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U.S. ENVIRONMENTAL PROTECTION AGENCY
OFFICE OF INSPECTOR GENERAL
Opportunities for EPA-Wide
Improvements Identified
During Review of a
Regional Time and
Materials Contract
April 4, 2013
Report No. 13-P-0209
Scan this mobile
code to learn more
about the EPA OIG.

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Report Contributors:
Eric Lewis
Khadija Walker
Christine Baughman
Rodney Rice
Nyquana Manning
Abbreviations

A&E
Architect and Engineering
CMM
Contracts Management Manual
CO
Contracting Officer
COR
Contracting Officer Representative
EPA
U.S. Environmental Protection Agency
EPAAR
EPA Acquisition Regulations
FAR
Federal Acquisition Regulations
IGCE
Independent Government Cost Estimate
OAM
Office of Acquisition Management
OIG
Office of Inspector General
OMB
Office of Management and Budget
SOW
Statement of Work
Cover photo: The facility to treat sediment dredged from the Spring Creek Arm of the
Keswick Reservoir at the Iron Mountain Mine Superfund Site, Shasta County,
California. It was constructed under task order 45 and operated under task
order 50 of contract EPS90804. (Photo courtesy of CH2M Hill, Inc.)
Hotline
To report fraud, waste, or abuse, contact us through one of the following methods:
e-mail:	OIG Hotline@epa.gov	write: EPA Inspector General Hotline
phone:	1-888-546-8740	1200 Pennsylvania Avenue, NW
fax:	202-566-2599	Mailcode 2431T
online:	http://www.epa.gov/oiq/hotline.htm	Washington, DC 20460

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U.S. Environmental Protection Agency
Office of Inspector General
At a Glance
13-P-0209
April 4, 2013
Why We Did This Review
The purpose of this review was to
determine whether, for time and
materials contracts, the U.S.
Environmental Protection Agency
(EPA) has a process to verify that
contractor personnel met the
qualifications specified in the
contract and received the level of
services for which it paid. We
focused our review on remedial
action contract EPS90804 awarded
by EPA Region 9. The government
should only use a time and
materials contract when it cannot
accurately estimate either the
extent or duration of the work, or
anticipate costs with any
reasonable degree of confidence.
Contract EPS90804 supports EPA
responses to releases of hazardous
substances and counter-terrorism.
Under this contract, the region pays
the contractor a fixed hourly rate for
labor plus other direct costs.
A Region 9 contracting officer and
contracting officer representatives
monitor the contractor's activity.
This report addresses the
following EPA Goal or
Cross-Cutting Strategy:
• Strengthening EPA's Workforce
and Capabilities
For further information, contact
our Office of Congressional and
Public Affairs at (202) 566-2391.
The full report is at:
www.epa.qov/oiq/reports/2013/
20130404-13-P-0209.pdf
Opportunities for EPA-Wide Improvements Identified
During Review of a Regional Time and Materials Contract
What We Found
EPA Region 9 did not require its contracting personnel to verify that personnel for
the contractor had the qualifications necessary to execute contract EPS90804. This
may be an EPA-wide problem in managing time and materials contracts. In
addition, Region 9 contracting personnel did not consistently:
•	Update the statement of work that identifies the work it expects the
contractor to perform so EPA can use the statement of work to monitor
performance.
•	Document the review of the qualifications of contractor personnel performing
the contract tasks.
•	Document the reviews of monthly progress, contractor performance, and
quality of deliverables.
•	Become familiar with the contract.
•	Issue memorandums appointing contracting officer representatives (CORs).
These practices put EPA at risk of not receiving the level or quality of service for
which it paid. As the services ordered under the contract were to restore the
environment after the releases of hazardous substances, services that do not meet
the standards EPA intended under the contract could increase risk that human
health and the environment were not adequately protected.
Additionally, EPA Region 9 personnel negotiated a prohibited profit clause in the
contract, resulting in EPA improperly paying the contractor over $1.5 million in
additional profit.
Recommendations and Planned Agency Corrective Actions
We recommend that the Regional Administrator for Region 9 direct the contracting
officer for EPS90804 to require CORs to document oversight according to
regulations and policies, which he agreed to do. We also recommend that the
Regional Administrator recover funds for the prohibited clause, as well as
determine if the clause is in other contracts and recover funds for those contracts.
Finally, we recommend that the Assistant Administrator for Administration and
Resources Management enforce the requirement for CORs to ensure contract staff
meet the qualifications, and review EPA's practices for paying contractors who
perform similar activities. For the latter recommendations, the EPA officials
provided alternative corrective action without completion dates or they disagreed.
EPA must provide a corrective action plan in its final response.

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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
THE INSPECTOR GENERAL
April 4, 2013
MEMORANDUM
SUBJECT: Opportunities for EPA-Wide Improvements Identified During Review of a
Regional Time and Materials Contract
Report No. 13-P-0209
This is a report on the subject evaluation conducted by the Office of Inspector General (OIG) of
the U.S. Environmental Protection Agency (EPA). This report contains findings that describe the
problems the OIG has identified and corrective actions the OIG recommends. This report
represents the opinion of the OIG and does not necessarily represent the final EPA position.
This report contains the intended corrective actions and planned completion date for one
recommendation. This recommendation is considered resolved. The report also contains four
recommendations that the Agency and OIG are in disagreement and are considered unresolved.
Action Required
In accordance with EPA Manual 2750, resolution should begin immediately upon issuance of the
report. We are requesting a meeting between the Region 9 Administrator, the Assistant
Administrator for Administration Resources Management, and the Assistant Inspector General
for Program Evaluation, to start the resolution process and attempt to obtain resolution.
If resolution is still not reached with 30 days, the Region 9 Administrator and the Assistant
Administrator for Administration and Resources Management are required to complete and
submit the dispute resolution request to the Chief Financial Officer to continue the resolution
process. We have no objections to the further release of this report to the public. We will post
this report to our website at http://www.epa.gov/oig.
FROM: Arthur A. Elkins Jr.
TO:
Jared Blumenfeld, Regional Administrator
Region 9
Craig E. Hooks, Assistant Administrator
Office of Administration and Resources Management

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If you or your staff have any questions regarding this report, please contact
Carolyn Copper, Assistant Inspector General for Program Evaluation, at (202) 566-0829
or copper.carolvn@epa.gov; or Eric Lewis, Product Line Director, Special Reviews, at
(202) 566-2664 or 1 ewis.eric@epa.uov.

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Opportunities for EPA-Wide Improvements Identified
During Review of a Regional Time and Materials Contract
13-P-0209
Table of C
Chapters
1	Introduction 		1
Purpose		1
Background		1
Scope and Methodology		2
Prior Evaluation/Audit Coverage		3
2	Region 9 Should Improve Documenting Contract Oversight
Activities and Requirements		4
SOW Is the Basis for Work Performed		4
Region 9 Did Not Always Modify the SOW		5
Region 9 CORs Did Not Always Review or Document Review of
Qualifications of Contractor Personnel Who Billed EPA		7
Region 9 Task Order CORs Did Not Always Document
Reviews of Monthly Progress, Contractor Performance,
and Quality of Deliverables		10
Region 9 Did Not Always Comply Wth Directives or Best Practices, or
Consistently Issue COR Appointment Memorandums		13
Conclusion		14
Recommendations 		14
Agency Comments and OIG Evaluation		15
3	Contract Included a Prohibited Payment Clause		16
Paying Profit on Subcontracts Is Prohibited		16
Contract Inappropriately Allows Paying Profit on Subcontracts		16
EPA Disagrees That the Clause Was Inappropriate or Duplicative		18
Conclusion		20
Recommendations		20
Agency Comments and OIG Evaluation		21
Status of Recommendations and Potential Monetary Benefits		22
Appendices
A Process for Issuing a Task Order Under Contract EPS90804	 23
B Cost Proposal Evaluation Checklist	 24
C Task Order Cost/Hours Verification Form	 26
-continued-

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Opportunities for EPA-Wide Improvements Identified
During Review of a Regional Time and Materials Contract
13-P-0209
D	Office of Acquisition Management Comments to Recommendations		27
E	Region 9 Comments to Report Recommendations		29
F	Region 9 Technical Comments and OIG Evaluation		34
G	Distribution		40

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Chapter 1
Introduction
Purpose
The purpose of this review was to determine whether, for time and materials
contracts, the U.S. Environmental Protection Agency (EPA): (1) had a process to
verify that contractor personnel met the qualifications specified in the contract,
and (2) received the services for which it paid. We focused our review on
remedial action contract EPS90804.
Background
EPA Region 9 awarded remedial action contract EPS90804 to CH2M Hill, Inc.,
on September 24, 2008. Under the contract, the contractor provides professional
architect/engineer, technical, and management services to the EPA to support
activities under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980. This contract is intended to address and/or mitigate
endangerment to public health, welfare, or the environment; and to support states
and communities in preparing for responses to releases of hazardous substances.
The base performance period was 3 years, with options for up to 7 more years.
EPA awarded the first option period, extending the contract to September 23,
2013. The contract ceiling was not to exceed $116,250,000.
Contract EPS90804 is a fixed rate indefinite delivery/indefinite quantity award
term contract. The contract provides for the government to order work through
task orders, including fixed rate time and materials type task orders. A time and
materials task order is a vehicle for acquiring services based on direct labor hours,
at specified fixed hourly rates, and actual cost for materials. Fixed hourly rate
includes wages, overhead, general and administrative expenses, and profit. This
type of pricing may be used only when it is not possible at the time of placing the
contract to accurately estimate the extent or duration of the work, or anticipate
costs with any reasonable degree of confidence. Such a pricing method provides
no incentive to the contractor for cost control or labor efficiency. Thus, EPA must
overcome the disadvantages of contracts with fixed rate/time and materials type
pricing arrangements by having enough properly trained staff to adequately
perform and document reviews of invoices, monthly progress, contractor
performance, and daily oversight to provide reasonable assurance that the
contractor uses efficient methods and effective cost controls. In 2012, in response
to the Administration's Campaigns to Cut Waste, and OMB's memo Reduced
Contract Spending for Management Support Services, EPA released guidance
which encouraged the agency to move from "high-risk" contracts, which include
time and materials contracts, to more fixed price contracts.
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Region 9 provided for multiple levels of monitoring the work. To help contracting
officers (COs) manage the contract, COs used a memorandum to appoint contracting
officer representatives (CORs) in accordance with Federal Acquisition Regulation
(FAR) at 48 CFR Section 1.604. This included a contract-level COR as well as task
order CORs.
The contracting officer issues task orders for government-required work to be
performed. For each task order, the task order COR drafts the statement of work
(SOW) to identify the work EPA wants the contractor to perform, as well as the
independent government cost estimate (IGCE) on how much the work might cost.
Once the task order is issued, it is the responsibility of the task order COR to
monitor the contractor's performance to ensure that EPA obtains a quality
product, on time, and within cost. Monitoring includes giving technical direction,
reviewing deliverables, conducting meetings, reviewing monthly progress reports
and invoices, and evaluating contractor performance.
Scope and Methodology
We conducted our work from January to December 2012 in accordance with
generally accepted government auditing standards issued by the Comptroller
General of the United States. Those standards require that we plan and perform
the review to obtain sufficient, appropriate evidence to provide a reasonable basis
for our findings and conclusions based on our objectives. We believe that the
evidence obtained provides a reasonable basis for our findings and conclusions
based on our review objectives.
We selected contract EPS90804 because it had the largest dollar value of regional
contracts that included time and materials task orders, based on the Office of
Acquisition Management's (OAM's) active contracts list as of June 2011. When we
started work, the CO had issued 64 task orders funded for $97.8 million. All of these
task orders were time and materials. We selected a sample of 12 out of the 64 task
orders (18 percent), which represented 63 percent of the contract dollars (table 1).
Table 1: Task orders reviewed
Number
Site name
Date issued
Amount funded
7
Frontier Fertilizer
12-29-2008
$9,612,753.00
8
Frontier Fertilizer
12-30-2008
1,960,000.00
17
Sulphur Bank
12-30-2008
1,897,613.00
23
B.F. Goodrich
12-31-2008
4,130,475.00
40
Iron Mountain Mine
02-20-2009
512,312.67
45
Iron Mountain Mine
04-13-2009
20,692,769.33
49
El Monte
06-23-2009
900,000.00
50
Iron Mountain Mine
06-23-2009
18,560,340.00
51
Lava Cap
07-23-2009
381,387.00
53
Frontier Fertilizer
08-31-2009
2,499,997.43
55
Ordot Landfill
05-21-2010
149,973.00
60
Glendale Chromium
09-26-2011
300,000.00
Total for Task Orders Reviewed
$61,597,620.43
Source: OIG analysis
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We interviewed the Region 9 staff managing the contract, including the current
CO; Contract Acquisition Manager, who was the CO who negotiated and signed
contract EPS90804; the current contract-level COR; the eight Region 9 staff
serving at the time as task order CORs for the 12 task orders reviewed; and their
supervisors. We reviewed the supporting documentation for each task order in the
sample as well as applicable laws, regulations, and guidance documents.
Prior Evaluation/Audit Coverage
The following Office of Inspector General (OIG) reports addressed issues related
to the scope of our review
•	Report No. 09-P-0242, Contractor Invoice Internal Controls Need
Improvement, September 23, 2009.
•	Report No. 10-R-0113, EPA Should Improve Its Contractor Performance
Evaluation Process for Contractors Receiving Recovery Act Funds,
April 26, 2010.
•	Report No. 12-P-0320, Policies Neededfor Proper Use and Management
of Cost-Reimbursement Contracts Based on Duncan Hunter Act, March 6,
2012.
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Chapter 2
Region 9 Should Improve Documenting
Contract Oversight Activities and Requirements
EPA Region 9 did not require its contracting personnel to verify that personnel for
the contractor have the qualifications necessary to execute contract EPS90804.
This may be an EPA-wide problem in managing time and materials contracts.
This occurred because EPA did not use an appropriate government surveillance
plan to review the work of the contractor. Specifically, the lack of contract
oversight put EPA at risk of not receiving the level or quality of service for which
it paid. Region 9 contracting personnel did not consistently:
•	Modify the SOW that identifies the work it expects the contractor to
perform so that the region can use the SOW to monitor performance.
•	Document the review of the qualifications/resumes of contractor personnel
performing the contract tasks.
•	Document the reviews of monthly progress, contractor performance, and
quality of deliverables.
•	Become familiar with the contract.
•	Issue memorandums appointing CORs .
A time and materials-type pricing arrangement provides no profit incentive to the
contractor for cost control or labor efficiency. Therefore, appropriate government
surveillance of contractor performance is required to give reasonable assurance
that efficient methods and effective cost controls are being used. The FAR and
EPA Acquisition Regulations (EPAAR), as well as other EPA and Office of
Management and Budget (OMB) guidance, address the need for documentation in
these situations. Region 9's inconsistent documentation to support decisions and
management of this contract poses a risk that it will not receive the level and
quality of services for which it paid. As the services ordered were to restore the
environment after the releases of hazardous substances, this risk could endanger
public health and welfare.
SOW Is the Basis for Work Performed
According to the February 2009 EPA Contracts Management Manual (CMM),
Section 11.1, the SOW is one of the main documents in the procurement process,
from initiation through completion. The SOW:
•	Delineates the tasks that the contractor must perform.
•	Describes essential technical needs or requirements that the contractor
must fulfill.
•	Provides the standards that the government will use to determine that the
contractor met the contract requirements.
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The SOW serves as the basis for performance under the contract. The June 2010
EPA Guide for Preparing Independent Government Costs Estimates [IGCE] states
that the SOW provides the foundation to determine the price, performance
schedule, and deliverables (EPA Guidance 2010, p 8). Contract EPS90804,
Attachment 1, requires that the contractor perform all activities identified in the
SOW of the individual task orders.
Region 9 Did Not Always Modify the SOW
The contract clause H.42(n)l requires the contractor to develop a work plan to
achieve the objectives listed in the SOW. However, some task order CORs relied
on the contractor-prepared work plan to establish government objectives and to
monitor contractor progress. There were differences between the deliverables in
the SOW and the work plan prepared by the contractor. This occurred because the
task order CORs did not always keep notes or track changes to deliverables
agreed upon in meetings with the contractor and failed to communicate those
changes to the CO. Region 9 contracting personnel should modify the SOW
accordingly to show the changes and the rationale for the agreed-upon terms.
Development of the Work Plan
The COR prepares a SOW for each task order and related IGCE, and gives the
documents to the contract-level COR, who gives them to the CO. After any
needed changes are made, the CO gives the SOW (but not the IGCE) to the
contractor. The COR then participates, as needed, in negotiations with the
contractor and CO to ensure a mutual understanding of the work that EPA wants
the contractor to perform. Based on these negotiations, the COR may revise the
SOW to reflect changes agreed upon during the meeting. The contractor then
prepares the work plan. The work plan details the contractor's approach to
performing the tasks identified in the SOW, lists the related deliverables,
estimates the cost to perform the work, and identifies the name and function of
staff considered key personnel to deliver the work.
To ensure that the work plan reflects the needs of EPA, the task order COR
compares the work plan to the SOW and IGCE. Recently, the CO introduced a
Cost Proposal Evaluation Checklist to assist task order CORs in evaluating work
plans (see appendix B). As the checklist was introduced after some of the task
orders were issued, only 6 of the 12 task orders that we reviewed had a completed
checklist to document the task order COR's review of the work plan. If the work
plan is acceptable to the task order COR, the contract-level COR, and the CO, the
CO issues the task order, attaching both the SOW and work plan. Appendix A
outlines the best practices for issuing the task order.
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Deliverables in SOW and Work Plan Were Not Always Consistent
When comparing the work plan to the SOW, the task order COR should pay
particular attention to the deliverables to ensure that Region 9 receives the
services needed. For six task orders with completed checklists, there were
differences between the SOW and work plan, including differences in
deliverables. The task order COR did not document these differences in the
checklist. Thus, the task order CORs did not ensure that deliverables in the work
plans were consistent with the deliverables in the SOWs. For the 12 task orders
reviewed, the SOWs had 120 deliverables and the work plans had 109. The
deliverables in the SOW and work plan were the same for two task orders. For
10 task orders, there were differences of 54 deliverables between the SOWs and
the work plans, as shown in table 2. For example, some of the SOWs included
deliverables not in the work plan, and some work plans included deliverables not
in the SOWs. Thus, EPA risks the possibility of (1) needing work that the
contractor did not perform and/or (2) paying for work that was not essential.
Table 2: Deliverables in SOWs and work plans differed
Task order
Number of differences in deliverables
7
5
8
10
17
18
23
0
40
3
45
1
49
10
50
1
51
2
53
2
55
0
60
2
Totals
54
Source: OIG analysis
In contrast to EPA's policy and best practices, the CORs considered the
documenting of scoping meetings to be optional. However, in some of these
meetings, the deliverables in the SOW were changed. As a result, the SOWs list
of deliverables differed from the lists in the work plan because task order CORs'
documentation of scoping meetings is discretionary. According to EPA's CMM,
CORs must set-up a file system containing all relevant documentation, including
the basic contract, internal correspondence, technical direction, contract
deliverables received and reviewed, payment file, and other items that will
provide an audit trail of the actions on the acquisition.
EPA's Records Management policy requires that there should be documentation
to show a clear picture of how the Agency conducts its business and makes
decisions. This can include meetings and conference calls where decisions are
made. EPA's October 2008 COR training material tells CORs, as a best practice,
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that all meetings must be documented. Further, the COR training material states
someone who attended the meeting should prepare minutes and provide a copy to
all those who attended. The minutes generally document who attended, the reason
for the meeting, discussions, and who will handle action items. Four of the six
task order CORs stated that they did not always take scoping meeting notes. Two
of these six stated they took notes but could not provide them; one of those two
said she destroyed her notes because her office was moving and she believed she
no longer needed them.1
Some task order CORs and the contract-level COR said that when task order CORs
recommended approving the work plan they were accepting that the deliverables
reflected EPA's expectations without actually comparing them to the SOW.
However, this is in opposition to the FAR requirement that the SOW must include
the description of work performed. In addition, EPA's suggested best practice has
the SOW as the most critical element of the task order. It helps ensure a common
understanding of project requirements by the contractor and the government, and
assists the COR in monitoring the project and evaluating deliverables.
Not all task order CORs used the SOW as the primary document to monitor
contract work. One task order COR stated that she used the work plan as the
primary document to monitor the expected deliverables because it was the most
accurate document after the scoping meeting. Another task order COR stated that
he used the SOW in conjunction with the work plan and other documents to
monitor expected deliverables. The task order CORs' practice of using the
contractor's work plan to track progress leaves it at risk of the contractor
changing the nature of the agreed-upon contract services. This entails great risk to
the government.
The EPA Records Management Manual, Chapter 1, states that there should be
documentation to show a clear picture of how EPA conducts its business and
makes decisions. If task order CORs do not document results of scoping meetings,
they are not keeping records that reflect a clear understanding of how EPA agreed
to tasks committed to by the contractor. There is no internal control in place for
EPA to assure that contractors are committing to agreed-upon tasks delineated in
the scoping meetings. EPA, using the SOW, should identify and define the
requirements for the goods and services.
Region 9 CORs Did Not Always Review or Document Review of
Qualifications of Contractor Personnel Who Billed EPA
Once Region 9 and the contractor agree on the task order work, the contractor
must provide qualified staff to perform it. However, the task order CORs did not
consistently review the qualifications of contractor staff listed in the work plans.
1 Two of the CORs included in our sample of eight did not attend scoping meetings because they were appointed
after the task order was issued, to replace the original COR.
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Contract EPS90804 identified the qualifications for each labor category and made
the contractor responsible for ensuring contract staff met required qualifications.
For time and materials or labor hour contracts, the FAR states in 52.232-7(a) that
the hourly rates shall be paid for all labor performed on the contract that meets the
labor qualifications specified in the contract. It does not identify who must ensure
the labor meets the specified qualifications, but EPA suggests the COR do so as a
best practice. According to the COR basic training material, the COR can request
the contractor to submit resumes outlining the qualifications of staff to perform
the work.
Region 9 should improve its review and document as part of the review contractor
personnel identified on task orders. Four of eight task order CORs, managing four
task orders, stated they did not review the qualifications of contract staff. The
remaining four task order CORs, managing eight task orders, stated that they
reviewed the qualifications of key staff proposed in the work plan. However, the
CORs we asked did not provide any documentation supporting this claim. The
CORs lacked documentation of sufficient controls to assure that the contractor
used qualified personnel to provide the service for which EPA paid.
Because the Region 9 CORs do not consistently review or document their review
of qualifications, EPA is relying solely on the contractor to ensure that the
personnel billed under the contract are qualified to perform agreed-upon tasks.
Contract EPS90804 requires that individuals billed must meet the qualifications
for the labor categories specified in the contract. Clause B.3 identifies the
qualifications for each labor category and requires that the contractor employee
meet the qualifications set forth in the contract for the labor category. According
to contract attachment 5, Invoice Preparation Instructions, the face of each
voucher should contain the following certification: "I certify that all payments
requested are for appropriate purposes and in accordance with the agreements set
forth in the contract." Thus, because the CORs do not consistently review or
document the review of the qualifications of contractor staff, EPA is
inappropriately allowing the contractor to determine that its staff met the
qualifications of the labor categories required to accomplish the work specified in
the contract. This increases the risk of the contractor substituting lesser-qualified
staff while EPA pays the rate for fully qualified individuals. In 2009, the OIG
found that a contractor billed EPA for staff that did not meet the minimum
qualifications specified in the contract. As a result, OIG recommended that EPA
disallow the costs of the labor hours charged.
Review of Contractor Qualifications is Required
EPA OAM's Interim Policy Notice issued in September 2010 requires task order
CORs to verify that billed hours were worked by qualified personnel at the labor
categories charged. Further, the memorandum appointing the task order CORs
states that CORs must assure the contractor uses the levels of personnel
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contracted for and needed to perform the contractual requirements, and that the
level of personnel contracted for is not diluted by the excessive use of lower-
caliber personnel. Additional support for the review of qualifications is listed
below.
•	FAR Subsection 16.601(a) states the hourly rate means the rate(s)
prescribed in the contract for payment for labor that meets the labor
category qualifications of a labor category specified in the contract.
•	FAR Subsection 52.232-7(a) states that hourly rates shall be paid for all
labor performed on the contract that meets the labor qualifications
specified in the contract. Labor hours incurred to perform tasks for which
labor qualifications were specified in the contract will not be paid if the
work is performed by employees who do not meet the qualifications
specified in the contract.
•	The September 2008 EPA COR training materials, Chapters 4 and 6, state
that CORs can review resumes of proposed staff for task orders.
EPA Does Not Believe Verification of Qualifications Is Necessary
EPA does not enforce the FAR requirement to ensure contract staff meet labor
qualifications. The OAM Director stated that he is not concerned with the
education level or amount of experience possessed by any staff member as long as
they can perform the work required, and if EPA has a policy requiring EPA to
review credentials of all those working on tasks the requirement needs to be
changed. The CO believes there are no requirements for EPA to review the
qualifications of any staff. He also stated that EPA takes the contractor's word for
the qualifications of its staff; EPA is not the contractor's human resource office.
According to the CO, verifying qualifications of contractor personnel was
crossing the line into personal services and deemed unnecessary because EPA
evaluated key personnel during the contract selection process.
The FAR defines a personal services contract in Subsection 37.104(a); it states a
personal services contract results in an employer-employee relationship between
government personnel and the contractor's employees. A process to ensure
contract staff meet the qualifications specified in the contract has no connection to
personnel services. Specifically, checking a sample of the qualifications/resumes
of the contractor staff satisfies the requirements in FAR Subsection 16.601 that
the government only pay contractor staff that meet the qualifications specified in
the contract. This better assures that the government obtained the level of service
for which it paid. It does not allow EPA contracting personnel to direct the work
of the contractor's employees. In fact, reviewing qualifications does not require
any direct contact between the contractor's employees and Region 9 task order
CORs.
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Contract Staff Billed Did Not Match Key Contract Staff Proposed
The contractor did not identify in the work plans most of the individuals who
were ultimately billed. As shown in table 3, for the 12 task orders reviewed, the
work plans identified 229 individuals as key staff. However, 46 of these 229
individuals (20 percent) were never billed. Conversely, the contractor billed for
1,029 individuals but 846 (82 percent) were not in the work plans. According to
the CORs, they did not attempt to review the qualifications of the 846 personnel
not listed in the work plans.
Table 3: Individuals on work plans did not match those billed
Task
order
Number of key staff on work plan
Number of individuals billed
Total
Billed
Total
Not in
work plan
7
17
13
110
97
8
11
10
88
78
17
15
15
148
133
23
4
4
102
98
40
21
17
64
47
45
53
49
164
115
49
10
5
27
22
50
68
53
194
141
51
6
5
59
54
53
10
5
26
21
55
8
2
17
15
60
6
5
30
25
Totals
229
183
1,029
846
Source: OIG analysis
Task order CORs explained that these differences in staffing did not pose a
concern as such differences are common with large contractors. However, if the
contractor bills individuals not mentioned in the work plans and the task order
CORs are unaware of the background of these individuals, Region 9 cannot
ensure their qualifications comply with the terms of the contract. This increases
the risk that the contractor is billing the government for work performed by less-
qualified individuals.
Region 9 Task Order CORs Did Not Always Document Reviews of
Monthly Progress, Contractor Performance, and Quality of Deliverables
Region 9 did not consistently document the review of monthly progress or the
quality of deliverables. Although there was a form available to evaluate contractor
performance on a monthly basis, task order CORs did not use it. Documentation
on the quality of deliverables varied between task orders. The FAR requires in
Subsection 16.601 that the government review the contractor's performance to
provide reasonable assurance that the contractor is using efficient methods and
cost controls, and FAR Subsection 46.104 requires that the government must
document decisions regarding the acceptability of products. EPA guidance and
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contract EPS90804 also require that Region 9 have documentation showing that it
conducted appropriate performance reviews of the contractor. Region 9 could
better support the reasonableness of the payments to the contractor and the formal
contractor evaluations with more consistent documentation on the contractor's
monthly progress and the quality of deliverables. Further, if a dispute arises
concerning deliverables, Region 9 would have the documentation needed to
support its decisions.
Monthly Progress Reviews Not Documented
FAR Subsection 46.401(a) requires that quality assurance surveillance plans
should be prepared in conjunction with the preparation of the statement of work.
The plans should specify all work requiring surveillance and the method of
surveillance. Contrary to the requirements in the FAR, no surveillance plan was
prepared for contract EPS90804. Instead of a surveillance plan, contract
EPS90804 attachment 8, Award Term Incentive Plan, addressed monitoring
categories. Attachment 8 briefly described a method of surveillance. The method
described that formal evaluations will generally be performed annually, but EPA
will informally evaluate the contractor's performance on a monthly basis as part
of the invoice/ status report approval process. However, task order CORs did not
complete the portion of the invoice approval form that would have documented
the monthly progress review. Thus, EPA failed to use the tool described in the
method of surveillance. If an appropriate government surveillance plan had been
prepared and executed, it would have improved controls for task orders on
contract EPS90804.
Contract EPS90804, clause G.2, requires the contractor to submit monthly
progress reports and invoices. The EPA CMM states that the government must
document to show appropriate review of contract invoices for cost
reasonableness. The task order CORs used the Task Order Costs/Hours
Verification Form to certify that they reviewed the monthly invoice and verify
that the contractor made sufficient progress to support paying for the work
performed. The verification form had two sections (see appendix C). The first
section was the mandatory verification statement mentioned above; the second
was an optional section to assess contractor's performance. For the task orders
reviewed, all the task order CORs filled out the required section for the invoices.
Most task order CORs did not have documentation on the extent of their review of
the invoice. The current verification form only requires that the task order CORs
certify that they reviewed the invoice but does not account for the depth of the
review. Two of the eight task order CORs who managed six task orders could
provide documentation, in addition to the verification forms, that they reviewed
monthly invoices. For example, both of these task order CORs had records
challenging or suspending amounts invoiced. Other task order CORs stated that
they reviewed invoices but could not provide documentation. When we
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questioned one of these task order CORs about progress and costs invoiced, the
COR was unable to give explanations showing she understood the invoice.
Contract EPS90804 attachment 8, Award Term Incentive Plan, stipulated that
Region 9 will continually monitor the contractor's performance and will
informally evaluate the performance monthly. As mentioned before, the
verification form had an optional portion for the task order CORs to assess
contractor's performance. This section covered the quality of services delivered,
effectiveness of management, and timeliness of performance. For the task orders
reviewed, none of the task order CORs completed the contractor performance
section of the verification forms. The CO and a supervisor stated that there have
been times when EPA made changes to the contractor deliverable reports.
Every 6 months, the task order CORs are supposed to complete a formal
evaluation of the contractor's performance. If task order CORs completed the
monthly assessment for contractor performance, there would be better support for
the semi-annual assessment. By not completing the evaluation section of the
verification form, EPA has missed an opportunity to provide better oversight of
taxpayer funds.
Task Order CORs Did Not Consistently Document Their Review of
the Quality of Deliverables
Numerous directives require EPA to document that it accepts deliverables. FAR
Subsection 46.104(c)(2) requires that agencies document decisions regarding the
acceptability of products. The September 2010 EPA OAM's An Acquisition
Guide for Executives requires that program managers identify the deliverables that
are required for their programs, such as overseeing technical programs and
inspecting and accepting contract deliverables. "EPA's focus has traditionally
been on ensuring funds are obligated.. .oversight is needed to ensure that funds
are used for their intended purpose and in accordance with applicable terms and
regulations (EPA Guidance 2010, p 25)." The appointment memorandum requires
that task order CORs inspect completed work and/or services, certify acceptance
or non-acceptance of work, and review and evaluate the contractor's
accomplishment of technical objectives. The appointment memorandum requires
that task order CORs:
•	Inspect completed work and/or services.
•	Certify acceptance or non-acceptance of work.
•	Review and evaluate the contractor's accomplishment of technical
objectives.
•	File (among other things) copies of deliverables, comments on
deliverables, and approvals of deliverables.
The CO stated he relied on task order CORs to review the quality of deliverables, but
the documentation on the reviews was inconsistent. Six of the 8 task order CORs,
managing 10 task orders, indicated that they evaluated the quality of the deliverables
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for their task orders. However, the documentation supporting these evaluations
varied. Examples of how the task order CORs documented approval included
e-mails, the related verification form, a signed approval page in the deliverable, or
posting the deliverable to the Web page for the site. Two task order CORs, managing
six task orders, said they sometimes gave oral approval of deliverables.
Two of the eight task order CORs who managed two different task orders could not
provide documentation to support that they reviewed the quality of their deliverables.
When we asked one of these task order CORs how that COR reviewed the quality of
her task order deliverables, the COR could not provide an answer.
Region 9 Did Not Always Comply With Directives or Best Practices,
or Consistently Issue COR Appointment Memorandums
The CMM and the appointment memorandums identify the task order CORs'
responsibilities. The COR training materials identify task order COR best
practices. The CMM requires that CORs be familiar with the contract terms and
conditions, and keep a copy of the contract in their files. The memorandums
require that the CORs:
•	Ensure that the contractor complies with the task order statement of work
or specifications.
•	Assure that the contractor uses the levels of personnel contracted for and
necessary for performance of contractual requirements.
•	Review contractor invoices and recommend approval/disapproval for
payment as appropriate.
•	Monitor the task order performance.
•	Review and evaluate the contractor's accomplishment of technical
objectives
The COR training manual tells CORs that as a best practice:
•	When needed, modify the SOW.
•	Review qualifications of contractor staff.
•	Review contractor performance.
•	Review the quality of deliverables.
Task order CORs not being familiar with contract clauses is counter to the
directives of the CMM and the appointment memorandum. We found that some
task order CORs did not read contract EPS90804. They seemed unaware of
contract clauses such as the requirement in Attachment 8 that EPA will informally
evaluate contractor performance on a monthly basis.
In addition, only two task order CORs received appointment memorandums; the
current CO issued these memorandums. The task orders issued before this CO
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started managing the contract did not have appointment memorandums for the
task order CORs. This illustrates the need for the CO to issue appointment
memorandums and effectively communicate what is expected of task order CORs
on a regular basis.2
Conclusion
Region 9 does not enforce the FAR requirement that contract staff meet labor
qualifications specified in the contract. Because CORs do not consistently review
or document the review of contractor staff qualifications, EPA may be allowing
the contractor to determine that its staff met the qualifications of the labor
categories required to accomplish the work specified in the contract. This
increases the risk of the contractor substituting lesser-qualified staff while EPA
pays the rate for fully qualified individuals. Further, not all task order CORs used
the SOW as the primary document to monitor contract work. The task order
CORs' practice of using the contractor's work plan to track progress increases the
risk of the contractor changing the nature of the agreed-upon contract services
without the CORs knowledge. Also, Region 9 did not consistently document the
review of monthly progress or the quality of deliverables. Consequently, if a
dispute arises concerning deliverables, Region 9 may not have the documentation
needed to support its decisions. Finally, we found that some task order CORs did
not read contract EPS90804, and CORs not being familiar with contract clauses is
counter to the directives of the CMM and the appointment memorandum.
Recommendations
We recommend that the Regional Administrator, Region 9:
1. Direct the CO for contract EPS90804 to:
a.	Require that minutes of scoping meetings are prepared, provided to
those who attended, and committed to the official contract file.
b.	Instruct task order CORs to modify the SOW, if needed, to show
changes to which EPA and the contractor agreed in the scoping
meeting.
c.	Instruct task order CORs to continue to complete the Cost Proposal
Evaluation Checklist for each task order and commit it to the
official contract file.
d.	Instruct task order CORs to complete the Task Order Costs/Hours
Verification Form in its entirety, including the contractor
performance evaluation section.
e.	Instruct task order CORs to commit to the official contract file a
record of deliverables received and whether they were acceptable.
2 FAR Subsection 1.602-2(d)(6) did not require the CO to use appointment memorandums to appoint CORs until
March 16, 2011. However, the EPA CMM required appointment memorandums in 2009.
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We recommend that the Assistant Administrator for Administration and
Resources Management:
2. Direct OAM to require task order CORs to evaluate the qualifications of
contractor key staff proposed by the contractor in the work plan. The task
order CORs should also review qualifications for samples of the non-key
staff billed on invoices.
Agency Comments and OIG Evaluation
The Regional Administrator agreed to recommendation 1 and provided a
timeframe for implementing it. In his comments, the Regional Administrator said
that the Agency believes that many of the recommendations included in
chapter 2 of the report have merit and point out opportunities for Region 9 to
improve the contract oversight being provided by CORs. The region's response
on recommendation 1 is complete and the recommendation will be designated as
open with agreed-to actions pending.
Regarding recommendation 2, the Assistant Administrator for Administration and
Resources Management agreed that if the contract contains personnel
requirements such as required education or years of experience for contractor
staff, the CO and task order CORs must review and evaluate those qualifications.
He indicated that Region 9 was no longer using this contracting approach in new
procurements. OAM would use its balanced scorecard performance management
and measurement program to determine the need for additional guidance on
performance based contracting approaches. The balanced scorecard addresses and
implements solutions to various acquisition planning, evaluation, award, and
administration issues Agency-wide. We do not have sufficient information to
determine whether the proposed method meets the intent of our recommendation,
nor did OAM provide a timeframe for completing it. Therefore, we consider
recommendation 2 to be unresolved.
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Chapter 3
Contract Included a Prohibited Payment Clause
Region 9 negotiated a prohibited clause in contract EPS90804 that allowed for
paying profit on subcontracts. Paying profit on subcontracts under an indefinite
delivery/indefinite quantity contract with time and materials pricing arrangements
is duplicative and prohibited by the FAR. As a result, the contractor billed, and
EPA paid, over $1.5 million for profit on subcontracts. EPA must take appropriate
actions to prevent future payments of duplicative profit on subcontracts.
Paying Profit on Subcontracts Is Prohibited
Beginning in February 2007, the FAR prohibited paying profit on subcontracts
undertime and materials pricing arrangements. FAR Subsection 16.601(b) states
that a time and materials contract provides for acquiring supplies or services
based on direct labor hours at specified fixed hourly rates that include wages,
overhead, general and administrative expenses, profit, and the actual cost of
materials (with certain exceptions). "Materials" includes subcontracts. Further,
the related clause for payments under time and materials pricing arrangements—
FAR Subsection 52.232-7(b)(7)—specifically states that the government will not
pay profit or fees to the prime contractor on materials.3 Therefore paying profit to
the contractor on subcontracts is inappropriate under time and materials pricing
arrangements.
As noted in chapter 1, contract EPS90804 is a fixed rate, indefinite
delivery/indefinite quantity contract. The indefinite delivery/indefinite quantity
requirement gives the government flexibility in both quantities and delivery
scheduling of orders. Indefinite delivery contracts may provide for any
appropriate cost or pricing arrangement.
Besides the above prohibition, profit is also prohibited as a percentage of cost.
Paying the cost of the subcontracts plus a percentage of that cost for profit
resembles a cost-plus-a-percentage-of-cost contract, which FAR prohibits. FAR
Subsection 16.102(c) states: "The cost-plus-a-percentage-of-cost system of
contracting shall not be used (citations omitted)"
Contract Inappropriately Allows Paying Profit on Subcontracts
Contract EPS90804, clause B.3, contains the pricing schedule for the contract. It
requires that Region 9 pay the contractor:
3 There are two exceptions to not paying profit on subcontracts. They pertain to materials, supplies, and services that
are sold or transferred between any divisions, subdivisions, subsidiaries, or affiliates of the contractor under a
common control. These exceptions do not apply to contract EPS90804.
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•	A fixed rate per hour for identified labor categories.
•	Travel costs.
•	Subcontract costs.
•	Other direct costs.
•	Profit of 4.00 percent applicable to subcontracts only.
Through April 27, 2012, the contractor billed Region 9 the cumulative amount of
$38,104,278.36 for subcontracts, plus cumulative profit on the subcontracts of
$1,524,196.44. Under the terms of the contract, EPA is still liable to the
contractor for excess profits on work to be completed.
One plausible reason why the FAR prohibits the profit clause is because it is
duplicative. The fixed hourly rates paid for the identified labor categories include
profit. The CO stated that he did not understand the rationale for the clause
because the Region 9 Acquisition Manager negotiated it when he served as the
CO. We received conflicting responses from the Region 9 Acquisition Manager
on this issue.
•	Initially the Region 9 Acquisition Manager stated that the 4.00 percent
was for costs associated with managing the subcontracts and the contract
erroneously identified it as subcontract profit. However, this explanation is
not consistent with a September 2008 negotiation document he signed. In
the document, there was consistent use of the term "profit" regarding the
fee to be applied to the cost of subcontracts. In addition, in negotiating this
item, the Acquisition Manager used EPAAR Subsection 1515.404-471,
EPA structured approach, for developing profit or fee objectives.
•	After the OIG team's visit during this review, the Region 9 Acquisition
Manager received confirmation from the contractor that the 4.00 percent
was profit. The contractor stated it referred to it as a fee. The Region 9
Acquisition Manager stated that the contractor's use of that term confused
him and he interpreted the fee as overhead. The agency should have
understood that the FAR prohibits both "fees" and "profits."
•	The Region 9 Acquisition Manager also stated that remedial action
contracts issued by other regional offices might have this clause. However,
we found only two other remedial action contracts that were similar in
type and date to those issued by Region 4, and they did not include the
clause.
The issue extends beyond contract EPS90804. The Region 9 Acquisition Manager
signed at least one other contract that included time and materials task orders with
similar payments for profit. Region 9 awarded remedial action contract EPS90803
on June 24, 2008, which also provided that the region would pay profit of
4.00 percent applicable to subcontracts only.
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EPA Disagrees That the Clause Was Inappropriate or Duplicative
In August 2012, the Region 9 acquisition staff, the OAM Director, and members
of his staff disagreed that the 4.00 percent profit on subcontracts allowed by
contract EPS90804 is duplicative and inappropriate. The Agency stated:
•	Type of Contract: Contract EPS90804 is not a time and materials contract
because they issued task orders with other pricing arrangements under this
contract.
•	Risk in managing subcontracts: The contract requires the contractor to
subcontract the construction work. Management of construction is riskier
than some other types of architect and engineering services, so the
contractor should be entitled to additional profit above that in the fixed
hourly rates for managing construction subcontracts. The contractor
proposed that EPA compensate them for the increased risk by adding
additional profit only on the subcontracts. This might cost EPA less than if
the contractor had increased the profit ratio in their fixed rates.
•	Types of subcontracts: The subcontracts negotiated were often fixed price
or firm-fixed rate, and thus the additional 4.00 percent is fixed in a similar
manner rather than billed as a percentage of cost.
Type of Contract
For the 12 task orders we evaluated, EPA paid the contractor on a time and materials
basis as allowed by the contract clauses cited below. Since EPA chose to acquire
these services using a time and materials arrangement, the related limitations apply
and the contractor is not entitled to additional profit that the FAR prohibits.
•	Clause B.2 (b) permits the government to order work by using a fixed-
price, firm-fixed rate with a cost reimbursement line item for other direct
costs, or fixed rate time and materials type task orders.
•	Clause B.3 meets the definition of time and materials in FAR Section
16.601 because it provides for paying the contractor based on direct labor
hours at specified fixed hourly rates plus the cost of materials.
The Director and his staff could not provide FAR references to justify paying the
additional profit. The Agency stated that the clause in FAR Subsection 52.232-7
prohibiting the payment of profit on subcontracts was not included in the contract
and therefore does not apply. That clause was not in the contract, even though the
FAR requires it in contracts when applicable. FAR Subsection 52.301 provides a
matrix on the applicability of the clauses and provisions. We disagree that
excluding the clause from the contract exempts EPA from that requirement. This
matrix indicates the clause in FAR Subsection 52.232-7 is required when
applicable for time and materials contracts, and for labor hour contracts. The
contract contained a clause addressing payments under fixed rate contracts.
Clause G.3, from EPAAR Subsection 1552.232-73, limits the reimbursement of
materials to cost. Thus, EPA should prohibit profit on subcontracts under contract
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EPS90804 task orders with time and materials pricing arrangements. Further,
FAR Subsection 16.601 applies even without the payment clause in 52.232-7.
Risk in Managing Subcontracts
Regarding whether managing construction subcontracts is riskier than other types
of architect and engineering services, under a time and materials arrangement, the
government factors in the risk since the contractor will be paid for the work
performed at a fixed hourly rate that includes profit. Of the 12 task orders we
evaluated, task orders 45 and 50 billed the most dollars for subcontracts
($16.6 million and $11.5 million, respectively). As required by the statement of
work, the work plan for task order 45 included the following architect and
engineering services related to the subcontracts:
•	Task 3 - Procurement of Subcontract: This subtask includes completing all
subcontracting efforts for the Phase II work including pre-bid, award, and
post-award activities.
•	Task 4 - Management Support: The purpose of this task is to manage and
monitor the subcontracts implemented under this task order, and to develop,
implement, and document procedures for confirmation that the work
activities are performed in accordance with the contract documents.
•	Task 5 - Detailed Resident Inspection: The purpose of this subtask is to
provide field supervision of remedial activities that are scheduled to take
place under this task order. The remedial activities include construction of the
disposal cell and pipelines.
The above tasks show that EPA paid the contractor directly for managing the
subcontracts. Under task order 45, the contractor billed EPA over $2.5 million for
labor on the above three tasks. Task order 50 included these same tasks. For task
order 50, the contractor billed EPA a total of $4.7 million for labor on these three
tasks. The fixed rates for each of the related labor hours included profit.
Consequently, the additional 4.00 percent is duplicative.
Types of Subcontracts
Region 9 acquisition staff does not believe the 4.00 percent profit resembles the
prohibited cost-plus-a-percentage-of-cost type of contract. According to them,
some of the subcontracts negotiated were fixed price. Since these subcontractors
were not paid on a cost basis, the related 4.00 percent is not cost-plus-a-
percentage-of-cost. However, the method for determining the price of the
subcontracts is not pertinent. The pricing arrangement between the contractor and
its subcontractor could be fixed price, fixed rate, or something else. Whatever it
was, contract EPS90804 provided for reimbursing the contractor for the actual
cost. The 4.00 percent profit rate was applied to that amount. Thus, it resembles
the prohibited cost plus a percentage of cost type of contract.
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In response to this review, the OAM Director agreed to have his staff (1) work
with the Region 9 acquisition staff to assess and possibly restructure how EPA
will pay the contractor for such work, and (2) determine how EPA paid other
remedial action contractors for managing construction subcontracts.
Conclusion
Paying profit to the contractor on subcontracts is inappropriate under time and
materials pricing arrangements. However, Region 9 negotiated such a clause in
contract EPS90804. As a result, through April 27, 2012, the contractor billed, and
EPA paid, over $1.5 million for profit on subcontracts. EPA is liable to the
contractor for additional profit on work to be completed under this contract.
Region 9 has at least one other contract (EPS90803) that included time and
materials task orders with similar payments for profit on subcontracts. EPA
acquisition staff disagreed that paying profit on subcontracts was inappropriate.
However, they could not provide FAR references to justify such payments.
Recommendations
We recommend that the Regional Administrator, Region 9:
3. Direct the CO for contract EPS90804 to:
a.	Remove the profit clause or terminate the contract so that Region 9
no longer has to pay profit on subcontracts.
b.	Recover the 4.00 percent profit paid.
4. Coordinate with the EPA OAM to:
a.	Perform an independent review of all current Region 9 contracts
with time and materials pricing provisions to determine whether
they contain profit payment clauses.
b.	If the review finds these clauses, take appropriate actions to
recover the profits paid and remove the clause to prevent such
payments in the future.
We recommend that the Assistant Administrator for Administration and
Resources Management:
5. Ensure that OAM conducts and documents the results of the review
prompted by this evaluation of all remedial action contracts to:
a.	Determine the best method for paying the remedial action
contractors for all subcontract management costs.
b.	Consistently apply this method for all remedial action contracts
Agency-wide.
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Agency Comments and OIG Evaluation
As summarized below and detailed in appendixes D and E, the Regional
Administrator for Region 9 and Assistant Administrator for Administration and
Resources Management disagreed that paying additional profit on the
subcontracts was inappropriate. They proposed alternative corrective actions for
recommendations 3, 4 and 5. The Regional Administrator also provided technical
comments, which we include in appendix F, and provided a response.
Regarding recommendation 3, the Regional Administrator said that both
Region 9 and the OAM disagree that the profit clause in the contract represents a
prohibited payment. Thus, termination of the contract or removal of the clause is
unnecessary and there is no need to recover the amounts paid. However, he
proposed an alternate action. Future contacts would include a negotiated
comprehensive set of rates that segregates those specialties associated with
architectural and engineering services and those associated with construction
oversight services. Each set of rates can include costs and profits representative of
the work being conducted. We commend Region 9 for proposing that the terms of
future contracts address cost and profit differently. However, that does not resolve
the issues with the current contract. We disagree with the Regional
Administrator's position, and consider recommendation 3 unresolved.
Regarding recommendation 4, the Regional Administrator said that OAM had
already independently reviewed this contract, similar Region 9 contracts, and
their clauses before award. OAM also recently performed oversight reviews of
Region 9 with no findings on these provisions. In reviewing these contracts,
Region 9 and OAM both considered these provisions to be appropriate. As an
alternative corrective action, the Regional Administrator proposed that future
contracts issued by Region 9 would use different pricing arrangements. However,
according to the Assistant Administrator, both Region 9 and the OAM agree that
the methodology of applying the 4.00 percent premium negotiated in the subject
contract for construction management required corrective action. We consider this
recommendation unresolved.
Regarding recommendation 5, the Assistant Administrator said that OAM has
surveyed other similar headquarters and regional contracts and determined that no
other office is using the pricing methodology associated with this finding. He also
stated that OAM will use the balanced scorecard process to assess the need for
additional guidance on adequate file documentation and proper payment
procedures. The fact that OAM determined that no other office was using this
pricing methodology casts doubt on the validity of Region 9 applying this
method. We disagree with the proposed corrective action using the balanced
scorecard. Our recommendation was to identify the methods currently used to pay
remedial action contractors for managing subcontracts, determine the best
practices, and use them throughout EPA. We believe the proposed alternative
corrective action will not do this, so we consider this recommendation unresolved.
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Status of Recommendations and
Potential Monetary Benefits
RECOMMENDATIONS
POTENTIAL MONETARY
BENEFITS (In $000s)
Rec.
No.
Page
No.
Subject
Status1
Planned
Completion
Action Official Date
Claimed
Amount
Agreed-To
Amount
14	Direct the CO for contract EPS90804 to:
a.	Required that minutes of scoping meetings are
prepared, provided to those who attended, and
committed to the official contract file.
b.	Instruct task order CORs to modify the SOW, if
needed, to show changes to which EPA and the
contractor agreed in the scoping meeting.
c.	Instruct task order CORs to continue to complete the
Cost Proposal Evaluation Checklist for each task order
and commit it to the official contract file.
d.	Instruct task order CORs to complete the Task Order
Costs/Hours Verification Form in its entirety, including
the contractor performance evaluation section.
e.	Instruct task order CORs to commit to the official
contract file a record of deliverables received and
whether they were acceptable.
15	Direct OAM to require task order CORs to evaluate the
qualifications of contractor key staff proposed by the
contractor in the work plan. The task order CORs should
also review qualifications for samples of the non-key staff
billed on invoices.
20 Direct the CO for contract EPS90804 to:
a.	Remove the profit clause or terminate the contract so
that Region 9 no longer has to pay profit on
subcontracts.
b.	Recover the 4.00 percent profit paid.
20 Coordinate with the EPA OAM to:
a.	Perform an independent review of all current Region 9
contracts with time and materials pricing provisions to
determine whether they contain profit payment
clauses.
b.	If the review finds these clauses, take appropriate
actions to recover the profits paid and remove the
clause to prevent such payments in the future.
20 Ensure that OAM conducts and documents the results of the
review prompted by this evaluation of all remedial action
contracts to:
a.	Determine the best method for paying the remedial
action contractors for all subcontract management
costs.
b.	Consistently apply this method for all remedial action
contracts Agency-wide.
Regional
Administrator,
Region 9
9/30/13
Assistant
Administrator for
Administration and
Resources
Management
Regional
Administrator,
Region 9
Regional
Administrator,
Region 9
Assistant
Administrator for
Administration and
Resources
Management
$1,524
1 O = recommendation is open with agreed-to corrective actions pending
C = recommendation is closed with all agreed-to actions completed
U = recommendation is unresolved with resolution efforts in progress
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Appendix A
Process for Issuing a Task Order Under Contract EPS90804
•	Task order COR prepares the SOW and IGCE.
•	Contract-level COR and CO review (and change if needed) the SOW and
IGCE,
•	CO sends the SOW to the contractor.

Scoping
Meeting
•	CO, contract-level CO, and task order COR meet with representatives of
the contractor to discuss the SOW.
•	Someone prepares minutes of the meeting and gives the minutes to
those who attended the meeting.
•	If needed, based on the scoping meeting, the task order COR revises
the SOW and IGCE.
•	Contract-level COR and CO review (and change if needed) the revised
SOW and IGCE.
•	CO sends the revised SOW to the contractor.

Contractor
The contractor prepares the work plan and sends it to EPA.
•	Task order COR compares the work plan to the SOW and IGCE, and
recommends whether the work plan is acceptable.
•	CO and contract-level COR review the work plan and the
recommendation of the task order COR, requesting changes from the
contractor if needed.
•	When satisfied, the CO issues the task order to the contractor.
Source: OIG analysis
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Appendix B
Cost Proposal Evaluation Checklist
Task Order Project Officer:
Site Name:
Task Order Number:
Cost Proposal Dated:
1. Addressing the Statement of Work (SOW)
a. Does the Contractor address all tasks outlined
in the SOW?
~ Yes ~ No (see below) ~ N/A
g. Are proposed staff levels for each task
reasonable to accomplish the tasks?
~ Yes ~ No (see below) ~ N/A
b. Does the Contractor include any work not
required in the SOW?
D Yes (see below) ~ No ~ N/A
h. Is a reasonable level of clerical/home office
support staff proposed?
~ Yes ~ No (see below) ~ N/A
c. Is the proposed schedule acceptable?
~ Yes ~ No (see below) ~ N/A
i. Are appropriate hours proposed for each staff
level?
~ Yes ~ No (see below) ~ N/A
d. Is the management structure sound? Is
appropriate QA oversight staff included?
D Yes Q No (see below) Q N/A
j. Is a reasonable budget developed for each
activity?
~ Yes ~ No (see below) ~ N/A
e. Does the technical approach and methodology
for accomplishing each task appear effective?
~ Yes ~ No (see below) ~ N/A
k. Is there enough detail in the WP and budget
structure to support future cost recovery?
~ Yes ~ No (see below) ~ N/A
f. Does the Contractor demonstrate a thorough
understanding of the task order?
D Yes Q No (see below) Q N/A
I. If fieldwork is to be done, is preparation of a
HASP, QAPP and FSP included?
~ Yes ~ No (see below) ~ N/A
TOPO comments regarding (1) above:
2. Travel
a. Are the number and length of trips, number of
travelers, fares, and duration reasonable and
acceptable?
D Yes Q No (see below) Q N/A

TOPO comments regarding (2) above:
3. Subcontracting
a. Are the proposed subcontracting efforts and
costs reasonable and acceptable?
~ Yes ~ No (see below) ~ N/A
b. Are laboratory services, other than CLP,
appropriate?
~ Yes ~ No (see below) ~ N/A
TOPO comments regarding (3) above:
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4. Other Direct Costs
a. Do reproduction (production copier) costs
appear reasonable and appropriate?
~ Yes ~ No (see below) ~ N/A
c. Are Postage and Shipping costs reasonable
and appropriate?
~ Yes ~ No (see below) ~ N/A
b. Are proposed material and equipment costs
reasonable and appropriate?
~ Yes ~ No (see below) ~ N/A
d. Government-furnished property is justified,
where appropriate.
~ Yes ~ No (see below) ~ N/A
TOPO comments regarding (4) above:
5. Cost Proposal
a. Is the Contractor's total proposed budget
within a reasonable range of the IGCE?
~ Yes ~ No (see below) ~ N/A
c. Have the Indirect Rates and Service
Center Rates already been negotiated and
included in the contract?
~ Yes ~ No (see below) ~ N/A
b. Is the proposed budget within reasonable
range of the IGCE for each task?
~ Yes ~ No (see below) ~ N/A

TOPO comments regarding (5) above: See Attachment A.
6. TOPO Recommendation
I have reviewed the Contractor's Cost Proposal, and make the following recommendation:
~	Cost Proposal is recommended for approval as submitted. The Contractor's cost proposal adequately
addresses the Statement of Work. Any proposed travel, subcontracting, and other direct costs have been reviewed and
are necessary and reasonable. The proposed budgets are reasonable (see #5 above for discussion regarding cost
reasonableness).
~	Cost Proposal is not recommended for approval. Cost Proposal approval is not recommended for the following
reason (s):
~	Partial Cost Proposal approval is recommended. The following tasks/subtasks are recommended for approval as
submitted. For these tasks/subtasks recommended for approval, The Contractor's cost proposal adequately addresses
the Statement of Work. Any proposed travel, subcontracting, and other direct costs have been reviewed and are
necessary and reasonable. The Cost Proposal budgets for these tasks/subtask are reasonable (see #5 above for
discussion regarding cost reasonableness). List tasks/subtasks recommended for approval:
The remaining tasks/subtasks are not recommended for approval for the following reason(s):
TOPO Signature and Date:
(Submit Completed form to the Project Officer)
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Appendix C
TASK ORDER COSTS/HOURS VERIFICATION FORM
Please Return the Forms to (SFD-2) by «Date»	
Date of Distributing the Monthly Progress Report and Invoice to TOPO: «Date»
Contractor:
CH2M HILL
Contract No.:
EP-S9-08-04
Period of Performance for This Invoice:
«Period of Performance))
Invoice No: «Invoice No»
Amount: «Amount Billed))
TOPO: «RPM Name» «Mail Code»
Contract PO:
TO No.:
«TO No»
Title: «TO Title))
Site Name: «SiteName»
Please check one of the statements below and provide verification signature. Keep the invoice and monthly report
for your record. Any unreasonable and/or confusing information should be brought to the attention of the
contractor and the Contract Project Officer in a prompt fashion.
	 I agree with this invoice. Sufficient progress has been made by the contractor to support payment of
the work performed.
order.
Contractor must provide additional justification for verification of costs and/or hours on this task
Cost listed below should be withheld since they can not be verified.
Comments/Explanation:
Optional Monthly Contractor Performance Evaluation: The minimum acceptable rating is "Good." The rating
below "Good" or any problem areas indicated below should be addressed immediately by Project Officer and
contractor Program Manager. Please rate each criterion:
	5 - Outstanding 4 - Excellent 3 - Good 2 - Fair 1 - Poor 0 - Unsatisfactory
Quality of Services Delivered Rating:
Effectiveness of Management
Rating:
Initiative in Meeting Contract Requirement
Rating: 	
Timeliness of Performance
Rating:
Cost Control
Rating:
Business Practices
Rating:
Customer Satisfaction
Rating
List Any Positive Feedback or Problem Areas That Need To Be Addressed:
Signature & Date:
I have reviewed the monthly progress and financial reports and verify to the best of my ability the costs incurred.
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Appendix D
Office of Acquisition Management Comments to
Recommendations

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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
JAN 24 2073
MEMORANDUM
OFFICE OF
ADMINISTRATION
ANDRESOURCES
MANAGEMENT
SUBJECT: OAM Response to OIG Draft Report, Improved Management Needed for EPA
Contract EPS90804 to Address Risk of Misusing Funds
FROM: Craig E. Hooks, Assistant Administrator
TO:	Carolyn Copper
Assistant Inspector General for Program Evaluation
The Office of Administration and Resources Management appreciates the opportunity to
review and comment on the December 14, 2012 Office of Inspector General draft report titled
"Improved Management Needed for EPA Contract EPS90804 to Address Risk of Misusing
Funds." In order to provide a timely response to the findings and recommendations, Region 9
is submitting its response separately. However, we have coordinated our responses.
The report contains a review of contract EPS90804 awarded by Region 9 in FY 2008. Since
that time, the Office of Acquisition Management has implemented an oversight and compliance
review program under the EPA Balanced Scorecard Performance Management and Measurement
Program. This program addresses and implements solutions to various
acquisition planning, evaluation, award, and administration issues agency-wide.
Recommendations and Responses related to OAM:
Recommendation 2. Direct OAM to require Task Order Contracting Officer Representatives
(CORs) to evaluate the qualifications of contractor key staff proposed by the contractor in the
work plan. The Task Order CORs should also review qualifications for samples of the non-key
staff billed on invoices.
OAM Response: OAM agrees if the contract contains personnel requirements such as required
education or years of experience for vendor staff, then Task Order CO'sand CORs must review
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and evaluate those qualifications. However, OAM does not believe this is the best approach for
managing contract performance. Rather, OAM supports performance based procurement
approaches which require the vendor to identify the labor categories and mix required to ensure
successful contract performance. This approach shifts the risk of contract performance to the
vendor, which is the intent of performance based contracting and the reason why this approach
is the preferred procurement method. Under this approach, per FAR 7.1 only
key personnel are subject to government approval. OAM does not support using terms and conditions
that include qualifications for contractor staff and does not intend to continue this procurement approach.
Furthermore, Region 9 is no longer using this contracting approach in new remediation procurements.
However, notwithstanding that this finding results from review of a single contract, OAM will use the
BSC PMMP process to determine the need for
additional guidance on performance basedcontracting approaches.
Recommendations. Ensure that the OAM conducts and documents the results of the review prompted
by this evaluation of all remedial action contracts to:
a.	Determine the best method for paying the remedial action contractors for all subcontract
management costs.
b.	Consistently apply this method for all remedial action contracts agency-wide.
OAM Response: While both Region 9 and OAM agree that the methodology of applying the
4% premium negotiated in the subject contract for construction management required corrective action,
those costs do not qualify as prohibited payments. Region 9 has already indicated how they will
appropriately address similar situations for future contracts, as applicable. Additionally, OAM has
surveyed other similar headquarters and regional contracts and determined that no other office is using
the pricing methodology associated with this finding. OAM will use the BSC PMMP process to assess
need for additional guidance on adequate file documentation and proper payment procedures.
Should you have any questions regarding this response, please contact John Bashista, Director of the
Office of Acquisition Management, at (202) 546-4310.
cc: Nanci Gelb, Principal Deputy Assistant Administrator, OARM
John Bashista, Director, Office of Acquisition Management, OARM
Raoul Scott, Acting Deputy Director, Office of Acquisition Management, OARM Sandy
Womack, Audit Follow-up Coordinator, OARM
Alexander Kramer, Contracting Chief, Region 9
Arthur Elkins, Jr., Inspector General
Alan Larsen, Counsel to the Inspector General
Melissa I lei St.. Assistant Inspector General for Audit, OIG
Eileen McMahon, Assistant Inspector General for Congressional, Public Affairs, and
Management, OIG
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Appendix E
Region 9 Comments to Report Recommendations
^¦0STa\ united states environmental protection agency
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San Francisco, CA 94105
MEMORANDUM
SUBJECT: Response to Office of Inspector General Draft Report No. OPE-FY12-0008
Improved Management Needed for EPA Contract EPS90804 to Address Risk of
Misusing Funds
FROM: Jared Blumenfeld
Regional Administrator, Region 9
TO:	Carolyn Copper
Assistant Inspector General for Program Evaluation
Thank you for the opportunity to respond to the issues and recommendations in the subject
audit report. Following is a summary of the Agency's overall position, along with its position on
each of the report recommendations. For those report recommendations with which the
Agency agrees, we have provided either high-level intended corrective actions and estimated
completion dates to the extent we can or reasons why we are unable to provide high-level
intended corrective actions and estimated completion dates at this time. For those report
recommendations with which the Agency does not agree, we have explained our position and
proposed alternatives to recommendations. For your consideration, we have included a
Technical Comments Attachment to supplement this response. We officially request that the
Technical Comments Attachment be included with the draft report.
AGENCY'S OVERALL POSITION
The Agency has reviewed the findings included in the draft report. The Agency believes that
many of the recommendations included in Chapter 2 of the report have merit and point out
opportunities for Region 9 to improve the contract oversight being provided by Contracting
Officer's Representatives (COR). With respect to the findings and recommendations included
in Chapter 3, the Agency does not concur with the report's assertion that the subcontract profit
clause represents a prohibited payment. The Agency's reasoning is included in the responses
below as well as the Technical Comments Attachment.
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AGENCY'S RESPONSE TO REPORT RECOMMENDATIONS
Agreements
No.
Recommendation
High-Level Intended Corrective
Actio n(s)
Estimated Completion by
Quarter and FY
1.
We recommend that the
Regional Administrator,
Region 9, direct the CO for
contract EPS90804 to
require that:
a.	Minutes of seeping
meetings are
prepared, provided to
those who attended,
and committed to the
official contract file.
b.	Task Order CORs
modify the SOW, if
needed, to show
changes to which EPA
and the contractor
agreed in the seeping
meeting.
c.	Task Order CORs
continue to complete
the Cost Proposal
Evaluation Checklist
for each task order
and commit it to the
official contract file.
d.	Task Order CORs
complete the Task
Order Costs/Hours
Verification Form in its
entirety, including the
contractor
performance
evaluation section.
e.	Task Order CORs
commit to the official
contract file a record of
deliverables received
and whether they were
acceptable.
Minutes will be prepared for
each seeping meeting and
provided to participants as
well as included in the official
task order file for each order.
Task Order CORs will modify
the SOW prior to issuance
with a task order to reflect
any changes agreed upon
during the seeping meeting
Task Order CORs will continue
to complete the Cost Proposal
Evaluation Checklist for each
task order and commit it to the
official contract file.
Task Order CORs will be
required to complete the Task
Order Cost/Hours Verification
Form in its entirety. Should
any performance issues arise
they will be noted in the
contract performance section
and reported to the contract
level COR.
Task Order CORs will commit
to the official task order file a
record of deliverables
received and whether or not
they were acceptable.
3rd Quarter FY 2013
4rdQuarterFY 2013
Already Implemented
4th Quarter FY 2013
4th Quarter FY 2013
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Disagreements
No.
Recommendation
Agency Explanation/Response
Proposed Alternative
3.
Direct the CO for contract



EPS90804 to:



a. Remove the profit clause
a. As noted in the subject draft
a. In order to avoid future

or terminate the contract so
report and the Technical
confusion on this issue,

that Region 9 no longer has
Comments Attachment item
R9 suggests that when

to pay profit on subcontracts.
numbers 6 and 7, R9 and OAM
an audited subcontract


disagree with assertion in the
administration rate or


report that the profit clause
G&A rate is not


included in the contract
available for a particular


represents a prohibited
contractor; that all future


payment. The agency used an
contracts include a


appropriate EPAAR clause
negotiated


1552.232-73 in lieu of the
comprehensive set of


referenced FAR clause 52.232-
rates that segregates


7 which acknowledges a
those specialties


difference between materials
associated with A&E


subcontracts and separately
services and those


addresses other subcontracted
associated with


efforts. EPAAR 1552.232-
construction oversight


73(b)(2) does not prohibit profit
services. Then each set


from being paid on a
of rates can include


subcontract. Additionally, these
costs and profits


subcontracts are not
representative of the


"incidental" services and thus
work being conducted.


do not meet the definition of
If that structure is


materials in FAR 16.601. The
implemented, the


profit clause does not qualify as
current separate profit


cost-plus-percentage-of-cost
clause will no longer be


either for the reasons noted in
necessary.


the report and Technical



Comments Attachment item



number 8. Since the Agency



does not consider the profit



clause a prohibited payment,



termination of the contract or



removal of the clause is



unnecessary.


b. Recover the 4 percent
b. Since the Agency does not
b. Same alternative as a.

profit paid.
consider the profit clause a
above


prohibited payment, there is no



reason to recover the amounts



paid since they represent



legitimate costs.

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4.
Coordinate with the EPA



Office of Acquisition



Management to:



a. Perform an independent
a. OAM has already
a. R9 proposes to issue

review of all current Region 9
independently reviewed this
any future contracts in

contracts with time and
contract, similar R9 contracts,
accordance with our

materials pricing provisions to
and their clauses prior to
alternative 3.a.

determine whether they
award. OAM has also


contain profit payment
performed oversight reviews of


clauses.
Region 9 recently with no



findings on these provisions of



the contract. In reviewing



these contracts, Region 9 and



OAM have both considered



these provisions to be



appropriate.


b. If the review finds these



clauses, take appropriate
b. Since the independent reviews
b. Same alternative as a.

actions to recover the profits
have already been performed
above

paid and remove the clause
and did not find these clauses


o prevent such payments in
to be prohibited payments, no


the future.
further action is necessary.

CONTACT INFORMATION
If you have any questions regarding this response, please contact Alexander Kramer,
Regional Acquisition Manager in Region 9 at 415-972-3126.
Attachments:
Technical Comments
cc: Nanci Gelb, Principal Deputy Assistant Administrator, OARM
John Bashista, Director, Office of Acquisition Management, OARM
Raoul Scott, Acting Deputy Director, Office of Acquisition Management, OARM
Sandy Womack, Audit Follow-up Coordinator, OARM
Alexander Kramer, Contracting Chief, Region 9
Kevin Castro, Project Officer, Region 9
Nancy Riveland, Superfund Program Management Section Chief, Region 9
Nancy Lindsay, Superfund Deputy Director, Region 9
Janie Thomas, Comptroller, Region 9
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Magdalen Mak, Audit Follow-up Coordinator, Region 9
Arthur Elkins, Jr., Inspector General
Alan Larsen, Counsel to the Inspector General
Melissa Heist, Assistant Inspector General for Audit, OIG
Eileen McMahon, Assistant Inspector General for Congressional, Public Affairs, and
Management, OIG
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Appendix F
Region 9 Technical Comments and OIG Evaluation
Technical Comment #1
Page 5 of the above referenced report states:
"...some task order CORs relied on the contractor-prepared work plan to establish government
objectives and to monitor contractor progress."
Region 9 believes this statement is factually incorrect and confuses the purposes of the SOW and
contractor workplan. Government objectives are not re-established by the contractor. The work plan
provides a greater level detail, but the basic objectives of the project remain the same. It is more
appropriate to think of the documents in different contexts. As a part of a performance based
contract, the SOW outlines the primary objectives and general methodologies for accomplishing
task order requirements. The contractor's work plan provides specific numbers of hours and the
technical approach that will be used to meet the objectives outlined in the SOW. The additional
level of detail in the workplan further supports SOW requirements rather than redefining its
objectives.
OIG Evaluation: The statement in the report is factually correct, i.e., some CORs relied on the
work plan. Specifically, CORs for six task orders relied on the work plans to monitor. Here are
examples of what some of them stated:
•	The COR relied on the work plan that the contractor produces to capture what was
discussed in the scoping meeting for the task order.
•	The SOW is not an accurate documentation of the contracted deliverables so the work
plan may be different.
•	The work plan would be one of the ways he would direct the work to be performed. If it
was signed by the task order COR, that meant it reflected the work expected by the
Agency.
Technical Comment #2
Page 6 of the report immediately above the included table states:
"EPA risks the possibility of (1) needing work that the contractor did not perform and (2) paying for
work that was not essential."
Region 9 believes this statement is misleading since the mistakes identified reflect errors in the
administrative process which would have corrected the listed deliverables in the task orders. There
was little real risk to the government in not receiving needed services or paying for additional work
since COR oversight ensured the level of services provided was appropriate.
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OIG Evaluation: EPA's documentation does not support this assertion that there was no real
risk. The table in the report shows that there were deliverables in the SOWs that were not in
work plans, which indicates there was work that EPA needed that the contractor did not perform.
In addition, there were work plans that had deliverables that were not in the SOWs, which
indicates there was work that the contractor performed that EPA had not identified as essential.
In the latter case, it appears the contractor is dictating to the government what the government
needs.
Technical Comment #3
The top of the last paragraph on page 7 of the report states:
"The task order CORs' practice of using the contractor's work plan to track progress leaves it at risk
of the contractor changing the nature of the agreed-upon contract services. This entails great risk to
the government.
Region 9 believes this statement is misleading and its assertion of the risk to the government is
inaccurate. Using both the SOW and workplan concurrently does not violate reasonable contract
oversight procedures. When task orders are issued, the workplan is officially incorporated as an
attachment to the order. Region 9's task orders explicitly state that "the work plan, along with any
stated assumptions or caveats, shall not supersede the requirements of this Statement of Work."
However, using both documents helps to mitigate risk by ensuring the COR has adequate
information to perform task order oversight. It is generally expected that CORs would track some
project details based on the contractor workplan because it includes more detailed information on
the contractor's technical approach than the SOW.
OIG Evaluation: We understand that the work plan has more detail than the SOW, and agree
that the SOW and work plan can be used together to oversee contracts. However, the two should
be in agreement. As stated in the report, we found instances where the work plans and SOWs had
different deliverables. See analysis in technical comment 2. Further, some CORs stated they
relied on the work plan and not the SOW to oversee task orders. See analysis in technical
comment 1. When the SOW and work plan disagree, using only the work plan creates the risk
that the government is not getting the services for which the task order was intended.
Technical Comment #4
At the bottom of Page 8, the report states:
"Thus, because the CORs do not verify the qualifications of contractor staff, EPA is inappropriately
allowing the contractor to determine that its staff met the qualifications of the labor categories
required to accomplish the work specified in the contract.
Region 9 believes this statement is inaccurate and misleading. The contract specifically states the
qualifications expected of the individual labor categories utilized. This statement from the contractor
on the invoice is a legal certification on the contractor's behalf that they are providing costs and
personnel in accordance with the contract. EPA has the final approval over all costs claimed. EPA
is not allowing the contractor to substitute its assessment of qualifications since they have already
13-P-0209
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been defined in the contract document. This is a matter of compliance. If the contractor is falsely
certifying the experience of their personnel that is a matter for the EPA OIG to investigate. False
claims investigations fall outside the purview of individual COR's responsibility and would be more
appropriately handled by auditors and the responsible contractor.
OIG Evaluation: The statement in the report is accurate. Although the CORs could review the
qualifications of those billed under the contract, they have not been directed to do so. The
contract provides that the COR receives an invoice from the contractor and that they have the
right to review, among other things, qualifications of persons billed. Clause B.l incorporates by
reference FAR clause 52.212-4 Alternate I, which states:
(4) Access to records. At any time before final payment under this contract, the
Contracting Officer (or authorized representative) will have access to the following (access
shall be limited to the listing below unless otherwise agreed to by the Contractor and the
Contracting Officer):
(i) Records that verify that the employees whose time has been included in any invoice
meet the qualifications for the labor categories specified in the contract...
Also, while Region 9 states that the certification on the invoice is sufficient support that
contractor's qualifications are in accordance with the contract, OAM contradicts this. According
to the Assistant Administrator's response to the draft report, OAM contends that if the contract
contains personnel requirements, task order COs and CORs must evaluate those qualifications.
Further, the U.S. Government Accountability Office's Standards for Internal Control in the
Federal Government requires that management must put internal controls in place to ensure
compliance with applicable laws and regulations and to prevent and detect fraud. The OIG's role
is to conduct audits relating to program operations, not to assume management's role in
safeguarding government resources. The OIG does not replace the responsibility of EPA's
program to establish internal controls in their daily operations.	
Technical Comment #5
Towards the bottom of page 9, the report states:
'The CO believes there are no requirements for EPA to review the quaifications of any staff. He also
stated that EPA takes the contractor's word for the qualifications of its staff; EPA is not the
contractor's human resource office. According to the CO, verifying qualifications of contractor
personnel was crossing the line into personal services and deemed unnecessary because EPA
evaluated key personnel during the contract selection process. The OIG finds no support for that
position."
Region 9 asserts that this statement is factually inaccurate and misrepresents statements made by
the CO. The CO did not say there are no requirements for EPA to review the qualifications of any
staff. As noted, the CO referenced the required reviews of personnel resumes in the preaward
selection process. Similar to the response in Technical Comment #5, the CO stated that additional
checks are a matter of compliance. If the contractor is falsely certifying the experience of their
personnel and knowingly providing personnel that do not have the experience required and
identified in the contract, that is a matter for EPA audit and investigation personnel. Systematic false
claims investigations fall outside the purview of standard contract management. Furthermore, if a
COR were to review all resumes beyond a simple matching of qualifications to the labor category
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definitions- and then tell the contractor which individuals were qualified in their opinion to staff the
task order; COR would essentially be directing the contractor on staffing and employment decisions
which are personal services by definition.
OIG Evaluation: The statement in the report was accurate. We received contradictory
statements from the CO concerning the requirement for CORs to review contractor
qualifications.
(1)	In February 2012, the CO stated there were no requirements to review the qualifications
of any staff.
(2)	In May 2012, the CO stated that the task order CORs were expected to assure that
contractor personnel met the qualifications needed to complete the tasks in the task order,
and would expect that task order CORs request resumes as needed.
As stated in the report, the OIG maintains that having CORs review qualifications does not cross
the line into personal services. The contract clause gives EPA the right to review the contractor's
documentation on qualifications. Similarly, the COR training materials state that CORs can
request qualifications. The report did not suggest that the CORs do more than match the
qualifications of those billed under the contract to the labor category definitions. That would
allow EPA to determine it got the level of services for which it paid. Otherwise, the contractor
determines how much EPA must pay.
Technical Comment #6
Page 15 of the report states:
"FAR Subsection 16.601(b) states that a time and materials contract provides for acquiring supplies
or services based on direct labor hours at specified fixed hourly rates that include wages, overhead,
general and administrative expenses, profit, and the actual cost of materials. Materials includes
subcontracts. Further, the related clause for payments under Time and Materials pricing
arrangements-FAR Subsection 52.232-7(b)(7)-specifically states that the government will not pay
profit or fees to the prime contractor on materials."
Under this contract, the labor rates and profit included in pre-negotiated rates are meant to coverthe
primary services of the contract which are Architect and Engineering (A&E). EPA has required for
this class of contract that A&E firms subcontract out construction services that are related to the
A&E work performed. The definition in FAR 16.601 "Materials" (2) covers "Subcontracts for supplies
and incidental services for which there is not a labor category specified in the contract." The
referenced report makes the blanket statement that all subcontracts are materials, but the qualifier of
"incidental" is not reflected. As the report notes, $38,104,278.36 was incurred in subcontracts
which, while not a majority, does not necessarily qualify as "incidental" services. Similarly, some of
the labor categories included in the contract would coverthe services performed by subcontractors;
however, the Agency has required that the prime contractors use sub contractors for all construction
work. Thus if the services are not "incidental," the classification as materials is incorrect and the
restriction on profit from FAR 52.232-7 is no longer applicable. In that case, the 4% profit on those
subcontracts is not a prohibited payment.
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At the time of award in an IDIQ contract, there is no reasonable way to estimate the types or number
of construction related requirements; however the A&E contractor is responsible for management of
those construction subcontracts and subcontracts for other services as well. Since EPA has required
that some services be subcontracted, and the requirements cannot be estimated at award, including
a separate profit rate on subcontracts is a legitimate approach. Profit rates may be reasonably
different for services that entail more contractor risk, uncertainty, or different market requirements.
For instance, a construction management contractor is expected to be named on the bond for the
construction being performed. That is a potentially large liability and risk that does not occur with
A&E services. The report incorrectly implies that just allowing for profit on subcontract
administration is enough to mitigate the inherent risks like the example of bond liability that occur in
different services. The 4% negotiated in this case is actually substantially lower than the industry
standard of approximately10% for construction management services.
OIG Evaluation: We disagree. The Regional Administrator asserts that paying 4.00 percent profit on
subcontract costs is acceptable because the subcontracts are not "incidental" services. This is because
(1) the contractor was required to subcontract out construction services, and (2) the value of the
subcontracts exceeds $38 million. Since the subcontracts are not "incidental," they do not meet the
definition of "material" in FAR 16.601. Thus, the profit on the subcontracts is not a prohibited
payment.
Except for one task order that was fixed price, the task orders issued under contract EPS90804 had
time and material pricing arrangements. Whether "incidental" or not, the only way the contactor
under a time and materials pricing arrangement can be reimbursed is if the subcontracts are billed as
material. The other option, payment at the fixed hourly rate, would not apply. When contract
EPS90804 was awarded, according to clause B.4, the line item for subcontracts was estimated to be
$30 million of the $110 million contract ceiling. Finally, clause B.5(d) includes constructions
services as part of the subcontract line item because it states, in part:
Specific activities which generally necessitate utilization of the [subcontract] CLIN
include, but are not limited to: well-drilling, analytical services (when not provided by
the Government), special consultants to support technical projects or to serve as expert
witnesses, aerial mapping, surveying, fencing, or construction activities associated
with a Remedial Action.
The Regional Administrator indicated that EPA required some services to be subcontracted, so
including a separate profit rate on subcontracts is a legitimate approach. He stated that profit rates
may be reasonably different for services that entail more contractor risk, and offered as an example
being named on the bond for construction work performed. Further, according to the Regional
Administrator, the 4.00 percent negotiated in this contract is substantially lower than the industry
standard of approximately 10.00 percent for construction management services.
This position ignores the FAR prohibition on profit under time and material pricing arrangements,
except for the profit in the fixed hourly rates. Thus, an industry standard of 10.00 percent is not
relevant. Also, even if the contractor was concerned about additional risks due to reliance on
subcontractors, a partial remedy may be found in contract clauses H.30 and H.40. These clauses
appear to allow the contractor to shift some of the bond risk to the subcontractors.
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Technical Comment #7
At the bottom of page 17, the report states:
"The contract contained a clause addressing payments under fixed rate contracts. Clause G.3, from
EPAAR Subsection 1552.232-73, limits the reimbursement of materials to cost."
R9 used the cited EPAAR clause 1552.232-73 in lieu of the referenced FAR clause 52.232-7. EPAAR
1552.232-73 further acknowledges a difference between materials subcontracts and separately
addresses other subcontracted efforts. EPAAR 1552.232-73(b)(2) does not prohibit profit from being
paid on a subcontract.
OIG Evaluation: We disagree with the statement that EPAAR 1552.232-73(b)(2) does not
prohibit profit from being paid on a subcontract. As stated in the report, this clause limits the
reimbursement of materials to cost only. Thus, it does prohibit profit on subcontracts. Further,
according to FAR 52.201(a), an agency modification of a FAR clause cannot alter the substance
of the clause. Since 52.232-7 prohibits paying a contractor profit on material, EPAAR 1552.232-
73 cannot allow it.
Technical Comment #8
At the bottom of page 18, the report states:
"However, the method for determining the price of the subcontracts is not pertinent. The pricing
arrangement between the contractor and its subcontractor could be fixed price, fixed rate, or
something else. Whatever it was, contract EPS90804 provided for reimbursing the contractorfor the
actual cost. The 4.00 percent profit rate was applied to that amount. Thus, it resembles the prohibited
cost plus a percentage of cost type of contract."
The statement included above is factually inaccurate and conflates different contract types
erroneously. If a contract is fixed-price or fixed rate, then companies are not being reimbursed on an
actual cost basis. For example, if EPA is charged on a fixed price basis for the installation of
monitoring wells, the contractor is paid the same per well installed whether it takes 10 hours or 40
hours. If the per well cost is $5,000 the cost with the 4% profit is $5,200. The number of wells is
determined by EPA's needs not the prime contractor and the fact remains that the cost to EPA is still
only $5,200 per well regardless of whether it takes 40 hours instead of the expected 10. The
contractor remains incentivized to minimize costs in order to keep below the fixed amount provided.
This is a very different scenario than the prohibited cost-plus percentage-of-cost where contractor
would be incentivized to utilize as many hours and materials as possible since profit increases as
those costs increase. Thus the method for determining the price of the subcontracts is pertinent and
the arrangement in the Contract does not create the incentive that is the reason for the prohibition on
cost-plus-percentage-of-cost type contracts. The two arrangement do not resemble one another.
OIG Evaluation: It is irrelevant what the agreement is between the subcontractor and contractor
in terms of reimbursements. Under this contract, money that the contractor pays to the
subcontractor can be claimed by the contractor as a cost to be reimbursed by EPA. The
additional 4.00 percent gives the contractor incentive to claim services as subcontracts that
would otherwise not be.
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Appendix G
Distribution
Office of the Administrator
Assistant Administrator for Administration and Resources Management
Regional Administrator, Region 9
Agency Follow-Up Official (the CFO)
Agency Follow-Up Coordinator
General Counsel
Associate Administrator for Congressional and Intergovernmental Relations
Associate Administrator for External Affairs and Environmental Education
Principal Deputy Assistant Administrator, Office of Administration and Resources Management
Deputy Regional Administrator, Region 9
Director, Office of Acquisition Management, Office of Administration and Resources Management
Contracting Chief, Region 9
Audit Follow-Up Coordinator, Office of Administration and Resources Management
Audit Follow-Up Coordinator, Region 9
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