern Audit and Northern
Investigations Divisions conducted their reviews as a joint
effort, the resulting audit and investigative reports are
separate actions.
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CHAPTER 2
POTENTIAL CONFLICTS OF INTEREST NOT INVESTIGATED IN
THE AWARD OF AScI'S 1986 DULUTH CONTRACT
In 1986, AScI, a firm owned by a former high-level ORD employee,
received a non-competitive contract at Duluth. The former
employee solicited ORD contracts on behalf of his wholly-owned
company while working for EPA. Cincinnati contracting officials
knew that AScI's owner was a former EPA employee, but did not
resolve the issues this raised prior to awarding the contract.
This condition occurred because of Cincinnati's reliance on
Duluth's statement that OGC approved the contract submittal.
However, we found no evidence of any OGC approval. As a result,
without proper review, EPA awarded a $1 million non-competitive
contract within eight months after AScI's owner left the Agency.
EPA regulations prohibit non-competitive contract awards to
former employees within one yea'r of leaving the Agency, unless
the OARM Assistant Administrator waives the prohibition. The
former EPA employee acted improperly and may have violated
Federal law by representing AScI in dealings with SBA and EPA
during the time was an Agency employee.
In addition, AScI offered employment to spouses of Duluth
employees, contingent on receiving the contract. In one
instance, Cincinnati contract files clearly demonstrated that
AScI intended to offer such employment to the Acting Duluth
Director's former spouse and that this Director was actively
involved in the procurement. However, the files showed no
action by Cincinnati to resolve this additional conflict.
CONTRACTING OFFICIALS DID NOT INVESTIGATE
AN EPA EMPLOYEE'S SOLICITATION OF EPA CONTRACTS
EPA (through SBA) awarded AScI, an 8(a) contractor, its first
contract for Duluth in 1986. AScI's owner solicited contracts
at Duluth for his wholly-owned corporation, both during his time
as an EPA employee and during his first year of separation. In
addition, AScI offered employment to the former spouse of the
then Acting Duluth Director, who was actively involved in the
procurement.3 Although these conditions were documented in
their files, Cincinnati contracting officials did not take
3In February 1986 the Associate Director for Research
Operations became the Acting Duluth Director. In May 1987 he
became the Duluth Director, and remained in that position until
March 1992. Elsewhere throughout this report he is referred to
as the Duluth Director.
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appropriate action to review these potential conflicts of
interest prior to awarding the contract.
EPA Employee Solicited EPA Contracts
AScI's owner sought a contract to provide toxicological support
services for Duluth while he was an EPA employee in the
Headquarters office to which Duluth reports. AScI's owner was
an EPA employee from 1974 to December 6, 1985. He holds a Ph.D.
in chemistry, and was a grade 15 staff scientist when he left
EPA. He had worked in a variety of EPA Headquarters offices,
including ORD's Office of Environmental Effects Processes and
Effects Research - the same Office to which Duluth reports. As
part of his duties, he visited Environmental Research
Laboratories, including Duluth. He also participated in
reviewing research projects, including those of the present
Duluth Director.
AScI's owner is its sole shareholder. The company was
incorporated in December 1982, but had minimal assets at that
time. AScI performed only a small amount of non-government
business. While still employed by EPA, and with his
supervisor's knowledge, the owner applied for certification
under SBA's 8(a) Program. On June 27, 1985, AScI received its
SBA certification.
While he was still an EPA employee, AScI's owner specifically
requested that SBA officials contact Duluth. According to the
owner, SBA officials asked for suggestions of where to send
search letters. One of the suggestions that the owner made was
that SBA contact Federal officials at Duluth. He also stated
that "all Government officials involved were aware of my prior
EPA employment and the date I left EPA."
On December 5, 1985, the day before the former EPA employee
resigned from EPA, SBA wrote a senior Duluth official requesting
Duluth's assistance in the identification of potential
procurement opportunities for AScI under the 8(a) Program. This
solicitation resulted in AScI receiving a sole-source
procurement for just under $1 million in fiscal 1986 (August 21,
1986) and another sole-source for almost $6 million effective on
the last day of fiscal 1987 (See Exhibit 2).
Under 18 U.S.C. 205, Government employees cannot act as an agent
before any department or agency on behalf of another individual
or corporation in connection with a contract or claim. The
former EPA employee acted improperly and may have violated 18
U.S.C. 205 by representing AScI in dealings with SBA and EPA.
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Potential Post-Employment Restrictions Not Investigated
Cincinnati contracting officials were aware that AScI's owner
was a former EPA employee, and discussed the potential for
conflicts of interest with Duluth officials. The Duluth project
officer wrote a memo to Cincinnati stating that:
Although the president of ASI [AScI] is a former EPA
employee his direct dealings are with Small Business
Administration and EPA is contracting with them. ERL-
Duluth has in its files letters from the EPA General
Counsel approving the submittal by ASI [AScI] from a
1ega1 standpoint.
However, according to a subsequent Cincinnati memo, "copies of
the [OGC] letters have been requested but have not been
submitted." The letters were not in the Cincinnati or Duluth
files, and OGC has no record of providing a legal opinion on
this matter.
In cases involving the appearance of: (1) potential conflicts of
interests, (2) favoritism, or (3) preferential treatment, the
Federal Acquisition Regulations place certain responsibilities
on the contracting officers. Before awarding the contract,
contracting officers are required to either obtain authorization
from the Agency Head or Designee, or recommend a course of
action to resolve instances involving potential conflicts of
interest.4
EPA has issued acquisition regulations which place additional
restrictions on contracts to former employees. The EPA
Acquisition Regulations, Title 48 of the Code of Federal
Regulations (CFR) 1503.601, prohibit a contract award without
competition to a: (1) former EPA employee, (2) firm owned or
controlled by the former employee, or (3) firm employing a
former employee within 365 calendar days of an employee's
termination. Furthermore, this prohibition applies to firms
that employ former Agency employees, if the former employee's
employment was terminated within one year before submission of
the proposal to EPA and either of the following conditions
exists:
o The former employee was involved in developing or
negotiating the proposal for the prospective
contractor.
o The former employee will be involved directly or
indirectly in the management, administration, or
performance of the contract.
448 CFR Subparts 3.6 and 9.5 (Revised October 1, 1985).
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The OARM Assistant Administrator, after consulting with the
DAEO, may authorize an exception to the above in writing.
provided that the award would be unlikely to involve a violation
of law or EPA Standards of Conduct regulations. The waiver may
be granted only if there is no indication of improper influence
or favoritism and if the award would be in the best interest of
the Government.
As noted above, Ascl's owner, through SBA, solicited Duluth
contracts on December 5 and resigned from EPA on December 6,
1985. On February 25, 1985, at Duluth's request, Cincinnati
officials asked SBA to approve an 8(a) set-aside for AScI to
provide on-site toxicological support services at Duluth. SBA
approved the set-aside on March 4, 1986. Effective August 21,
1986, AScI was awarded a sole source contract (68-03-3373)
valued at just under $1 million. As AScI's president and sole
shareholder, the former employee negotiated the contract on
AScI's behalf. According to AScI's proposal, the former
employee would serve as project manager (off-site) and would be
responsible for the effective coordination, supervision and
management of the contract.
Rather than assuring that no conflicts of interest existed,
Cincinnati contracting officials relied on the Duluth project
officer's statement that OGC approved the contract submittal
from a legal standpoint. Moreover, even though Cincinnati
officials knew that AScI's owner had recently been a grade 15
employee at EPA, contracting officials did not request the
required waiver from the OARM Assistant Administrator. Finally,
Cincinnati contracting officials did not assure that OGC had
approved the contract submittal.
ASCI OFFERED EMPLOYMENT TO THE ACTING DIRECTOR'S FORMER SPOUSE
AScI's 1986 Duluth contract proposal, which is in Cincinnati's
contract files, showed that AScI proposed the then Acting Duluth
Director's former spouse to work on the proposed contract.
Cincinnati files further showed that the Acting Director (who
became the Duluth Director) was a member of the two-person panel
that reviewed AScI's proposal. According to Cincinnati
contracting officials, they did not realize that the proposed
employee was the Director's former spouse. As a result, they
did not take appropriate action to resolve this matter for
potential conflicts of interest prior to the contract award.
On May 21, 1986, AScI submitted a contract proposal to
Cincinnati for toxicological support services. The proposal
included the resume of the Acting Director's former spouse.
AScI proposed the former spouse as a key punch operator.
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On June 3, 1986, the Duluth project officer notified Cincinnati
that he and the then Acting Director would comprise the
technical evaluation panel for the AScI procurement. This panel
evaluates and scores the contractor's technical proposal. As
part of the June 3 memo, the Duluth staff member stated that
"None of the Technical Evaluation Panel [members] have any known
conflicts of interest concerning this procurement."
Thirteen days later, on June 16, 1986, AScI again mentioned the
Director's former spouse in a letter to Cincinnati. On this
date AScI's president submitted a letter to Cincinnati stating
that he had made job offers to ten individuals to work on the
proposed contract and attached the employment offer letters.
One of the ten was the former spouse of the Acting Duluth
Director. Another of the prospective employees was the spouse
of another Duluth employee. The offers were contingent on AScI
receiving the contract.
The last names of the Acting Director and his former spouse were
easily recognizable and should have caused contracting officials
to question: (1) whether the parties were related, and (2) if a
potential conflict of interest existed. The Cincinnati
contracting official stated that the contract in question was
the first she was responsible for. At the time, she did not
comprehend that the individuals may have been related and,
therefore, did not review the procurement for a potential
conflict of interest.
On June 30, 1992 the OARM Assistant Administrator stated that:
... There was a certification provided by the
technical evaluation panel that it was not aware of
any conflict of interest. Since the Acting Lab
Director was on the panel, this conflict should have
been reported to the contracting officer.
We reviewed lists of AScI employees since 1986. The former
spouse was not shown as having been an AScI employee. Duluth
staffing lists showed that she was employed at the Duluth
Laboratory, but by another contractor, the Computer Sciences
Corporation. The Duluth Director, at the time, had a financial
obligation to his former spouse by court order.
AGENCY ACTIONS TAKEN DURING OUR REVIEW
On March 16, 1992, the ORD Assistant Administrator provided us
with a listing of corrective actions that ORD and its Office of
Environmental Processes and Effects Research (OEPER) had already
taken. These included:
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1. OEPER issued a policy to all OEPER Laboratory
Directors requiring that Laboratory employees,
including the Laboratory Director, identify to
Headquarters any relationship which may lead to a
conflict of interest.
2. ORD issued two memoranda that provide for
Headquarters' management oversight of the development
of Laboratory contracts.
In November 1991, OGC initiated procedures to chronologically
log inquiries and advice. On December 30, 1991, the DAEO issued
EPA Ethics Advisory 91-13, which recommended that DEOs create a
written record whenever they give substantive ethics advice to
Agency employees. Substantive ethics advice, however, was not
defined.
CONCLUSIONS
Officers and employees of the Federal Government must conform to
high standards of ethical conduct. Standards of conduct and
conflict of interest laws apply to all Government officers and
employees. All employees are responsible for knowing these laws
and regulations, as well as the specific policies and procedures
of EPA. Moreover, Government contracts must be awarded in an
atmosphere free of any appearance of favoritism.
When former EPA employees seek contracts with the Agency,
contracting officers must assure strict adherence to conflict of
interest laws and the EPA Acquisition Regulations. In this
case, contracting officials obligated the Government to a
contract, based on assurances that OGC approved the submittal
without obtaining the OGC opinion. To assure that the interests
of the Government are protected, and that contracts are awarded
without favoritism, contracting officers must be more diligent.
AGENCY COMMENTS AND ACTIONS
The OARM and ORD Assistant Administrators either have already
acted, or have agreed to act, to resolve the issues discussed
above. Those actions, and the dates by when they are to be
taken, are summarized below.
Office of Administration and Resources Management
The Assistant Administrator agreed with this finding. He stated
that the finding showed serious deficiencies in the conduct of
contracting officers and that OARM is taking steps to prevent
similar events from occurring in the future.
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In June 1992, the OARM-Cincinnati Director:
1. Notified all Cincinnati contracting personnel that SBA
recommendations and 8(a) certifications are not
sufficient safeguards against conflicts of interest or
ethics violations; and,
2. Met with contracting personnel to emphasize, among
other things, that all work shall be completely
analyzed and determined to be in accordance with all
contracting statutes and regulations prior to the
contracting officer issuing it.
Also, the Assistant Administrator has instructed the PCMD
Director to:
1. Issue a special guidance document by mid-August 1992
developing procedures to ensure that contract awards
to former EPA employees comply with Government and EPA
ethics requirements.
2. Complete a detailed questionnaire by mid-August 1992
that contracting officers are required to use to
inquire into program officials' potential conflicts of
interest.
3. Develop a special training course by September 30,
1992 for all contracting officials regarding Agency
conflict of interest regulations and standards of
conduct.
Office of Research and Development
ORD actions taken during our review resolved our ORD related
concerns. These actions are discussed in the body of this
chapter.
Designated Agency Ethics Official
The DAEO intends to implement proposed Office of Government
Ethics regulations when they are formalized. He anticipates
these regulations to be final by July 31, 1992. The regulations
are anticipated to set out issues to be considered in approving
an employee's participation in matters which specifically
involve persons with whom the employee has a "covered
relationship."
PIG EVALUATION AND RECOMMENDATIONS
The Office of Administration and Resources Management and the
Office of Research and Development's actions and proposed
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actions, when implemented, will resolve the issues presented in
this chapter. However, the Designated Agency Ethics Official
must take additional actions. Deputy Ethics Officials must be
required to, rather than be recommended to, document substantive
ethics advice given. Also, the proposed Office of Government
Ethics regulations are under revision. Therefore, we recommend
that the Designated Agency Ethics Official:
1. Define substantive ethics advice, and require that
Deputy Ethics Officials maintain written records when
they give employees substantive ethics advice.
2. Put in place interim procedures, if the Office of
Government Ethics proposed regulations are not
finalized by August 15, 1992. The interim procedures
should minimally include determinations of the
information and/or types of information that ethics
officials should obtain in dealing with potential
conflict of interest situations and require that such
information be obtained.
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CHAPTER 3
EXISTING CHEMICAL ANALYSIS CONTRACT ALLOWED TO LAPSE AND
S4.5 MILLION CONTRACT AWARDED TO AScI IN 1989
In 1989, EPA allowed the remaining two years of an existing
three-year contract with UWS to lapse. Concurrently, EPA
awarded AScI a three-year contract worth about $4.5 million to
perform similar work at Duluth. UWS became AScI's prime
subcontractor on this new contract. The contract provided
Duluth with essentially the same services that it received under
the UWS contract, but at a higher cost to the Government. The
condition occurred because the Duluth Director became involved
in the bidding process and discouraged UWS from submitting a
bid. He also encouraged UWS to become a subcontractor to AScI.
As a result, AScI gained a competitive advantage over other
potential bidders.
At the time of the award, the Duluth Director's spouse served as
AScI's registered agent. Immediately, after EPA awarded AScI
the contract, the Duluth Director's spouse was hired as the
firm's only in-house attorney. The Duluth Director's actions
resulted in, or created the reasonable appearance of, giving
preferential treatment to AScI. As a result of allowing the UWS
contract to lapse, we estimate that the Government paid about an
additional $300,000 for essentially the same services.
IN 1989 DULUTH SWITCHED CONTRACTORS
Under a cooperative agreement and several contracts, UWS
developed over eight years of experience conducting joint
studies and related work involving chemical analysis support at
Duluth. UWS1 last contract award, if all option years were
exercised, would have ended in 1991. However, five months after
EPA awarded the 1988 contract, Duluth requested that a new
contract be procured. The proposed contract included similar
work to the work that UWS was already performing. According to
OARH and ORD, the contract was needed for anticipated new work.
This work, however, never materialized. The Duluth Director
anticipated the need for increased sample analysis for marine
mammals at Duluth. However, the number of samples analyzed were
substantially fewer than Duluth anticipated.
On September 30, 1989, EPA awarded AScI a $4.5 million, three-
year contract. As a result, EPA did not exercise the option
years on the UWS contract. However, UWS personnel continued
providing Duluth with the majority of work hours, as the prime
subcontractor on AScI's new contract.
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With Little Notice. EPA Did Not Renew An Existing TTurg Contract
UWS first provided Duluth with chemical analysis support under a
1981 cooperative agreement (CR808892) . Under the agreement, UWS
provided chemical analysis support and began its participation
in the National Dioxin Study. On April 20, 1985, UWS signed a
three-year, $1.4 million contract (68-03-6264) to continue work
at Duluth. UWS performed mass spectrometer analysis, initiated
the second phase of the National Dioxin Study, and developed
analytical procedures for foreign contaminants in fish* On June
7, 1988, EPA again awarded UWS a three-year contract (68-C8-
0019) to perform similar work. Under this contract, with a
potential value of $1.9 million, UWS continued providing
chemical analysis support and personnel for operation of the
mass spectrometer at Duluth. In addition, UWS continued work on
the National Dioxin Study.
Figure 1: Duluth Chemical Analysis Support
Contracting Maximum
Period Contractor Instrument Value
1981-1985 UWS Cooperative
Agreement $ 951,011
1985-1988 UWS Contract
68-03-6264 $1,374,188
1988-1991 (a) UWS Contract
68-C8-0019 $1,881,995
1989-1992 AScI (b) Contract
68-C9-0050 $4,569,073
(a) On September 29, 1989, EPA chose not to exercise its
option to renew the contract.
(b) UWS became AScI's subcontractor.
UWS also provided Duluth with work under a subcontract to AScI.
During 1988, EPA initiated the Great Lakes Mass Balance Study —
Green Bay, Wisconsin (Green Bay Study) . Under contract 68-03-
3544, a toxicological support service contract, Duluth issued
Work Assignment 9 to perform the study. AScI subcontracted with
UWS to do this work.
Duluth, through Cincinnati, initiated steps to replace the 1988
UWS contract, shortly after its June award. The actions of
Duluth and Cincinnati officials throughout fiscal 1989 appear
contradictory. While Cincinnati competed the new contract, it
continued to indicate to UWS that the existing contract would be
extended for two years. In the days before the AScI contract
was signed, EPA changed its position, notifying UWS that EPA
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would not exercise its option period. This terminated the UWS
contract.
In November 1988, just five months after EPA signed its latest
contract with UWS, the Duluth Director initiated a procurement
request to compete a new $4.8 million, three-year contract for
chemical analysis support. When awarded, this contract would
replace the existing UWS contract, and the Green Bay Study work
assignment.
While EPA was evaluating the two proposals that it received for
the new contract, the Duluth project officer for the UWS
contract informed Cincinnati that he intended to exercise the
first option period (fiscal 1990) on the UWS contract. On
July 12, 1989, Cincinnati wrote UWS that the Government intended
to exercise its first option under the current contract. Two
days later, Cincinnati wrote UWS that it also intended to
exercise the second option.
Just prior to the UWS contract lapsing, the Duluth project
officer continued indicating to Cincinnati that Duluth wanted to
exercise the contract option. On September 22, 1989, three days
after Cincinnati determined that AScI would be awarded the new
contract with UWS as a subcontractor, the project officer wrote
Cincinnati regarding funding the first option period for the
1988 UWS contract. The memorandum stated that:
We [Duluth] intend to fund the option period of the
subject contract [68-C8-0019] initially in the amount
of $100,000 with additional funding likely to follow.
A statement of work and a PR [procurement request]
will be sent to you as soon as possible. The nature
of this work will allow it to be performed primarily
off-site and at this time we do not anticipate that we
will require the contractor to perform any on-site
work.
Seven days later, on September 29, Duluth changed its position
and informed Cincinnati that it did not wish to exercise the UWS
contract option period. On that same day, Cincinnati wrote UWS
that EPA was not exercising its option. Also on that date, AScI
signed a three-year cost-plus-fixed-fee contract (68-C9-0050)
worth about $4.5 million for chemical analysis work at Duluth.
When EPA signed the contract on September 30, AScI became the
new prime contractor with UWS as its main subcontractor.
DULUTH DIRECTOR INTERFERED IN THE BIDDING PROCESS AND
HAD A CONFLICT OF INTEREST
Although EPA competed the 1989 contract which it awarded to
AScI, the Duluth Director improperly influenced its outcome. He
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encouraged UWS to become a subcontractor to AScI, rather than
submitting its own bid. In addition, his spouse's relationship
with AScI created the reasonable appearance of a conflict of
interest. At the time that Duluth initiated the procurement
request and throughout the period during which Cincinnati
evaluated proposals and awarded the 1989 contract to AScI, the
Director's current spouse was working for AScI in an unpaid
position. The Duluth Director never disclosed this relationship
to the DAEO. Two days after the contract was signed, his spouse
became a salaried AScI employee. Finally, during this same
period, the Duluth Director served as the chairman of the
Performance Evaluation Board (PEB) for a separate, existing AScI
contract. During the period that his spouse held the unpaid
position with AScI, the PEB recommended that AScI receive
$37,521 in award fees.
Duluth Director Interfered In The Contract Bidding Process
In November 1988, the Duluth Director initiated a procurement
action, which ultimately led to AScI receiving a $4.5 million
contract. He helped AScI become a strong candidate for this
contract by encouraging UWS, the incumbent contractor, not to
submit a bid. This action favored one potential bidder over
another. Government officials must conduct business in a manner
above reproach and with complete impartiality and preferential
treatment for none.
During April 1989, EPA publicized its intention to solicit
proposals for the new chemical analysis support contract. One
month later, EPA issued a Request for Proposal for these
services. Companies were given until June 1 to submit their
proposals. Two potential contractors submitted proposals - AScI
and Aspen Research Corporation (Aspen). AScI's proposal relied
heavily on UWS' work experience at Duluth. AScI proposed UWS as
its prime subcontractor.
UWS intended to, but did not, submit a bid for the 1989 Duluth
contract. According to the UWS contract manager, it was his
understanding that the Duluth Director wanted AScI to be awarded
the contract. According to his sworn affidavit:
UWS was interested in bidding on the new contract....
While preparing our bid to the [Request for Proposal,
the Duluth Director] called me and inquired if I would
consider becoming a subcontractor to AScI in a joint
bid on the contract.
...[A UWS employee working on site at Duluth]
indicated to me that he perceived that [the Duluth
Director] wanted AScI Inc. to be awarded the new
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contract5 [The Duluth Director] had indicated to
many people that work being done on-site at the EPA
lab should go through the in-house contractor
[AScI]
AScI's ability to propose UWS as its main subcontractor greatly
strengthened its proposal. UWS had provided similar services as
the incumbent contractor for the eight previous years.
According to the president of Aspen, the competing bidder, a
limited number of companies in the United States possessed the
experience to compete on the contract. At the time of AScI's
bid, about 90 percent of the individuals that AScI proposed
worked for UWS. In addition, the solicitation indicated that
about 67 percent of the technical evaluation points were based
on staff experience which AScI obtained through UWS personnel.
According to one preparer of Aspen's competing proposal, at the
time Aspen prepared its bid, it believed that Duluth wanted AScI
to be awarded the contract because AScI was already doing other
contract work at Duluth.
According to 48 CFR 3.101-1, Improper Business Practices and
Personal Conflicts of Interest:
Government business shall be conducted in a manner
above reproach and, except as authorized by statute or
regulation, with complete impartiality and
preferential treatment for none. Transactions
relating to the expenditure of public funds require
the highest degree of public trust and an impeccable
standard of conduct. The general rule is to avoid
strictly any conflict of interest or even the
appearance of a conflict of interest in Government-
contractor relationships....
The Duluth Director did not conduct himself in a manner above
reproach. He discouraged UWS from submitting its own bid for
work at Duluth. He also made it known to the contractor
community that he preferred AScI. As a result, AScI's
competitive position was strengthened.
Duluth Director Had A Conflict of Interest
While encouraging UWS to join AScI in bidding for the 1989
chemical analysis support contract, the Duluth Director had a
conflict of interest. At the time that Duluth initiated the
procurement request and throughout the period during which
Cincinnati evaluated proposals and awarded the 1989 contract to
5The UWS employee referred to became AScI's on-site project
manager.
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AScI, the Director's spouse was working for AScI in an unpaid
position. Two days after EPA signed the contract, AScI hired
the Duluth Director's spouse for a paid position as its only in-
house attorney.
According to AScI's corporate minutes, in May 1988 the Duluth
Director's spouse became AScI's registered agent in Minnesota.
The Director's spouse confirmed that she did act as AScI's
registered agent, but she placed her starting date as March
1989. In accepting the position, she assumed some legal
liability, but received no monetary compensation. Regardless of
which date correctly represents her appointment to this
position, it predated the Agency's April 1989 public
announcement that Duluth was seeking a contractor to perform
chemical analysis support. As a result, at the time of the
announcement, the Duluth Director had an undisclosed potential
conflict of interest.
On September 25, 1989, four days before AScI signed the new
chemical analysis support contract, the Duluth Director
requested that the DAEO approve his spouse's future employment
with AScI. His request did not disclose that his spouse was
performing work for AScI prior to this date. He also did not
disclose that he was then the PEB chairman for an existing AScI
toxicological support contract. On September 28, 1989, the DAEO
approved the Duluth Director's request. On October 2, 1989, the
Duluth Director's spouse accepted AScI's employment offer, and
became AScI's only in-house attorney.
Federal law bars Government employees from participating in
matters which affect their spouse's financial interests.
According to 18 U.S.C. 208(a), Federal employees are barred from
participating, even by advice or recommendation, in contracts
which affect their or their spouse's financial interests. EPA
has restrictions [40 CFR 3.103(d)] that prohibit its employees
from participating in matters that may result in, or create the
reasonable appearance of, a conflict of interest. These
regulations further provide that employees may not take any
action, whether specifically prohibited or not, which would
result in, or create the reasonable appearance of: (1) giving
preferential treatment to any organization or person, (2) losing
independence or impartiality of action, or (3) adversely
affecting the confidence of the general public in the integrity
of the Government.
The Duluth Director had great influence over AScI's revenues.
AScI was almost entirely dependent on EPA for its existence.
EPA contracts provided for over 90 percent of AScI corporate
revenues (see Exhibit 3) and since AScI was also his spouse's
employer, the Duluth Director's actions resulted in, or created
the reasonable appearance of, giving preferential treatment to
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AScI. In addition, EPA could not be assured that the contracts
were awarded in the best interests of the Government.
Agency Ethics Officials Did Not Inquire About
The Nature Of The Duluth Director's Duties
The DAEO's office is responsible for the overall management of
the EPA ethics program. According to the Alternate Agency
Ethics Official, the decision to grant the Duluth Director's
request for approval of his spouse's employment was based solely
on the information the Duluth Director submitted. The DAEO's
office was unaware that, since April 1988, the Duluth Director
had been chairman of the PEB which recommended award fees for
the 1987 Duluth toxicological support contract which AScI held.
The DAEO's office was also unaware that a large percentage of
AScI's revenue came from EPA contracts. Finally, the DAEO's
office was unaware that the Director's spouse was already AScI's
registered agent in Minnesota. The DAEO could not provide any
supporting evidence of conversations between his office and the
Duluth Director. Thus, there was no evidence that, prior to
approving the Duluth Director's reguest, the DAEO's office
inquired into the nature of the Duluth Director's duties in
relation to AScI. An effective Agency ethics program needs
ethics officials to be vigilant for potential conflicts of
interest.
On July 5, 1988, the DAEO issued EPA Ethics Advisory 88-5,
"Spousal Employment," emphasizing the restrictions of 40 CFR
3.103 to all DEOs, including the Duluth Director, who is a DEO.
This advisory on spousal employment, as well as Agency
regulations, prohibit any action which might result in, or
create the reasonable appearance of, a conflict of interest. By
recommending award fees and involving himself in the contract
procurement, the Duluth Director violated EPA's regulations and
EPA's policy on spousal employment.
DULUTH'S REASONING FOR THE NEW CONTRACT MAY NOT BE JUSTIFIABLE
Duluth justified the need for a new contract for chemical
analysis support to Cincinnati officials. Duluth reasoned that
the existing UWS contract did not: (1) have sufficient direct
labor hours to meet Duluth's future needs, and (2) provide for
all work assignments that Duluth had envisioned. However, our
analysis showed that Duluth's reasoning for the contract may not
have been justifiable.
Work performed under the AScI contract was similar to that
performed under the prior UWS contract. For example, Work
Assignment 4 of the 1988 UWS Dioxin Study directed UWS to
conduct marine mammal studies. In addition^ during the first
two years of the AScI contract, actual level of effort hours
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used were within the capacity available under the lapsed UWS
contract. Finally, since AScI's contract used most of the same
personnel employed on the prior UWS contract, the technical
skill level did not vary. The purpose of the new contract
seemed to be the substitution of AScI for UWS as the prime
contractor.
New Contract Provides Essentially the Same Services as UWS was
Already Providing
The 1989 AScI contract consolidated the work UWS was doing as a
prime contractor and as a subcontractor to AScI. According to
the UWS contract manager, the request for proposal called for
essentially the same work as UWS was already performing under
its 1988 contract. Our analysis confirmed this. As a
subcontractor to AScI, UWS provided personnel who, under AScI's
supervision, analyzed on-site at Duluth for dioxin compounds,
furan compounds, pesticides, and other organic compounds, using
previously established protocols. These tasks, plus others that
UWS performed as a subcontractor, comprised about the same work
that UWS had performed as a prime contractor in 1988.
UWS also worked under one work assignment for the AScI 1987
toxicological support service contract (68-03-3544). Under the
work assignment, UWS performed the Green Bay Study. AScI's work
assignment plan provided for UWS to incur 92 percent of the
labor hours. Ascl's contribution for this work assignment
consisted of a technical project leader and a secretary. Duluth
continued the study under the new AScI contract (69-C9-0050),
again with UWS as its subcontractor.
Increased Capacity Requirements Not Evident
The 1989 AScI contract provided for a greater number of
potential direct labor hours than the 1988 UWS contract.
However, this increased capacity was not used. The actual hours
expended during the first two years of the AScI contract were
about the same as those that would have been available under the
option years of the UWS contract. The 1988 UWS contract
provided a potential for 99,840 direct labor hours over the
three-year life of the contract. Duluth's request for increased
capacity resulted in the newly awarded AScI contract having a
total capacity of 145,166 hours. However, as shown in Figure 2,
actual use of the AScI contract could have been accommodated
under the previous UWS contract.6
compared the Base and Option Period 1 of the AScI
contract to the UWS contract. Option Period 2 of the AScI
contract provided an additional 48,052 hours of direct labor.
However, since the UWS contract would not have extended into
this time frame, we did not include this year in our analysis.
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Figure 2: AScI Contract Hours Utilized
Compared to Available UWS
Contract Caacit
Maximum Hours
Authorized in Contract
Actual Hours Expended
- AScI
Percentage of Contract
Hours Used versus
Available UWS Capacity
UWS
Contract
68-C8-0019
33,280 *
N/A
AScI
Contract
68-C9-0050
Base Year
49,062
32,102
96.5
AScI
Contract
68-C9-0050
Option 1
48,052
33,926
101.9
* Maximum hours available under the UWS contract included
33,280 hours in each of three years (1 Base + 2 Option) for
a total of 99,840 hours.
Contractor Personnel Remain the Same
Personnel performing work under the AScI contract were
essentially the same as those working on the prior UWS contract.
Personnel described as employed by UWS, in the AScI May 1989
proposal, account for 87 percent of the direct labor hours on
the AScI contract. Our analysis showed that sixteen of the
eighteen individuals AScI proposed to work on the contract were
UWS employees at the time of the proposal. Subsequent to the
AScI award, AScI hired six of these individuals directly to work
on-site at Duluth. AScI subcontracted all off -site work under
the contract directly to UWS. As a result, the composition of
the AScI contract work force did not vary significantly from the
work force UWS employed under its 1988 contract.
AScI CONTRACT CONTAINED ADDITIONAL COST ELEMENTS
In total, the first two years of the AScI contract provided 532
fewer hours of effort than would have been available under the
UWS contract, while costing an additional $308,236. The UWS
contract was a cost reimbursable agreement and the AScI contract
was a cost plus fixed fee arrangement. In addition, each
contractor had different overhead rates. As a result, it, was
not possible to directly compare individual billings. However,
as previously indicated, the first two years of the AScI
contract expended about the same number of hours as would have
been available under the UWS contract. Therefore, as shown in
Figure 3, the first year of the AScI contract provided 1,178
fewer hours of effort than were available under the UWS
21
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contract, but cost the Government an additional $124,476- As
shown in Figure 4, the second year of the AScI contract provided
646 additional hours than were available under the UWS contract,
but cost the Government $183,760 in added cost.
Figure 3: AScI Costs Versus UWS Costs
Year 1
Hours Available
under UWS - Option 1
Hours Expended under
AScI - Base
Variance
Hours
33,280
32.102
1.178
Dollars
$627,200
$751.676
($124.476)
Figure 4: AScI Costs Versus UWS Costs
Year 2
Hours Available
under UWS - Option 2
Hours Expended under
AScI - Option 1
Variance
Hours
33,280
Dollars
$651,940
$835.700
($183.760)
AGENCY ACTIONS TAKEN DURING OUR REVIEW
On March 16, 1992, the ORD Assistant Administrator provided us
with a listing of corrective actions that ORD and OEPER have
taken. These included:
1. In March 1992 the Duluth Director was detailed into a
senior scientist position at the Laboratory.
2. All laboratory solicitations greater than $250,000 a
year must be approved by the OEPER Director.
On December 30, 1991, the DAEO issued EPA Ethics Advisory 91-13,
"Keeping Records of Ethics Advice". The Ethics Advisory
recommended that DEOs create a written record whenever they give
substantive ethics advice to Agency officials and employees.
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CONCLUSIONS
The public is entitled to have complete confidence that official
decisions are free from considerations of self-interest or
favoritism. Given the circumstances described in this chapter,
the Duluth Director's direct participation, in actions that
affected the revenues of his spouse's employer, results in or
creates the reasonable appearance of a conflict of interest. By
recommending award fees and involving himself in the contract
procurement, the Duluth Director violated EPA's regulations and
EPA's policy on spousal employment.
Agency ethics officials approved the Duluth Director's spouse's
employment with AScI without inquiring into the nature of the
Director's duties in relation to the firm. Agency ethics
officials must be more vigilant in assuring that the public
trust is protected.
Also, in this case, within months of the contract award to UWS,
Duluth requested a new contract for similar work. The purpose
seems to be to substitute AScI for UWS as the contractor. In
the future, ORD Headquarters and Cincinnati officials must
scrutinize Laboratory requests for new procurements.
AGENCY COMMENTS AND ACTIONS
The OARM and ORD Assistant Administrators, as well as the DAEO,
either have already acted, or have agreed to act, to resolve the
issues discussed above. These actions, and the dates they are
to be taken by, are summarized below.
Office of Administration and Resources Management
The Assistant Administrator disagreed that the new AScI contract
was for the same work that had been performed under the existing
UWS contract. He stated that:
Cincinnati's involvement in this revolves around its
participation in the lapsing of the UWS contract and
the procurement of the AScI contract. The original
UWS contract prescribed support limited to the
National Dioxin Study. The contract eventually won by
AScI was a much larger one involving marine mammal
studies support and requiring both on and off-site
work .... Based upon the intended purposes of each
contract, it would have been improper for the
contracting officer to permit the original contract to
continue as a larger, more general marine mammal
support effort. Cincinnati contracting officials,
unaware of the alleged activities of Duluth personnel,
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were not at fault in processing what appeared to be a
new procurement.
The Assistant Administrator further stated that Cincinnati
contracting officers did lead UWS into believing that two of its
contract options would be exercised and then not doing so at the
last minute.
Finally, the Assistant Administrator stated that OARM will
develop guidance, by the end of July 1992, for contracting
officers regarding how to proceed when they note potential
procurement or contracting irregularities. The guidance will
emphasize the vital importance of their responsibility to review
contract packages to assure that Government and Agency
regulations are followed.
Office of Research and Development
The Assistant Administrator agreed that AScI's employment of the
Laboratory Director's spouse and the Director's chairing the PEB
created the appearance of a conflict of interest. He disagreed
that work properly done under the AScI contract could have also
been properly done under the UWS contract. He further stated
that:
The cost comparisons and other conclusions relative to
the two contracts would only be valid if work
performed under the AScI contract could have been
performed under the UWS contract.
Designated Agency Ethics Official
The DAEO intends to issue an EPA Ethics Advisory covering the
issues discussed in this chapter, after the Office of Government
Ethics regulations become final. He stated that, in cases where
the "agency designee" determines that a Senior Executive Service
employee should not participate, the employee's supervisor will
receive a copy of the determination.
PIG EVALUATION AND RECOMMENDATIONS
The Assistant Administrators for Administration and Resources
Management and for Research and Development did not agree that
Duluth's reasoning for a new contract was not justified. We
agree that there may have been a need for a contract for a
marine mammal study. UWS was conducting the marine mammal study
under its existing contract. The study may have been outside
the contract's scope. However, it represented seven percent of
the hours under this contract. The remaining 93 percent of the
hours were for UWS to conduct the National Dioxin Study. This
study was clearly within the contract's scope. The National
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Dioxin Study could have continued under the existing UWS
contract which EPA allowed to lapse.
Our main point remains that both before and after the new
contract, the same UWS employees continued to perform
essentially the same work, but at an increased cost. This
higher cost, which we estimate at about $300,000, went to AScI.
This was a firm with which the Duluth Director had a conflict of
interest.
The Office of Administration and Resources Management and the
Office of Research and Development's actions and proposed
actions, when implemented, will resolve the issues presented in
this chapter. However, the Designated Agency Ethics Official
must take additional actions. The proposed Office of Government
Ethics regulations are under revision. Therefore, we recommend
that the Designated Agency Ethics Official:
1. Issue an interim Ethics Advisory, if the Office of
Government Ethics proposed regulations are not
finalized by August 15, 1992. The Ethics Advisory
should include a checklist of information to be
obtained before an employee may participate in matters
where there is any potential for a conflict of
interest. The Ethics Advisory should also clearly
advise employees of their responsibility to keep
Agency ethics officials informed about any changes in
facts or circumstances.
2. Upon issuance of the Office of Government
Ethics regulations, issue an Ethics Advisory
with the previous mentioned (a) checklist
and (b) advise.
3. Establish a procedure that requires
supervisors of Senior Executive Service
employees to be informed, in writing, of any
discussions or decisions regarding potential
conflicts of interest.
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26
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CHAPTER 4
$9 MILLION IN TOXICOLOGICAL CONTRACT AWARDS TO AScI
IN 1990 WERE NOT COMPETITIVELY BID
In 1990, EPA (through SBA) awarded AScI, an 8(a) contractor,
three sole-source contracts that totalled over $9 million,
deliberately avoiding competition. Duluth officials proposed
multiple contracts because the Duluth Director wanted: (l) the
incumbent contractor to continue working at Duluth on all three
contracts, and (2) to avoid worrying contractor personnel about
job security. The Duluth Director's actions result in, or
create the reasonable appearance of, giving preferential
treatment to AScI, which employed his current spouse.
Contracting officials approved and processed the three contracts
as a group, knowing that Duluth's estimates were just under the
competitive threshold. In doing so, the contracting officials
did not fulfill their responsibilities to ensure adherence to
applicable laws and regulations before entering into contracts.
As a result of awarding the contracts sole-source, EPA did not
provide other 8(a) firms the opportunity to bid, and cannot be
assured that the contracts were awarded in the best interest of
the Government. The Business Opportunity Development Reform Act
of 19887 requires that the Government competitively bid all 8(a)
service contracts that have an estimated value over $3 million.
EPA's actions in awarding the contract are particularly
questionable in light of personal conflicts of interest created
by the Duluth Director in procuring and managing the AScI
contracts. Even though his spouse has served as AScI's only in-
house attorney since October 1989, the Duluth Director did not
distance himself from issues which might create a conflict of
interest. Instead he specifically involved himself in the
procurement and management decisions which led to AScI's being
given more than $142,000 of award fees.
DULUTH OFFICIALS SPLIT ONE CONTRACT INTO THREE
TO AVOID COMPETITION
Since 1986, EPA has contracted with AScI, an 8(a) firm
headquartered in Virginia, to provide toxicological support
services for Duluth. AScI's toxicological support contracts at
Duluth have tripled from slightly under $1 million annually in
fiscal 1987 to about $3 million in fiscal 1991 (see Exhibit 1).
In September 1990, AScI was awarded three separate sole-source
7P.L. 100-656, Sec. 303(b), codified at 15 U.S-C.
637(a)(l)(D)
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contracts to provide toxicological support services to Duluth
(see Exhibit 2). The maximum potential value of these contracts
is just over $9 million.
EPA's Estimated Procurement Value For Each Of The Three
Contracts Was Just Under The Level For Competition
Instead of grouping all work assignments under one contract,
Duluth officials grouped the on-going work assignments into
three contracts, each estimated to have a value of just under $3
million (see Figure 5). This eliminated the need to compete $9
million worth of contracts. If the estimated procurement value
of an 8(a) service contract is under $3 million, the Government
does not have to compete the contract. Cincinnati approved
these estimates. As a result, AScI was awarded all three
contracts without competition.
Figure 5: Fiscal Year 1990 AScI Contracts
for the Duluth Laboratory
(In Millions)
Number &
Effective
Date
68-CO-0056
9/20/90
Service
Toxicological
Support
Services
Estimated Contractor's
Procurement Proposed Contract
Value Value Value
$2.81
$3.16
$3.13
68-CO-0057
9/20/90
Aquatic
Toxicology
Testing
$2.90
$3.08
$3.08
68-CO-0058
9/20/90
Total
Toxicity $2.89
Identification
Evaluations
$8.60
$3.06
$9.30
$3.07
$9.28
AScI/s Work Is the Same. But Under Three Contracts
The three new toxicological contracts require virtually the same
work from AScI as the prior single contract. In order for
Duluth to continue having AScI as its contractor, Duluth
officials reconfigured the work assignments into three new
contracts, each just under the $3 million competitive threshold.
In dividing the work assignments into three contracts, Duluth's
choice of which work assignments to place under each contract
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was sometimes not logical, other than to assure that the
estimate for each contract was under $3 million. For example,
in fiscal 1991, support tasks such as graphics estimated at
$54,000 were included under the Aquatic Toxicology Testing
contract, not the Toxicological Support Services contract. On
the other hand, more scientific tasks, such as: (1)
experimenting with fish in respirometer-metabolism chambers, (2)
conducting aquatic toxicity tests with floranthene, and (3)
developing a methodology for estimating the effects of global
climate change on U.S. fisheries, were included under the
Toxicological Support Services contract. These work assignments
are estimated at $361,000.
The Duluth Director Wanted To Avoid Competition That Would Be
"Unsettling" To The AScI Staff
The Duluth project officer stated that the Duluth Director
decided to split the contracts, keeping each under the
competitive bidding limit because, among other things, awarding
the contracts sole-source would avoid upsetting current contract
personnel about their future job security. The Duluth Director
outlined this reasoning in a May 7, 1990 memorandum directing
the project officer and the Associate Duluth Director to work
with the contracting officer on awarding three contracts rather
than one. He stated that:
I am afraid to have our entire lab on one contract
which may be driven by only one of two study areas.
We would be in boom-or-bust during the competition -
and the competition is unsettling to the staff.
The Duluth Director's rationale is not consistent with the
intended purpose of the Business Opportunity Development Reform
Act of 1988. The Act clearly calls for service contracts over
$3 million to be competitive. In a report accompanying the Act,
the Congress endorsed competition among 8(a) participants as
beneficial to the Government, stating that competition serves as
an effective safeguard against abuses that can flourish in a
sole-source contract award environment.
Duluth Director's Actions Continued to Create A Personal
Conflict Of Interest
As discussed in Chapter 3, on October 2, 1989, AScI hired the
Duluth Director's current spouse as its only in-house attorney.
According to AScI's president, she provides the company with
legal services on a variety of matters from personnel to general
EPA issues. The spouse was originally hired at $26.00 per hour
and was subsequently raised to $27.95 per hour. The spouse was
hired specifically to work on an Air Force contract. AScI,
based in Virginia, opened an office in Duluth for this contract.
In January 1991 the Air Force terminated this contract.
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According to AScI's owner, the company still performs similar
work for the Air Force and others. Throughout this time period
over 90 percent of AScI's revenues were from EPA-related work.
The Duluth Director listed four conditions in his September 25,
1989 request that he would abide by in order for his spouse to
work for AScI. One of these conditions was that he immediately
notify the DAEO if an issue arose regarding the AScI contract
which might create a conflict of interest. Since that request,
the Duluth Director, because of his position, has participated
in several procurement actions that influenced the contracts and
award fees AScI received. For example:
o Since his spouse began working for AScI in a paid
position, the Duluth Director has chaired three PEBs
that awarded AScI a total of about $142,000 in award
fees for the prior cost-plus-award-fee contract. The
other members of the PEB report to the Duluth
Director. In each case, the PEB evaluated AScI's
performance as "exceeds expectations" for the
preceding six months and recommended an award fee
payable to AScI. Based on the PEB decision, the
contracting officer accepted the recommendation and
authorized the award fee payment to AScI.
o In May 1990, the Duluth Director instructed his
Associate Duluth Director and the project officer to
make renewing the AScI Duluth contracts their top
priority, and to brief him every week. Based on
recommendations from the Duluth Director's staff, the
contracting officer awarded three $3 million contracts
sole-source.
In May 1991 the Duluth Director's spouse stated that she and her
husband have abided by the conditions of EPA's approval of her
employment with AScI. However, according to the DAEO's
alternate, the Duluth Director did not inform the DAEO's office
of the above actions. The Duluth Director did not abide by his
own statement to immediately inform the Agency of issues which
may create a conflict of interest involving his spouse's
employment.
As discussed in Chapter 3, 18 U.S.C. 208(a) bars Government
employees from participating in matters which affect their
spouse's financial interests. EPA has additional restrictions
in 40 CFR 3.103(d) that prohibit its employees from
participating in matters that result in, or create the
reasonable appearance of, a conflict of interest. The Duluth
Director has great influence over AScI's revenues. The Duluth
Director's actions result in, or create the reasonable
appearance of, giving preferential treatment to AScI. In
addition, EPA cannot be assured that the contracts were awarded
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in the best interests of the Government. Finally, EPA's
credibility with the general public and the credibility of its
8(a) Program have been tarnished.
CINCINNATI CONTRACTING OFFICIALS APPROVED
DULUTH'S ACTIONS WITHOUT QUESTION
EPA requires contracting officers to ensure that all
requirements of laws and regulations have been met prior to
entering into a contract. Contracting officers have the sole
authority to sign contracts and obligate funds. Cincinnati
contracting officials stated that, due to workload pressures,
they neither analyzed the Duluth estimates in detail nor
questioned the validity of splitting the former contract into
three new contracts. They approved these estimates and sent the
proposed contracts to SBA. SBA then approved the proposed
contracts. As a result, AScI was awarded $9 million in
Government contracts without competition.
Memoranda in files in Cincinnati clearly show that the
contracting officials were aware that all three contracts were
going to the same contractor. In spite of this, Cincinnati
contracting officials accepted Duluth's estimates. The
Cincinnati contracting officials were also fully aware that each
contract was estimated at just under the competitive threshold
for an 8(a) contract. Finally, Cincinnati contracting officials
processed all three contracts as a group. The three contracts
are numbered consecutively and the same officials signed all
three approvals on the same day.
One purpose of the 8(a) Program is to increase the number of
minority-owned and small businesses receiving Government
business. Since at least 1987, EPA officials have been directed
to maximize the number of 8(a) firms receiving contracts. In
April 1990, the Administrator encouraged breaking up contracts
to "reduce the conflict of interest potential and provide for
more involvement of small and minority-owned businesses."
However, breaking up the contract, only to award it sole-source
to a single firm, conflicts with EPA and the 8(a) Program's
policy of increasing the number of minority-owned and small
businesses.
AGENCY ACTIONS TAKEN DURING OUR REVIEW
On July 23, 1991, the Assistant Inspector General for Audit
wrote the PCMD Director outlining concerns relating to contract
splitting. On August 9, 1991, the Director replied that:
The Contracts Management Division at Cincinnati has
made a determination not to exercise the renewal
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options on these three contracts. Instead, three
month extensions will be negotiated for each. During
the period of the extensions, [Cincinnati] will
conduct a new procurement combining the effort into a
single contract. This action will be conducted as a
competitive 8(a) procurement. Negotiations for the
extensions and processing of the new contract will
begin the week of August 12, 1991.
On October 3, 1991, EPA advertised in the Commerce Business
Daily that EPA was seeking a qualified contractor to provide
technical support services on-site at Duluth. The announcement
also stated that the Agency anticipates awarding a cost-plus-
award-fee, level of effort, term contract with a base year and
four option years. Furthermore, the Agency stated that it is
considering setting the procurement aside for qualified 8(a)
firms, but reserves the right to make that determination at a
later date.
On March 16, 1992, the ORD Assistant Administrator provided us
with a listing of corrective actions that ORD and OEPER have
taken. These include:
1. ORD Headquarters must approve all on-site support
contracts over $500,000 before the procurement
packages are sent to Cincinnati.
2. PEB members must certify that they have no conflicts
of interest.
CONCLUSIONS
Project and contracting officials must conduct Government
business in a manner above reproach and with complete
impartiality. Government employees must be particularly
diligent in assuring that they exercise due care when
negotiating and awarding Government contracts. For the three
current Duluth toxicological support service contracts, project
and contracting officials did not exercise due care in ensuring
that contracts were awarded in the best interests of the
Government. Instead, the contracts appear to have been split to
avoid the competition the Business Opportunity Development
Reform Act of 1988 requires.
The Duluth Director's involvement in recommending AScI for
contracts and award fees, without notifying the DAEO, was not in
accordance with the agreement approving his spouse's employment
with AScI. The Director's actions resulted in, or created the
reasonable appearance of, a personal conflict of interest.
Thus, the integrity of the acquisition process has been
compromised. In addition, EPA's credibility with the general
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public and the credibility of its 8(a) Program have been
tarnished.
AGENCY COMMENTS AND ACTIONS
The OARM and ORD Assistant Administrators, as well as the DAEO,
either have already acted, or have agreed to take actions, to
resolve the issues discussed above. Those actions, and the
dates they are to be taken by, are summarized below.
Office of Administration and Resources Management
The Assistant Administrator agreed with this finding. He also
stated that Cincinnati contract officials improperly split
Duluth's procurement needs into three separate contracts to
avoid competition. He added that Cincinnati contracting
officials initially forwarded the three contract actions to SBA
to be processed under competitive 8(a) procedures.
Nevertheless, he agreed that contracting officials were not
aggressive in resolving differences with Duluth and SBA.
The Assistant Administrator stated that:
1. The new Duluth contract will be
competitively bid. That contract will be
placed from PCMD Headquarters to avoid any
appearance of bias.
2. PCMD will complete a revision of its
Contracts Management Manual, by December 31,
1992, to require all PEB members to certify
that they have no conflicts of interest.
3. PCMD will issue a policy statement to
contracting officers, by July 31, 1992,
stating that 8(a) procurement estimates
should be scrutinized for compliance with
the Business Opportunity Development Reform
Act of 1988.
4. PCMD plans to issue guidance on the proper
use of the 8(a) Program and the need for
controls by July 31, 1992.
5. OARM wrote all Cincinnati contracting
officers in June 1992 that they cannot rely
on SBA alone for resolution of potential
conflict of interest or ethics issues
concerning 8(a) firms. Also, they should
report any attempt to split up 8(a)
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requirements to avoid competitive thresholds
to a Senior Procurement Manager.
Office of Research and Development
The Assistant Administrator stated that he had no information to
dispute the findings in this chapter. He acknowledged that
breaking up a contract and non-competitively awarding the
resulting smaller contracts to the same contractor, in this case
AScI, creates the appearance of favoritism. Finally, he stated
that SBA's role in this affair should be submitted to an
appropriate entity for investigation.
The Assistant Administrator stated that in addition to ORD'S
already taken, he has directed that:
1. No extensions be granted to continue EPA
work under Duluth's three non-competitively
awarded 8(a) contracts that are scheduled to
end June 30, 1992.
2. Competitive solicitations be initiated by
September 30, 1992, to replace non-
competitively awarded contracts in ORD
offices and laboratories, to the extent
possible and appropriate.
Designated Agency Ethics Official
The DAEO stated that, based on the information in our report,
(1) the employment of the Duluth Director spouse's employment
created a conflict, (2) the Director should have recused himself
regarding AScI, and (3) concurrence in the spouse's employment
should not have been granted.
He stated that his Office will provide detailed information
regarding spousal employment questions in an Ethics Advisory
addressed to all DEOs.
PIG EVALUATION AND RECOMMENDATIONS
The Office of Administration and Resources Management and the
Office of Research and Development's, as well as the Designated
Agency Ethics Officials's, actions and proposed actions, when
implemented, will resolve the issues presented in this chapter.
The Designated Agency Ethics Official needs to provide us with a
milestone date for his planned Ethics Advisory.
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CHAPTER 5
WORK ASSIGNED TO AScI WAS NOT INCLUDED
IN WORK ASSIGNMENTS OR THE SCOPE OF THE CONTRACTS
For several years, Duluth and Cincinnati officials allowed AScI
to conduct work at Duluth that was either not included in the
contracts' scope of work or in work assignments. This work
included remodeling and maintenance tasks for AScI, the
toxicological support services contractor. Duluth officials
believed that their actions were justified as long as Duluth
benefitted. Cincinnati contracting officers: (l) did not
enforce Agency regulations prohibiting work to start prior to
their written approval; and (2) approved the work assignments
without reading them, even though the work was not allowable
under the contracts' terms. As a result, contracting officers
committed the Government to expend funds for unauthorized
services. The Duluth contracts clearly forbid AScI from
performing: (1) work until the contracting officer gives written
authorization, and (2) additional duties not within the scope of
the contract.
WORK CONDUCTED WITHOUT CINCINNATI'S APPROVAL
In 1987 Cincinnati contracting officials had indications that
Duluth officials were allowing AScI to begin work without
approved work assignments. Although Cincinnati officials knew
of this problem, they did not take explicit actions to correct
it. At the end of fiscal 1988, an AScI report to Cincinnati
indicated that AScI's employees were performing remodeling and
maintenance at Duluth. Duluth did not submit a work assignment
for the remodeling until the following year. Work assignments
that Duluth did submit were outside the scope of AScI's
contracts.
According to the EPA Acquisition Regulation, 48 CFR 1552.212-71,
and the contracts between EPA and AScI, AScI can not perform
work until the contracting officer authorizes it in writing.
This work must be defined in work assignments the contracting
officer issues. A July 1987 internal memorandum between
Cincinnati contracting officials indicted that AScI was
performing work at Duluth prior to the work being authorized in
work assignments. According to the memorandum:
The contract [68-03-3373] has been difficult to
administer.—The process of issuing any work
assignments is lengthy; usually, the work begins prior
to the approval... Initially, verbal approvals were
given because of the urgency on the part of the
Program to begin work. However, as problems
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multiplied, the Contractor and the Program were told
that no verbal approvals would be given and that all
documentation would be required in the Contracts
office prior to issuance of written approval for WA's
[work assignments]. Indications are that work still
begins prior to the approval of the WA's.
Under AScI's next contract (68-03-3544), AScI continued to
perform tasks not included in work assignments. At the end of
fiscal 1988, AScI's Technical and Financial Progress Report
showed that AScI employees were painting, laying tile, framing
and hanging pictures of past and present directors, and
constructing rooms. Also, the report stated that:
The small conference room and council meeting room
were constructed on the first floor of the annex. The
annex was remodeled into a men's locker room. All new
construction involved materials planning and picking
up supplies.
At the time of AScI's report, Duluth still had not included the
above listed tasks in the work assignments it submitted to
Cincinnati. Although AScI reported the work, Cincinnati did not
compare AScI's report to the work assignments under the
contract. Even if Duluth had submitted the tasks for approval,
the tasks would still have been outside the contract's scope.
BEGINNING IN FISCAL 1989 DULUTH INITIATED WORK ASSIGNMENT
TASKS OUTSIDE THE CONTRACTS' STATEMENTS OF WORK
In fiscal 1989 Duluth project officers began including
remodeling and maintenance tasks in work assignments.
Additionally, Duluth proposed several work assignments for
tasks, such as providing a receptionist and library services,
which were not included in the AScI contracts' statements of
work.
The AScI contracts at Duluth clearly forbid AScI from performing
duties not within the scope of the contracts. EPA's Contract
Administration manual cautions project officers, when preparing
work assignments, not to include any tasks outside the scope of
the basic contract. Duluth project officers have not followed
the terms and conditions of the contracts or the manual's
precautionary advice. Instead, they proposed work assignments
to the contracting officer that disregarded the contracts'
statements of work.
Duluth project officers knowingly initiated at least six work
assignments under the prior contract and two under the current
contracts that directed AScI to perform tasks which were outside
the scope of the contracts' statements of work. The tasks
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directed AScI, the toxicological support services contractor,
to: (1) remodel and rebuild laboratories and offices, (2)
provide a receptionist and assist staff with travel documents,
and (3) perform library services (See details of the contracts
involved and the specific work assignment numbers in Exhibit 4).
AScI "Physical Scientists" Remodeled Offices And Repaired Lawn
Equipment
Since fiscal 1989, the statements of work in each AScI contract
directed AScI to provide laboratory helpers and instrument
technicians. These individuals were to: (1) maintain aquatic
organism culturing support systems; and (2) assist contractor
technical personnel in simple tasks such as obtaining supplies,
receiving samples and cleaning glassware. However, work
assignments not only included the above tasks, but also directed
AScI to:
1. Assist with the remodeling/rebuilding of existing
laboratories, offices, and outbuildings.
2. Assist the carpenters with the construction of the new
office complex in the annex.
3. Perform repairs on lawn equipment and other small
engines.
The annex was an existing Government structure which EPA had
AScI remodel into laboratory office space. The annex currently
provides work space for AScI's employees. AScI assigned three
of its employees to remodel the annex.
The work performed under EPA's work assignments clearly did not
match the job description of laboratory helpers/instrument
technicians in the contract. In fiscal 1989 and 1990, AScI
employees with the job title "physical scientist/technician"
remodeled the annex. This work was performed under 68-03-3544,
which did not include such a job title. Under the current
contract (68-CO-0056), these employees are called "laboratory
helpers/instrument technicians." In either case, the work
performed by these "physical scientists" was not within the
terms of the contract.
AScI monthly reports to the Duluth project officers and
Cincinnati contracting officials leave no question that AScI's
activities were outside the terms of the contract. These
reports showed that the "physical scientists" performed such
tasks as carpentry work, maintenance, and furniture moving. In
the winter, physical scientists removed snow, and salted and
sanded the Laboratory's driveway and walkways. In the spring,
they removed debris from the grounds and serviced lawn
equipment.
37
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In addition, AScI's monthly reports show that "physical
scientists" performed such duties as the following:
o "The majority of the month was spent continuing work
on the annex building." (January 1990)
o "Repairs were made to toilets, window blinds, sewer
lift pump and exhaust and fresh air fans."
(April 1990)
o "Three more offices in the annex building were
sheetrocked-taped-painted and are near completion."
(July 1990)
o "Installed a repaired front driveshaft on the
Facility's p\ck-up." (August 1990)
o "Created a new office from the end of the library by
installing, sheetrocking and painting a wall."
(February 1991)
The above tasks do not bear any relationship to the contracts1
requirements for maintaining aquatic support systems and
assisting contractor technical personnel in simple laboratory
tasks.
The EPA Work Assignment Manager Was The Father Of One Of The
AScI "Physical Scientists"
The grade 11 Duluth facilities manager oversaw the remodeling of
the Duluth offices and its adjacent annex.8 His son was one of
the three AScI "physical science technicians" that remodeled the
annex. The father signed the work assignment as the EPA
technical project manager, and AScI named the son in its
technical proposal as one of the employees to perform the work.
During fiscal 1989 and 1990, Duluth officials modified work
assignments to keep AScI employees, including the facilities
manager's son, busy during slow periods. They did this even
though EPA is not obligated under the contract to provide AScI
with any minimum number of work hours. According to the Duluth
Associate Director for Program Operations, she and the
facilities manager recognized that they did not have enough
tasks to cover all the current AScI employees working at Duluth.
One AScI employee affected by this shortage of work was the
facilities manager's son. The father initiated an addendum to
8This situation no longer exists. In 1990, the facilities
manager retired from EPA, and is deceased.
38
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the work assignment with the concurrence of the Duluth Director
and the project officer. The addendum initiated AScI's
remodeling of the Duluth annex. This work was clearly outside
the scope of the contract and provided AScI with 5,129
additional work hours.
AScI's "Scientific Outreach" Included A Receptionist
The statements of work in AScI's prior and current Duluth
contracts (68-03-3544 and 68-CO-0058) call for AScI to assist
with workshop arrangements. However, the work assignments,
entitled "scientific outreach," direct AScI to provide staff to
"serve as a laboratory receptionist" and "provide travel
services" including preparing travel documents. These duties
are not included in the contracts' terms. Therefore, EPA should
not have directed AScI to provide these services.
AScI Provided Duluth With Library Services
The statement of work in AScI's prior contract (68-03-3544) did
not include any library duties. Yet, Work Assignments 5 in
fiscal 1989 and 7 in fiscal 1990, entitled "Technical
Information Support," directed AScI to assist with library
services, including reprinting requests, filing, typing and
answering the phone. In fiscal 1990 this work assignment was
closed and the duties were shifted to another contractor.
PROJECT OFFICERS KNEW WORK ASSIGNMENTS WERE OUTSIDE THE
CONTRACTS' SCOPES
Duluth officials justified work assignments outside the
contracts' scopes by stating that Duluth benefitted and AScI
employees were kept working during slow periods. For example:
o The Duluth project officer for the prior contract
believed that allowing AScI to perform services
outside the contract's scope was proper, as long as
Duluth benefitted. He stated that AScI was hired to
provide Duluth with "physical science support." As
long as the "science part" of Duluth benefitted, he
believed this practice was acceptable.
o Another Duluth project officer, for the current AScI
contracts, advised us that he had questioned the work
assignments, but still recommended them for approval.
He explained that, even though he believed that the
work assignments were outside the statement of work,
he submitted them to Cincinnati for acceptance based
on the guidance of the Duluth Director.
39
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o The Duluth Associate Director for Program Operations
explained that the remodeling of the annex was done
because AScI personnel ran out of things to do, and
rather than not expending the funds, the Duluth
Director approved the change.
The Duluth officials' reasoning cannot be justified. The
statement of work is an integral part of the contract between
AScI and the Government. The statement of work explains the
work the Agency envisioned under the contract. EPA project
officers cannot direct the contractor to exceed these terms.
Project officers, as representatives of the contracting officer,
perform a vital role in assuring proper contract management.
Yet, Duluth project officers signed work assignments that they
knew were outside the contracts' terms. As a result, the
Government expended funds in exchange for services that AScI was
not entitled to perform under its contracts.
CONTRACTING OFFICERS SIGNED WORK ASSIGNMENTS WITHOUT REVIEW
Contracting officers approved work assignments without first
determining if they were allowable under contract terms. This
occurred because contracting officers inappropriately signed
work assignments without reading them. Contracting officers
have the sole authority to issue work assignments. In approving
the work, the contracting officers did not enforce the contract
terms and did not fulfill their responsibilities to safeguard
the interests of the Government. As a result, the contracting
officers committed the Government to expend funds for
unauthorized services, and AScI was directed to perform tasks
that were outside the terms and conditions of the contracts.
We discussed work assignments with the contracting officers for
the prior and current AScI Duluth contracts. The contracting
officers confirmed that, since fiscal 1989, they issued some
work assignments which were outside the contracts' scopes. The
contracting officer for the prior contract explained that:
I did not carefully review the contents [of work
assignments]. . . . Had I been more diligent I would
have rejected them or at a minimum, expressed to the
project officer that they were outside the scope of
the contract and requested that he clarify their
issuance.
Similarly, the current contracting officer stated that as a
"normal course of business" he either signed work assignments
without reading them, or, at best, "glanced" at them.
40
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Compliance with the terms and conditions of the contract is
critical to contract administration. Contracting officials
acted inappropriately in obligating Government monies without
first determining whether work assignments complied with the
statements of work. Cincinnati contracting officials did not
protect the Government against potential misuse of the AScI
contracts. Unless contracting officials exercise due care in
reviewing work assignments, EPA has very little assurance that
work is performed in the most economical and efficient manner.
AGENCY ACTIONS TAKEN DURING OUR REVIEW
On July 8, 1991, the Cincinnati contracting officer for the
three present contracts wrote the Duluth project officers that
the work assignments for "carpentry work" and "lab receptionist
work" were outside the scope of their respective contracts. The
contracting officer instructed the project officers to
immediately implement the following procedures on each future
work assignment:
1. Specify the specific part of the contract scope of
work that the work falls under; and,
2. Include a written certification that the work to be
performed does indeed fall within the contract scope
of work. The Duluth Director and Project Officer are
the certifying officials on each work assignment.
CONCLUSIONS
The Cincinnati contracting officer's instructions to Duluth will
help assure that future Duluth work assignments are within the
contracts' statements of work. However, this does not relieve
contracting officers of their responsibilities to independently
assess whether Duluth's actions are within the contracts' terms.
Duluth and Cincinnati officials allowed AScI to conduct work at
Duluth that was neither included in the contracts' scope of work
nor in the work assignments. Duluth officials verbally approved
tasks that were not submitted in work assignments to Cincinnati.
After Cincinnati indicated that no verbal approvals would be
allowed, Duluth project officers knowingly proposed work
assignments that directed Duluth's toxicological support
services contractor to perform such work as carpentry and travel
services that was outside the contracts' statements of work.
Cincinnati contracting officers approved this work without
reading the work assignments. As a result, Duluth and
Cincinnati officials did not appropriately safeguard Government
funds.
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AGENCY COMMENTS AND ACTIONS
The OARM and ORD Assistant Administrators either have already
acted, or have agreed to act, to resolve the issues discussed
above. Those actions, and the dates they are to be taken by,
are summarized below.
Office of Administration and Resources Management
The Assistant Administrator stated that he agreed with this
finding. He was particularly dismayed that work assignments
were issued by contracting officers without being read.
Furthermore, he stated that he could not excuse any instance of
a contracting officer issuing a work assignment without reading
it. This violates a most fundamental responsibility of a
contracting officer and cannot in any way be dismissed. His
office will address this matter further in its response to the
Office of Inspector General's report of investigation.
The Assistant Administrator stated that:
1. PCMD will emphasize to all contracting
officers the importance of reviewing work
assignments to ensure that work to be
performed complies with the contract's
statements of work. They will issue the
guidance by the end of July 1992.
2. On June 8, 1992, the OARM-Cincinnati
Director issued a memorandum to all
Cincinnati contracting officers and
contracting specialists. He stated that
they are responsible for reading and
reviewing work assignments before signing to
insure that the terms of the basic contract
are not being violated.
3. OARM-Cincinnati is now requiring that
project officers prepare a work assignment
checklist which indicates the exact section
of the statement of work which authorized
the work assignment being processed.
Project officers are to certify that the
work is within the scope of the contract.
Contracting officials are also required to
sign the check list.
4. OARM plans to competitively award two
separate contracts—one for maintenance and
operations and one for toxicological support
services for Duluth.
42
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5. PCMD's Quality Assurance staff will increase
its focus on whether work assignments are
within a contract's statement of work in its
next annual review of Cincinnati contracts.
Office of Research and Development
The Assistant Administrator agreed that work at Duluth was
permitted outside the scope of the contracts and without having
approved work assignments, and that these practices were wrong.
He further stated that he:
1. Has reviewed Duluth's procedures for
initiating work assignments and found them
inadequate, and has issued a new policy
which requires the Duluth Laboratory
Director to approve all work assignments and
technical directives.
2. Will direct that an Alternative Internal
Control Review be conducted by December 31,
1992, that addresses accountability and
control over Duluth work assignments.
3. Will make the requirement, that all project
officers and work assignment managers
receive training in contract administration,
a performance standard for all laboratory
directors beginning next fiscal year. ORD
is working with PCMD to develop a training
course for ORD project managers.
PIG EVALUATION AND RECOMMENDATIONS
The Office of Administration and Resources Management and the
Office of Research and Development's actions and proposed
actions, when implemented, will resolve the issues presented in
this chapter.
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[This page was intentionally left blank.]
44
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CHAPTER 6
DULUTH EMPLOYEES' CONFIDENTIAL STATEMENTS WERE INCOMPLETE
The DEO, who is the Duluth Director, did not direct project
officers at or below the grade 12 level to file Confidential
Statements. Additionally, the DEO did not ensure that Duluth
employees disclosed their spouses' employment with organizations
doing business with Duluth. Because statements were (1) not
filed, or (2) incomplete as to spousal employment, the DEO could
not determine whether actual or apparent conflicts of interest
existed. Therefore, Duluth's 1990 annual certification was
inaccurate and incomplete. EPA regulations and an Agency Ethics
Advisory both emphasize to DEOs that employees, such as project
officers, whose duties directly affect the financial interests
of specific parties, should be required to file Confidential
Statements.
In addition, the Agency did not require WAMs to file
Confidential Statements. WAMs prepare work assignments for
contractors, and monitor the contractors' performance.
Therefore, WAMs can influence a contractors' work and award
fees.
DULUTH DEO DID NOT REQUIRE PROJECT OFFICERS TO FILE
The DEO did not direct project officers at or below grade 12 to
file Confidential Statements. Consequently, these project
officers did not file. Because the statements were not filed,
the DEO could not evaluate employees' holdings and determine
whether recusal statements or other actions were needed.
EPA's regulations and Agency policy state that project officers
should be required to file Confidential Statements. Title 40
CFR Part 3 details the ethical standards for all EPA employees.
Title 40 CFR 3.302(c)(l) states those employees classified at
grade 13 and above who perform certain specific duties should be
required to file. In addition, 40 CFR 3.302(c)(2) states that
employees classified at grade 12 or below whose duties directly
affect the financial interests of specific parties should be
required to file. Title 40 CFR 3.302(c)(2) is limited to grade
12 or below employees who are contracting officers, project
officers, inspectors, auditors, and On-Scene Coordinator
representatives.
EPA's DAEO has instructed all DEOs that they should direct
project officers at grade 12 or below to file. This instruction
was emphasized to DEOs in two Agency Ethics Advisory memoranda
dated November 15, 1985, and June 6, 1988.
45
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To evaluate whether the Duluth employees complied with the
regulation, we reviewed the Confidential Statements for all
employees who filed. Our review showed that the DEO should have
required 36 employees to file a Confidential Statement during
1990. However, the DEO reported only 28 employee filings. A
29th filing, for a grade 13, was not found during our audit.9
Seven of the 8 employees whom the DEO should have reported on
were project officers at grade 12 or below.
The staff member who monitors the Confidential Statement
reporting requirement for the Duluth DEO stated that she was
unaware that project officers at grade 12 or below should have
been required to submit a Confidential Statement. She also
explained that the DEO instructed her to require only employees
at grade 13 or above to file. Finally, she advised us that she
had very little training in reviewing Confidential Statements
for potential conflicts of interest.
The Duluth DEO stated that he was aware that all project
officers should have been required to file Confidential
Statements. However, in providing instructions to his staff
member, he overlooked the specific instructions that all project
officers should be required to file Confidential Statements.
Government employees need to maintain high standards of honesty,
integrity, impartiality, and conduct. Without obtaining
Confidential Statements from project officers at grade 12 or
below, the DEO cannot make an effective evaluation of an
employee's holdings and determine whether a recusal statement or
other action may be warranted. Removing project officers from
the reporting requirements allows actual or apparent conflicts
of interest to remain undetected and unresolved.
DULUTH DEO FILED AN INACCURATE ANNUAL CERTIFICATION
The Duluth annual certification letter regarding compliance with
the Agency's ethics program contained inaccurate
representations. The DAEO in the OGC consolidates these annual
letters into EPA's annual ethics report to the Office of
Government Ethics, another Federal agency. That Office includes
EPA's information in its report to Congress. The information
the Duluth DEO provided was inaccurate. As indicated above, the
DEO did not ensure that all project officers submitted
Confidential Statements. Consequently, the Office of Government
Ethics will rely on erroneous information provided by the Duluth
DEO, through OGC, and report erroneous information to Congress.
9In his reply to our draft report, the ORD Assistant
Administrator stated that Duluth has located the misfiled
Confidential Statement.
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Appendix A to Subpart C, 40 CFR Part 3, requires the DEO to
submit an annual certification letter. The letter certifies to
the DAEO that each employee who is required to submit a
Confidential Statement has done so and that the DEO has reviewed
and signed each statement. The DEO also certifies that any
necessary remedial actions have been taken.
On July 17, 1990, the Duluth DEO certified to EPA's DAEO that
Confidential Statements were required from 28 employees at grade
13 or above. The DEO's certification letter stated that no
Duluth employees below grade 13 were required to file. However,
the DEO's certification was inaccurate. As we previously
stated, eight additional Duluth employees should have been
reported on. Seven of those employees were at grade 12 or below
and the other employee was at grade 13 or above.
The DEO also certified that all Confidential Statements were
reviewed prior to submitting the annual certification letter.
We found that 5 of the 28 Confidential Statements (18 percent)
were reviewed after the DEO submitted the annual certification
letter. Therefore, the annual certification letter also
inaccurately represented that all Confidential Statements were
submitted timely and analyzed for actual or apparent conflicts
of interest.
DULUTH EMPLOYEES DID NOT DISCLOSE THEIR SPOUSES' EMPLOYMENT WITH
CONTRACTORS
The purpose of financial disclosure is to assist the Agency in
preventing actual or apparent conflicts of interest. Financial
disclosure requirements are bolstered by 18 U.S.C. 208(a) which
applies to all financial interests, including interests not
required to be reported. Moreover, even if an employee
discloses a financial interest, the employee may not act in
matters in which he or she has a financial interest, because 18
U.S.C. 208(a) still applies.
Agency regulations for reporting employment of spouses, minor
children, and other relatives are explained in 40 CFR Part 3.
Under 40 CFR 3.300, an employee is prohibited from knowingly
participating in an EPA activity which the employee, the
employee's spouse, or minor child has a financial interest. The
size of the financial interest is irrelevant, as is the
employee's level of responsibility. Additionally, it does not
matter if the organization in which the employee or the
employee's spouse, or minor child has a financial interest is a
non-profit or public interest group. Finally, under 40 CFR
3.103(d), an employee is prohibited from knowingly participating
in an EPA activity in which the employee's relative has a
financial interest because it creates the reasonable appearance
of a conflict of interest.
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EPA had 114 employees reporting to Duluth; ten of these
employees are at a suboffice in Michigan. At least nine EPA
employees (7.9 per cent) have spouses or relatives working for
either: (1) AScI; (2) Computer Sciences Corporation, another
Duluth contractor; or (3) the University of Minnesota, a non-
profit organization, under multiple cooperative agreements with
Duluth. Of the 36 Duluth employees who should have filed
Confidential Statements in 1990, six employees (16 percent) did
not disclose that their spouses either worked for a contractor
or university doing business with Duluth. In addition, of the
28 employees that did file Confidential Statements, five
employees (17.6 percent) did not disclose their spouse's
employment with the above-listed organizations. Without such
disclosures, EPA ethics officials cannot determine if actions
should be taken to eliminate or mitigate actual or apparent
conflicts of interest.
WORK ASSIGNMENT MANAGERS NEED TO FILE
WAMs can influence the amount of work a contractor can perform
and the award fees a contractor will obtain. Currently, 40 CFR
3.302 does not specifically state that WAMs should be required
to file Confidential Statements. Therefore, the Duluth DEO did
not request that WAMs submit Confidential Statements. However,
the regulation does provide for the DEO to seek approval through
the DAEO for other employees classified at grade 12 or below to
file Confidential Statements. DEOs can seek approval if
employees are in positions whose duties and responsibilities
require the exercise of judgment in participating in or making
Government decisions with respect to initiating procurement
requests or evaluating contractors. WAMs at Duluth should be
required to file Confidential Statements.
A WAM is an Agency official who prepares written directives
(known as work assignments) to contractors under cost-
reimbursement level of effort contracts. The WAM monitors the
contractor's performance on specific work assignments. At
Duluth, WAMs prepare the procurement requests for each work
assignment. They also evaluate the contractor's efforts for
each work assignment.
The WAM's evaluations form the basis for contractor award fees
under a cost-plus-award-fee contract. At the close of each
evaluation period, the WAM prepares an evaluation of the
contractor's performance. Each WAM submits a contractor
evaluation to the project officer, who puts the individual
evaluations into a single package for the FEB. The PEB, based
on the collective information, recommends the contractor's award
fee for that period.
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AGENCY ACTIONS TAKEN DURING OUR REVIEW
On August 20, 1991, the Duluth DEO issued a memorandum to
project officers stating that they were required to file
Confidential Statements by August 30, 1991.
CONCLUSIONS
EPA's regulations and policy safeguard against actual or
apparent conflicts of interest by requiring certain employees to
file Confidential Statements. Ethics officials are required to
review the statements and eliminate or mitigate actual or
apparent conflicts of interest. Because not all Duluth
employees who: (1) should have been required to file did so, and
(2) should have disclosed their spouse's employment did so, EPA
ethics officials cannot be assured that all actual or apparent
conflicts of interest were eliminated or mitigated.
Additionally, the DEO's annual certification was inaccurate and
not timely reviewed. Since the DEO's certifications are
reported to Congress, each DEO must ensure that the annual
certification is accurate and timely reviewed. Finally, the
Agency should require WAMs to file Confidential Statements
because their position can influence the amount of: (1) work a
contractor can perform, and (2) the award fees a contractor will
obtain.
AGENCY COMMENTS AND ACTIONS
The ORD Assistant Administrator stated that the findings in this
chapter are valid.
The DAEO either has already acted, or has agreed to take
actions, to resolve the most of the issues discussed above.
The DAEO stated that the Office of Government Ethics has
recently published its long-awaited new procedures for
collecting and reviewing confidential financial statements. He
has, therefore, issued, on June 18, 1992, EPA's implementing
instruction, Ethics Advisory 92-14. This issuance states that
any employee grade 15 and below should be required to file if he
or she participates in Government actions regarding contracting
or procurement. Such employees include contracting officers,
project officers, ordering officers, and work assignment
managers. The DAEO has also:
1. Recommended, on June 29, 1992, that the
Acting Duluth Director, who is also the
Acting DEO: (a) ascertain which filers
failed to include information about their
spouses and minor children in 1990 and 1991;
(b) obtain amended statements from these
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individuals; (c) review the Confidential
Statement reports to ensure that conflict of
interest problems have been resolved; and,
(d) send new annual report certifications to
Headquarters for 1990 and 1991 by July 31,
1992.
2. Will offer annual training to DEOs before they review
the Confidential Statements.
PIG EVALUATION AND RECOMMENDATIONS
The Designated Agency Ethics Official's actions substantially
resolve the findings in this chapter. Deputy Ethics Officials,
however, must not only be offered this training, but they must
be required to take the training periodically. Therefore, we
recommend that the EPA Deputy Ethics Officials be required to be
at least biannually trained and certified regarding Government
ethics laws and regulations.
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EXHIBIT 1
PAGE 1 OF 1
AScI Corporation
Maximum Dollar Value
Duluth Contracts
Toxicological
68-03-3373
68-03-3544
68-CO-0056
68-CO-0057
68-CO-0058
Subtotal
Chemical Analysis
68-C9-0050
Total
1987
$998,706
1988
1989
1990
1991
1992
1993
Total
$1,905,041 $1,985,354 $2,077,303
$998,706
$5,967,698
$961,390 $1,039,612 $1,126,230 $3,127,232
$952,139 $1,025,384 $1,106,374 $3,083,897
S942.981 SI.025.166 SI.100.905 S3.069.052
$998,706 $1,905,041 $1,985,354 $2,077,303 $2,856,510 $3,090,162 $3,333,509 $16,246,585
$1,478,299 $1,513,457 $1,577,317
$4,569,073
S998.706 SI.905.041 fil.9BS.3S4 S3.S5S.602 S4.369.967 S4.667.479 S3.333.509 S20.81S.658
51
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(a) Date signed
(b) Cost plus fixed fee
(c) Cost plus award fee
EXHIBIT 2
PAGE 1 OF 1
AScI CONTRACTS WITH THE DULOTH LABORATORY
Contract
Number
68-03-3373
68-03-3544
68-C9-0050
68-CO-0056
68-CO-0057
68-CO-0058
Effective
Date (a) Type of Service
08/21/86 Toxicological Support Service
09/30/87 Toxicological Support Service
09/30/89 Chemical Analysis Support
09/20/90 Toxicological Support Service
09/20/90 Aquatic Toxicology Testing
09/20/90 Toxicity Identification
Evaluations
Type of
Contract
CPFF (b)
CPAF (c)
CPFF
CPFF
CPFF
CPFF
Total
Maximum
Contract
Value
$ 998,706
$ 5,967,698
$ 4,569,073
$ 3,127,232
$ 3,083,897
$ 3,069,052
$20,815,658
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AScI Corporation
1986-1990 Contract Revenues ($18.4 M)
EXHIBIT 3
PAGE 1 OF 1
Millions of Dollars
1986 1987 1988
Year
1989 1990
• Commercial
SGovernment-Non EPA
1 Government-EPA
EPA = 96% of total
revenue
Duluth = 48% of total
revenue
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EXHIBIT 4
PAGE 1 OF 1
WORK ASSIGNMENTS (WAI NOT
AUTHORIZED IN THE CONTRACT1
WA Tasks
Provide Travel services:
Travel authorizations, expense
vouchers; and travel arrangements;
Serve as Receptionist; Perform
Clerical tasks: reconciliations of
travel system reports with other
financial reporting systems.
WA Title
Scientific Outreach,
Public Information,
Technology Support.
Contract
Numbers
68-03-3544
68-CO-0058
WA FY
89 90 91
16 3
Remodel/rebuild existing and newly
constructed laboratories, offices
and out buildings; assist carpenters
in building cabinets.
Physical Science
Support
68-03-3544
68-CO-0056
Assist with Library - Type services,
reprinting requests, filing, memo
typing and phone answering.
Technical Information
68-03-3544
'Beginning in FY91, all library-related services have been performed exclusively by the
firm of Labat-Anderson, which is under contract with EPA
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APPENDIX 1
PAGE 1 OF 5
THE OFFICE OF RESEARCH AND DEVELOPMENT'S
RESPONSE TO THE DRAFT REPORT
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON. O.C 10410
JIM 29 MB
or net Of
MCSCAMCM **O OCVILOPMINT
SUBJECT: Draft Audit Report No. EUBF1-05-0175
Contracting Activities at Environmental Research
Laboratory - Duluth
FROM:
•tor
and Development (RD-672)
TO: Kenneth A. Konz
Assistant Inspector General for Audit (A-109)
I have reviewed the draft report on contracting activities
at the Duluth laboratory. I accept all recommendations addressed
to the Assistant Administrator for Research and Development.
Attachment l provides ay comments on SOBS of the findings in
the draft report. X am providing these coaaents to strengthen
the final report. ORD previously provided for your information
the coaaents from the current acting Director of the Duluth
Laboratory and from the Director of the Office of Environmental
Processes and Effects Research. Attachment 2 indicates ORD's
planned corrective actions for addressing the recommendations.
I appreciate that the draft report acknowledges corrective
actions already taken by the Office of Research and Development
during the conduct of the audit. In addition to the actions
previously reported, I have:
1. Directed that no extensions be granted to continue EPA work
under Duluth's three noncompetitively awarded 8(a) contracts
that are scheduled to end on June 30, 1992.
2. Directed that no additional work be funded under the Duluth
contract with AScX for chemical analysis support. The
contract will expire on September 29, 1992.
3. Directed that competitive solicitations be initiated by
September 30, 1992, to replace noncoapetitively awarded
contracts in ORD offices and laboratories, to the extent
possible and appropriate.
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APPENDIX 1
PAGE 2 OF 5
THE OFFICE OF RESEARCH AND DEVELOPMENT'S
RESPONSE TO THE DRAFT REPORT
4. Directed that financial management control* be streamlined
and strengthened in QUO by consolidating the mix existing
ORD allovanc* holders into on* allowance to be administered
by th* Director, Office of Research Program Management.
This consolidation will be implemented by October 1992.
5. Directed that additional policies and procedures be
implemented to provide improved financial controls and
approval authority over work performed by ORD laboratories
for non-ORD organizations.
Your audit staff has brought to our attention some serious
internal control and management problems which demand correction.
The appearance of conflict of interest is especially disturbing.
Likewise, the appearance of government favoritism to any
contractor, 8(a) or non-8(a), is not acceptable.
Attachments
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APPENDIX 1
PAGE 3 OF 5
THE OFFICE OF RESEARCH AND DEVELOPMENT'S
RESPONSE TO THE DRAFT REPORT
Attachment i
•••litiitt Mililitritnr for BMHP* .
Comment on Finding, in Dr. ft Audit B-™rt »U»>1 -A«-,M -,^
Chapter 2
Finding: AScI Offered Employment to th« Aetina Pir«etor««
There is no disputing that the president of AScI stated in a
letter to contracting official* dated June 16, 1986, that he was
•making job offers on a contingent basis" to ten individuals,
including the former spouse of the then Acting Director of the
laboratory. However, there is no evidence in the report to
indicate the Acting Director vas aware of the AScZ president's
letter or of a proposed job offer to his former spouse. If there
is such evidence, it should be added to the report.
Chapter 3
The draft finding that additional costs were incurred rests
on the premise that work properly done under AScI contract could
also have been properly done under the OWS contract. However,
this premise does not appear to be valid.
The OWS statement of work specifically supported the
National Dioxin Study. This Study required analyses of chemical
residues of dioxins and furans in fish tissues.
The AScI statement of work has many similarities with the
OWS statement. In addition, it was poorly prepared, with a key
section missing on page 14 of Attachment A. However, the AScI
statement specifically supports the EPA Marine Mammals Study and
the EPA Green Bay Study. Under these studies, Duluth required
analyses of specific PCS congeners and dieldrin in water and
sediment samples.
Duluth reports that when they attempted to use the OWS
contract for the needed PCB analysis, they were told by the
Cincinnati contracts office that such work was outside the scope
of the contract. If this is true, then Duluth could not have
exercised the OWS option in 1989 to conduct the Green Bay Study
and therefore had to arrange for other support.
The cost comparisons and other conclusions relative to the
two contracts would only be valid if the work performed under the
AScI contract could have been performed under the OWS contract.
In questioning the validity of the findings relative to the
OWS and AScI contracts, there is no intent to dispute the
findings that AScI's employment of the Laboratory Director's wife
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THE OFFICE OF RESEARCH AND DEVELOPMENT'S
RESPONSE TO THE DRAFT REPORT
and the Director '• chairing tlw Performance Evaluation Board
(PEB) craatad the appearance of a conflict of intaraat. We agraa
that tha appaaranca of a conflict of intaraat waa craatad.
Finding:
S9 Million in Contract Awar 501 in 1*90 Hera Mot
We hava no information with which to diaputa thia finding,
which ia tha titla of Chaptar 4, or othar finding* in Chaptar 4.
Howavar, wa nota tha action* of SBA in promoting tha original
noncompetitive 8 (a) contract to a company haadad by a former EPA
employee and in denying competition for the three follow-on
mission support contracts at Duluth. SBA's role in this affair
should be submitted to an appropriate entity for further
investigation .
The draft report correctly states that EPA policy has been
to breaX up contracts to provide for additional capacity and more
involvement of small and minority-owned business. He support
this policy. However, we acknowledge that breaking up a contract
and noncompetitively awarding the resulting smaller contracts to
the same contractor, in this case AScI, creates the appearance of
favoritism.
Chanter 5
Finding: Work Assigned to ASel Mas Mot Included in Work
* or the Scope of tJH Contracta.
The findings in this chapter show that work was permitted
outside the scope of contracts and without having approved work
assignments. These practices are wrong. We will develop and
implement internal controls to discourage such activities.
Chanter 6
Finding: Duluth DEO Did Hot Require Prolect Officers to File.
The Duluth laboratory advises that the missing Confidential
Statement of the grade 13 project officer has now been located.
The statement had apparently been misfiled.
The other findings in this chapter are supported by evidence
and are acknowledged as valid.
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THE OFFICE OF RESEARCH AND DEVELOPMENT'S
RESPONSE TO THE DRAFT REPORT
Attachment 2
The draft audit report makes three recommendations to the
Assistant Administrator for Research and Development. All
recommendations are accepted. The following actions vill be
taken in response to the recommendations.
Recommendation: Th« Assistant *<*»
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THE OFFICE OF ADMINISTRATION AND RESOURCES MANAGEMENT'S
RESPONSE (WITHOUT EXHIBITS) TO THE DRAFT REPORT
UNfTID (TATVS MVMQMMNTAL MOYKTION AQMCY
Jll II •
omccor
SOBJBCTi Draft Audit Report No. EIJBFI-05-0175
Contracting Activities at_ Environmental Research
Laboratory - Duluth
FROMi Christian R. Ho
Assistant Admini
TOi John C. Martin
Inspector General
I have reviewed the draft report on Contracting Activities
at the Environmental Research Laboratory Duluth and have received
comments from my staff and the Cincinnati Contracts Management
Division.
I am in agreement with all recommendations that were
contained in the draft report and addressed to the Assistant
Administrator, Office of Administration and Resources Management.
As the report reflects, we have already begun to initiate
specific action on these recommendations. I have ordered my
staff to prepare a full corrective action plan for implementing
all recommendations in the draft report.
In addition to addressing the specific recommendations in
the report, you are aware of the major initiatives I have
undertaken to address contract management throughout the agency.
I am confident that these initiatives will help change the agency
culture on contract management and preclude the type of findings
cited in this draft report from recurring in the future.
I am attaching a copy of our comments to the draft report.
I ask that you give these comments careful consideration in the
preparation of the final audit report on Duluth.
Thank you for bringing the serious issues cited in the draft
report to my attention.
Attachment
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RESPONSE (WITHOUT EXHIBITS) TO THE DRAFT REPORT
eM*mV*BVMmWei w 4m**ewem« v^ammiei «*em ^^g-^^^—^^^^ ^«—^ —
efU
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THE OFFICE OF ADMINISTRATION AND RESOURCES MANAGEMENT'S
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panel's certification and also did not make the name association,
it is questionable, as the draft report alleges, that the
contracting officer "should" have known of the conflict.
The draft audit report recommends that the Assistant
Administrator for Administration and Resources Management (QARM)
instruct the Director of the Procurement and Contracts Management
Division (PCMD) to take three actions. The first is to "develop
procedures to ensure that contract awards to former employees
comply with Government and EPA ethics requirements." Although,
Federal and EPA acquisition regulations already cover this, we
will issue a special guidance document on the subject by the
middle of August, 1992.
The second recommendation is to develop "a detailed
questionnaire that contracting officers are required to use to
inquire into program officials' potential conflicts of interest."
This, too, we will have completed by the middle of August, 1992.
The third recommendation suggests developing a special
training course for all contracting officials regarding Agency
conflict of interest regulations and standards of conduct. We
are working to have such a course developed by the end of this
calendar year.
He also want to mention a few corrective actions we have
already taken. All Cincinnati contracting personnel were
formally notified by a June 8, 1992 memorandum from the Director,
OARM-Cincinnati, that SBA recommendations and 8 (a) certifications
are not sufficient safeguards against conflicts of interest or
ethics violations. The memo is provided as Exhibit I. In
addition, the Director personally met with contracting personnel
in June, 1992 to emphasize, among other things, that all work
shall be completely analyzed and determined to be in accordance
with all contracting statutes and regulations Briar, to issuance
by the contracting officer. Finally, to ensure impartiality, all
technical evaluation panels for EPA laboratory-related
procurements must now include a member from an outside office or
lab.
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•HMXM
94.• UttZOB OOSJTBACT MRBDBD fO MCI XI l»«f
Finding*
ThA» chapter of the draft report discusses • contract held
by the University of Wisconsin-Superior (UNS) that was allowed to
lapse and a subsequent new contract to AScI on which OWS was a
prime subcontractor. The draft report alleges that the new AScI
contract was for the same work that had been performed under OWS
and that the only reason for the change was to give preferential
treataent to AScZ.
Cincinnati's involvement in this revolves around its
participation in the lapsing of the OWS contract and the
procurement of the AScZ contract. The original OWS contract
prescribed support limited to the Rational Dioxin Study. The
contract eventually won by AScI was a much larger one involving
marine mammal studies support and requiring both on and off-site
work. Attached is a memo dated February 28, 1989 (Exhibit Zl)
discussing this underlying rationale. Based upon the comparisons
of the intended purpose of each contract, it would have been
improper for the contracting officer to permit the original
contract to continue as a larger, more general marine mammal
support effort. Cincinnati contracting officials, unaware of the
other alleged activities of Duluth personnel, were not at fault
in processing what appeared to be a new procurement.
Where Cincinnati contracting officials did fail is in
leading OWS into believing that two of its contract options would
be exercised and then not doing so at the last minute.
Contracting officers should work closely enough with the program
to know of their planned actions. Zn this case, the contracting
officer should have known well ahead of time that the contract
options might not be exercised and, therefore, not necessarily
have issued the notifications to OWS in the first place.
We do have a few other comments on this portion of the draft
report. Throughout this chapter and elsewhere in the draft
report, there is an improper use of the word "cancel11. EPA did
not "cancel" an existing contract but merely exercised its
unilateral right under the option clause not to continue/renew
performance of the contract for additional periods.
•Cancellation" involves contract termination which has an
entirely different meaning. We suggest that this be clarified in
the final report.
On page 15, there is a statement: "He also made it known to
the contracting community that he preferred AScZ." The words
"contracting community" are ambiguous and could be construed by
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RESPONSE (WITHOUT EXHIBITS) TO THE DRAFT REPORT
readers to include the Cincinnati contracting operation*.
We read it to mean tha community of potential contractor* that
could have submitted proposals, cine* tha Cincinnati contracting
official* did not know of tha allagad action* in Duluth, we
suggest that th* draft report u*a tha word* "contractor
lity".
Tha draft report Bakes tvo recommendations to OAJM. The
first is to "develop clear guidance to contracting officers
regarding how to proceed when they note potential procurement or
contracting irregularities." The recommendation specifically
suggests that the guidance discuss how issues should be raised
through management and organisational chains. We will issue this
guidance by the end of July, 1992.
The second recommendation stresses emphasising to
contracting personnel "the vital importance of their
responsibility to review contract packages to assure that
Government and Agency regulations are followed." He will provide
this emphasis in the guidance discussed in the previous
recommendation.
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THE OFFICE OF ADMINISTRATION AND RESOURCES MANAGEMENT'S
RESPONSE (WITHOUT EXHIBITS) TO THE DRAFT REPORT
f9 MXLLXO* XM COVTBACT AVABM fO ABCX XV 1990
OOWBTITITBLT BZD
Find!
draft audit report finds that Cincinnati contracting
officials improperly split the Duluth requirement into three
separate contracts to avoid competition.
We agree that the requirement was improperly split.
Cincinnati officials earlier acknowledged the improper action and
took steps to replace the three AScZ contracts with a new
competitive contract. The three AScZ contracts will end on June
30, 1992, 15 months before they were intended to expire.
The report indicates that due to workload pressures,
Cincinnati contracting officials did not question the validity of
splitting the former contracts into three new contracts. The
report fails to mention, however, that Cincinnati contracting
officials initially forwarded the three contract actions to SBA
to be processed under competitive 8(a) procedures. Nevertheless,
we agree that contracting officials were not aggressive in
resolving differences with Duluth and SBA.
The draft report makes four recommendations to OARH and
ultimately, PCMD. The first is that we take action to
competitively bid the Duluth toxicological support services
contract and ensure that no bias is shown toward any one
contractor. Zn making this recommendation, the OIG also stated
that, to the extent possible, officials previously involved with
the Duluth procurement should be excluded from the process.
The new Duluth toxicological support services contract will be
competitively bid. It will be placed from PCMD headquarters to
avoid any appearance of bias and will be monitored closely to
ensure that the integrity of the procurement is not called into
question.
The second recommendation is that all potential Performance
Evaluation Board (PEB) members for the new Duluth toxicological
support services contract should submit a statement that they are
free of bias and any appearance of potential conflicts with the
winning contractor. As indicated in the OZC draft report, QARM-
Cincinnati has taken corrective action to ensure that all PEB
•embers will be required to certify that they have no conflicts
of interest. In addition, PCMD is revising its Contracts
Management Manual to make this an Agency-wide requirement. The
revision will be completed by the end of December 1992.
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The third recommendation is that we issue a policy statement
to contracting offioara stating that 8 (a) procurement estimates
should be scrutinised for compliance with the Busineas
Opportunity Development Refers Act of 1988. Zn addition, as part
of quality aaauranca reviews, we should plan to periodically
review 8(a) contracta verifying the eligibility of those awarded
non-competitively.
By the end of July 1992, PCMD will iasue policy guidance
on the proper use of the 8 (a) program and tha need for controls.
As part of its quality aaauranca reviews, PCMD looks at whether
contracta have been awarded properly and will increase its focus
on 8(a) contracta. In addition, OARM-Cincinnati baa identified
8(a) aet-aaida procedures aa an area of internal control weakness
for FY 92 and a new eat of procedures has been developed and
implemented to acraen all 8(a) aet-aaida requests.
Lastly, tha draft report recommended that we emphasize to
project and contracting officers that it la inappropriate to
split requirements among multiple contracta to stay below the
8(a) ceiling for aola source contracta. Tha guidance PCMD will
iaaua by the end of July 1992 will include this requirement.
OARM-Cincinnati haa alao issued a memorandum to its contract
staff stressing the need to actively monitor for the potential
splitting of contracta to avoid the 8 (a) competitive threshold.
Any attempt to aplit up requirements to avoid competitive
thresholds shall immediately be reported to a Senior Procurement
Manager. The memo alao stressed that staff cannot rely solely on
the SBA for resolution of potential conflict of intereat iaaues
or ethics violations concerning 8(a) firms. (See Exhibit I.)
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THE OFFICE OF ADMINISTRATION AND RESOURCES MANAGEMENT'S
RESPONSE (WITHOUT EXHIBITS) TO THE DRAFT REPORT
•out aMxonm TO MCI WM wen MCI
o« m •con or
Findings
The draft report finds that Cincinnati contracts officials
issued work to AScI that was outside the scope of the contract.
They approved work assignments without reading them, thereby
authorizing work which was unallowable under the contract, and
failed to detect work being performed outside the scope of the
contract by not adequately reviewing AScX's monthly progress
reports.
We agree with this finding and are particularly dismayed
that work assignments were issued by contracting officers without
being read. Contracting officers throughout the agency are
managing heavy workloads which at times cause them to review work
assignments less thoroughly than should be the case. We are
committed to changing the Agency's culture to correct this.
However, we cannot excuse any instance of a contracting officer
issuing a work assignment without reading it. In the cases cited
in the draft audit report, even the most cursory look at the work
assignments would have shown them to be outside of the scope of
the contract. This violates a most fundamental responsibility of
a contracting officer and cannot in any way be dismissed. We
will address this matter further in our response to the inspector
General's report of investigation.
We have taken immediate action to make sure that proper
review and attention are accorded all contract actions at
Cincinnati and that such problems arc not allowed to reoccur.
The draft report made four recommendations for DARK.
First, it recommended that we emphasize to contracting officers
the importance of reviewing work assignments to ensure that work
to be performed complies with the contracts' statements of work.
PCMD will issue guidance by the end of July 1992 to all
contracting officers regarding this requirement. It will also
continue to emphasize the need for scrutiny in this area in
Contract Administration courses required for all Project Officer
and Work Assignment Managers.
OAJOf-Cincinnati has also taken steps to address this
problem. It is now requiring Project Officers to prepare a work
assignment check list which indicates the exact Section of the
Statement of Work which authorized the Work Assignment being
processed, and to certify that, the work is within the scope of
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THE OFFICE OF ADMINISTRATION AND RESOURCES MANAGEMENT'S
RESPONSE (WITHOUT EXHIBITS) TO THE DRAFT REPORT
tha contract. This check list is also signed by the Contracting
Officer/Specialist one* thay complete their review, (fae Exhibit
HI)
Tha Diractor, OARM-Cincinnati, issuad a aeaorandua, datad
Juna S, 1992 (Saa Exhibit Z) to all Cincinnati Contract Division
eaployees emphasizing that "Contracting Officara and Contract
Spaciallsts ara rasponsibla for raading and reviewing work
assignments bafora signing to ansura that tha taraa of tha basic
contract ara not baing violated." Tha OARM-Cincinnati Diractor
alao haa mat with Cincinnati staff and aada it vary claar to
aaployaas that tha oparating guidalinas ara quality and accuracy,
and that no work will ba pushad through tha systaa just to aaat
tiaa constraints. All work shall ba coaplataly analyzad and
datarainad to ba in accordanca with all contracting statutaa and
ragulations B£ifiT to work baing authorized by tha contracting
officar.
Tha draft report's aacond racoaaandation was that wa require
contracting officars to raviaw all AScI work aasignaants and
prograss raports for activa Duluth contracts to ansura coaplianca
with tha contracts' stataaanta of work. EPA has datarainad that
it will not axarcisa tha ranawal options on tha thraa AScZ
contracts that wara awardad on a non-coapatitiva basis in FY 90.
Thasa contracts will ba shut down, affactiva Juna 30, 1992. Tha
AScZ contract which includad tha subcontract work with ONS will
axpira on Saptaabar 30, 1992. In ordar to preclude any furthar
problaas, tha contract officials, Duluth Projact Officar and
other Duluth officiala hava bean ordered to ansura that no work
outaida of tha acopa of the contract ia performed.
Thirdly, tha QIC racoaaandad that wa raquira separata
contracts for aaintananca and other duties that ara not clearly
related to toxicological support services. We agree and plan to
competitively award two separata contracts -- one for aaintanance
and oparationa and one for the toxicological support services.
Lastly, the OZG requested that as part of PCMD's annual
review of Cincinnati, wa take steps to determine whether work
assignments are within the contracts' statements of work.
In its contract management reviews, PCMD routinely reviews work
assignments to determine whether they ara within tha contracts'
stateaent of work. Because of the vulnerabilities identified in
contracts at Cincinnati, PCMD's Quality Assurance Staff will
increase its focus in this area in its next annual review of
Cincinnati contracts.
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PAGE 1 OF 9
, THE DESIGNATED AGENCY ETHICS OFFICIAL'S
RESPONSE (WITHOUT ATTACHMENTS) TO THE DRAFT REPORT
mmp «TATI» PIVHOMMPITM. •MOIJCHUM AOPICY
WASHMQTON.O.C. 20460
OK 29
OFFCCOF
SUBJECT: Draft Audit Report No. E1JBF1-05-0175
Contracting Activities at Environmental Research
Laboratory - Duluth
PROM: Gerald H.
Principal
Designated
TO: Kenneth A. Konz
Assistant Inspector General for Audit (A-109)
This responds to recommendations to this Office in the
subject draft audit report. Bach recommendation ia discussed by
subject in the order of appearance in the report.
The recommendations at page 10 concern Chapter 2 of the
report entitled •POTENTIAL CONFLICTS or INTEREST MOT
TH TiTR AWARD OF JLSel'S 1986 DDUJTH COHTRACT" and are as follows:
We recommend that: * * *
2. The Designated Agency Ethics Official:
a. Develop procedures to ensure that inquiries
and responses regarding contract awards to
prior employees are properly documented.
b. Determine the information designated ethics
officials should obtain in dealing with
potential conflict of interest situations.
As regards recommendation 2.a., we have recognized the need
for documenting all ethics advice, not only ethics advice
regarding contract awards. EPA Ethics Advisory 91-13
of December 30, 1991, recommends that Deputy Ethics Officials
maintain written records of oral advice regarding ethics matters.
This corresponds to procedures initiated in this Office in
November 1991. We now have chronological logs of inquiries and
advice, and information from these logs is easily retrievable.
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THE DESIGNATED AGENCY ETHICS OFFICIAL'S
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Recommendation 2.b. is that the DABO "[determine the
information designated ethics official* should obtain in dealing
with potential conflict of interest situations. • As discussed
below, the proposed Office of Government Ethic* regulation sets
out a list of issues to be considered in approving an employee's
participation in matters which specifically involve persons with
whom the employee has a "covered relationship."
Ne would first need to determine whether there is a problem
under 18 U.S.C. $208 (a), which prohibits employees' participation
in "particular matters" which affect the financial interests of
themselves, their spouses, or their minor children.
There is no per se restriction against participation in
matters which affect the financial interests of a former spouse.
Subpart B of proposed Office of Government Ethics regulations
' 'litv *n Parforainn Official
published July 23, 1991,
Duties . describes situations in which an omployee's impartiality
is likely to be questioned. Before an employee participates in a
"specific party" matter (such as a contract) with someone with
whom the employee has a "covered relationship," the "agency
designee" must make certain determinations. One of these
situations would be where an employee is called upon to
participate in a matter affecting "a person * * • with whom the
employee has or seeks a business, contractual or other financial
that involves other than a routine
transaction." In such case, the following procedure would apply:
(c) Determination bv agency desionee. Where he
has information concerning a potential appearance
problem arising from the * * * the role in such matter
of a person with whom the employee has a covered
relationship, the agency designee may make an
independent determination of whether a reasonable
person with knowledge of the relevant facts would be
likely to question the employee's impartiality in the
matter. Ordinarily, the agency designee' s
determination will be initiated by information provided
by the employee pursuant to paragraph (a) of this
section [which requires employees to report "covered
relationships" to the "agency designee"). However, at
any time, including after the employee has disqualified
himself from participation in a matter pursuant to
paragraph (a) of this section,2 the agency designee
1 fiee. EPA Ethics Advisory 91-1 of August 7, 1991, which
describes the proposed regulations and transmits a copy of them.
2 This bars participation in a "specific party* matter (such
as a contract award) where the employee or the agency designee
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THE DESIGNATED AGENCY ETHICS OFFICIAL'S
RESPONSE (WITHOUT ATTACHMENTS) TO THE DRAFT REPORT
may make this determination on his own initiative or
whan requested by the employee's supervisor or any
other parson responsible for the employee's assignment.
The "agency designee' then determines whether or not "the
employee'* impartiality is likely to be questioned." If he
decides that it is not, the employee participates in the Batter.
If the "agency designee" decides that the employee's impartiality
is likely to be questioned, the employee may not participate
unless the "agency designee" authorizes the employee
to do so based on a determination, made In light of all relevant
circumstances, that the interest of the Government in the
employee's participation outweighs the concern that a reasonable
person may question the integrity of the agency's programs and
operations. Factors which may be taken into account include:
(1) The nature of the relationship involved;
(2) the effect that resolution of the matter would have
upon the financial interests of the person involved in
the relationship;
(3) The nature and importance of the employee's role in
the matter, including the extent to which the employee
is called upon to exercise discretion in the matter;
(4) The sensitivity of the matter;
(5) The difficulty of reassigning the matter to another
employee; and
(6) Adjustments that may be made in the employee's duties
that would reduce or eliminate the likelihood that a
reasonable person would question the employee's
impartiality.
A copy of Subpart E of the proposed 0GB regulation is
attached. It is important to note that matters affecting a
procedures. The same considerations apply in determining whether
affect ttwir spouses'
has concluded that the relationship "is likely to raise a
question in the mind of a reasonable person about his
impartiality."
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THE DESIGNATED AGENCY ETHICS OFFICIAL'S
RESPONSE (WITHOUT ATTACHMENTS) TO THE DRAFT REPORT
Your recommendations on pages 21 and 22 concern Chapter 3 of
the report entitled "EXISTING CONTRACT CANCELLED AND $4.5 MILLION
CONTRACT ANARDED TO AScI IN 1989" and were as follows:
N« recommend that: * * •
3. Th« Designated Agency Ethics Official:
a. Develop procedures, including a checklist of
information to obtain, prior to approving an
employee's spouse's employment in potential
conflict of interest situations. This
information should include requesting
employee's duties and any contacts the
employee's, their spouses, or other household
members have with the spouse's prospective
employer. This information should detail any
interest the employee has in the company, as
well as bow important the company is to EPA,
and to the employee's job.
b. Direct Agency Ethics Officials to make additional
inquiries to search out potential conflicts
of interest prior to approving employee's
spouse's employment. Employees should
clearly be advised of their responsibility to
keep Agency Ethics Officials informed of any
changes in activities which might add to
potential conflicts and understand the
potential if they do not do so.
c. Establish procedures for advising supervisors of
any potential conflict of interests on the part of
Senior Executive Service employees.
As discussed above, Subpart E of the proposed 0GB regulation
will require written determinations in every case before an
employee may participate in a "specific party" matter which
affects someone with whom the employee has a "covered
relationship" including, among other relationships, "[a] person
for whom the employee's spouse * * • is, to the employee's
knowledge, serving or seeking to serve as an officer, director,
trustee, general partner, agent, attorney, consultant, contractor
or employee." All of the considerations discussed above apply in
such case, and all of the determinations must be made by the
•agency designee."
In making these determinations, the "agency designee" should
ordinarily obtain the kind of "checklist" information set out in
recommendation 3.a. Each request will necessarily involve a
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THE DESIGNATED AGENCY ETHICS OFFICIAL'S
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case-by-case determination. However, when the 0GB regulation
becomes final, we plan to issue an EPA Ethics Advisory outlining
the Subpart E procedures and specifically discussing issues that
are likely to be present in such cases along the lines you
recoBMnded. This Ethics Advisory will emphasize the importance
of employees' seeking a determination from the "agency designee"
before participating in * matter affecting someone with whom the
employee has a "covered relationship." The Ethics Advisory will
also emphasize the importance of employees' keeping "agency
designees" informed of any changes in the facts and circumstances
upon which the "agency dasignee" based an approval to
participate. We also will offer annual training to the OEOs
before they review the financial statements.
As regards recommendation 3.c., we believe that the recusal
procedures which will be invoked by Subpart E accomplish this
objective. That is, a determination by .the "agency designee"
will be required whenever an employee proposes to take pert in a
•specific party" matter affecting a "covered relationship."
Although it is not yet certain who will serve as "agency
designees" for purposes of the new OGE regulation, it seems
likely that the present Deputy Ethics Officials will generally
serve in this role. This means that supervisors of SBS personnel
are likely to be directly responsible for making the
determinations required by Subpart E. If the "agency designee"
determines that the employee should not participate, the usual
procedure for recusals would apply. That is, the employee would
send a memorandum to his supervisor and to those who immediately
report to him stating that, to avoid actual or apparent
impropriety, he has recused himself from participation in certain
described matters. However, in the case where the supervisor of
an StSS employee would not serve as the "agency designee," we
would require that a copy of such determinations be provided to
the SES employee's supervisor.
Your recommendation on page 29 concerns Chapter 4 entitled
»$9 MILLION IM COHTHACT AWARDS TO AScI » 1990 WERE HOT
COMPETITIVELY BID" and was as follows:
We recommend that • * *
3. The Designated Agency Ethics Official review the
conditions for the approval of the Duluth Director's
spouse's employment with AScI. After completing the
review, the DAEO should advise, in writing, whether
under the current circumstances, the Duluth Director
should recuse himself from any actions involving AScI
to avoid any future actual or reasonable appearance of
a conflict of interest.
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APPENDIX 3
PAGE 6 OF 9
THE DESIGNATED AGENCY ETHICS OFFICIAL'S
RESPONSE (WITHOUT ATTACHMENTS) TO THE DRAFT REPORT
As discussed above, we will provide detailed information
regarding spousal employment questions in an Ethics Advisory
addressed to all Deputy Ethics Officials.
The OGB guidance on which we based EPA Ethics Advisory 88-5,
SpotiM] Bjn»iqy»ent. of July 5, 1988 (copy attached) was as
follows:
Spousal connections should be handled carefully—
not in any doctrinaire fashion. The happenstance that
one works in the Federal agency and another in a
related private field does not create per se a conflict
of interest. It is no longer unusual for a married
woman to work and to have a career independent of her
spouse. In a small community with few opportunities
for gainful employment, it is likely that one spouse
may be employed by a private employer which has
dealings with the Federal agency in which the other
spouse works. In such a situation, it is important
that a realistic analysis be made by the ethics
official as to whether any actual conflict is present.
not* Ka arrived a"tj linl^ss the government's i.nteregfc» a.rft
or could be prejudiced. * * * (Office of Government
Ethics, "Ethics Newsgram," Vol. 1, No. 3, November,
1984, p. 3, emphasis added).
The OGB opinions summarized on page 4 of the Ethics Advisory
regarding "appearance of impropriety* concern situations where a
Federal employee's participation in a matter affecting a spouse's
employer would violate 18 0.S.C. $208(a) because the spouse was
actually working on the affected project. OGB concluded that an
18 U.S.C. §208(b)(l) waiver generally should not be granted in
such cases because of the "appearance of impropriety" which would
result.
As provided by Subpart E of the proposed OGB regulation,
even to decide that a situation creates a "conflict of interest"
does not conclude the inquiry. An "agency designee" must go on
to decide whether the employee should participate nonetheless
because the agency's interest in the employee's participation
outweighs concern about the conflict.
The information discussed in the draft report nonetheless
leads us to conclude that the Duluth Director's spouse's
employment by AScI created a conflict. We anticipated that the
Duluth Director's general management decisions at the Laboratory
would affect the AScI contract .to some degree, but we were not
aware that: (1) he was a member of the Performance Evaluation
Board at the time he submitted his request; (2) his spouse had
been an unpaid AScI staff member for several months prior to the
request; and (3) the Duluth Director was involved in a contract
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APPENDIX 3
PAGE 7 OP 9
THE DESIGNATED AGENCY ETHICS OFFICIAL'S
RESPONSE (WITHOUT ATTACHMENTS) TO THE DRAFT REPORT
award to AScI which took place four days after his regoeat for
our written concurrence in hia wlfe'a eaployaent.
In view of these facta, our concurrence ahould not have been
granted under either the atandarda in 40 C.F.K. $3.103* or the
atandardai In Subpart E of the proposed O6E regulations. Although
we cannot control whether an eaployee'a spouse accepts eaployaent
with anyone, the inforaation disclosed in the draft report leads
us to conclude that the Duluth Director ahould have reeosed
hiaself froa participation in any Batter affecting AScI.
Your recoaaendationa on pagea 45 and SC concerned Chapter 6
entitled "DULUTH EMPLOYEES' COWFIDEHTIAL STATEMENTS WEBE
INCOMPLETE" and were aa follows:
Me recoaaend that:
1. The Designated Agency Ethica Official instruct the Deputy
Ethics Official at the Duluth Laboratory to:
a. Require that all eaployeea who should be required to
file under EPA regulationa and Agency policy subait
Confidential Stateaenta of Eaployaent and Financial
Interests.
b. Train DEO staff in the appropriate EPA regulationa and
Agency policy concerning ethical atandarda for EPA
eaployeea.
c. correct the aost current certification letter to
reflect that (1) additional eaployeea ahould have
reported, and (2) coaplete review of all Confidential
Stateaenta was not conducted prior to certification.
2. The Designated Agency Ethics Official seek peraission froa
the office of Governaent Ethica to require EPA Work
Assignaent Managers to file Confidential Stateaenta of
Eaployaent and Financial Interests.
OGB baa recently published its long-awaited new procedures
for collecting and reviewing confidential financial Stateaenta.
As discussed on page 2 of EPA Ethics Advisory 92-14 (copy
attached), eaployeea at «nv level should be required to file if
they participate "personally and substantially" in "particular
5 Under 40 C.F.R. §3-103, eaployeea aay not *(t]ake any
action, whether specifically prohibited or not, which would
result in or create the reasonable appearance of: • * • (l)osing
independence or iapartiality of action • • * ."
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APPENDIX 3
PAGE 8 OF 9
THE DESIGNATED AGENCY ETHICS OFFICIAL'S
RESPONSE (WITHOUT ATTACHMENTS) TO THE DRAFT REPORT
aatters" which affect outside financial intareats. The Ethics
Advisory particularly eaphaaiies the need to require filing by
employees who participate in contract administration activities;
Xit:
This requirement applies reaardlaaa of grade
level. Under the current aystea, only a few categories
of eaployees below CS-13 aay ba required to file
without special OGB approval. Zn particular, it ia
important to ensure that eaployees who exercise
significant judgaent in awarding or administering
contracts or assistance agreeaents ara required to file
in October regardleaa of their grade levels. Such
employees include contracting officers, project
officera, ordering officers, and work asaignaent
aanagers.
Filing under the new system begins in October 1992.*
Ethics Advisory 92-14 is the beginning of our training effort*
for Deputy Ethics Officials and their staffa. Zn addition, we
ara holding a two-day seminar at the end of June 1992 to explain
the recent changes in the ethica atatutea and the new Governaent-
wide OGB regulations. Discussion of the new Government-wide
systea of confidential financial reporting will- be an important
part of thia effort. He will offer annual training to the DEO*
before they review the confidential financial atataaenta.
In addition, OGB regulation* published April 7, 1992 at
57 Fed. Reg. 11886 (copy attached) implement the requireaent of
Executive Orders 12674 and 12731 that all employee* who are
required to file confidential or public financial disclosure
reports receive annual ethica training. Thia will be a major
undertaking for all Federal aganciea, and we are Baking plan* to
carry oat thia requireaent with the advice and aaaiatanca of OGB.
Finally, we have annotated the ao*t recent Duluth
certification to *tat* that aoma of the report* were not reviewed
prior to certification. He have al*o aent a memorandum (copy
attached) to the Acting Duluth Director which recoaaends that he:
(1) review the decision to exclude froa the filing requireaent
employees below GS-131 (and the one CS-13 employee) who could
have been directed to file and obtain statements for 1990 and
4 To implement the new requirements, there will be no July
1992 annual filing, pursuant to OGE direction.
* Such employees include contracting officers, project
officers, inspectors, auditors and On-Scane Coordinator
representatives, See. 40 C.F.R. S3.303(c) (2).
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APPENDIX 3
PAGE 9 OF 9
THE DESIGNATED AGENCY ETHICS OFFICIAL'S
RESPONSE (WITHOUT ATTACHMENTS) TO THE DRAFT REPORT
1991 fro* these employees if he determines that the •xeliuion was
inappropriate;
(2) ascertain which filar* failed to include information about
spouse* and minor children in their 1990 and 1991 reports, obtain
amended statements from these employees, and consider
disciplinary action in appropriate circumstances;
(3) review the reports to ensure that conflict of interest
problems have been resolved, particularly emphasizing spousal
employment issues under the criteria discussed in EPA Ethic*
Advisory 88-5; and
(4) send new certifications to me for 1990 and 1991 by July 31,
1992.
* • *
Please call me at 260-8064 if you have any question*
Attachment*
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APPENDIX 4
PAGE 1 OF 1
AScI
Aspen
Cincinnati
CFR
Confidential Statement
DAEO
DEO
Duluth
8(a)
Green Bay Study
OARM
OGC
OEPER
ORD
PCMD
PEB
SBA
UWS
WAM
ABBREVIATIONS
AScI Corporation
Aspen Research Corporation
Office of Administration and
Resources Management, Cincinnati
Contracts Management Division
Code of Federal Regulations
Confidential Statement of
Employment and Financial Interests
Designated Agency Ethics Official
Deputy Ethics Official
Environmental Research Laboratory-
Duluth, Minnesota
Section 8(a) of the Contracting and
Business Development Program
Great Lakes Mass Balance Study,
Green Bay, Wisconsin
Office of Administration and
Resources Management
Office of General Counsel
Office of Environmental Processes
and Effects Research
Office of Research and Development
Office of Administration and
Resources Management, Procurement
and Contracts Management Division
Performance Evaluation Board
Small Business Administration
University of Wisconsin-Superior
Work Assignment Manager
78
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APPENDIX 5
PAGE 1 OF 1
DISTRIBUTION
Administrator (A-100)
Deputy Administrator (A-101)
Inspector General (A-109)
Assistant Administrator for Administration and Resources
Management (PM-208)
Assistant Administrator for Research and Development (RD-672)
General Counsel (LE-130)
Principal Deputy General Counsel - Designated Agency Ethics
Official (LE-130)
Director, Office of Environmental Processes and Effects
Research (RD-682)
Director, Office of Administration and Resources Management
at Cincinnati, Ohio
Director, Office of Small and Disadvantaged Business Utilization
(A-149C)
Agency Followup Coordinator (H-3304), Attn: Director,
Resource Management Division
Audit Followup Coordinator (PM-208)
Attn: Program Operations Support Staff
Audit Followup Coordinator (RD-674)
Attn: Office of Research and Program Management
Audit Followup Coordinator (LE-130M)
Attn: Management Support Division
Audit Followup Coordinator (PCMD-Cincinnati)
Attn: Contracts Management Division
Director, Financial Management Division (PM-226F)
Headquarters Library (PM-211A)
Associate Administrator for Congressional and Legislative
Affairs (A-103)
Associate Administrator for Communication, Education and Public
Affairs (A-100)
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