#• A \
!®i
PRO^
U.S. ENVIRONMENTAL PROTECTION AGENCY
OFFICE OF INSPECTOR GENERAL
Policies Needed for Proper
Use and Management of
Cost-Reimbursement
Contracts Based on
Duncan Hunter Act
Report No. 12-P-0320
March 6, 2012

-------
Report Contributors:	Janet Kasper
Doug LaTessa
Les Partridge
Andres Calderon
David Penman
Brad Jones
Abbreviations
CMM
Contracts Management Manual
CO
Contracting Officer
COR
Contracting Officer's Representative
CPFF
Cost-Plus-F ixed-F ee
EPA
U.S. Environmental Protection Agency
FAR
Federal Acquisition Regulation
FPDS-NG
Federal Procurement Data System-Next Generation
ID/IQ
Indefinite-Delivery/Indefinite-Quantity
OIG
Office of Inspector General
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

-------
^EDSX
* JL \
US&J
\pB0/
U.S. Environmental Protection Agency
Office of Inspector General
At a Glance
12-P-0320
March 6, 2012
Why We Did This Review
We conducted this audit to
determine whether the U.S.
Environmental Protection
Agency (EPA) complied with
revisions made to the Federal
Acquisition Regulation (FAR)
for use of cost-reimbursement
contracts.
Background
The Duncan Hunter National
Defense Authorization Act for
fiscal year 2009 required the
FAR to be revised to address the
use of cost-reimbursement
contracts. The FAR was revised
on March 16, 2011. The
revisions provide additional
guidance on when cost-
reimbursement contracts are
appropriate, require agencies to
develop acquisition plans to
support the contract type
selection, and require agencies
to discuss the acquisition
resources necessary to award
and manage cost-reimbursement
contracts. A cost-reimbursement
contract is one in which a
contractor is paid based on the
occurrence of allowable costs.
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/2012/
20120306-12-P-0320.pdf
Policies Needed for Proper Use and
Management of Cost-Reimbursement
Contracts Based on Duncan Hunter Act
What We Found
EPA did not comply with several key revisions to the FAR as amended by the
interim rule, Proper Use and Management of Cost Reimbursement Contracts
(FAR Case 2008-030). Although EPA complied with several revisions, those
tended to be areas where the new rules expanded on requirements already in
existence. For example, we found that the contract files reviewed generally did
not have documentation of:
•	Discussions concerning minimizing the use of other than firm-fixed-
price contracts on future acquisitions for the same requirement;
•	Consideration as to whether portions of the contract could be
established on a firm-fixed-price basis; and
•	A written acquisition plan.
EPA did not always nominate or appoint contracting officer's representatives
(CORs) in writing. EPA program staff did not nominate the current COR for
two of the seven contracts in our sample, and contracting officers did not
appoint the current COR in writing for four of the seven contracts reviewed.
EPA improperly coded four indefinite-delivery/indefinite-quantity (ID/IQ) Task
Order contracts as cost-plus-fixed-fee contracts in EPA's contract writing
system and in the Federal Procurement Data System-Next Generation.
What We Recommend
We recommend that EPA develop a policy that provides a standardized
approach for preparing written acquisition plans to ensure compliance with the
new FAR revisions. We also recommend that EPA update the procurement
initiation notice to include a copy of the COR appointment memorandum and
direct contracting officers to verify that nomination forms and appointment
memorandums are included in all contract files. Further, we recommend that
EPA develop and distribute instructions on coding of ID/IQ contracts. EPA, in
its response to the draft report and at the exit conference, concurred with our
recommendations and provided milestone dates.

-------
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
THE INSPECTOR GENERAL
March 6, 2012
MEMORANDUM
SUBJECT: Policies Needed for Proper Use and Management of Cost-Reimbursement
Contracts Based on Duncan Hunter Act
Report No. 12-P-0320
This is our report on the subject audit conducted by the Office of Inspector General (OIG) of the
U.S. Environmental Protection Agency. This report contains findings that describe the problems
the OIG has identified and corrective actions the OIG recommends.
Action Required
In responding to the draft report, the Agency provided a corrective action plan for addressing the
recommendations with milestone dates. Therefore, a response to the final report is not required.
The Agency should track corrective actions not implemented in the Management Audit Tracking
System. We have no objections to the further release of this report to the public. This report will
be available at http://www.epa.gov/oig.
If you or your staff have any questions regarding this report, please contact Melissa Heist,
Assistant Inspector General for Audit, at (202) 566-0899 or heist.melissa@epa.gov; or Janet
Kasper at (312) 866-3059 or kasper.ianet@epa.gov.
FROM: Arthur A. Elkins, Jr.
Inspector General
TO:
Craig E. Hooks
Assistant Administrator for Administration and Resources Management

-------
Policies Needed for Proper Use and Management of
Cost Reimbursement Contracts Based on Duncan Hunter Act
12-P-0320
Table of C
Chapters
1	Introduction		1
Purpose		1
Background		1
Noteworthy Achievements		2
Scope and Methodology		2
2	EPA Has Not Fully Complied With New FAR Regulations		5
FAR Revisions Required by the Duncan Hunter Act		5
EPA Has Not Fully Complied With New FAR Regulations		6
EPA Policy Has Not Been Updated		7
Recommendation		7
Agency Response and OIG Evaluation		8
3	EPA Staff Are Not Always Nominating or Appointing
Contracting Officer's Representatives		9
Regulations and Internal Guidance Require CORs to Be
Nominated and Appointed		9
CORs Acting on Behalf of the Government Wthout Being
Formally Nominated or Appointed		9
Recommendations		10
Agency Response and OIG Evaluation		10
4	EPA Miscoded Contracts		11
Regulations and Memorandums Require Data Integrity for
Reporting Requirements on Federal Spending		11
EPA Contracting Staff Improperly Coded Contracts		12
Recommendation		12
Agency Response and OIG Evaluation		12
Status of Recommendations and Potential Monetary Benefits		13
Appendices
A Agency Response	 14
B FAR Revisions and Results of File Reviews	 16
C Distribution	 22

-------
Chapter 1
Introduction
Purpose
The U.S. Environmental Protection Agency (EPA) Office of Inspector General
(OIG) conducted this audit to determine whether EPA complied with the revisions
to the Federal Acquisition Regulation (FAR). The Duncan Hunter National
Defense Authorization Act for Fiscal Year 2009 (Act), or Public Law 110-417,
Section 864(a), Regulations on the Use of Cost-Reimbursement Contracts,
required the FAR to be revised to address use of cost-reimbursement contracts.
The Act required the OIG to complete a review of the use of cost-reimbursement
contracts for compliance with the FAR revisions.
Background
As the federal government faces pressure to reduce spending, efforts to reform
government contracting have increased. Congress has passed legislation, the
President has issued a memorandum, and the Office of Management and Budget
has issued guidance to federal agencies to improve the effectiveness and
efficiency of the federal acquisition system. The federal government obligates
hundreds of billions of dollars in contracts for goods and services each year—
about $537 billion in fiscal year 2010. Thus, the potential for savings through
improved contracting practices has been a key area of focus, especially on the use
of high risk contracts such as cost-reimbursement contracts.
National Defense Authorization Act and FAR Revisions
Congress passed the Duncan Hunter National Defense Authorization Act for
Fiscal Year 2009 on October 14, 2008, to address the use of high risk contracts
awarded throughout the federal government. Section 864 of the Act required that
the FAR be revised to address the use of cost-reimbursement contracts. It also
required that the Inspector General for each executive agency review the use of
cost-reimbursement contracts for compliance with the new FAR revisions and
include the results of the review in its next semiannual report, beginning no later
than 1 year after the FAR's promulgation.
As mandated by Section 864 of the Act, an interim rule, FAR Case 2008-030, was
published on March 16, 2011, through Federal Acquisition Circular 2005-50.
FAR Case 2008-030, Proper Use and Management of Cost-Reimbursement
Contracts, amends the FAR to implement Section 864 of the Act. The interim rule
became effective on March 16, 2011. The revisions to the FAR provide additional
guidance on when cost-reimbursement contracts are appropriate, require agencies
to develop acquisition plans to support the type of contract selected, and require
12-P-0320
1

-------
agencies to discuss the acquisition resources necessary to award and manage a
cost-reimbursement contract.
Contract Types and Associated Risks
The FAR identifies several different contract types: fixed-price, cost-
reimbursement, incentive, indefinite-delivery/indefinite-quantity, and time-and-
materials. Selecting a contract type is generally a matter for negotiation and
requires the exercise of sound judgment. The objective is to negotiate a contract
type and price (or estimated cost and fee) that will result in reasonable contractor
risk and provide the contractor with the greatest incentive for efficient and
economical performance.
Under a cost-reimbursement contract, contractors are paid based on the incurrence
of allowable costs, as opposed to the delivery of a completed product or service.
This contract type is used in circumstances where an agency is not able to define
its requirements sufficiently enough to allow for a fixed-price contract. Complex
projects, where the costs of performance cannot be reasonably estimated with a
high degree of accuracy, are suitable for this type of contract.
Firm-fixed-price contracts provide a price that is not subject to adjustment and are
used when the government's requirements can be well defined. This type of
contract places upon the contractor full responsibility for the costs associated with
performance and the resulting profit (or loss). They impose a minimum
administrative burden on the issuing agency and expose the government to the
least risk. For these reasons, firm-fixed-priced contracts are the preferred contract
type.
Noteworthy Achievements
EPA's Office of Acquisition Management developed a Balanced Scorecard
Performance Measurement and Performance Management Program (Balanced
Scorecard) to provide a methodology for assessing performance of EPA's
procurement offices. A component of the Balanced Scorecard is a compliance
review that focuses on EPA's ability to comply with laws, regulations, etc. To
assist in the compliance portion of the self-assessment process, the Office of
Acquisition Management developed a checklist to facilitate the review. That
checklist contains numerous items, including a step to ensure that all necessary
support and documentation are included in the contract file when EPA anticipates
a cost-type contract.
Scope and Methodology
We conducted this audit from October 2011 to January 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
12-P-0320
2

-------
the audit to obtain sufficient, appropriate evidence to provide a reasonable basis
for our findings and conclusions based on our audit objectives. We believe that
the evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives.
To determine whether EPA complied with FAR revisions relating to FAR Case
2008-030, Proper Use and Management of Cost-Reimbursement Contracts,
EPA provided a universe of cost-reimbursement contracts the Agency awarded
between March 17, 2011, and September 30, 2011. To verify the accuracy of EPA
information provided, we conducted independent searches of government contract
information systems. We reviewed contract language to verify that the contracts
were cost-reimbursement contracts. We did not conduct additional testing of
contracts not coded as cost-reimbursable, as this was not part of our scope.
EPA awarded nine1 cost-reimbursement contracts from four EPA contracting
offices during this period. We judgmentally selected a sample of seven contracts
representing contracts from each of the four offices. These seven contracts
represent 78 percent of the contracts awarded, and 59 percent of the value of the
contracts.
Table 1: Universe of cost-reimbursement contracts
Contract number
Contractor
Award date
Contract value
EPC11046
Eastern Research Group, Inc.
9/19/2011
$22,530,518
EPD11006
Eastern Research Group, Inc.
4/29/2011
11,638,236
EPD11060
Oneida Total Integrated
Enterprises, LLC
3/24/2011
5,530,737
EPD11073
Dynamac Corporation
6/15/2011
816,467
EPW11029
Research Triangle Institute
3/29/2011
10,299,235
EPW11043
Engineering & Environmental
Solutions JV
5/26/2011
18,144,322
EPW11044
Eastern Research Group, Inc.
5/24/2011
6,291,470
Not reviewed
EPD11092
Trinity Engineering Associates
9/28/2011
6,296,150
EPD11084
RTI International
9/29/2011
45,436,484
Source: OIG analysis
Our work encompassed reviewing contracts in the following EPA contracting
offices: Headquarters Procurement Operations Division, Cincinnati Procurement
Operations Division, Research Triangle Park Procurement Operations Division,
and the Superfund/RCRA Regional Procurement Operations Division. We
determined whether the FAR changes (Appendix A) were covered in the sampled
contracts through review of the pre-award files and interview of contracting
officers (COs).
1 One of the contracts—EPD11084—was not originally identified by EPA, but was identified by the OIG later
through audit steps to determine the validity of the universe provided by EPA.
12-P-0320
3

-------
Internal Control Structure
In planning and performing our audit, we reviewed management controls related
to our objective. Specifically, we examined EPA's Contracts Management
Manual and determined whether EPA issued guidance pursuant to the FAR
revisions. We reviewed the Office of Administration and Resources
Management's fiscal year 2011 Federal Managers' Financial Integrity Act
Assurance Letter. EPA did not identify internal control weaknesses related to the
audit's objectives. There were no previous audits regarding compliance with the
FAR revisions.
12-P-0320
4

-------
Chapter 2
EPA Has Not Fully Complied With
New FAR Regulations
EPA did not comply with several key revisions to the FAR as amended by the
interim rule, Proper Use and Management of Cost Reimbursement Contracts
(FAR Case 2008-030). Although EPA complied with several revisions, those
tended to be areas where the new rules expanded on requirements already in
existence. For example, we found that the contract files reviewed generally did
not have documentation of:
•	Discussions concerning minimizing the use of other than firm-fixed-price
contracts on future acquisitions for the same requirement;
•	Consideration as to whether portions of the contract could be established
on a firm-fixed-price basis; and
•	A written acquisition plan.
EPA stated it did not issue guidance pertaining to the FAR revisions because the
revisions were promulgated by an interim rule that may be changed. Also, EPA
contracting officers did not believe the revisions were applicable because the
acquisition process for all of the contracts sampled began prior to the date the
FAR revisions were published. Excessive reliance on cost-reimbursement
contracts creates a risk that taxpayer funds will be spent on contracts that are
wasteful, inefficient, subject to misuse, or otherwise not well designed to serve
the needs of the federal government or the interests of the American taxpayer.
FAR Revisions Required by the Duncan Hunter Act
The FAR was amended through the interim rule Proper Use and Management of
Cost-Reimbursement Contracts (FAR Case 2008-030). The rule became effective
on March 16, 2011, and implements Section 864 of the Act. The revisions to the
FAR provide additional guidance regarding:
1)	Circumstances when cost-reimbursement contracts are appropriate;
2)	Acquisition plan findings to support the selection of a cost-reimbursement
contract; and
3)	Acquisition resources necessary to award and manage a cost-
reimbursement contract.
FAR Subpart 16.103(c) instructs COs to avoid the protracted use of cost-
reimbursement contracts after experience provides a basis for firmer pricing.
This aligns with a March 4, 2009, Presidential memorandum on government
contracting, which contends that the reliance on cost-reimbursement contracts
12-P-0320
5

-------
creates a risk that taxpayer funds are spent on contracts that are wasteful,
inefficient, subject to misuse, or otherwise not well designed to serve the needs of
the federal government or the interests of the American taxpayer.
EPA Has Not Fully Complied With New FAR Regulations
EPA complied with some, but not all, of the new FAR regulations revised by the
interim rule. During reviews of pre-award files we found evidence of:
•	Discussions of why circumstances do not allow the Agency to define its
requirements sufficiently to allow for a fixed-price type contract;
•	Discussions of why a cost-reimbursement contract was selected to meet
the Agency's need;
•	Evidence of price competition, price analysis, and cost analysis;
•	Evaluations of the contractor's technical capability and financial
responsibility; and
•	Determinations as to the adequacy of the contractor's accounting system
Generally, the requirements complied with were already in existence but
reinforced by the new regulations. For example, prior to March 16, 2011, the FAR
required documentation showing why a particular contract type was selected.
EPA accomplished this through the use of a Determination and Findings
document. We identified a Determination and Findings document discussing the
contract type selected and why the use of a contract type other than a firm-fixed-
price contract was appropriate in all seven of the pre-award files reviewed.
However, these documents generally had limited detail, and often included
boilerplate language taken from the FAR. The new regulations include additional
requirements regarding justifying the use of cost-reimbursable contracts.
In contrast, EPA did not address in the pre-award files a number of key revisions.
Most notably, we found no evidence of discussions concerning minimizing the use
of other than firm-fixed-price contracts on future acquisitions for the same
requirement or establishing portions of the contract on a firm-fixed-price basis. We
determined that EPA did not create a written acquisition plan for six of the seven
contracts because EPA did not require an acquisition plan for contracts under
$25 million. However, under the new FAR requirements, a written acquisition plan
must be approved and signed at least one level above the CO for all cost-
reimbursable contracts. In addition, we found the following:
~	Six of seven pre-award files did not contain a discussion of the
government's additional risks and burden to manage a cost-
reimbursement contract.
•	None of the seven pre-award files contained a discussion on the
adequacy of government resources needed to plan, award, and
administer the contract.
12-P-0320
6

-------
•	None of the seven pre-award files contained a discussion on the
urgency of the Agency's need.
•	Six of seven pre-award files did not contain a consideration of the
impact of concurrent operations in other contracts.
Details on EPA's compliance with the revised FAR are in appendix A.
In addition, each of the contracts reviewed were follow-on contracts. Because of
the nature of the preceding contracts, EPA may have had the opportunity to
establish firmer pricing on the current contracts, as EPA was obtaining similar
services.
EPA Policy Has Not Been Updated
EPA did not issue internal policy to implement the FAR revisions promulgated by
the interim rule. EPA staff said that no policy was issued because the FAR
revisions were in an interim rule and changes to the rule may arise from the public
comment period before the final rule is established.
The COs for each contract in our sample stated that the regulations did not impact
the award of their contracts because the documentation justifying the contract
type was completed prior to the effective date of the new regulations, March 16,
2011. We confirmed that the acquisition process for each of the seven contracts
began prior to the effective date of the new regulations. However, all the contracts
were awarded after this date.
Although the revisions to the FAR were an interim rule, the effective date of those
revisions was March 16, 2011. Based on the language in the Act and the FAR, the
key was when the contract was awarded, not when the supporting documentation
was generated. With this conclusion, all contracts awarded after March 16, 2011,
would be subject to the new requirements, even if the justification for the contract
type was completed prior to that date.
Recommendation
We recommend that the Assistant Administrator for Administration and
Resources Management:
1. Develop a policy for COs that provides guidance on preparing written
acquisition plans that comply with the FAR revisions resulting from the
interim rule (FAR Case 2008-030).
12-P-0320
7

-------
Agency Response and OIG Evaluation
While EPA concurred with our recommendation to develop a policy to ensure
compliance with the new FAR revisions, the Agency's response did not identify
any new actions it would take. EPA stated that it published information and
implementation guidance on the FAR revisions on March 17, 2011.
At the exit conference on February 23, 2012, the Director, Office of Acquisition
Management, provided some additional explanation regarding the Agency's
response. Specifically, the Office of Acquisition Management agreed to complete
the following by March 31, 2012:
•	Issue an Interim Policy Notice updating the references to the Contracts
Management Manual for acquisition planning.
•	Update the Peer Review Checklist to reflect changes made to the FAR.
The Agency's response and comments at the exit conference meet the intent of
the recommendation.
12-P-0320
8

-------
Chapter 3
EPA Staff Are Not Always Nominating or
Appointing Contracting Officer's Representatives
EPA did not always nominate or appoint the current contracting officer's
representatives (CORs) to serve in that capacity. Both the FAR and EPA's
Contracts Management Manual (CMM) require that program staff nominate the
COR and require that the CO appoint the COR in writing. EPA staff was aware of
the requirements to nominate and appoint CORs but did not officially do so due to
an oversight. CORs have vital roles in ensuring, managing, and measuring
contract performance in addition to providing technical direction. To accomplish
the duties of a COR and act on behalf of the government, proper documentation
must be in place to authorize the COR to perform those duties in the prescribed
manner.
Regulations and Internal Guidance Require CORs to Be Nominated
and Appointed
FAR Subpart 7.104 states that the requirements official is to nominate a COR as
early as practicable in the acquisition process. FAR Subpart 16.301 states that the
CO shall designate a COR prior to contract award. EPA's CMM requires that the
potential COR's immediate supervisor nominate a COR, and that program offices
initiate contact with EPA contracting offices through the use of a procurement
initiation notice for new procurements. The CO is to respond to the nomination in
writing by either appointing the nominee as a COR or stating why the nominee
was not appointed.
CORs Acting on Behalf of the Government Without Being Formally
Nominated or Appointed
Supervisors did not nominate the current COR for EPA contracts EPW11044 and
EPD11073. The CO did not appoint the current COR for contracts EPD11006,
EPW11044, EPD11073, and EPW11029. During the audit, EPA staff took action
to complete all of the missing nomination forms and appointment memorandums.
EPA program staff was aware of the requirement to nominate CORs but did not
do so due to an oversight. COs did not appoint CORs for two of the four contracts
because program staff did not nominate the COR. For the other two contracts, the
COs did not appoint the COR due to an oversight. The CMM refers to a form
1900-65, Nomination of the Contracting Officer Representative, and that the form
is to be attached to the procurement initiation notice. However, while the
procurement initiation notice was included in all files we reviewed, the EPA form
1900-65 for the current COR was not included as an attachment in two cases.
12-P-0320
9

-------
Recommendations
We recommend that the Assistant Administrator for Administration and
Resources Management:
2.	Update the procurement initiation notice as contained in the CMM to
include, as an attachment, a copy of the COR appointment memorandum.
3.	Direct COs to verify that nomination forms and appointment
memorandums are included in contracting files for all current contracts.
Agency Response and OIG Evaluation
EPA concurred with both recommendations. Based on its response to the draft
report and exit conference, EPA agreed to issue an Interim Policy Notice that will
require that the contract files include COR appointment memorandums and
require COs to verify that both COR nomination forms and appointment
memorandums are included in all current contracts. EPA indicated the Interim
Policy Notice will be issued by September 30, 2012.
The Agency's response and comments at the exit conference meet the intent of
the recommendations.
12-P-0320
10

-------
Chapter 4
EPA Miscoded Contracts
EPA contracting staff improperly coded four indefinite-delivery/indefinite-
quantity (ID/IQ) task order contracts as cost-plus-fixed-fee (CPFF) contracts in
EPA's contract writing system,2 which updates the Federal Procurement Data
System-Next Generation (FPDS-NG). The FAR requires that ID/IQ contracts be
coded as "IDV" for reporting purposes in FPDS-NG. COs coded the ID/IQ
contracts as CPFF contracts because the majority of the task orders were
anticipated to be CPFF task orders. When contract types are miscoded, EPA does
not have accurate data on the type of contracts it awards. Complete, accurate, and
timely federal procurement data is essential for ensuring that the government has
the right information when planning and awarding contracts and that the public
has reliable data to track how tax dollars are spent.
Regulations and Memorandums Require Data Integrity for
Reporting Requirements on Federal Spending
FAR Subpart 4.606 states that Indefinite Delivery Vehicles, such as the four task
and delivery order contracts discussed above, should be coded as "IDV" in the
FPDS-NG. In addition, the FPDS-NG User's Manual states that the contract type
for Indefinite Delivery Vehicles, such as the contracts in question, should be
coded as follows: "Order Dependent (IDV allows pricing arrangement to be
determined separately for each order)."
The Office of Management and Budget's memorandum on Open Government
states that challenges exist with the quality of federal spending information and
cites inaccurate or untimely data as a challenge. The memorandum suggested that
agencies take steps to ensure that data disseminated comply with applicable
standards on information quality and that adequate internal controls are in place to
ensure the integrity of the data released to the public.
EPA contracting offices' Quality Assessment Plans place the responsibility for
data quality and integrity on the contract specialists and COs. EPA's Acquisition
Handbook, Section 4.2.4.2, states that all Quality Assessment Plans must contain
some mandatory activities, including contracting office verification and validation
that the information in official contract files is consistent with the data in EPA's
procurement systems and FPDS-NG.
2 According to the CO, the contracts were initiated in EPA's previous contracting writing system—the Integrated
Contracts Management System.
12-P-0320
11

-------
EPA Contracting Staff Improperly Coded Contracts
EPA provided a universe of cost-reimbursement contracts awarded between
March 17, 2011, and September 30, 2011, to the OIG for analysis on whether the
Agency complied with the new FAR revisions. The EPA CO improperly coded
four ID/IQ contracts as CPFF contracts because the majority of the task orders to
be issued were anticipated to be CPFF task orders. In reviewing the contract
language for EPA contracts EPC11036, EPC11037, EPC11038, and EPC11039,
we found language identifying them as ID/IQ contracts.
In discussing our results with EPA staff, they pointed out that the FPDS-NG
User's Manual contains conflicting guidance regarding coding of contracts. For
example, paragraph 4.8.1 of the manual states that if a contract has more than one
contract type, agencies should identify the type with the greater contract value.
The manual also states that agencies should follow their own instructions if they
report multiple actions. However, the same section in the manual identifies a
contract type value of "Order Dependent (IDV allows pricing arrangement to be
determined separately for each order)." This allows an agency to identify the
pricing data (e.g., cost-reimbursement, fixed-price) for each order it places under
a contract.
Recommendation
We recommend that the Assistant Administrator for Administration and
Resources Management:
4. Develop and distribute instructions on coding of ID/IQ contracts. EPA
should ensure that the four contracts identified in this finding are coded
consistent with the instructions.
Agency Response and OIG Evaluation
EPA concurred with our recommendation. EPA indicated it will publish a flash
policy notice advising staff that ID/IQ contracts should be coded in the FPDS in
accordance with the FPDS Government User's Manual dated April 2011. EPA said
it will issue the flash policy notice by March 31, 2012.
The Agency's response and comments at the exit conference meet the intent of the
recommendation.
12-P-0320
12

-------
Status of Recommendations and
Potential Monetary Benefits
RECOMMENDATIONS
POTENTIAL MONETARY
BENEFITS (In $000s)
Rec.
No.
Page
No.
Subject
Status1
Action Official
7 Develop a policy for COs that provides guidance on
preparing written acquisition plans that comply with
the FAR revisions resulting from the interim rule
(FAR Case 2008-030).
10 Update the procurement initiation notice as
contained in the CMM to include, as an attachment,
a copy of the COR appointment memorandum.
10 Direct COs to verify that nomination forms and
appointment memorandums are included in
contracting files for all current contracts.
12 Develop and distribute instructions on coding of
ID/IQ contracts. EPA should ensure that the four
contracts identified in this finding are coded
consistent with the instructions.
Assistant Administrator
for Administration and
Resources Management
Assistant Administrator
for Administration and
Resources Management
Assistant Administrator
for Administration and
Resources Management
Assistant Administrator
for Administration and
Resources Management
Planned
Completion
Date
Claimed
Amount
Ag reed-To
Amount
03/31/12
09/30/12
09/30/12
03/31/12
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
12-P-0320
13

-------
Appendix A
Agency Response
February 9, 2012
MEMORANDUM
SUBJECT: Response to Draft Audit Report: Policies Needed for Proper Use and Management of
Cost-Reimbursement Contracts Based on Duncan Hunter Act, Project N. OA-FY-11-
0563
FROM:	Craig E. Hooks, Assistant Administrator
Office of Administration and Resources Management
TO:	Melissa M. Heist, Assistant Inspector General for Audit
Office of the Inspector General
Thank you for the opportunity to comment on the draft report entitled "Policies Needed for Proper
Use and Management of Cost-Reimbursement Contracts Based on Duncan Hunter Act" dated
January XX, 2012. Our comments on the report and recommendations are below:
Recommendations and Responses:
Recommendation 1: Develop a policy to ensure compliance with the new Federal
Acquisition Regulations (FAR) revisions resulting from the interim rule (FAR Case 2008-
030).
Response: OAM concurs with this recommendation. On March 17, 2011, the Policy,
Training, and Oversight Division (PTOD) of the Office of Acquisition Management (OAM)
published information and implementation guidance on FAR Case 2008-030. In order for OAM
to hold agency contracting and management staff accountable for understanding and
implementing such regulatory changes, OAM has included review and evaluation of the proper
use and management of cost-reimbursement contracts in the self-assessment and peer review
checklists under OAM's Balanced Scorecard Performance Measurement and Management Plan
(PMMP). Under the PMMP, OAM Divisions and Regional Acquisition Offices will perform
reviews using the self-assessment checklist to ensure compliance. The OAM Contract
Management Assessment Team will perform reviews of these organizations to verify and
validate internal review and compliance results.
12-P-0320
14

-------
Recommendation 2: Update the procurement initiation notice checklist as contained in the
Contracts Management Manual (CMM) to include, as an attachment, a copy of the
Contracting Officer Representative (COR) appointment memorandum.
Response: OAM concurs with this recommendation. EPA's Acquisition System (EAS)
allows COR nominations to be accomplished electronically in the requisition document. OAM
will publish an Interim Policy Notice (IPN) requiring program and technical staff to nominate
prospective COR's in EAS requisition documents.
Recommendation 3: Direct COs to verify that nomination forms and appointment
memorandums are included in contracting files for all current contracts.
Response: OAM concurs with this recommendation, and the above-described IPN will
require the "Nomination of the Contracting Officer's Representative (COR)" form be included in
the official contract file in accordance with FAR 4.803(a)(33).
Recommendation 4: Develop and distribute instructions on coding of ID/IQ contracts.
EPA should ensure that the four contracts identified in this finding are coded consistent
with the instructions.
Response: OAM concurs with this recommendation. OAM will publish a flash policy
notice advising staff that ID/IQ contracts should be coded in the Federal Procurement Data
System (FPDS) in accordance with the FPDS Government User's Manual dated April 2011.
Accordingly, if cost-type orders are anticipated to be the greater contract value, the contract file
shall contain either an acquisition plan or analysis explaining why cost-type pricing is
appropriate to support the requirement, as well as include a discussion on future plans to
minimize the use of cost-type orders in accordance with FAR Part 16. OAM will also ensure the
files for the contracts identified in the report contain either the required plan or analysis.
Please contact John Bashista, Director of OAM, if you have any questions regarding the above
responses.
12-P-0320
15

-------
Appendix B
FAR Revisions and Results of File Reviews
FAR
Revised language
Yes
No
16.103(d)
(1)(i)
Explain why the contract type selected must be used to
meet the agency need.
EPC11046
EPD11006
EPD11060
EPD11073
EPW11029
EPW11043
EPW11044

16.103(d)
(1)00
Discuss the Government's additional risks and the burden to
manage the contract type selected (e.g., when a cost-
reimbursement contract is selected, the Government incurs
additional cost risks, and the Government has the additional
burden of managing the contractor's costs). For such
instances, acquisition personnel shall discuss-
EPW11029
EPC11046
EPD11006
EPD11060
EPD11073
EPW11043
EPW11044
16.103(d)
(1)(iO(A)
How the Government identified the additional risks (e.g.,
pre-award survey, or past performance information);
EPW11029
EPC11046
EPD11006
EPD11060
EPD11073
EPW11043
EPW11044
16.103(d)
(1)(ii)(B)
The nature of the additional risks (e.g., inadequate
contractor's accounting system, weaknesses in contractor's
internal control, non-compliance with Cost Accounting
Standards, or lack of or inadequate earned value
management system); and
EPW11029
EPC11046
EPD11006
EPD11060
EPD11073
EPW11043
EPW11044
16.103(d)
(1)(ii)(C)
How the Government will manage and mitigate the risks.
EPC11046
EPW11029
EPD11006
EPD11060
EPD11073
EPW11043
EPW11044
16.103(d)
(1)(ii0 1
Discuss the Government resources necessary to properly
plan for, award, and administer the contract type selected
(e.g., resources needed and the additional risks to the
Government if adequate resources are not provided).

EPC11046
EPD11006
EPD11060
EPD11073
EPW11029
EPW11043
EPW11044
1 Similar language revisions regarding adequacy of resources were included in FAR 16.103(d)(l)(iv)(C) and
16.301-3(a)(4).
12-P-0320
16

-------
FAR
Revised language
Yes
No
16.103(d)
(1 )(iv)2
16.103(d)
(1)(iv)(A)
For other than a firm-fixed price contract, at a minimum the
documentation should include-
An analysis of why the use of other than a firm-fixed-price
contract (e.g., cost-reimbursement, time-and-materials,
labor hour) is appropriate;
EPC11046
EPD11006
EPD11060
EPD11073
EPW11029
EPW11043
EPW11044

16.103(d)
(1)(iv)(B)
Rationale that detail the particular facts and circumstances
(e.g., complexity of the requirements, uncertain duration of
the work, contractor's technical capability and financial
responsibility, or adequacy of the contractor's accounting
system), and associated reasoning essential to support the
contract type selection;
EPC11046
EPD11006
EPD11060
EPD11073
EPW11029
EPW11043
EPW11044

16.103(d)
(1 )(iv)(D)3
A discussion of the actions planned to minimize the use of
other than firm-fixed-price contracts on future acquisitions
for the same requirement and to transition to firm-fixed-price
contracts to the maximum extent practicable.

EPC11046
EPD11006
EPD11060
EPD11073
EPW11029
EPW11043
EPW11044
16.103(d)
(1)(v)
A discussion of why a level-of-effort, price redetermination,
or fee provision was included.
EPC11046
EPD11006
EPD11060
EPD11073
EPW11043
EPW11044
EPW11029
16.301-
2(a)(1)
The contracting officer shall use cost-reimbursement
contracts only when—
Circumstances do not allow the agency to define its
requirements sufficiently to allow for a fixed-price type
contract (see 7.105); or
EPC11046
EPD11006
EPD11060
EPD11073
EPW11029
EPW11043
EPW11044

16.301-
2(a)(2)
Uncertainties involved in contract performance do not permit
costs to be estimated with sufficient accuracy to use any
type of fixed-price contract.
EPC11046
EPD11006
EPD11060
EPD11073
EPW11029
EPW11043
EPW11044

16.301-
3(a)(1)
A cost-reimbursement contract may be used only when-
The factors in 16.104 have been considered;
Addressed
below for
FAR 16.104

2	Similar language revisions regarding documenting why a particular contract type was selected were included in
FAR 7.103(d), 7.105(b)(3), and 16.301-2(b).
3	Similar language revisions regarding transitioning to firm-fixed-price contracts to the maximum extent practicable
were included in FAR 7.105(b)(5)(iv).
12-P-0320
17

-------
FAR
Revised language
Yes
No
16.301-
3(a)(2)4
A written acquisition plan has been approved and signed at
least one level above the contracting officer;
EPW11043
EPC11046
EPD11006
EPD11060
EPD11073
EPW11029
EPW11044
16.104(a)
There are many factors that the contracting officer should
consider in selecting and negotiating the contract type. They
include the following:
Price Competition
EPC11046
EPD11006
EPD11060
EPD11073
EPW11029
EPW11043
EPW11044

16.104(b)
Price Analysis
EPC11046
EPD11006
EPD11060
EPD11073
EPW11029
EPW11043
EPW11044

16.104(c)5
Cost Analysis
EPC11046
EPD11006
EPD11060
EPW11029
EPW11043
EPW11044

16.104(d)
Type and complexity of the requirement
EPC11046
EPD11006
EPD11060
EPD11073
EPW11029
EPW11043
EPW11044

16.104(e)
Combining contract types

EPC11046
EPD11006
EPD11060
EPD11073
EPW11029
EPW11043
EPW11044
16.104(f)
Urgency of the requirement

EPC11046
EPD11006
EPD11060
EPD11073
EPW11029
EPW11043
EPW11044
4	Similar language revisions requiring a written acquisition plan approved one level above the CO were included in
FAR 16.301-2(b), 7.103(e), and 7.103(j).
5	We determined that a cost analysis for contract EPD11073 was not required as this was a competitive proposal
process.
12-P-0320
18

-------
FAR
Revised language
Yes
No
16.104(g)
Period of performance or length of production run
EPC11046
EPD11006
EPD11060
EPD11073
EPW11029
EPW11043
EPW11044

16.104(h)
Contractor's technical capability and financial responsibility
EPC11046
EPD11006
EPD11060
EPD11073
EPW11029
EPW11043
EPW11044

16.104(i)e
Adequacy of the contractor's accounting system
EPC11046
EPD11006
EPD11060
EPD11073
EPW11029
EPW11043
EPW11044

16.1040
Concurrent contracts
EPW11043
EPC11046
EPD11006
EPD11060
EPD11073
EPW11029
EPW11044
16.104(k)
Extent and nature of proposed subcontracting
EPC11046
EPD11006
EPD11060
EPD11073
EPW11029
EPW11043
EPW11044

16.104(1)
Acquisition history
EPC11046
EPD11006
EPD11060
EPD11073
EPW11029
EPW11043
EPW11044

7.103(f)
Ensuring that the statement of work is closely aligned with
performance outcomes and cost estimates.
EPC11046
EPD11006
EPD11060
EPD11073
EPW11029
EPW11043
EPW11044

6 Similar language revisions regarding the adequacy of the contractor's accounting system were included in FAR
16.301-3(a)(3) and 42.302(a)(12).
12-P-0320
19

-------
FAR
Revised language
Yes
No
1.602-2(d)
1.602-
2(d)(6)7
Designate and authorize, in writing, a contracting officer's
representative (COR) on all contracts and orders other than
those that are firm-fixed price, and for firm-fixed-price
contracts and orders as appropriate. However, the
contracting officer is not precluded from retaining and
executing the COR duties as appropriate. See 7.104(e).
A COR must be designated in writing, with copies furnished
to the contractor and the contract administration office-
EPC11046
EPW11029
EPW11043
EPD11073
EPW11044
EPD11006
EPD11060
1.602-
2(d)(6)®
Specifying the extent of the COR's authority to act on behalf
of the contracting officer;
EPC11046
EPD11006
EPD11060
EPD11073
EPW11029
EPW11043
EPW11044

1.602-
2(d)(6)(H)
Identifying the limitations on the COR's authority;
EPC11046
EPD11006
EPD11060
EPD11073
EPW11029
EPW11043
EPW11044

1.602-
2(d)(6)(iii)
Specifying the period covered by the designation;
EPC11046
EPD11006
EPD11060
EPD11073
EPW11029
EPW11043
EPW11044

1.602-
2(d)(6)(iv)
Stating the authority is not redelegable; and
EPC11046
EPD11006
EPD11060
EPD11073
EPW11029
EPW11043
EPW11044

1.602-
2(d)(6)(v)
Stating that the COR may be personally liable for
unauthorized acts.
EPC11046
EPD11006
EPD11060
EPD11073
EPW11029
EPW11043
EPW11044

1.604
A contracting officer's representative (COR) assists in the
technical monitoring or administration of a contract (see
1,602-2(d)). The COR shall maintain a file for each assigned
contract. The file must include, at a minimum-
EPC11046
EPD11006
EPD11060
EPD11073
EPW11029
EPW11043
EPW11044

7 Similar language revisions regarding nominating a COR were included in FAR 7.104(e) and 16.301-3(a)(4)(i).
12-P-0320	20

-------
FAR
Revised language
Yes
No
1.604(a)
A copy of the contracting officer's letter of designation and
other documents describing the COR's duties and
responsibilities;
EPC11046
EPW11043
EPD11060
EPD11006
EPW11029
EPW11044
EPD11073
1.604(b)
A copy of the contract administration functions delegated to
a contract administration office which may not be delegated
to the COR (see 1,602-2(d)(4)); and

EPC11046
EPD11006
EPD11060
EPD11073
EPW11029
EPW11043
EPW11044
1.604(c)B
Documentation of COR actions taken in accordance with the
delegation of authority.
EPD11006
EPD11060
EPD11073
EPW11029
EPW11043
EPW11044

8 No actions on contract EPC11046 had been taken at the time of our review.
12-P-0320
21

-------
Appendix C
Distribution
Office of the Administrator
Assistant Administrator for Administration and Resources Management
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
Director, Office of Acquisition Management, Office of Administration and Resources
Management
Audit Follow-Up Coordinator, Office of Administration and Resources Management
Audit Follow-Up Coordinator, Office of Acquisition Management, Office of Administration
and Resources Management
12-P-0320
22

-------