Department of State Contract for Security Installation at
Embassies (08-NOV-06, GAO-07-34R).
In March 2003, the Department of State (State) awarded a
sole-source contract to EmbSEC, a Virginia limited liability
corporation, for work at U.S. embassies. The contract currently
has a ceiling price of $354 million. The contractor is required
to install and maintain technical security equipment, such as
alarms, cameras, and controlled-access equipment; establish X-ray
capability for special projects; and maintain and repair physical
security products. The contractor also procures equipment and
materials and operates the warehouse where they are stored.
EmbSEC was created as a joint venture, mentor/protege partnership
under the Small Business Administration's (SBA) 8(a) business
development program. A joint venture in the 8(a) program is an
agreement between an 8(a) participant and one or more businesses
to work together on a specific 8(a) contract. SBA regulations
state that the purpose of the mentor/protege relationship is to
enhance the capabilities of the protege and to improve its
ability to successfully compete for contracts. The EmbSEC joint
venture is comprised of RDR, Inc., the mentor, and BP
International (BPI), the protege, an 8(a) firm at the time the
contract was awarded. The terms of the EmbSEC joint venture state
that RDR will perform operations support, database development,
and security system design and installation under the contract,
in addition to performing administrative services under the joint
venture, such as accounting and contract administration. BPI is
to provide program management, warehousing, computer resource,
and procurement services. EmbSEC's only source of revenue is its
contract with State. We received a tip on our fraud hotline
regarding the EmbSEC contract. The objectives of our review,
conducted under the authority of the Comptroller General to
conduct evaluations on his own initiative, were to determine (1)
the basis for awarding the contract without competition, (2) the
effect of treating travel costs, which comprise a large portion
of contract costs, as firm, fixed-price, and (3) whether contract
administration is being effectively carried out. We are sending a
separate management letter to the Administrator of the Small
Business Administration (SBA) regarding this contract.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-07-34R
ACCNO: A63144
TITLE: Department of State Contract for Security Installation at
Embassies
DATE: 11/08/2006
SUBJECT: Competition
Contract administration
Contract oversight
Defense audits
Embassies
Facility security
Federal procurement
Firm fixed price contracts
Fraud
Joint ventures
Program management
Sole source procurement
Travel costs
Waivers
Contract mismanagement
Iraq
SBA 8(a) Business Development Program
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GAO-07-34R
* [1]PDF6-Ordering Information.pdf
* [2]Order by Mail or Phone
United States Government Accountability Office
Washington, DC 20548
November 8, 2006
Henrietta H. Fore Under Secretary for Management
Charles E. Williams Director and Chief Operating Officer Bureau of
Overseas Buildings Operations Department of State
Subject: Department of State Contract for Security Installation at
Embassies
In March 2003, the Department of State (State) awarded a sole-source
contract to EmbSEC, a Virginia limited liability corporation, for work at
U.S. embassies. The contract currently has a ceiling price of $354
million. The contractor is required to install and maintain technical
security equipment, such as alarms, cameras, and controlled-access
equipment; establish X-ray capability for special projects; and maintain
and repair physical security products. The contractor also procures
equipment and materials and operates the warehouse where they are stored.
EmbSEC was created as a joint venture, mentor/protege partnership under
the Small Business Administration's (SBA) 8(a) business development
program. A joint venture in the 8(a) program is an agreement between an
8(a) participant and one or more businesses to work together on a specific
8(a) contract. SBA regulations state that the purpose of the
mentor/protege relationship is to enhance the capabilities of the protege
and to improve its ability to successfully compete for contracts. The
EmbSEC joint venture is comprised of RDR, Inc., the mentor, and BP
International (BPI), the protege, an 8(a) firm at the time the contract
was awarded. The terms of the EmbSEC joint venture state that RDR will
perform operations support, database development, and security system
design and installation under the contract, in addition to performing
administrative services under the joint venture, such as accounting and
contract administration. BPI is to provide program management,
warehousing, computer resource, and procurement services. EmbSEC's only
source of revenue is its contract with State.
We received a tip on our fraud hotline regarding the EmbSEC contract.1 The
objectives of our review, conducted under the authority of the Comptroller
General to conduct evaluations on his own initiative, were to determine
(1) the basis for awarding the contract without competition, (2) the
effect of treating travel costs, which comprise a large portion of
contract costs, as firm, fixed-price, and (3) whether contract
administration is being effectively carried out. We are sending a separate
management letter to the Administrator of the Small Business
Administration (SBA) regarding this contract.2
1 The purpose of GAO's FraudNET is to facilitate reporting of allegations
of fraud, waste, abuse, or mismanagement of federal funds. Allegations are
received via e-mail at [email protected].
Background
RDR has been performing security installation work for State for a number
of years, dating back to work it performed as a subcontractor beginning in
1987. When its first contract as the prime contractor--which had been
awarded in 1992 and included a base year plus 4 option years--was about to
expire, RDR requested that State expedite the solicitation for the
follow-on contract so that the company would be eligible to compete for it
before graduating from the 8(a) program. RDR was the only 8(a) offeror for
that contract, subcontracting with DynCorp, International.3 The contract
also had a 5-year period of performance. In preparation for the 2003
contract award, State officials wanted RDR to continue the security
installation work, and RDR subsequently partnered with BPI, an 8(a) firm,
under an 8(a) joint venture. DynCorp is again the subcontractor.
The 8(a) program is one of the federal government's primary means for
developing small businesses owned by socially and economically
disadvantaged individuals. Firms approved as 8(a) participants can receive
business development assistance from SBA but may only participate in the
8(a) program for a maximum of 9 years. Contracting officers can award
contracts to 8(a) firms without competition below certain dollar
thresholds--namely up to $5 million for manufacturing and up to $3 million
for all other contracts. SBA's Associate Administrator for 8(a) Business
Development may accept a requirement for a sole-source award above these
thresholds if there is not a reasonable expectation that at least two
eligible 8(a) participants will submit offers at a fair price.
State's Security Management Division within the Bureau of Overseas
Buildings Operations (OBO) is the program office that requested the
security installation services. OBO directs the worldwide overseas
buildings program for State. For the EmbSEC contract, contracting
officer's representatives (COR) within OBO prepare statements of the work
to be performed under each task order and review the contractor's
proposals. The contract was initially awarded as a time-and-materials
contract.4 This contract type may be used only when it is not possible at
the time of contract award to estimate accurately the extent or duration
of the work or to anticipate costs with any reasonable degree of
confidence. In November 2003, the contract was modified bilaterally to
convert it to an indefinite delivery/indefinite quantity contract with
firm, fixed-price task orders, with an effective date of December 1,
2003.5 The contract type was changed to help control costs after overruns
were experienced in the first year. The contract provides for indefinite
quantity, within stated limits, of supplies or services during a fixed
period, with the government placing task orders under the contract for
individual requirements. Because the orders under this contract are firm,
fixed-price, once the price is approved by the government, it is not
subject to adjustment on the basis of the contractor's cost experience.
Thus, firm, fixed-price contracts place upon the contractor maximum risk
and full responsibility for all costs and resulting profit or loss. The
contract's period of performance includes the base year and 4 option
years. To date, 3 option years have been exercised and, according to State
officials, 258 task orders had been issued as of August 2006.
2 GAO, State Department Contract for Security Installation at Embassies
Awarded to 8(a) Joint Venture, GAO-07-33R (Washington, D.C.: Nov. 8,
2006).
3 DynCorp was acquired by Computer Sciences Corporation in 2003.
4 Time-and-materials contracts provide for acquiring supplies or services
on the basis of (1) direct labor hours at specified fixed hourly rates
that include wages, overhead, general and administrative expenses, and
profit and (2) materials at cost. Federal Acquisition Regulation (FAR)
16.601(a)(1) and (2) (2006).
5 The contract also provides for time-and-materials task orders. However,
according to the contracting officer, the vast majority of the orders
issued to date have been fixed-price.
Results in Brief
State relied on a waiver of 8(a) competitive thresholds, granted by SBA in
2001, to award the sole-source contract to EmbSEC. An SBA official
approved the waiver on behalf of the Associate Administrator for 8(a)
Business Development.6 However, the waiver was improper because SBA was
not authorized to grant it. SBA can only authorize sole-source 8(a) awards
above the competitive thresholds (1) for specific procurements and (2) if
it determines that other 8(a) firms cannot compete for the requirement. In
this case, SBA authorized State to make sole-source 8(a) awards in any
amount for contracts that "supplement the security of U.S. Government
diplomatic posts and protect the lives of Departmental personnel." The
waiver was not tied to a specific procurement, but was a blanket waiver
that could be applied to any contract pertaining to security at diplomatic
posts. SBA headquarters officials were unaware of the waiver until we
brought it to their attention; they agreed that it was improper. State
incorporated the waiver in its procurement regulation in April 2004, but
officials told us it has been used only for the EmbSEC contract. It is not
clear why State relied on the waiver instead of using competitive
procedures to award the 2003 contract. Five years earlier, when RDR was
awarded the prior contract as the only 8(a) offerer, the contracting
officer expressed concern with the lack of competition, noting that "it
would be in the best interest of the government to re-compete this
requirement at the earliest practical time." State officials indicated to
us that a number of companies could perform this work.
Using a firm, fixed-price, rather than cost-reimbursable, arrangement for
travel costs has had unintended consequences under this contract, leading
to instances where the government has paid far more than the contractor's
actual costs in airfare, per diem, excess baggage, and other travel costs,
in addition to the contractor's negotiated profit rate. For example, the
contractor priced its proposal to include 23 travelers for work in
Baghdad, Iraq. However, only 10 actually made the trip, and the government
paid $380,000 more than the contractor's incurred costs, according to a
State analysis. According to contractor representatives and government
officials, accurately estimating travel costs is difficult because travel
under this contract is highly unpredictable. Often it is not known ahead
of time when the travel will occur or how long it will last. Contractor
representatives explained that they must cover the risk of this
unpredictability in preparing their task order proposals and that they can
never be certain all of their costs will be covered. CORs in OBO told us
they review the reasonableness of the contractor's proposed technical
approach and number of hours for each task order but not the number of
travelers. Since we began this review, OBO officials said they are paying
increased attention to the contractor's proposed travel costs. The
contracting officer recently negotiated a contract clause that allows the
government to recover unused travel funds after work is completed, but the
clause has not yet been invoked because work under recent task orders has
not been completed.
According to contracting officials, they have struggled to administer this
contract and exercise appropriate oversight. For example, after the
contractor notified State of accidental errors it had made in pricing its
proposals, the contracting office took initial steps in November 2005 to
request an audit by the Defense Contract Audit Agency due to concerns
about the pricing errors and other aspects of the contract, such as travel
costs.7 However, the office has not followed up to actually get the audit
under way because it lacked the staff to do so. Much of the contracting
officer's time has been taken up with resolving disagreements with the
contractor. In July 2006, EmbSEC complained to State about a large number
of outstanding requests for adjustments to task order prices, some of
which are more than a year old, and $2.8 million in work completed or
partially completed without a corresponding contractual document under
which it could submit invoices. State officials told us they have recently
taken actions in response, such as permitting partial funding for work
begun before final negotiations on all price components are complete. We
also found that the contracting office was not monitoring the percentage
of the work being performed by the subcontractor as opposed to the 8(a)
joint venture.
6 The official who approved the waiver is no longer with SBA.
We are making several recommendations, pertaining to competition, travel
costs, contract type, and contract administration. We also are
recommending that State delete reference to the blanket waiver from its
acquisition regulation. In written comments on a draft of this report,
State concurred with our recommendations and made additional comments,
which we address in the agency comments section of this letter. State's
comments are reproduced in their entirety in appendix I. We also received
technical comments from EmbSEC and RDR, Inc., which we incorporated as
appropriate.
Basis for the Sole-Source Award Was an Improper SBA Waiver
On September 18, 2001, State requested that SBA waive 8(a) competitive
thresholds for contracts that "supplement the security of U.S. Government
diplomatic posts and protect the lives of Departmental personnel." An SBA
official approved the waiver on behalf of the Associate Administrator for
8(a) Business Development the next day to apply "for the duration of the
national state of emergency" as declared by the President; the waiver
contains no expiration date. This waiver was improper because SBA was not
authorized to issue it. SBA can waive the competitive thresholds for a
specific contract opportunity after determining that there is not a
reasonable expectation that at least two eligible 8(a) participants will
submit offers at a fair price8 but was not authorized to approve a blanket
waiver, as was done here. In its letter approving the waiver, SBA agreed
that "it is not reasonable that the Department of State would have the
time to advertise, evaluate and negotiate with several contractors to
obtain reasonable pricing." State, however, had identified no specific
requirement under which this would be the case. State officials said they
interpret the waiver as a "security policy" after the September 2001
terrorist attacks and never viewed it as pertaining to a specific
requirement. SBA's Associate Administrator for 8(a) Business Development
and a representative from SBA's Office of General Counsel were not aware
of the waiver until we brought it to their attention. They agreed that it
was improper.
State made the waiver authority effective on September 19, 2001, via a
procurement information bulletin. It was subsequently incorporated in
State's acquisition regulation9 on April 13, 2004, so that, according to
officials, it would be more visible to contracting officers. Officials
from State's Office of Small Business Utilization and from the contracting
office told us the EmbSEC contract is the only one that has been awarded
under the waiver.
7 The Defense Contract Audit Agency performs contract audits for the
Department of Defense. The agency also provides contract audit services to
some other government agencies.
8 13 C.F.R.124.506(d) (2001). These standards remain in place. See 13
C.F.R. 124.506(d) (2006).
9 Department of State Acquisition Regulation, 48 C.F.R. 619.805-2 (2005).
It is unclear why State did not use competitive procedures to award this
contract. State contracting officers had raised concerns in the past about
the lack of competition for the security installation work. In
recommending RDR for the 1998 contract award as the only 8(a) offerer
under a competitive solicitation, the contracting officer noted that RDR
had been either the prime or subcontractor on contracts to provide these
services for the past 10 years. The contracting officer expressed concern
with the lack of competition and concluded that "it would be in the best
interest of the government to re-compete this requirement at the earliest
practical time." CORs in OBO indicated to us that a number of companies
could perform the security installation work. Nevertheless, State's desire
to continue contracting with RDR after it had graduated from the 8(a)
program led RDR to seek out an 8(a) company with which to form a joint
venture for the follow-on, sole-source contract. After the first year of
the contract, the contracting officer decided to initiate a competitive
8(a) acquisition rather than extend the contract another year, citing
unresolved pricing issues and "mounting evidence" that negotiated rates
were significantly higher than rates for similar services on other
contracts. However, State eventually reopened negotiations with EmbSEC and
was able to reach agreement on a pricing structure that the contracting
officer determined to be fair and reasonable.
Fixed-Price for Travel Has Led to Unintended Consequences
Changing the contract type from time-and-materials to one with firm,
fixed-price task orders was well intentioned, because time-and-materials
contracts provide no positive profit incentive to the contractor for cost
control or labor efficiency. However, treating travel as a fixed-price
item has led to unintended consequences. According to the contracting
officer, travel costs typically account for 30 to 45 percent of the task
order price. Because travel is fixed-price and not cost-reimbursable, the
government pays airfare and other associated travel costs for the number
of travelers proposed for each task order, regardless of the actual costs
the contractor incurs. According to our review of the contract file and
discussions with State personnel, there have been instances where the
contractor has proposed a number of travelers that turned out to be more
than actually traveled, and the government has thus paid for trips that
did not occur. For example, for work in Baghdad, Iraq, the contractor's
price proposal reflected 23 travelers, but only 10 actually traveled. For
work in Tashkent, Uzbekistan, 12 travelers were proposed and only 5
traveled. In the case of Baghdad, a State official calculated that the
government paid at least $380,000 more than incurred costs. Contractor
representatives told us that the proposed 23 travelers were for two
separate Baghdad projects that they expected to run concurrently. However,
due to schedule delays, the same technician staff ended up being used for
both projects back-to-back. They pointed out that the opposite situation
has also occurred, where the actual number of travelers exceeded the
number in the task order proposal. However, a November 2005 analysis by
State found that six of seven travel status reports submitted by the
contractor showed that fewer travelers actually made the trips than were
proposed.
The Federal Acquisition Regulation provides that a firm, fixed-price
contract be used in certain circumstances, such as when available cost or
pricing information permits realistic estimates of the probable costs of
performance.10 Firm, fixed-price contracts are suitable for acquiring
supplies or services on the basis of reasonably definite functional or
detailed specifications when the contracting officer can establish fair
and reasonable prices at the outset. State officials and contractor
representatives agree that travel under this contract is very
unpredictable. It is often not known in advance when the travel will occur
under each task order or how long it will last. Frequently, schedules are
changed with little notice. For example, general contractors at the
embassy sites must complete their work before installation of security
equipment can begin. If the general contractor is behind schedule,
EmbSEC's trip must be postponed. Sometimes schedule slips cause the
contractor to send fewer people for a longer period of time to complete
the work.
10 FAR16.202-2 (2006).
Contractor representatives told us they must consider the unpredictability
of travel costs when pricing their proposals and, while they furnish an
estimate that they believe to be fair and reasonable, they can never be
certain that all of their costs will be covered due to the extreme
uncertainty involved. The contractor maintains that the government is
paying a fixed price to successfully complete a technical installation
that is approved at the post and that schedule and other changes beyond
its control frequently occur after the project plan has been submitted.
According to the contractor, such changes can force resources to be
adjusted to accomplish the work on time and can result in situations where
fewer or more travelers than proposed are needed. Most of the CORs we
spoke with, who have extensive technical experience installing these
systems in the field, told us that they focus on the labor hours required
to complete a task and the technical aspects of the proposals, such as
what equipment is necessary; they do not typically assess the
reasonableness of the proposed number of travelers.
Another issue related to travel costs pertains to excess baggage handling
fees. These fees are intended to cover the contractor's expenses
associated with transporting equipment overseas. According to contractor
representatives and State officials, the tools and equipment needed under
this contract can be very large and bulky, requiring additional fees to
transport them in and out of the countries of destination. The
contractor's proposals for 200 task orders between December 2003 and July
2005 reflected a fixed price per traveler for excess baggage fees that
some State officials believed was too high. State paid this price until it
requested information on actual costs, which turned out to be much less.
An OBO official calculated that State overpaid $1.2 million during this 1
1/2 year period. Contractor representatives explained that excess baggage
fees are extremely variable and unpredictable and that this risk must be
considered when they price their proposals. However, the contractor agreed
to include the lower estimate in subsequent proposals.
The issue of travel costs has been a contentious one for State and the
contractor. In 2004, State's contracting officer attempted to change
travel to a cost-reimbursable expense, which would have removed the fee
the contractor was including in its travel costs. The contractor would not
agree without receiving consideration in return, stating that doing so
would undermine the agreed-upon fee structure of the contract, under which
air transportation and lodging were fee-bearing. In negotiating the most
recent contract option year, which began in March 2006, the contracting
officer again intended to convert travel to a cost-reimbursable item, and
in fact, the contractor's proposal for that option year did reflect some
portions of travel as cost-reimbursable. Ultimately, however, the
contracting officer decided that the contractor would have no incentive to
keep travel costs down under a cost-reimbursable arrangement and continued
to include it as fixed-price. However, a new contract clause was inserted
that allows recovery of unused travel funds after order completion.
According to the contracting officer, the clause has not been invoked to
date, because work under the current task orders is still ongoing. OBO
officials told us they are now tracking travel costs more closely.
Difficulties Keeping Pace with Contract Administration Workload
The extensive activity on this contract and the variety of projects
involved call for a significant amount of oversight. From our reviews of
contract documents and interviews with current and prior contracting
officers, it appears that the contracting office has had difficulty
keeping pace with the contract administration workload. For example, after
the contractor notified the government of accidental errors it had made in
pricing its proposals, in which it was charging the government for
government-furnished equipment,11 the contracting office contacted the
Defense Contract Audit Agency in November 2005. Due to concerns about the
pricing errors, as well as other aspects of the contract such as travel
costs, the office requested an audit of the contractor's estimating
system, overhead rates, and incurred costs for selected task orders. As of
this date, however, the audit has not been initiated because, according to
the contracting officer, he lacks the staff to follow up with the audit
agency. Recently, State officials told us they plan to turn their
attention once again to getting the audit underway.
Three additional aspects of this contract have required substantial time
and effort on the part of the contracting staff: the high number of
undefinitized task orders (that is, actions for which the contract terms,
specifications, or prices are not agreed to before performance begins);
contractor requests for payment adjustments based on such things as
changes to scope or unforeseen schedule delays; and monitoring the extent
of work the subcontractor is performing under the contract.
o Undefinitized contract actions authorize the contractor to begin
work immediately, before the contract's terms are definitized.
Definitization of the contract's terms is to occur at the earliest
practicable date. State officials explained that undefinitized
orders have occurred under this contract because projects must be
kept on schedule while negotiations are still under way. According
to a contracting officer previously involved with the contract,
she spent months working to definitize 96 task orders. In a July
2006 letter to State, the contractor complained that it could not
invoice for $2.8 million in work completed or partially completed
under notices to proceed, pending definitization. State officials
told us that, in response, they have changed their procedures and
will now permit partial funding under undefinitized contract
actions for such things as long-lead equipment, even if
negotiations on other components of the price--such as travel
costs--are still ongoing.
o The contractor has requested over $3 million in adjustments to
payments because of what it claims are changes in scope or delays
for which it was not responsible. Almost 80 of these items are
outstanding, and some of the requests for payment adjustments date
back more than a year. The contracting officer told us that it
takes a lot of time to sort through the details of these requests
and that often only the project manager on site has the specific
information needed. State officials said that in the time since
the July 2006 letter was written, they have made 22 adjustments
for $3.15 million, with additional requests for payment negotiated
and approved and waiting for funding.
o The contracting office is not monitoring the percentage of the
work being performed by DynCorp, the subcontractor, as opposed to
the work being performed by EmbSEC. Because this is an 8(a)
contract for services, the joint venture is required to incur at
least 50 percent of the personnel costs with its own employees.12
The purpose of this requirement, which limits the amount of work
that can be performed by the subcontractor, is to ensure that
small businesses do not pass along the benefits of their contracts
to their subcontractors. According to contractor representatives,
an agreement is in place to ensure that DynCorp performs 40
percent of the work. When we brought the limitation on
subcontracting requirement to State's attention, the contracting
officials said they do have a mechanism to track subcontracting
activity and that they will start doing so under this contract. A
recent subcontracting activity report, submitted by EmbSEC, shows
that subcontracting has not exceeded the contract's limitation on
subcontracting percentage.
Conclusion
Given the continued uncertainties surrounding security needs at
U.S. embassies, State's desire for flexibilities in contracting
for security installation is understandable. However, this desire
does not obviate the need to use competitive contracting
procedures to the extent possible and to establish firm terms and
conditions for contract actions as soon as feasible. The recent
inclusion of the contract clause allowing government recovery of
unused travel funds is a step in the right direction toward
addressing some of the problems we identified, but its
implementation needs to be monitored to ensure that it
accomplishes the intended goal. In the interim, a re-assessment of
the contract type is called for, given the uncertainties
associated with travel costs under this contract. In addition, a
contract this complex carries with it a certain amount of risk
that must be mitigated by careful government oversight and
monitoring of contractor performance, including timely
definitization of task orders.
We are making recommendations to SBA in a separate letter.
Recommendations for Executive Action
To help manage risk under this contract, we recommend that the
Under Secretary for Management direct the Director of the Bureau
of OBO and the Assistant Secretary for Administration to take the
following five actions:
o compete the requirement at the earliest feasible opportunity;
o closely monitor travel expenses incurred by the contractor, and
take necessary steps to promptly recover unused travel funds after
task order completion;
o reevaluate the contract type, in light of unpredictable travel
costs;
o assess the workload of the contracting office to determine
whether changes are needed to keep up with the contract
administration workload, including timely definitization of
contract actions; and
o delete reference to the improper September 19, 2001 blanket
waiver from State's acquisition regulation.
Agency Comments
In written comments on a draft of this report, State agreed with
our findings and recommendations, stating that it is developing an
acquisition plan to compete the requirement and that it does not
plan to exercise the last option year under the contract. During
the recompetition, it will carefully consider the contract type.
State said that it is also more closely evaluating the
contractor's proposed travel costs and that it intends to assess
the workload of the contracting office. Finally, State will amend
its acquisition regulation to remove reference to the blanket
waiver.
State also suggested that we disassociate the footnote on page
one, regarding our fraud hotline, from the statement of our
reporting objectives or that we clarify that we did not find
fraud, waste, abuse, or mismanagement. The intent of the footnote
is simply to describe the purpose of FraudNET for the general
reader. That being said, we believe our findings do point to some
mismanagement issues that could have led to waste of government
funds. State also questioned the accuracy of two statements in the
report, pertaining to its interest in retaining RDR for the
follow-on contract and to the reason the contracting office
requested assistance from the Defense Contract Audit Agency. Both
of these statements are correct as written. State did seek to
retain RDR specifically for the follow-on work. The contracting
officer who inquired about the audit did so after the pricing
errors reported by the contractor, viewing the pricing errors as
one of several concerns with the contract. We added a sentence to
the report to clarify this point. State's comment letter is
reproduced in appendix I of this report.
We also received comments from EmbSEC and RDR, which we
incorporated where appropriate.
Scope and Methodology
We analyzed documents in State's EmbSEC contract files as well as
the prior contract with RDR. We reviewed pertinent sections of the
Federal Acquisition Regulation and State's supplement. We
interviewed State contracting officials in the Facilities Design
and Construction Division within the Office of
Logistics/Acquisitions Management and program officials in the
Security Management Division, Bureau of OBO. We also met with
contractor representatives. We held discussions with SBA officials
and reviewed pertinent small business regulations. We conducted
our review from May 2006 to August 2006 in accordance with
generally accepted government auditing standards. Key contributors
to this correspondence were Michele Mackin, Assistant Director;
John Krump; Sylvia Schatz; and Tatiana Winger.
Sincerely,
Katherine V. Schinasi, Managing Director
Acquisition and Sourcing
Management
11 In August 2005, the State Department Inspector General found the
potential for double billing for government-furnished equipment on over 90
task orders. In one example, the contractor charged the government for an
$112,000 X-ray machine, which was later identified as government-furnished
equipment. Price reductions and cash refunds from the contractor of almost
$1.4 million resulted from the investigation, but no criminal or
administrative misconduct was found. Contractor representatives attributed
the problem to employee error.
12 FAR 52.219-14; 13 C.F.R. 124.510 and 13 C.F.R. 125.6.
Appendix: Comments from the Department of State
(120569)
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