Inspectors General: Concerns About Advisory and Assistance Service Contracts

Published by the Government Accountability Office on 1997-10-31.

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

                          United States General Accounting Office

GAO                       Testimony
                          Before the Permanent Subcommittee on Investigations,
                          Committee on Appropriations
                          U.S. Senate

For Release on Delivery
Expected at
9:30 pm EST
                          INSPECTORS GENERAL
October 31, 1997

                          Concerns About Advisory
                          and Assistance Service
                          Statement of Robert P. Murphy,
                          General Counsel

                       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.

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

                       Page 1                                                   GAO/T-OSI/AIMD-98-28
                             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   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

                             Page 2                                                   GAO/T-OSI/AIMD-98-28
               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   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

               Page 3                                                   GAO/T-OSI/AIMD-98-28
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.

Page 4                                                    GAO/T-OSI/AIMD-98-28
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

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

Page 5                                                  GAO/T-OSI/AIMD-98-28
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.

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.

Page 6                                                 GAO/T-OSI/AIMD-98-28
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