[Audit Report on Proposed Contract No. 8-07-30-L0470 With DynaSim for the Design, Installation, and Operation of a Water Education Theater at Hoover Dam, Bureau of Reclamation]
[From the U.S. Government Printing Office, www.gpo.gov]

Report No. 99-i-308

Title: Audit Report on Proposed Contract No. 8-07-30-L0470 With
       DynaSim for the Design, Installation, and Operation of
       a Water Education Theater at Hoover Dam, Bureau of Reclamation

Date:  March 22, 1999



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U.S. Department of the Interior
Office of Inspector General





AUDIT REPORT


PROPOSED CONTRACT NO. 8-07-30-L0470 WITH DYNASIM FOR THE DESIGN,
INSTALLATION, AND OPERATION OF A WATER EDUCATION THEATER
AT HOOVER DAM, BUREAU OF RECLAMATION


REPORT NO. 99-I-308

MARCH 1999






MEMORANDUM



             TO:  The Secretary

           FROM:  Eljay B. Bowron
                  Inspector General

SUBJECT SUMMARY:  Final Audit Report - "Proposed Contract No.
                  8-07-30-L0470 With DynaSim for the Design,
                  Installation, and Operation of a Water
                  Education Theater at Hoover Dam, Bureau of
                  Reclamation" (No. 99-i-308)

Attached for your information is a copy of the subject final
audit report.  We reviewed the Bureau of Reclamation's proposed
contract No. 8-07-30-L0470 with DynaSim, a limited liability
corporation, to design, install, and operate a virtual reality
motion simulation attraction as part of a water education theater
for the historic exhibit building at Hoover Dam. The objective of
the review was to determine whether the planning and the
development of the proposed contract were in compliance with
applicable Bureau requirements.

The Bureau's  Lower Colorado Region did not plan and develop the
proposed contract for the virtual reality motion simulation
attraction at Hoover Dam in compliance with the Bureau's
requirements for concessions management.  Specifically, Bureau
personnel had not (1) demonstrated that a new concession was
needed by the public, (2) determined that the concession
operation was economically viable, or (3) developed a request for
proposal to allow other interested parties to participate in
bidding for the new concession.  In addition, the proposed
contract did not include required standard contract provisions,
such as those establishing the operations and maintenance
responsibilities of the concessioner and those authorizing
unilateral fee increases by the Bureau.  The Bureau Manual
provides policies, directives, and standards to ensure that
concession contracts meet public needs and protect natural and
cultural resources and the Government's financial interests.
However, because this guidance was not followed, there was little
assurance that the proposed contract was in the best interest of
the Federal Government.

In its response, the Bureau agreed with our two recommendations
to address these issues. Based on the response, we considered the
two recommendations resolved and implemented.

If  you have any questions concerning this matter, please contact
me at (202) 208-5745 or Mr. Robert J. Williams, Assistant
Inspector General for Audits, at (202) 208-4252.


Attachment






                                        W-IN-BOR-003-98(A)-R

                        AUDIT REPORT


Memorandum

     To:  Commissioner, Bureau of Reclamation

   From:  Robert J. Williams
          Assistant Inspector General for Audits

Subject:  Audit Report on Proposed Contract No. 8-07-30-L0470
          With DynaSim for the Design, Installation, and
          Operation of a Water Education Theater
          at Hoover Dam, Bureau of Reclamation (No. 99-i-308)

INTRODUCTION

This report presents the results of our review of the Bureau of
Reclamation's proposed contract No. 8-07-30-L0470[1] with
DynaSim, a limited liability corporation, to design, install, and
operate a virtual reality motion simulation attraction as part of
a water education theater for the historic exhibit building at
Hoover Dam.  The proposal was submitted to the Bureau's Lower
Colorado Region and came to our attention during our audit
(Assignment No. W-IN-BOR-003-98-R) of Bureau-managed concession
contracts that was requested by the Bureau.  Because the
negotiation of the contract was nearing completion and, in our
opinion, the contract was not in compliance with the Bureau's
policies, directives, and standards for concessions management,
we are reporting separately on our evaluation of the proposed
contract.  Accordingly, the objective of the review was to
determine whether the planning and development of the proposed
contract was in compliance with applicable Bureau requirements.

BACKGROUND

The Reclamation Act of 1902 and subsequent statutes authorized
the Bureau to construct, operate, and maintain an infrastructure
of water storage and development facilities to reclaim arid and
semiarid lands for agricultural uses in the West.  In 1928, the
Congress passed the Boulder Canyon Project Act, which authorized
the construction of Hoover Dam on the Colorado River near Las
Vegas, Nevada.  Construction of the Dam was begun in 1931 and
completed in 1935.  Since 1937, people have toured the Dam, the
power plant, and the historic exhibit building which houses a
model of a generating unit and a historic topographical map of
the Colorado River Basin.  In 1995, a new exhibit building was
opened to the public, and the historic exhibit building was
closed.  The Bureau initiated studies to renovate the historic
exhibit building but has not had the funds to complete the
renovation. According to Lower Colorado Regional officials,
between 1 million to 3 million people visit Hoover Dam each year.

In January 1997, the Bureau received an unsolicited proposal from
DynaSim to install a virtual reality motion simulation attraction
as part of a water education theater at Hoover Dam.  In March
1998, DynaSim and Lower Colorado Regional personnel performed an
assessment on various possible locations for a water education
theater and concluded that the most suitable and cost-effective
location for a theater would be the historic exhibit building.
The DynaSim proposal included four major components: (1)
relocation of the historic Colorado River Basin model from the
historic exhibit building auditorium to a more accessible public
location, such as the parking garage; (2) installation of a
20-seat virtual reality motion simulation attraction in the
historic exhibit building auditorium; (3) development of other
exhibits relating to Hoover Dam history, such as the restoration
of a working generator; and (4) renovation of the building's
structural, electrical, heating, and air conditioning systems to
meet applicable fire and safety codes.  In June 1998, DynaSim,
without cost estimates, signed the Bureau-drafted proposed
Contract No. 8-07-30-L0470 for the design, installation, and
operation of the Water Education Theater and returned the
contract to the Bureau for final review and signature.  As of
December 15, 1998, because of changes in contract language and
inadequate financial information from DynaSim to Regional
personnel, the Bureau had not ratified the proposed contract.

According to Bureau officials, Bureau-managed concessions were
not covered by Bureauwide policies and standards prior to 1995.
In 1995, the Bureau issued interim guidance for concessions
management to its regional offices.  On April 3, 1998, the Bureau
published final policies (Section LND P02) and directives and
standards (Section LND 04-01) in its Manual to assist Bureau
officials in the planning and developing concession contracts
that meet the needs of the public and protect natural and
cultural resources.

SCOPE OF AUDIT

We conducted our audit between August and November 1998.  To
accomplish our objective, we reviewed files and other
documentation and interviewed Lower Colorado Region officials
about planning and developing proposed Contract No.
8-07-30-LO470.  We also reviewed Bureau records and conducted
interviews with Bureau officials at the Program Analysis Office
in Lakewood, Colorado, and at the Hoover Dam Office.

Our audit was made, as applicable, in accordance with the
"Government Auditing Standards," issued by the Comptroller
General of the United States.  Accordingly, we included such
tests of records and other auditing procedures that were
considered necessary under the circumstances.  Because of the
limited scope of this review, we assessed the internal controls
only to the extent necessary to evaluate the actions taken by
Bureau personnel in complying with the Bureau*s concession
policies, directives, and standards in planning and developing
proposed Contract No. 8-07-30-LO470.[2]  We identified internal
control weaknesses related to the planning and development of the
proposed contract, which are discussed in the Results of Audit
section of this report.  Our recommendations, if implemented,
should correct the weaknesses identified.

We also reviewed the Departmental Report on Accountability for
fiscal year 1997, which included information required by the
Federal Managers' Financial Integrity Act, and the Bureau's
annual assurance statement for fiscal year 1997 and determined
that no material weaknesses directly related to the objective and
scope of our audit were reported.

PRIOR AUDIT COVERAGE

During the past 5 years, neither the Office of Inspector General
nor the General Accounting Office has issued any reports on the
Bureau's proposed contract.

RESULTS OF AUDIT

We found that the Bureau of Reclamation's Lower Colorado Region
did not plan and develop the proposed contract for the virtual
reality motion simulation attraction at Hoover Dam in compliance
with the Bureau's requirements for concessions management.
Specifically, Bureau personnel had not (1) demonstrated that a
new concession was needed by the public, (2) determined that the
concession operation was economically viable, or (3) developed a
request for proposal to allow other interested parties to
participate in bidding for the new concession.  In addition, the
proposed contract did not include required standard contract
provisions, such as those establishing the operations and
maintenance responsibilities of the concessioner and those
authorizing unilateral fee increases by the Bureau.  Sections LND
P02 (policies) and LND 04-01(directives and standards) of the
Bureau Manual provide policies, directives, and standards to
ensure that concession contracts meet public needs and protect
natural and cultural resources and the Government's financial
interests.  However, because this guidance was not followed,
there was little assurance that the proposed contract was in the
best interest of the Federal Government.

Manual Section LND P02, 3.C, states, "Commercial facilities and
services will be planned and developed through a resource
management planning and public involvement process." According to
Bureau officials, this policy was established to ensure that new
concession operations meet the needs of the public while
protecting the cultural resource.  However, Bureau personnel had
not adequately demonstrated that the concession operation was
needed by the public.  Although the Marketing and New Products
Manager at Hoover Dam told us that a visitor survey on the
proposed Water Education Theater had been conducted, we did not
find documentation to support that the public was adequately
involved in the Bureau's determination.  We believe that the
Bureau should ensure that a water education theater meets the
needs of the visiting public.

Manual Section LND 04-01, 3.C, states, "An economic feasibility
study, including the determination of the economic viability of
the concession operation, will be completed." According to Bureau
officials, Section LND 04-01 (directives and standards) was
established to ensure that the concession operation was
economically viable.  In that regard, an economic feasibility
study would establish the financial potential of the concession
contract and set the proper franchise fee and length of the
contract.  However, we found that the Bureau had not completed an
economic feasibility study or adequately studied the economic
viability of the proposed concession operation.

Manual Section LND P02, 3. E, states, "Reclamation will ensure
competition in the awarding of concession contracts."  Manual
Section LND 04-01, 4. B states that a request for proposal should
be issued "to actively solicit and invite offers from interested
parties."  Bureau officials told us that this policy was adopted
to help ensure that new concessions operations provide the
highest quality recreational activities to enhance visitor
enjoyment.  However, we found that Regional Office personnel had
not developed a request for proposal which would foster expanded
competition.  Instead, Regional Office personnel reviewed and
processed DynaSim*s proposal under the Bureau*s Unsolicited
Proposal Handbook.  The Marketing and New Products Manager at the
Hoover Dam told us that a request for proposal was not prepared
because of a lack of staffing and financial resources.  However,
without competition, the Bureau did not have full assurance that
the Government's financial and program interests were protected.

Manual Section LND 04-01,4.D (3), states, "To the extent
practicable, standard concessions contract or amendment language
will be used to ensure compliance with all applicable laws,
rules, executive orders, regulations, and Reclamation Concessions
Management Policy." However, we found that the Lower Colorado
Region had not incorporated a significant portion of the Bureau*s
standard concession contract language into proposed Contract No.
8-07-30-L0470 as follows:

   -  There was no operating plan to identify information such as
   (1) the physical location, including detailed maps, of the
   concession's location; (2) the number of employees; (3) the
   visitor and employee security and fire protection
   requirements; and (4) the concessioner requirements for
   preparing financial and management reports.

   -  There was no maintenance plan.  Although Section 19 of the
   contract addressed maintenance responsibilities in a general
   manner, it did not provide detailed procedures for maintaining
   and repairing the historic exhibit building at Hoover Dam and
   did not cover such activities as (1) painting interior and
   exterior surfaces; (2) maintaining and repairing heating, air
   conditioning, electrical, and fire protection systems; and (3)
   inspecting facilities.

   - The authority of the Bureau to unilaterally increase the fee
   and the right of the concessioner to appeal the fee increase
   by demonstrating that the increase would cause financial harm
   were not specified.  Instead, the contract stated that the fee
   charged for the use of Hoover Dam*s historic exhibit building
   could be adjusted only upon agreement by both the concessioner
   and the Bureau.  In our opinion, fee increases should be
   specified before a contract has been finalized.  We believe
   that the Bureau*s standard contract language more
   appropriately protects the interest of the Government and the
   concessioner.

We concluded that managers at the Lower Colorado Region had not
complied with existing policies, directives, and standards and
that Bureau officials had not developed detailed procedures to
assist employees in implementing the Bureau's current policies,
directives, and standards.  However, because we are reporting at
this time on only the planning and development of this proposed
contract, we are deferring a recommendation to develop detailed
procedures until we complete our overall review of the Bureau's
concessions management activities.

Recommendations

We recommend that the Commissioner, Bureau of Reclamation,
require that Lower Colorado Region officials:

   1.Suspend negotiations with DynaSim.

   2.Ensure that all concessions policies (LND P02) and
   concessions directives and standards (LND 04-01) are complied
   with in any subsequent actions to acquire a water education
   theater at Hoover Dam.

Bureau of Reclamation Response and Office of Inspector General
Reply

In the February 8, 1999, response (Appendix 1), to the draft
report from the Commissioner, Bureau of Reclamation, the Bureau
concurred with the two recommendations.  Based on the response,
we consider the recommendations resolved and implemented.

Since the recommendations are considered resolved and
implemented, no further response to this report is required (see
Appendix 2).

The legislation, as amended, creating the Office of Inspector
General requires semiannual reporting to the Congress on all
audit reports issued, the monetary impact of audit findings,
actions taken to implement audit recommendations, and
identification of each significant recommendation on which
corrective action has not been taken.

We appreciate the assistance of Bureau personnel in the conduct
of our audit.

**FOOTNOTES**

1]:The Bureau has termed this proposed contract a special-use
permit.

[2]:According to Lower Colorado Regional officials, the Bureau of
Reclamation*s Unsolicited Proposal Handbook was used to initially
review and process DynaSim*s proposal.

APPENDIX 1
APPENDIX 2

STATUS OF AUDIT REPORT RECOMMENDATIONS

Finding/Recommendation
Reference

Status

Action Required

1 and 2

Implemented.

No further action is required.






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