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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