District of Columbia: Authority Needs to Improve Its Procurement
Practices (Letter Report, 08/18/1999, GAO/GGD-99-134).

Allegations have been made about procurement improprieties at the
District of Columbia Financial Responsibility and Management Assistant
Authority, which Congress established in 1995 to repair the District's
failing financial condition and to improve the effectiveness of city
operations. The Authority was given the authority to award contracts
itself and to review and approve contracts awarded by the District. GAO
found that the Authority did not always comply with its procurement
regulations and procedures or follow sound contracting principles when
it awarded and administered the nine contracts GAO assessed. In
addition, the Authority's files for these contracts were incomplete.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  GGD-99-134
     TITLE:  District of Columbia: Authority Needs to Improve Its
	     Procurement Practices
      DATE:  08/18/1999
   SUBJECT:  Noncompliance
	     Reporting requirements
	     Sole source procurement
	     State and local procurement
	     Irregular procurement
	     Procurement policy
	     Procurement practices
	     Internal controls

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    United States General Accounting Office GAO               Report
    to Congressional Requesters August 1999       DISTRICT OF COLUMBIA
    Authority Needs to Improve Its Procurement Practices GAO/GGD-99-
    134 United States General Accounting Office
    General Government Division Washington, D.C.  20548 B-281962
    August 18, 1999 The Honorable Ernest J. Istook, Jr. Chairman,
    Subcommittee on the District of Columbia Committee on
    Appropriations House of Representatives The Honorable Thomas M.
    Davis Chairman, Subcommittee on the District of Columbia Committee
    on Government Reform House of Representatives This report responds
    to your requests for a review of the procurement practices of the
    District of Columbia Financial Responsibility and Management
    Assistance Authority (Authority). 1 As you are aware, the
    Authority was established by Congress in 1995 to repair the
    District's failing financial conditions and to improve the
    effectiveness of its various entities. To accomplish this, the
    Authority was given a wide range of statutory authority and
    responsibility, including awarding contracts itself and the review
    and approval of contracts awarded by the District, to ensure the
    most efficient and effective service delivery. Based on concerns
    regarding allegations of procurement improprieties at the
    Authority, you requested that we determine whether applicable
    procurement regulations and procedures were followed in awarding
    and administering selected contracts on behalf of the Authority's
    former Chief Management Officer (CMO)2 and to Thompson, Cobb,
    Bazilio and Associates, a private accounting firm that is
    responsible for auditing the Authority's financial statements. We
    reviewed a total of 12 contracts and their associated contract
    actions, which we selected based on your specific concerns.3 Ten
    of the contracts were awarded by the Authority and totaled $13
    million. The other two contracts were awarded by the District's
    Chief Procurement Officer (CPO) and totaled over $1 million.
    Although we reviewed a total of 10 contracts that were awarded by
    the Authority, we only assessed whether 9 of them were awarded and
    administered in accordance with the Authority's procurement
    regulations 1 The Authority is also referred to as the Control
    Board. 2 In February 1999, the Authority accepted the resignation
    of its CMO. 3 Contract actions include contract awards,
    modifications, and options. Page 1
    GAO/GGD-99-134 Procurement Practices B-281962 because 1 of the
    contracts in our review, Thompson, Cobb, Bazilio and Associates
    (contract number FY96/FRA#2) was awarded before the Authority's
    regulations were adopted in March 1996. The Authority did not
    provide us with any information on what procedures were followed
    in awarding this contract..  Appendix II contains information on
    the award and administration of this contract. As requested, we
    also determined whether the Authority and the District received
    the goods and services that they contracted and paid for in the
    contracts that we reviewed. The Authority did not always comply
    with its procurement regulations and Results in Brief
    procedures or follow sound contracting principles when it awarded
    and administered the nine contracts that we assessed. In addition,
    the Authority's contract files for these contracts were
    incomplete. The files did not generally contain documentation of
    the key contract award and administration decisions as required by
    the Authority's procurement regulations. As a result of the
    incomplete contract files, the Authority could not demonstrate
    that its objectives of (1) acquiring goods and services at the
    lowest price or best value and (2) treating offerors fairly were
    achieved for several of the contracts we reviewed. The Authority's
    procurement regulations provide for a preference for competitively
    awarded contracts and require written justification and approval
    of sole source contracts. The Authority's contract files contained
    evidence that it sought competition for seven of the nine
    contracts we assessed. However, contrary to its regulations, the
    Authority did not (1) document its basis for contract selection
    for three contracts, (2) include written justification for one
    sole source contract award or a series of "modifications" to
    another contract that, in effect, was a sole source award, or (3)
    comply with other requirements in several cases. The Authority's
    contract files and information we obtained from two contractors
    indicated that the Authority received the goods and services it
    contracted for in six of the nine contracts we assessed. No
    documentation was found in the Authority's contract files to show
    whether the required deliverables were received for the other two
    contracts. Contrary to the Authority's regulations, none of the
    contract files for the nine contracts we assessed contained
    certification or any other evidence that the contractor performed
    satisfactorily prior to payment of invoices. The Authority's
    procurement regulations do not specify any contract administration
    requirements other than the certification provision to ensure that
    the Authority gets what it paid for. Authority officials told us
    they relied on the Page 2
    GAO/GGD-99-134 Procurement Practices B-281962 statements of work
    included in each contract to provide guidance in the
    administration of its contracts. However, the statements of work
    for the nine contracts and associated contract actions we assessed
    generally did not include standards for measuring the contractor's
    performance as required by the Authority's regulations. For the
    two emergency sole source contracts awarded by the District
    government, the District's CPO did not comply with the Authority's
    contract review and approval regulations governing District
    contracts or the District's procurement regulations. First, the
    District's CPO entered into an emergency sole source contract
    totaling $153,800 with a consultant firm for management reform
    services for the Authority's former CMO without justifying how the
    procurement qualified as an emergency procurement or obtaining the
    Authority's approval. Second, 4 months later, he awarded another
    emergency sole source contract for $893,000 to the same firm, once
    again for management reform services for the Authority's former
    CMO, but did not justify the emergency procurement or receive the
    Authority's approval as required by the regulations. Several
    factors appeared to contribute to the Authority's failure to
    comply with its procurement regulations.  For example, when
    Digital Systems International Corporation (DSIC), a consultant
    firm retained by the Authority, reported the results of its review
    of over 100 of the Authority's contracts in January 1999, it
    identified some of the same problems we did and attributed the
    Authority's contracting problems, in part, to its emphasis on
    meeting mission requirements and lack of procurement expertise.
    According to the Authority's former Executive Director,4 with
    respect to the management reform contracts, the magnitude of the
    tasks and the short time frame in which the Authority had to
    complete them contributed to the Authority's procurements not
    being as "tidy" as the Authority would have liked. DSIC made
    several recommendations to the Authority that, if effectively
    implemented, should help to improve the Authority's procurement
    process. We are making additional recommendations to the
    Authority's Chair. On April 17, 1995, the President signed the
    District of Columbia Financial Background    Responsibility and
    Management Assistance Act of 1995, P.L. 104-8, which established
    the Authority to repair the District's failing financial condition
    4 In May 1999, the Authority's original Executive Director
    resigned. He was hired as the Executive Director in June 1995. The
    Authority has since appointed another Executive Director. Page 3
    GAO/GGD-99-134 Procurement Practices B-281962 and to improve the
    efficiency and effectiveness of its various agencies. The Act also
    permits the Authority to *  contract for goods and services for
    its own mission, *  contract for goods and services on behalf of
    District agencies, and *  review and approve contracts processed
    by District agencies. In addition, on August 5, 1997, the
    President signed into law the National Capital Revitalization and
    Self-Government Improvement Act, Title XI of P.L. 105-33. Under
    the Act, the Authority was directed to develop management reform
    plans for nine agencies and four citywide functions. The Act also
    required the Authority to award the management reform consultant
    contracts within 30 days from the date of its enactment, unless
    the Authority notified Congress, in which case the Authority could
    take 60 days. The Authority is an independent entity within the
    government of the District and is statutorily exempt from adhering
    to the District's procurement regulations. In addition, because
    the Authority is not an agency of the federal government, it does
    not have to comply with federal procurement statutes or
    regulations, such as the Federal Acquisition Regulation. In March
    1996, the Authority promulgated its own procurement regulations
    that are intended to permit the procurement of property and
    services efficiently and at either the least cost to or the best
    value for the Authority. The Authority's contracting authority is
    statutorily vested in its Executive Director, who is also the
    designated Contracting Officer. According to the Authority's
    regulations, the Executive Director may at any time waive5 any
    provisions of the regulations, with the exception of the provision
    regarding the avoidance of conflicts or impropriety and the
    appearance of conflict or impropriety. The Authority's regulations
    prescribe some of the basic procurement principles, including *
    the avoidance of conflicts or impropriety and the appearance of
    conflict or impropriety; *  a preference for competition among
    potential sources to ensure fair and reasonable prices and best
    value for the Authority; 5 The regulations do not state whether
    the waiver has to be in writing. According to the former Executive
    Director, the provisions in the procurement regulations have never
    been waived. Page 4
    GAO/GGD-99-134 Procurement Practices B-281962 *  use of sole
    source contracting only when it makes good business sense or
    promotes the Authority's mission and is justified in writing and,
    if the contract exceeds $100,000 on an annual basis is approved by
    the Authority's Chair; *  identification of potential sources to
    achieve the benefits of competition; *  publication of the
    Authority's requirements to make potential qualified sources aware
    of the Authority's requirements; *  preparation of statements of
    work that include a thorough description of the required services,
    a delivery schedule, and standards for measuring the contractor's
    performance; and *  monitoring of contractor performance and
    certification of satisfactory performance prior to payment of
    contractor invoices. In addition, the Authority's regulations
    prescribe procedures for simplified and formal contracting.
    According to the regulations, the Executive Director shall
    determine the type of procurement action that is appropriate for
    the use of simplified contracting procedures. The regulations
    state that simplified contracting procedures must be used when the
    value of the procurement is not expected to exceed $100,000 and/or
    when the nature of the goods or services to be provided is
    appropriate for these procedures. Under simplified contracting,
    the regulations prescribe procedures for obtaining competition,
    preparing written solicitations, evaluating proposals, and
    awarding contracts. For example, the Executive Director is
    responsible for making the final determination for contract
    selection based on the written recommendation of the technical
    evaluation team. The Authority's regulations state that formal
    contracting procedures are mandatory for contract actions that may
    result in the Authority's expenditure of $500,000 or more on an
    annual basis and may be used for competitive contract actions
    estimated at less than $500,000. Under formal contracting, the
    regulations prescribe procedures for preparing written
    solicitations, evaluating proposals, and awarding contracts. For
    example, the Executive Director's decision for contract selection
    is required to be supportable, documented, and based on the
    evaluation factors. In addition, under the formal contracting
    procedures, the Executive Director may conduct negotiations with
    qualified offerors. The regulations also require that the
    negotiation sessions be fully documented whenever they occur. The
    Executive Director is also required to perform cost/price analysis
    when a single offer is received in response to a competitive
    solicitation or when the contract will not have a fixed price. The
    regulations further state that when fair and adequate price
    competition is obtained, a comparison among proposed prices and to
    the Authority's estimate is generally adequate to verify that the
    prices offered are reasonable. Page 5
    GAO/GGD-99-134 Procurement Practices B-281962 Other than some
    requirements on the preparation and use of statements of work, the
    Authority's regulations do not prescribe specific requirements
    governing contract actions between $100,000 and $500,000, nor do
    they set forth specific requirements governing contract
    modifications or contract options. The Authority also promulgated
    regulations in November 1995 for reviewing and approving contracts
    submitted by the District government. These regulations describe
    in detail the proposed contracts that are required to be submitted
    to the Authority for review and approval. Examples include sole
    source contracts, contracts for services exceeding $25,000, and
    any contract proposed as an emergency procurement. The regulations
    further state that no contract that is required to be submitted to
    the Authority shall be awarded unless the Authority has approved
    the proposed contract or unless the Authority specifically
    declined to exercise its power to review and approve the contract
    prior to award. Subsequently, most recently on February 26, 1998,
    the Authority adopted resolutions amending the regulations by
    modifying the definition of contracts required to be submitted for
    review and approval. According to the Authority's procurement
    regulations, the Executive Director may from time to time delegate
    specific contracting and procurement responsibility and authority
    to various members of the Authority's staff. The Authority's
    regulations also require that when authority is delegated to a
    staff member to serve as a contracting officer, the delegation is
    to be in writing. Prior to reorganizing in December 1997, the
    Authority's contracting staff consisted of a Director of
    Procurement and full-time complement of five staff persons,
    including a Procurement Analyst and two Contract Specialists6. In
    early 1998, the Authority changed the scope and magnitude of its
    procurement operations by reducing the number of procurements done
    to support its own mission and reducing the number of District
    contracts to be reviewed and approved. As of April 1999, there
    were two full-time staff- a Senior Procurement Specialist and an
    independent contractor who served as the Contract Specialist-
    involved in the award and administration of Authority contracts.
    The Authority's Executive Director, Deputy General Counsel, and
    Chief Financial Officer also assisted these staff members. In
    addition, the District's CPO also awarded and administered several
    Authority contracts on behalf of the Authority. 6 According to the
    Authority, one of its two Contract  Specialists was an independent
    contractor. Page 6
    GAO/GGD-99-134 Procurement Practices B-281962 In January 1998, the
    Authority hired a CMO to assist the Authority in carrying out its
    management reform responsibilities. The CMO reported to the
    Chairperson of the Authority and was responsible for overseeing
    the management reform efforts for nine District agencies and four
    citywide functions, including procurement. In February 1999, the
    CMO resigned from her position. From its inception in April 1995
    through September 30, 1998, the Authority reports that it awarded
    141 contracts for almost $81 million. These contracts include
    procurements done by the Authority to accomplish its own mission
    or done by the Authority on behalf of the District. We reviewed a
    total of 12 contracts and their associated contract actions Scope
    and      that were awarded in fiscal years 1996 through 1998. Ten
    of the 12 Methodology    contracts were awarded by the Authority
    and the other 2 were awarded by the District's CPO. As stated
    previously, although we reviewed a total of 10 contracts awarded
    by the Authority, we assessed compliance with the Authority's
    regulations for 9 contracts because 1 contract (Thompson, Cobb,
    Bazilio and Associates, contract number FY96/FRA#2) was awarded
    before the Authority's regulations were adopted in March 1996. As
    you specifically requested, we focused on the contracts that were
    awarded for the Authority's former CMO and to Thompson, Cobb,
    Bazilio and Associates. According to the Authority, 17 of its 141
    contracts were awarded on behalf of its former CMO; we
    judgmentally selected six of those contracts to obtain a mix of
    management reform and executive recruitment services contracts. We
    selected the other six contracts because you specifically
    requested that we examine them. They include the four contracts
    awarded to Thompson, Cobb, Bazilio and Associates by the Authority
    and the two contracts awarded to Smart Management Services by the
    District's CPO. Appendix I provides additional information on the
    contracts we reviewed, and appendix II contains additional
    information on the award and administration of the contract
    awarded prior to the adoption of the Authority's regulations. We
    reviewed the contract files to determine whether the Authority and
    the District's CPO followed applicable procurement regulations
    when they awarded the contracts we assessed. For example, we
    reviewed the contract files to determine whether (1) competition
    was sought, (2) the basis for contract selection was documented,
    (3) sole source contracts had written justification, (4)
    contractors' performance was monitored, and (5) the Authority
    received the required deliverables before payment of invoices. To
    supplement our contract file review, we judgmentally selected Page
    7                                     GAO/GGD-99-134 Procurement
    Practices B-281962 three of the eight contractors who were
    retained by the Authority and the District's CPO to obtain a mix
    of contractors who were required to provide management reform or
    executive recruitment services and visited them at their offices
    to obtain information on the Authority's procurement process. For
    the contract that was awarded prior to the adoption of the
    Authority's regulations, we reviewed the information in the
    contract file to determine what information was available to
    document key contract award and administration decisions,
    including the basis for contract selection and whether the file
    contained evidence that the Authority received the services it
    paid for. As stated previously, the regulations provide that the
    Executive Director shall determine whether a particular request
    for procurement is appropriate for simplified contracting.
    However, we found no documentation in the contract files that this
    was done. Consequently, it was not apparent which method of
    contracting was used by the Authority to award Boulware a $105,000
    contract because the regulations do not specify which procedures,
    simplified or formal, apply to contracts that are between $100,000
    and $500,000. In addition, we reviewed the Authority's and
    District's procurement regulations and procedures, the Authority's
    review and approval regulations governing submission by the
    District for contracts, and interviewed Authority and District
    officials involved in contract award and contract administration.
    We also reviewed several reports of studies done by other entities
    on the Authority and District's procurement process.7 However, as
    agreed with your offices, we did not review the Authority's
    process or controls for ensuring that its review and approval
    regulations governing District contracts were being followed.
    Although our findings can only be applied to the contracts we
    reviewed, other reviews of the Authority and District's
    procurement processes have reported similar findings and
    conclusions. For example, DSIC reviewed 7 Report of Investigation
    Into The District's Awarding of Certain Contracts and The
    Termination of Employment of Mr. Michael T. Hernon, Government of
    the District of Columbia, Office of The Inspector General, March
    1999. Report of the Audit of the District of Columbia Financial
    Responsibility and Management Assistance Authority Contracts,
    Digital Systems International Corporation, January 1999. A Crisis
    in Management: An Assessment of the Contracting Operations of the
    District of Columbia, District of Columbia Financial
    Responsibility and Management Assistance Authority, March 6, 1997.
    Page 8
    GAO/GGD-99-134 Procurement Practices B-281962 over 100 Authority
    contracts that totaled $47.2 million and were awarded between
    August 1995 and September 1998. We conducted our review in
    Washington, D.C.; Houston, TX; and Chicago, IL; from September
    1998 to July 1999 in accordance with generally accepted government
    auditing standards. We obtained comments on a draft of this report
    from the Authority and the District's CPO. These comments are
    summarized in the agency comment section of this report and are
    discussed in the report where appropriate. Appendix III contains
    the Authority's written comments and our specific responses to
    those comments. Although the Authority's procurement regulations
    set forth some basic The Authority Did Not requirements for
    contract award, we found that the Authority did not Always Comply
    With              always comply with its procurement regulations
    or follow sound contracting principles for the nine contracts that
    we assessed. As stated Its Procurement                 previously,
    the Authority's former Executive Director was able to waive
    Regulations                     almost any provision of the
    regulations; however, he stated that a waiver was not granted for
    any of the contracts awarded by the Authority. In its comments on
    a draft of this report, the Authority said that our statement that
    "according to the former Executive Director, the provisions in the
    procurement regulations have never been waived" is not quite
    accurate. The Authority commented that its former Executive
    Director said that its regulations had never been waived in
    writing. The former Executive Director did not make this
    distinction when we met with him. While the Authority's
    regulations do not state whether the waiver has to be in writing,
    we disagree with the Authority's position that once a contract is
    executed by its Executive Director and approved by the Chair, any
    irregularities with respect to its award have been waived. The
    failure to follow the Authority's regulatory requirements could
    occur at several stages in the contracting process, and the
    Executive Director may not necessarily be aware of what regulatory
    requirements his contracting staff may have failed to follow. If
    the execution of a contract by the Executive Director constitutes
    a waiver of any Authority contracting requirement, regardless of
    whether the Executive Director knew of a contracting deficiency,
    there would be essentially no accountability for the actions of
    the Authority or its employees. Such a process would, in effect,
    render the regulations useless. The contract files we reviewed
    indicated that the Authority sought competition for seven of the
    nine contracts we assessed. However, the Page 9
    GAO/GGD-99-134 Procurement Practices B-281962 contract files
    contained little or no evidence that the Authority (1) documented
    its basis for contract selection for the three contracts where it
    is specifically required by the regulations; (2) prepared written
    justification for one sole source contract award or a series of
    "modifications" to another contract that, in effect, was a sole
    source award; or (3) documented its contract negotiations as
    required by the regulations for the two contracts where the
    Authority stated that negotiations had occurred. After we
    completed our review of the ten contract files, we notified the
    Authority of missing documents and requested that they be
    provided. On May 21, 1999, the Authority's former Executive
    Director provided us with a letter to explain how he made his
    contract selection decisions, but did not provide any additional
    documentation. Of the 9 contracts we assessed, we found that the
    Authority did not Basis for Contract Selection document its basis
    for contract selection, as specifically required by its Generally
    Not Documented            regulations, for the three contracts
    that were awarded to Managing Total Performance, Management
    Partners, and the Urban Center. The Authority's regulations
    require the Executive Director's decision for contract selection
    to be supportable, documented, reasonable, and based on the
    technical evaluation report for contracts that total $500,000 or
    more. For example, there was no evidence in the contract file
    documenting the Authority's basis for awarding to Managing Total
    Performance a $796,600 contract for phase I management reform work
    or adding $10.6 million in modifications to this contract. The
    contract file also contained information that indicated that the
    Authority received several other proposals but contained no
    documentation explaining why Managing Total Performance was
    selected or the other proposals were not selected. In addition,
    under simplified contracting, when written proposals are received
    the evaluation panel is required to document the basis for its
    initial recommendation for contract selection, including a brief
    description of why the recommended proposal offers the best value
    of all proposals received. The evaluation panel's basis for its
    initial recommendation for contract selection was not documented
    in the contract files for the four contracts where simplified
    contracting procedures applied. For example, the Authority awarded
    a $54,000 contract which was later modified to $94,500 to the
    Gaebler Group to establish a management task force to provide
    management and technical assistance to its former CMO. The
    Authority's contract file contained six proposals in response to
    the solicitation, but there was no evidence in the contract file
    documenting the Authority's basis for selecting the Gaebler Group.
    There also was no evidence in the contract file that the other
    five firms were not qualified or Page 10
    GAO/GGD-99-134 Procurement Practices B-281962 were less qualified
    to provide the required services. In addition, the Authority' s
    technical evaluation panel and its former CMO both initially
    recommended another contractor. The other cases involve the three
    contracts the Authority awarded to Thompson, Cobb, Bazilio and
    Associates totaling over $153,000 to audit its financial
    statements and the enrollment in the District's public schools.
    However, the Authority did not document its basis for selecting
    this particular contractor for any of the three contracts.  The
    absence of a clearly documented selection process left no written
    record to review the basis for contract selection for the
    contracts we assessed or  to determine whether the awards were
    made at the lowest cost or best value and whether offerors were
    treated fairly. In response to our request for the basis for
    contract selections for the contracts we reviewed, with respect to
    the former CMO contracts, the Authority's former Executive
    Director said that the proposals submitted were evaluated by the
    selection committee. However, the final decisions concerning
    contract awards to vendors, the acceptability of individuals
    proposed as members of the team, and the tasks to which teams and
    individuals were assigned were made by the former CMO. In
    addition, the former Executive Director specifically acknowledged
    that the Gaebler Group was not the recommendation of the selection
    committee and said that the former CMO determined that she needed
    additional management assistance and believed that the Gaebler
    Group could perform the tasks within the time constraints. There
    was nothing in the contract file to explain the former CMO's
    position. The former Executive Director also said that he
    determined that it was in the Authority's best interest to approve
    the $10.6 million in modifications to the Managing Total
    Performance contract, even though the total price of the
    modifications was greater than the original contract price,
    because the Authority and District agencies had already fallen
    behind in implementing management reform. Finally, the former
    Executive Director said that he awarded the three contracts to
    Thompson, Cobb, Bazilio and Associates based on recommendations
    from the Authority's contracting staff and his personal knowledge
    and experience with the firm. In commenting on a draft of this
    report, the Authority said that the basis for contract selection
    for the contracts awarded to the Gaebler Group, Management
    Partners, the Urban Center, and Managing Total Performance is
    contained in memorandums dated March 18, 1998, and September 4,
    1997. However, these documents do not contain the Executive
    Director's Page 11                                    GAO/GGD-99-
    134 Procurement Practices B-281962 basis for contractor selection.
    In addition, the contract files contained no explanation of the
    difference between the evaluation panel's recommendation and the
    selection of the Gaebler Group as previously discussed. The
    Authority commented that the Executive Director's signature on the
    contract as the contracting officer constitutes documentation for
    the basis for contract selection. The Authority also believes that
    the award of a contract in accordance with the recommendation of
    the selection team is an adoption of that recommendation and is
    thus the basis for contract selection. We agree in cases of
    simplified contracting where the Executive Director accepts the
    panel's recommendation that the Executive Director's signature on
    the contract constitutes documentation of the basis for contract
    selection, as asserted by the Authority.  However, according to
    the Authority's regulations, specifically chapter 5, section F.1.,
    the Executive Director is required to prepare a memorandum
    detailing the procurement and the rationale for the contract
    selection for contracts over $500,000.  Therefore, under these
    formal contracting procedures, the Executive Director's signature
    on the contract would not satisfy this regulatory requirement. We
    found that the Authority did not comply with its regulations when
    it Justification for Sole Source awarded one sole source contract
    and executed a series of "modifications" Contracts Not Always
    to another contract that became, in effect, a sole source award.
    The Substantiated                      Authority's regulations
    require that all sole source contracts be accompanied by a written
    justification and, if the contract exceeds $100,000 on an annual
    basis, be approved by the Authority's Chair. However, we found
    that the Deputy Management Officer for the Authority's former CMO
    entered into a verbal agreement on a noncompetitive basis without
    written justification or the Authority Chair's approval. The
    contractor, Boulware, was to provide executive recruitment
    services for six senior-level management positions that were
    already included in the scope of work for another contract.
    Authority officials said that the verbal agreement was an
    unauthorized procurement but later ratified the agreement and
    awarded a $105,000 sole source contract to Boulware. According to
    the written justification that was prepared 3 months after the
    verbal agreement, the Authority's basis for the sole source award
    was twofold. First, the original contractor was not performing in
    accordance with the terms of the contract; however, we found
    nothing in the original contractor's file to substantiate this
    assertion. Second, as stated in the justification the selected
    firm was the only firm with the requisite Page 12
    GAO/GGD-99-134 Procurement Practices B-281962 knowledge and skills
    to perform the required services; however, this assertion was also
    not substantiated by any documents in the contract files. To the
    contrary, documentation in the Boulware contract file suggests
    that Boulware's original proposal to perform similar services was
    initially rejected by the Authority because it contained the
    highest hourly rate among the five proposals received in response
    to another solicitation, according to Authority officials. In
    addition, there was nothing in the contract files that indicated
    that the other firms were not qualified or were less qualified to
    perform the required services. It should also be noted that our
    review of the Authority's justification for the noncompetitive
    procurement to Boulware determined that, the contract files
    contained conflicting information. The Authority's April 24, 1998,
    justification for awarding a sole source contract to Boulware to
    provide search and recruitment services for six positions stated
    that the current contractor, PAR Group, working for the Authority
    in the area of executive recruitment, had been unable to deliver
    candidates within the desired time frame, which affected the CMO's
    office and other District agencies. The justification further
    stated that, as a result of PAR Group's poor performance, it was
    necessary to enter into a contract with a firm that had a track
    record for performance in the area of executive recruitment.
    However, also in the PAR Group contract files was another
    Authority justification dated the same day-April 24, 1998-for
    noncompetitive procurement of a proposed modification to expand
    the PAR Group's search and recruitment activities to include six
    additional positions. The justification stated that the PAR Group
    was doing an excellent job in a cost-effective and timely manner.
    Further, the justification said that, under these circumstances,
    it was considered unlikely that another contractor, unfamiliar
    with the proposed work, would perform the required tasks as cost
    effectively or in as timely a manner as the PAR Group had done.
    According to the Authority, the conflicting dates on the
    memorandums were the result of a typographical error. In reference
    to the two sole source justifications for the PAR Group and
    Boulware, the Authority commented that a comparison of the two
    justifications is initially confusing and said that the date of
    the Boulware sole source justification is incorrect and is a
    typographical error. We agree that the two sole source
    justifications are confusing and brought this to the Authority's
    attention on several occasions during our review. However, the
    Authority did not provide us with a definitive response until we
    received its written comments on the draft. We revised our report
    to reflect the Authority's comments. Page 13
    GAO/GGD-99-134 Procurement Practices B-281962 Notwithstanding the
    Authority's explanation of the dates, our point is that the sole
    source justification for Boulware was based in part on the
    Authority's statement that the PAR Group was performing poorly.
    However, nothing in the PAR Group contract file showed that PAR
    Group was performing poorly as asserted in the sole source
    justification. Further, there is nothing in the contract file to
    support the former Executive Director's assertion that the
    Authority's Board had imposed very tight 30- day schedules for
    filling certain positions. Additionally, the PAR Group contract
    did not contain any evidence of the cited 30-day schedule for
    filling the positions. In another contract, the Authority did not
    substantiate the award of sole source contracts to Managing Total
    Performance. On September 4, 1997, the Authority awarded a
    $796,600 management reform contract to Managing Total Performance
    with a base term of 90 days. This contract also provided for an
    option and further provided that, if the option were exercised,
    the option term of the contract was from December 1, 1997, through
    December 1, 1998. Authority officials confirmed that this
    modification was not exercised by December 4, 1997, when the
    contract expired. When a contract has expired, the contractual
    relationship that existed is terminated and that the issuance of a
    modification after the expiration date, in effect, would be the
    award of a new sole source contract.8 However, the Authority did
    not treat this award as a new sole source contract or justify it
    in writing, and there was no evidence of approval by the
    Authority's Chair in the contract file, as required by the
    Authority's regulations. Further, according to Authority
    officials, the District's CPO, who signed the modification that
    purported to exercise the option, was authorized to prepare the
    proposed modifications for the Authority. However, Authority
    officials said that they did not intend for the District's CPO to
    execute modifications without the Authority's approval because the
    contract was an Authority contract. In explaining this situation
    to us on June 17, 1999, Authority officials said that the Managing
    Total Performance contract was similar to several other management
    reform contracts awarded by the Authority. These contracts, they
    said, were intended to have two phases-development of proposed
    reforms and the implementation of proposals accepted by the
    Authority; however, events did not turn out entirely as planned.
    They said that phase I resulted in many more proposals than could
    be funded. Consequently, the 8 65 Comp. Gen. 25 (1985); 85-2
    C.P.D.  435. Page 14
    GAO/GGD-99-134 Procurement Practices B-281962 Authority had to
    analyze them and decide which ones to approve. At the same time,
    Authority officials said that they were under a lot of pressure
    from Congress and others to move more quickly toward producing
    results. Accordingly, they asked the District's CPO to perform the
    administrative tasks necessary to modify the contracts to proceed
    with the implementation phase. However, while these actions were
    under way, Authority officials said the Managing Total Performance
    contract expired. Finally, Authority officials said that they did
    not realize that the District had not done or documented
    cost/price analysis or negotiations for modifications 1 through 14
    of the Managing Total Performance contract. In written comments on
    a draft of this report, the Authority questioned our conclusion
    that it failed to "substantiate the award of sole source contracts
    to Managing Total Performance." As recognized by the Authority,
    this conclusion was based on our view that the initial Managing
    Total Performance contract, awarded on September 4, 1997, with an
    option clause, had expired before the option was exercised. We
    concluded that since the contract had expired, the issuance of a
    modification exercising the option after expiration, was in effect
    the award of a new sole source contract that should have been
    justified in writing and approved by the Authority's Chair. The
    Authority stated that it does not interpret the Managing Total
    Performance contract as having expired. It further stated that for
    a variety of reasons, the Authority and Managing Total Performance
    "understood and agreed" that the contract would remain in effect
    beyond the stated term in order to allow for the future exercise
    of options for implementation work. The Authority further stated
    that it, not GAO, is "the most appropriate interpreter" of what
    its contracts provide and noted, as we did in the report, that the
    Authority is exempt from District and federal procurement law. We
    do not agree with the Authority's position. The Authority
    suggests, without actually stating so, that the Authority and
    Managing Total Performance had an oral agreement to extend the
    contract beyond its stated term. However, we found no evidence or
    documentation in the contract file to suggest when the Authority
    and Managing Total Performance might have reached this agreement
    to extend the contract or to show that such an understanding and
    agreement existed. The letter from the Executive Director to the
    District's CPO, dated months after the contract had expired,
    authorizing him to process modifications for the Managing Total
    Performance contract and the subsequently issued modifications
    contain no reference to a prior extension of the contract by oral
    agreement. In essence, the Authority has asked us to accept that
    the Page 15                                      GAO/GGD-99-134
    Procurement Practices B-281962 contract had been extended, not
    based on any additional documentation, but rather on its current
    explanations of its past intentions. The Comptroller General
    decision we refer to in the report is cited for the proposition
    that, as a matter of general contract law, not federal or District
    procurement law, the attempt to exercise an option on an expired
    contract can only be viewed as the execution of a new contract.
    When a contract expires, an unexercised option provision that was
    part of the contract would expire as well. The Authority's view-
    that, despite the lack of evidence in the contract file, we should
    not question its statement that the contract was extended-
    highlights the problems caused by the Authority's failure to
    document key contract actions. If these actions are not
    documented, there is no way for the Authority, or any organization
    reviewing its actions, to know whether it followed its own
    regulations and the provisions of its own contracts. Also, the
    lack of adequate documentation makes it difficult to hold the
    Authority or its employees accountable for their actions. Of the
    nine contracts we assessed, the Authority's former Executive
    Inadequate Documentation          Director said it conducted
    contract negotiations for 2 of the 3 contracts of Contract
    Negotiations,         awarded under the formal contracting
    procedures which require the Cost/Price Analysis, or
    documentation of negotiations whenever they occur. However, there
    was Independent Cost Estimates no documentation of negotiations in
    the contract files for the contracts awarded to Management
    Partners and the Urban Center for $513,000 and $562,800,
    respectively. Based on the Authority's regulations, these 2
    contracts should have been awarded using the formal contracting
    procedures because they were for $500,000 or more. In another
    case, the Authority executed 14 modifications totaling $10.6
    million to an expired contract with Managing Total Performance,
    which, in effect, constituted a sole source award.  Since the
    Authority erroneously viewed these actions as modifications to an
    existing contract, the contract files contained no documentation
    of negotiations, cost/price analysis, or other steps that may have
    been taken to determine best value or least cost or would be
    required for the award of a new contract. While the Authority's
    regulations state that the Authority is to provide goods and
    services at the least cost or representing the best value for the
    Authority, the regulations do not specify how to accomplish these
    objectives when it executes contract modifications. In addition,
    although the regulations do not require negotiations or
    documentation of negotiations whenever they occur for contracts
    under $100,000, the former Executive Director said that the
    Authority conducted Page 16
    GAO/GGD-99-134 Procurement Practices B-281962 negotiations with
    qualified offerors for four of the remaining six contracts we
    assessed. However, evidence in the contract files indicated that
    negotiations occurred for only one of the four contracts for which
    the Authority said it conducted negotiations. This was a contract
    with Boulware for which a contract approval form stated that the
    Authority's Chief Financial Officer negotiated down Boulware's
    proposed rates and terms of the contract to the extent possible.
    However, the contract files did not contain a record of the
    negotiation process, and the contractor told us that negotiations
    did not take place and that the Authority's Chief Financial
    Officer dictated the price. In its comments, the Authority said
    that it believes that the dictation of a maximum price is included
    in the definition of negotiations. While we agree, our purpose was
    to describe the nature of the negotiation and to point out that
    the documentation in the contract file did not describe the nature
    of the negotiation that took place or the Authority's rationale
    for arriving at the dictated price. Nonetheless, we recognize that
    the contractor could have said that the price was too low and then
    attempted to negotiate or simply declined the contract. While the
    Authority's regulations do not require independent cost estimates
    for all of its contracts, the regulations do authorize the
    Authority to develop its own cost/price estimate to help assess
    the reasonableness of contractor proposals. For example, the
    regulations state that, when fair and adequate price competition
    is obtained, a comparison among proposed prices and to the
    Authority's estimates is generally adequate to verify that the
    prices offered are reasonable. The contract files for two of the
    three contracts we assessed where the former Executive Director
    said price comparisons were performed did not contain
    documentation of these comparisons to show how the Authority
    determined price/cost reasonableness. DSIC also reported that
    contract negotiations were generally not documented for several of
    the contracts it reviewed and that cost/price analyses were
    frequently not documented. DSIC also found little evidence that
    the Authority prepared or used independent cost estimates for
    several contracts and pointed out that the number of hours
    proposed by some offerors, within the competitive range, differed
    by as much as 50 percent. According to DSIC, the absence of an
    independent cost estimate makes it difficult to reconcile
    differences of such magnitude. DSIC recommended that the Authority
    develop independent cost estimates of the hours needed to perform
    required services to use as a basis for evaluating technical
    proposals and costs. Page 17
    GAO/GGD-99-134 Procurement Practices B-281962 In his May 21, 1999,
    letter, the Authority's former Executive Director said that the
    Authority's staff obtained and evaluated cost and pricing
    information and that, after negotiations by the staff, he
    determined that the prices were fair and reasonable for 9 of the
    10 contracts we reviewed. However, he did not provide any
    additional documentation or other evidence of actual negotiations
    or cost/price evaluations. In commenting on a draft of this
    report, the Authority said that contract negotiations, a
    cost/price analysis, or an independent cost estimate are not
    mandatory for all of the contracts we assessed. Although we did
    not say that these were mandatory for all the contracts we
    assessed, we further clarified our report in this regard. However,
    our point continues to be that we did not see any documentation of
    negotiations the Authority said occurred. We believe that contract
    negotiations, cost/price analyses, and an independent cost
    estimate are important tools for ensuring best value and fair and
    reasonable prices and thus represent good contracting practices.
    The Authority also commented that the provision for cost/price
    analysis in its regulations does not require that cost/price
    analysis be documented in the contract file.  In addition, the
    Authority said that most of its contracts reviewed by GAO are
    competitive and that documentation for the cost/price analysis is
    contained in the cost proposal submitted by offerors. We agree
    that the Authority's regulations do not specifically require that
    the cost/price analysis be documented in the contract file, and
    our report does not state that it is a requirement. We also agree
    with the comment regarding competitive contracts; however, we
    question the Authority's assertion that an offeror's price
    proposal constitutes a cost/price analysis by the Authority. The
    District's CPO did not comply with the Authority's or the
    District's District's CPO Did Not procurement regulations when he
    entered into an emergency sole source Comply With Authority
    contract totaling $153,800 and when he awarded a subsequent
    contract for $893,000 as an emergency sole source contract without
    justifying the or District                     emergency
    procurement or obtaining approval from the Authority. Both of
    Procurement                     these contracts were to Smart
    Management Services to provide Regulations
    management reform services to the Authority's former CMO.
    Concerning the first contract, according to the District's CPO, in
    February 1998, he received an oral procurement request from the
    Authority's former CMO to obtain consulting services to assist her
    with reconciling the District's fiscal year 1998 budget and
    management reform anomalies. According to the District's CPO, the
    former CMO provided him with the Page 18
    GAO/GGD-99-134 Procurement Practices B-281962 names of five or six
    firms that she considered qualified to perform the tasks and said
    that she needed a firm that could start to work immediately. The
    District's CPO said that he phoned the firms on the list and that
    only one firmSmart Management Services-was available to start to
    work immediately. However, he did not maintain a record of his
    telephone conversations with the firms. He said that a list of the
    firms was not retained because the initial contract was processed
    as a sole source procurement. Shortly thereafter, the District's
    CPO entered into an emergency sole source contract totaling
    $153,800 with Smart Management Services without either justifying
    how the procurement met the terms of an emergency procurement, as
    the District's procurement regulations require, or obtaining the
    Authority's approval. The Authority's review and approval
    regulations for District contracts require that all sole source
    contracts and modifications issued under the direction of the
    District's CPO be submitted to the Authority for review and
    approval prior to award. In addition, the District's CPO did not
    comply with District procurement regulations when he modified the
    purchase order agreement three times to increase the scope of
    services and costs. The District's procurement regulations state
    that contracts done on an emergency basis are not to be modified
    to expand the scope or extend the time of the procurement unless a
    limited number of additional services are needed to satisfy an
    ongoing emergency requirement. The contract file for the second
    contract, which was also awarded to Smart Management Services 4
    months after the first emergency sole source contract, did not
    contain evidence that the District's CPO justified how the
    procurement met the terms of an emergency procurement as the
    regulations require or submitted the $893,000 emergency sole
    source contract to the Authority for review and approval. The
    contract required Smart Management Services to provide consultant
    services to the Authority's former CMO for a 1-year period. The
    Authority's review and approval regulations for District contracts
    specifically require that sole source contracts and contracts for
    consultant services issued by or under the direction of the CPO be
    submitted to the Authority for review prior to award. The
    District's regulations define an emergency procurement as one
    responding to a situation, such as a flood, epidemic, riot, or
    other reason set forth in a proclamation by the Mayor, that
    creates an immediate threat to the public, health, welfare, or
    safety of its citizens. Moreover, under the District's procurement
    regulations, an emergency procurement is limited to not more than
    120 days, and the contracting officer is required to initiate a
    separate nonemergency procurement if a long-term requirement for
    services is anticipated. Page 19
    GAO/GGD-99-134 Procurement Practices B-281962 In comments on a
    draft of this report, the District's CPO said that the draft
    report incorrectly links the term "emergency" to the regulatory
    context of fire, flood, or endangerment to public health when no
    such context was cited or intended and said that the justification
    was clearly stated in writing. We disagree and believe that the
    District's procurement regulations, which were used by the
    District's CPO as the basis for justifying the emergency sole
    source contract, are specific on what constitutes an "emergency"
    procurement as stated in our report. In addition, our draft report
    states that the written justification did not explain how the
    procurement met the terms of an emergency procurement as required
    by the District's regulations. According to the District's CPO, he
    was advised by his General Counsel, after consulting with the
    Authority's Deputy General Counsel and Chief Financial Officer,
    that the contract did not have to be submitted to the Authority
    for approval because the contract, which obligated approximately
    $330,000 during fiscal year 1998, was less than the $500,000
    threshold specified in the Authority's February 26, 1998,
    resolution, which requires District contracts in excess of
    $500,000 to be submitted for review and approval. We believe that,
    based on Section 4.1.E of the Authority's review and approval
    regulations governing District contracts, the District's CPO was
    required to submit this contract to the Authority for its review
    and approval. Section 4.1.E states that all proposed sole source
    contracts awarded by the CPO must be submitted to the Authority
    prior to award. In commenting on our finding that the Smart
    Management Services contract for $893,000 should have been
    submitted to the Authority for review and approval, the District's
    CPO commented that the value of the contract was less than the
    $500,000 approval threshold prevailing at the time and therefore
    did not require Authority review and approval. This is not
    consistent with our understanding of the regulations or the value
    of the contract. As our report states, our basis for concluding
    that the District's CPO was required to submit this sole source
    contract to the Authority for review and approval is Section 4.1.E
    of the Authority's review and approval regulations for District
    contracts. In August 1998, the Authority terminated this contract
    because it believed that the contract contained several
    deficiencies. In particular, the Authority stated that the
    contract was awarded on a sole source basis and that under federal
    statutes and Authority resolutions, the Authority should have
    approved it. The Authority also said that it appears that the
    principal consultant who performed the main task under the
    contract was designated as a Deputy Management Officer reporting
    directly to the CMO Page 20
    GAO/GGD-99-134 Procurement Practices B-281962 and spent most of
    her time in a staff function. Thus, the Authority concluded that
    the compensation terms for the principal consultant and the two
    additional senior consultants were in excess of the levels that
    could be paid and justified for even the most senior positions in
    the District government. This same contract was also the source of
    an investigation by the District's Office of Inspector General at
    the request of the Authority. The Inspector General issued a
    report on the results of the investigation and concluded that the
    District's CPO was required to submit the $893,000 emergency sole
    source contract to the Authority for approval, but failed to do
    so, and also improperly awarded the contract as an emergency
    procurement. With regard to the submission of the contract to the
    Authority for review and approval, the Inspector General
    considered the Authority's February 26, 1998, resolution to be
    clear on what type of contracts are required to be submitted to
    the Authority for review and approval, and we agree. Further, the
    Inspector General said that the District's procurement regulations
    have their own very strict definition of an emergency. For
    example, an emergency includes such conditions as a flood,
    epidemic, riot, or other reason set forth in a proclamation by the
    Mayor. As such, the Inspector General concluded that the CPO acted
    outside the scope of the District's procurement regulations when
    he awarded the $893,000 contract as an emergency sole source
    contract because the situation did not constitute an emergency as
    prescribed in the regulations. However, because the Authority
    subsequently terminated the contract in August 1998, the Inspector
    General did not recommend any further action and deferred the
    issue to the Mayor for final disposition. Contract administration
    constitutes an integral part of the procurement Weaknesses in the
    process that ensures that the government gets what it paid for. It
    involves Authority's Contract    those activities that are
    performed after a contract has been awarded to determine how well
    the contractor performed with regard to meeting the Administration
    requirements of the contract. The Authority's procurement
    regulations do not contain detailed provisions on contract
    administration. The regulations state that the Authority plans to
    monitor contractor performance and certify satisfactory
    performance prior to payment of any contractor invoice. We saw
    little or no evidence of how the Authority monitored or certified
    satisfactory contractor performance for the nine contracts we
    assessed. According to Authority officials, they relied on the
    contractor's work statements to monitor the contractor's
    performance. However, we found Page 21
    GAO/GGD-99-134 Procurement Practices B-281962 that the statements
    of work for these nine contracts generally did not contain
    thorough descriptions of the required services, expected results,
    and standards for measuring the contractor's performance and
    effectiveness as required by the Authority's procurement
    regulations. For example, we found that three separate firms had
    contracts with the same statements of work that required them to
    "develop and execute strategies for implementing existing
    management reform and improvement projects and work with, and
    within agencies to develop an overall operational improvement
    strategy." Additionally, the work statements for these three
    contracts did not have standards for measuring the contractor's
    performance as required by the Authority's regulations. The
    development of statements of work is important because they
    provide a basis for monitoring the contractor's performance to
    ensure that the contractor has performed satisfactorily and
    delivered the required goods and services before payment of
    invoices. Equally important, for the nine Authority contracts we
    assessed, the Authority contracted and paid for goods and services
    totaling $13 million; yet, there was no evidence in the contract
    files that it received the required deliverables for three of the
    nine contracts. The Authority's contract files contained evidence
    indicating that it received the required deliverables for four
    contracts. For two of the five contracts where there was no
    evidence in the contract files, we relied on the documentation
    maintained by two of the three contractors we visited to determine
    whether the contractor provided the required deliverables. Those
    two contractors provided us with copies of their required
    deliverables that indicated that they met the terms of their
    contracts. Although the contract files for the other three
    contracts contained invoices, there was no evidence that they were
    always reviewed and approved and did not contain statements that
    the contractor's performance was satisfactory, thus making it
    difficult to determine whether the deliverables were received for
    these three contracts. In commenting on a draft of our report, the
    Authority said that our finding that it lacked a system for
    contract administration is incorrect and that it has a definitive
    system that is understood by its staff. While the Authority
    acknowledges, as our report states, that its procurement
    regulations contain few provisions concerning contract
    administration, it did not provide any evidence to support its
    statement that it has a definitive contract administration system
    that is understood by its procurement staff. The Authority further
    states that under its system, staff are expected to keep the
    Executive Director and contracting staff informed of any changes,
    significant problems, and the general status of contract work.
    Page 22                                    GAO/GGD-99-134
    Procurement Practices B-281962 This system was not documented in
    the contract files. To the contrary, we found that, with respect
    to the Boulware contract, Authority staff entered into a verbal
    agreement without the Authority's knowledge. In reference to our
    statement that we found little evidence of how the Authority
    monitored or certified satisfactory contractor performance for the
    nine contracts we assessed, the Authority commented that it has
    always interpreted the requirement for certification of
    satisfactory performance in its regulations to mean approval by
    cognizant Authority personnel of contractor invoices submitted for
    payment. The Authority also said that all contractor invoices must
    be reviewed and approved by the cognizant staff member. We agree
    that contractors' invoices should be reviewed and approved by
    appropriate Authority staff prior to payment. However, we also
    believe that the signing of an invoice authorizing payment does
    not constitute certification of satisfactory performance as
    described by the Authority's regulations. In addition, we noted
    that there were several invoices stamped paid with no apparent
    signature authorizing payment. For example, the Authority payment
    records provided to us for the Urban Center contract included
    copies of five checks and invoices paid to the contractor totaling
    $514,325. For two of the five payment records, where the invoices
    totaled $140,350, there was no indication on the invoices that
    they had been reviewed or approved. Two other checks, totaling
    $250,075, had no invoices to support the amount of or purpose for
    the payment. We noted that the file contained a document stating
    that the contract was terminated due to "possible fraudulent
    invoices." This document was dated subsequent to the paid dates of
    the checks and invoices cited above. In another example, the
    contract file contained a payment record of an invoice for the
    Gaebler Group in the amount of $18,073. We noted, however, that
    the invoice contained in the contract file was not annotated to
    show that the Authority reviewed the invoice and there was no
    signature approving it for payment. The Authority also disagreed
    with our finding that the statements of work for the nine
    contracts we assessed did not contain thorough descriptions of the
    required service, expected results, and standards for measuring
    the contractor's performance and effectiveness. As our report
    clearly states, the Authority's regulations require that
    statements of work contain thorough descriptions of the required
    services, expected results, and standards for measuring the
    contractor's performance and effectiveness. The statements of work
    for the nine contracts we assessed did not contain such
    information.  The Authority further commented that with regard to
    the former CMO contracts, performance type statements of work were
    not Page 23                                      GAO/GGD-99-134
    Procurement Practices B-281962 feasible and that the management
    task force contracts, in essence, provided a group of personnel
    with municipal management experience to act as the newly appointed
    staff of the former CMO. We believe that the situation the
    Authority described is similar to a personnel situation and do not
    believe that performance expectations would have been
    unreasonable. The Authority commented that, contrary to the
    statement in the draft report that invoices in the contract files
    for the Gaebler Group, Management Partners, and the Urban Center
    were not always reviewed and approved, no invoice was ever paid
    without approval. We do not state that invoices were paid without
    approval. We state that there was no evidence in the contract
    files that invoices provided by the Authority were always reviewed
    and approved. We did, as previously pointed out, find instances of
    invoices stamped paid without annotation of approval or written
    certification of satisfactory contractor performance. Finally, in
    reference to our statement that there was no evidence in the
    contract files that the Authority received the required
    deliverables for three of the nine contracts we assessed, the
    Authority commented that it has never been the Authority's
    practice to require that copies of deliverables and invoices be
    kept in the contract files. We do not state that copies of
    deliverables should be maintained in the contract files. However,
    we believe that a document in the file certifying that the
    contractor met the terms of the contract and provided the required
    deliverables is a good procurement practice. The Authority further
    stated that most of its contracts provide that payment be made
    after satisfactory delivery of specified deliverables and that it
    has never made such a payment without receipt of satisfactory
    work. Our report does not state that the Authority made payments
    without receipt of satisfactory work.  We state that, based on our
    review of the contract files, there was no evidence in three of
    the nine contract files we assessed that the Authority received
    the required deliverables and that we were able to find evidence
    indicating that the Authority received the deliverables for the
    other six contracts. We found no documentation in the contract
    files that the District's CPO Evidence That the
    monitored the contractor's performance or received required
    deliverables District's CPO                  for the two contracts
    that he awarded. The District's procurement regulations state that
    it is the responsibility of the contracting officer to Monitored
    Contractor's ensure that the contractor performs in accordance
    with the terms of the Performance Was Not             contract
    before payment of any contractor invoice. In addition, as stated
    Available                       previously, the Authority
    transferred the Managing Total Performance contract to the
    District's CPO for administration. District officials told us that
    they have an individual who is responsible for monitoring the Page
    24                                      GAO/GGD-99-134 Procurement
    Practices B-281962 contractor's performance to ensure that the
    terms of the contract are met before payment of invoices. However,
    there was no evidence in the contract file to substantiate this
    assertion. In commenting on a draft of this report, the District's
    CPO said that the draft report incorrectly states that contract
    administration was the responsibility of the District's Office of
    Contracting and Procurement. As our report states, according to
    the District's procurement regulations, it is the responsibility
    of the contracting officer to ensure that the contractor performs
    in accordance with the terms of the contract before payment of any
    contractor invoice. Several factors appear to have contributed to
    the Authority's contracting Factors Contributing    problems. The
    Authority's former Executive Director attributes the To
    Procurement          contracting problems to the short period in
    which the Authority had to carry out its "massive and formidable"
    tasks.  We do not believe that the Problems
    existence of  statutory timeframes should exempt the Authority
    from fully complying with its procurement regulations. In its
    January 1999 report, DSIC, which reviewed over 100 Authority
    contracts awarded between August 1995 and September 1998, said
    that the Authority generally followed its streamlined procurement
    regulations. However, DSIC also identified some of the same
    problems we did. DSIC attributes the Authority's contracting
    problems, in part, to the Authority's emphasis on achieving its
    programmatic mission in a short time period and its lack of
    procurement expertise. DSIC also identified such problems as no
    independent cost estimates, no documentation of actual analysis of
    the Authority's declaration of fair and reasonable price for
    modifications and sole source contracts, inadequate training for
    contracting staff, and lack of documentation in the contract
    files. In its written comments on a draft of this report, the
    Authority points out that DSIC, the consultant firm retained by
    the Authority, concluded in its report that the Authority
    generally followed its procurement regulations. We acknowledge
    this in our report. However, we believe that it is equally
    important to point out that, although DSIC's report contained many
    examples of the problems it found with the Authority's procurement
    practices, the report did not explain the basis for the statement
    that the Authority generally followed its streamlined procurement
    for all the contracts reviewed. The report was unclear as to
    whether this conclusion applied to all of the 109 contracts or
    some portion of the contracts. In addition, DSIC officials were
    not able to provide any documentation to support this statement.
    Page 25                                     GAO/GGD-99-134
    Procurement Practices B-281962 DSIC made several recommendations
    to the Authority to address the problems it identified and said in
    its January 1999 report that the Authority had begun to act on
    them. In a January 13, 1999, letter to DSIC, the Authority stated
    that it *  would begin developing cost estimates of the hours
    needed to perform required services, *  had assigned a procurement
    specialist to maintain its contractor files and use a standardized
    contract file folder and checklist to maintain accountability, *
    had established an informal 3 week minimum response time for all
    its solicitations to encourage competition resulting in lower
    costs, and *  would continue to make resources available to
    incorporate education and training for all staff involved in its
    contracting activities. We believe that, if effectively
    implemented, the actions the Authority says it has taken and plans
    to take should help correct some of the problems that both DSIC
    and we identified. In addition, we believe other factors that were
    not addressed by DSIC's recommendations may have contributed to
    the failure of Authority staff to follow the procurement
    regulations.  First, while the Authority's Executive Director
    delegated contracting responsibilities to various members of the
    Authority's staff, he had not fully defined areas of
    responsibility and accountability among the contracting staff. For
    example, while the Authority's former Executive Director signed
    the contracts as the Contracting Officer, it was not always
    apparent who was responsible for ensuring that key contract award
    and administration decisions were documented and maintained in the
    contract files. In its comments on a draft of our report, the
    Authority disagreed with our statement that its Executive Director
    had not fully defined the areas of responsibility and
    accountability among the contracting staff and that it was not
    always apparent who was responsible for ensuring that key contract
    award and administration decisions were documented and maintained
    in the contract files. The Authority said that members of its
    professional staff have always been fully aware of their
    contracting responsibilities. Our report points out that there was
    no documentation in the contract files to show who was responsible
    for contract administration, and the Authority did not provide any
    additional information with its written comments. Page 26
    GAO/GGD-99-134 Procurement Practices B-281962 Second, the
    Authority had not provided its contracting staff with guidance on
    how to implement its procurement regulations to ensure compliance.
    For example, the Authority's regulations state that they are
    intended to permit the Authority to award contracts based on least
    cost or best value, and require that statements of work contain
    performance standards, contractors' performance be monitored, and
    certification be provided that the contractor performed
    satisfactorily. However, the Authority had not issued guidance to
    its contracting staff on how these requirements are to be
    implemented to comply with the procurement regulations. Equally
    important, the Authority had not provided its contracting staff
    with guidance for awarding and administering those procurement
    actions not specifically covered by its regulations, such as
    contracts over $100,000 and below $500,000, or for executing
    contract modifications, or contract options. In its comments on a
    draft of this report, the Authority disagreed with our statement
    that it had not provided its contracting staff with guidance on
    how to implement its procurement regulations. Our report states
    that we found no written guidance on how the Authority's staff was
    to implement its procurement regulations. In addition, when we
    asked the Authority for supporting documentation, none was
    provided. DSIC also found this to be a problem and recommended
    that the Authority improve its procurement process by providing
    standardized procedures on how to implement its procurement
    regulations. Finally, the lack of specific requirements in the
    Authority's procurement regulations for all of its contracting
    activities appeared to have contributed to the problems that we
    found with the Authority's procurement practices. For example, the
    regulations do not specify the procedures that should be followed
    for awarding contracts between$100,000 and $500,000, and for
    executing contract modifications and contract options. In
    addition, there was no evidence in the contract files we reviewed
    that the Executive Director determined the type of procurement
    method-that is simplified or formal-- that should be applied to
    the contracting situations stated above. Regarding the two
    contracts awarded by the District's CPO without the Authority's
    approval, we did not determine whether the Authority had an
    adequate mechanism for ensuring that these contracts are submitted
    to the Authority for review and approval prior to award. The
    Authority was established essentially to repair the District's
    failing Conclusions    financial condition and to improve the
    effectiveness of it's various entities. We recognize that, as the
    Authority has pointed out, it was a newly Page 27
    GAO/GGD-99-134 Procurement Practices B-281962 established
    organization and was expected to accomplish the majority of its
    tasks in a relatively short period of time, and thus had to award
    many contracts quickly. However, we believe that it was also
    important for the Authority to lead by example by better adhering
    to its own regulations, ensuring accountability and integrity, and
    by not following the same type of practices that it was
    established to correct in the District. We also recognize that any
    new organization is bound to experience start- up difficulties and
    take some time to operate effectively. However, the majority of
    the Authority's contract actions that we reviewed were awarded
    almost 3 years after the Authority was established. We believe
    that this was a sufficient amount of time after establishment to
    expect an effective procurement operation that follows its own
    requirements and provides assurance that the objectives of its
    requirements are met. The actions that the Authority says it has
    taken or plans to take based on DSIC's report, if effectively
    implemented, should help correct some of the problems both DSIC
    and we identified. However, we do not believe that these actions
    are likely to fully resolve the problems we found. They do not
    fully address findings that the Authority did not fully define the
    roles and responsibilities of its procurement staff or provide
    guidance to its staff on how to (1) determine best value; (2)
    develop performance standards for work statements; (3) monitor
    contractors' performance and certify satisfactory performance; (4)
    document its basis for contractor selection and justification for
    sole source awards; and (5) provide its contracting staff with
    guidance for awarding and administering those procurement actions
    not specifically covered by its regulations, such as contracts
    between $100,000 and $500,000, and for executing contract
    modifications, or contract options. Perhaps even more importantly,
    we do not believe that the Executive Director's position on waiver
    of the Authority's regulations, certifying satisfactory
    performance, or extending and modifying an expired contract
    reflect sound contracting principles. We believe that in
    accordance with good procurement practices *  any waivers by the
    Executive Director of the Authority's contract regulations should
    be justified and in writing; *  the basis for contract award
    should be documented, particularly when the selected source is
    different from the source recommended by the technical evaluation
    panel; Page 28                                     GAO/GGD-99-134
    Procurement Practices B-281962 *  contract files should contain a
    written certification, signed by an appropriate official, stating
    that the contractor's performance was or was not satisfactory; and
*  all contract extensions should be in writing and cannot be
    modified or extended. We did not determine whether the Authority
    had processes or controls to ensure that its review and approval
    regulations governing the submission of District contracts were
    being followed. However, it was apparent that the two contracts we
    reviewed that were awarded by the District's CPO were awarded
    without being reviewed and approved by the Authority as required
    by the Authority's regulations governing District contracts. To
    improve its contracting operations, we recommend that the Chair of
    the Recommendations to                Authority the Chair of the
    Authority                       *  require the Executive Director
    to (1) approve and justify all waivers of Authority contracting
    regulations in writing, (2) only extend contracts in writing and
    prohibit the Executive Director from extending or modifying
    expired contracts, and (3) include in contract files a written
    certification, signed by an appropriate official, stating that the
    contractor's performance was or was not satisfactory; *  direct
    the Executive Director to (1) fully define the roles and
    responsibilities of the Authority's procurement staff; (2) prepare
    a written plan for contracting that includes methods for ensuring
    compliance with the procurement regulations; (3) provide guidance
    to the procurement staff on areas, such as determining best value,
    developing performance standards for work statements, monitoring
    and certifying contractors' performance, preparing written
    justifications for sole source awards, documenting the basis for
    contract selection, awarding contracts that are between $100,000
    and $500,000, and executing contract modifications, or contract
    options; *  hold the Executive Director and other procurement
    staff accountable for ensuring that they follow the Authority's
    procurement regulations; and *  require the Executive Director to
    assess whether the Authority's processes and controls for the
    review and approval of District contracts prior to award are
    effective and, if not, make appropriate changes. On July 21, 1999,
    the Authority's Executive Director provided written Authority's
    and District comments on a draft of this report that are reprinted
    in appendix III. CPO's Comments and                Although the
    Authority said it would seriously consider our proposed
    recommendations and recognized that its procurement practices have
    not Our Evaluation                    been perfect, it expressed
    concern and disagreement with portions of the Page 29
    GAO/GGD-99-134 Procurement Practices B-281962 draft that pertained
    to the contracts it awarded. The Authority did not provide any
    additional documentation with its written comments. The Authority
    said that the 10 contracts we reviewed were not a representative
    sample and that 5 in particular were not typical of Authority
    contracts in general. Our report does not suggest that the
    contracts we reviewed were selected randomly. To the contrary, our
    report describes in detail how we selected the contracts we
    reviewed, and discusses the circumstances surrounding the award of
    the five contracts awarded on the behalf of the CMO that the
    Authority says are not representative of how it carries out its
    contracting function. Our report states that DSIC, the Authority's
    contractor, did identify some of the same problems we did but we
    do not state that these problems are representative of all
    Authority contracts. The Authority also commented that the draft
    report assumed that its regulations applied to all 10 of its
    contracts we reviewed. Our report does not state that the
    Authority's regulations for formal contracting apply to all nine
    of the Authority's contracts we assessed for compliance. However,
    we agree that our report was not as clear as it could have been in
    this regard and clarified our report to the extent we could, given
    that the Authority had not specified what requirements applied to
    contracts between $100,000 and $500,000 or for contract
    modifications or options. Finally, the Authority disagreed with
    several of our interpretations and application of its regulations,
    and believes that its procurement regulations and how the
    Authority interprets or implements them are generally adequate and
    appropriate in light of its situation. We continue to believe that
    our interpretation and application of Authority regulations are
    generally appropriate and that the manner in which the Authority
    has applied its regulations and has conducted its contracting
    activities in some instances is not consistent with sound
    contracting principles or practices. In particular, we believe
    that the Authority's views regarding waivers of its regulations,
    certification of satisfactory contractor performance, and the
    extension and modification of expired contracts may prevent the
    Authority from meeting its contracting objectives and does not
    provide adequate internal controls to prevent abuses from
    occurring.  Another problem is the lack of clarity as to what
    requirements apply to contracts between $100,000 and $500,000. The
    Authority's comments on issues that it disagrees with us on and
    our assessment of the Authority's comments are discussed as
    appropriate in the body of the report.  We also made specific
    technical changes to clarify Page 30
    GAO/GGD-99-134 Procurement Practices B-281962 our report based on
    suggestions by the Authority.  Finally, we have made additional
    recommendations to the Authority to address our concerns in
    certain areas. On July 12, 1999, the District's CPO provided
    comments on a draft of this report. He disagreed with our findings
    with respect to the contracts he awarded. We believe that our
    findings are well documented and are correct. His specific
    comments and our responses are discussed in the appropriate
    sections of our report. We are sending copies of this report to
    Senator Kay Bailey Hutchison, Senator Richard J. Durbin, and to
    Representative James P. Moran and Representative Eleanor Holmes
    Norton in their capacities as Chair or Ranking Minority Member of
    Senate and House Subcommittees. We are also sending copies to the
    Honorable Anthony A. Williams, Mayor, District of Columbia; Ms.
    Alice Rivlin, Chair, District of Columbia Financial Responsibility
    and Management Assistance Authority; and other interested parties.
    Copies will also be made available to others upon request. GAO
    contacts and staff acknowledgments are listed in appendix IV. If
    you have any questions, please call me or Tammy R. Conquest on
    (202) 512-8387. Bernard L. Ungar Director, Government Business
    Operations Issues Page 31
    GAO/GGD-99-134 Procurement Practices Contents Letter
    1 Appendix I
    34 Summary of Contract Terms for 12 Contracts Included in Our
    Review Appendix II
    36 Review of Thompson, Cobb, Bazilio and Associates Contract
    (FY96/FRA#2) Appendix III
    37 Comments From the Authority Appendix IV
    44 GAO Contacts and Staff Acknowledgments Abbreviations CMO
    Chief Management Officer CPO         Chief Procurement Officer
    DSIC        Digital Systems International Corporation Page 32
    GAO/GGD-99-134 Procurement Practices Page 33    GAO/GGD-99-134
    Procurement Practices Appendix I Summary of Contract Terms for 12
    Contracts Included in Our Review Contract a
    Contract     Contract     Contract type Purpose
    Dollar amountContract status date     action
    as of 8/99 Boulware                       9/1/98    Sole source
    Fixed fee        Executive recruitment             $105,000In
    progress 98-C-018                                 award
    service PAR Group                      3/9/98    Competitive Fixed
    fee        Executive recruitment              38,500 Closed 98-C-
    007                                 award
    service Mod. 1                       4/ /98                 Fixed
    fee       Executive recruitment              75,000 Closed service
    Managing Total                 9/4/97    Competitive Fixed fee
    labor Management reform                  796,600 Closed
    Performance                              award        hour 97-C-
    031Db Mod. 1-14                7/8/98 and    Sole source Fixed
    price      Management reform              10,600,000 In progress
    9/10/98     award The Gaebler Group            3/24/98
    Competitive Fixed unit price Establish a
    94,500 Closed 98-C-003C                                award
    labor hour      management task force Management Partners
    3/24/98     Competitive Fixed unit price Establish a
    517,000 Closed 98-C-003B                                award
    labor hour      management task force The Urban
    3/24/98     Competitive Fixed unit price Establish a
    562,800 Terminated Center                                   award
    labor hour      management task 98-C-003A
    force Thompson, Cobb, Bazilio and Associates: FY96/FRA #2
    10/18/95     Competitive Fixed price      Audit FY95 financial
    23,392 Closed award                        statement FY96/FRA #2
    1/3/97    Option 1     Fixed price     Audit FY96 financial
    23,392 Closed statement FY97/FRA #2                 3/3/97
    Option 2     Fixed price     Audit FY96 financial
    5,000 Closed statement (Internal controls) 97-C-047
    12/1/97     Option 3     Fixed price     Audit FY 97 financial
    35,000 Closed statement Thompson, Cobb, Bazilio        3/4/98
    Competitive Fixed unit price Audit DCPS enrollment
    97,500 Closed and Associates                           award
    labor hour 98-C-001 Thompson, Cobb, Bazilio      4/20/98     Sole
    source Fixed price      Prepare                            20,900
    Closed and Associates                           award
    financial/accounting 98-C-008
    manual Thompson, Cobb, Bazilio      8/20/98     Competitive Fixed
    fee        Audit FY98 financial               34,818 In progress
    and Associates                           award
    statement 98-C-010 Page 34
    GAO/GGD-99-134 Procurement Practices Appendix I Summary of
    Contract Terms for 12 Contracts Included in Our Review Contract a
    Contract    Contract        Contract type Purpose
    Dollar amountContract status date     action
    as of 8/99 Smart Management     2/27/98    Sole source Labor hour
    rate Consultant services                        153,800 Closed
    Services                        award 8052-AA-NS-4-JW Smart
    Management     6/15/98    Sole source Firm fixed price Consultant
    services                       893,416 Closed Services
    award 8112-AA-NS-4-JW aWith the exception of the 2 Smart
    Management Services contracts, which were awarded by the
    District's CPO, the Authority awarded the other 10 contracts.
    bThis contract expired on December 4, 1997, because the Authority
    did not exercise its option.  In addition, between July 8, 1998,
    and September 10, 1998, the District CPO, on behalf of the
    Authority, modified the expired contract 14 times, thus, in
    effect, awarding new sole source contracts.  The modifications
    ranged in price from $39,460 to $5,250,000. Source: Authority
    procurement files. Page 35
    GAO/GGD-99-134 Procurement Practices Appendix II Review of
    Thompson, Cobb, Bazilio and Associates Contract (FY96/FRA#2) As
    previously stated, 1 of the 10 contracts we reviewed was awarded
    before the Authority's regulations were adopted in March 1996.
    However, the Authority did not provide us with any information on
    what regulations, if any, it used to award this contract. This
    contract was awarded to Thompson, Cobb, Bazilio and Associates on
    October 18, 1995, for $23,392. Thompson, Cobb, Bazilio and
    Associates was contracted to audit the Authority's financial
    statements.  The contract provided for a base period and the
    option to renew the contract for two additional years. During our
    review of the Thompson, Cobb, Bazilio and Associates contract, we
    found that the basis for contractor selection was not documented
    in the contract file, nor was there a copy of the request for
    proposal. In response to our request for documentation on its
    basis for selecting Thompson, Cobb, Bazilio and Associates, the
    Authority stated that this contract was an open market
    solicitation, meaning that only those firms that requested it were
    mailed a copy of the solicitation. In response to our follow-up
    request, the Authority stated that Thompson, Cobb, Bazilio and
    Associates submitted the only proposal received in response to the
    advertised solicitation.  The Authority also said that the
    Executive Director's decision to award this contract was based on
    the firm's technical and cost proposals, the recommendations of
    members of his staff who handled the procurement, and his personal
    knowledge and experience with the firm. The Authority also
    exercised three options over the 2-year term of this contract.
    Although the base contract required the Authority to negotiate the
    terms and conditions of these options, the contract file did not
    contain documentation that the Authority negotiated the terms and
    conditions for two of the options exercised.  In addition, the
    file did not show that the Authority prepared a contract
    modification to exercise these two options. A confirmation letter
    from the contractor was the only evidence in the contract file
    that the Authority exercised the first two contract options.
    However, for option 3, the contract file contained a follow-on
    contract signed by the Authority that included the terms and
    conditions for this option as required by the base contract.
    Although we did not find evidence that the Authority monitored or
    certified that the contractor performed satisfactorily, we noted
    that the contract file contained evidence that the Authority
    received the required deliverables for the base contract and the
    three options. Page 36
    GAO/GGD-99-134 Procurement Practices Appendix III Comments From
    the Authority See p. 30. Page 37        GAO/GGD-99-134 Procurement
    Practices Appendix IIII Comments From the Authority See p. 30. See
    pp. 5 - 6. See pp. 1, 2, 12. Now on pp. 10 - 12. See p. 30. Page
    38                        GAO/GGD-99-134 Procurement Practices
    Appendix IIII Comments From the Authority See pp. 13  14. Page 39
    GAO/GGD-99-134 Procurement Practices Appendix IIII Comments From
    the Authority See pp. 14 - 16. Now on p. 16. See p. 17. Page 40
    GAO/GGD-99-134 Procurement Practices Appendix IIII Comments From
    the Authority See p. 17. See pp. 21 - 24. See pp. 22  23. See pp.
    22  23. Page 41                        GAO/GGD-99-134 Procurement
    Practices Appendix IIII Comments From the Authority See p. 24. See
    p. 24. Now on p. 3. Now on p. 4. See p. 9. Now on p. 6. Now on.
    pp. 9, 25, 26. Page 42                        GAO/GGD-99-134
    Procurement Practices Appendix IIII Comments From the Authority
    Now on pp. 26 - 27. See p. 27. Page 43
    GAO/GGD-99-134 Procurement Practices Appendix IV GAO Contacts and
    Staff Acknowledgments Bernard L. Ungar (202) 512-8387 GAO Contacts
    Tammy R. Conquest (202) 512-5234 In addition to those named above,
    Geraldine Beard, Alan Belkin, John Acknowledgments    Brosnan,
    William Chatlos, Bruce Goddard, and Seth Taylor also made key
    contributions to this report. Page 44
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