Pension Benefit Guaranty Corporation: Contracting Management Needs
Improvement (Letter Report, 09/18/2000, GAO/HEHS-00-130).
Pursuant to a congressional request, GAO reviewed the effectiveness of
the Pension Benefit Guaranty Corporation's (PBGC) contracting
activities, focusing on: (1) the basis for PBGC's decisions regarding
the use of contractors versus government personnel to address its
workloads; (2) PBGC's processes and procedures for selecting
contractors; and (3) how effective PBGC has been in monitoring the
performance of its contractors.
GAO noted that: (1) PBGC contracting decisions and its organizational
field structure have been heavily influenced by the need to service
rapidly increasing workloads within the existing federal staffing
limitations; (2) faced with a significant influx of large pension plan
failures beginning in the mid-1980s, PBGC chose to contract for services
rather than seeking additional federal staff during a period of
government downsizing; (3) PBGC cannot be assured that it has a
cost-beneficial mix of contractor and federal employees, as federal
policy requires, and risk being unprepared for future workload changes
as defined benefit pension plans and participants decline; (4) GAO
identified weaknesses in PBGC's procurement planning and execution
processes; (5) in procuring management services for several other field
benefit administration (FBA) office contracts, PBGC should have done
more to stimulate competition by conducting outreach and market research
activities to identify additional potential offerors; (5) PBGC risks
paying too much for contracted services and receiving inferior
performance; (6) GAO identified weaknesses in PBGC's contractor
oversight activities; (7) PBGC has taken a number of actions to improve
its management of contractors, including automating and centralizing
several functions previously handled in the field locations to allow
contractors and their staff to focus primarily on processing benefit
determinations; (8) however, PBGC does not centrally compile
FBA-specific data essential for monitoring the performance of
contractors in field locations; (9) GAO identified weaknesses in PBGC's
quality assurance review process for these field offices, and in its
policies and procedural guidance for PBGC employees responsible for
monitoring contracts; (10) furthermore, GAO is concerned that the
current organization placement of PBGC's Contracts and Controls Review
Department, which provides audit and internal review services to PBGC
related to contracting may affect its independence; (11) at present,
this office is located within the PBGC component that is the
second-largest user of contracted services and reports to its head; and
(12) the broader management issues and day-to-day operational weaknesses
that GAO identified in PBGC's contracting practices could affect its
ability to efficiently and cost-effectively serve the financial needs of
millions of pension plan participants.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: HEHS-00-130
TITLE: Pension Benefit Guaranty Corporation: Contracting
Management Needs Improvement
DATE: 09/18/2000
SUBJECT: Contract performance
Pension plan cost control
Contract oversight
Procurement practices
Procurement planning
Internal controls
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GAO/HEHS-00-130
Appendix I: Scope and Methodology
40
Appendix II: PBGC Organization Chart
44
Appendix III: Comments From the Pension Benefit Guaranty
Corporation
45
Appendix IV: GAO Contacts and Staff Acknowledgments
58
Table 1: Summary of Contracts Reviewed 41
Figure 1: Overview of Plan Processing at PBGC 7
Figure 2: Cumulative Number of Pension Plans Administered
by PBGC, Fiscal Years 1990-1999 9
Figure 3: Cumulative Number of Participants in Pension Plans Administered by
PBGC, Fiscal Years 1990-1999 10
Figure 4: PBGC Contractor-Operated Field Office Locations 11
Figure 5: PBGC Limitation/Nonlimitation Budget, Fiscal Years
1975-1999 13
Figure 6: Pending Benefit Determinations, Fiscal Years 1990-1999 16
Figure 7: New Pension Plans Trusteed by PBGC, Fiscal Years
1990-1999 17
CBD Commerce Business Daily
CCRD Contracts and Controls Review Department
CFO chief financial officer
COTR contracting officer's technical representative
ERISA Employee Retirement Income Security Act of 1974
FAR Federal Acquisition Regulation
FBA field benefit administration
FTE full-time equivalent
GPRA Government Performance and Results Act of 1993
IOD Insurance Operations Division
IRM information resources management
OIG Office of Inspector General
OMB Office of Management and Budget
PBGC Pension Benefit Guaranty Corporation
TPD Trusteeship Processing Division
Health, Education, and
Human Services Division
B-282936
September 18, 2000
The Honorable Charles E. Grassley
Chairman, Senate Special Committee on Aging
United States Senate
The Honorable Christopher S. Bond
Chairman, Committee on Small Business
United States Senate
The Pension Benefit Guaranty Corporation (PBGC) insures the benefits of 43
million participants from default of their employer-sponsored defined
benefit pension plans.1 Established in 1974 as a self-financing government
corporation, PBGC's primary responsibility is to collect premiums from the
sponsors of defined benefit pension plans and assume administration of
underfunded plans that either terminate or become insolvent. In the event of
plan termination, PBGC assumes control of plan assets, calculates benefit
amounts, and pays recipients a guaranteed benefit. In fiscal year 1999,
about 215,000 retirees received over $902 million in benefit payments from
PBGC. PBGC's work is performed at its Washington, D.C., headquarters and 11
contract office locations throughout the country, known as field benefit
administration (FBA) offices.
To carry out its operations, PBGC relies heavily on the services of
contractors whose headquarters and field employees account for almost half
of the workforce involved in processing PBGC's workloads. In fiscal year
1999, about $100 million of PBGC's $160 million budget was used to pay for
contracting and related expenses.2 Due to the number of contractors involved
in supporting PBGC's mission, you requested that we review and assess the
effectiveness of PBGC's contracting activities. Accordingly, we agreed to
(1) determine the basis for PBGC's decisions regarding the use of
contractors versus government personnel to address its workloads, (2) assess
PBGC's processes and procedures for selecting contractors, and (3) determine
how effective PBGC has been in monitoring the performance of its
contractors.
To do our work, we conducted more than 70 in-depth interviews of PBGC staff
and managers, as well as contractors and their employees. We also reviewed
key performance data, internal documents, and the documentation regarding 15
procurements whose estimated value totaled over $197 million.3 We conducted
our work at PBGC headquarters and six contractor-operated field locations
between June 1999 and May 2000 in accordance with generally accepted
government auditing standards. Additional information on our scope and
methodology is presented in app. I.
PBGC contracting decisions and its organizational field structure have been
heavily influenced by the need to service rapidly increasing workloads
within existing federal staffing limitations. Faced with a significant
influx of large pension plan failures beginning in the mid-1980s, PBGC chose
to contract for services rather than seeking additional federal staff during
a period of government downsizing. Over time, PBGC continued contracting for
services to address a backlog of hundreds of thousands of pending benefit
determinations which peaked at more than 300,000 in fiscal year 1994.
Because PBGC's focus was on obtaining necessary services quickly, it has not
adequately linked its contracting decisions to longer-term strategic
planning considerations. More recently, PBGC management has acknowledged the
need to better link its decisions to contract for services and its staffing
allocations to future workload trends. However, PBGC's actions to date have
been limited, despite automated enhancements that have made work processes
more efficient, a projected leveling-off in workloads over the next several
years, and a steady decrease in the total universe of defined benefit
pension plans and active plan participants nationwide. Thus, PBGC cannot be
assured that it has a cost-beneficial mix of contractor and federal
employees, as federal policy requires, and risks being unprepared for future
workload changes as defined benefit pension plans and participants decline.
We also identified weaknesses in PBGC's procurement planning and execution
processes. For example, in its first competitive procurement of FBA office
services, PBGC's consolidation of requirements for three geographically
remote contractor offices into a single procurement and exclusion of the
services for a fourth office from the consolidation were not supported by a
business rationale and may have limited competition. In procuring management
services for several other FBA office contracts, PBGC should have done more
to stimulate competition by conducting outreach and market research
activities to identify additional potential offerors. In reviewing several
other contracts, we also could not assess the basis for PBGC's award
decisions because procurement documentation was incomplete. We also
identified areas where PBGC should consider using fixed-price rather than
labor-hour contracts, which require considerable management oversight and
carry more cost and quality assurance risks to the agency. Without more
effective acquisition planning and procurement practices, PBGC risks paying
too much for contracted services and receiving inferior performance.
Finally, we identified weaknesses in PBGC's contractor oversight activities.
PBGC has taken a number of actions to improve its management of contractors,
including automating and centralizing several functions previously handled
in the field locations to allow contractors and their staff to focus
primarily on processing benefit determinations. However, PBGC does not
centrally compile FBA-specific data essential for monitoring the performance
of contractors in field locations. We also identified weaknesses in PBGC's
quality assurance review process for these field offices, and in its
policies and procedural guidance for PBGC employees responsible for
monitoring contracts. Furthermore, we are concerned that the current
organizational placement of PBGC's Contracts and Controls Review Department
(CCRD)--which provides audit and internal review services to PBGC related to
contracting--may affect its independence. At present, this office is located
within the PBGC component that is the second-largest user of contracted
services and reports to its head.
The broader management issues and day-to-day operational weaknesses that we
identified in PBGC's contracting practices could affect its ability to
efficiently and cost-effectively serve the financial needs of millions of
pension plan participants. Accordingly, we are making several
recommendations that focus on the need for PBGC to manage its longer-term
contracting needs more strategically and take action to address specific
operational and procedural weaknesses identified in our review of its
contracts. In commenting on this report, PBGC generally agreed with all of
our recommendations and cited actions it has taken or will take to implement
them.
The Employee Retirement Income Security Act of 1974 (ERISA) created PBGC as
a self-financing, nonprofit, wholly owned government corporation.4 PBGC
protects participants in private pension plans from losing promised benefits
due to the termination of underfunded plans. PBGC's primary responsibility
is to collect premiums from the sponsors of defined benefit pension plans to
insure against default and to assume administration of plans that become
insolvent. In the event of plan default, PBGC assumes control of plan
assets, calculates benefit amounts commonly referred to as initial
determination letters, and pays recipients. (See plan processing flow chart,
fig. 1.)
Generally, pension plans under PBGC's administration, in which final benefit
determinations have not yet been issued, are considered active plans. When
all benefit determinations are issued and participant appeals are resolved,
plans are then closed and moved to ongoing administration where they
generally require limited maintenance to reflect participants' marital
changes, address changes, deaths, and so forth.5
In 1992, we placed PBGC on our list of federal programs at high risk because
a large and growing imbalance between its assets and liabilities threatened
PBGC's long-term financial viability.6 Through the mid-1990s, the Congress'
primary concern and our work at PBGC focused mainly on PBGC's financial
condition. To address PBGC's financial problems, the Congress passed the
Retirement Protection Act in 1994, which strengthened minimum funding
requirements for plans and increased premiums paid to PBGC by underfunded
plans. In addition, PBGC improved administration of its insurance programs.
Consequently, we removed PBGC from our high-risk list in 1995.7
Over the years, PBGC's workloads have grown significantly. In fiscal year
1975, PBGC administered three pension plans with a total of 400
participants. By fiscal year 1999, PBGC had trusteed more than 2,700 pension
plans with a total of more than 500,000 participants. (See figs. 2 and 3 for
the number of pension plans and participants by fiscal year.)
Years 1990-1999
PBGC, Fiscal Years 1990-1999
To service its workloads, in fiscal year 1999 PBGC relied on 754 federal
employees 8 and 680 staff employed by contractors. A total of 240 contractor
employees are located at PBGC's 11 contract field offices. (See fig. 4 for a
map of PBGC's contractor-operated field offices.)
These offices are primarily responsible for processing and administering
trusteed plans. PBGC's Insurance Operations Division (IOD) has oversight
responsibility for these offices and uses the services of an additional 227
contractor employees in the Washington, D.C., headquarters. Many of these
"in-house" contractor employees are located throughout eight Trusteeship
Processing Divisions (TPD) and perform work similar to the field office
contractors. In some of these areas, they work alongside federal employees
performing the same benefit processing and administration functions. PBGC
also relies on 213 additional employees from firms under contract to provide
actuarial, legal, audit, investment management, and information resource
services. (See app. II for a breakdown of the number of contract employees
used by each PBGC department.)
Although not required to do so in all cases, PBGC follows the regulations
governing contracting by federal agencies. PBGC's procurement activities,
which include benefit processing and administration services, are not bound
by the Federal Acquisition Regulation (FAR).9 The FAR applies only to the
contracting of goods and services with appropriated funds for the use of the
United States.10 Plan assets, which were privately established and
maintained, are not considered appropriated funds. As a matter of policy,
however, PBGC voluntarily abides by the FAR in procuring all goods and
services.
Although it is a wholly owned government corporation, PBGC is self-financing
in that it receives no general revenues. PBGC's operating budget is financed
by funds from insurance premiums paid by plan sponsors and trust assets.11
In fiscal year 1999, PBGC's total operating budget was $160 million.
Although PBGC does not receive general revenues, the portion of its budget
allocated to administrative expenses has been subject to a statutory
limitation since 1985. The Congress revised this limitation in 1989 and
again in 1992 to provide PBGC more flexibility to address the rapid and
often unexpected workload increases that followed several large pension plan
failures. These revisions exempted from any limitation all expenses incurred
by PBGC in connection with the termination and management of pension plans12
and provided PBGC with discretion to determine which functions and
activities qualified as nonlimitation expenses.
Over the years, PBGC has expanded the range of activities and functions
classified as nonlimitation expenses, and currently uses these resources to
fund nearly all contractor positions and related costs. This has resulted in
a steep increase in PBGC's nonlimitation budget, from $29 million in fiscal
year 1989 to $149 million in fiscal year 1999. During the same period,
PBGC's limitation budget decreased from $40 million to $11 million. Thus, by
fiscal year 1999, only 75 federal employees were funded out of PBGC's
limitation budget, which receives shared Office of Management and Budget
(OMB) and congressional review and approval. The remaining 1,359 federal and
contractor employees were funded out of PBGC's nonlimitation budget, which
is primarily subject to review and approval by OMB rather than the Congress
(see fig. 5).
Because PBGC's contracting decisions and its organizational field structure
have been heavily influenced by the need to service dramatic and often
unexpected workload increases, while adhering to staffing limitations,
decisions to contract for services have not been integrated into PBGC's
strategic planning considerations. However, potential changes in the future
work environment require PBGC to reassess its staffing, contracting, and
organizational structure needs to best serve current and future pension plan
participants.
Pressures
From the mid-1980s to the early 1990s, several large and unexpected
bankruptcies--including LTV Steel, Wheeling Pittsburgh Steel, Eastern
Airlines, and Pan American Airlines--contributed to more than doubling the
number of PBGC pension plan participants from 170,000 to nearly 400,000. In
addition to needing help to service the benefit administration needs of
thousands of new participants, PBGC found itself in need of additional legal
counsel and investment advisor services. Rather than continually seeking
significant increases in federal staff during a time of government
downsizing, PBGC increasingly turned to contractors to provide services.13
Over time, this emphasis on contracting for services continued as PBGC
focused on addressing a backlog of pending benefit determinations, which
peaked at over 300,000 in fiscal year 1994.
More specifically, PBGC often quickly entered into sole-source contracts
with pension office administrators from the insolvent companies to take
advantage of their familiarity with plan provisions as well as their
office's physical proximity to plan records and participants.14 Over the
years, 11 field office contractors have remained with PBGC to perform
benefit administration services for other insolvent plans as they were
terminated and trusteed. Thus, with no linkage to agency strategic planning
or assessment of how PBGC should be organized for maximum efficiency, these
offices have become PBGC's field office structure.
Because PBGC's focus was on obtaining needed staff quickly, it did not
perform a comprehensive analysis of the costs of using contractors versus
federal employees to service its workloads. Nor has PBGC taken actions to
reassess its contracting and staffing needs against projected future
workload changes or to determine how its field structure should be organized
for optimal performance in the longer term. PBGC completed a limited
cost/benefit analysis in 1994 which allowed PBGC to obtain additional
federal staff. However, this analysis was limited in the range and types of
positions reviewed and was never used by PBGC for longer-term strategic
planning purposes. In the absence of such activities, PBGC has operated for
many years without reasonable assurance that it has a cost-effective mix of
contractors and federal employees.15 In fact, PBGC could not provide data on
the total number of contract employees performing services for PBGC or a
description of how they were deployed across various PBGC components for the
years prior to fiscal year 1995.
Contracting Activities to its Strategic Plans
As a matter of policy, the government is expected to rely upon the private
sector to provide services if they can be obtained more economically from a
commercial source.16 However, potential changes in future workloads
attributable in part to increased PBGC productivity, economic trends,
changes in pension laws, and enhanced plan funding suggest that PBGC should
reassess its approach to the acquisition of contract services and better
link its activities to long-term strategic plans. For example, at the time
of our review, PBGC had reduced its backlog of pending benefit
determinations from a high of more than 300,000 in fiscal year 1994 to about
190,000. PBGC expects to eliminate the backlog and reach a working inventory
of about 120,000 pending determinations in less than 5 years. As PBGC moves
into an era of more real-time processing of benefit determinations,
reassessment of staffing levels and its organizational structure may be
necessary. (See fig. 6 for the number of pending benefit determinations
remaining each year.)
PBGC has also improved its ability to target companies that pose the
greatest risk to PBGC and to get underfunded plans to improve their
financial positions, thereby averting major crises. If pension plans are
adequately funded, PBGC is less likely to assume trusteeship and associated
benefit administration workloads. In fact, the data show that the number of
new pension plans taken over by PBGC each year has steadily decreased and
PBGC has not assumed any large and potentially disruptive plans in several
years. (See fig. 7 for the number of new plans trusteed by PBGC each year.)
In addition, the universe of defined benefit pension plans insured by PBGC
has decreased dramatically from a peak of 112,000 in 1985 to about 40,000 in
1999. This has been accompanied by a decrease in the number of active plan
participants--those currently earning pension accruals and a better measure
of future workloads--from 27 million in 1988 to 23 million in 1996.17 If
these trends continue, PBGC's exposure to future pension plan failures
should be reduced. PBGC expects workloads to remain at about 40,000 to
50,000 new participants per year.
Sound management practices dictate that organizations should periodically
engage in strategic planning and analyses to better position themselves to
meet future challenges. Our prior work on human capital planning suggests
that planning strategies should be linked to current and future human
capital needs, including the size of the workforce; its deployment across
the organization; and the knowledge, skills, and abilities needed by
agencies to pursue a shared vision. Staff deployment, both geographically
and organizationally, should also be made to enhance mission accomplishment
and provide for efficient, effective, and economical operations.18 In
addition, the Government Performance and Results Act of 1993 (GPRA) requires
that federal agencies pursue performance-based management through sound
strategic planning.19 To comply with GPRA, PBGC has developed a fiscal year
2000-2004 strategic plan and an annual performance plan to guide its
operations. While these plans acknowledge future work environment
challenges, they do not detail what those challenges will be and how
staffing, contracting, and organizational structure decisions will
facilitate accomplishment of PBGC's strategic goals and objectives. Thus,
PBGC still lacks a blueprint for organizing its contractors and federal
staff to cost-effectively meet the needs of current and future plan
participants.
PBGC officials have acknowledged the need to better assess PBGC's future
workloads and how its staffing levels and contractor mix will support those
workloads. However, PBGC's actions to date on this initiative have been
limited and it is still giving inadequate consideration to the longer-term
impacts of its decisions regarding the use of contractors. For example, PBGC
initiated a policy change in fiscal year 1999 allowing contract field
offices to perform ongoing administration for all of their closed plans,
regardless of plan size.20 Prior to this policy change, ongoing
administration for hundreds of plans had been consolidated primarily at two
designated field offices. As plans were closed, they were transferred to
these two locations for servicing. Under the policy change, all 11 field
offices are permitted to administer their closed plans, in addition to
performing benefit administration tasks on their active plans.
Several offices we visited were in the process of closing plans that had
represented a significant portion of their business for many years. An
official at one of the largest offices told us that, without ongoing
administration responsibilities or a significant influx of new plans, the
office would likely have insufficient work to continue operations. PBGC's
chief operating officer, who has ultimate responsibility for field office
oversight, told us that the decision to allow all these offices to
administer their closed plans was based on the assumption that they were
best qualified to address participant inquiries. However, he acknowledged
that PBGC's focus has been on addressing benefit determination backlogs
rather than on the long-term effects of allowing them to perform routine
plan maintenance activities. We are concerned that PBGC's ongoing
administration decision was made without sufficient analysis of future
workload trends and staffing considerations and could unnecessarily
perpetuate the existence of some field office contracts if the influx of new
plans trusteed by PBGC levels off over the next several years as expected.
Our review of PBGC's most recent field benefit administration services
procurements identified weaknesses in its procurement planning and execution
processes which could affect competition. Specifically, PBGC lacked a sound
business rationale to support its approach for contracting for services at
four field office locations. PBGC also should have done more to stimulate
competition for its other field office services procurements. In reviewing
several non-FBA contracts, we identified additional weaknesses in PBGC's
procurement practices, as described below.
Consistently Structured
As noted previously, PBGC currently has 11 contracts for FBA services
requirements. PBGC's first competitive procurement for these services
occurred in 1997, when it solicited offers for four offices' service
requirements--a total value of about $71 million. We reviewed these
procurements and found that the underlying procurement approach was not
supported by a sound business rationale. (See app. I, table 1, for specific
information on the contracts reviewed.) Such weaknesses in PBGC's
procurement planning and execution processes could negatively affect
competition. As a result, the agency risks paying too much for contracted
services and receiving inferior performance.
Prior to 1997, procurements for all field office services were conducted on
a sole-source basis because of PBGC's view that only one responsible source
was capable of performing the work in each location. According to PBGC's
Procurement Director, the decision to open some field office services
requirements to competition was influenced by concerns expressed by PBGC's
Office of Inspector General (OIG). The OIG had reported that some of PBGC's
contracts may have been awarded under "less than full competition in
inappropriate circumstances." In response, PBGC competed the requirements
for services at those field locations having the largest contract
dollar-values--Miami, Atlanta, Wheeling, and Wilmington. At that time, a
single large contractor--Office Specialists, Inc.--was incumbent at the
Miami, Atlanta, and Wheeling offices. A second contractor--Benefit Services
Unlimited--was incumbent at the Wilmington office. However, rather than
compete the services for these three offices separately, PBGC consolidated
the Miami, Atlanta, and Wheeling service requirements into a single
procurement. The services for the Wilmington location were excluded from the
consolidated procurement and competed separately. These procurement actions
resulted in PBGC's award of a $47 million, three-site contract to Office
Specialists, Inc., and the award of a $24 million Wilmington contract to
Benefit Services Unlimited, leaving the incumbent contractors in place for
all four locations.21
PBGC's procurement director stated that PBGC competed the four largest field
office requirements because they represented most of PBGC's FBA contract
budget. He also said he believed these large, high-dollar contracts would
attract competition. At our request, the procurement director provided a
written explanation of the procedures used in conducting these four
acquisitions. He stated that, based on the knowledge he and the director of
the Insurance Operations Division have of the "availability of benefit
administration firms that specialize in defined benefit pension plans
terminated in accordance with ERISA," PBGC was certain that the employees
already working at the sites for which the services requirements were
combined constituted "the only labor pool . . . qualified" to perform the
services. The Procurement Director further stated that out of five proposals
received in response to the solicitation, four were found to be technically
acceptable.22 These four offerors also proposed using the same group of
employees already working at the three sites. In view of "PBGC's knowledge
of this rather specialized marketplace," the Procurement Director stated
that requiring the successful offeror to perform at the Miami, Wheeling, and
Atlanta sites would not tend to restrict competition among responsible
firms. However, the procurement director acknowledged that the services for
the Wilmington site were not included in the consolidated procurement
because to do so would have precluded the incumbent from competing for the
work.
Absent legal authority that permits the contracting entity to do otherwise,
federal procurements are generally to be conducted using full and open
competition. As such, solicitations are permitted to contain restrictive
provisions only to the extent necessary to satisfy the needs of an agency.
Because consolidated procurements combine separate requirements into one
award, they have the potential for restricting competition by excluding
potential competitors that can furnish only a portion of the requirement.
Therefore, consolidated procurements must be reasonably necessary to satisfy
the government's need. The decision to consolidate the requirements must
also be based upon sound business reasons, supporting the conclusion that
the government's overall needs can be most effectively provided through a
consolidated procurement approach. In sum, PBGC's reasons for combining
requirements must be balanced against the possible restriction of
competition.
Although PBGC did receive five proposals in response to the combined
solicitation, it did not provide a sound business rationale as to why the
consolidation of the Miami, Atlanta, and Wheeling requirements was necessary
to meet PBGC's needs. PBGC did not establish that the combination supported
any program plan or goal of PBGC. In fact, PBGC's explanation for combining
the three requirements and its explanation for excluding the fourth are
inconsistent. PBGC's conduct of these procurements showed weaknesses in its
procurement planning practices. Consequently, competition may have been
limited and PBGC risks paying too much for contracted services and receiving
inferior performance.
Contracts Could Be Improved
Although PBGC competed four field office services requirements in 1997, it
continued its practice of making sole-source awards for the seven remaining
field office contracts. Our review showed that PBGC should have done more to
stimulate competition for these procurements.
PBGC's rationale for continuing to make sole-source awards was that the
incumbent contractors, as former pension plan administrators of companies
from which their primary plans emanated, were uniquely qualified to perform
the work because of their knowledge of the primary plans.23 Even though PBGC
published a notice of these awards in the Commerce Business Daily (CBD), we
found no indication that PBGC ever acted to stimulate competition by
conducting outreach or market research activities to identify other offerors
capable of performing the required services. In prior work, we have reported
that such activities have been effective in stimulating competition.24
Our review of the contract files for the Pueblo, Sarasota, and Cleveland
offices confirmed that the principals/owners were former benefit
administrators for the primary plans under administration and were still
servicing their primary pension plans. However, at the time of these
procurements, these contractors had 6 years of service with PBGC and had
made considerable progress toward completing the work on their primary
plans. They also had assumed benefit administration responsibility for
numerous additional pension plans not associated with the plans they
originally administered. For example, one sole-source office contractor
listed a total of 15 additional trusteed plans from various companies and
thousands of new participants under its administration.
PBGC's procurement director told us that the decision to continue awarding
sole-source contracts for these seven offices was based primarily on his
knowledge of the marketplace and a belief that few companies other than the
incumbents possessed the expertise to service pension workloads at these
locations. However, PBGC acknowledged that it conducted no outreach or
market research activities to identify other potential offerors.
When a contracting entity uses noncompetitive procedures, it must execute a
written justification that includes sufficient facts and rationale to
justify its use of those procedures. The justification must also include a
description of any market survey conducted--or an explanation of why a
market survey was not conducted--and a statement of actions the agency may
take to remove barriers to competition in the future. For those contract
files we reviewed, PBGC's justification for the procurement states that it
received no statements of interest from other potential offerors in response
to its CBD notice. Concerning its actions to overcome barriers to
competition, the justification states:
The PBGC is presently unaware of any specific barriers to competition that
could be overcome with respect to this requirement. Further, PBGC will
continue to form and disseminate its requirements in a manner which will
reach the widest range of potential sources.
Even though, procedurally, the CBD notice may serve the purpose of a market
survey, PBGC should do more to stimulate competition. PBGC's justification,
along with its actions in continuing to award these contracts
noncompetitively for almost a decade, indicates an absence of intent to do
otherwise. Given the amount of time this practice has continued, PBGC should
make greater efforts in the future to stimulate competition for these
requirements.
PBGC's procurement director acknowledged that PBGC should reassess its
sole-source field office contracts as more offices close out their primary
plans and continue to take on additional work beyond their original area of
expertise. This reassessment could result in additional competitive field
office procurements in the future. However, he noted that this reassessment
would be unlikely prior to fiscal year 2001, when the current field office
contracts are due to expire.
In addition to the above findings, our review of PBGC's contracting
practices identified other management and operational weaknesses associated
with contracts let by the chief financial officer (CFO) component, the
second largest user of contractors' staff at PBGC (see app. II). These
weaknesses pertain to the need for PBGC to better document the results of
technical evaluations of proposals, and its use of fixed-price rather than
labor-hour payment arrangements for some contracts.
For Some Contracts, PBGC's Basis For Contractor Selection Is Not Fully
Documented
Our review of two CFO component contracts found that PBGC should have more
fully documented its basis for awarding an $18 million information resources
management (IRM) contract for systems engineering and a $1.5 million
investment management contract. PBGC's internal guidance at the time of the
procurements provided for the establishment of a Technical Evaluation Panel
to assess contractor proposals and make selection recommendations to the
procurement director. This guidance required that, in evaluating proposals,
the panel chairperson and each member identify and record the strengths and
weaknesses of each proposal under review. While it was not specifically
required, panel members could also prepare individual score sheets for each
offeror's proposal.
The procurement files we reviewed included the technical scores for the
offerors under consideration as well as a selection recommendation from the
panel chairperson. However, they did not include a complete set of
individual panel members' scoresheets documenting their review and rationale
for arriving at a particular score. For the investment management contract,
we found that only two of seven panel members submitted individual
scoresheets and some analysis of the specific strengths and weaknesses of
competing proposals. With only the final numeric scores to go by, the record
lacked information concerning the panels' bases for determining contractor
qualifications and issuing its final selection recommendations. Thus, it was
not possible to determine whether final award decisions were based on a
thorough assessment of each offeror's proposal by all panel members.
Opportunities Identified for Alternative Contract Payment Arrangements
We reviewed five additional CFO component contracts for premium compliance
audit services and found that PBGC should give stronger consideration to
using fixed-price contracts rather than labor-hour contracts for these
services.25 For these contracts, audit firms perform reviews of companies
that pay insurance premiums to PBGC. The reviews primarily involve
examining, testing, and validating required asset and liability information
related to the calculation of premium levels and ensuring that premiums paid
by covered pension plans are correct. The collection of pension plan
premiums is a major source of income to PBGC.26
As of June 2000, about 60 percent of PBGC's active contracts involved
labor-hour pricing, under which contractors are paid at an established
hourly rate for performing agreed-upon tasks. In general, labor-hour
contracts require detailed reviews of the hours charged by contract staff
and close monitoring by the contracting entity to ensure that quality and
timeliness requirements are met. Otherwise, the contracting entity risks
paying a higher price than it would under a fixed-price arrangement, as well
as receiving poor performance. Accordingly, in its best practices guide for
performance-based service contracting, the Office of Federal Procurement
Policy encourages the increased use of fixed-price contracts and incentives
to promote optimal performance.27
When acquiring services that previously have been provided by contract,
agencies should rely on the experience gained to facilitate the use of
fixed-price contracts for such services. Prior to entering into the current
contracts in 1997, the incumbents performed similar work for PBGC under
purchase order agreements. Thus, PBGC had actual experience in pricing
similar services that could have served as a basis for estimating future
contract costs. Based on this information, the contracting officer's
technical representative (COTR) responsible for oversight of the firms
calculated a potential fixed price of between $3,400 and $8,000 to be paid
to the contractors for each audit completed.28 A fixed-price contract for
these audits was originally proposed by PBGC and the five firms submitted
offers. However, following a meeting between PBGC component management and
the contractors, PBGC made a determination that a labor-hour payment
arrangement would be more effective to accommodate the variable level of
effort needed to complete the audits.
The procurement files showed that, after the contracts were awarded, PBGC
experienced performance problems with several of the contractors. Within the
last 2 years, PBGC also opted not to continue its 15-month relationship with
two of the firms. Documents we examined showed that PBGC paid one of these
contractors $210,000 to complete three audits--about $70,000 per
audit--which resulted in $2,000 in additional collections. In contrast,
PBGC's highest-producing contractor performing similar services completed 27
audits with $1.3 million in additional collections at an average cost of
$6,600 per plan. This indicates that PBGC could have paid much less than
$210,000 to the above contractor under the fixed-price arrangement
originally proposed, in which firms were paid on a per-audit basis.29 In
addition, a second contractor has been referred to PBGC's OIG by the former
COTR for investigation of potential contract billing irregularities. In
light of the performance issues surrounding these contracts, and the fact
that PBGC has some basis to award them as fixed-price contracts, PBGC should
give stronger consideration to using fixed prices in similar situations.
Contract oversight primarily involves monitoring performance. In recent
years, PBGC has taken actions to improve its contract oversight role and
better support its contractors who perform field benefit administration
services. However, we identified several key management weaknesses that
could affect PBGC's ability to monitor and hold contractors accountable for
performance. These include a lack of FBA-specific data necessary for
monitoring performance, deficiencies in PBGC's field office quality reviews,
insufficient policy guidance for PBGC staff responsible for managing
contractors, and current organizational alignments that could affect the
independence and objectivity of PBGC's contracts review component. In
addition to these broader contract management issues, our review of the
contract files identified specific operational deficiencies pertaining to
PBGC's oversight of its premium compliance audit and IRM contracts.
Performance
Our analysis showed that PBGC uses various tools to monitor contractor
performance. For example, all of the FBA offices we visited received a
performance review by PBGC in the last year. As required by its contract's
statement of work, each office also used PBGC workplans to guide its daily
activities and submitted monthly status reports to PBGC to document progress
made. Field office managers also reported regular communication with their
assigned COTR at PBGC.
We also found that PBGC has taken steps to improve benefit processing and
administration and to better support field office contractors in servicing
their workloads. For example, in 1993, PBGC reorganized its benefit
administration operations to implement team case processing so that
auditors, actuaries, and benefit administrators in both headquarters and the
field are arranged in teams to process benefits. This replaced sequential
processing, in which cases were handed off between various components as
discrete tasks were completed. Over the last several years, PBGC also made
significant investments in automation and centralized several functions
previously handled by the field offices to allow staff to focus primarily on
processing benefit determinations. For example, field offices now have the
capacity to automatically generate mass letters and notices to recipients,
rather than use manual processes. In addition, responsibilities for
addressing participant telephone inquiries and for processing mailed
documents into PBGC's databases are now centralized in PBGC headquarters.
Our interviews with field office managers showed a general agreement that
the reorganization was effective in terms of expediting pension plan
processing and improving organizational communications. Most of the managers
and staff also noted that PBGC's automation investments have improved office
productivity and overall customer service.
Office Performance
Our analysis and field visits showed that PBGC does not compile and
centrally monitor FBA-specific performance data that are essential to
overseeing and managing performance. In the absence of such data, PBGC may
lack critical information to ensure that work is progressing as required and
quality goals are met.
In order to undertake a comparative analysis of field office productivity,
we requested data from PBGC to document the range of activities and volume
of work processed by these offices. We found that field office data are not
centrally compiled and monitored by PBGC. Instead, PBGC generally compiles
data on work processed by each office--such as final benefit
determinations--on a plan-specific basis. This information is then included
in the productivity data for PBGC's eight TPDs in Washington. These
divisions have primary responsibility for pension plan administration and
oversee the activities of field offices assigned to their plans. Under the
current organization, a field office with 30 pension plans could report to
several processing divisions and its workload outputs would be included
within the productivity totals of each of those divisions. As a result, PBGC
lacks centralized field office performance data and reports necessary for
quickly providing top management with a "snapshot" of office productivity as
pension plans move through the various stages. Due to the commingling of
data, along with the fact that field office productivity is reported on a
plan-specific basis, it may be difficult for PBGC to ensure that its
contract field offices are performing efficiently and effectively.
Individual offices do, however, maintain internal productivity information
to assist in managing their workloads. Such information includes the number
of benefit determinations processed, death notices recorded, address changes
completed, pension databases built, documents scanned, and pension plans
closed out. Some offices also compiled manual data on backlogged workloads.
However, the extent and detail of these data varied among the offices. The
offices we visited also reported their activities to PBGC via monthly status
reports to their assigned COTR, as required by their contracts. However, the
content of these reports also varied. Thus, the monthly status reports are
not an adequate substitute for automated and centrally monitored field
office performance data. We believe that--if uniformly compiled and
monitored--additional automated data would provide PBGC with information
needed to compare office productivity and performance over time, monitor a
specific office's performance against prior months and years, more quickly
determine work progress, and identify and track workload backlogs.
FBA-specific data may also allow PBGC to evaluate the impacts of special
management initiatives on other workloads, such as a recent PBGC mandate to
complete all pre-1994 pending benefit determinations by the end of fiscal
year 1999. For example, PBGC's OIG reported that PBGC's emphasis on
processing benefit determinations may have caused final plan closings to
receive less priority. The OIG also concluded that completing this step was
important because it allowed PBGC to ensure that all final benefit
determinations for a plan were issued. Because PBGC does not centrally
compile and monitor FBA-specific data on plan closures, it lacks valuable
information for top management to assess the effect of this recent directive
on other workloads.
PBGC officials responsible for overseeing the field offices acknowledged
that FBA-specific data were not centrally compiled or used by management to
assess and monitor individual office performance. They generally agreed that
compiling such information would better support upper management's need to
quickly assess PBGC's progress in meeting processing targets. One high-level
official also told us that, in prior years, the lack of comprehensive field
office performance data impeded PBGC's efforts to obtain OMB approval for
additional resources. Some managers cautioned that using such data for
comparison purposes was difficult because offices are not always in the same
stage of operations. For example, one office may be processing more benefit
determinations in a given month, while another may be processing recipient
death notices. Thus, their outputs would be different. However, these
officials also acknowledged the value of using such data for intraoffice
comparisons--that is, comparing an office's performance against its prior
months or years to evaluate trends in office productivity and identify any
emerging performance issues. We believe that such data may also provide PBGC
with better management information to establish more meaningful future FBA
office performance goals.
Work Quality
PBGC requires its FBA offices to undergo regular performance reviews to
ensure that proper internal controls are in place and that workloads are
processed in a complete, accurate, and timely manner. The reviews include
steps to assess the management of field office operations and verify
participant information files to ensure that information is accurately
documented and benefit computations are accurate. However, our analysis
identified continuing weaknesses in the review process, which may affect
PBGC's ability to manage contractor performance. In 1995, PBGC's OIG
reported that its performance reviews were not in accordance with generally
accepted government audit standards as had been claimed by management. The
OIG also concluded that the reviews often resulted in flawed
recommendations, seemed to excuse poor field office performance, and posed a
risk to PBGC decision-making. In response to these findings, PBGC agreed to
reassess its audit standards, to improve documentation and followup on prior
recommendations, and to hold its field office contractors accountable for
identified problems.
Our review identified continuing problems with PBGC's performance review
process. PBGC's procedural manual for these reviews states that they are
based on government auditing standards. As such, review team members are
required to meet general standards for independence, qualifications, due
professional care, and quality control. Despite these requirements, key
headquarters staff and managers told us that the reviews had a limited
impact on improving field office performance, because management often did
not support efforts to identify weaknesses and hold the offices accountable
for negative findings. Others noted that team leaders and members often
lacked sufficient training and expertise to perform the reviews. We also
obtained an internal management report prepared by PBGC last year assessing
the effectiveness of the review process. This document noted that the
reviews continued to show weaknesses in meeting auditing standards which
could facilitate internal control weaknesses and poor product quality. The
report especially highlighted deficiencies in the area of personnel
qualifications and due professional care.30 For example, the report noted
that it was the practice of some components to rotate experienced personnel
out of the review function each year, and assign lead roles to individuals
who had never completed such reviews or received training in applying the
standards and procedures. In fact, of 22 field office reviews completed by
PBGC, nearly one-third were led by individuals who had never before
participated in a review.
In regard to the issue of due professional care, the management study also
cited frequent instances of poor quality control and of reports and work
papers being returned for significant additional development, even though
they had been reviewed and approved by team supervisors. Finally, the study
noted that resources devoted to the reviews may be insufficient to ensure
that a quality review is conducted. Citing feedback from various review
teams, the report pointed out that "corners would be cut" when PBGC's work
priorities dictated.
A PBGC official responsible for field office quality assurance acknowledged
that training and qualifications for review team members remain a concern.
However, this individual stated that PBGC now places a greater emphasis on
reviewer training and on ensuring adherence to accepted auditing standards.
Our review showed that PBGC does provide and encourage field office reviewer
training. However, PBGC still does not require team leaders or members to
meet minimum professional education credit requirements. At the time of our
review, PBGC also had not reached any conclusions as to whether a system of
permanent review team leaders would be more efficient than the current
process of rotating less-experienced staff into that role.
PBGC should act quickly to address the weaknesses in its performance reviews
of field office contractors. An effective quality control system is
particularly important, considering that PBGC recently completed its
initiative to issue final benefit determinations for plans trusteed prior to
1994. During our field visits, contractor management commonly referred to
this directive as a major undertaking with tight time frames. Individuals
from several offices also noted that pressure to process this workload may
have negatively affected the accuracy of benefit calculations and quality of
notices sent to participants. Thus, it is important that PBGC have an
adequate review process in place to detect errors resulting from this
effort.
Guidance
Primary responsibility for oversight of PBGC's contracts lies with more than
69 COTRs located throughout PBGC and five contract specialists within the
Procurement Department. In its best practices guide for contract
administration, the Office of Federal Procurement Policy states that
problems often arise when contracting officials allocate more time to
awarding contracts than to administering them. In addition, unclear roles
and responsibilities of individuals responsible for contract administration
are also cited as sources of problems. Contracting entities should pay
attention to adequately supporting the individuals responsible for
monitoring and ensuring contractor performance.
Despite the importance of effective contract oversight, we found that PBGC
has not developed a comprehensive set of policies and procedures to guide
COTRs and contract specialists in their day-to-day activities. The
Procurement Department maintains a limited policy and procedure manual,
which serves as the primary guide to contractor selection and oversight.
However, the director often supplements this document with ad hoc
directives, e-mails, and other standalone memorandums to address contracting
issues and problems as they arise. Because PBGC has never compiled these
informal policy clarifications and directives into its departmental manual,
PBGC lacks a comprehensive set of standard operating procedures to guide
staff in addressing common contract oversight problems.
During our review, staff involved in contract oversight management expressed
a common need for additional policy and procedural guidance and training
beyond what is currently provided by PBGC. In the absence of more specific
procedures, some COTRs and contract specialists have chosen to rely on their
own judgment or on advice from coworkers for policy and procedural
interpretations. Due to the decentralized nature of PBGC's directives, staff
may also spend significant time seeking guidance for issues such as when
contracts should receive legal review or what to do with pension files after
plans are closed. Furthermore, staff and managers may receive conflicting
directions, which could ultimately lead to inconsistent administration
practices and contractor performance problems. During our review, we
identified two separate internal guidance documents used by PBGC to clarify
COTR responsibilities. These documents included disparate information
regarding the COTRs' responsibility to provide monthly status reports to
management on the progress of work. In reviewing the contract files for 6 of
the 11 FBAs, we found that the COTRs were regularly completing these reports
while COTRs for several other non-FBA contracts were not.
Implications
Our analysis shows that the independence and objectivity of PBGC's CCRD
could be negatively affected by its position in PBGC's organizational
structure.
Established by PBGC's Deputy Executive Director and CFO in 1994, CCRD
performs contract cost audits and internal control reviews of PBGC's
departments and programs. Auditing standards require that the audit
organization and individual auditors should be organizationally independent
in all matters relating to audit work. However, because the director of CCRD
reports directly to the CFO, any internal reviews of departments and
programs located under this component cannot be considered independent. CCRD
management told us that any reports or reviews of departments under the CFO
must disclose the fact that CCRD is not considered independent under
generally accepted government auditing standards. While we agree that such a
disclosure is necessary, we are concerned that the objectivity of this
department's reviews could still be in question due to the current reporting
relationship. More importantly, we are concerned that the potential exists
for management to influence the scope of audits or affect CCRD's ability to
make independent judgments as to which CFO departments and programs should
be reviewed. The former Director of CCRD told us that the department's
current location within PBGC was not ideal. He also suggested that stronger
organizational independence could facilitate more effective internal reviews
of all of PBGC's departments and programs.
Reviewed
In addition to the broader contract management issues noted above, we
identified specific weaknesses in PBGC's oversight of five premium
compliance audit contracts and one IRM systems engineering contract.
We found that none of the premium compliance audit contractors submitted the
required monthly COTR status reports, which are essential to documenting
work status and identifying performance problems early in the process. In
addition, despite the fact that the compliance audit contractors were
performing similar services for PBGC, their reports on the progress of
audits differed in terms of format, data provided, and comprehensiveness.
The contractors also used various means, other than written reports, to
document the final results of their reviews. In fact, it was common for no
signed reports to be issued. Instead, contractors' work papers often served
as their final report product.
As noted earlier, PBGC has experienced performance problems with some of the
firms working under these contracts. Weaknesses in PBGC's oversight and
management of these contracts may have affected its ability to monitor work
progress and ensure the quality of the reviews. The total value of the five
contracts we reviewed was about $7.5 million; however, their importance is
much more significant because annual insurance premiums paid by covered
plans are a primary source of PBGC's income. Thus, ensuring proper payment
of premiums is crucial. Current data show that additional collections
resulting from these reviews are down from more than $2 million in FY 1999
to about $7,000 as of May 2000. It is important that PBGC maintain adequate
contractor oversight practices to ensure the performance of the firms
responsible for auditing pension plan premiums.
Our review of the IRM systems engineering contract also identified oversight
problems. Over the course of several years, this $18 million contract has
involved 73 contract modifications and 70 task orders for related work
beyond the original contract agreement. PBGC's contract specifically
requires the contractor to develop a project workplan for each additional
task order, specifying the work to be completed, how it will be done, and
the timeframes for completion. Our review showed that this document was
prepared for only 1 of the 70 task orders. We identified contractor-provided
reports specifying the work to be completed under some task orders, but
these reports were infrequent and appeared to be written after the work had
started, rather than prior to starting as required by PBGC. Finally, the
contract files also showed evidence of insufficient monitoring by the COTR.
In fact, for a 6-year period, we found only three COTR monthly status
reports. These reports were completed by the previous COTR in the first 2
years of the contract. The file included no status reports from the current
COTR, who has administered the contract for the last 3 years. We provided
PBGC's Procurement Department with an opportunity to present additional
documentation on PBGC's monitoring activities; however, the department did
not provide us with any additional information.
PBGC has historically relied heavily on contracting to address increasing
workloads. Accordingly, contractors have played a significant role in PBGC's
ability to serve plan participants and reduce the backlog of pending benefit
determinations from a high of about 300,000 in fiscal year 1994 to about
190,000 in fiscal year 1999. However, we have identified underlying
management weaknesses in regard to PBGC's overall approach to selecting and
managing contractors, as well as its day-to-day administration of specific
contract requirements.
First, despite a reduction in the backlog of pending benefit determinations
and projected changes in future workloads, PBGC still has not taken steps to
reassess its contracting and organizational structure needs. All
organizations should regularly engage in analyses to ensure they have an
appropriate level of skilled staff and to position them to meet workload
challenges. Current trends show that PBGC should act soon to respond to a
potentially different work environment in the future. During our review,
management acknowledged the need to better link its decisions to contract to
future workload and staffing assessments. However, no significant
initiatives are under way. We believe that PBGC should undertake analyses of
its staffing needs, skill levels, and organizational structure relative to
current and future workloads. This type of contingency planning is
consistent with the strategic planning requirements of GPRA and should allow
PBGC to make systematic and orderly changes to its workforce as needed in
the future while still meeting the needs of plan participants.
Second, PBGC can do more to encourage competition in the procurement of
services. Without consistent efforts to monitor the marketplace and to
stimulate competition, it is difficult to ensure that PBGC obtains the best
value for services it procures. Moreover, without effective contract
oversight, PBGC cannot be sure that its contractors are held accountable for
meeting performance requirements.
We also believe that PBGC should refocus its management and contract
oversight processes and better compile and use contractor data to ensure
performance. PBGC should also enhance its quality assurance tools and
provide more comprehensive policy guidance for individuals responsible for
overseeing contractors. Finally, PBGC should ensure that the organizational
alignment and reporting relationships of the CCRD provide for independent
reviews.
As noted earlier, PBGC's budget structure provides it with substantial
flexibility to address workload pressures by utilizing nonlimitation funds
that are not directly subject to review and approval by the Congress. Over
time, the nonlimitation budget has grown significantly and now supports
nearly all of PBGC's operations and procurement activities. This absence of
traditional checks and balances over PBGC's budget represents a potential
weakness in regard to the Congress' ability to oversee and ensure that PBGC
conducts its operations in a manner that sufficiently administers trust fund
assets while still meeting the needs of pension plan participants. Because
PBGC's budget lacks the structure of shared OMB and congressional review and
approval common to most other government entities, it is essential that PBGC
act prudently in managing its budget resources and procurement activities to
ensure that competition and contractor oversight are strengthened. Inaction
on PBGC's part to address the issues identified in this report could result
in PBGC's paying too much for required services, in contractor performance
problems, and in deterioration of service to plan participants. Continued
inaction may also call for the Congress to strengthen its oversight role by
reassessing and redefining the range of activities and functions treated as
nonlimitation expenses.
Guaranty Corporation
To improve PBGC's management of its contract responsibilities, we recommend
that PBGC's executive director take the following actions:
� Conduct a comprehensive review of PBGC's future human capital needs,
including the size of the workforce; its deployment across the organization;
and the knowledge, skills, and abilities needed by PBGC. The results of this
review should be used to better link staffing and contracting decisions to
PBGC's long-term strategic planning process, consistent with GPRA.
� Address weaknesses in PBGC's procurement process to ensure that contract
award decisions best serve the needs of the government and plan
participants, while fostering competition. This would include conducting
market research as appropriate to determine whether other potential offerors
exist and seeking opportunities for increasing competition for PBGC
contracts that are now awarded on a sole-source basis.
� Where appropriate, utilize more fixed-price contracts and fewer labor-hour
payment arrangements consistent with best practices in performance-based
contracting.
� Strengthen polices and procedures for evaluating proposals by ensuring
that review panels adequately document their contract award recommendations
in accordance with PBGC's internal guidelines.
� Strengthen PBGC's contract oversight role by developing the capacity to
centrally compile and monitor essential field office performance data. Such
a system should provide the longitudinal data necessary to quickly measure
and compare field office performance in regard to outputs, product quality,
backlogs, and timeliness.
� Address weaknesses in PBGC's field office performance review process to
better ensure that benefit administration services contractors meet quality
and accuracy requirements.
� Develop a comprehensive set of procedural guidance for staff responsible
for awarding contracts and monitoring contractor performance.
� Revise the current organizational placement and reporting relationship of
CCRD to promote objectivity and independence.
and Our Evaluation
In providing comments on this report, PBGC generally agreed with all eight
of our recommendations. If fully implemented, the corrective actions cited
by PBGC have the potential to substantially improve the management of its
contracting responsibilities.
PBGC agreed with our recommendation that a strategic workforce planning
study is necessary, and said that it intends to engage an independent
outside organization to conduct such a review. Second, PBGC agreed to
strengthen its procurement processes by opening additional contracts to
competition and expanding its market research efforts to identify potential
offerors. PBGC said it plans to separately compete 10 FBA office contracts
over the next year. The corporation also agreed with our recommendation
that, where appropriate, it should use more fixed-price contracts and other
non-labor-hour payment arrangements. PBGC also intends to strengthen its
policies and procedures for evaluating contractor proposals, as we
recommended. In particular, PBGC said that it would ensure that individual
reviewer scores and additional documentation are retained in the procurement
files.
In regard to our recommendations for strengthening PBGC's contract oversight
role, PBGC stated that it would continue to develop additional centralized
field office performance data essential to managing its contractors, and
that changes were being made to its field office performance review process
to ensure that trained and experienced staff are assigned to the reviews.
PBGC also agreed that providing procurement policies and program guidance in
a central location is needed. Accordingly, PBGC plans to identify gaps in
procedural guidance and develop needed policies. Finally, PBGC told us it
plans to address CCRD organizational placement and independence issues as
part of its larger workforce planning study.
However, in some instances PBGC took issue with our findings regarding its
past contract actions and procedures. For example, PBGC believed our
assumption that future workloads would likely level off, were too
optimistic. We agree that it is difficult to predict PBGC's future workloads
with absolute accuracy. However, a steady downward trend in the data that
could affect PBGC's future work environment requires PBGC to have a strategy
or contingency plan in place to ensure that its staffing, contracting, and
organizational structure meet the needs of current and future pension plan
participants.
PBGC also disagreed that its 1997 procurements for FBA services may have
limited competition. PBGC noted that its procurement actions met the
competition requirements of the FAR and the prices obtained could be assumed
to be reasonable. Consolidated procurements have the potential to restrict
competition. As noted in this report, PBGC did not provide a sound business
rationale to support its consolidated procurement approach. While in this
case multiple bids were received, PBGC's actions showed weaknesses in the
management of its procurement planning and execution practices.
Consequently, PBGC risked paying too much for contracted services and
receiving inferior performance.
In discussing its use of labor-hour, rather than fixed-price payment
arrangements for its premium compliance audit contracts, PBGC noted that its
decision was based on consideration of numerous workload factors. PBGC also
questioned whether these types of contracts should be fixed-price, based on
its interpretation of performance-based contracting guidelines. The
guidelines state that fixed-price contracts are appropriate for services
that can be objectively defined. PBGC's prior experience with these
contracts allowed its managers to define the work to be completed and
develop detailed fixed prices. Prior experience also allowed the incumbent
contractors to initially respond with fixed-price offers. The guidelines do
not explicitly exclude audit contracts from being designated as fixed-price.
These factors led us to conclude that there was a reasonable basis to
contract as fixed-price.
PBGC also disagreed with our conclusion that one former contractor received
$210,000 to complete only three plan audits. PBGC said that the figure was
misleading in that it did not account for work completed by the contractor
on more than 37 additional audits. Our conclusion was based on an internal
PBGC document noting that the former contractor's remaining premium plan
audits were transferred to another contractor, but this contractor could not
use any of the work performed. Thus, the audits had to be started from
"scratch." Therefore, the dollar figure cited represents an accurate
assessment of how much PBGC paid for actual work completed.
Finally, regarding PBGC's need to ensure that its review panels document
their award recommendations, PBGC explained that the contracts we reviewed
predated a September 1999 revision to its internal guidance that required
technical panel members to complete individual scoresheets for each offeror.
PBGC explained that, while individual scoresheets were used prior to the
guidance change, only summary scoresheets were required to be in the files.
In response to PBGC's comments, we revised the report to note that
individual panel member scoresheets were not required for the procurements
reviewed.
As agreed with your office, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 30 days from
the date of this letter. At that point, we will send copies to the Honorable
David M. Strauss, Executive Director of the Pension Benefit Guaranty
Corporation. Copies will be made available to others upon request.
If you have any questions concerning this report, please contact me at (202)
512-7215, or Daniel Bertoni at (202) 512-5988. Other major contributors are
listed in app. IV.
Barbara D. Bovbjerg, Associate Director
Education, Workforce, and Income Security Issues
Scope and Methodology
This appendix describes our approach for collecting and analyzing data and
for interviewing officials to document the growth and management of contract
staff at the Pension Benefit Guaranty Corporation (PBGC). The objectives of
our review were (1) to determine the basis for PBGC's decisions regarding
the use of contractors versus government personnel to address its workloads,
(2) to assess PBGC's processes and procedures for selecting contractors, and
(3) to determine how effective PBGC has been in monitoring the performance
of its contractors.
Our review was conducted at PBGC headquarters in Washington, D.C., and six
field benefit administration (FBA) offices: Wilmington, Delaware; Miami,
Florida; Atlanta, Georgia; Pueblo, Colorado; Sarasota, Florida; and
Cleveland, Ohio. We selected the field offices based on the dollar amounts
of the contracts, volume of work processed, geographic area, and whether the
procurements were selected on a competitive or sole-source basis. Our
selections included three large offices, two medium-sized offices, and one
small office. Three of these offices' contracts were competed and three
operated under sole-source contracts. We conducted our review from June 1999
to May 2000 in accordance with generally accepted government auditing
standards.
To determine the range of factors that have influenced PBGC contracting
decisions over the last decade, as well as PBGC's approach to selecting and
managing contract staff, we conducted in-depth interviews of more than 70
PBGC personnel. These included PBGC headquarters senior executives, middle
managers, and line staff, as well as contract personnel in headquarters and
the field offices. We captured this information using structured interview
guides which included general questions applicable to all personnel
regarding corporation procedures and policies, as well as specific questions
tailored to each individual's particular position or area of expertise. We
also administered a short survey to PBGC's 69 contracting officer's
technical representatives (COTR) to obtain their views on how the contractor
selection and management process could be improved.
To assess PBGC's procurement practices, we obtained federal staff and
contractor trend data that documented the extent to which PBGC has used
contract personnel over the last decade. We also obtained and reviewed
budget information to determine how PBGC is financed and its authority for
using contractors. We identified and obtained internal policies and
procedures with respect to contracting practices and documented PBGC
decisions with respect to the use of contractors to address workload
backlogs of prior years. Finally, we compared PBGC's activities against the
strategic planning requirements of the Government Performance and Results
Act of 1993 and prior GAO work outlining steps agencies should take to
address resource, human capital, and other strategic planning challenges.
To evaluate the effectiveness of PBGC's contractor source selection and
oversight practices, we reviewed 15 contracts of the two largest users of
contracting at PBGC. We assessed PBGC's activities against the requirements
of the Federal Acquisition Regulation and PBGC's own internal policies and
procedures. Where appropriate, we also compared PBGC's activities against
"best practices" in contract selection and administration as defined by the
Office of Federal Procurement Policy. Finally, we reviewed reports from
PBGC's Office of Inspector General that identified past deficiencies in the
selection, management, and oversight of contractors. Table 1 presents
additional information related to the contracts we reviewed
Estimated
Option maximum Cumulative
Contract
Contractor/ Award Effective years value total amount status (as
contract number date date (after Contract action Type Purpose obligated of
base (base +
year) option (06/12/00) 06/12/00)
years)
Pension benefit
D.L. Skully & administration In progress
Associates Inc. Labor services at
12/23/97 10/01/97 3 Sole-source $13,949,308$2,350,319
hour Richmond (option
PBGC01-CT-98-0540 Heights, Oh., year 2)
FBAa office
General Employee Pension benefit In progress
Management Labor administration
Services, Inc. 03/20/98 10/01/97 3 Sole-source hour services at $13,941,500$1,763,725 (option
PBGC01-CT-98-0536 Sarasota, Fla., year 2)
FBA office
Pension benefit
Benefits Services administration In progress
Unlimited Com- Labor services at
11/05/97 10/01/97 3 $24,093,636$4,373,842
hour Wilmington, (option
PBGC01-CT-98-0538 petitive Del., FBA year 2)
office
Disciplined Pension benefit
Benefit Services, administration In progress
Inc 03/02/98 10/01/97 3 Sole-source Labor services at $8,385,816 $1,340,315
hour (option
Pueblo, Colo.,
PBGC01-CT-98-0537 FBA office year 2)
Pension benefit
Office Specialists Labor administration In progress
PBGC01-CT-98-0543 11/17/97 11/01/97 3 Com-petitive hour services at $13,173,656$4,702,529 (option
Miami, Fla., year 2)
FBA office
Integrated Pension benefit
Management administration In progress
Resources Group, 10/14/98 10/01/98 4 Com-petitive Labor services at $25,261,453$3,814,090 (option
Inc. hour Atlanta,Ga., year 1)
PBGC01-CT-98-0573 FBA office
Pension benefit
Office Specialists administration In progress
11/10/97 11/01/97 4 Com-petitive Labor services and $64,289,740$14,811,787 (option
PBGC01-CT-98-0545 hour telephone year 2)
center at PBGC
headquarters
Integrated
Management
Resources Group, Labor In progress
Inc. 11/05/97 11/03/97 4 Com-petitive hour Audit services $13,878,025$6,010,475 (option
year 2)
PBGC01-CT-98-0546
Booz, Allen & Systems
Hamilton, Inc. Labor engineering Inactive
hour, services to
PBGC-J-8-0418 10/20/93 09/30/93 4 Com-petitive Task redesign Case $12,851,241$18,017,067b (ended
order Administration 09/30/99)
System
Paradigm Asset
Management Percentage
Fixed Investment of In progress
PBGC01-CT-96-0509 01/31/97 10/01/96 5 Com-petitive price management investment $1,074,699 (option
services year 3)
earnings
Coleman & Williams
8(a) Premium Inactive
PBGC- 09/03/97 07/29/97 3 Labor compliance $1,597,600 $305,000
(noncom-petitive) hour review services (terminated
J-9-0527 08/27/99)
Inactive
Owusu & Company 8(a) Premium (ended
10/02/97 07/25/97 3 Labor compliance $1,570,256 $200,000 09/30/98
PBGC-J-7-0528 (noncom-petitive) hour review services
no options
taken)
Emma S. Walker 8(a) Premium In progress
09/03/97 07/25/97 3 Labor compliance $1,425,800 $505,000
PBGC01-CT-97-0529 (noncom-petitive) hour review services (option
year 3)
Frye, Williams & In progress
Company 8(a) Labor Premium
09/03/97 07/25/97 3 compliance $1,379,047 $480,000
hour (option
PBGC01-CT-97-0530 (noncom-petitive) review services year 3)
Carter &
Associates 8(a) Labor Premium In progress
10/23/97 07/25/97 3 compliance $1,527,164 $674,342 (option
hour
PBGC01-CT-97-0531 (noncom-petitive) review services year 3)
aField benefit administration.
bIncrease to contract due to additional task orders.
PBGC Organization Chart
Comments From the Pension Benefit Guaranty Corporation
GAO Contacts and Staff Acknowledgments
Barbara Bovbjerg, (202) 512-7215
Daniel Bertoni, (202) 512-5988
In addition to those named above, Barry Bedrick, Jeff Bernstein, Deborah
Moberly, Elizabeth O'Toole, Sylvia Shanks, and Craig Winslow made key
contributions to this report.
(207066)
Table 1: Summary of Contracts Reviewed 41
Figure 1: Overview of Plan Processing at PBGC 7
Figure 2: Cumulative Number of Pension Plans Administered
by PBGC, Fiscal Years 1990-1999 9
Figure 3: Cumulative Number of Participants in Pension Plans Administered by
PBGC, Fiscal Years 1990-1999 10
Figure 4: PBGC Contractor-Operated Field Office Locations 11
Figure 5: PBGC Limitation/Nonlimitation Budget, Fiscal Years
1975-1999 13
Figure 6: Pending Benefit Determinations, Fiscal Years 1990-1999 16
Figure 7: New Pension Plans Trusteed by PBGC, Fiscal Years
1990-1999 17
1. Defined benefit plans pay specific retirement benefits, generally based
on years of service, earnings, or both; the sponsoring company is
responsible for ensuring that plan assets are sufficient to pay liabilities.
2. Figure includes about $80 million in personnel costs, $15 million in
office rents, and $5 million in travel.
3. Total dollar amount includes base year plus option years for the
contracts reviewed.
4. A wholly owned government corporation is generally defined as a
corporation pursuing a government mission assigned in its enabling statute,
typically financed at least in part by appropriations, with assets owned by
the government and controlled by board members or an administrator appointed
by the President or department secretary. The Congress sometimes exempts
these corporations from key management laws to provide greater flexibility
than federal agencies typically have in hiring employees, paying
salaries/benefits, disclosing information publicly, and procuring goods and
services.
5. Both federal staff and contractors perform ongoing administration for
closed plans.
6. High-Risk Series: Pension Benefit Guaranty Corporation (GAO/HR-93-5, Dec.
1992).
7. High-Risk Series: An Overview (GAO/HR-95-1, Feb. 1995).
8. This figure represents full time equivalent (FTE) federal staff ceiling
in fiscal year 1999.
9. See Matter of Pension Benefit Guaranty Corporation's Use of Contingent
Fee Arrangement With Outside Counsel, B-223146 (Oct. 7, 1986).
10. 48 C.F.R. 1.104 (applicability of FAR) and 2.101 (definition of
acquisition) (1999).
11. Trust assets include assets acquired from terminated plans, investment
returns on the assets, and recoveries from employers responsible for
underfunded terminated plans.
12. Activities not subject to limitation include all expenses in connection
with the termination of plans for the acquisition, protection, management,
and investment of trust assets; and for the administration of benefits.
13. Between 1988 and 1992, FTE allocations remained relatively stable at an
average of 540. In fiscal year 1993, PBGC requested and received an
additional 117 FTEs. During this same period, budget dollars used for
contracting grew from $11 million to $79 million.
14. A sole-source contract is entered into or proposed to be entered into
after soliciting and negotiating with only one source.
15. In July 1999, shortly after the start of our review, PBGC completed a
limited cost comparison update of some contract and federal staff positions
related to benefit administration services. This effort showed that FBA
contractors were generally less costly than most comparable federal staff.
However, the manager responsible for this analysis was uncertain how this
information would be integrated into future strategic planning decisions.
16. OMB Circular No. A-76 (Aug. 4, 1983, revised 1999).
17. Most recent data available on number of active participants.
18. Human Capital: A Self-Assessment Checklist for Agency Leaders
(GAO/GGD-99-179, Sept. 1999).
19. GPRA requires federal agencies to implement results-oriented management
reforms, such as conducting strategic planning, establishing program goals
and objectives, measuring progress in meeting those goals, and reporting
publicly on that progress. PBGC is subject to the requirements of GPRA.
20. Prior to the revision, ongoing administration was allowed only for plans
with 10,000 or more participants, or plans requiring special expertise.
21. These figures represent the total contract costs over a term of 4 years.
22. The fifth offeror's proposal offered to provide services only for the
Atlanta office. In addition, a contractor at one of the other FBA offices
stated that it would have competed to provide services at one of the three
offices for which services were consolidated. This contractor said it did
not compete in the procurement because of the size of the combined workload
and potential management difficulties associated with a multisite contract.
23. The primary plan is defined by PBGC as the original plan for which the
contract was initiated. For example, the initial contract for the Pueblo,
Colorado, office was let in the early 1990s to service CF&I Steel. The
principal/owner was a former pension benefit administrator at CF&I Steel.
24. Contract Management: Few Competing Proposals for Large DOD Information
Technology Orders (GAO/NSIAD-00-56, Mar. 20, 2000).
25. Fixed-price type contracts generally provide for a firm price or, in
appropriate cases, an adjustable price for performing a particular service,
regardless of how long it takes to complete the service. These contracts
generally have some type of target or ceiling price that can be revised only
in limited circumstances. Labor-hour contracts provide for payment of
contractors at hourly rates for performing agreed-upon tasks.
26. Total premium collection income was $925 million in fiscal year 1999.
27. The Office of Federal Procurement Policy's primary responsibilities
include prescribing governmentwide procurement policies that must be
followed by the executive agencies and ensuring agency action in maintaining
the FAR.
28. The COTR is appointed by PBGC management to provide assistance with
awarding and administering contracts to ensure that work progresses
satisfactorily.
29. Based on COTR's proposal of about $4,000 per plan audit.
30. Under generally accepted government auditing standards, due professional
care means using sound judgment in establishing the scope, selecting the
methodology, choosing tests and procedures for the audit, and evaluating and
reporting audit results.
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