Inspectors General: Concerns About Advisory and Assistance Service
Contracts (Testimony, 10/31/97, GAO/T-OSI/AIMD-98-28).

GAO discussed: (1) the results of its survey of contracts for advisory
and assistance services that were awarded by the 27 Presidentially
appointed inspectors general (IG) during fiscal years 1995, 1996, and
1997; and (2) the results of its examination of the award of two
advisory and assistance contracts by the Department of the Treasury
Office of Inspector General (OIG).

GAO noted that: (1) 26 of the 27 Presidentially appointed IGs responded
to the GAO survey of the extent to which they procured advisory and
assistance services, describing the types of services procured and the
types of contracts used in acquiring services, and indicating whether
the services were noncompetitively procured; (2) 19 of the 26 IGs
procured advisory and assistance services during the 3-year period,
awarding 208 contracts, task orders, or purchase orders, most of which
were for audit or investigative work; (3) of the 208 contracts, about 84
percent (176) were competitively awarded; (4) the written justifications
for 18 of the contracts awarded using other than full and open
competition were adequate and the justifications for 14 were not
adequate; (5) shortly after her confirmation, the Treasury IG contacted
a former IG to request that he perform a management review at her
office; (6) Sato & Associates was awarded a sole-source management study
contract based on unusual and compelling urgency; (7) although the
Treasury IG's stated reasons for the sole-source award provide some
support for her position, the facts do not establish that her abilities
to perform her duties would have been seriously impaired had the
procurement been delayed to obtain full and open competition; (8) while
conducting the Treasury review, Sato was awarded a similar contract,
procured through full and open competition, at the Department of the
Interior for approximately $62,000 less than its proposed costs; (9) the
similarity of the two contracts suggests that the price of Sato's
contract for the Treasury OIG effort was artificially high; (10)
Treasury OIG awarded a time-and-materials, consulting services contract
for advice and assistance in the development and implementation of a
work effectiveness study; (11) although the contract was awarded on the
basis of unusual and compelling urgency, GAO concluded that the IG's
ability to address the problems identified in a prior study would not
have been seriously impaired had the contract been awarded on the basis
of full and open competition; and (12) a pattern of careless procurement
management and contract oversight resulted in poor billing practices and
contract modifications outside of the original contract that increased
the total price and extended the contract for a period of 1 year.

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

 REPORTNUM:  T-OSI/AIMD-98-28
     TITLE:  Inspectors General: Concerns About Advisory and Assistance 
             Service Contracts
      DATE:  10/31/97
   SUBJECT:  Inspectors general
             Contracting procedures
             Surveys
             Federal procurement
             Service contracts
             Management consultants
             Sole source procurement
             Irregular procurement practices

             
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Cover
================================================================ COVER


Before the Permanent Subcommittee on Investigations,
Committee on Governmental Affairs,
U.S.  Senate

For Release on Delivery
Expected at
9:30 am EST
Friday
October 31, 1997

INSPECTORS GENERAL - CONCERNS
ABOUT ADVISORY AND ASSISTANCE
SERVICE CONTRACTS

Statement of Robert P.  Murphy,
General Counsel

GAO/T-OSI/AIMD-98-28

GAO/OSI/AIMD-98-28T



Abbreviations
=============================================================== ABBREV


============================================================ Chapter 0

Madam Chairman, Senator Glenn, and Members of the Subcommittee: 

I am pleased to be here today to discuss the results of a survey GAO
conducted at the request of the Subcommittee concerning contracts for
advisory and assistance services that were awarded by the 27
Presidentially appointed Inspectors General (IG) during fiscal years
1995, 1996, and 1997 (as of June 30, 1997).  I will also discuss the
results of the Subcommittee's request that we examine in detail the
award of two advisory and assistance contracts by the Department of
the Treasury Office of Inspector General (OIG).  Those were a
sole-source management study contract awarded to Sato & Associates
and a consulting services contract awarded to KLS, using other than
full and open competition. 

I am accompanied this morning by the Deputy Director of our Office of
Special Investigations, Don Wheeler, and the Associate Director for
Audit Oversight and Liaison from our Accounting and Information
Management Division, Ted Barreaux. 

The Competition in Contracting Act of 1984 and the Federal
Acquisition Regulations require full and open competition for
government contracts except in a limited number of situations.  One
exception to using full and open competition is when the agency's
need is of such unusual and compelling urgency that the government
would be seriously injured unless the agency is permitted to limit
the number of sources from which it solicits proposals.  Even when an
unusual and compelling urgency exists, the agency is required to
request offers from as many potential sources as is practicable under
the circumstances.  This means that an agency may limit a procurement
to one firm only when the agency reasonably believes that only that
firm can perform the work in the available time.  Further, for each
noncompetitive procurement action, the agency is required to prepare
a complete and sufficient statement identifying the specific legal
exception to competition requirements relied upon by the agency and
justifying the noncompetitive award. 


   ADVISORY AND ASSISTANCE SERVICE
   CONTRACTS AWARDED BY IGS
---------------------------------------------------------- Chapter 0:1

Twenty-six of the 27 Presidentially appointed IGs responded to our
survey of the extent to which they procured advisory and assistance
services, describing the types of services procured and the types of
contracts used in acquiring the services, and indicating whether the
services were noncompetitively procured.  Advisory and assistance
services are provided under contract by nongovernmental sources to
support or improve an organization's policy development,
decision-making, management and administration, program management
and administration, and research and development activities. 

Nineteen of the 26 IGs procured advisory and assistance services
during the 3-year period, awarding 208 contracts, task orders, or
purchase orders, most of which were for audit and/or investigative
work.  These awards were initially valued at approximately $29
million to 80 different contractors.  Of the 208 contract actions,
about 84 percent (176) were competitively awarded.  For the remaining
32, we examined the written justifications required to use other than
full and open competition.  The written justifications were adequate
for 18 actions and for 14 actions awarded by five different IGs, the
justifications were not adequate. 

Except for the two Treasury IG contracts that I will discuss in a
moment, and that the Subcommittee had already asked us to examine,
time did not permit a determination of whether there actually was an
acceptable justification for the 14 noncompetitive acquisitions.  In
the case of the two Treasury IG contracts, which were the highest
priced of the 14 inadequately justified noncompetitive acquisitions
and among the highest priced of all of the 208 IG acquisitions, there
were no adequate justifications for using other than full and open
competition in their award. 


      SATO & ASSOCIATES CONTRACT
-------------------------------------------------------- Chapter 0:1.1

Shortly after her confirmation as Treasury IG, Ms.  Valerie Lau
contacted Frank S.  Sato--a former IG at both the Department of
Transportation and the Veterans Administration--to request that he
perform a management review of her office.  She told the Treasury
Procurement Services Division (PSD) that she wanted Mr.  Sato to
perform the management review.  In response to this request, on
January 9, 1995, PSD awarded a $88,566 sole-source management study
contract to Sato & Associates on the basis of unusual and compelling
urgency.  The contract also contained an option to assist in
implementing recommendations made in the contract's final report.  A
subsequent modification to the contract exercised that option and
raised the total estimated contract cost to $113,326.  The actual
amount billed by Mr.  Sato was $90,776. 

In explaining why the sole-source award to Mr.  Sato was justified,
Ms.  Lau explained that her need to limit competition was urgent and
compelling because, among other reasons, the study would assist her
as a new appointee to quickly make reassignments in her senior
executive ranks.  She said the study would also help her to marshal
the resources needed to conduct financial audits required by the
Government Management Reform Act of 1994 and the Chief Financial
Officer Act of 1990. 

Although Ms.  Lau's stated reasons provide some support for her
position, the facts do not establish that her ability to perform her
duties would have been seriously impaired had the procurement been
delayed by a few months in order to obtain full and open competition. 
Even assuming that a limited competition was warranted, it is clear
that the agency violated the applicable statute and regulation by
failing to request offers from as many potential sources as was
practical under the circumstances. 

Ms.  Lau was aware that at least three other former IGs had performed
similar management reviews of OIGs.  We interviewed two of these
former IGs.  Both stated that they could have met Ms.  Lau's urgent
time frame to perform the contract.  In fact, they were hired by Mr. 
Sato to work on the Treasury OIG contract, performing as consultants. 
We are aware of no reason why it was impractical for the agency to
have requested offers from at least the three other known sources for
the work. 

While Sato & Associates was conducting the Treasury management
review, the firm submitted an unsolicited proposal for $91,012 to
provide similar work to the Department of the Interior OIG.  The
Department of the Interior conducted a full and open competition.  In
June 1995, Interior awarded a management study contract to Sato &
Associates for approximately $62,000 less than the firm's unsolicited
proposal.  The proposals, objectives, and final reports submitted by
the contractor were substantially the same for both jobs.  For
example, the final report for Treasury included 30 recommendations
and the Interior report had 26 recommendations.  Eighteen of the
recommendations in both reports were substantially the same.  The
final cost to Interior was $28,920.  This suggests that the price of
Sato & Associates' sole-source contract for the Treasury OIG effort,
$90,776, was artificially high. 


      KLS CONTRACT
-------------------------------------------------------- Chapter 0:1.2

Regarding the second contract that you asked us to examine, Ms.  Lau
told us that in the spring of 1995, she asked the Office of Personnel
Management (OPM) to conduct a workplace effectiveness study of her
office.  She planned to contract with OPM for an implementation plan
to address problems identified in the initial study.  However, in
April 1995, OPM concluded that it was unable to do any follow-on work
because of reorganization and downsizing.  Instead, in July 1995, OPM
provided Treasury with a list of 12 consultants who were capable of
doing the follow-on work. 

OIG staff added two names to the OPM list; Ms.  Lau selected 4 from
the list of 14 consultants, added two names herself, and instructed
her special assistant to invite bids from at least the six
individuals she had identified.  One consultant was unavailable and
another could not provide a preliminary proposal by August 30, 1995. 
OIG staff met with each of the remaining four consultants to describe
the agency's needs and request written proposals.  Following receipt
of the proposals and oral presentations by the offerors, two OIG
officials selected Kathie M.  Libby, doing business as KLS, a
consultant from OPM's list, as the successful contractor.  Ms.  Lau
concurred with the selection. 

On September 12, 1995, PSD awarded a time-and-materials, consulting
services contract to Kathie M.  Libby, doing business (with two other
consultants) as KLS.  The original term of the contract was for 1
year with an estimated cost of $85,850.  Among other tasks, the
contract called for KLS to review and analyze the OPM survey data and
to provide advice and assistance in the development and
implementation of change management plans and models. 

The contract was awarded on the basis of unusual and compelling
urgency.  The justification for the urgency stated, "It is imperative
that the services begin no later than September 11, 1995, in order to
have the consultants provide a briefing to managers attending the
September 14, 1995, OIG managers conference." This determination
reflected Ms.  Lau's desire to convey to her managers that she
intended to correct problems identified in the OPM study because
similar management studies had been conducted in the past, but there
had been no follow-through on the studies' recommendations. 

We conclude that the OIG's justification for limiting the competition
was not reasonable.  The primary reason advanced by Ms.  Lau for the
urgency determination was the need to have the consultant provide a
briefing at an OIG management conference.  While KLS consultants did
attend the conference, they did not receive a copy of OPM's
preliminary results until the conference.  They were present for the
limited purpose of introducing themselves to the OIG staff and
informing the staff that KLS would work with them to implement the
OPM study recommendations. 

We believe that Ms.  Lau's ability (1) to convey to her managers that
the problems identified in the OPM study would be addressed and (2)
to correct those problems would not have been seriously impaired had
the announcement of the actual consultant been delayed a few months
in order to obtain full and open competition.  Ms.  Lau could still
have informed the conference participants that she intended to hire
such a consultant expeditiously, and the actual expeditious hiring of
the consultant would have demonstrated to her employees that she was
serious in her intention to pursue the OPM recommendations. 

In addition to the legal improprieties in the contract awarded, we
also identified a pattern of careless management in the procurement
process and in oversight of performance under the contract.  We found
that the agency engaged in poor procurement planning in that it
failed to fully understand its needs and clearly articulate those
needs to the contractor.  Furthermore, OIG did not prepare a written
solicitation, including a statement of work.  Instead, OIG relied
upon oral communications and failed to effectively communicate with
consultants from whom it solicited proposals. 

In this regard, Ms.  Libby explained to us that the agency had not
specifically identified to her its needs and that she had
misunderstood the work to be performed as explained in her initial
telephone conversation with OIG.  Her proposal was based on her
belief that OIG already had management task forces or employee groups
studying what changes were needed to address the issues raised in the
OPM study and that KLS was to serve only in an advisory capacity to
those working groups.  Soon after conducting her initial briefings,
she learned that this was not the case and that the work that needed
to be done was different from what she believed when she presented
her proposal.  This resulted in five modifications that increased the
contract's total price to $345,050 and extended the period of
performance for 1 year. 

The largest modification made to the KLS contract--issues concerning
the revision of the performance appraisal system--was outside the
scope of the original contract, and OIG should have obtained this
additional work through a separate, competitive procurement.  Had OIG
properly prepared for the procurement, it could have determined
whether revision of the performance appraisal system should have been
included in the scope of the original contract or procured
separately--thus eliminating this modification. 

Finally, we identified management deficiencies in oversight of the
work performed under contract.  In several instances, KLS performed
and billed for work that was not included in the contract statement
of work.  Furthermore, the OIG official responsible for authorizing
payment performed under the contract told us that she did not verify
that any work had been performed under the contract prior to
authorizing payment.  She also told us that she did not determine
whether documentation for hotel and transportation costs claimed by
KLS had been received even though she authorized payment for these
travel expenses. 


-------------------------------------------------------- Chapter 0:1.3

Madam Chairman, that completes my prepared statement.  We would be
happy to respond to any questions you or other members of the
Subcommittee may have at this time. 

*** End of document. ***