Army Corps of Engineers: Known Performance Issues with New
Orleans Drainage Canal Pumps Have Been Addressed, but Guidance on
Future Contracts Is Needed (31-DEC-07, GAO-08-288).
Hurricane Katrina caused several breaches in the floodwalls along
three drainage canals in New Orleans, contributing to
catastrophic flooding. To restore the pre-Katrina level of
hurricane-related flood protection, the Army Corps of Engineers
(Corps) decided to acquire several large-capacity pumping
systems. During the process of acquiring, testing, and installing
the pumping systems, issues with the pump contract and operation
of the pumping systems came to light, including several
identified in a Corps Independent Team Report (ITR). GAO was
asked to evaluate the Corps' efforts to (1) develop contract
specifications and award the contract, (2) address pumping system
performance issues, (3) document contract modifications, and (4)
reconcile contract payments. GAO reviewed contract and testing
documents, observed the operation of the pumping system, and
interviewed officials from the Corps, its consultants and
contractors, and the ITR team.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-08-288
ACCNO: A79249
TITLE: Army Corps of Engineers: Known Performance Issues with
New Orleans Drainage Canal Pumps Have Been Addressed, but
Guidance on Future Contracts Is Needed
DATE: 12/31/2007
SUBJECT: Army procurement
Contract administration
Defense procurement
Flood control
Flood control management
Floods
Hurricane Katrina
Hurricanes
Performance measures
Pipeline operations
Strategic planning
Water pipelines
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GAO-08-288
* [1]Results in Brief
* [2]Background
* [3]Commitment to Meet Schedule Drove Specifications but Resulte
* [4]Space and Schedule Requirements Were Key Considerations in D
* [5]Specifications Closely Matched Those of One Supplier, but Ke
* [6]The Corps Used a Streamlined Solicitation Process and Awarde
* [7]The Corps and the Contractors Have Addressed Pumping System
* [8]Factory Testing Requirements Were Modified to Focus on Defic
* [9]Pumping System Performance Issues Have Been Addressed by the
* [10]Undersized Motors
* [11]Hydraulic Motor Vibrations
* [12]Hydraulic Intake Line
* [13]Welding
* [14]Pumping Capacity
* [15]Pumping System Acceptance Is Near Completion
* [16]Contract Files Remained Incomplete for Months, but Currently
* [17]Significant Documentation Added to the Contract Files Only a
* [18]Many Specific Documents Cited by the ITR as Missing Were Not
* [19]File Documentation Establishes Independence of Corps Decisio
* [20]The Corps Has Not Overpaid the Contract and Has Plans to Rec
* [21]Conclusion
* [22]Recommendations for Executive Action
* [23]Agency Comments and Our Evaluation
* [24]GAO Contacts
* [25]Staff Acknowledgments
* [26]GAO's Mission
* [27]Obtaining Copies of GAO Reports and Testimony
* [28]Order by Mail or Phone
* [29]To Report Fraud, Waste, and Abuse in Federal Programs
* [30]Congressional Relations
* [31]Public Affairs
United States Government Accountability Office
GAO
December 2007
Report to the Chairman, Ad Hoc Subcommittee on Disaster Recovery,
Committee on Homeland Security and Governmental Affairs, U.S. Senate
ARMY CORPS OF ENGINEERS
Known Performance Issues with New Orleans Drainage Canal Pumps Have Been
Addressed, but Guidance on Future Contracts Is Needed
GAO-08-288
Contents
Letter 1
Results in Brief 3
Background 6
Commitment to Meet Schedule Drove Specifications but Resulted in
Deficiencies in Some Key Contract Terms 13
The Corps Used a Streamlined Solicitation Process and Awarded the Pumping
Systems Contract to the Highest-Rated Competitor 15
The Corps and the Contractors Have Addressed Pumping System Testing and
Performance Issues 17
Contract Files Remained Incomplete for Months, but Currently Contain
Required Documentation for the Type and Value of Procurement 28
The Corps Has Not Overpaid the Contract and Has Plans to Reconcile
Payments Made in Error 32
Conclusion 33
Recommendations for Executive Action 34
Agency Comments and Our Evaluation 34
Appendix I Scope and Methodology 36
Appendix II Pumping Capacity for the Three Drainage Canals 37
Appendix III Comments from the Department of Defense 40
Appendix IV GAO Contacts and Staff Acknowledgments 42
Tables
Table 1: Total Number of Pumps and Pumping Capacity at the 17th Street,
London Avenue, and Orleans Avenue Outfall Canals, as of November 2007 12
Table 2: GAO Analysis of the ITR Findings 31
Figures
Figure 1: Flood Protection Control Levees in and around New Orleans,
Louisiana 7
Figure 2: Orleans East Bank in New Orleans, Louisiana, and Repair Project
Sites 9
Figure 3: Graphic of Interim Gates and Temporary Pumps 10
Figure 4: Hydraulic Pumping System 16
Figure 5: Original Hydraulic Pump Design with Siphon 21
Figure 6: Reinstalled Hydraulic Pump without Siphon 22
Figure 7: Discharge Pipes at the London Avenue Canal 25
Figure 8: Hydraulic Pumping Systems Performing at the 17th Street Canal,
September 27, 2007 27
Figure 9: Pumping Capacity Trend for the 17th Street Canal, June 1, 2006
through November 30, 2007 37
Figure 10: Pumping Capacity Trend for the London Avenue Canal, June 1,
2006 through November 30, 2007 38
Figure 11: Pumping Capacity Trend for the Orleans Avenue Canal, June 1,
2006 through November 30, 2007 39
Abbreviations
cfs cubic feet per second
Corps U.S. Army Corps of Engineers
ERDC Engineering Research and Development Center
FAR Federal Acquisition Regulation
HI Hydraulic Institute
ITR Independent Team Report
MVD Mississippi Valley Division
MWI Moving Water Industries
RFP Request for Proposals
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United States Government Accountability Office
Washington, DC 20548
December 31, 2007
The Honorable Mary L. Landrieu
Chairman
Ad Hoc Subcommittee on Disaster Recovery
Committee on Homeland Security and Governmental Affairs
United States Senate
Dear Madam Chairman:
The greater New Orleans metropolitan area sits in the tidal lowlands of
Lake Pontchartrain and is bordered generally on its southern side by the
Mississippi River and the Gulf of Mexico. Due to the city's location and
elevation, which averages six feet below sea level, the area has
historically experienced many floods. In an effort to reduce such floods,
a series of levees and other flood control structures have been built over
the years to reduce that threat. However, hurricane-induced storm surges,
waves, and rainfall continue to pose a threat to New Orleans. To avoid
flooding in New Orleans from a rain storm, the city's Sewerage and Water
Board pumps rainwater from the city into three drainage canals located at
17th Street, London Avenue, and Orleans Avenue, which then flows
unrestricted into Lake Pontchartrain. While critical to prevent flooding
from rainfall, these canals are vulnerable to storm surge from Lake
Pontchartrain during hurricanes; consequently, floodwalls have been
erected along both sides of the canals to protect against storm surge
overtopping the canals and flooding the city. The greater New Orleans
metropolitan area sits in the tidal lowlands of Lake Pontchartrain and is
bordered generally on its southern side by the Mississippi River and the
Gulf of Mexico. Due to the city's location and elevation, which averages
six feet below sea level, the area has historically experienced many
floods. In an effort to reduce such floods, a series of levees and other
flood control structures have been built over the years to reduce that
threat. However, hurricane-induced storm surges, waves, and rainfall
continue to pose a threat to New Orleans. To avoid flooding in New Orleans
from a rain storm, the city's Sewerage and Water Board pumps rainwater
from the city into three drainage canals located at 17th Street, London
Avenue, and Orleans Avenue, which then flows unrestricted into Lake
Pontchartrain. While critical to prevent flooding from rainfall, these
canals are vulnerable to storm surge from Lake Pontchartrain during
hurricanes; consequently, floodwalls have been erected along both sides of
the canals to protect against storm surge overtopping the canals and
flooding the city.
On August 29, 2005, storm surge from Hurricane Katrina caused several
breaches in the floodwalls along the 17th Street and London Avenue canals,
contributing to catastrophic flooding in New Orleans. In its efforts to
restore pre-Katrina levels of hurricane protection to New Orleans by the
June 1 start of the 2006 Atlantic hurricane season (which generally runs
from June 1 to November 30 each year), the U.S. Army Corps of Engineers
(Corps), in late 2005, considered strengthening the drainage canal
floodwalls but decided against this effort due to cost and time
constraints. Instead, the Corps decided to install three interim closure
structures or gates near the points where the canals meet the lake. These
gates would be closed during major hurricane events to prevent storm surge
from entering the canals and potentially overtopping or breaching the
canal floodwalls and flooding the city. When the gates are closed,
however, rainwater cannot drain from the three canals into Lake
Pontchartrain, and On August 29, 2005, storm surge from Hurricane Katrina
caused several breaches in the floodwalls along the 17th Street and London
Avenue canals, contributing to catastrophic flooding in New Orleans. In
its efforts to restore pre-Katrina levels of hurricane protection to New
Orleans by the June 1 start of the 2006 Atlantic hurricane season (which
generally runs from June 1 to November 30 each year), the U.S. Army Corps
of Engineers (Corps), in late 2005, considered strengthening the drainage
canal floodwalls but decided against this effort due to cost and time
constraints. Instead, the Corps decided to install three interim closure
structures or gates near the points where the canals meet the lake. These
gates would be closed during major hurricane events to prevent storm surge
from entering the canals and potentially overtopping or breaching the
canal floodwalls and flooding the city. When the gates are closed,
however, rainwater cannot drain from the three canals into Lake
Pontchartrain, and large-capacity pumping systems are needed to pump water
out of the canals and into the lake. Due to space constraints along the
canals and the limited amount of time it had before the start of the 2006
hurricane season, the Corps decided to procure 34 large-capacity
hydraulically powered pumping systems^1 to provide the most pumping
capacity possible by June 1, 2006. In mid-2006, the Corps modified the
contract to procure six additional hydraulic pumping systems, bringing the
total number of hydraulic pumping systems to be installed along the three
drainage canals to 40.^2
During the process of acquiring, testing, and installing the hydraulic
pumping systems for the drainage canals, issues with the operation of
these pumping systems came to light. In response to your request, we
issued a report on May 23, 2007, on the procurement process and award of
the pumping system contract and the status of the efforts to address
issues related to the performance of the pumping systems.^3 In June 2007,
the Corps' Mississippi Valley Division (MVD) released a technical review
report, known as the Independent Team Report (ITR). This report identified
testing and performance-related issues regarding the hydraulic pumping
systems similar to the issues we had identified in our May report and, in
addition, raised potential issues related to the administration and
documentation of contract modifications. The ITR was conducted by a
three-person technical review team, which consisted of two Corps engineers
from outside MVD and one engineer from MVD who acted as the team
coordinator. According to ITR members, the New Orleans District was not
offered the opportunity to provide official comments on the draft ITR;
rather, an advisory panel from MVD reviewed the draft before its issuance
in June 2007.
In this context, you asked us to update our May 2007 report and consider
the ITR findings in our analysis. Specifically, you asked us to evaluate
the Corps' efforts to (1) develop the specifications for the pumping
systems, (2) award the contract, (3) address pumping system performance
issues identified during factory and on-site testing, (4) document
modifications to the contract, and (5) reconcile payments made and amounts
still owed to the contractor.
^1Unlike a more typical direct drive water pumping system where the motor
or engine is directly coupled by a shaft to the pump it is turning, a
hydraulic pumping system is one where pressurized hydraulic oil is used to
transmit power from an engine to a pump impeller. This allows for greater
flexibility in the placement and possible isolation of the engine from the
pumping system because they are connected by hydraulic lines.
^2During the 2007 hurricane season, the Corps also installed 14 portable
hydraulic pumps along the 17th Street Canal and 19 additional direct drive
pumps from another pump manufacturer along the 17th Street and London
Avenue Canals.
^3GAO, U.S. Army Corps of Engineers' Procurement of Pumping Systems for
the New Orleans Drainage Canals, [32]GAO-07-908R (Washington, D.C.: May
23, 2007).
To address these objectives, we reviewed the Corps' plans for the interim
gates and temporary pumping systems for the three New Orleans drainage
canals. (Unless otherwise noted, the pumping systems discussed in this
report are only the 40 60-inch hydraulic pumps installed at the three
canals.) We reviewed documentation, including e-mails, correspondence, and
other documents related to the solicitation process, contract
specifications and other provisions, factory and on-site test results,
performance requirements, contract modification files, payments to the
contractor, and the Corps' plans for increasing pumping capacity through
2007. We visited the 17th Street, London Avenue, and Orleans Avenue Canals
and observed the operation of the pumping systems. We interviewed
officials from (1) Corps Headquarters, New Orleans District, other Corps
districts, and members of the MVD's technical review team related to the
contract and pump performance; (2) Moving Water Industries (MWI)
Corporation and two other pump suppliers that bid on the solicitation; and
(3) the architectural and engineering consulting firms under contract with
the Corps that researched available pumping system alternatives, qualified
pump manufacturers, pump delivery timelines, and costs and that helped
design the canal gates and pumping stations. We conducted our work from
September through December 2007 in accordance with generally accepted
government auditing standards.
Results in Brief
Schedule concerns drove the Corps' decisions in developing specifications
for the pumping systems, but the rush to award the contract resulted in
deficiencies in key contract provisions. The Corps was committed to having
as much pumping capacity as possible in place at the drainage canals by
June 1, 2006--the start of the Atlantic hurricane season. Due to the
compressed schedule and the limited space available for installation, and
based on the limited market research conducted by the Corps' consultants,
the Corps decided to use 60-inch hydraulic pumping systems rather than
alternatives that would have involved longer delivery schedules or
required more space. The Corps' consultants drafted contract
specifications that closely matched those of one supplier, which, combined
with the 60-inch pumping system requirement, resulted in that supplier
being in the strongest position to compete for the contract. Further, the
contract itself was not written as precisely as it should have been.
Specifically, the original factory test requirements were ambiguous, there
were limited provisions for on-site testing, and there were no criteria
for acceptance of the pumping systems by the government.
Given the need to procure and install the temporary pumping systems before
the start of the hurricane season, the Corps conducted an expedited
competition to contract for the pumping systems. The Corps issued a
competitive solicitation and received three proposals. Using established
evaluation factors, the Corps rated MWI's proposal significantly higher
than the other two proposals. The Corps selected MWI for contract award,
in large part, because it determined that MWI was the competitor most
likely to enable the agency to meet its June 1 deadline.
The Corps and the contractors have addressed and corrected known
performance issues with the pumping systems. As identified in our May 2007
report and in the ITR, both factory and on-site testing revealed several
concerns with some components of the pumping systems. Specific concerns
identified during testing included undersized gear oil circulation motors,
hydraulic motor vibrations, the design of the hydraulic intake line,
suspect pipe welds, and lower than expected pumping capacity.
Nevertheless, the pumping systems were installed as planned because the
Corps believed it was better to have some pumping capacity along the
drainage canals during the 2006 hurricane season rather than none. The
Corps also believed that many of the issues identified during factory
testing could be resolved after installation. Consequently, on June 1,
2006, the Corps had installed 11 pumping systems, and by July 2006, it had
installed 34. However, both our May 2007 report and the ITR concluded that
it was uncertain how much of the pumping systems' theoretical capacity
would be available, and for how long, if needed during the 2006 hurricane
season. The Corps and its contractors have since taken several steps to
correct known performance issues with the pumping systems. These issues
were addressed by replacing components that were undersized, such as
motors and springs; redesigning and replacing the hydraulic intake lines;
rewelding critical structural welds; and conducting additional pumping
capacity tests. Between November 2006 and September 2007, the Corps and
its contractors completed all of the repairs that were noted in the ITR
and reinstalled all 40 pumping systems. As of September 2007, each pumping
system has been successfully tested on site for at least 2 hours, thus
providing greater assurance that they will perform as designed. According
to Corps officials, all of the outstanding repairs have been completed and
on-site testing indicates that the system is now fully operational.
Contract files for the pumping systems, although incomplete at the time of
the ITR review, now contain the required documentation for the type of
contract and value of the associated modifications. In a number of cases,
Corps officials inserted required documentation in the contract files
several months after modifications were issued and only after the ITR
reported its findings. The ITR correctly noted the absence of some
required documentation. However, we found much of the documentation that
the ITR specifically cited as missing--including requests for proposals,
independent government estimates, certified cost or pricing data,
technical analyses, and price negotiation memorandums--was not required,
either because documentation was not relevant to the contract
modifications in question, or the value of the modifications were below
specified regulatory thresholds. In addition, while the ITR found that it
appeared as though the contractor developed the scope of work and pricing
for some of the modifications without a subsequent analysis by the Corps,
we found no instance of this occurring. Rather, our review found that, for
most of the contract modifications, there was evidence of some analysis by
the Corps and extensive back and forth discussion, usually by e-mail,
between officials from the Corps and MWI.
As of October 31, 2007, the Corps had paid the contractor about $30.5
million of the $33 million contract for the 40 hydraulic pumping systems
and has since planned to reconcile mistaken payments it made. The Corps
made payments to the contractor after receiving invoices for items
delivered, such as drive units, pumps, and services. In most instances,
the Corps retained about 20 percent of each invoice to ensure that the
contractor was not overpaid. The ITR identified a few instances where the
Corps made duplicate payments to the contractor. Our review found that
these duplicate payments involved mistakes by the Corps, not inappropriate
billing actions on the part of the contractor. We found no additional
cases where the Corps made duplicate payments to the contractor. According
to the Corps contracting officer, the duplicate payments will be corrected
by deducting the balance from retained funds or by not paying outstanding
invoices. In addition, the contract also has an incentive clause of up to
$5 million for early delivery, but the Corps has withheld any payment
until the final acceptance of the pumping systems occurs. The contract
also has a penalty for late delivery. The Corps will determine whether or
not a penalty will be assessed as part of the close-out process. According
to Corps officials, final payment and reconciliation of the contract,
including any incentive payments, will be completed after final acceptance
of the pumping systems.
While most of the issues identified to date related to testing, pump
system performance, and payments have been addressed by the parties, there
may still be issues that arise and need to be resolved during contract
closeout. The Corps expects contract closeout to take place during the
early part of calendar year 2008.
We are recommending that the Corps develop procedures to help ensure that
all future contracts, including those awarded for expedited procurements,
contain the terms and conditions needed to ensure that items contracted
for meet the government's needs, and that key contract actions are
adequately documented in a timely manner. In commenting on a draft of this
report, the Department of Defense concurred with our recommendations.
Background
Since its founding in 1718, the city of New Orleans and its surrounding
areas have been subject to numerous floods from the Mississippi River and
hurricanes. The greater New Orleans metropolitan area, composed of
Orleans, Jefferson, St. Charles, St. Bernard, and St. Tammany parishes,
sits in the tidal lowlands of Lake Pontchartrain and is bordered generally
on its southern side by the Mississippi River and the Gulf of Mexico. Lake
Pontchartrain is a tidal basin about 640 square miles in area that
connects with the Gulf of Mexico through Lake Borgne and the Mississippi
Sound.
Many hurricanes have struck the area over the years, including Hurricane
Betsy in 1965, Hurricane Camille in 1969, Hurricane Lili in 2002, and
Hurricane Katrina in 2005. The hurricane surge that can inundate coastal
lowlands is the most destructive characteristic of hurricanes and accounts
for most of the lives lost from hurricanes. Because of such threats, a
series of flood control structures, including concrete floodwalls and
levees, have been constructed in and around the New Orleans metropolitan
area (see fig. 1).
Figure 1: Flood Protection Control Levees in and around New Orleans,
Louisiana
On August 29, 2005, Hurricane Katrina came ashore near Buras, Louisiana,
about 60 miles southeast of New Orleans, with wind speeds of up to 127
miles per hour and a storm driven wave surge of up to 30 feet. The size
and strength of the storm and subsequent flooding resulted in one of the
largest natural disasters in U.S. history. Storm waters overtopped
floodwalls and levees in Louisiana's Orleans and neighboring parishes,
causing widespread flooding, many billions of dollars of property damage,
and more than 1,300 deaths. The Corps estimates that more than one-half of
the 269 miles of federally constructed levees and floodwalls in these
parishes were damaged by the storm's winds and floodwaters.
Through a combination of permanent and temporary measures, the Corps
planned to restore the level of hurricane protection to the New Orleans
area that existed prior to Hurricane Katrina by June 1, 2006. To restore
the pre-Katrina level of protection in a period of about 9 months, the
Corps had to work quickly and, in some instances, engineer temporary
solutions because not all of the repairs could be completed in time. One
such temporary solution was needed along the Orleans East Bank, located
south of Lake Pontchartrain, from the 17th Street Canal to the Inner
Harbor Navigation Canal, and along the western bank of the Inner Harbor
Navigation Canal to the Mississippi River. About 19 miles of levees and
floodwalls are located along the Orleans Lakefront, the Inner Harbor
Navigation Canal, and three drainage canals--17th Street, London Avenue,
and Orleans Avenue--which drain rainwater from New Orleans into Lake
Pontchartrain. A total of about 1 mile of levees and floodwalls was
damaged along the 17th Street Canal and two sides of the London Avenue
Canal, resulting in flooding of New Orleans (see fig. 2).
Figure 2: Orleans East Bank in New Orleans, Louisiana, and Repair Project
Sites
The city's three drainage canals are critical to avoid flooding in New
Orleans from a rain storm. During rain events, the city's Sewerage and
Water Board pumps rainwater from the city into three drainage canals at
17th Street, London Avenue, and Orleans Avenue, which then flows
unrestricted into Lake Pontchartrain. According to the Corps, the maximum
amount of water that the Sewerage and Water Board can pump into these
drainage canals is 10,500 cubic feet per second (cfs) at the 17th Street
Canal, 7,980 cfs at the London Avenue Canal, and 2,690 cfs at the Orleans
Avenue Canal. Because permanent structures and repairs could not be
completed on the three drainage canals by June 1, 2006, the Corps decided
to install temporary pumping systems to provide protection to the area for
3 to 5 years until permanent structures can be constructed (see fig. 3).
The Corps chose to install three gates and temporary pumping systems near
the points where the 17th Street, London Avenue, and Orleans Avenue
drainage canals meet Lake Pontchartrain. These gates are intended to stop
hurricane-induced storm surge from Lake Pontchartrain from entering the
canals and possibly overtopping or breaching the canal floodwalls, which
would flood the city. However, because the gates prevent the drainage
canals from draining water from the city into the lake when the gates are
closed during a hurricane event, temporary pumping systems are needed to
pump water out of the canals and into the lake.
Figure 3: Graphic of Interim Gates and Temporary Pumps
Due to the hurricane damage sustained by the floodwalls bordering the
canals, the Corps established the following safe water levels for each of
the drainage canals--6 feet for the 17th Street Canal, 5 feet for the
London Avenue Canal, and 8 feet for the Orleans Avenue Canal. The water
level in each of these canals must be maintained at or below the safe
water level in order to ensure that the already weakened canal floodwalls
are not breached. Further, the total capacity of the temporary pumping
systems at the interim gated closure structures that is necessary to
accommodate a 10-year rainfall event^4 without exceeding the safe water
levels is 7,700 cfs at the 17th Street Canal, 5,000 cfs at the London
Avenue Canal, and 1,900 cfs at the Orleans Avenue Canal. The hydraulic
pumping systems installed by the Corps at the Orleans Avenue Canal were
sufficient to maintain the safe water levels during a 10-year rainfall
event. However, the hydraulic pumping systems installed at the 17th Street
and London Avenue drainage canals could provide about 4,000 cfs and 2,700
cfs, respectively. In order to ensure that each pumping station had the
needed capacity to pump enough water during a 10-year rainfall event, the
Corps used a separate contract to acquire and install an additional 11
direct drive pumps and 14 portable hydraulic pumps at the 17th Street
Canal, increasing the capacity from about 4,000 cfs to about 9,200 cfs.
The Corps also installed 8 additional direct drive pumps at the London
Avenue Canal, increasing the capacity from about 2,700 cfs to about 5,200
cfs. Table 1 provides the total number of pumps and pumping capacity at
the 17th Street, London Avenue, and Orleans Avenue Outfall Canals.
^4A 10-year rainfall event is a storm that has a probability of occurring
once in 10 years, also described as having a 10 percent chance of
happening in any year.
Table 1: Total Number of Pumps and Pumping Capacity at the 17th Street,
London Avenue, and Orleans Avenue Outfall Canals, as of November 2007
DOT action: Finance Guidebook for Freight;
Description: Summarizes the potential funding available for freight
projects.
DOT action: Freight Analysis Framework;
Description: Quantifies existing freight flows and forecasts future
freight flows along national corridors and through international
gateways.
DOT action: Intermodal Freight Technology Working Group;
Description: Cooperative effort of public and private stakeholders to
identify and operationally test technology solutions to freight
transportation issues.
DOT action: Transportation Planning Capacity Building Program;
Description: Provides a source of information to state departments of
transportation and MPOs. Through this program, information has been
posted on how to include freight interests in the planning process.
DOT action: Freight Professional Development Program;
Description: Offers training, education, technical assistance, and a
resource library to assist state and local officials, as well as,
private stakeholders in freight transportation planning and systems.
DOT action: Guide to Quantifying the Economic Impacts of Federal
Investments in Large-Scale Freight Transportation Projects;
Description: Helps to ensure that freight projects are appropriately
considered in national, regional, and state decisions about the future
of transportation system investments.
DOT action: Freight Industry Roundtable and Draft Framework for a
National Freight Policy;
Description: The Freight Industry Roundtable outreach effort led to the
creation of the Draft Framework for a National Freight Policy, which is
a new policy initiative to address freight transportation concerns.
Viewed as a living document, the Draft Framework is intended to
stimulate discussion and local responses.
DOT action: Corridors of the Future congestion program;
Description: Encourages states to think beyond their boundaries to
reduce congestion on some of the nation's most critical trade
corridors. DOT plans to facilitate the development of these corridors
by helping project sponsors reduce institutional and regulatory
obstacles associated with multistate and multimodal corridor
investments.
DOT action: Freight performance measures;
Description: Measures travel speeds and travel time reliability for
commercial vehicle traffic on 25 freight significant corridors, and
measures crossing times and crossing time reliability on five
U.S./Canadian border crossings.
DOT action: New offices established by the Maritime Administration;
Description: The Maritime Administration (MARAD) established 10 offices
in U.S. ports to help promote and coordinate solutions across
jurisdictional lines and provide local, state, and regional
stakeholders with a local link to MARAD. Additionally, MARAD
established the office of Marine Highways and Passenger Vessel Services
to focus efforts to relieve road and rail congestion by shifting some
cargoes to coastal and inland waterways.
Source: GAO analysis of Corps data.
^aPump capacity numbers are approximate and are based on rated pump
values.
^bCubic feet per second (cfs) is a unit of measure for flow. One cfs is
equivalent to about 449 gallons per minute or 646,000 gallons per day.
^cThe upper limit on the total pumping capacity at the 17th Street Canal
has been set at 9,200 cfs because of the number of pumps at the canal.
Although these additional pumps allow the total pumping capacity at the
three canals to maintain the capacity needed to pump water out of the
canals during a 10-year rainfall event, the capacity is still not
sufficient to match the maximum pumping capacity of the Sewerage and Water
Board's pumps. As a result, during a hurricane event, some flooding might
occur in some parts of the city from rainfall, although it is likely that
this flooding would be significantly less than that which occurred from
the overtopping and breaches of the canal walls during Hurricane Katrina.
Appendix II provides the pumping capacity trends for the 17th Street,
London Avenue, and Orleans Avenue drainage canals from June 1, 2006,
through November 30, 2007.
Commitment to Meet Schedule Drove Specifications but Resulted in Deficiencies in
Some Key Contract Terms
The Corps' efforts to develop the specifications for the pumping systems
were driven by its commitment to have as much pumping capacity as possible
in place at the drainage canals by June 1, 2006--the start of the first
Atlantic hurricane season after Hurricane Katrina. Due to the compressed
schedule and the limited space available for installation, and based on
the limited market research conducted by the Corps' consultants, the Corps
decided to use 60-inch hydraulic pumping systems rather than alternatives
that would have involved longer delivery schedules or required more space.
The Corps' consultants drafted contract specifications that closely
matched those of one supplier, which, along with the 60-inch pumping
system requirement, resulted in that supplier being in the strongest
position to compete for the contract. Further, the contract itself was not
written as precisely as it should have been. Specifically, the original
factory test requirements were ambiguous, there were limited provisions
for on-site testing, and there were no criteria for acceptance of the
pumping systems by the government.
Space and Schedule Requirements Were Key Considerations in Developing
Specifications
The decisions made by the Corps during the procurement of pumping systems
at three New Orleans drainage canals were driven largely by space and
schedule considerations. The Corps began the acquisition process by
contracting with two architectural and engineering consultant firms
(consultants) to determine available technical options that could meet the
Corps' schedule, space, and pumping capacity needs; conduct the associated
market research; and survey pump equipment suppliers. On the basis of
their technical analysis, the consultants concluded that the use of
hydraulic-driven pumps was the best alternative for the Corps because
electric-driven direct drive pumps would need auxiliary equipment that
would require more space for installation and would have a longer delivery
time. They also determined that using hydraulic pumps less than 60 inches
in diameter would require more pumps to be installed and require added
space to provide the same amount of pumping capacity.^5
^5The 60 inches refers to the diameter of the pumps' impeller, which moves
the water. Simplistically, pumping capacity is proportional to the square
of the pump diameter. For example, using 42-inch hydraulic pumps would
require nearly twice the number of pumping systems to achieve the same
capacity as 60-inch hydraulic pumps.
Specifications Closely Matched Those of One Supplier, but Key Contract
Provisions Were Deficient
Corps consultants drafted contract specifications that closely matched
those of one supplier. The consultants conducted limited market research
and found that at least two suppliers had specifications for a 60-inch
hydraulic pump. One of those suppliers was MWI, a company that the
consultants had spoken with as they were developing the design for the
gates and pump stations along the drainage canals. The consultants met
with MWI and also contacted at least two other pump manufacturers
regarding their pumps. Of these suppliers, the consultants identified MWI
as the only supplier who had actually manufactured a 60-inch hydraulic
pump with a 60-inch impeller, the mechanism that drives water through the
system. Another pump manufacturer had a design for a 60-inch pump, but it
included only a 54-inch impeller. The consultants believed that MWI could
deliver the 34 60-inch pumping systems that the Corps needed on schedule.
The Corps did not have an existing technical specification for a 60-inch
hydraulic pump. The consultants drafted a specification for the Request
for Proposals (RFP) based on technical specifications and descriptions of
the pumps contained in catalogs published by MWI and another manufacturer.
The consultants told us that they had provided the Corps with a generic
specification because any reference to a specific supplier had been
removed. However, our analysis of the RFP's equipment specifications
indicates that they more closely matched MWI's than the other
manufacturer's catalog descriptions. In fact, the testing specifications
used for the RFP were nearly identical to those published by MWI, which
included an open sump test requirement. After the other manufacturer
complained that the open sump test requirement was restrictive because
only MWI had an open sump, the Corps amended the RFP to delete this
requirement. This open sump test requirement was incorporated into the
contract at the time of award, however, because it was offered by MWI as
part of its proposal.
Other contractual testing and acceptance criteria were ambiguous,
inadequate, or missing altogether. Specifically, the contract did not
clearly state whether factory flow and head testing was required of each
pump, the on-site testing requirement merely stated that there should be
no leaks, and there were no final acceptance criteria in the contract.
Terms and conditions in contracts should be clear and complete so that the
parties fully understand their obligations and that potential disputes can
be avoided. To date, Corps and MWI have been able to address identified
deficiencies in the contract, which were largely caused by the perceived
need to move forward expeditiously. However, the extent to which these or
other contract issues may lead to disputes between the parties will not be
known until the time of contract closeout, currently scheduled for early
2008.
The Corps Used a Streamlined Solicitation Process and Awarded the Pumping
Systems Contract to the Highest-Rated Competitor
Given the need to procure and install the temporary pumping systems before
the June 1 start of the 2006 hurricane season, the Corps decided to use a
streamlined process to contract for the pumping systems. Like most other
federal agencies, the Corps has statutory authority to use other than full
and open competition procedures when the agency's needs are of an unusual
and compelling urgency. Using this authority, the Corps streamlined parts
of the acquisition process. The RFP was issued on January 13, 2006, and
required that the contractors' proposals be submitted by January 18, just
5 days later. Normally the solicitation would allow for a response period
of at least 30 days.
The Corps received three proposals in response to its RFP. Suppliers
submitted pricing information and technical proposals and made oral
presentations to the Corps.^6 The Source Selection Evaluation Board, whose
voting members consisted of three Corps officials, evaluated offers using
four technical evaluation factors identified in the RFP in descending
order of importance: (1) technical approach, (2) project management, (3)
past performance, and (4) small business or small disadvantaged business
participation. The solicitation also provided that, when combined, these
technical evaluation factors were weighted approximately equal to price.
The Source Selection Evaluation Board rated MWI's proposal significantly
higher than the other two proposals. MWI's proposal included commitments
from suppliers and subcontractors to deliver the pump components needed by
MWI to assemble the pumps. The Corps believed MWI represented the best
chance of meeting the Corps' critical deadline of June 1, 2006. MWI
offered a price of $26.6 million, which was within 2.8 percent of the
government estimate of $25.6 million. The contracting officer determined
that MWI's price was fair and reasonable and awarded a firm, fixed-price
contract to MWI on January 27, 2006. The contract also contained an
incentive of up to $5 million that MWI could earn for early delivery. To
date, the Corps has increased the contract price by about $6 million for
required pump modifications and for six additional pumping systems,
bringing the total number of hydraulic pumping systems acquired to 40.
Figure 4 shows a diagram of the hydraulic pumping system.
^6Corps officials informed us that videotapes were made of the oral
presentations, but due to technical difficulties the sound did not record.
Figure 4: Hydraulic Pumping System
The Corps and the Contractors Have Addressed Pumping System Testing and
Performance Issues
The Corps and its contractors have addressed and corrected the pumping
system testing and performance issues identified by both our May 2007
report and the ITR. Factory testing, which occurred from March 2006
through May 2006, revealed several issues with some components of the
pumping systems, and concerns were raised that the pumping systems would
not perform as intended. On May 2, 2006, the Corps modified the original
contract, replacing the original testing requirements with new procedures
because of schedule and performance concerns. Beginning in June 2006,
however, even though all of the problems identified during factory testing
had not been resolved, the systems were installed as planned because the
Corps believed it was better to have some pumping capacity along the
drainage canals during the 2006 hurricane season rather than none. The
Corps also thought that most of the issues identified during factory
testing could be resolved after installation. The Corps and the
contractors took several steps to correct the known performance issues
after installation and, as of September 2007, all of the pumping systems
have been reinstalled and all of the outstanding repairs have been
completed. According to Corps officials, the results of on-site testing
now show that the 40 hydraulic pumping systems are fully operational and
final acceptance of the pumping systems is scheduled for the beginning of
calendar year 2008.
Factory Testing Requirements Were Modified to Focus on Deficiencies Identified
On May 2, 2006, the Corps issued modification No. 4, "revised test
procedures," to the contract. According to the contracting officer
responsible for oversight of the pumping system contract, these revised
testing procedures replaced the original factory testing requirements with
new testing requirements. The contract initially required each pump and
hydraulic power transmission system to be factory pressure tested
statically and dynamically.^7 In addition, full-size flow and head testing
was to be witnessed by the government prior to shipment of the pumping
systems.^8 The pump flow and head testing was to be conducted in an open
sump at the manufacturer's testing facility in accordance with Hydraulic
Institute (HI) standards^9 and in the presence of a registered
professional engineer. According to the contracting officer, modification
No. 4 replaced these testing procedures. The modification required, among
other things, testing the hydraulic drive units for a minimum of 3 hours
and utilizing previous model tests of the pump design to predict the pump
capacity. Further, the modification required all pumps to be pressure
tested for 90 minutes.
^7According to Corps officials, static testing involves checking for
external leaks around the seals of the pump units. Dynamic testing
involves setting the pumps in water and spinning the impeller, while using
a dynamometer to determine the load of the impeller.
^8According to Corps officials, flow and head testing are conducted to
determine the predicted capacity of water a pump can discharge over time.
Flow measures how much water can be pumped. Head measures how high the
water can be pumped.
According to New Orleans District Corps officials responsible for
oversight of the contract, the original testing requirements were
interpreted by a Corps inspector and the ITR to include full-size flow and
head testing of each of the pumps. Furthermore, the ITR concluded that
modification No. 4 did not specifically delete the original testing
requirements and, therefore, assumed the testing that had been conducted
did not meet the contract requirements regarding full-size flow and head
testing for each pump in accordance with HI standards. Based on this
assumption, the ITR concluded that the contractor owed the government a
refund because it had not completed the testing required in the contract.
The ITR's reading of the modification may have overlooked the
modification's purpose, however, which was to adjust the required testing
to focus on those elements of the pumps in need of further refinement,
given the limited time available. We believe the ITR may have reached this
conclusion because it did not discuss the intent of the "revised test
procedures" modification to the original testing requirements with either
the contracting officer or the Corps' technical officials. Officials from
the New Orleans District told us that it was never the intention of the
Corps to interpret the testing requirements as requiring every pump to be
full-size flow and head tested in accordance with HI standards-only static
and dynamic tests were originally required of each pump. Corps technical
and contracting officials said the revised testing procedures contained in
the modification were developed to focus on the mechanical issues that had
been identified and, therefore, replaced the original testing
requirements, which included allowing the use of model test results in
lieu of HI tests.^10
^9HI is the largest association of pump industry manufacturers in North
America. The institute provides industry standards for the effective
application, testing, installation, operation, and maintenance of pumps
and pumping systems.
Pumping System Performance Issues Have Been Addressed by the Corps and the
Contractors
The Corps and the contractors have addressed and corrected the concerns
raised about some components of the pumping systems during factory and
on-site testing. As noted in our May 2007 report and in the ITR, the
primary concerns identified during testing included undersized gear oil
circulation motors, hydraulic motor vibrations, the design of the
hydraulic intake line, suspect pipe welds, and lower than expected pumping
capacity. As a result of the concerns identified during testing, the Corps
had no assurance that the pumping systems would operate to capacity if
needed during the 2006 hurricane season. Nevertheless, the pumping systems
were installed as planned because the Corps believed it was better to have
some pumping capacity along the drainage canals during the 2006 hurricane
season rather than none. On June 1, 2006, the Corps had installed 11
pumping systems, and by July 2006, it had installed 34, although it is
uncertain how much of the theoretical capacity of these pumping systems
would have been available, and for how long, if needed during the 2006
hurricane season. The Corps also believed that many of the issues
identified during factory testing could be resolved after installation.
After installation, the Corps and its contractors took several steps to
correct known performance issues with the pumping systems. The main
performance issues, and the ways the Corps and the contractors addressed
each of them, are described in more detail below.
Undersized Motors
During factory testing, the Corps observed that the gear oil circulation
pump motors were overheating, which resulted in the failure of some of the
motors. MWI determined that the pump motors were too small. All of the
motors were eventually replaced with larger gear oil circulation motors,
resolving the problem.
^10The Corps later became concerned that it might not be able to determine
whether the pumping system met specifications because none of the pumping
systems had been operated at design conditions. The Corps, therefore,
issued modification No. 17, which required the contractor to revert to
full performance and mechanical testing as required under the original
contract for one pumping system. The rest of the pumping systems would be
tested only for mechanical integrity.
Hydraulic Motor Vibrations
During on-site testing in August 2006, the hydraulic motors were
experiencing greater than normal vibrations. According to the ITR, this
condition could have led to the failure of the equipment. Initial analysis
of the problem indicated that there may have been a hydraulic short in the
Rineer hydraulic motor that drives the main pump impellers. The motor
manufacturer made modifications to the motor, and preliminary testing of
the motors in late August 2006 appeared to confirm that these
modifications eliminated the vibrations. However, upon further testing,
vibrations were still present to varying degrees. Additional on-site
testing was performed, and in late November 2006, it was determined that
the vibrations were due to undersized springs in the Rineer hydraulic
motors. The motor manufacturer replaced the undersized springs with
heavier springs. According to Corps officials, on-site tests witnessed by
the government after the installation of the new springs and measurements
conducted by a third-party contractor document that the pumping systems
now operate with no apparent vibration issues.
Hydraulic Intake Line
Because of concerns that the hydraulic intake lines could adversely affect
pumping performance, the Corps requested that MWI redesign and reinstall
the hydraulic intake lines on all of the pumping systems. During factory
testing, the Corps observed a high rate of failure of the Denison
hydraulic pumps on the drive units. The Denison motors pump the hydraulic
fluid from a reservoir to the Rineer motor which then turns the pump
impeller. A preliminary assessment revealed that the majority of the
issues identified in the factory were caused by air entrainment (or dry
run condition) in the hydraulic pumps. The dry run condition was
attributed to air getting into the hydraulic system upon initial start-up
of the drive unit. To eliminate the dry run issue, two interim changes
were made to the system until a more permanent fix could be implemented:
(1) a check valve was installed on all of the hydraulic intake lines, and
(2) the pump start-up procedure was modified so that the system was
started at a lower speed and gradually increased to the normal operating
speed.
The ITR concluded that the pumping systems would probably not have
performed as designed because the inclusion of a check valve would require
priming the pump prior to start-up and the original intent of the design
was to allow for unmanned operation of the equipment. Both Corps and MWI
officials stated that the ITR was incorrect in assuming that the pumps
would have to be primed using the check valve at every start-up. Instead,
these officials stated that the pumping systems would have operated as
intended because using this valve to prime the Denison pumps is only
necessary immediately after maintenance is performed on the system.
Additionally, according to a Lake Borgne Levee District official, this
pump design has been successfully used for about 20 years without having
to prime the pumps prior to start-up. Nevertheless, in order to ensure
that air would not be pulled into the hydraulic pumps, causing failure of
the system, the Corps requested that MWI redesign the hydraulic intake
system to provide for a flooded suction without a siphon. Figure 5 shows a
drawing of the original hydraulic pump design with siphon.
Figure 5: Original Hydraulic Pump Design with Siphon
Corps officials from the New Orleans District emphasized to us that the
redesign was requested to more adequately meet their needs, not because of
concerns about the pumping systems operating as intended. MWI subsequently
agreed to modify the design of the hydraulic intake line at the request of
the Corps. According to Corps officials, by the end of July 2007 and at
its own expense, MWI had redesigned and reinstalled the new flooded
suction design on all 40 pumping systems (see fig. 6).
Figure 6: Reinstalled Hydraulic Pump without Siphon
Welding
Because of questionable welds identified on the pump housing,^11 the Corps
decided to replace certain welds to ensure they would not fail during pump
operations. Upon inspection of the pump housing, the Corps determined that
some of the welds on the pump housing may not be sufficient. While MWI
provided the Corps with a "fit for service letter" for all of the welds on
the pump housing and an extended warranty, the Corps decided that it was
prudent to replace the welds on the pump housing below the base plate (the
segment of the pump that is below the water level) in order to ensure that
the welds would not fail during pumping operations. All of the necessary
welds have been corrected, and the Corps plans to negotiate this
additional cost during contract closeout.
Additionally, issues were raised about the adequacy of the welds on the
hydraulic piping, which carries high pressure hydraulic fluid from the
Denison pump to the Rineer motor. The hydraulic piping was subsequently
visually inspected and pressure tested to 1.5 times its operating pressure
as part of the quality control process. The testing results indicated that
the piping was adequate for transmitting power from the diesel engine to
the water pump.
Pumping Capacity
Initial pumping capacity testing indicated that the pumping systems may
not have been performing at the design capacity level. In April 2006, MWI
conducted full-size factory flow and head tests on the hydraulic pumps. A
representative from the Corps' Engineering Research and Development Center
(ERDC) reviewed these test results and concluded that the test results
showed that the pumps would operate at about 96 percent of the specified
capacity. However, according to the ITR, these tests were not conducted in
accordance with HI standards and, therefore, were invalid.
In August 2006, on-site flow and head testing was conducted at the canals.
In order to test the pumping systems, the interim gates were closed and
water was pumped into the canal by the city's Sewerage and Water Board to
raise the water level in the canal to the elevation necessary for the
pumping systems to be tested. However, because adequate water levels in
the canal could not be achieved to replicate design conditions, the pumps
could not reach a fully primed condition. The Corps decided to invert the
discharge pipes in order to enable the pumps to reach a primed condition
with less than design water conditions in the lake. This facilitated
testing of the pumping systems and allowed measurements to be recorded and
analyzed.
^11The pump housing consists of 60-inch piping, which carries the water
pumped out of the canal and discharges it into Lake Ponchartrain.
In September 2006, a representative from ERDC was consulted and performed
on-site flow and head tests of pumping systems at the London Avenue canal.
A month later the Corps and ERDC performed the same tests at the 17th
Street canal. Data collected from these on-site tests revealed that the
pumping systems were working near the appropriate capacity. Based upon the
on-site testing results and upon suggestion from the ERDC representative,
all of the discharge pipes at all of the canals were inverted and cut at a
30 degree angle, which allows the pumps to prime at lower canal water
elevations and enhances the flow rates (see fig. 7).
Figure 7: Discharge Pipes at the London Avenue Canal
In November 2006, another full-size factory flow and head test was
conducted by MWI and ERDC. However, due to constraints at the testing
facility, the full-size factory test, which was done in consultation with
the ERDC representative, was completed with deviations from the HI
standards. This test revealed that the pumping capacity ranged from 93.6
to 97.6 percent of the design specification and performed without problems
during the 2 days of testing. According to Corps officials, MWI further
agreed to construct a model test to confirm the pumping systems would
perform within HI standards. In September 2007, a Corps ERDC official
witnessed a model test conducted by MWI and prepared a report, which
concluded that the pumping systems would operate at 98.6 percent of the
design capacity. According to Corps officials, these results are within
acceptable limits and any issues remaining with the final pumping capacity
will be negotiated at contract closeout.
Pumping System Acceptance Is Near Completion
According to Corps officials, the Corps plans to make final acceptance of
the pumping systems during the beginning of calendar year 2008. The
original pumping system contract lacked clearly defined on-site testing
procedures, requiring only that the pumps and hydraulic equipment be
tested for leaks. In light of the various issues surrounding the pumping
systems, the Corps and MWI agreed that it was necessary to show that all
of the pumping systems could operate at a steady state after installation.
According to Corps and MWI officials, a major challenge with on-site
testing of the pumping systems is simulating the amount of water that
would be present in the canals and the lake during a storm event. Under
normal conditions, when there are low water levels in the canals, it is
not possible to test each pump system for an extended period of time, and
any tests conducted cannot approach the design capacity of the pumping
systems. Due to this limitation, the Corps subsequently developed specific
pumping system acceptance testing procedures that, among other things,
include running each pumping system continuously for 2 hours. Corps
officials told us that because most of the issues associated with the
pumping systems occurred within the first 45 minutes of operation, the
2-hour testing period for each pumping system was sufficient.
In its June 2007 report, the ITR team concluded that at the time of their
review in September 2006, the pumping systems would not perform as
intended because of issues encountered in factory testing in early 2006.
Since September 2006, there have been a number of analyses, changes, and
additional testing of the pumping systems to address these earlier
concerns. For example, between November 2006 and September 2007, the Corps
had completed all of the repairs that were outstanding at the end of the
2006 hurricane season and which were noted in the ITR, and reinstalled all
40 pumping systems. In addition, as of September 2007, each pumping system
had been successfully tested on site for at least 2 hours, providing
greater assurance that they will perform as designed during future
hurricane seasons. On September 27, 2007, GAO officials witnessed the
pumping systems performing at both the 17th Street and London Avenue
Canals (see fig. 8). According to Corps officials, because all of the
outstanding repairs have been completed and on-site testing indicates that
the system is now fully operational, final acceptance of the pumping
systems and the contract closeout is expected to be completed early in
calendar year 2008.
Figure 8: Hydraulic Pumping Systems Performing at the 17th Street Canal,
September 27, 2007
Contract Files Remained Incomplete for Months, but Currently Contain Required
Documentation for the Type and Value of Procurement
Contract files for the pumping systems, although incomplete at the time of
the ITR review, now contain the required documentation for the type of
contract and the value of the associated modifications. In a number of
cases, however, Corps officials inserted required documentation in the
contract files several months after modifications were issued and only
after the ITR reported its findings. While the ITR correctly noted the
absence of some forms of required documentation, we found that much of the
documentation specifically cited--including requests for proposals,
independent government estimates, certified cost or pricing data,
technical analyses, and price negotiation memorandums--was not required
for the modifications in question. In addition, while the ITR found that
it appeared as though the contractor developed the scope of work and
pricing for some of the modifications without a subsequent analysis by the
Corps, we found no instance of this occurring. Rather, our review found
that, for most of the contract modifications there was extensive back and
forth discussion, usually by e-mail, between officials from the Corps and
MWI.
Significant Documentation Added to the Contract Files Only after the ITR Review
The ITR team reviewed 18 of the first 30 contract modification files and
reported that many lacked significant documentation. Specifically, the ITR
identified 13 modification files with deficiencies--most pertaining to
documentation of the Corps' determination of fair and reasonable pricing.
Our review confirmed that significant documentation was added to the files
only after the ITR team issued its report. We reviewed the files for the
32 post-award modifications, focusing in depth on the files related to the
13 modifications found by the ITR team to contain deficiencies, as well as
2 additional modifications that were issued after our May 2007 report and
the ITR review. Of the modifications we reviewed in depth, 10 contained
internal memorandums, prepared by the contracting officer after the fact,
to document price reasonableness or the events supporting the
modification. Another 2 modifications contained undated memorandums of
price reasonableness signed by the contracting officer. Finally, of the
eight purchase request and commitment forms on file, five were prepared on
the same date to retroactively document the availability of funds for
modifications that were issued 9 to 17 months earlier. Documentation in
some of the files, however, suggests that the availability of funds was
determined through other means at the time the modifications were signed.
In response to the ITR, the Corps' contracting officer acknowledged that
the contract files could have been better managed but stated the Corps
felt it was more important to get the pumps installed in a timely manner.
In order to do this, the Corps issued the modifications with the intention
of settling all outstanding issues with the contractor before closing out
the contract. The Corps agreed with the ITR, however, that certain
documentation was missing and took corrective actions to complete the
files. The contracting officer, whom the ITR team did not meet with for
their review, noted that because many of the people working on the pumping
systems procurement were rotating through the District Office, they may
not have completed or submitted all of the necessary paperwork before
leaving. Even though it is currently complete, preparing documentation
months after an event occurs increases the likelihood that the
documentation may contain inaccuracies or ambiguities, which make it
difficult to resolve any disputes that may arise.
Many Specific Documents Cited by the ITR as Missing Were Not Required
As of October 2007, the contract modification files appeared up to date
and consistent with Federal Acquisition Regulation (FAR) requirements.
While the ITR correctly noted the absence of some forms of required
documentation, much of the documentation specifically cited by the
ITR--including requests for proposals, independent government estimates,
certified cost or pricing data, technical analyses, and price negotiation
memorandums--was not required for the modifications in question.^12 In
some respects, it appears the ITR treated the pumping systems contract as
if it were for construction rather than supplies. Different documentation
requirements apply to these types of contracts.
Ten of the modifications we reviewed in-depth increased contract costs
and, therefore, required documentation of fair and reasonable pricing.^13
While independent government estimates are one technique that can be used
to analyze price and are required for construction contracts, they are not
specifically required for supply contracts, such as the contract for the
pumping systems. Nonetheless, the Corps obtained--and included in the
files after the ITR review--independent government estimates for six of
the modifications.
None of the 10 modifications with additional costs that we reviewed
in-depth required the contractor to provide certified cost or pricing
data. Specifically, we found that 7 of the modifications fell under the
threshold requiring cost or pricing data.^14 The contracting officer
determined that cost or pricing data was not required for another
modification because it combined separately priced changes from 2 previous
modifications that were each below the threshold. Finally, for 2
modifications related to the purchase of six additional pumps, the
contracting officer concluded that adequate price competition existed from
the base contract and, therefore, additional pricing data was not
required. At least some information on pricing provided by the contractor
was included in the files for all 10 of the modifications that involved
additional costs.
^12The documentation cited by the ITR would not have impacted the
weaknesses we identified earlier in this report.
^13Fourteen of the 32 modifications resulted in increased contracting
costs.
According to the FAR, when contractor certified cost and pricing data are
not required, price analysis shall be used to determine a fair and
reasonable price. While the FAR provides numerous analysis techniques,
including the use of independent government estimates, it does not require
the use of any one method. For 8 of the modifications we reviewed, the
Corps' contracting officer documented price analysis and negotiations with
the contractor through signed internal memorandums for the files, and for
2 modifications, used price negotiation memorandums.^15 In addition, while
not required, the Corps obtained internal technical analyses for 3 of the
modifications we reviewed in depth to determine the reasonableness of
MWI's proposals. Table 2 summarizes GAO's analysis of the ITR's findings
regarding missing documentation in the contract files.
^14The threshold for certified cost and pricing data was increased from
$550,000 to $650,000 on September 28, 2006.
^15While price negotiation memorandums can be used to document price
analysis findings, such as fair and reasonable pricing, they are not
specifically required for documenting the agreement negotiated between the
contractor and agency.
Table 2: GAO Analysis of the ITR Findings
Documentation cited as
missing by ITR GAO analysis and applicable FAR references
Request for proposal Not always required for contract modifications.
Under the FAR, the Standard Form (SF) 30, Amendment
of Solicitation/Modification of Contract may be
used at the discretion of the contracting officer.
FAR section 15.210(b).
Independent government A comparison of contractor-proposed prices with an
estimate independent government estimate is one of many
examples of price analysis techniques, but is not
specifically required for contract modifications.
FAR section 15.404-1(b).
Contractor certified Certified cost or pricing data is required for
cost or pricing data modifications of any negotiated contract expected
to exceed the current threshold of $650,000 except
when adequate price competition exists or when
commercial items are being acquired. In addition,
this requirement does not apply when unrelated and
separately priced changes below the threshold are
included for administrative convenience in the same
modification. FAR sections 15.403-1, 15.403-4.
Price, cost, or Price analysis shall be used when contractor cost
technical analysis or pricing data are not required. Various price and
cost analysis techniques are listed in the FAR,
including the use of independent government
estimates. However, none of the listed techniques
are specifically required. In addition, the
contracting officer may, but is not specifically
required to, request that personnel with
specialized knowledge, skills, experience, or
capabilities perform technical analyses of
contractor proposals to determine reasonableness.
FAR section 15.404-1.
Price negotiation While price negotiation memorandums can be used to
memorandum document price analysis findings, such as fair and
reasonable pricing, they are not specifically
required for documenting the agreement negotiated
between the contractor and agency. These
memorandums document the principal elements of the
negotiated agreement. FAR section 15.406-3.
Source: GAO.
File Documentation Establishes Independence of Corps Decision Making
In addition to contract documentation issues, the ITR also reported that
it appeared, in some circumstances, as though the contractor developed the
scope of work and pricing for the modifications without a subsequent
analysis by the Corps. We found no instance of this occurring. Rather, our
review of the files indicate that, for most of the contract modifications,
there was extensive back and forth discussion, usually by e-mail, between
personnel from the Corps and MWI. These discussions focused on the causes
of and solutions to technical issues, as well as the costs of corrective
actions.
While each of the modifications was unique, modification No. 2 is
illustrative of many of the contract modifications we reviewed.
Specifically, shortly after award of the contract, the Corps determined
that it needed the capability to control the pumps from a remote location,
since in the event of a hurricane the operator would be required to seek
shelter in a control booth. The Chief of Engineering from the Corps
prepared a request to modify the contract to require master pump control
panels. The request contained detailed specifications of what was required
and estimated that the additional cost would be $150,000. The contracting
officer sent the request to MWI and asked for a cost proposal. MWI replied
through an e-mail that repeated the specifications provided to it by the
Corps and offered a price of $188,699. The Corps requested additional
support for the price, and MWI responded with a copy of the quote it had
received from its supplier, pricing for MWI's markup, and the additional
work MWI would perform. A Corps engineer reviewed this information and
informed the contracting office that MWI's proposed price was reasonable.
The Corps issued a contract modification with the specifications it
developed at the price quoted by MWI. As was the case for a number of
modifications, there was no contemporaneous price reasonableness document
signed by the contracting officer; rather, an undated "after the fact"
memorandum concluding that MWI's price for the modification was reasonable
was added to the file.
The Corps Has Not Overpaid the Contract and Has Plans to Reconcile Payments Made
in Error
As of October 31, 2007, the Corps had paid the contractor about $30.5
million of the $33 million contract for the 40 hydraulic pumping systems
and has plans for reconciling mistaken payments it made. The Corps made
payments to the contractor only after receiving invoices from the
contractor for delivered items and services. In most cases, the Corps only
paid 80 percent of each invoice and held the other 20 percent as retained
funds in order to ensure the contractor was not overpaid and that any
performance issues were addressed.
The ITR identified a few instances where the contractor had received
payment more than once for the same item. Our review confirmed that this
did occur. We found, however, that these payments were made in error by
the Corps and did not indicate any improper behavior on the contractor's
part. Specifically, on December 6, 2006, the Corps received one invoice
requesting payment for three drive units and three pumps valued at about
$2.2 million because they were complete, and MWI believed that they could
be delivered if the Corps wanted them at that time. On the same day, the
Corps notified MWI that it could not pay for the pumps and drive units
until they were actually delivered. MWI then e-mailed the Corps,
requesting that they ignore the original invoice and stating that they
would send new invoices for the drive units and pumps upon shipment. The
Corps subsequently received three separate invoices, each requesting
payment for one drive unit and one pump. However, the Corps paid all of
the invoices, including the invoice that the contractor told them to
ignore. As a result, the Corps paid twice for the same three pumps and
three drive units. According to the Corps' contracting officer, the
duplicate payments will be corrected by deducting the balance from
withheld funds and not paying some outstanding invoices. Our review found
no other instances where duplicate payments were made to the contractor.
We also found 14 instances where the contractor sent invoices to the Corps
for work completed, which have not been paid. The net effect is that the
contractor has not been overpaid under the contract.
On June 8, 2007, the Corps sent a letter to MWI providing an explanation
as to why the Corps had not paid these outstanding invoices, and
describing how the Corps planned to reconcile the duplicate payments made
in January and February 2007 by subtracting the amount of the outstanding
invoices from any additional invoices it received. From July through
October 2007, the Corps made four additional payments to the contractor
from the payments it had withheld, totaling about $1.8 million. The Corps
has still not made final payment for the outstanding amount remaining on
the contract. In addition, the Corps has withheld payments related to an
early delivery incentive of approximately $5 million until the final
acceptance of the pumping systems.^16 According to Corps officials, the
final payment and reconciliation of the contract, including any incentive
payments or penalties, will be settled with the contractor after final
acceptance of the pumping systems. The Corps expects this to take place in
the early part of calendar year 2008.
Conclusion
The Corps' actions in awarding and administering the pumping system
contract were generally in accordance with federal requirements. However,
in its haste to award the contract and acquire and install the pumps, the
Corps did not develop a contract that was clear and precise with respect
to testing and acceptance criteria and did not always promptly prepare
required contract related documents. In some cases, this has led to
uncertainties about exactly what was required of the contractor to comply
with the contract's terms and conditions. This also creates the potential
for contract disputes, which can be difficult, expensive, and
time-consuming to resolve. In addition, in those cases where required
documents were prepared "after the fact," there is an increased likelihood
that documents prepared months after events have occurred may contain
inaccuracies as memories have faded and key personnel may have moved on to
other positions.
^16The incentive clause also has a penalty for late delivery of $1,700 per
pump, per day. The Corps will determine whether or not a penalty will be
assessed as part of the close-out process.
Recommendations for Executive Action
While we recognize that this procurement was conducted under exigent
circumstances, we believe that the procedures used by the Corps could be
improved for future procurements. For this reason we recommend that the
Secretary of Defense direct the Commanding General and Chief of Engineers
of the U.S. Army Corps of Engineers to:
o take steps, through additional guidance or otherwise, to
reinforce the importance of adherence to sound acquisition
practices, even during expedited procurements, including ensuring
that important contract provisions, such as any required testing,
are clear so that the contractor and the government understand
what conditions or criteria must be met for successful completion
of the contract; and
o develop procedures to ensure that any required contract-related
documentation, including that related to contract pricing, is
completed and filed within a reasonable period of time.
Agency Comments and Our Evaluation
The Department of Defense provided written comments on a draft of
this report, which are reprinted in appendix III. The Department
of Defense concurred with our recommendations and provided
information on what actions it would take to address them.
Concerning our recommendation to adhere to sound acquisition
practices, the Department of Defense said the Secretary of Defense
will direct the Corps to send guidance to all Corps offices
emphasizing the need for clearer technical specifications so that
the contractor and government understand what conditions or
criteria must be met for successful contract completion. To
address our recommendation to ensure more timely completion of
required contract file documentation, the Department of Defense
said the Secretary of Defense will direct the Corps to review and
revise as necessary current policies and regulations. The
Department of Defense also provided us with technical comments,
which we have incorporated throughout the report, as appropriate.
As agreed with your office, unless you publicly announce the
contents of this report earlier, we plan no further distribution
until 30 days from the report date. At that time, we will send
copies to interested congressional committees; the Secretary of
Defense; and the Commanding General and Chief of Engineers of the
U.S. Army Corps of Engineers. We will also make copies available
to others on request. In addition, the report will be available at
no charge on the GAO Web site at http://www.gao.gov.
If you or any of your staff have any questions about this report,
please contact one of us at (202) 512-3841 or [33][email protected]
, (202) 512-4841 or [34][email protected] , or (202) 512-6923 or
[35][email protected] . Contact points for our Offices of
Congressional Relations and Public Affairs may be found on the
last page of this report. Key contributors to this report are
listed in appendix IV.
Sincerely yours,
Anu K. Mittal
Director, Natural Resources and Environment
William T. Woods
Director, Acquisition and Sourcing Management
Terrell G. Dorn
Director, Physical Infrastructure
Appendix I: Scope and Methodology
To evaluate efforts by the U.S. Army Corps of Engineers (Corps) to
solicit, award, and administer the pumping system contract, we
reviewed the Corps' plans for the interim gates and temporary
pumping systems consisting of the 40 hydraulic pumps installed at
the three New Orleans drainage canals. We also reviewed applicable
Federal Acquisition Regulation criteria, especially pertaining to
contract pricing; the contract and specifications; e-mails,
correspondence, and other supporting documentation related to the
solicitation and award of the contract; factory and on-site test
results; performance requirements; the 32 contract modifications
and supporting documentation; the Mississippi Valley Division
(MVD) Independent Team Report (ITR); the Corps project delivery
team's response to the ITR; contractor invoices and payment
records; and the Corps' plans for increasing pumping capacity
through 2007.
We also visited the 17th Street, London Avenue, and Orleans Avenue
Canals and observed the operation of the pumping systems. We
interviewed contracting and program officials from (1) Corps
Headquarters, New Orleans District, other Corps districts, and
members of the MVD's technical review team related to the contract
and pump performance; (2) Moving Water Industries Corporation and
two other pump suppliers that bid on the solicitation; and (3) the
architectural and engineering consulting firms under contract with
the Corps that researched available pumping system alternatives,
including qualified pump manufactures, pump delivery timelines,
and costs, and that helped design the canal gates and pumping
stations. We conducted our work from September through December
2007 in accordance with generally accepted government auditing
standards.
Appendix II: Pumping Capacity for the Three Drainage Canals
Figure 9: Pumping Capacity Trend for the 17th Street Canal, June 1,
2006 through November 30, 2007:
This figure is a graph showing pumping capacity trend for the 17th
Street Canal, between June 1, 2006, and November 30, 2007. The X axis
represents pump capacity timeline, while the Y axis represents cubic
feet per second.
[See PDF for image]
Source: GAO analysis of U.S. Army Corps of Engineers' data.
[End of figure]
Figure 10: Pumping Capacity Trend for the London Avenue Canal, June 1,
2006 through November 30, 2007:
This figure is a graph showing pumping capacity trend for London Avenue
Canal, between June 1, 2006, and November 30, 2007. The X axis
represents pump capacity timeline, while the Y axis represents cubic
feet per second.
[See PDF for image]
Source: GAO analysis of U.S. Army Corps of Engineers' data.
[End of figure]
Figure 11: Pumping Capacity Trend for the Orleans Avenue Canal, June 1,
2006 through November 30, 2007:
This figure is a graph showing pumping capacity trend for the Orleans
Avenue Canal, between June 1, 2006, and November 30, 2007. The X axis
represents pump capacity timeline, while the Y axis represents cubic
feet per second.
[See PDF for image]
Source: GAO analysis of U.S. Army Corps of Engineers' data.
Appendix III: Comments from the Department of Defense
Department Of The Army:
U.S. Army Corps Of Engineers:
441 G ST. NW:
Washington, D.C. 20314-1000:
December 18, 2007:
Internal Review Office:
Ms. Anu K. Mittal:
Director, Natural Resources And Environment:
Government Accountability Office 441 G Street, N.W.:
Washington, D.C. 20548:
Dear Ms. Mittal:
This is the Department of Defense (DOD) response to the GAO draft
report 08-288, 'Army Corps Of Engineers: Known Performance Issues with
New Orleans Drainage Canal Pumps Have Been Addressed, but Guidance on
Future Contracts Is Needed,' dated December 4, 2007, (GAO Code 360879).
We appreciate the opportunity for reviewing the draft report. Command
comments to the report recommendations are contained in the attachment.
If you have any questions or require additional information, please
contact Ms. Alicia Matias, 202-761-4573,
[email protected].
Signed by:
Donna F. Johnson:
Acting Chief Audit Executive:
HQ Internal Review Office:
Enclosure:
As stated:
GAO Draft Report 08-288, 'Army Corps Of Engineers: Known Performance
Issues With New Orleans Drainage Canal Pumps Have Been Addressed, But
Guidance On Future Contracts Is Needed,' Dated December 4, 2007, (Gao
Code 360879):
Department Of Defense Response To The Recommendations:
Recommendation: We recommend that the Secretary of Defense require the
Chief of Engineers to:
Take steps, through additional guidance or otherwise, to reinforce the
importance of adherence to sound acquisition practices even during
expedited procurements, including ensuring that important contract
provisions, such as any required testing, are clear and that the
contractor and the government understand what conditions or criteria
must be met for successful completion of the contract.
DOD Response: Concur: The Secretary of Defense will direct the U.S.
Army Corps of Engineers to send a memo to all Corps offices reinforcing
the importance of adherence to sound engineering practices even during
expedited procurements. The memo will relate lessons learned and
emphasize the need for technical specifications, such as those required
for equipment testing, to be clear so that the contractor and the
government understand what conditions or criteria must be met for
successful completion of the contract. The anticipated date to transmit
the memo is 11 January. 2008. Develop procedures to ensure that any
contract related documentation, including that related to contract
pricing, is completed and filed within a reasonable period of time.
DOD Response: Concur: The Secretary of Defense will direct the U.S.
Army Corps of Engineers to review and revise, as necessary, current
policies and regulations to ensure that a reasonable period of time is
identified for completing and filing contract documents. Estimated
completion date is 30 May, 2008.
Appendix IV: GAO Contacts and Staff Acknowledgments
GAO Contacts
Anu K. Mittal, (202) 512-3841 or [36][email protected] William T.
Woods, (202) 512-4841 or [37][email protected] Terrell G. Dorn, (202)
512-6923 or [38][email protected]
Staff Acknowledgments
In addition to the contacts named above, Ed Zadjura, Assistant
Director; Matthew Reinhart; Katherine Trimble; Christine Frye;
James Dishmon; Rich Johnson; Marie P. Ahearn; and Kenneth E.
Patton made significant contributions to this report.
GAO's Mission
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(360879)
To view the full product, including the scope
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Highlights of [46]GAO-08-288 , a report to the Chairman, Ad Hoc
Subcommittee on Disaster Recovery, Committee on Homeland Security and
Governmental Affairs, U.S. Senate
December 2007
ARMY CORPS OF ENGINEERS
Known Performance Issues with New Orleans Drainage Canal Pumps Have Been
Addressed, but Guidance on Future Contracts Is Needed
Hurricane Katrina caused several breaches in the floodwalls along three
drainage canals in New Orleans, contributing to catastrophic flooding. To
restore the pre-Katrina level of hurricane-related flood protection, the
Army Corps of Engineers (Corps) decided to acquire several large-capacity
pumping systems. During the process of acquiring, testing, and installing
the pumping systems, issues with the pump contract and operation of the
pumping systems came to light, including several identified in a Corps
Independent Team Report (ITR).
GAO was asked to evaluate the Corps' efforts to (1) develop contract
specifications and award the contract, (2) address pumping system
performance issues, (3) document contract modifications, and (4) reconcile
contract payments. GAO reviewed contract and testing documents, observed
the operation of the pumping system, and interviewed officials from the
Corps, its consultants and contractors, and the ITR team.
[47]What GAO Recommends
GAO recommends actions to ensure that future contracts adhere to sound
acquisition practices, even for expedited procurements, and to ensure that
any required contract documentation is completed and filed in a timely
manner.
The Department of Defense agreed with GAO's recommendations.
Schedule concerns drove the Corps' decisions in developing specifications
for the pumping systems and awarding the contract, but the rush to award
the contract resulted in deficiencies in key contract provisions.
Specifically, the original factory test requirements were ambiguous, there
were only limited provisions for on-site testing, and there were no
criteria for acceptance of the pumping systems by the government. The
Corps conducted an expedited competition to contract for the pumping
systems and selected a supplier for contract award based largely on its
ability to deliver the pumping systems by the June 1 start of the 2006
Atlantic hurricane season.
The Corps and the contractors have addressed and corrected known
performance issues with the pumping systems. Concerns included hydraulic
motor vibrations, the design of the hydraulic intake line, suspect pipe
welds, and lower than expected pumping capacity. The pumping systems were
installed prior to correcting these issues because the Corps believed it
was better to have some pumping capacity along the drainage canals during
the 2006 hurricane season rather than none, despite uncertainty over how
much of the pumping system capacity would be available, and for how long,
if needed. Between November 2006 and September 2007, the Corps and the
contractors completed all of the repairs and reinstalled the pumping
systems. Documents that GAO reviewed indicate that, as of September 2007,
each pumping system had been successfully tested on site for at least 2
hours, thus providing greater assurance that they will perform as
designed.
The contract files for the pumping systems contained the required
documentation for the type and value of the contract and associated
modifications, though, in a number of cases, documentation was inserted in
the contract files several months after modifications were issued and only
after the ITR reported its findings. While the ITR correctly noted the
absence of some required documentation, GAO found that much of the
specific documentation cited as missing was not required for the
modifications in question because of the nature and value of these
modifications. In addition, while the ITR found that it appeared as though
the contractor developed the scope of work and pricing for some of the
modifications without a subsequent analysis by the Corps, GAO found no
instance of this occurring.
As of October 31, 2007, the Corps had paid the contractor about $30.5
million of the $33 million contract amount. In a few instances, the Corps
made duplicate payments to the contractor. GAO found that these payments
were due to Corps mistakes, not inappropriate billing by the contractor.
GAO found no other cases of duplicate payments. The Corps plans to adjust
for the duplicate payments by deducting the balance from remaining funds,
including any incentive payments, owed to the contractor. According to
Corps officials, final payment and reconciliation of the contract is
expected by early 2008; however, it is unknown to what extent contract or
pump performance issues will affect the final amount paid for the contract
during the close-out process.
References
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