Contracts Awarded by the Social and Rehabilitation Service of the Department of Health, Education, and Welfare on a Noncompetitive Basis

Published by the Government Accountability Office on 1971-08-30.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                                                         The Navy- Integrated   .-
                                                         Command/Management        Information
                                                         System (NAICOM /M IS) B-l63O74


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       B-164031 (3)
,,-r   Dear Mr. Seiberling:

             Your letter     of June 22, 1971, requested that we look intoLonL-r-a?ts                    ,-I -L.
 I                                                                                                       'F c
      awarded   by  the    Social  and  Rehabilitation      Service    of   the    Department   of
  _,- Health, Education;        and Welfare (HEW) On a noncompetitive               basis,    A news-    " *
d     paper article      forwarded   to you by-a-constituent         referred       to an HEW study
      of this matter.        This study on the Service's          contracting       practices   was made
      by the Office of General Services,             a unit withinihe         Office of the Assis-
      tant Secretary for Administration             and Management, HEW.

              The newspaper article     stated that, during a period of just over a year,
       contracts   amounting to more than $18 million           had been awarded to private
       firms by the Service and that almost one half of the Service's                 procurements
       had been made on a noncompetitive          basis.    Service officials     advised us, how-
       ever, that only a small portion          of the contracts    had been awarded to private
       firms on a noncompetitive       basis.     They stated that almost all the noncompeti-
       tive contracts     had been awarded to State and local governments or voluntary
       nonprofit   or educational    institutions      under circumstances      where competition
       had been impracticable.       The contention      that competition     for such contracts
       had been impracticable      appears reasonable       on the basis of the following        in-
       formation   furnished   to us by Service officials.

               Of the contracts    in the amount of about $15.8 million         awarded in fiscal
       year 1970--for     which formal requests for proposals were required,             that is,
       those exceeding $2,500--$3.6       million   represented    contracts    awarded on a com-
       petitive    basis; $8.2 million    represented    contracts with State and local gov-
       ernments, of which almost all was spent for demonstrations               of concepts related
       to the proposed family assistance program; and $3.6 million               represented     renewal
       contracts,    of which most were with voluntary        nonprofit    organizations     that had
       been supplying     resettlement   services   to Cuban refugees.

              Of the contracts   awarded in the amount of $12.2 million          on a noncompeti-
       tive basis, about $370,000 represented          contracts   awarded to profitmaking    orgal
       nizations.    Service officials      informed us that these awards had been made
       because of special circumstances          such as the availability     of only one contractor
       to accomplish the work in the required          time frame and the impossibility      of
       adequately defining     or specifying      in an invitation     to bid the detailed required


             The HEW report,   dated January 27, 1971, pointed out certain deficiencies
       in the Service's   procurement practices    and included various recommendations
       to correct the deficiencies.      Following  are the major findings     contained in
       the report and, according to officials      of the Service,   the related    actions
       taken on the findings.

                                     50 TH ANNIVERSARY         1921-3971
    .   .


            Procurement      nlanning:


                   There was no timely, organized,         systematic,    or coordinated  method of
            planning for procurement between the Service's             program offices   and the con-
            tract branch.    Although some progress had been made in 1970, almost one half
            of the Service's    procurements    still     were being made on a noncompetitive     basis
            and many of the sole-source      justifications      were inadequate.

                  Action      taken

                    The Service established     a committee chaired by the Associate Administra-
            tor for Management to plan and coordinate          program procurement needs.          The
            Service believed      that this planning device would ensure sufficient            lead time
            for the contract branch to adequately prepare contract             specifications,      to
            solicit    and evaluate proposals,      and to negotiate   contracts    and would thereby
            avoid the conditions       and circumstances   that could result in unjustifiable          sole-
            source procurements.

            Competitive      practices


                    The Service violated     Federal Procurement Regulations    by failure     to
            (1) publish proposed procurements        in the Commerce Business Daily in 60 percent
            of the required     cases and (2) issue formal requests for proposals on noncom-
            petitive    procurements.     Although the Service had solicited      and received    pro-
            posals from multiple       sources on competitive     procurements, it failed    to nego-
            tiate with all bidders in a competitive          range.

                  Actions      taken

                  The Service has emphasized to.the operating    employees               its policy of strict
            adherence to Federal Procurement Regulations    regarding   the              publicizing of pro-
            posed procurements  and the solicitation  of proposals.     The              Service has also
            begun to negotiate  with bidders in those cases believed      to             warrant such action.

            Proposal      evaluation


                   The Service         used standard evaluation     criteria    for competitive    procurements.
            Evaluation    criteria          are used to determine the specific       areas of effort    in which
            competing sources           will be rated comparatively,         The Service applied the criteria
            uniformly   to all         projects   without regard to the differing        elements of individual
            projects   and the         relative   degree of importance of each element.


         Actions      taken

      The Service has revised its evaluation            criteria    and the forms upon which
evaluations   of proposals are documented.

Postaward         contract    administration


      Postaward administration          of contracts   was inadequate and was limited       to
the processing       and payment of contractor's       invoices  and vouchers.    Fixed-price
contracts     included a provision        for automatic progress payments.      Payments made
to voluntary       nonprofit   organizations    for the settlement   of Cuban refugees were
not adequately verified.           Also payments at maximum consultant      rates were made
automatically       to certain    experts.

         Action     taken

       The Service included a new provision             in all contracts    requiring  progress
and financial      reports during the contract performance.              In addition,  progress
payments under fixed-price           contracts were limited      to small business concerns
experiencing     financial     hardships.       The Service also planned to verify      all con-
sultant rates before the rates were paid and to audit the payments made to
voluntary    nonprofit     organizations      for the settlement    of Cuban refugees.



         Documentation      of contract   files was inadequate.         Nearly all the contract
files      lacked evidence to indicate         that any negotiations       had been conducted by
the     contracting    officer   by telephone,      correspondence,     or conferences.    Contract
files      did not contain memorandums of negotiations,             records of the history    of
the     procurement or background data, or documentation               of business judgments lead-
ing     up to and supporting       the award of contracts.

         Actions     taken

         The Service has developed or improved forms for documenting certain as-
 pects of the contract-award       process.     For example, the Service has developed a
 form to document all negotiations         with prospective  contractors.     In addition,
 as part of its efforts      to improve methods for evaluating       contract proposals,
.the Service revised its forms to document the differing           elements of individual
 project    proposals and included a narrative       section to explain and support the
 rationale     for selecting  contractors.

    ”       1       .

.               ,


                              We have not evaluated  the actions taken or planned by the Service on
                        the recommendations contained in the HEWreport.           Officials in the Office
                        of the Assistant   Secretary responsible    for conducting the study and issuing
                        the report,  however, expressed satisfaction      as to the status of this matter.
                        They also plan to perform a follow-up      survey late in October 1971. As part
                        of our ongoing reviews of HEW activities,       we intend to keep abreast of the
                        progress being made by the Service in improving        its procurement practices.

                                   We trust   that   the above information       will    serve     the purpose   of your

                                                                             Sincerely    yours,

                                                                  DsPatl%TComptroller General
                                                                         of the United States

                        The Honorable John F. Seiberling
                        House of Representatives