oversight

Contract With Education, Training, and Research Sciences Corporation for Processing Applications To Serve in the VISTA Program

Published by the Government Accountability Office on 1971-08-18.

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

Contract With Education, Training
And Research Sciences Corporation
For Processing Applications  To
Serve In The VISTA Program
                                  8.164031fl)


Office of Econom ic Opportun $y




BY THE COMPTROLLER    GENERAL
OF THE UNITED  STATES
                                          COMPTROLLER        GENERAL         OF      THE       UNITED   STATES
                                                           WASHINGTON.        D.C.         20548




                B-164031(1)
Cl          R   Dear     Mrs.    Green:
.---
                           As requested     in your letter      dated October         21, 1970, and on the
                 basis of subsequent         discussions      with your office,        we reviewed       the Of-
               ’ fice of Economic        Opportunity      (OEO)     contract      B99-4682     with the Educa-                            3’:’
            c.’ tion,     Training    and Research       Sciences     Corporation        for processing                             ; i:. ,. - .
            P--
                 applications      to serve     in the Volunteers        in Service     to America      program.
                 The contract       was in effect from        September        1, 1968, to February         28,
                 1970.

                          This report       identifies      weaknesses      in OEO’s     award     and adminis-
                tration       of the contract        and also questions       certain   costs claimed      by the
                 contractor.’        In accordance        with our agreement,         copies   of this report
                are being        sent today to the Director,           OEO,     for his information      and for
                 any action        he may deem         appropriate.

                          Our review           of costs allocated       by the contractor        to 16 Government
                contracts,        including        B99-4682,     showed that a significant            percentage         of
                the costs examined                by us were questionable.             We, therefore,         recom-
                mended       in our letter          transmitting    the report       to the Director         that OEO
                establish       standards         for the extent     and types of costs that would                be ac-
                 ceptable     under        its cost-reimbursable           contracts      and require       inclusion
                of agreements             on such costs in the contracts.               We have requested             the
                Director       to inform         us of any action      taken     in response     to our recommen-
                dat ion.

                          The individuals          and organizations                         mentioned   in this report    have
                not been given the            opportunity     to examine                       and comment      formally   on its
                contents.

                                                                                       Sincerely           yours,




                                                                         Acting
                                                                                       Comptroller               General
                                                                                       of the United             States

                The Honorable     Edith            Green
       6,       House  of Representatives




                                               50 TH ANNIVERSARY                      1921.1971
                OEO CONTRACT WITH EDUCATION, TRAINING AND

     RESEARCH SCIENCES CORPORATION FOR PROCESSING APPLICATIONS

                        TO SERVE IN THE VISTA PROGRAM

    INTRODUCTION
/
             On September 1, 1968, the Office              of Economic Opportun-
2    ity awarded the Education,           Training      and Research Sciences
     Corporation        (ETRS) a contract      (B99-4682)     for processing      ap-
     plications       to serve in the Volunteers           in Service to America
     (VISTA) program.           ETRS, headquartered        in Washington,    D.C.,
     is a wholly owned subsidiary            of Volt Information        Sciences,
_.-' Incorporated.          Pursuant   to a request       by Congresswoman Green
     in a letter        dated October 21, 1970, and on the basis of sub-
     sequent discussions          with her office,        we made a review of
     contract     B99-4682 and obtained          information     on the extent     of
     Volt's     contracts     with the Federal Government and with OEO.

           For the fiscal         year ended October 31, 1969, the period
    during which the major part of the VISTA application-
    processing       contract     was performed,     Volt's   sales and those
    of its subsidiaries           amounted to about $45 million,            Volt
    estimated      that about 50 percent of these sales, or
    $22.5 million,        had been made to the Government,           either      un-
    der direct       contracts      (about $5 million)      or under subcon-
    tracts    with Department          of Defense prime contractors         (about
    $17.5 million).           Through May 1971 OEO had awarded to Volt
    and ETRS 38 contracts            totaling   about $28 million.        The ac-
    counting     records for ETRS are maintained             by Volt at its
    headquarters       in New York, N.Y.
    CONTRACT AWARD
            On June 18, 1968, OEO requested            seven companies to
    submit proposals       for a cost-reimbursable           contract      to process
    applications     to serve in the VISTA program.                The proposed
    work involved      (1) reviewing       the applications        for complete-
    ness and eligibility,         (2) forwarding       necessary      letters     to
    the applicants       and to their      references      and checking       the
    completeness     of the replies,         and (3) transmitting          the ap-
    plications     and related     correspondence        to OEO. The contract
    was to be for a l-year         period,      during which OEO expected
    that an estimated        36,000 applications        would be received.

                                             1
Four companies responded to the request                       and submitted        the
following proposed costs.

                          Bidder                             Proposed       cost
            Leo Kramer, Inc.                                        $ 32,488
            Education,         Training      and
               Research Sciences Corp.                               104,870
            Manpower, Inc.                                           177,480
            Richardson,         Bellows,      Henry
               and Co., Inc.                                         402,576
        The OEO contracting              officer     forwarded       the bidders'
proposals        to a VISTA evaluation              panel to evaluate           the pro-
posals and to rate them in their                     order of merit.            Among
other factors          the panel considered              the clarity        of the pro-
posals;      a comparison           of the companies'           proposed approaches
and costs;         and the companies'            qualifications,          including
prior     experience         in doing similar           work, operating         capabili-
ties,     locations        of offices,        and reputations.           The panel de-
termined       that the variances             in the proposed costs were too
great to permit an effective                    evaluation        and recommended
that a revised           request      for proposals          be sent to each com-
pany*
       On July 17, 1968, OEO forwarded                       a revised      request for
proposals        to the four companies.                The request       listed      the
scope of work previously                 shown in the initial            request       and
included       additional         tasks,     such as the preparation              of
weekly and monthly statistical                    reports       on the number of
applications         received        and processed.            Three companies re-
sponded to the request                and submitted          the following        proposed
costs.
                          Bidder                             Proposed cost
          Leo Kramer, Inc.                                      $ 49,480
          Education,  Training           and
             Research Sciences           Corp.                     70,046
          Richardson,   Bellows,          Henry
             and Co., Inc.                             370,079
        The VISTA evaluation   panel reviewed     the revised       pro-
posals and stated that the low bidder--Leo            Kramer, Inc.--
reflected    a lack of experience    in general      office    adminis-
tration    and should not be considered     further.        The panel
concluded    that the proposal    submitted   by ETRS was the best

                                            2
proposal,    and, on the basis of the panel's  evaluation,      the
GE0 contract     negotiator recommended that a cost-plus-fixed-
fee contract     be awarded to that company.

       Gn September 1, 1968, GE0 awarded a cost-plus-fixed-
fee contract      (B99-4682)      to ETES for a l-year      period at an
estimated     cost of $70,046,       of which $3,079 was for fee.
Subsequent contract        amendments increased        the cost by
$270,780.      Of this amount, $177,336 was for certain              addi-
tional    tasks and for cost overruns         incurred    during   the ini-
tial   l-year   contract     period;    there was no increase      in the
fee because of these added tasks or costs.                 The remaining
$93,444 was for an extension            of the contract     period for
6 months to February 28, 1970, and included                a fee of $3,270.




                                       3
REASONABLENESS OF ETRS-PROPOSED COSTS
NOT DETERMINABLE

        Federal Procurement   Regulations     require  Government con-
tracting     officials to determine     the reasonableness    of a con-
tractor's     proposed costs.

      Although   OEO contract     files  contained   a statement by
the contract    negotiator    that he had found the ETRS-proposed
costs to be reasonable,       we questioned     how he had made such
a determination     because:

      --There was a wide disparity          in proposed costs submitted
         by the bidders    in response      to the revised        request for
         proposals,   a primary factor        in OEO's not accepting
         proposals  received    from the      first solicitation.

      --ETRS had reduced,      by about $35,000,     its proposed
         price to perform the work called        for in the revised
         request   for proposals   although  the scope of the work
         was increased    by OEO.
      --During  the initial      l-year      contract   performance   period,
         ETRS experienced      a significant        cost overrun.

        The contract      negotiator     was unable to tell     us how he
had determined        that the ETRS-proposed costs for the original
contract     or for the amendment which extended the contract
period    for 6 months were reasonable.            Also the contract
files    contained      no documentation     to indicate     on what basis
these determinations         had been made. We asked ETRS for the
data used in preparing            the cost estimates     but were told that
E;TRS had not retained          the records showing the basis for the
initial     $104,870 estimate,        the $70,046 estimate      which OEO
accepted in awarding the contract,             or the $93,444 estimate
for extending       the contract      for an additional      6 months.   Be-
cause of the lack of information             to support ETRSs cost es-
timates,     we were unable to assess their           reasonableness.

       Upon the completion   of the ETRS contract,      OEO, on Feb-
ruary 27, 1970, awarded a firm fixed-price        contract   to
another contractor    to screen and process an estimated
35,000 VISTA applications     for the 16-month period beginning
March 2, 1970, at the unit price of $2.90.         A firm

                                     4
fixed-price   contract   is usually  the easiest  type of contract
to administer   because the Government is not subject      to mak-
ing any adjustments    to the contract   amount regardless   of the
contractor's   cost experiences.

CONTRACT ADMINISTRATION

        OEO is responsible     for monitoring     contractors'    efforts
and for taking     necessary action to ensure that contractors
perform in compliance       with contract     terms.     This responsi-
bility,    in our opinion,     was not carried     out adequately      in
the case of the contract        with ETRS.

      OEO had anticipated     that 36,000 VISTA applications
would be received     and processed by ETRS during the 12-month
period ended September 1, 1969.         The estimated   contract  cost
to process the 36,000 applications        was $70,046,   or an aver-
age cost of $1.94 for each application.          ETRS actually   pro-
cessed 26,663 applications       during the 18-month period ended
February 28, 1970, at a cost of $340,826,          or an average
cost of $12.78 for each application.

       In trying    to determine    why ETRS incurred        additional
costs of $177,336 during the first             year of the contract,          we
examined OEO contract       files    and discussed       the contract      with
Volt,    ETRS, and OEO officials.         Although      OEO's files     indi-
cated that ETRS had been asked to perform certain                   tasks that
the contract     had not directly      provided     for, the files        were
incomplete     and did not show what part of the costs had been
incurred    in performing      these additional       tasks,

      Under OEO's organizational       arrangements, responsibility
for contract   administration    is assigned to a project      manager
designated   by the contracting    officer.

      The prescribed       duties   of the project       manager      include:

      --Developing     project    statements    of work, procurement
         requests,    noncompetitive     procurement    justifications,
         proposal    evaluation     schemes, and proper cost esti-
         mates,
       --Forecasting  program difficulties            far enough       in ad-
          vance to permit the development            of alternative       solu-
          tions.
                                       S
       --Avoiding     cost overruns         through    constant     attention     to
          project    economics,

       --Ensuring     reliable,     quality      contractor       performance.

       --Identifying    explicit  progress            milestones  together
           with an appropriate   information             system to report        on
           the progress   of the project.

        The contracting       officer, however, did not designate            a
project     manager for this contract        until   October 29, 1969,
13 months after       the award of the contract,           or 1 month after
the expiration       of the initial    contract     period,       During the
first    13 months of the contract,        it was amended three times
to provide      for the performance     of certain       additional     work
and for increased         costs of $177,336.       Our review of OEO
files    revealed    no record of what actions,          if any, had been
t&en     to monitor     the work, although      ETRS had been submitting
monthly reports       to OEO which showed that costs were increas-
ing substantially.

        Volt and ETRS officials,         in reply to our inquiries            into
the causes for the increased            costs of $177,336,           informed us
that the costs were attributable             partially      to the performance
of certain      work in addition      to that specified           in the basic
contract.        They cited,    as examples of such work, processing
certain     applications     out of their normal order, processing
foreign     applications,      and answering      inquiries      from appli-
cants and VISTA on the status of certain                  applications.       Volt
and ETRS officials         were unable to tell         us what part of the
cost increase        was due to the additional          work requirements.

        The lack of OEO and ETRS records to explain        the in-
creased costs during the initial         contract period,    coupled
with the lack of an OEO project         manager to monitor    the con-
tractor's     effort, indicated     to us that OEO had not adminis-
tered the contract     effectively.




                                        6
CONTRACT COSTS

      On a sampling basis we selected        and reviewed the costs
under contract   B99-4682.     We reviewed    also costs allocated
by Volt and ETRS to this and other Government contracts.
The allowability    of a significant     percentage    of certain  of
the costs which we reviewed was questionable,           in our opin-
ion, because (1) the costs were for activities            that did not
appear to be allowable     as contract    costs under Federal Pro-
curement Regulations    or (2) ETRS did not have adequate rec-
ords to support certain     of the costs claimed.

      The cost    categories     involved     in the contract      were:

      1. Direct costs--directly       related   to contract  perfor-
         mance, such as wages and salaries         of those who pro-
         cessed the applications        and costs for supplies     and
         services  needed to perform the contract.          These
         costs were billed      to the Government on the basis of
         actual costs incurred.

      2. Overhead costs --indirectly         related      to contract      per-
         formance,     such as costs for telephones,               heat, and
         light    and for salaries      of corporate        officials     not
         directly    involved   in performing        the contract        work.
         These costs were billed          to the Government on the ba-
         sis of a provisional       rate subject        to adjustment        fol-
         lowing contract      completion,      when an audit was to be
         made to determine      the actual       overhead costs incurred
         by ETRS.

      3. Allocated    costs--other    indirect    and general     and ad-
         ministrative     costs allocated      monthly to individual
         contracts    on the basis of a certain        percentage    of
         the direct    costs charged under the contracts.            On
         November 1, 1969, ETRS began billing           all indirect
         costs as overhead in accordance with established
         provisional    rates.




                                       7
      The results    of our review     of selected    costs   follow.

DIRECT COSTS

        We reviewed    $30,634,    or 17 percent,  of the $183,253 to-
tal payment for direct         labor costs.    ETRS records adequately
 supported    the labor costs reviewed,       and we found no ques-
tionable     charges.

       We reviewed    also $7,605, or 36 percent,          of the $20,833
payment for other direct        costs.     We questioned      $2,851, or
37 percent,     of the costs reviewed.         Although    the vouchers
claiming    these charges indicated        that they had been mainly
for supplies     and reproduction      services,     ETRS was unable to
provide   us with supporting      invoices,      receipts,    or other
documentation.

OVERHFAD COSTS

      Overhead costs amounting to $67,966 had been charged
to the contract   on a provisional   rate and were subject    to
final  audit by the Defense Contract     Audit Agency; therefore,
we did not review these costs.

ALLOCATED COSTS

        Cur review of an initial     sample of allocated   costs in-
curred during the period September 1, 1968, through            Ccto-
ber 31, 1969, showed that most of the questionable           transac-
tions were in the travel       account.    We therefore  expanded
our review to cover about 50 percent of the costs charged
to the travel     account and about 10 percent of all other al-
located    costs.

       On this basis we reviewed       $92,207,   or 15 percent of
the allocated     costs of $595,028 incurred       by Volt and its
subsidiaries,     including    ETRS, from September 1, 1968, to
October 31, 1969.         These costs were allocated      to con-
tract    B99-4682 and to 15 other Government contracts,            14 of
which were with OEO. We questioned           $34,186,    or 37 percent
of the costs reviewed:         $26,158 in travel     expenses,    $6,300
in consulting     fees, and $1,728 in miscellaneous         expenses.
We questioned     these costs because either        (1) there was no
evidence    of their  benefit, if any, to the Government              con-
tracts    or (2) there was a lack of adequate  supporting              docu-
mentation.

         For the most part normal business expenses are consid-
ered as allowable          costs by Federal Procurement        Regulations.
The regulations         state,    however, that there should be a dem-
onstration       of the benefit      to Government contracts      before an
allocated       cost can be reimbursed         by the Government.        Of the
travel      expenses of $32,708 which we reviewed,           about $6,000
was for lunches,         dinners,    and parties    attended   by officials
of OEO, other Government agencies,               and commercial   organiza-
tions.       For example, our analysis         of three employees'       travel
vouchers totaling          $3,273 showed that $1,773 was for meals
and parties       attended     by Government and commercial contract
officials.

      Other examples      of travel       costs claimed   that appeared
to be of questionable        benefit      to Government   contracts   in-
cluded the following       items.

                                  1teIq                               Amount

Expenses incident     to a consultant    trip  to San Juan,
Puerto Rico (including      daily  hotel bills   ranging
from $52 to $93, a telephone       bill  of $425, lunches
and dinners   ranging   from $3 to $51, and a cabana
charge of $45).                                                       $3,557

Two round-the-world       trips       by the president    of ETRS.      3,667

A leased apartment,   furniture, and parking   space
in Washington,  D.C., for the president    of ETRS.                     2,043

        With regard to the $6,300 of questionable          consultant
fees, which generally         were charged at $150 a day, Volt and
ETRS officials       informed us that the costs had been incurred
in attempting      to obtain new business in the fields          of law
enforcement      and urban development.      We questioned     the $1,728
of miscellaneous        costs , primarily  because of a lack of suf-
ficient     documentation     to support the charges for postal        and
related     expenses.



                                          9
        We discussed with Volt and ETRS officials          certain    of
the allocated      costs which we questioned.      Although      these of-
ficials    conceded that $1,940, consisting       of a duplicate
charge of about $1,700 and miscellaneous          entertainment       ex-
penses of $240, should not have been allocated             to the Gov-
ernment contracts,       they claimed that the remainder         of the
travel    and consultant     costs which we questioned       had been,
for the most part,       for sales promotion.

        They told us that (1) sales promotion             was a normal and
legitimate     expense in obtaining       commercial      and Government
business,     (2) their     sales promotion     had been unsuccessful,
in the main, in attracting           new business,     and (3) if the pro-
motion had been successful,           new commercial      contracts   would
have benefited       the Government by reducing         the Government
contracts'      share of allocated      costs.     Volt and ETRS officials
told us also that the lunches and dinners               attended    by offi-
cials of OEO, other Government agencies,               and commercial      or-
ganizations      had resulted     from the need to continue         important
discussions      concerning     new business.

       The allocated   costs charged during       the period that      we
reviewed had not been audited         by the Defense Contract        Audit
Agency as of August 6, 1971, but Agency officials              informed
us that they intended      to include    the allocated     costs in
their   final   audit of the actual overhead costs.

         Federal Procurement        Regulations    recognize     that,    under
any contract,       the reasonableness         and allowability        of certain
items of cost may be difficult              to determine.       To avoid dis-
allowance       or disputes     based on unreasonableness          or nonallo-
cability,       the regulations      recommend that contractors           seek
agreement with the Government in advance of incurring                      costs
that may be questioned.            The regulations        state that such ad-
vance agreements         should be incorporated         in cost-reimbursable
contracts.

      The Director  of OEO's Procurement   Division  informed us
that OEO had not sought to enter into advance agreements in
the past, although   he said that he knew of a number of in-
stances where advance understandings     as to the allowability
of certain   types of contractor  costs would have been benefi-
cial to both OEO and the contractors.


                                       10