oversight

Agent Orange Studies: Poor Contracting Practices at Centers for Disease Control Increased Costs

Published by the Government Accountability Office on 1990-09-28.

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

                        United   States   General   Accounting   Office
                        Briefing Report to the Chairman,
                        Subcommittee on Human Resources and
                        Intergovernmental Relations
                        Committee on Government Operations
                        House of Representatives
September   1990
                   ::
                        AGENT OMGE
                        STUDIES
                        Poor Contracting
                        Practices at Centers
               l
                        for Disease Control
                        Increased Costs
united    states
General Accounting  Office
Washington, D.C. 20648

General     Government   Division

B-240921

September 28,199O

The Honorable Ted Weiss
Chairman, Subcommittee on Human
  Resources and Intergovernmental Relations
Committee on Government Operations
House of Representatives

Dear Mr. Chairman:

This briefing report responds to your request and addresses the efforts
of the Department of Health and Human Services’ (HHS) Centers for Dis-
ease Control (cnc) to study the effects of Agent Orange on the health of
Vietnam veterans. Specifically, we determined how CDC used $70.4 mil-
lion it received from the Department of Veterans Affairs (VA) to do the
studies. We also examined cnc’s contracting and contract administration
practices on contracts it awarded for the studies.

On September 11,1990, we briefed the Subcommittee on the results of
our work. As agreed with the Subcommittee, the information presented
at the briefing is summarized in this letter and detailed in appendix I.


United States military forces sprayed about 20 million gallons of herbi-
cides in Vietnam during the Vietnam conflict. The spraying was done to
destroy crops, to clear vegetation, and to cause trees and plants to lose
their leaves. United States ground troops came in contact with these
herbicides when they patrolled the sprayed areas. Fifteen different her-
bicides were used, including over 11 million gallons of an herbicide
called Agent Orange. Started in 1962, the spraying reached a high point
in 1967 and declined rapidly in 1970 after it was reported that mice
exposed to herbicide components bore offspring with birth defects. The
spraying was discontinued in 197 1.

 In December 1979, Congress passed Public Law 96-l 5 1, which directed
 VA  to do a study to assess any long-term health effects on Vietnam vet-
 erans caused by exposure to dioxin, a component of Agent Orange. The
 law required the Office of Technology Assessment (UIA) to approve the
 study design, called a protocol, and to monitor the study to ensure com-
 pliance with the approved protocol.

 In November 1981, Congress amended Public Law 96-151 to expand the
 study’s scope to include Vietnam veterans’ exposure to other potentially



 Page 1                                  GAO/GGD.90-122BR   Agent Orange Studies
           E240321




           CDC  awarded the two major contracts for interviews and examinations
           on the Vietnam Experience and Agent Orange Studies before it had
           developed an approved protocol to accurately identify Agent Orange
           exposure using military personnel records. When the contractors com-
           pleted work on the Vietnam Experience Study in 1986, CDC did not have
           a methodology to accurately identify Agent Orange exposure. As a
           result, CDCwas unable to have the contractors start work on the Agent
           Orange Study and paid the contractors $6.6 million, or about 20 percent
           of the money it spent on contracts, for down-time it caused the contrac-
           tors and for work that was not needed to do the studies. We also found
           examples of poor contract negotiating and contract administration that
           increased contract costs by $86,779.

           CDC  completed and issued reports on the Vietnam Experience Study in
            1988 and the Selected Cancers Study in 1990. However, CDC cancelled
           the Agent Orange Study in October 1987 after it concluded, on the basis
           of its findings from the Agent Orange Validation Study, that military
           records could not be used to accurately determine the exposure of vet-
           erans to Agent Orange.


           Our objectives were to (1) determine the amount of funds cnc received
Approach   to do the studies, (2) determine how CM: used the funds it received for
           the studies, and (3) evaluate the contracts awarded for the studies to
           identify weaknesses that may have occurred in CDC’S contracting or con-
           tract administration practices.

           We examined CDC’S accounting records, contract files, and cnc’s pay-
           ments to contractors. We also interviewed CDC and contractor officials
           who managed CDC’S studies. Further details on our objectives, scope, and
           methodology are discussed in appendix II.


           As requested by the Subcommittee, we did not obtain official comments
           from the agency on this briefing report; however, we obtained the views
           of agency officials. CDC officials said that in their view the contracts
           awarded and the payments made on them were proper. They pointed
           out that (1) the contracts’ success was dependent on procedures and
           methods that were untested and (2) they knew a decision not to proceed
           with the Agent Orange Study might be necessary. Their specific com-
           ments on the matters discussed in the report are presented in appendix
           I.



           Page 3                                  GAO/GGD-W122BR   Agent Orange Studies
Page 6   GAO/oGDgOl22BR   Agent orange   studies
Page 7   GAO/GGD@MZ2BR   Agent Oran.@ Stmliem
                            and to monitor the performance of the study to ensure compliance with
                            the approved protocol.


Public Law 97-72            Public Law 97-72, signed in November 1981, amended Public Law 96-
Expanded the Scope of the   161 and authorized VA to expand the scope of the original study. The
                            purpose of the expansion was to allow an evaluation of any long-term
Study                       adverse health effects on veterans resulting from other Vietnam service
                            factors, including other herbicides, chemicals, medications, or environ-
                            mental hazards or conditions.


Interagency Agreement       VA  spent nearly 3 years attempting to develop an acceptable protocol for
Transferred Authority for   the Agent Orange Study, without success. One of the reasons VA was
                            unable to develop a protocol was the difficulty it encountered in deter-
Study From VA to CDC        mining which veterans were likely to have been exposed and which vet-
                            erans were not likely to have been exposed to Agent Orange. Because of
                            VA’S failure to develop an acceptable protocol, Congress Urged VA to
                            transfer the study to CDC.In January 1983, VA signed an interagency
                            agreement with CLKto transfer to CL%the personnel positions, funds,
                            and authority for the design, implementation, analysis, and scientific
                            interpretation of the studies directed by Public Laws 96-161 and 97-72.




                            Page9
                         Appendix I
                         CDCYS contracting   for Agent Orange StudieB




                         The study had three major parts, including (1) mortality assessments to
                         determine which veterans had died since they were discharged from the
                         military and the cause of their deaths, (2) health interviews, and
                         (3) comprehensive medical and psychological examinations. The medical
                         and psychological examinations were to be given to 4,000 Veterans,
                         including 2,000 Vietnam and 2,000 non-Vietnam veterans.

                         The study was completed and reports were issued during 1987 and
                         1988. CDCreported that the Vietnam Experience Study showed that
                         there was no significant difference between the health of Vietnam and
                         non-Vietnam veterans.


Agent Orange Study       In the Agent Orange Study, CDC planned to look at the long-term health
                         effects of exposure to dioxin in herbicides used in Vietnam. The study
                         design included a comparison of the health status of 18,000 Vietnam
                         veterans placed in three groups. These groups included 6,000 veterans
                         who served in areas of Vietnam where herbicides were used and who
                         were likely to have been exposed, 6,000 veterans who served in areas of
                         Vietnam where herbicides were used but who were not likely to have
                         been exposed, and 6,000 veterans who served in areaa of Vietnam where
                         herbicides were not used.

                         The study was to have the same three major parts as the Vietnam Expe-
                         rience Study, with medical and psychological examinations given to
                         6,000 of the 18,000 veterans, including 2,000 veterans from each of the
                         three study groups.

                         CDC did not do the study because it concluded that the military records it
                         planned to use on the study could not accurately identify combat vet-
                         erans who were exposed to Agent Orange.


Selected Cancers Study   The Selected Cancers Study was done to determine if Vietnam veterans
                         have an increased risk of developing six types of rare cancers that were
                         believed to have been associated with exposure to herbicides with
                         dioxin. These cancers included non-Hodgkin’s lymphoma, soft tissue and
                         other sarcomas, Hodgkin’s disease, nasal cancer, nasopharyngeal cancer,
                         and primary liver cancer.

                          The study included two groups: a cancer-case and a control group. Par-
                          ticipation in both groups was restricted to men who were between 15 to
                          39 years old in 1968, the peak of United States troop strength in


                          Page 11                                       GAO/GGD-pLH22BR   Agent Orange Studies
                     AppendIs   I




    MO     Source, Use, and Transfer
           of Unused Funds
                                                            (millions)
           Received from VA                                 $70.4
           Spent by CDC                                     $51.5
           Retained to finish work                          $00.6
           Unused funds transferred to
           l U. S. Treasury                                 $14.3
           l Air Force                                      $03.0
           @VA                                              $01 .o

                     CDCreceived its Agent Orange funds from appropriations requested by
Source, Use, and     VA. CDCspent funds studying the health of Vietnam veterans and trans-
Transfer of Unused   ferred most of the unused funds to the Treasury, Air Force, and VA. As
Funds                of March 30, 1990, CDChad retained $661,996 to complete work on its
                     projects and to close out the Selected Cancers Study contracts.




                     Page 13                                 GAWGGD9M~      A#mt   Omnga Stadlm
                        Appendix I
                        CDC’s CmtmctIng   for Agent Orange Studen




    GAO How CDC Spent Funds

                                                                    (millions)
            Contracts
            Personnel
            Equipment
            Miscellaneous
            Total                                                   $51.5


                        CDCspent funds it received from VA on contracts, personnel costs, equip
How CDC Spent Funds     ment, and miscellaneous expenses.


Contracts               CDCused $33.2 million for contracts and interagency agreements to do
                        the four studies. This included about $31.9 million for 16 major con-
                        tracts and about $1.1 million for several other smaller contracts and
                        assistance provided by other federal agencies.




                        Page 16
                                        CDC’s Contmcting   for Agent Orange Stndtm




Personnel                               CDC  established an Agent Orange Project Office in fiscal year 1983 to
                                        manage the Agent Orange studies and staffed it with epidemiologists,
                                        statisticians, public health advisors, computer programmers, and sup
                                        port staff. The staff monitored the contractors’ and CDC’S laboratory
                                        work, analyzed data produced by the contractors, and reported on the
                                        results of the studies.

                                        CDCspent $16.0 million for personnel, including $14.3 million for per-
                                        sonnel compensation and benefits and $660,622 for personnel travel
                                        expenses. Table I.1 shows the personnel and travel costs by fiscal year.

Table 1.1: Personnel and Travel Costs
                                                                                     Personnel compensation
                                        Fiscal year                                              and benetits                Travel
                                        1983                                                          $752.021              $43.393
                                        1984                                                         1,887,182              -77,086
                                        1985                                                         3,969,487              171,640
                                        1986                                                         2,408,419              105,752
                                        1907                                                         2,548,659              111,970
                                        1988                                                         1,803,856               96,091
                                        1989                                                           745,135               38,813
                                        199Oto3/30/90                                                  216,389                5,877
                                        Total                                                     $14331,140              $650,~22




Equipment                               CM: spent $2.2 million on equipment for the Agent Orange studies. The
                                        most expensive item purchased was an upgrade to CDC’S own computer.
                                        The Agent Orange Project was charged $780,000 during the fourth
                                        quarter of fiscal year 1983 for its share of the upgrade, which cost CCC a
                                        total of $1,618,342. The upgrade provided the computer with additional
                                        capacity for the Agent Orange studies. Two other expensive items pur-
                                        chased for the studies were a Digital Equipment Corporation VAX com-
                                        puter system purchased for about $136,000 in December 1984 and a
                                        Wang Laboratories Alliance computer system purchased for about
                                        $80,000 in September 1983. Additionally, CDC’S inventory records show
                                        that cnc bought desktop computers, computer printers, computer
                                        monitors, computer modems, typewriters, calculators, dictating equip
                                        ment, and office furniture.

                                        VA'Sinteragency agreement with CDC did not specify what would be done
                                        with the equipment after the studies were completed. However, the
                                        Agent Orange Project’s deputy chief said that the items that were no
                                        longer needed on the Agent Orange studies were transferred to other cnc


                                        Page17                                          GAO/GGD9@122BE         Agent Orange Stndies
                       Appendix I
                       CDC’s Contracting    for Agent Orange Studies




   GAO Questionable                        Expenditures


           Costs incurred because
           contracts were awarded
           prematurely.
           Costs incurred because of
           poor contracting and contract
           administration practices.




                        We identified expenditures that we considered questionable because CDC
Questionable
Expenditures       .    awarded contracts to RTI and Lovelace before it had developed a proven
                        methodology to identify veterans exposed to Agent Orange, and
                   l    used other poor contracting and contract administration practices.

                        We found that $6.6 of the $33.2 million that cnc spent on contracts was
                        for contractors’ down-time and work that was not needed because CDC
                        awarded the RTI and Lovelace contracts to do the Agent Orange Study
                        before it knew how to identify Vietnam veterans who were exposed to
                        Agent Orange. When RTI and Lovelace were ready to begin work on the



                        Page 19                                        GAO/GGD9&122BE   Agent w   Stadh
                                     Appendix I
                                     CDC’s tinhncting   for Agent Omage Stodiea




                                     CDCpaid $6.6 million of the $33.2 million it spent on contracts to pay RTI
Costs Due to                         and Lovelace for nonproductive time and tasks that were not required to
Premature Award of                   do the studies.
Contracts                            The success of the Agent Orange Study hinged on cnc’s ability to use
                                     military records that could accurately identify veterans who had dif-
                                     ferent levels of exposure to dioxin. However, CDCawarded contracts to
                                     do the study before a proven method of identifying veterans’ exposure
                                     to Agent Orange was done. As a result, CDC instructed the contractors
                                     not to begin work on the Agent Orange Study and paid the contractors
                                     $6.6 million for nonproductive time or for work that was not needed to
                                     complete the studies. This included

                             l       $1.9 million that      paid RTI and Lovelace from January 1986 to Sep
                                                           CDC


                                     tember 1986 to remain in a state of readiness to do the Agent Orange
                                     Study interviews and examinations, based on the assumption that CDC
                                     could develop a methodology to identify veterans who had been exposed
                                     to Agent Orange;
                             l       $3.1 million for RTI’S and Lovelace’s preparation costs and Lovelace’s
                                     examinations for a portion of the Agent Orange Validation Study;
                             l       $884,880 for Lovelace’s down-time costs during a period of inactivity
                                     between the completion of its work on the Validation Study in May 1987
                                     and the termination of its contract in October 1987; and
                                 l   $769,190 to Lovelace for termination costs and employees’ severance
                                     pay and to settle its contract.


Use of Military Records to           Although CDC did not have a proven methodology for accurately identi-
Identify Agent Orange                fying exposure to Agent Orange, it awarded contracts to RTI for $7.6 mil-
                                     lion on August 1, 1984, and Lovelace for $36.9 million on November 29,
Exposure                              1984. The contract terms did not distinguish between the work involved
                                     on the two studies and required the contractors to proceed directly from
                                     the work on the Vietnam Experience Study, which was started first, to
                                     the work on the Agent Orange Study.

                                      The location of troops and their proximity to herbicide applications was
                                      not needed to select participants for the Vietnam Experience Study.
                                      However, the selection of the participants on the Agent Orange Study
                                      depended on a simultaneous consideration of the position of troops in
                                      Vietnam and the times and locations of herbicide applications as indi-
                                      cated by military records.




                                      Page 21                                     GAO/GGIMWl22BE   Agent Orange Siadtm
                          House and Senate Committees on Veterans Affairs advised CDC that
                          under Public Law 96-161, no new major phase of the Agent Orange
                          Study could go forward until a protocol, including a method of exposure
                          assessment, was approved by UrA.

                          On January 16,1986, CDC ordered RTI and Lovelace not to work on the
                          Agent Orange Study but to remain in a state of readiness for the
                          resumption of the Agent Orange Study. This stop work order remained
                          in effect until September 30,1986. To compensate the contractors from
                          January 16,1986, to September 30,1986, when no work was being done
                          on the Agent Orange Study, CDCpaid the contractors $1.9 million,
                          including $1,369,436 to Lovelace and $499,261 to RTI.


Work Done That Was Not    During the stop work order, CDC studied whether military records could
                          be used to accurately identify veterans who were exposed to the dioxin
Needed for Agent Orange   used in Agent Orange. CDCcalled this effort the Agent Orange Validation
Validation Study          Study. coo used a new procedure to measure the dioxin level in blood by
                          testing the blood of 768 veterans, including 666 Vietnam veterans who,
                          according to military records, were believed to have been exposed to
                          Agent Orange and 103 veterans who did not serve in Vietnam. Eight
                          veterans were unable to give a sufficient amount of blood for the blood
                          test. A higher dioxin count in the blood of Vietnam veterans than in the
                          blood of non-Vietnam veterans would indicate that the military records
                          could identify exposure to Agent Orange.

                          CDC’Splans for the Validation Study required RTI to interview partici-
                          pants for the study and Lovelace to take blood samples of the partici-
                          pants. The blood samples that Lovelace took were sent to cut’s
                          headquarters in Atlanta, Georgia, for analysis. Additionally, CDC
                          required Lovelace to give the 776 Validation Study participants the full
                          medical and psychological examination that had been given on the
                          Vietnam Experience Study. Although the examinations were not needed
                          to do the Validation Study and were not used in the study report, cut
                          included them in the study because it believed that fairness dictated
                          that the study participants be given the examinations and that this
                          would encourage veterans to participate.

                          The contractors began work on the Validation Study in October 1986
                          and completed work in May 1987. CIX paid the contractors $3,827,483
                          for the Validation Study, including $2,044,120 for the medical and psy-
                          chological examinations, $1,038,068 for preparation costs to get ready



                          Page 23                                 GAO/GGD-9&122BR   Agent Orange Studies
              Appendix   I




              minimum, the contracts should have contained option provisions for the
              Agent Orange Study, which CDC could have declined to exercise.

              CDC  officials agreed that the medical and psychological examinations
              were not required to do the Agent Orange Validation Study. However,
              the officials explained that in terms of fairness and quality of service
              provided to the participants, CDC felt strongly that the veterans partici-
              pating in the Agent Orange Validation Study deserved the health
              evaluations.



GAQ Poor Contracting and Contract
    Administration Practices


     Poor contracting practices
     used for pilot study
     examinations.
     Incorrect price used to
     calculate cost of examinations
     that were not done.
     Personnel costs not included in
     the contract were paid.




              Page 26                                   GAO/GGDBM22BE    Agent orange   ,%ndlw
                          not negotiate an individual examination unit price. If CDChad negotiated
                          a unit price for the individual examinations, it would have paid that unit
                          price for each of the 147 examinations that were done.


                              officials pointed out that the contractor fulfilled its performance
CDC Comments              CDC
                          requirements and was paid the contract price.


                          CDCpaid Lovelace $1,369,436 for the period covering January 16,1986,
Incorrect Price Used to   to September 30,1986, when work was initially stopped on the Agent
Calculate Cost of         Orange Study. cnc negotiated this payment by concluding that Lovelace
Examinations That         could have done 760 Agent Orange examinations during this period
                          when work on the Agent Orange Study was stopped. CDC then negotiated
Were Not Done             a unit price of $1,812.68 for the 760 examinations on September 30,
                          1986.

                          CM: developed the $1,8 12.68 unit price by starting with a contract unit
                          price of $2,393.76 for the examinations and deducting $681.18, which
                          included costs for the payment to veterans to participate, per diem,
                          lodging, bus service, laundry, data processing, and Lovelace’s fee.

                          cnc paid $22,186 more than was necessary for the 760 examinations
                          because it used an outdated contract unit price for the examinations
                          when it developed its unit price of $1,812.68.

                          CDCchanged the scope of its examinations for the 10,000 Vietnam Expe-
                          rience and Agent Orange examinations effective on June 3, 1986. Subse-
                          quently, on September 8, 1986, cut negotiated a reduction in its unit
                          price from $2,393.76 to $2,364.18 for the June 3, 1986, change in the
                          scope of the examinations. Although the unit price of $2,364.18 covered
                          the period from January 16,1986, to September 30,1986, CDC used the
                          $2,393.76 price that was in effect before June 6, 1986, to develop its
                          $1,812.68 unit price. This resulted in an unnecessary payment of $29.68
                          for each of the 760 examinations, or a total of $22,186.


                          cnc officials disagreed with our view that the wrong price was used to
CDC Comments and          negotiate the cost for the 760 examinations. CDCofficials said that the
Our Response              $2,364.18 negotiated unit price was baaed on the presumption that the
                          full scale Agent Orange Study would be done.




                          Page 21                                   GAO/GGBgc%l22BE   Agent Orange stndiea
Objectives, Scope,and Methodology


               The Chairman of the Human Resources and Intergavemmental Relations
               Subcommittee, House Committee on Government Operations, requested
               that we evaluate CDC’Suse of funds for its Agent Orange Studies.

               Our objectives were to (1) determine the amount of funds CDCreceived
               to do the studies, (2) determine how CDC used the funds it received, and
               (3) evaluate the contracts awarded for the studies to identify weak-
               nesses that may have occurred in CDC’Scontracting and contract admin-
               istration practices.

               To determine the amount of funds CM: received to do the studies, we
               reviewed (1) the legislative history on the Agent Orange studies, (2) the
               interagency agreement between VA and cut, and (3) cut’s accounting
               records.

               To determine how CDCused the funds it received, we reviewed CDC’S
               accounting records and supporting documents to identify the accounts it
               charged with expenditures for the studies. We discussed these expendi-
               tures with CDCpersonnel and reviewed purchase orders for the acquisi-
               tion of equipment.

               To evaluate CDC’S contracting and contract administration practices used
               on the studies, we reviewed the (1) original contracts that CDC awarded
               and their supporting documentation and (2) modifications to the original
               contracts and the supporting documentation to determine the effect of
               each modification on the original contract. Additionally, we (1) lnter-
               viewed contractor personnel and CDC’Sproject officers and contracting
               officers responsible for the contracts, and (2) reviewed contractors’
               vouchers and CDC’S payments to the contractors to determine if they
               were in compliance with the contract terms.

               We did our review at the Department of Health and Human Services’
               Centers for Disease Control in Atlanta, Georgia. Our work was done
               from September 1989 to July 1990 in accordance with generally
               accepted government auditing standards.




               Page 29                                  GAO/GGI)-90122BE   Agent M   Stiw
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Appendix III

Major Contributors to This Report                                                                  .



                        William F. Engel, Assistant Director, Government Business Operations
General Government      Issues
Division, Washington,   Robert M. Antonio, Assignment Manager
D.C.

                        Charles R. Chappell, Evaluator-in-Charge
Atlanta Regional        Wilbur H. Crawford, Senior Evaluator
Office




(olrlrl)                Page SO                                    GA0/GGD4a122B~   Agent orange   slaldia,
                                          Appendix I
                                          CDC’S contmctlng   for Agent Orange stmdiem




                                          Although CDC officials said that the $2,364.18 unit price was based on
                                          the assumption that the full scale Agent Orange Study would be done,
                                          we found that CDCretroactively reduced the payment to Lovelace for its
                                          Vietnam Experience Study examinations to reflect the reduction in unit
                                          price from $2,393.76 to $2,364.18. Since the contract provided only one
                                          price for the Vietnam Experience Study and the Agent Orange Study
                                          examinations, we believe the $2,364.18 unit price should have been used
                                          to calculate the price for the 760 examinations.


Payment of Personnel                      After Lovelace completed work on the Agent Orange Validation Study,
                                          CDCand Lovelace negotiated the payment Lovelace would receive during
Costs That Were Not                       an inactive period from May 1987 to October 1987, when the contract
Included in Lovelace                      was terminated. The payment included the costs for Lovelace personnel
Contract                                  and a percentage of their salaries that could be charged by the con-
                                          tractor for May and June 1987.

                                          We found that CDC overpaid Lovelace by $21,686 for the salaries of its
                                          staff during May and June 1987. Table I.3 shows our calculation of the
                                          overpayment.

Table 1.3:Calculation of Overpayment of
Lovelece’r Salarlea                                                                     Salary owed                       Amount
                                          Position                                      per contract                     overpaid
                                          Medical director                                    $2.593        $7.779          $5.186
                                          Pathologist                                          21172        10,862          -8:690
                                          Immunologist                                           574         2,869           2,295
                                          Chief neuropsychologlst                              1,838         7,352           5,514
                                          Totals                                              $7,177      626.862         $21.666




                                          cnc officials said that its contracting office made an administrative error
CDC Comments and                          in not increasing the ceilings specified in the contract for personnel paid
Our Response                              at a higher percentage. However, CDC officials said that the amount
                                          charged by the contractor for these individuals was judged necessary
                                          and appropriate by CDC’Sproject and contracting office personnel.

                                           We do not agree with cnc’s interpretation. The contract documents
                                           clearly identified the salaries and the percentages of those salaries that
                                           should have been paid. Since there was no change in the contract
                                           amending those amounts, CDC’Sproject and contracting offices had no
                                           legal basis to approve the higher payments.



                                           Page 28                                           GAO/GGD9&122BE   Agent Orange Studies
                                       We found several poor contracting and contract administration practices
Other Costs Due to                     that increased contract costs by $86,799.
Poor Contracting and
Contract
Administration

Poor Contracting Used for              cnc’s contract with Lovelace for the medical and psychological examina-
Pilot Study Examinations               tions required Lovelace to do “up to 200” pilot study examinations.
                                       Lovelace proposed a fixed price of $2,070,496 for 200 pilot study exami-
                                       nations, and CDCincluded a price of $2,070,498 for “up to 200” examina-
                                       tions in the contract. The $2 difference between Lovelace’s proposal and
                                       the contract price appears to be due to the roundii of numbers.

                                       Lovelace did 147 examinations during the pilot study and was paid the
                                       contract price, which was based on doing all 200 studies. Although
                                       Lovelace met its contractual obligation by doing “up to 200” examina-
                                       tions as the contract required, we believe cnc paid $42,929 more than
                                       was necessary because the contract price included costs for the 63
                                       examinations that were not done.

                                       Table I.2 shows how we calculated the $42,929 for the 63 examinations.

Table 1.2:Calculation of Unnecerrary
Pilot Study Costs                                                                    Unit cost per      Total cost for 53
                                       Type of cost                                  examination           examinations
                                       Lodging                                            $13.62                $7,134.86
                                       Per diem                                            100.00                5.300.00
                                       Payment to veterans to participate                  3cim                 15,900.oo
                                       Local transportation --                              15.34                  813.02
                                       Medical supplies                                    166.84                8842.52
                                       Subtotal                                            716.50              37,990.40
                                       Fee                                                   93.18               4,938.54
                                       Total                                              saos.sa             $42,828.94


                                       Since the participants had to travel to Lovelace’s facilities and have the
                                       examinations completed for these costs to have been incurred, we con-
                                       cluded that the costs were unnecessary because the examinations were
                                       not done.

                                       We believe that these costs were unnecessarily incurred because CM:
                                       used a fixed price for the pilot study examinations as a whole and did


                                       Page 26                                  GAO/GGDB&122BR       Agent Orange Studtom
                             to do the study, $378,203 for the interviews, and $367,092 for the vet-
                             erans’ travel costs to Lovelace’s facilities for the examinations and blood
                             samples.

                             We found that $3,082,188 of these costs were either directly or indi-
                             rectly caused by CDCawarding the contracts before it had developed a
                             methodology for identifying exposure to Agent Orange. This included
                             $1,038,068 in preparation costs for the Validation Study that would not
                             have been incurred if CDC had developed a methodology for identifying
                             Agent Orange exposure before it awarded the original contracts and
                             $2,044,120 for the medical examinations that were not needed to do the
                             Validation Study.

                             Since the interviews were necessary to identify participants for the Vali-
                             dation Study and some amount of travel expense would have been
                             incurred by participants in giving blood samples, we believe the
                             $378,203 for the interviews and the $367,092 for the travel could be
                             considered as necessary costs of determining whether the Agent Orange
                             Study could be done.


Contractor Inactivity From   The work on the Agent Orange Validation Study was completed in May
End of Validation Study to   1987. However, the Agent Orange Study was not cancelled until October
                             1987. During the May to October period, CDC was evaluating the data
Termination of Contract      and reaching a decision on the feasibility of the Agent Orange Study. CDC
                             paid Lovelace $884,880 to keep it under contract during this period of
                             inactivity.


Contract Termination and     cnc terminated the RTI and Lovelace contracts for the convenience of the
Severance Pay Costs          government on October 30,1987, because it cancelled the Agent Orange
                             Study. As a result, CDC paid Lovelace $769,190, including $736,000 in
                             termination costs and $24,190 for severance pay for Lovelace’s
                             employees. No termination costs were paid on the RTIcontract.


                             CM: officials commented that the contracts were not awarded prema-
CDC Comments and             turely by saying that at the time the original protocol was developed in
Our Response                 1983, CDCclearly stated that (1) many of the proposed procedures and
                             methods were untested and that pilot study assessments were required,
                             and (2) a recommendation not to proceed with an Agent Orange Study
                             might be necessary. CDC’S response supports our contention that, at a



                             Page 24                                   GAO/GGDw)-122BB   &at   Omnge Stadles
                           Appendix I
                           CDC’S contracting   for Agent onulge   StndieB




                           On November 18,1981, in testimony before the Senate Committee on
                           Veterans Affairs on VA’S plans to use military records to identify Agent
                           Orange exposure we said:

                           “While it is possible to determine that personnel were in or near sprayed areas by
                           comparing ground troop locations with herbicide spraying missions, it is difficult to
                           develop estimates on the nature and extent of the exposure. For example, the Army
                           and the Marine Corps have been able to determine the proximity of companies to
                           sprayed areas, however, the exact location of individuals assigned to these compa-
                           nies cannot be determined from military records. Also, companies may have
                           reported numerous locations, only a general location, or no location on a given day.
                           The problems encountered by the Army and the Marine Corps in gathering this
                           information raises serious questions about the reliability of military records and the
                           potential of the proposed feasibility study to establish individual exposure
                           indexes.”

                           CDCrecognized the difficulties of obtaining information about Agent
                           Orange exposure in its February 1983 Agent Orange Study protocol out-
                           line. In June 1983, UrA reviewed CD& Agent Orange Study protocol and
                           said that it may be impossible to study associations between health
                           effects and Agent Orange exposure because military records would not
                           provide meaningful exposure information. In February 1984, Ul’A
                           reviewed CDC’Srevised Agent Orange protocol and said that a method-
                           ology for classifying veterans according to Agent Orange exposure had
                           not been developed.

                           Considering the uncertainties involved with identifying Agent Orange
                           exposure, we believe CDC should have separated the work on the
                           Vietnam Experience Study from the Agent Orange Study by including
                           the Agent Orange Study as a contract option. If that had been done, CDC
                           could have declined to exercise its contract option for the Agent Orange
                           Study if it was unable to solve the problems with identifying Agent
                           Orange exposure. However, CDCwrote the contracts without separating
                           the work on the two studies, because it believed that there was adequate
                           time between the signing of these contracts in 1984 and the anticipated
                           start of the Agent Orange Study in January 1986 to resolve the
                           problems with the military records.


Inability to Start Agent    During 1985, work on the Vietnam Experience Study proceeded
Orange Study                smoothly. However, after reviewing CDC’S efforts at identifying veterans
                            with Agent Orange exposure, OTA became increasingly concerned with
                            the methodology. On December 19,1985, OrA wrote the appropriate con-
                            gressional committees about its concerns. On January 10,1986, the


                            Page 22                                         GAO/GGIMM22EE     Agent Oran@ Stndlem
              Appendix    I




              Agent Orange Study in 1986, CDC did not have a proven methodology to
              allow work to begin. We also found other examples of poor contracting
              and contract administration practices that increased contract costs by
              $86,799.



GAQ Costs Due to Premature
    Award of Contracts
     Inability to start Agent Orange
     Study.
     Work done that was not
     needed for Agent Orange
     Validation Study.
     Contractor inactivity from end
     of Validation Study to
     termination of contract.
     Contract termination.




                Page 20
                    offices if a need existed. If no need existed in other parts of cnc, the
                    equipment would be disposed of in accordance with CDC’S equipment dis-
                    posal policy.


Miscellaneous       CDCspent $1.1 million on miscellaneous items. The largest cost catego-
                    ries for these items were

                l   $269,441 for printing and reproduction,
                l   $247,011 for medical and dental supplies, and
                l   $200,715 for telecommunications supplies.

                    Other miscellaneous costs included costs for transporting items, telecom-
                    munications and data transmission services, and laboratory supplies.




                    Page 18                                 GA0/QGD-w-128Ba   Agent omnge   smdies
Vietnam Experience, Agent   CDCspent $26.6 million on the two major contracts for the Vietnam
Orange, and Agent Orange    Experience Study, Agent Orange Study, and Agent Orange Validation
Validation Studies          Study. These contracts were for interviews and examinations of vet-
                            erans and were awarded to Research Triangle Institute (RTI) and Love-
                            lace Medical Foundation.

                            RTI was awarded a $7.6 million contract on August 1,1984, to interview
                            between 30,000 and 36,488 Vietnam veterans for the Vietnam Experi-
                            ence and Agent Orange Studies. Under the contract terms, CDC was to
                            select the names of veterans from military records and provide the
                            names to RTI. RTI’S employees were to interview the veterans to obtain
                            information about the veterans’ military service, medical histories, and
                            current health.

                            RTIcompleted 16,629 interviews, including 15,677 Vietnam Experience
                            Study interviews and 852 Agent Orange Validation Study interviews, for
                            which it was paid $4.4 million. No Interviews were done on the Agent
                            Orange Study because it was cancelled.

                            Lovelace Medical Foundation was awarded a $36.9 million contract on
                            November 29,1984, to do about 10,200 medical and psychological exam-
                            inations. This included up to 200 pilot study examinations to test exami-
                            nation procedures and at least 10,000 examinations for the Vietnam
                            Experience and Agent Orange Studies. The examinations were given to
                            study participants, and individual examinations took 3 days to com-
                            plete. CLXprovided Lovelace with the names of veterans from those vet-
                            erans that RTI interviewed. Lovelace also was required to arrange the
                            veterans’ travel to its facilities in Albuquerque, New Mexico, and to pro-
                            vide the veterans with lodging and meals.

                            Lovelace completed 6,397 examinations for which it was paid $21.2 mil-
                            lion. This included 147 pilot study examinations, 4,474 Vietnam Experi-
                            ence Study examinations, and 776 Agent Orange Validation Study
                            examinations. Lovelace did not do any Agent Orange Study examina-
                            tions because the study was cancelled.

Selected Cancers Study      cnc awarded 13 major contracts to do the Selected Cancers Study,
                            including 8 contracts to tumor registries to identify cases of the rare
                            types of cancer, 1 contract for the development of the control group, and
                            4 contracts for experts to confirm the original diagnosis of the 6 rare
                            types of cancer. As of March 30,1990, CDChad spent $6 million on these
                            contracts.



                            Page 16                                  GAO/GGD.B&1!2ZBFt   Agent Omq@ Stdw
                                   Appendix I
                                   CDC’S contmcting   for Agent Omlge   studies




Agent Orange Funds                 In accordance with the interagency agreement signed by VA and cnc, VA
                                   requested appropriations for CDC’SAgent Orange studies and trans-
Provided to CDC                    ferred funds to CCC.VA transferred a total of $70.4 million to CDCto do
                                   its studies. These transfers included

                           l       $2.1 million in fiscal year 1983 appropriations,
                           l       $54.0 million appropriated by Public Law 98-181, and
                           l       $14.3 million in additional appropriations through fiscal year 1989.


Funds Spent by CDC and             As of March 30, 1990, CDC had spent $51.6 million on contracts, per-
Remaining to Complete              sonnel costs, equipment, supplies and materials, and various related
                                   costs. CDC had $561,995 on hand to complete its studies.
Work

Transfer of Unused Funds           CDC transferred $18.3 million of unused funds to the Treasury, Air
                                   Force, and VA. This included

                           l       $14.3 million that was returned to the Treasury on September 11,1989;
                               l   $3 million to the Air Force in 1988, which was required by Public Law
                                   100-687, for blood tests on Air Force veterans who were directly
                                   involved with the spraying of Agent Orange in Vietnam; and
                               l   $1 million to VA for a contract in 1988, which was required by Public
                                   Law 100-687, to study the scientific evidence of health effects caused by
                                   exposure to toxic chemicals contained in herbicides used in Vietnam.




                                   Page 14                                        GAO/GGD9&122BR   Agent Orange Stndien
                          Appendix I
                          cm’s con-     for Agent orange   studies




                          Vietnam. To be eligible for the study, cancer-case group members had to
                          be diagnosed with one of the six cancers between late 1984 and late
                          1988 and live in a geographical area covered by the tumor registries
                          used in the study. These areas included the states of Connecticut,
                          Kansas, and Iowa and the metropolitan areas of Miami, Detroit, San
                          Francisco, Seattle, and Atlanta. The control group was comprised of men
                          who did not have any of the six cancers and who were scientifically
                          selected from households with telephones. Information on military ser-
                          vice in Vietnam, along with relevant and occupational history, was col-
                          lected from both cancer-case and control groups. CDC then determined
                          the relationship of the rates of cancer to service in Vietnam.

                          The study was completed and the results published in March 1990. CDC
                          reported that Vietnam veterans had a significantly higher risk than the
                          general public of contracting one of the six cancers, non-Hodgkin’s lym-
                          phoma. Additionally, CDC reported that Vietnam veterans did not have a
                          significantly higher risk than the general public of contracting any of
                          the remaining five cancers.


A&m-n-Orange Validation   CDC  did the Agent Orange Validation Study in 1987 to determine
                          whether military records could be used to accurately establish Vietnam
                          veterans’ exposure to dioxin. The study was designed to test dioxin
                          levels in the blood of Vietnam veterans who, on the basis of interpreta-
                          tion of the military records, were believed to have been exposed to
                          Agent Orange in varying degrees and veterans who did not serve in
                          Vietnam. CDC believed that a high level of dioxin in the blood of the
                          Vietnam veterans would indicate that military records could be used to
                          determine exposure to Agent Orange. Blood tests were given to 768 vet-
                          erans, including 665 Vietnam veterans and 103 non-Vietnam veterans.
                          Eight veterans were unable to give a sufficient amount of blood for the
                          blood test.

                          The study was completed in September 1987, and CDC reported that it
                          found no significant difference in the dioxin level between the blood of
                          Vietnam and non-Vietnam veterans. Because of these results, CDC con-
                          cluded that military records could not be used to accurately identify
                          enough Vietnam veterans who had been exposed to Agent Orange to do
                          a scientifically valid Agent Orange Study. Therefore, it cancelled the
                          Agent Orange Study in October 1987.




                          Page 12                                    GAO/GGD-gOl22BE   Agent w   Stndles
    GAO CDC’s Proposed Agent
        Orange Studies

             Vietnam Experience Study
             Agent Orange Study
             Selected Cancers Study
             Agent Orange Validation Study




                               originally planned three studies to satisfy the requirements of
CDC’s Proposed Agent       CDC
                           Public Laws 96-151 and 97-72. These were a Vietnam Experience Study,
Orange Studies             Agent Orange Study, and Selected Cancers Study. A fourth study, the
                           Agent Orange Validation Study, was added to determine if military
                           records could accurately identify veterans’ exposure to Agent Orange.


Vietnam Experience Study   The Vietnam Experience Study addressed the long-term health effects of
                           military service in Vietnam. The study design included a comparison of
                           the current health status of 12,000 veterans-6,000 Vietnam veterans
                           and 6,000 non-Vietnam veterans.



                           Page 10                               GAO/GGMJO-122BB   Agent Orange Stdks
Appendix I

CDC’sContracting for Agent Orange Studies



      w      Background



             P.L. 96-l 51 authorized
             an Agent Orange Study.
             P.L. 97-72 expanded the
             scope of the study.
             Interagency agreement
             transferred authority for
             study from VA to CDC.



                      The responsibility for the Agent Orange studies is outlined in two public
Background            laws and an interagency agreement between VA and enc.


Public Law 96-151      Public Law 96-151, enacted in December 1979, required VA to design and
Authorized an Agent    do a study of Vietnam veterans who, while serving in Vietnam, were
                       exposed to dioxin, a chemical component produced during the manufac-
Orange Study           ture of various herbicides, including Agent Orange. The purpose of the
                       study was to determine if exposure to the dioxin caused any adverse
                       long-term health effects. The law required the Office of Technology
                       Assessment (OTA) to approve the study design, referred to as a protocol,



                       Page 8                                  GAO/GGDS&122BR   Agent Orange Studies
Contents


Letter                                                                                               1

Appendix I                                                                                           8
CDC’s Contracting for   Background                                                                   8
                        CDC’s Proposed Agent   Orange Studies                                      10
Agent Orange Studies    Source, Use, and Transfer of Unused Funds                                  13
                        How CDC Spent Funds                                                        16
                        Questionable Expenditures                                                  19
                        Costs Due to Premature Award of Contracts                                  20
                        CDC Comments and Our Response                                              24
                        Poor Contracting and Contract Administration Practices                     26
                        CDC Comments                                                               27
                        Incorrect Price Used to Calculate Cost of Examinations                     27
                             That Were Not Done
                        CDC Comments and Our Response                                              27
                        CDC Comments and Our Response                                              28

Appendix II                                                                                        29
Objectives, Scope,and
Methodology
Appendix III                                                                                       30
Major Contributors to
This Report
Tables                  Table 1.1: Personnel and Travel Costs                                       17
                        Table 1.2: Calculation of Unnecessary Pilot Study Costs                     26
                        Table 1.3: Calculation of Overpayment of Lovelace’s                         28
                            Salaries



                        Abbreviations

                        CM:       Centers for Disease Control
                        HHS       Department of Health and Human Services
                        UTA       Office of Technology Assessment
                        RTI       Research Triangle Institute
                        VA        Department of Veterans Affairs


                        Page 6                                  GAO/GGLWO-122BE   Agent Orange !3tmdies
5240921




As arranged with the Subcommittee, unless you publicly announce its
contents earlier, we plan no further distribution of this briefing report
until 30 days from the date of this letter. At that time we will send
copies to the House and Senate Committees on Veterans Affairs, House
and Senate Committees on Appropriations, Senate Committee on Gov-
ernmental Affairs, House Committee on Government Operations,
Department of Health and Human Services, Department of Veterans
Affairs, Office of Management and Budget, and other interested parties.
Copies will be made available to others upon request.

Major contributors to this report are listed in appendix III. If you have
any questions regarding this report, please call me on 2768676.

Sincerely yours,




L. Nye Stevens
Director, Government Business
   Operations Issues




Page 4                                    GAO/GG~l22BQ    Agent Orange Stadies
                       LH4OS21




                       health-degrading substances or conditions, including other types of her-
                       bicides, chemicals, and medications.

                       When VA failed to develop a protocol acceptable to (JTA, Congress urged
                       VA to transfer the study to CDC.In January 1983, VA and CDCsigned an
                       interagency agreement that transferred funds, personnel positions, prior
                       work, and authority to do the study from VA to enc.

                       CJX planned the following three major studies to satisfy the legislative
                       requirements:

                   l a Vietnam Experience Study to determine the long-term health effects of
                     military service in Vietnam,
                   l an Agent Orange Study to determine if there is a statistically significant
                     relationship between exposure to Agent Orange and veterans’ health,
                     and
                   9 a Selected Cancers Study to determine if there is a higher incidence of
                     selected rare types of cancer among Vietnam veterans than in a control
                     group of Americans selected at random.

                       The Vietnam Experience Study and the Agent Orange Study were to be
                       done sequentially beginning with the Vietnam Experience Study. These
                       two studies were to be done using the same two major contracts-a con-
                       tract for interviews of veterans to obtain information on their health
                       and a contract for medical and psychological examinations of veterans
                       to evaluate their health. The Selected Cancers Study was planned to run
                       concurrently with, but separate from, the two other studies. Work on
                       the Selected Cancers Study was done under 13 major contracts.

                       When CDC found that using military personnel records did not accurately
                       identify the exposure of veterans to Agent Orange, it added a fourth
                       study, the Agent Orange Validation Study. This study was done to deter-
                       mine if military personnel records could be used to accurately identify
                       veterans who had been exposed to high levels of dioxin.


                          transferred $70.4 million of its appropriated funds to enc. Between
Results in Brief       VA
                       October 1982 and March 1990, CDCspent $51.5 million on contracts, per-
                       sonnel, equipment, and related items. In 1989, CDC returned $14.3 mil-
                       lion to the Treasury and, as directed by legislation, transferred
                       $3 million to the Air Force and $1 million to VA in 1988 for studies on the
                       spraying of herbicides in Vietnam. As of March 31, 1990, CDC had
                       $561,996 remaining to complete its planned work.


                       Page 2                                    GAO/GGDgOl22Blt   Agent we   Stndiee