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U.S. Environmental Protection Agency
Office of Inspector General
At a Glance
08-P-0093
February 26, 2008
Catalyst for Improving the Environment
Why We Did This Review
We sought to determine
whether the U.S.
Environmental Protection
Agency (EPA):
•	Used award fee plans for
C ost-Plus-A ward-F ee
(CPAF) contracts that
clearly identified the
specific award fee criteria
and properly established
performance indicators;
•	Achieved a higher level of
performance by using this
contract type; and
•	Sufficiently reviewed,
approved, and awarded fees.
Background
CPAF contracts are used to
motivate contractors to
provide a high level of
performance. CPAF contracts
provide base fees and award
amounts based on a
judgmental evaluation by
EPA. In recent years, EPA
has begun to move away from
using CPAF contracts. As of
October 2006, EPA had
14 active CPAF contracts
valued at $4.2 billion.
For further information,
contact our Office of
Congressional and Public
Liaison at (202) 566-2391.
To view the full report,
click on the following link:
www.epa.aov/oia/reports/2008/
20080226-08-P-0093.pdf
EPA Should Further Limit Use of
Cost-Pi us-Award-Fee Contracts
What We Found
While EPA has paid contractors nearly $16 million in award fees over the past
10 years on the nine contracts reviewed, it has no assurance that the use of CPAF
contracts facilitates a higher level of performance than other types of contracts.
EPA CPAF contracts generally contain performance indicators tied to the Agency's
mission. EPA consistently provided contractors with high ratings and award fees.
However, we could not determine if EPA properly awarded fees because it did not
sufficiently document the basis for the ratings. Because EPA consistently provided
high ratings, we believe award fees are more of an expectation for contractors rather
than a factor that motivates excellence.
In some instances, EPA paid a higher base fee than allowed by the EPA Acquisition
Regulation. We found five contracts that contained a base fee percentage higher
than the 3 percent allowed. Two of those contracts have significant time remaining.
For those two, we estimated that EPA overpaid about $100,000 of base fee through
July 2007, and will overpay another $760,000 over the remaining life of the
contracts. The high base fees were provided because of a lack of knowledge by
EPA employees regarding the regulation and an oversight by Headquarters.
Developing and administering CPAF contracts is a labor intensive process, and
many EPA employees involved with contract management believe that competition
is a more effective way to motivate contractors. Also, the CPAF process could be
made less burdensome. The calculation used to compute base fees on these
contracts is overly complex, and eliminating the requirement for contractors to
submit self evaluations could save up to $50,000 over the course of a contract.
What We Recommend
We recommend that EPA further limit the use of CPAF contracts by revising the
Contracts Management Manual to require that a cost-benefit analysis be conducted
prior to awarding a CPAF contract. In instances when CPAF contracts are used,
we recommend that EPA better document the basis for decisions to substantiate
the performance ratings given. EPA should also modify its contracts to bring
them into compliance with the EPA Acquisition Regulation to avoid the future
overpayment of base fees. Further, EPA should simplify its CPAF process. EPA
agreed with a majority of our recommendations or provided a valid alternative.
EPA did not agree with some of our recommendations related to simplifying the
CPAF process, and those recommendations have been revised for the final report.

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