Army Corps of Engineers: Improved Monitoring and Clear Guidance  
Would Contribute to More Effective Use of Continuing Contracts	 
(08-SEP-06, GAO-06-966).					 
                                                                 
The U.S. Army Corps of Engineers (Corps) is authorized under the 
River and Harbor Act of 1922 to issue contracts with a continuing
contracts clause to carry out certain projects. This allows the  
Corps to award multi-year contracts without having received	 
appropriations to cover the full contract amount. The Corps has  
used these contracts for decades, but modified their use in 2005,
in response to congressional committee concerns that their use	 
may have been ineffective. GAO was asked to determine (1) the	 
number and dollar amount of continuing contracts the Corps	 
awarded during fiscal years 2003-2005; (2) the circumstances in  
which the Corps used continuing contracts in fiscal years	 
2003-2005; and (3) how the Corps' process for approving and using
continuing contracts changed since 2005, and whether the changes 
reduced the use of these contracts. For these objectives, GAO	 
reviewed the Corps' contracting data, a random sample of 107	 
continuing contracts, and districts' requests to use continuing  
contracts							 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-06-966 					        
    ACCNO:   A60489						        
  TITLE:     Army Corps of Engineers: Improved Monitoring and Clear   
Guidance Would Contribute to More Effective Use of Continuing	 
Contracts							 
     DATE:   09/08/2006 
  SUBJECT:   Appropriated funds 				 
	     Appropriations					 
	     Contracts						 
	     Defense appropriations				 
	     Funds management					 
	     Multiyear contracts				 
	     Policy evaluation					 
	     Army Corps of Engineers Civil Works		 
	     Program						 
                                                                 
	     Continuing Authority Program			 

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GAO-06-966

     

     * Results in Brief
     * Background
          * History of the Corps' Continuing Contracts Authority
     * The Corps Cannot Accurately Identify How Many Continuing Con
          * The Corps Does Not Track Its Use of Continuing Contracts
          * Continuing Contracts Most Likely Accounted for About 10 Perc
     * Prior to 2005, the Corps Routinely Included a Continuing Con
     * The Corps' Revised Processes for Approving Continuing Contra
          * Fiscal Year 2005 Process Changes for Approving Continuing Co
          * Fiscal Year 2006 Process Changes for Continuing Contracts
          * Process Changes Have Reduced the Number of Continuing Contra
     * Conclusions
     * Recommendations for Executive Action
     * Agency Comments and Our Evaluation
     * GAO Contact
     * Staff Acknowledgments
     * GAO's Mission
     * Obtaining Copies of GAO Reports and Testimony
          * Order by Mail or Phone
     * To Report Fraud, Waste, and Abuse in Federal Programs
     * Congressional Relations
     * Public Affairs

Report to the Subcommittee on Energy and Water Development, Committee on
Appropriations, House of Representatives

United States Government Accountability Office

GAO

September 2006

ARMY CORPS OF ENGINEERS

Improved Monitoring and Clear Guidance Would Contribute to More Effective
Use of Continuing Contracts

GAO-06-966

Contents

Letter 1

Results in Brief 3
Background 5
The Corps Cannot Accurately Identify How Many Continuing Contracts It Has
Awarded because It Does Not Track These Contracts 10
Prior to 2005, the Corps Routinely Included a Continuing Contracts Clause
in Most Contracts 13
The Corps' Revised Processes for Approving Continuing Contracts Has
Reduced Their Use, but It Still Lacks Criteria for When Their Use Is
Appropriate 18
Conclusions 25
Recommendations for Executive Action 26
Agency Comments and Our Evaluation 27
Appendix I Scope and Methodology 29
Appendix II Characteristics of the Continuing Contracts Identified by GAO
32
Appendix III Comments from the Department of Defense 41
Appendix IV GAO Contact and Staff Acknowledgments 44

Tables

Table 1: Fiscal Years 2003-2005 Appropriations 6
Table 2: Total Number and Full Costs to the Federal Government of
Continuing Contracts, Fiscal Years 2003-2005 12
Table 3: Total Number of the 107 Randomly Selected Continuing Contracts
Awarded in Fiscal Years 2003-2005 by the Full Contract Costs and Number of
Months to Complete the Contracted Work 16
Table 4: Headquarters' Reasons for Denying Seven Requests to Use a
Continuing Contract and How Districts Proceeded with the Work 23
Table 5: Total Number of Approved Requests to Use a Continuing Contract in
Fiscal Year 2005 24
Table 6: Total Number of Approved Requests to Use a Continuing Contract in
Fiscal Year 2006 25
Table 7: Total Number of Continuing Contracts Awarded by the Full Costs to
the Federal Government, Fiscal Years 2003-2005 32
Table 8: Total Number of Continuing Contracts by Percentage of Federal
Funds Made Available in the First Year of the Contract, Fiscal Years
2003-2005 33
Table 9: Commitments for Continuing Contracts Made by Appropriations
Account, Fiscal Years 2003-2005 36
Table 10: Total Number of Continuing Contracts by Appropriations Account,
Fiscal Years 2003-2005 37
Table 11: Total Number and Full Costs to the Federal Government of
Continuing Contracts Awarded by Division, Fiscal Years 2003-2005 38
Table 12: Total Number and Full Costs to the Federal Government of
Continuing Contracts Awarded by District, Fiscal Years 2003-2005 39

Figures

Figure 1: Obligations by Fiscal Year for Continuing Contracts Awarded,
Fiscal Years 2003-2005 34
Figure 2: Total Number of Continuing Contracts by Fiscal Quarter of Award,
Fiscal Years 2003-2005 35

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separately.

United States Government Accountability Office

Washington, DC 20548

September 8, 2006

The Honorable David L. Hobson Chairman The Honorable Peter J. Visclosky
Ranking Minority Member Subcommittee on Energy and Water Development
Committee on Appropriations House of Representatives

Each year, Congress provides funding to the U.S. Army Corps of Engineers'
(Corps) Civil Works program to plan, construct, operate, and maintain a
wide range of water resources projects. During fiscal years 2005 and 2006,
the Corps received annual appropriations of more than $4 billion for such
projects. Water resources projects often take more than 1 fiscal year to
complete, and the Corps usually relies on one or more contractors to
complete these projects. Generally, agencies are required to obligate
appropriations for all costs expected to be incurred at the time of award
(i.e., fully fund contracts).1 However, the River and Harbor Act of 1922
provides the Corps a unique authority to use what is referred to as a
"continuing contract" to carry out certain projects. The Corps' continuing
contracts authority allows it to enter into, and commit the federal
government for, the full amount of contracts that span more than 1 fiscal
year-even though the Corps may not have sufficient funds to cover the full
contract amount at the time the contract is awarded. For example, the
Corps could award a 3-year, $12 million continuing contract even if it
only had appropriations to cover the first year's work; the funds needed
to cover the remaining contract amount would be obligated to subsequent
years' appropriations. A continuing contract contains a continuing
contracts clause that allows contractors to continue work on a project
even when appropriations are not available. When funding becomes
available, the Corps is committed to pay all of the outstanding costs
incurred by the contractor for work performed under the contract, as well
as any interest that may have accrued on these outstanding balances.

1The Antideficiency Act prohibits agencies from entering into contracts
which exceed currently available appropriations or which obligate
appropriations not yet made.

A provision of law enacted in the Water Resources Development Act of 1999
requires the Corps to use continuing contracts for certain water resources
projects for which sufficient funds are not available to complete the
project.2 However, in the conference report accompanying the Corps' 2004
appropriations, the conference committee noted its concerns about the
Corps' policy of allowing contractors to choose their own pace for working
on continuing contracts, which effectively allowed contractors, rather
than the Corps, to determine how future appropriations would be allocated.
In fiscal year 2005, the conference committee noted that continuing
contracts are to allow the Corps to award large construction elements of a
project to take advantage of the economies of scale and allow these large
elements to be efficiently managed over several years.3 The committee
reiterated its past concerns that the Corps' construction projects may
have used continuing contracts ineffectively.

In this context, you asked us to determine (1) the number and dollar
amount of continuing contracts the Corps awarded during fiscal years
2003-2005; (2) the circumstances in which the Corps used continuing
contracts in fiscal years 2003-2005; and (3) how the Corps' process for
approving and using continuing contracts changed since 2005, and whether
these changes have reduced the use of these contracts.

To address these objectives, we analyzed the Corps' contracting data for
Civil Works fixed-price and indefinite-delivery contracts (both
construction contracts and operation and maintenance contracts) for fiscal
years 2003-2005. Of the contracts we reviewed, we identified all of the
contracts for which the Corps did not obligate the full contract amount
(i.e., partially funded). We excluded from our analysis contracts that the
Corps identified as incrementally funded contracts.4 We assessed the
reliability of the Corps' data and found that they were sufficiently
reliable for our use. In addition, we reviewed 107 randomly selected
continuing contract files from three Corps districts. The districts we
selected used a large number of continuing contracts and were located in
divisions that awarded a large percentage of continuing contracts in
fiscal years 2003-2005. We also reviewed Corps guidance for approving and
using continuing contracts before and after 2005, when the Corps revised
its process. We surveyed all eight Corps divisions to determine the total
number of continuing contract requests that were approved and denied by
Corps headquarters after the Corps revised its process. We performed our
work between December 2005 and July 2006, in accordance with generally
accepted government auditing standards. Appendix I provides a detailed
description of our scope and methodology.

233 U.S.C. S: 2331. The law applies to projects funded from the
construction; operation and maintenance; and flood control, Mississippi
River and tributaries appropriations accounts. A provision of the Energy
and Water Development Appropriations Act of 2006 limited this requirement
to projects funded from the operation and maintenance account and the
operation and maintenance subaccount of the Mississippi River and
tributaries account.

3The committee did not define what it meant by large contracts. For the
purposes of our review, we defined large contracts as those that cost more
than $10 million.

4Notwithstanding how the Corps views their continuing contracts, these
contracts are also incrementally funded. Incremental funding is the
practice of providing budget authority for only a portion of a capital
acquisition or project.

                                Results in Brief

The Corps does not track information on the number of contracts with a
continuing contracts clause that it awards, and therefore does not know
how many continuing contracts it awarded during fiscal years 2003-2005. It
also does not know the dollar value of these contractual obligations. The
Corps was directed to provide the appropriations committees with quarterly
reports on its use of on-going continuing contracts in fiscal year 2006,
but we found that the information submitted in these reports was
inaccurate. For example, we found that at least 13 continuing contracts
were missing from the Corps' quarterly reports and 10 continuing contracts
had incorrect dollar values. Because the Corps cannot determine how many
continuing contracts it awarded for fiscal years 2003-2005, we analyzed
the Corps' contracting data. We found that 1,592 of the 16,532 contracts
awarded in this 3-year period most likely included and exercised (used) a
continuing contracts clause. These 1,592 contracts accounted for more than
60 percent of the Corps' annual obligations for new contracts awarded
during these 3 years. The 1,592 contracts were expected to cost the
government more than $3.96 billion at the time of award, but the Corps
only obligated $655 million to current appropriations when these contracts
were awarded; as a result, the federal government was left with about
$3.30 billion in outstanding commitments. The value of individual
continuing contracts ranged from as little as $12,000 to as much as $564
million.

During fiscal years 2003-2005, it was standard operating practice for the
Corps to include a continuing contracts clause in most of its contracts.
This occurred, according to Corps officials, because a provision in the
Water Resources Development Act of 1999 required the agency to use
continuing contracts when a project could not be fully funded with
available appropriations. Our review of 107 randomly selected continuing
contracts awarded during fiscal years 2003-2005 found numerous examples of
the Corps' overuse of this requirement for contracts where a continuing
contract may not have been needed. For example, in about one-third of the
continuing contracts that we reviewed, the contracted work required 6
months or less to complete or had a contract value of less than $1
million. Therefore, we believe that these contracts did not need to be
awarded as continuing contracts given their relatively short-term and
small dollar values. The Corps might have been able to fully fund some of
these contracts if, at the time of award, the Corps had adequate
appropriations to cover the contract amount. Only 8 of the 107 continuing
contracts we reviewed involved a relatively large dollar amount-for the
purposes of our review, more than $10 million-and required more than 12
calendar months to complete, thereby, in our opinion, establishing a
rationale for a continuing contract. Another factor contributing to the
routine use of continuing contracts was the Corps' policy of expending all
available appropriations in the fiscal year for which it was appropriated,
rather than carrying balances into the next fiscal year. According to
Corps officials, the use of continuing contracts helped to meet this
policy by allowing the Corps to move funds from projects that had excess
funds either (1) to other ongoing projects that could use them or (2) to
start new projects at the end of the fiscal year by using partially funded
continuing contracts. For fiscal years 2003-2005, we found that over half
of the contracts we reviewed were awarded during the last quarter of the
fiscal year as continuing contracts with little or no associated
obligations, thus committing the federal government to cover the costs of
these contracts in future years' appropriations.

In response to congressional committee direction in 2005 and again in
2006, the Corps created new processes that, among other things, require
districts to obtain Corps headquarters' approval before using continuing
contracts. These new processes reduced the number of continuing contracts
awarded by the Corps since 2005, but have not prevented the use of
continuing contracts for short-term, low dollar value contracts. The Corps
might have been able to fully fund some of these contracts if, at the time
of award, the Corps had adequate appropriations to cover the contract
amount. Under the new processes, in addition to obtaining headquarters'
approval, districts were instructed to fully fund contracts when, among
other things, they had sufficient funds. Districts were also instructed to
stop contractors from working on a contract once fiscal year 2006
appropriations had been spent. However, the Corps did not establish
criteria for when it was appropriate to use continuing contracts.
Consequently, we determined that, despite the implementation of the new
processes, Corps headquarters received requests for and approved the use
of continuing contracts for short-term, low dollar value contracts. For
example, in fiscal year 2005, even with the new processes and guidance in
place, headquarters approved 38 of 141 requests for continuing contracts
that were valued at below $10 million and that required less than 12
calendar months to complete, including 3 requests that were for contracts
valued at less than $500,000. Similarly, for the first 6 months of fiscal
year 2006, of the 17 continuing contract requests approved by
headquarters, 2 approvals were for work valued at below $10 million and
required less than 12 calendar months to complete.

We are making recommendations that the Secretary of Defense direct the
Commanding General and Chief of Engineers of the U.S. Army Corps of
Engineers to eliminate the routine use of continuing contracts, establish
meaningful criteria for the use of such contracts, and monitor the Corps'
use of these contracts. In commenting on a draft of this report, the
Department of Defense stated that it was a constructive report and
concurred with our recommendations.

                                   Background

The Corps' Civil Works program is responsible for planning, developing,
and maintaining the nation's water and related environmental resources.
The Corps' headquarters is in Washington D.C.; eight regional divisions
and 38 districts carry out its domestic civil works responsibilities.

Each year the Corps' Civil Works program receives funding through the
Energy and Water Development Appropriations Act. The act normally
appropriates a sum for water resources projects to several different
appropriations accounts, including construction; operation and
maintenance; and flood control, Mississippi River and tributaries. The
construction account finances construction and major rehabilitation
projects that relate to navigation, flood control, water supply,
hydroelectric power, and environmental restoration. The operation and
maintenance account finances the preservation, operation, maintenance, and
care of existing river and harbor, flood-control, and related activities
at the projects that the Corps operates and maintains. The flood control,
Mississippi River and tributaries account provides flood protection for
the alluvial valley of the Mississippi River from Cape Girardeau,
Missouri, to the Head of Passes, Louisiana; and improvement of the
Mississippi River for navigation from Cairo, Illinois, to Baton Rouge,
Louisiana. Table 1 shows the appropriations received in fiscal years
2003-2005 for these accounts.

Table 1: Fiscal Years 2003-2005 Appropriations

Dollars in thousands                                      
                           Fiscal year 2003 Fiscal year 2004 Fiscal year 2005 
Appropriations account  budget authority budget authority budget authority 
Construction                  $1,756,012       $1,722,319       $1,796,089 
Operation and                                                              
maintenance                    1,940,167        1,967,925        1,959,101
Flood control,                                                             
Mississippi River and                                     
tributaries                      344,574          324,222          324,500
Total                         $4,040,753       $4,014,466       $4,079,690 

Sources: Fiscal years 2003, 2004, and 2005 Energy and Water Development
Appropriations Acts.

The conference report accompanying the Energy and Water Development
Appropriations Act generally lists individual projects and designates
amounts for each project.5 Through this report, the appropriations
committees essentially establish their priorities for the Corps' water
resources projects. In recent years, Congress has appropriated less
funding than the sum of the amounts designated to individual projects in
the conference report. Districts are responsible for executing projects.

The Corps receives "no year" appropriations that remain available until
spent. As part of the budget process, the Corps has historically requested
appropriations from Congress to cover only those contract payments
expected to be made in the upcoming fiscal year; it generally has not
requested appropriations to fully fund its Civil Works contracts.
According to the Corps, to comply with congressional direction that the
agency give careful consideration to the disposition of appropriated funds
to ensure that they are applied effectively, and that the agency
effectively move (reprogram) funds from projects that are not moving
forward, the Corps developed policies and business practices to expend all
available appropriations in the fiscal year appropriated and thereby
minimize carrying appropriated funds over to following years. In fiscal
year 2006, again in response to changing congressional direction in the
Energy and Water Development Appropriations Act and the accompanying
conference report, the Corps modified its program execution process to
focus on expending funds only on the projects for which they were
specified, even if the appropriated funds could not be completely expended
in the fiscal year, and minimizing reprogramming unless it was absolutely
essential.6 Consequently, a higher level of carry-over balances is
anticipated starting in fiscal year 2006. The Corps has also stated that
it will begin requesting sufficient appropriations to fully fund most
contracts beginning in fiscal year 2008.

5Nonfederal sponsors (state, tribal, county, and local agencies) generally
share the costs for a project with the Corps and provide, among other
things, financial contributions, to complete the work.

The Corps primarily uses fixed-price and indefinite-delivery contracts to
complete its work. Fixed-price contracts are awarded for a specific price,
regardless of the final cost to the contractor. If the contract is
completed for less than the fixed price, the contractor benefits from
greater profits; if the costs exceed the fixed price, then the contractor
bears the loss. Indefinite-delivery contracts allow the Corps to obtain
services or supplies through multiple task or delivery orders, as needed,
to carry out project construction, and operation and maintenance
activities.

History of the Corps' Continuing Contracts Authority

Starting with the River and Harbor Act of 1892 and continuing
intermittently through the River and Harbor Act of 1916, Congress gave the
Corps authorization to enter into contracts to complete a limited number
of projects even though the Corps did not have appropriations to cover the
full contract amounts. In 1922, the Corps sought and received from
Congress permanent authority to enter into these types of "continuing
contracts." The River and Harbor Act of 1922 gave the Corps authority to
use continuing contracts for specifically authorized projects on canals,
rivers, and harbors.

When the Corps sought its 1922 authority to use continuing contracts, it
stated that this authority would enable it to enter into contracts that
exceeded the amount of funding that had been appropriated. At that time,
the Corps noted that the continuing contract option would be advantageous
for some projects-such as a lock and dam project that required several
million dollars and 3 to 4 years to complete-because it would help avoid
tying up appropriations over a long period of time and carrying large sums
of unexpended appropriations for several years. The Corps also noted that
awarding contracts with a larger scope of work that covered several years
would help encourage active competition among contractors.

6The changes to the Corps' program execution process are in the Corps'
December 2005 Engineering Circular 11-2-189.

Since 1922, the Corps has used its continuing contracts authority to
varying degrees for different types of projects and activities. In recent
years, Congress has provided both guidance and specific direction to the
Corps on how to use continuing contracts. These include the following:

           o  The Water Resources Development Act of 1999. Congress broadened
           the types of projects and work covered by the Corps' continuing
           contracts authority. Specifically, it directed the Corps to award
           continuing contracts if sufficient funding was not available to
           complete a project funded from the construction; operation and
           maintenance; or flood control, Mississippi River and tributaries
           appropriations accounts.
           o  The Energy and Water Development Appropriations Act of 2004.
           Congress included a provision, not limited to fiscal year 2004, to
           also allow the use of continuing contracts for those contracts
           that were funded from the investigations appropriations account.
           The investigations account is used to collect and study basic
           information for, among other things, river and harbor and flood
           control activities; miscellaneous investigations; and surveys and
           detailed studies for projects before construction.
           o  The committee report accompanying the Corps' fiscal year 2005
           appropriations. The conference committee expressed concern about
           the Corps' use of continuing contracts and noted that continuing
           contracts are to allow the Corps to award large construction
           elements of a project and take advantage of the economies of scale
           and allow these large elements to be efficiently managed over
           several years.
           o  The Energy and Water Development Appropriations Act of 2006.
           Congress included a provision that modifies the types of projects
           and work for which the Corps is required to use a continuing
           contract. The provision, not limited to fiscal year 2006, states
           that the requirements regarding the use of continuing contracts in
           the Water Resources Development Act of 1999 shall apply only to
           projects funded from the operation and maintenance account and the
           operation and maintenance subaccount of the Mississippi River and
           tributaries account. The 2006 act also prohibits the Corps from
           entering into a continuing contract or modifying an existing
           contract that commits an amount for a project "in excess of the
           amount appropriated for such project pursuant to this act."

           The Corps' continuing contracts contain either a "basic clause" or
           an "alternate clause." Districts may only use the basic continuing
           contracts clause for those contracts awarded for congressionally
           authorized Civil Works water resources projects, which are
           typically authorized in a Water Resources Development Act. The
           alternate clause can be used for projects that are not
           specifically authorized, but are covered by the Continuing
           Authorities Program.7 The Corps' continuing contracts authority
           applies to specific types of projects, which do not include
           water-related environmental infrastructure and resource
           development projects, such as wastewater treatment, water supply,
           storm water retention and remediation, environmental restoration,
           and surface water resource protection and development. Districts
           historically made the decision to use continuing contracts without
           oversight from the division or Corps headquarters.

           In our prior reports on governmentwide funding practices, we have
           observed that full funding for capital asset acquisitions is the
           best way to ensure that all financial decisions are fully
           accounted for and recognized as part of the budget process, and
           that full funding also helps ensure that governmentwide fiscal
           control is maintained.8 Unlike a project started with a partially
           funded continuing contract, an agency receives budget authority
           for the project's full estimated costs before a commitment is made
           for a fully funded capital project. Otherwise, distortions in
           resource allocations can result when the full costs of the
           commitments are not recognized at the time budget decisions are
           made.

           The Corps Cannot Accurately Identify How Many Continuing Contracts
			  It Has Awarded because It Does Not Track These Contracts
			  
			  The Corps does not track information on the number of contracts
           that it awards with a continuing contracts clause; therefore, it
           could not identify the number or the dollar value of such
           contracts awarded in fiscal years 2003-2005. Because the Corps
           does not track its use of continuing contracts, the quarterly
           reports it submitted to the appropriations committees in fiscal
           year 2006, on the use of such contracts, were inaccurate. We
           independently identified the number of continuing contracts
           awarded by the Corps in fiscal years 2003-2005 by reviewing the
           agency's contracting data, and we determined that 1,592 (about 10
           percent) of all contracts awarded during this 3-year period most
           likely included and used a continuing contracts clause. These
           1,592 contracts accounted for more than 60 percent of the Corps'
           annual obligations for new contracts awarded during these 3 years.

           The Corps Does Not Track Its Use of Continuing Contracts
			  
			  The Corps does not systematically track the extent to which it
           uses a continuing contracts clause, and could not provide reliable
           information on the number of continuing contracts awarded in
           fiscal years 2003-2005 or the dollar value of these contracts.
           Moreover, according to Corps officials, nearly all multi-year
           contracts awarded by the Corps prior to fiscal year 2005 routinely
           included a continuing contracts clause, and the agency had no
           requirement for districts to track when this clause was actually
           used.

           In fiscal years 2005 and 2006, the conference committees, in the
           reports accompanying the Corps' appropriation acts, directed the
           Corps to monitor its use of continuing contracts. The Corps was
           also directed to provide the appropriations committees with a
           quarterly report on the agency's use of such contracts, starting
           in fiscal year 2006. Because the Corps does not have a tracking
           system for continuing contracts, it gathered the information
           submitted in the two quarterly reports for fiscal year 2006 by
           asking each division to provide information on their existing
           continuing contracts and expected obligations for the federal
           costs associated with these contracts. We reviewed these two
           quarterly reports and determined that they included inaccurate
           information. For example, we found at least 13 continuing
           contracts that were missing from the reports sent to the
           committees, and we found wrong contract values (the expected total
           costs for a contractor to complete the work) listed for 10
           contracts.

           Continuing Contracts Most Likely Accounted for About 10 Percent of
			  All Contracts Awarded by the Corps in Fiscal Years 2003ï¿½2005
			  
			  Our analysis of the Corps' contracting data indicates that the
           Corps awarded 16,532 fixed-price and indefinite-delivery contracts
           (both construction contracts and operation and maintenance
           contracts) during fiscal years 2003-2005.9 According to Corps
           officials, the agency included a continuing contracts clause in
           most of its multi-year contracts. However, most of the 16,532
           contracts were fully funded and, therefore, would not have needed
           to use a continuing contracts clause even if it was included in
           the contract.10 We found 1,592 of the 16,532 contracts (about 10
           percent) were partially funded contracts at award and, therefore,
           most likely would have included and used a continuing contracts
           clause. The 1,592 contracts included 402 contracts that were
           partially funded at award but were fully funded by the end of the
           first fiscal year.11 The 1,592 contracts accounted for more than
           60 percent of the Corps' annual obligations for new contracts
           awarded during these 3 years.12 The full costs to the federal
           government of the 1,592 contracts were more than $3.96 billion at
           award. However, the Corps only obligated $655 million to current
           appropriations when these contracts were awarded; the outstanding
           commitment at the time of award was about $3.30 billion, and the
           Corps expects to obligate this amount to subsequent years'
           appropriations. Table 2 summarizes the total number and full costs
           to the federal government of continuing contracts awarded during
           fiscal years 2003-2005.

7Continuing Authorities Program projects, such as beach erosion,
navigation, and flood control activities, generally do not receive
specific congressional authorization or appropriations and are conducted
at the Corps' discretion based on the availability of funds.

8These governmentwide reports include: Budget Issues: Alternative
Approaches to Finance Federal Capital, GAO-03-1011 (Washington, D.C.: Aug.
21, 2003); Executive Guide: Leading Practices in Capital Decision-Making,
GAO/AIMD-99-32 (Washington, D.C.: Dec. 1998); and Budget Issues: Budgeting
for Federal Capital, GAO/AIMD-97-5 (Washington, D.C.: Nov. 12, 1996).

The Corps Cannot Accurately Identify How Many Continuing Contracts It Has
               Awarded because It Does Not Track These Contracts

The Corps Does Not Track Its Use of Continuing Contracts

Continuing Contracts Most Likely Accounted for About 10 Percent of All Contracts
Awarded by the Corps in Fiscal Years 2003-2005

9We analyzed the Corps' contracting data contained in the Army's Standard
Procurement System database. For more information on the methodology for
our analysis, see appendix I.

10These fully funded contracts ranged from as small as $1 to as large as
$49 million at award, with a median value of $17,894.

11About half of these contracts were awarded in the first fiscal quarter
while the Corps was under a continuing budget resolution authority; its
final appropriation was not known at the time of this report.

12The Corps' annual $4 billion budget includes appropriations for both new
and on-going contracts.

Table 2: Total Number and Full Costs to the Federal Government of
Continuing Contracts, Fiscal Years 2003-2005

                                   Fiscal year                 
                              2003          2004          2005          Total 
Number of                   669           583           340          1,592 
continuing                                                  
contracts                                                   
Full costs to    $1,098,599,154 1,703,122,079 1,154,337,793 $3,956,059,026 
federal                                                     
government at                                               
award                                                       
Obligations at     $201,528,606   213,814,098   240,013,268   $655,355,972 
award                                                       
Outstanding        $897,070,548 1,489,307,981   914,324,525 $3,300,703,054 
commitment at                                               
award                                                       

Source: GAO analysis of Corps contracting data.

Other characteristics that we identified for these 1,592 continuing
contracts included the following:

           o  All 38 districts used at least one continuing contract during
           fiscal years 2003-2005. Five districts-Jacksonville, Vicksburg,
           Memphis, Walla Walla, and Portland-awarded only about 2.8 percent
           of the total number of contracts for this time period, but
           accounted for about 30 percent of the continuing contracts.
           o  About 65 percent of the continuing contracts were valued at $1
           million or less; 26 percent were valued at between $1 million and
           $5 million; 5 percent were valued between $5 million and $10
           million; and 4 percent were valued at more than $10 million.
           o  Several appropriations accounts funded these continuing
           contracts.13 About 54 percent of the obligations were from the
           construction account; 25 percent from the operation and
           maintenance account; 7 percent from the flood control, Mississippi
           River and tributaries account; 9 percent from the Inland Waterway
           Trust Fund; and 6 percent from other accounts.14 
           o  When contractors continue to work even after appropriations are
           not available, the Corps is committed to pay all of the
           outstanding costs incurred by the contractor and any interest that
           may have accrued on these outstanding balances. The Corps could
           not provide data on the interest it paid in fiscal year 2003 for
           these continuing contracts, but for fiscal years 2004 and 2005,
           the Corps paid about $497,000 and $288,000 in interest payments,
           respectively. Monthly interest payments on these contracts ranged
           from about $1 to more than $76,000 for individual districts.
           o  Continuing contracts were generally used more often for
           fixed-price contracts than for indefinite-delivery contracts.
           About 50 percent of fixed-price contracts were continuing
           contracts, compared to only about 5 percent of indefinite-delivery
           contracts. The full costs to the federal government of fixed-price
           continuing contracts ranged from about $21,000 to more than $564
           million, while indefinite-delivery continuing contracts ranged
           from as small as $12,000 to more than $22.5 million. The median
           dollar value of all 1,592 continuing contracts was about $440,000;
           the median value of the fixed-price continuing contracts was about
           $1.2 million; and the median value of the indefinite-delivery
           continuing contracts was about $147,000.

           Appendix II provides more information on the characteristics of
           the continuing contracts that we identified for fiscal years
           2003-2005.

           Prior to 2005, the Corps Routinely Included a Continuing Contracts
			  Clause in Most Contracts
			  
			  The Corps' routine practice was to include a continuing contracts
           clause in most of the contracts it awarded during fiscal years
           2003-2005. According to the Corps, this occurred, in part, because
           a provision of the Water Resources Development Act of 1999
           requires the agency to use continuing contracts for certain
           projects if sufficient funding is not available to complete the
           project. The Corps interpreted this provision to mean that, if
           sufficient funds were not available to complete the entire
           project, then all contracts associated with the project must be
           continuing contracts. The Corps' interpretation of this provision
           resulted, in our opinion, in the overuse of the continuing
           contracts authority because the provision does not require all
           contracts awarded for a given project to be continuing contracts.
           The Corps might have been able to fully fund some short-term, low
           dollar value contracts if, at the time of award, the Corps had
           adequate appropriations to cover the contract amount.15 Moreover,
           the Corps relied on its use of continuing contracts to help meet
           its policy of not carrying over unexpended appropriations into
           future fiscal years. By routinely including a continuing contracts
           clause into all of its contracts, the Corps could more easily move
           funds among contracts at the end of the year. Appropriations that
           could not be expended on a contract would be obligated to a
           contract that could expend the funds. In addition, districts cited
           a variety of other reasons for a large number of continuing
           contracts being awarded at the end of the fiscal year.

           In the late 1990s, large carry-over amounts of unexpended Corps
           appropriations at the end of each fiscal year became a concern to
           Congress. Through a provision of the Water Resources Development
           Act of 1999, Congress instructed the Corps to use continuing
           contracts for certain water resources projects if sufficient
           funding was not available to complete the project-in effect, this
           made permanent the direction that the appropriations committees
           had given to the Corps for a number of years through fiscal year
           1998. As a result, the Corps implemented policies designed to
           maximize expenditures from all available appropriations in the
           year appropriated. These policies, in turn, encouraged the Corps'
           use of continuing contracts to ensure that only the appropriations
           required for expenditure in a given year were obligated on the
           contract.

           However, we believe that the Corps' implementation of the 1999 law
           has resulted in an overuse of the continuing contracts authority
           and the frequent awarding of continuing contracts for short-term,
           low dollar value contracts.16 The Corps might have been able to
           fully fund some of these contracts if, at the time of award, the
           Corps had adequate appropriations to cover the contract amount.
           For example, for the 107 randomly selected continuing contracts
           awarded in fiscal years 2003-2005 that we reviewed, we found only
           8 continuing contracts that were valued at more than $10 million
           dollars and involved contracted work that required more than 12
           calendar months to complete. In contrast, many of the 107
           continuing contracts we reviewed were short-term and/or low dollar
           value contracts. For example, we found that, 39 continuing
           contracts were for work that lasted 6 months or less; 34
           continuing contracts had a contract value of less than $1 million;
           and 10 continuing contracts had a contract value of less than $1
           million and included work that took less than 6 months to
           complete.17 Some specific examples of the kinds of short-term, low
           dollar value continuing contracts we identified were:

           o  The Jacksonville district used a continuing contract to
           partially fund a $695,285 contract that required 90 days to
           complete.
           o  The Galveston district used a continuing contract for an
           $868,812 contract that required 30 days to complete. The district
           awarded the contract on September 29, 2004, and did not give the
           contractor permission to begin the work until the next fiscal year
           on November 1, 2004. Therefore, the contracted work was actually
           completed in one fiscal year and was not a multi-year contract.
           o  The Vicksburg district used a continuing contract for a
           $102,051 contract that required 195 days to complete. Because the
           contract spanned more than one fiscal year, the Corps considered
           this a multi-year contract that justified the use of a continuing
           contract, even though the contract required less than 7 months to
           complete and had a relatively low dollar amount.

           Table 3 summarizes the full contract costs and length of time
           needed to complete contracted work for the 107 randomly selected
           continuing contracts we reviewed.

13The Corps may fund a continuing contract from more than one
appropriations account.

14These accounts include, among others, the investigations, flood control
and coastal emergencies, revolving funds, and regulatory programs
accounts.

  Prior to 2005, the Corps Routinely Included a Continuing Contracts Clause in
                                 Most Contracts

15For example, one district awarded a continuing contract for $14,614 in
April 2003 and only obligated $6,739 to that fiscal year's appropriations.
The district subsequently awarded 38 more continuing contracts in that
fiscal year and obligated over $9.7 million to these contracts. We believe
the district could likely have obligated the remaining $7,875 to the April
2003 contract from this $9.7 million.

16For the purposes of this report low dollar value is a contract that is
for less than $10 million.

17Although not included in the 107 contracts, we found that-in addition to
construction, and operation and maintenance work-continuing contracts were
also used for service contracts, such as archaeological work, marine
benthic surveys, and a purchase order for the operation of a visitor's
center. Generally, these additional contracts were valued at less than
$500,000.

Table 3: Total Number of the 107 Randomly Selected Continuing Contracts
Awarded in Fiscal Years 2003-2005 by the Full Contract Costs and Number of
Months to Complete the Contracted Work

                                   Contract value at award
                                 From $1       From $5                        
Number of                  million to    million to More than              
months to      Less than less than $5 less than $10       $10 Total number
complete work $1 million      million       million   million of contracts
Six or less           10           26             3         0           39 
Between 6 and         16           12             2         0           30 
12                                                            
Between 12             3            6             4         4           17 
and 24                                                        
Greater than           1            0             0         4            5 
24                                                            
Unknown                4            9             2         1           16 
Total                 34           53            11         9          107 

Source: GAO analysis of Corps contracting data from randomly selected
continuing contract files.

Note: These costs include both the federal government and nonfederal
sponsor's share of the contract costs.

The Corps also routinely included a continuing contracts clause in its
contracts to help meet its policy of expending all available
appropriations in the fiscal year appropriated, and to minimize carrying
over unexpended appropriations into the next fiscal year. According to the
Corps, it allocates appropriations to projects at the beginning of the
fiscal year. The only way to reallocate appropriations to avoid carryover
is through reprogramming. Reprogramming provides the Corps with the
flexibility to move excess funds from projects that are behind schedule to
projects that may be able to use the funds because they are ahead of
schedule. Generally, federal agencies are required to fully fund contracts
at the time of award. The Corps would not have been able to easily move
the funds from a contract unless it included a continuing contracts
clause. According to agency officials, the Corps has had a standard
practice to include a continuing contracts clause in most contracts as a
precaution in the event that it might need to move funds from a project at
a later date in the fiscal year to meet the agency's policy of expending
all available appropriations in the fiscal year appropriated.

As we reported in 2005, the Corps had come to rely excessively on
reprogramming as its primary method to manage Civil Works project funds,
with little consideration to pending needs or long-term financial planning
and priority-setting.18 In our 2005 report, we identified numerous
instances where the Corps' policy of expending all available
appropriations in the fiscal year appropriated had resulted in
reprogramming actions that were inconsistent with the Corps' reprogramming
guidance. Similarly, during this review of the Corps' use of continuing
contracts, we found a number of instances where the Corps used its
continuing contracts authority primarily to reprogram funds in furtherance
of the agency's policy of expending all available appropriations in the
fiscal year appropriated. For example, in some cases, we found that the
Corps included a continuing contracts clause even in contracts that had
been fully funded at the time of award, in case it needed to reprogram
funds sometime later during the year from these contracts. In some other
cases, according to Corps district officials, we found that the Corps
modified fully funded contracts and converted them into continuing
contracts so that obligations could be reprogrammed from these contracts.
In addition, other continuing contracts were awarded in a manner that was
inconsistent with the Corps' own guidance for the use of continuing
contracts, but which allowed the agency to award end-of-year contracts and
not carry over any end-of-year balances. A continuing contracts clause
should identify the portion of the contract value that the Corps will
reserve for the contract for the first fiscal year. However, we found four
contracts that were awarded at the end of the fiscal year where the
district initially obligated $50,000 to each of the contracts, but
deobligated the entire $50,000 from each contract within 1 day. These
actions helped the Corps meets its policy of expending all available
appropriations in the fiscal year appropriated by allowing the money to be
spent on other contracts.

A variety of other factors may also lead to the award of many continuing
contracts late in the fiscal year.19 According to district officials, it
is not uncommon for a continuing contract to be awarded late in the fiscal
year in situations where (1) the district commander committed to awarding
the contract in that fiscal year, (2) the district had agreements with the
nonfederal sponsor that certain contracts would be awarded in that fiscal
year, or (3) the district ran out of money to fully fund a contract. Of
the 107 contracts we reviewed, over half of these (58) were awarded in the
fourth quarter of the fiscal year. Of these, 27 were awarded in September,
the last month of the fiscal year, and 15 of the 27 September contracts
were awarded in the last week of the fiscal year. Because the Corps only
obligated a small portion of the total contract amount to these contracts
in the year that they were awarded, the bulk of the funds needed to cover
most of the contracts had to come from future years' appropriations.

18For additional information on the Corps' use of reprogramming, see GAO,
Army Corps of Engineers: Improved Planning and Financial Management Should
Replace Reliance on Reprogramming Actions to Manage Project Funds,
GAO-05-946 (Washington, D.C.: Sept. 16, 2005).

19In addition, Corps officials said that environmental windows to protect,
among others, sea turtles, can cause continuing contracts to be awarded
late in the year to ensure that dredging work begins at the start of the
next fiscal year.

  The Corps' Revised Processes for Approving Continuing Contracts Has Reduced
    Their Use, but It Still Lacks Criteria for When Their Use Is Appropriate

In fiscal year 2005 and again in 2006, in response to congressional
committee direction, the Corps implemented new processes that require
districts to, among other things, obtain headquarters' approval before
using continuing contracts. The new processes have reduced the total
number of continuing contracts the Corps awarded in fiscal years 2005 and
2006. However, the Corps has not established clear criteria for when it is
appropriate to request and approve the use of continuing contracts. As a
result, headquarters continues to receive and approve continuing contracts
for short-term, low dollar value contracts. The Corps might have been able
to fully fund some of these contracts if, at the time of award, the Corps
had adequate appropriations to cover the contract amount.

Fiscal Year 2005 Process Changes for Approving Continuing Contracts

Congressional committee direction contained in the conference report to
the Consolidated Appropriations Act of 2005 required the Corps to monitor
its use of continuing contracts and stated that the award of such
contracts should be guided by responsible financial management practices.
Further, according to Corps officials, based on their discussions with the
House Subcommittee on Energy and Water Development, the Corps created a
new process that required districts to obtain headquarters' approval
before using continuing contracts. Corps headquarters' primary criterion
for approving a request to use a continuing contract was whether or not
the project was likely to receive appropriations in the next fiscal year.
The first continuing contracts were approved using this criterion on March
30, 2005. In June 2005, the Corps documented this change in procedure by
issuing an interim policy guidance memorandum. The guidance stated that
headquarters' approval was required for all continuing contracts, and that
districts should seek to fully fund contracts whenever possible. The
guidance also established criteria for the kinds of situations in which a
contract should generally be fully funded. These situations include the
following:

           o  when the contract will span 2 fiscal years but will begin or
           end a short amount of time before or after a fiscal year, and
           sufficient appropriations can be made available to fully fund the
           contract without adversely affecting progress on other projects or
           prior reprogramming commitments;
           o  when the contract will span 2 fiscal years but requires only a
           small amount of funding in the first or last fiscal year, and
           sufficient appropriations can be made available to fully fund the
           contract without adversely affecting progress on other projects or
           prior reprogramming commitments;
           o  when future allocations of appropriated funds in amounts needed
           to support a continuing contract are unlikely, and appropriations
           already allocated for the project could be used to fully fund the
           contract; and
           o  for all, or portions of, Continuing Authorities Program
           projects.20

           Unlike in the past when no oversight was provided to the
           districts' use of continuing contracts, Corps officials told us
           the new fiscal year 2005 process for approving and using
           continuing contracts involved all levels of the agency-the
           district, division, and headquarters. The districts were required
           to submit written requests to their divisions if they were seeking
           approval to use continuing contracts. The requests were to include
           a discussion of alternative contracting options, whether the
           project would be budgeted for in subsequent fiscal years, the
           likelihood of the project receiving appropriations in subsequent
           fiscal years, and whether the needs identified in subsequent
           fiscal years' appropriations were reasonable given the Corps'
           budget environment. After the division reviewed the districts'
           request, the division either denied the request or forwarded it to
           headquarters. If the division denied the request, it might have
           suggested that the district provide additional information to
           support the request, fully fund the work, use an alternate
           contracting option, or wait until the next fiscal year to proceed
           with the work. Under the 2005 process, requests forwarded to
           headquarters for review were approved, withdrawn by the division,
           sent back to the division for more information, or denied.

           Fiscal Year 2006 Process Changes for Continuing Contracts
			  
			  For fiscal year 2006, Congress provided additional direction to
           the Corps in the Energy and Water Development Appropriations Act
           of 2006. The law states that, (1) with certain exceptions, none of
           the funds made available in the act may be used to award any
           continuing contract or make modifications to any existing
           continuing contract that commits an amount for a project in excess
           of the amount appropriated for the project; and (2)
           notwithstanding any other provision of the law, the requirements
           regarding the use of continuing contracts under the Water
           Resources Development Act of 1999 shall apply only to projects
           funded under the operation and maintenance account and the
           operation and maintenance subaccount of the flood control,
           Mississippi River and tributaries account. To respond to these new
           congressional requirements, in December 2005, the Corps issued
           additional guidance that is effective through the end of fiscal
           year 2006, which, among other things:21

           o  reaffirmed its policy that districts should use fully funded
           contracts as their primary contracting option;
           o  directed that continuing contracts should only be used as the
           contracting option of last resort;
           o  summarized new information that the districts are required to
           provide in their requests to use continuing contracts, including
           an explanation on why using a continuing contract is in the best
           interest of the government; and
           o  directed districts to take measures to ensure that contractor
           costs generally do not exceed the amount appropriated for projects
           in fiscal year 2006.

           The Corps also continued to make additional policy changes in
           fiscal year 2006 to better manage the use of continuing contracts
           in response to the Energy and Water Development Appropriations Act
           of 2006. For example, in March 2006, to help districts comply with
           the requirement that contractors stop working on a contract once
           appropriations for the fiscal year were spent, Corps headquarters
           developed two new continuing contracts clauses.22 Corps
           headquarters directed districts to replace the existing continuing
           contracts clause with either one of two new continuing contracts
           clauses for most continuing contracts. These new clauses do not
           permit the contractor to work beyond the amount obligated in the
           contract for that year. Under the previous continuing contracts
           clause the contractor could continue working on the contract,
           which required the Corps to either reprogram funds or to make
           payments from the next fiscal year's funds when they were
           appropriated. By requiring the contractor to stop work once all
           reserved funds for a given project are spent, the Corps is
           effectively reasserting control in determining how future
           appropriations will be spent for specific contracts.

           The conference report accompanying the Energy and Water
           Development Appropriations Act of 2006 also specified that the
           Assistant Secretary of the Army for Civil Works would be
           responsible for approving the award of each continuing contract.
           According to the Corps, to simplify the administration of this
           provision, the Assistant Secretary of the Army for Civil Works,
           after coordination with the House and Senate Subcommittees for
           energy and water development appropriations, issued a memorandum
           in March 2006 pre-approving continuing contracts that met certain
           conditions for operation and maintenance work. These conditions
           include, among other things, being financed from the operation and
           maintenance account or the maintenance subaccount of the
           Mississippi River and tributaries account, and that districts have
           determined that using a continuing contract is the most
           cost-effective acquisition mechanism. In May 2006, the Corps
           delegated, to the divisions and districts, the authority to
           determine whether operation and maintenance contracts meet the
           conditions for pre-approval. As a consequence, Corps headquarters
           is no longer directly involved in the approval of these new
           operation and maintenance continuing contracts. Because these
           changes are relatively recent, it is too early to determine the
           effect that they will have on the districts' use of continuing
           contracts for operation and maintenance work.

           Process Changes Have Reduced the Number of Continuing Contracts,
			  but Approvals Continue for Short-Term, Low Dollar Value Contracts
			  
			  The Corps process changes in fiscal years 2005 and 2006 reduced
           the number of requests districts made to use continuing contracts.
           In fiscal year 2005, headquarters approved 141 requests during the
           6 months that the new procedures were in place (March 30 through
           September 30, 2005),23 but only 17 requests were approved during
           the first 6 months of fiscal year 2006 (October 1, 2005, through
           March 30, 2006). According to the Corps, the process changes that
           were made in response to discussions with the House Subcommittee
           on Energy and Water Development and the enactment of the Energy
           and Water Development Appropriations Act of 2006 were key in
           reducing the use of continuing contracts.

           Between March 30, 2005 (when the new approval process was
           implemented), and March 30, 2006, Corps headquarters approved most
           of the continuing contract requests that it received. The
           divisions received 180 requests from the districts, 175 of which
           were forwarded to headquarters for approval and 5 of which were
           denied.24 Of the 175 requests forwarded to headquarters for
           approval, 10 were withdrawn by the divisions prior to receiving
           approval.25 Headquarters approved 158 of the 165 requests it
           considered and denied 7 of them. The seven requests were denied
           primarily because they did not identify subsequent years' funding
           in their requests. The districts ultimately fully funded five of
           the seven requests that were denied. Table 4 summarizes
           headquarters' reasons for denying the seven requests and how the
           districts proceeded with the work after the denial.

20Continuing Authorities Program projects are conducted at the Corps'
discretion based on the availability of funds and generally do not receive
specific congressional authorization or appropriations. These projects
include activities for beach erosion, navigation, and flood control.

Fiscal Year 2006 Process Changes for Continuing Contracts

21The Corps issued this guidance in its Engineering Circular 11-2-189.

22The Corps issued this guidance in Principal Assistant Responsible for
Contracting Instruction letter 2006-05, Continuing Contracts and
Incrementally Funded Contracts for Fiscal Year 2006.

Process Changes Have Reduced the Number of Continuing Contracts, but Approvals
Continue for Short-Term, Low Dollar Value Contracts

23Districts may not have proceeded with a continuing contract for all of
the requests that were approved by headquarters because, in some
instances, the districts chose not to.

24Divisions used the following reasons for denying the requests: fiscal
year 2005 appropriations were insufficient to cover the contractor's
expenses, the contract could be fully funded, there were problems with the
cost estimate, and the contract was for an environmental infrastructure
project (which must be fully funded, according to Corps guidance).

25Divisions withdrew these requests, primarily because the work could be
fully funded or because there was uncertainty about appropriations.

Table 4: Headquarters' Reasons for Denying Seven Requests to Use a
Continuing Contract and How Districts Proceeded with the Work

                                                      Action taken to proceed with
                     Reason for denial                          the work
                   Contract              Contracted                        Contract  
                   did not    Contract      work               District   will use a 
         Contract  identify    not in    cannot use  Contract  assessing     new     
         could be subsequent president's     a         was     alternate  continuing 
          fully     years'   fiscal year continuing   fully   contracting contracts  
Contract  funded   funding   2007 budget  contract    funded    options     clause   
1           X                                           X                 
2           X                                           X                 
3                     X                                 X                 
4                     X                                 X                 
5                     X                                                       X      
6                                 X                                X      
7                                            Xa         X                 

Source: GAO analysis of Corps information.

aThis contract was for an environmental infrastructure project, which
cannot use a continuing contract.

Although the Corps' revised approval processes reduced the number of
continuing contracts districts used, they have not adequately addressed
when the use of continuing contracts is appropriate. This is because the
Corps' revised guidance established the situations in which districts
should consider fully funding contracts, but did not establish similar
criteria for when to use continuing contracts. Consequently, even with the
new process changes, districts requested and headquarters approved the use
of continuing contracts for contracted work that is of short term and has
a low dollar value. The Corps believes that these requests demonstrated a
strong business case for using a continuing contract;26 however, we
believe that the Corps might have been able to fully fund some of these
contracts if, at the time of award, the Corps had adequate appropriations
to cover the contract amount.

Moreover, under the new processes, in fiscal year 2005, Corps
headquarters' primary criterion for approving a request to use a
continuing contract was whether or not the project was likely to receive
appropriations in the next fiscal year. If headquarters determined that
there was little likelihood of the project receiving future years'
appropriations it would generally deny the request for a continuing
contract. By focusing its review on just this criterion, the Corps did not
address factors such as length of work and dollar value of the contract,
which we believe are also important factors to consider when justifying
the need to use a continuing contract. Of the 141 requests approved by
headquarters between March 30 through September 30, 2005, only 24 (about
17 percent) were for contracts valued at more than $10 million and that
required more than 12 calendar months to complete. In contrast,
headquarters approved 38 of 141 requests (almost 27 percent) for contracts
valued at less than $10 million and that required less than 12 calendar
months to complete, and included 3 requests that were for contracts for
less than $500,000. Table 5 summarizes information on the requests
approved in fiscal year 2005.

26The Corps also noted there could be some cases in which a continuing
contract may be required, such as when a nonfederal sponsor, i.e., the
local community, could not afford to match federal funds under the
lump-sum approach.

Table 5: Total Number of Approved Requests to Use a Continuing Contract in
Fiscal Year 2005

                                  Contract value at awarda
Number of                 From $1      From $5                       Total 
months to              million to   million to More than         number of 
complete     Less than  less than    less than       $10          approved 
work        $1 million $5 million  $10 million   million Unknown  requests 
Six or less          2         14            1         1       0        18 
Between 6            5         15            1         2       0        23 
and 12                                                           
Between 12           1         14            5         5       0        25 
and 24                                                           
Greater              0         10            9        19       1        39 
than 24                                                          
Unknown              8         23            5         0       0        36 
Total               16         76           21        27       1       141 

Source: GAO analysis of Corps information.

Note: Fiscal year 2005 requests include those approved during the period
March 30 through September 30, 2005.

aThe contract value generally includes only the federal government's
costs, except for those requests that did not distinguish between the
federal government and a nonfederal sponsor's share of the costs.

In fiscal year 2006, the Corps further revised headquarters' criteria for
approving continuing contract requests (or for recommending approval by
the Assistant Secretary, pursuant to the conference report guidance);
however, these changes also did not address our concern about approving
short-term, low dollar value continuing contracts. As a result, the Corps
and the Assistant Secretary continued to approve such contracts as
continuing contracts in fiscal year 2006. Of the 17 requests approved by
headquarters in fiscal year 2006 (as of March 30, 2006), only 4 of the
requests (about 24 percent) were for contracted work that required more
than $10 million and more than 12 calendar months to complete; 2 approved
continuing contract requests were for short-term, low dollar value
requests. Table 6 summarizes information on the requests approved for
fiscal year 2006, as of March 30, 2006.

Table 6: Total Number of Approved Requests to Use a Continuing Contract in
Fiscal Year 2006

                                  Contract value at awarda
Number of                  From $1     From $5                       Total 
months to               million to  million to More than         number of 
complete     Less than less than$5   less than       $10          approved 
work        $1 million     million $10 million   million Unknown  requests 
Six or less          0           2           0         0       0         2 
Between 6                                                                  
and 12               0           0           0         0       0         0
Between 12                                                                 
and 24               0           2           1         1       0         4
Greater                                                                    
than 24              0           0          3b         3       2         8
Unknown              0           2           0         1       0         3 
Total                0           6           4         5       2        17 

Source: GAO analysis of Corps information.

Note: Fiscal year 2006 requests include those approved from October 1,
2005, through March 30, 2006.

aThe contract value generally includes only the federal government's
costs, except in those requests that did not distinguish between the
federal government and a nonfederal sponsor's share of the costs.

bThe Corps approved the use of a continuing contract for two of the
requests because requiring that the two requests be fully funded would
have required that the local communities fully fund their share of the
project, thus creating an economic hardship.

Although the Corps' current criteria does not consider the duration and
dollar value of contracts when making decisions about whether or not to
award continuing contracts, agency officials are evaluating guidance for
the fiscal year 2008 budget (and beyond) under which they would propose
full funding of the federal government's commitment for contracts that are
below a certain threshold. According to the Corps, this approach would
reduce the use of continuing contracts up to 90 percent by fiscal year
2010.

                                  Conclusions

The continuing contracts authority is a unique authority that provides the
Corps with important flexibilities to manage multi-year,
multi-million-dollar water resources projects. However, this authority
also allows the Corps to commit the federal government to future financial
obligations without appropriated funds to meet them. Because of the
potential to create significant future liabilities for the federal
government, it is critical that the Corps have appropriate processes and
practices in place to ensure that the use of the continuing contracts
privilege is not misused or overused. We continue to advocate that fully
funding contracts at the time of award is the best way for federal
agencies to manage contractual obligations. If the Corps continues to use
continuing contracts, then it must be able to monitor and track the extent
to which they are used. This will enable the Corps to accurately determine
the extent to which it has committed future years' appropriations, and
also readily provide information on the full amount of these financial
commitments.

Moreover, the Corps' past practice of routinely awarding continuing
contracts (especially at the end of the fiscal year) to reprogram funds
and avoid large carryover of unexpended balances, exemplifies, in our
opinion, the need for clear criteria on when continuing contracts should
be used. Even though the Corps has recently implemented new approval
processes to restrict the use of continuing contracts, it has not yet
established clear criteria to guide their use. As a result, while the
Corps has reduced its reliance on continuing contracts, it continues to
approve short-term, low dollar value contracts that may not justify the
use of a continuing contract. Without meaningful criteria that include
factors such as the length of time needed to complete the work and the
dollar value of the contract, we believe that the Corps will not be able
to assure that it uses continuing contracts appropriately.

                      Recommendations for Executive Action

To ensure the judicious use of continuing contracts by the Corps districts
and to provide better management of projects that use such contracts, we
recommend that the Secretary of Defense direct the Commanding General and
the Chief of Engineers of the U.S. Army Corps of Engineers to take the
following three actions:

           o  eliminate the routine use of continuing contracts by adopting
           good project planning and management practices rather than relying
           on continuing contracts;
           o  establish meaningful criteria for the use of continuing
           contracts, including an assessment of dollar value and length of
           time needed to complete contracted work so that districts have
           clear guidance on when a continuing contract may be used; and
           o  develop a tracking system to monitor the use of continuing
           contracts.

           Agency Comments and Our Evaluation
			  
			  We provided a draft copy of this report to the Department of
           Defense for review and comment. The Department stated that the
           report was very constructive and concurred with our
           recommendations. Specifically, the Department concurred with the
           recommendation that the Corps eliminate the routine use of
           continuing contracts by adopting good planning and management
           practices rather than relying on continuing contracts. The
           Department stated that it incorporated the appropriations
           committees' direction that discouraged continuing contracts and
           reprogramming in its execution guidance for fiscal year 2006. As a
           consequence, the number and dollar volume of new continuing
           contracts fell substantially in fiscal year 2006 compared to
           previous years. For its implementation guidance for fiscal year
           2007, the Department stated that it will incorporate any new
           direction in law or committee reports, as well as lessons learned
           from fiscal year 2006.

           The Department concurred with our recommendation that the Corps
           establish meaningful criteria for the use of continuing contracts,
           including an assessment of dollar value and length of time needed
           to complete contracted work so that districts have clear guidance
           on when a continuing contract may be used. The Department stated
           that in its fiscal year 2007 implementation guidance it will
           include, among other things, clearer criteria on when it is
           appropriate to use continuing contracts including explicit
           consideration of dollar value and length of time.

           The Department concurred with our recommendation that the Corps
           develop a tracking system to monitor the use of continuing
           contracts. The Department said it has reviewed its data on
           continuing contracts and included corrections in its third
           quarterly report to the appropriations committees. The Department
           also stated that an automated tracking system will be established
           for its fiscal year 2007 appropriations and retained indefinitely.

           The Department of Defense's comments on our draft report are
           included in appendix III.

           We will send copies of this report to interested congressional
           committees, the Commanding General and Chief of Engineers of the
           U.S. Army Corps of Engineers, the Secretary of Defense, and the
           Director of the Office of Management and Budget. We will make
           copies available to others on request. In addition, this report
           will be available at no charge on the GAO Web site at
           http://www.gao.gov.

           If you or your staff have questions about this report, please call
           me at (202) 512-3841 or contact me at [email protected] . Contact
           points for our Offices of Congressional Relations and Public
           Affairs may be found on the last page of this report. GAO staff
           who made key contributions to this report are listed in appendix
           IV.

           Anu K. Mittal Director, Natural Resources and Environment

           Appendix I: Scope and Methodology
			  
			  To determine the number and dollar amount of continuing contracts
           the U.S. Army Corps of Engineers (Corps) awarded during fiscal
           years 2003-2005, we reviewed the Corps' quarterly reports to the
           appropriations committees on their use of these contracts. We also
           obtained the Corps' contracting data from the Army's Standard
           Procurement System. We analyzed information on the Corps' domestic
           Civil Works fixed-price and indefinite-delivery contracts (both
           construction contracts and operation and maintenance contracts)
           for fiscal years 2003-2005. We excluded the base contract of
           indefinite-delivery contracts from our analysis because these base
           contracts have no value and no work associated with them. Like the
           Corps, we treated individual task orders awarded against the base
           contract to carry out the work as separate contracts. Because the
           Corps does not track information on contracts that included a
           continuing contracts clause, we developed a methodology for
           identifying these contracts. Of the contracts we reviewed, we
           identified all of the contracts for which the Corps did not
           obligate the full contract amount. According to the Corps, in
           order to partially fund a contract, the contract has to be either
           an incrementally funded contract1 or a continuing contract. Using
           the data, we eliminated contracts identified by the Corps as
           incrementally funded that used either the limitation of funds
           clause or the Defense Federal Acquisition Regulations Supplement's
           incremental funding clause.2 We based our analyses on the most
           current data available and only included the federal portion of
           the continuing contracts' costs. We obtained from Corps officials
           monthly interest payment information contained in the Corps of
           Engineers' Financial Management System. We determined, based on
           interviews with Corps officials, comparison of data to contract
           files, and electronic data testing, that the data were
           sufficiently reliable for our purposes.

           To determine the circumstances in which the Corps used continuing
           contracts in fiscal years 2003-2005, we judgmentally selected
           three Corps districts that used a large number of continuing
           contracts and were located in divisions that awarded a large
           percentage of continuing contracts in fiscal years 2003-2005. We
           selected Galveston (Southwest division), Jacksonville (South
           Atlantic division), and Vicksburg (Mississippi Valley division).
           We identified and reviewed a random sample of 107 continuing
           contracts from these three districts. Within the three districts,
           we ordered the districts' continuing contracts in a random list
           using the continuing contracts identified in the Corps of
           Engineers' Financial Management System and a list of contracts the
           Corps identified as continuing contracts. We reviewed the
           continuing contract files based on this random list. We reviewed
           fixed-price and indefinite-delivery contracts and eliminated from
           our sample contracts that were fully funded. For each contract, we
           reviewed the contract files and entered information into a data
           collection instrument to ensure uniformity. We also interviewed
           the contracting and program management officials to obtain
           additional information on the contract, including information on
           the circumstances when continuing contracts were used. We entered
           information from the data collection instruments into a database
           for analysis and independently verified the contents of the
           database with information from the data collection instruments. We
           also reviewed the Corps' guidance documents and interviewed Corps
           officials at districts, divisions, and headquarters to determine
           the Corps' polices and procedures for using a continuing contract.
           We compared the information collected from each contract to the
           Corps' general policies and procedures for using continuing
           contracts.

           To determine how the Corps' process for approving and using
           continuing contracts changed since 2005 and whether the changes
           reduced their use of these contracts, we obtained Corps guidance
           documents for approving and using continuing contracts and
           interviewed Corps officials at districts, divisions, and
           headquarters. We also obtained information from Corps headquarters
           on districts' requests to use continuing contracts. For the
           purpose of our review, we treated a request as being equivalent to
           a contract. For example, if in one request, a district submitted
           information to justify the use of a continuing contract for two
           different contracts, then we counted this as two individual
           requests. We also surveyed the Corps' eight divisions to obtain
           information on the total number of requests to use continuing
           contracts submitted by each of their districts, requests forward
           by the division to headquarters, requests that were denied by the
           division, and requests that were denied by headquarters. We
           obtained responses from all eight divisions to our survey. We
           compared the information from the divisions' surveys to
           information that we obtained from Corps headquarters, and
           reconciled any differences. We entered information from the
           requests to use a continuing contract into a spreadsheet for
           analysis and independently verified the contents of the
           spreadsheet with information from the requests. We compared the
           requests to the Corps' internal guidance on the use of continuing
           contracts.

           We performed our work between December 2005 and July 2006, in
           accordance with generally accepted government auditing standards.

           Appendix II: Characteristics of the Continuing Contracts Identified
			  by GAO
			  
			  This appendix provides additional characteristics of the
           continuing contracts awarded by the Corps during fiscal years
           2003-2005 that we identified using the Corps' contracting data in
           the Army's Standard Procurement System. We summarize the 1,592
           continuing contracts and include information on the total number
           of continuing contracts awarded by contract value and award date
           during this 3-year time frame. We also summarize the total number
           of continuing contracts awarded in each division and district
           during fiscal years 2003-2005.

           According to the Corps' contracting data for fiscal years
           2003-2005, the contract values of 1,043 of 1,592 (over 65 percent)
           continuing contracts awarded were less than $1 million; only 64 of
           1,592 (about 4 percent) of the contracts were for more than $10
           million. Table 7 summarizes the full costs to the federal
           government for the 1,592 continuing contracts.

           Table 7: Total Number of Continuing Contracts Awarded by the Full
           Costs to the Federal Government, Fiscal Years 2003-2005

           Source: GAO analysis of Corps contracting data.

           Our analysis of the Corps' contracting data indicates that 402 of
           1,592 (about 25 percent) of the continuing contracts awarded in
           fiscal years 2003-2005 were fully funded within the fiscal year
           that they were awarded. About half of these contracts were awarded
           in the first fiscal quarter while the Corps was under a continuing
           budget resolution authority and its final appropriation was not
           yet known. We found another 66 contracts where a continuing
           contract was used to start a contract with no money. Table 8
           summarizes the total number of continuing contracts by the
           percentage of federal funds made available in the first year for
           continuing contracts awarded in fiscal years 2003-2005.

           Table 8: Total Number of Continuing Contracts by Percentage of
           Federal Funds Made Available in the First Year of the Contract,
           Fiscal Years 2003-2005

           Source: GAO analysis of Corps contracting data.

           Note: Contracts with 100 percent of funds available in the first
           year were partially funded at award but fully funded within the
           fiscal year they were awarded.

           According to the Corps' contracting data for fiscal years
           2003-2005, a large portion of each year's appropriations was
           obligated to continuing contracts awarded in previous fiscal
           years. For example, in fiscal year 2005, the Corps obligated more
           than $781 million to continuing contracts awarded in fiscal years
           2003 and 2004. Figure 1 summarizes the Corps' obligations by
           fiscal year for the 1,592 continuing contracts awarded during
           fiscal years 2003-2005.

           Figure 1: Obligations by Fiscal Year for Continuing Contracts
           Awarded, Fiscal Years 2003-2005

           According to the Corps' contracting data for fiscal years
           2003-2005, almost 44 percent of the 1,592 continuing contracts
           were awarded during the fourth quarter of the fiscal year. Figure
           2 summarizes the total number of continuing contracts awarded, by
           quarter, in fiscal years 2003-2005.

           Figure 2: Total Number of Continuing Contracts by Fiscal Quarter
           of Award, Fiscal Years 2003-2005

           According to the Corps' contracting data for fiscal years
           2003-2005, most of the commitments for continuing contracts came
           from the construction appropriations account. Table 9 summarizes
           the commitments for continuing contracts by appropriations
           accounts.

           Table 9: Commitments for Continuing Contracts Made by
           Appropriations Account, Fiscal Years 2003-2005

           Source: GAO analysis of Corps contracting data.

           Note: During the 3-year period, the Corps received an additional
           $170 million from nonfederal project sponsors.

           aThe other account includes the following: investigations, flood
           control and coastal emergencies, regulatory programs, revolving
           funds, and the Inland Waterway Trust Fund.

           The construction appropriations account was the source for the
           largest number of continuing contracts awarded. Some continuing
           contracts received appropriations from more than one account.
           Table 10 summarizes the total number of continuing contracts
           funded by each appropriations account.

           Table 10: Total Number of Continuing Contracts by Appropriations
           Account, Fiscal Years 2003-2005

           Source: GAO analysis of Corps contracting data.

           aThe other account includes the following: investigations, flood
           control and coastal emergencies, regulatory programs, revolving
           funds, and the Inland Waterway Trust Fund.

           bSome continuing contracts received appropriations from more than
           one account and are included in more than one account.

           Of the Corps' eight divisions, four divisions-Mississippi Valley,
           South Atlantic, Great Lakes, and Northwest-account for about 72
           percent (and over 66 percent of the value) of the 1,592 continuing
           contracts awarded during fiscal years 2003-2005. Table 11
           summarizes the total number and full costs to the federal
           government of continuing contracts awarded by division.

                       Agency Comments and Our Evaluation

Appendix I: Scope and Methodology Appendix I: Scope and Methodology

1Notwithstanding how the Corps views their continuing contracts, these
contracts are also incrementally funded. Incremental funding is the
practice of providing budget authority for only a portion of a capital
acquisition or project.

2The limitation of funds clause is found at the Federal Acquisition
Regulation 52.232-22; the Department of Defense's incremental funding
clause is found at the Defense Federal Acquisition Regulation Supplement
252.232-7007.

Appendix II: Characteristics of the Continuing Contracts Identified by GAO
Appendix II: Characteristics of the Continuing Contracts Identified by GAO

                            Fiscal year    
                                                   Total number of continuing 
Contract value          2003 2004 2005                           contracts 
=< $1 million            464  386  193                               1,043 
> $1million and =< $5                                                      
million                  161  149   98                                 408
> $5 million and =< $10                                                    
million                   28   26   23                                  77
> $10 million             16   22   26                                  64 
Total                    669  583  340                               1,592 

                                          Fiscal year    
Percentage of federal funds made                                           
available in first year of continuing                      Total number of 
contract                              2003 2004 2005  continuing contracts
0%                                      29   24   13                    66 
> 0 and =< 10                          127  115   49                   291 
> 10 and =< 25                          78   70   42                   190 
> 25 and =< 50                          91   95   43                   229 
> 50 and =< 75                          96   66   47                   209 
> 75 and < 100                          81   82   42                   205 
100%                                   167  131  104                   402 
Total                                  669  583  340                 1,592 

Dollars in millions                                                 
                                                     Fiscal year       
Appropriations account                          2003   2004   2005   Total 
Construction                                    $585   $923   $617  $2,125 
Operation and maintenance                        301    387    282     970 
Flood control, Mississippi River and             103     62    105     269 
tributaries                                                         
Othera                                           110    331    150     591 
Total                                         $1,099 $1,703 $1,154  $3,956 

                                                     Fiscal year    
Appropriations accounts                          2003 2004 2005  Totalb 
Construction                                      276  250  129     655 
Operation and maintenance                         233  224  116     573 
Flood control, Mississippi River and tributaries   76   41   37     154 
Othera                                            101   90   78     269 
Totalb                                            686  605  360   1,651 

Table 11: Total Number and Full Costs to the Federal Government of
Continuing Contracts Awarded by Division, Fiscal Years 2003-2005

               Total number of                    
            continuing contracts               Full costs to the federal government
             Fiscal year                                   Fiscal year
Division    2003 2004 2005  Total            2003           2004           2005           Total 
Mississippi                                                                                     
Valley       148  120   70    338    $211,354,085   $200,471,639   $223,623,848    $635,449,572
South                                                                                           
Atlantic     133  101   57    291     256,418,689    277,679,098    171,286,604     705,384,392
Great Lakes  105   98   62    265      66,341,407    776,307,678    250,408,627   1,093,057,712 
Northwest    111   98   48    257      75,881,917    112,441,841     95,168,247     283,492,005 
North                                                                                           
Atlantic      59   63   32    154      93,427,779    108,228,554    126,398,547     328,054,880
Southwest     61   51   37    149     109,168,860     76,430,950    181,682,768     367,282,578 
South                                                                                           
Pacific       48   49   32    129     245,833,752    142,725,841     78,820,802     467,380,395
Pacific                                                                                         
Ocean          4    3    2      9      40,172,666      8,836,477     26,948,350      75,957,493
Total        669  583  340  1,592  $1,098,599,154 $1,703,122,079 $1,154,337,793  $3,956,059,026 

Source: GAO analysis of Corps contracting data.

All 38 of the Corps' domestic districts awarded at least one continuing
contract during fiscal years 2003-2005. Districts' use of continuing
contracts ranged from Honolulu's 1 continuing contract to Jacksonville's
142 continuing contracts during the 3-year time frame. Table 12 summarizes
the total number and full costs to the federal government of continuing
contracts awarded by each district during fiscal years 2003-2005.

Table 12: Total Number and Full Costs to the Federal Government of
Continuing Contracts Awarded by District, Fiscal Years 2003-2005

                Total number of                    
             continuing contracts               Full costs to the federal government
              Fiscal year                           Fiscal year                   
District     2003 2004 2005  Total            2003           2004           2005           Total 
Jacksonville   65   51   26    142    $144,396,151   $142,584,020   $119,645,647    $406,625,819 
Vicksburg      50   22   22     94      88,066,978     30,913,686     61,997,017     180,977,681 
Memphis        31   31   20     82      48,249,456     70,903,673     63,557,543     182,710,673 
Walla Walla    32   36   12     80      13,152,231     27,424,601      5,103,979      45,680,811 
Portland       38   16   19     73      23,312,900     18,123,246     56,232,398      97,668,544 
Mobile         28   27   15     70      73,363,467     40,665,764     20,256,737     134,285,968 
Louisville     29   35    4     68      28,295,240    577,885,226     23,612,598     629,793,064 
Galveston      34   18   16     68      83,037,690     52,916,826     28,904,950     164,859,467 
New Orleans    34   24    9     67      33,500,736     11,153,745     23,279,233      67,933,714 
Sacramento     10   24   14     48      25,722,603     38,407,869     23,559,019      87,689,491 
Los Angeles    22   12   12     46     124,079,132     25,874,734     51,808,004     201,761,870 
Baltimore      15   18   11     44      16,114,744     31,392,195     35,984,641      83,491,580 
Little Rock    11   19   12     42       6,524,151     13,641,946    124,103,897     144,269,993 
St. Paul       15   19    8     42      21,314,700     54,179,480     28,469,738     103,963,918 
Huntington     20   12    9     41       7,015,273     30,287,886     39,103,622      76,406,781 
Kansas City    12   22    5     39       4,488,255     19,174,960      1,108,519      24,771,734 
St. Louis      14   20    5     39      19,525,371     28,502,106      5,191,377      53,218,854 
Wilmington     17   13    7     37      12,325,462     13,149,898     12,271,767      37,747,126 
Seattle        18   11    6     35      14,423,451     19,607,356     21,635,892      55,666,699 
Detroit        10   14   10     34       6,490,988     22,220,346     11,721,323      40,432,656 
Philadelphia   12   19    2     33      22,769,997     55,937,326      6,400,394      85,107,716 
Omaha          11   13    6     30      20,505,079     28,111,678     11,087,459      59,704,216 
Pittsburgh     18    8    5     31       9,738,860    103,453,306     21,205,797     134,397,963 
Nashville      10    8   13     31       2,735,434     10,692,771    103,378,174     116,806,379 
Chicago         9   10   11     30       9,040,432     27,298,298     41,616,047      77,954,777 
New England     9   11   10     30      10,387,794      4,141,081      5,202,937      19,731,812 
Buffalo         9   11   10     30       3,025,180      4,469,845      9,771,066      17,266,091 
New York       11   13    4     28      28,012,322     15,557,452     77,211,076     120,780,850 
Albuquerque    10    9    5     24      79,633,600     20,273,752      1,872,680     101,780,031 
Savannah       12    5    6     23      13,375,225     50,182,815     14,204,840      77,762,879 
Fort Worth     10    6    6     22       2,007,514        298,253     26,633,736      28,939,503 
Charleston     11    5    3     19      12,958,385     31,096,602      4,907,613      48,962,599 
Norfolk        12    2    5     19      16,142,922      1,200,500      1,599,499      18,942,921 
Tulsa           6    8    3     17      17,599,505      9,573,926      2,040,184      29,213,616 
Rock Island     4    4    6     14         696,843      4,818,950     41,128,939      46,644,733 
San                                                                                              
Francisco       6    4    1     11      16,398,417     58,169,486      1,581,100      76,149,003
Alaska          3    3    2      8      40,047,170      8,836,477     26,948,350      75,831,997 
Honolulu        1    0    0      1         125,496              0              0         125,496 
Total         669  583  340  1,592  $1,098,599,154 $1,703,122,079 $1,154,337,793  $3,956,059,026 

Source: GAO analysis of Corps contracting data.

Appendix III: Comments from the Department of Defense

Appendix IV: A Appendix IV: GAO Contact and Staff Acknowledgments

                                  GAO Contact

Anu K. Mittal (202) 512-3841

                             Staff Acknowledgments

In addition to the individual named above, Edward Zadjura, Assistant
Director; Lisa Berardi; Brandon Booth; Diana Cheng Goody; Joel Grossman;
Ken Lightner; John Mingus; Alison O'Neill; and Barbara Timmerman made key
contributions to this report. Also contributing to this report were Thomas
Armstrong, Christine Bonham, Molly Boyle, Doreen Feldman, Cynthia Norris,
and Amelia Shachoy.

(360631)

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www.gao.gov/cgi-bin/getrpt? GAO-06-966 .

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and methodology, click on the link above.

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Highlights of GAO-06-966 , a report to the Subcommittee on Energy and
Water Development, Committee on Appropriations, House of Representatives

September 2006

ARMY CORPS OF ENGINEERS

Improved Monitoring and Clear Guidance Would Contribute to More Effective
Use of Continuing Contracts

The U.S. Army Corps of Engineers (Corps) is authorized under the River and
Harbor Act of 1922 to issue contracts with a continuing contracts clause
to carry out certain projects. This allows the Corps to award multi-year
contracts without having received appropriations to cover the full
contract amount. The Corps has used these contracts for decades, but
modified their use in 2005, in response to congressional committee
concerns that their use may have been ineffective.

GAO was asked to determine (1) the number and dollar amount of continuing
contracts the Corps awarded during fiscal years 2003-2005; (2) the
circumstances in which the Corps used continuing contracts in fiscal years
2003-2005; and (3) how the Corps' process for approving and using
continuing contracts changed since 2005, and whether the changes reduced
the use of these contracts. For these objectives, GAO reviewed the Corps'
contracting data, a random sample of 107 continuing contracts, and
districts' requests to use continuing contracts.

What GAO Recommends

GAO recommends that the Corps eliminate its routine use of continuing
contracts, establish meaningful criteria on the use of such contracts, and
monitor its use of these contracts. In its comments on the draft report,
the Department of Defense agreed with GAO's recommendations.

The Corps does not know how many continuing contracts it awarded in fiscal
years 2003-2005 or the dollar value of these contracts, because it does
not track information on the contracts awarded with a continuing contracts
clause. Although the Corps was directed to provide the appropriations
committees with quarterly reports on their use of continuing contracts in
fiscal year 2006, GAO found that the information was inaccurate. For
example, at least 13 continuing contracts were missing from the reports
and 10 continuing contracts had inaccurate values. Because the Corps could
not provide information on the number of continuing contracts awarded for
fiscal years 2003-2005, GAO analyzed the Corps' contracting data and
determined that 1,592 contracts awarded in these 3 years most likely
included and used a continuing contracts clause. These contracts were
expected to cost more than $3.96 billion when awarded and would generally
be funded to cover the full contract amount (fully funded) pursuant to
requirements of the Antideficiency Act. However, continuing contracts are
exempt from the act. Consequently, the Corps only obligated $655 million
when it awarded these contracts, leaving an outstanding commitment of
about $3.30 billion to be covered by future years' appropriations.

During fiscal years 2003-2005, the Corps' standard operating practice was
to include a continuing contracts clause in most contracts. As a result,
many continuing contracts were used for short term and low dollar value
contracts. The Corps might have been able to fully fund some of these
contracts if, at the time of award, the Corps had adequate appropriations
to cover the contract amount. For example, for the 107 continuing
contracts GAO reviewed, about one-third were valued at less than $1
million. In only 8 of 107 continuing contracts that GAO reviewed, the
contract value was more than $10 million and involved work that required
more than 12 calendar months to complete. The Corps also used continuing
contracts extensively to move funds among projects and help meet its
policy of expending all available appropriations in the fiscal year
appropriated. For fiscal years 2003-2005, GAO found that over half of the
contracts reviewed were awarded during the last quarter of the fiscal year
as continuing contracts with little or no associated obligations, thereby
shifting the obligations to pay for these contracts into future years.

The Corps responded to congressional committee direction in 2005 and again
in 2006 to monitor the use of continuing contracts by, among other things,
requiring districts to obtain headquarters' approval before using such
contracts. The new processes reduced the use of continuing contracts, but
have not prevented the approval of continuing contracts for short-term,
low dollar value contracts. This occurred because the Corps established
criteria on when contracts should be fully funded, but did not establish
criteria for when continuing contracts should be used.
*** End of document. ***