oversight

District of Columbia: Authority Needs to Improve Its Procurement Practices

Published by the Government Accountability Office on 1999-08-18.

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

                 United States General Accounting Office

GAO              Report to Congressional Requesters




August 1999
                 DISTRICT OF
                 COLUMBIA
                 Authority Needs to
                 Improve Its
                 Procurement Practices




GAO/GGD-99-134
United States General Accounting Office                                                              General Government Division
Washington, D.C. 20548




                                    B-281962
                                    August 18, 1999

                                    The Honorable Ernest J. Istook, Jr.
                                    Chairman, Subcommittee on the District of Columbia
                                    Committee on Appropriations
                                    House of Representatives

                                    The Honorable Thomas M. Davis
                                    Chairman, Subcommittee on the District of Columbia
                                    Committee on Government Reform
                                    House of Representatives

                                    This report responds to your requests for a review of the procurement
                                    practices of the District of Columbia Financial Responsibility and
                                                                                     1
                                    Management Assistance Authority (Authority). As you are aware, the
                                    Authority was established by Congress in 1995 to repair the District’s
                                    failing financial conditions and to improve the effectiveness of its various
                                    entities. To accomplish this, the Authority was given a wide range of
                                    statutory authority and responsibility, including awarding contracts itself
                                    and the review and approval of contracts awarded by the District, to
                                    ensure the most efficient and effective service delivery.

                                    Based on concerns regarding allegations of procurement improprieties at
                                    the Authority, you requested that we determine whether applicable
                                    procurement regulations and procedures were followed in awarding and
                                    administering selected contracts on behalf of the Authority’s former Chief
                                                                2
                                    Management Officer (CMO) and to Thompson, Cobb, Bazilio and
                                    Associates, a private accounting firm that is responsible for auditing the
                                    Authority’s financial statements. We reviewed a total of 12 contracts and
                                    their associated contract actions, which we selected based on your
                                                       3
                                    specific concerns. Ten of the contracts were awarded by the Authority
                                    and totaled $13 million. The other two contracts were awarded by the
                                    District’s Chief Procurement Officer (CPO) and totaled over $1 million.
                                    Although we reviewed a total of 10 contracts that were awarded by the
                                    Authority, we only assessed whether 9 of them were awarded and
                                    administered in accordance with the Authority’s procurement regulations

                                    1
                                        The Authority is also referred to as the Control Board.
                                    2
                                        In February 1999, the Authority accepted the resignation of its CMO.
                                    3
                                        Contract actions include contract awards, modifications, and options.




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                   because 1 of the contracts in our review, Thompson, Cobb, Bazilio and
                   Associates (contract number FY96/FRA#2) was awarded before the
                   Authority’s regulations were adopted in March 1996. The Authority did not
                   provide us with any information on what procedures were followed in
                                          .
                   awarding this contract . Appendix II contains information on the award
                   and administration of this contract.

                   As requested, we also determined whether the Authority and the District
                   received the goods and services that they contracted and paid for in the
                   contracts that we reviewed.

                   The Authority did not always comply with its procurement regulations and
Results in Brief   procedures or follow sound contracting principles when it awarded and
                   administered the nine contracts that we assessed. In addition, the
                   Authority’s contract files for these contracts were incomplete. The files did
                   not generally contain documentation of the key contract award and
                   administration decisions as required by the Authority’s procurement
                   regulations. As a result of the incomplete contract files, the Authority
                   could not demonstrate that its objectives of (1) acquiring goods and
                   services at the lowest price or best value and (2) treating offerors fairly
                   were achieved for several of the contracts we reviewed.

                   The Authority’s procurement regulations provide for a preference for
                   competitively awarded contracts and require written justification and
                   approval of sole source contracts. The Authority’s contract files contained
                   evidence that it sought competition for seven of the nine contracts we
                   assessed. However, contrary to its regulations, the Authority did not (1)
                   document its basis for contract selection for three contracts, (2) include
                   written justification for one sole source contract award or a series of
                   “modifications” to another contract that, in effect, was a sole source
                   award, or (3) comply with other requirements in several cases.

                   The Authority’s contract files and information we obtained from two
                   contractors indicated that the Authority received the goods and services it
                   contracted for in six of the nine contracts we assessed. No documentation
                   was found in the Authority’s contract files to show whether the required
                   deliverables were received for the other two contracts. Contrary to the
                   Authority’s regulations, none of the contract files for the nine contracts we
                   assessed contained certification or any other evidence that the contractor
                   performed satisfactorily prior to payment of invoices. The Authority’s
                   procurement regulations do not specify any contract administration
                   requirements other than the certification provision to ensure that the
                   Authority gets what it paid for. Authority officials told us they relied on the



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             statements of work included in each contract to provide guidance in the
             administration of its contracts. However, the statements of work for the
             nine contracts and associated contract actions we assessed generally did
             not include standards for measuring the contractor’s performance as
             required by the Authority’s regulations.

             For the two emergency sole source contracts awarded by the District
             government, the District’s CPO did not comply with the Authority’s
             contract review and approval regulations governing District contracts or
             the District’s procurement regulations. First, the District’s CPO entered
             into an emergency sole source contract totaling $153,800 with a consultant
             firm for management reform services for the Authority’s former CMO
             without justifying how the procurement qualified as an emergency
             procurement or obtaining the Authority’s approval. Second, 4 months later,
             he awarded another emergency sole source contract for $893,000 to the
             same firm, once again for management reform services for the Authority’s
             former CMO, but did not justify the emergency procurement or receive the
             Authority’s approval as required by the regulations.

             Several factors appeared to contribute to the Authority’s failure to comply
             with its procurement regulations. For example, when Digital Systems
             International Corporation (DSIC), a consultant firm retained by the
             Authority, reported the results of its review of over 100 of the Authority’s
             contracts in January 1999, it identified some of the same problems we did
             and attributed the Authority’s contracting problems, in part, to its
             emphasis on meeting mission requirements and lack of procurement
                                                                                  4
             expertise. According to the Authority’s former Executive Director, with
             respect to the management reform contracts, the magnitude of the tasks
             and the short time frame in which the Authority had to complete them
             contributed to the Authority’s procurements not being as “tidy” as the
             Authority would have liked.

             DSIC made several recommendations to the Authority that, if effectively
             implemented, should help to improve the Authority’s procurement
             process. We are making additional recommendations to the Authority’s
             Chair.

             On April 17, 1995, the President signed the District of Columbia Financial
Background   Responsibility and Management Assistance Act of 1995, P.L. 104-8, which
             established the Authority to repair the District’s failing financial condition

             4
              In May 1999, the Authority’s original Executive Director resigned. He was hired as the Executive
             Director in June 1995. The Authority has since appointed another Executive Director.




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  and to improve the efficiency and effectiveness of its various agencies. The
  Act also permits the Authority to

• contract for goods and services for its own mission,
• contract for goods and services on behalf of District agencies, and
• review and approve contracts processed by District agencies.

  In addition, on August 5, 1997, the President signed into law the National
  Capital Revitalization and Self-Government Improvement Act, Title XI of
  P.L. 105-33. Under the Act, the Authority was directed to develop
  management reform plans for nine agencies and four citywide functions.
  The Act also required the Authority to award the management reform
  consultant contracts within 30 days from the date of its enactment, unless
  the Authority notified Congress, in which case the Authority could take 60
  days.

  The Authority is an independent entity within the government of the
  District and is statutorily exempt from adhering to the District’s
  procurement regulations. In addition, because the Authority is not an
  agency of the federal government, it does not have to comply with federal
  procurement statutes or regulations, such as the Federal Acquisition
  Regulation. In March 1996, the Authority promulgated its own
  procurement regulations that are intended to permit the procurement of
  property and services efficiently and at either the least cost to or the best
  value for the Authority. The Authority’s contracting authority is statutorily
  vested in its Executive Director, who is also the designated Contracting
  Officer. According to the Authority’s regulations, the Executive Director
                          5
  may at any time waive any provisions of the regulations, with the
  exception of the provision regarding the avoidance of conflicts or
  impropriety and the appearance of conflict or impropriety.

  The Authority’s regulations prescribe some of the basic procurement
  principles, including

• the avoidance of conflicts or impropriety and the appearance of conflict or
  impropriety;
• a preference for competition among potential sources to ensure fair and
  reasonable prices and best value for the Authority;



  5
   The regulations do not state whether the waiver has to be in writing. According to the former
  Executive Director, the provisions in the procurement regulations have never been waived.




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• use of sole source contracting only when it makes good business sense or
  promotes the Authority’s mission and is justified in writing and, if the
  contract exceeds $100,000 on an annual basis is approved by the
  Authority’s Chair;
• identification of potential sources to achieve the benefits of competition;
• publication of the Authority’s requirements to make potential qualified
  sources aware of the Authority’s requirements;
• preparation of statements of work that include a thorough description of
  the required services, a delivery schedule, and standards for measuring the
  contractor’s performance; and
• monitoring of contractor performance and certification of satisfactory
  performance prior to payment of contractor invoices.

  In addition, the Authority’s regulations prescribe procedures for simplified
  and formal contracting. According to the regulations, the Executive
  Director shall determine the type of procurement action that is appropriate
  for the use of simplified contracting procedures. The regulations state that
  simplified contracting procedures must be used when the value of the
  procurement is not expected to exceed $100,000 and/or when the nature of
  the goods or services to be provided is appropriate for these procedures.
  Under simplified contracting, the regulations prescribe procedures for
  obtaining competition, preparing written solicitations, evaluating
  proposals, and awarding contracts. For example, the Executive Director is
  responsible for making the final determination for contract selection based
  on the written recommendation of the technical evaluation team.

  The Authority’s regulations state that formal contracting procedures are
  mandatory for contract actions that may result in the Authority’s
  expenditure of $500,000 or more on an annual basis and may be used for
  competitive contract actions estimated at less than $500,000. Under formal
  contracting, the regulations prescribe procedures for preparing written
  solicitations, evaluating proposals, and awarding contracts. For example,
  the Executive Director’s decision for contract selection is required to be
  supportable, documented, and based on the evaluation factors. In addition,
  under the formal contracting procedures, the Executive Director may
  conduct negotiations with qualified offerors. The regulations also require
  that the negotiation sessions be fully documented whenever they occur.
  The Executive Director is also required to perform cost/price analysis
  when a single offer is received in response to a competitive solicitation or
  when the contract will not have a fixed price. The regulations further state
  that when fair and adequate price competition is obtained, a comparison
  among proposed prices and to the Authority’s estimate is generally
  adequate to verify that the prices offered are reasonable.



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Other than some requirements on the preparation and use of statements of
work, the Authority’s regulations do not prescribe specific requirements
governing contract actions between $100,000 and $500,000, nor do they set
forth specific requirements governing contract modifications or contract
options.

The Authority also promulgated regulations in November 1995 for
reviewing and approving contracts submitted by the District government.
These regulations describe in detail the proposed contracts that are
required to be submitted to the Authority for review and approval.
Examples include sole source contracts, contracts for services exceeding
$25,000, and any contract proposed as an emergency procurement. The
regulations further state that no contract that is required to be submitted
to the Authority shall be awarded unless the Authority has approved the
proposed contract or unless the Authority specifically declined to exercise
its power to review and approve the contract prior to award. Subsequently,
most recently on February 26, 1998, the Authority adopted resolutions
amending the regulations by modifying the definition of contracts required
to be submitted for review and approval.

According to the Authority’s procurement regulations, the Executive
Director may from time to time delegate specific contracting and
procurement responsibility and authority to various members of the
Authority’s staff. The Authority’s regulations also require that when
authority is delegated to a staff member to serve as a contracting officer,
the delegation is to be in writing. Prior to reorganizing in December 1997,
the Authority’s contracting staff consisted of a Director of Procurement
and full-time complement of five staff persons, including a Procurement
                                       6
Analyst and two Contract Specialists . In early 1998, the Authority changed
the scope and magnitude of its procurement operations by reducing the
number of procurements done to support its own mission and reducing the
number of District contracts to be reviewed and approved. As of April
1999, there were two full-time staff— a Senior Procurement Specialist and
an independent contractor who served as the Contract Specialist—
involved in the award and administration of Authority contracts. The
Authority’s Executive Director, Deputy General Counsel, and Chief
Financial Officer also assisted these staff members. In addition, the
District’s CPO also awarded and administered several Authority contracts
on behalf of the Authority.



6
    According to the Authority, one of its two Contract Specialists was an independent contractor.




Page 6                                                      GAO/GGD-99-134 Procurement Practices
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              In January 1998, the Authority hired a CMO to assist the Authority in
              carrying out its management reform responsibilities. The CMO reported to
              the Chairperson of the Authority and was responsible for overseeing the
              management reform efforts for nine District agencies and four citywide
              functions, including procurement. In February 1999, the CMO resigned
              from her position.

              From its inception in April 1995 through September 30, 1998, the Authority
              reports that it awarded 141 contracts for almost $81 million. These
              contracts include procurements done by the Authority to accomplish its
              own mission or done by the Authority on behalf of the District.

              We reviewed a total of 12 contracts and their associated contract actions
Scope and     that were awarded in fiscal years 1996 through 1998. Ten of the 12
Methodology   contracts were awarded by the Authority and the other 2 were awarded by
              the District’s CPO. As stated previously, although we reviewed a total of 10
              contracts awarded by the Authority, we assessed compliance with the
              Authority’s regulations for 9 contracts because 1 contract (Thompson,
              Cobb, Bazilio and Associates, contract number FY96/FRA#2) was awarded
              before the Authority’s regulations were adopted in March 1996.

              As you specifically requested, we focused on the contracts that were
              awarded for the Authority’s former CMO and to Thompson, Cobb, Bazilio
              and Associates. According to the Authority, 17 of its 141 contracts were
              awarded on behalf of its former CMO; we judgmentally selected six of
              those contracts to obtain a mix of management reform and executive
              recruitment services contracts. We selected the other six contracts
              because you specifically requested that we examine them. They include
              the four contracts awarded to Thompson, Cobb, Bazilio and Associates by
              the Authority and the two contracts awarded to Smart Management
              Services by the District’s CPO. Appendix I provides additional information
              on the contracts we reviewed, and appendix II contains additional
              information on the award and administration of the contract awarded prior
              to the adoption of the Authority’s regulations.

              We reviewed the contract files to determine whether the Authority and the
              District’s CPO followed applicable procurement regulations when they
              awarded the contracts we assessed. For example, we reviewed the
              contract files to determine whether (1) competition was sought, (2) the
              basis for contract selection was documented, (3) sole source contracts had
              written justification, (4) contractors’ performance was monitored, and (5)
              the Authority received the required deliverables before payment of
              invoices. To supplement our contract file review, we judgmentally selected



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three of the eight contractors who were retained by the Authority and the
District’s CPO to obtain a mix of contractors who were required to provide
management reform or executive recruitment services and visited them at
their offices to obtain information on the Authority’s procurement process.

For the contract that was awarded prior to the adoption of the Authority’s
regulations, we reviewed the information in the contract file to determine
what information was available to document key contract award and
administration decisions, including the basis for contract selection and
whether the file contained evidence that the Authority received the
services it paid for.

As stated previously, the regulations provide that the Executive Director
shall determine whether a particular request for procurement is
appropriate for simplified contracting. However, we found no
documentation in the contract files that this was done. Consequently, it
was not apparent which method of contracting was used by the Authority
to award Boulware a $105,000 contract because the regulations do not
specify which procedures, simplified or formal, apply to contracts that are
between $100,000 and $500,000.

In addition, we reviewed the Authority’s and District’s procurement
regulations and procedures, the Authority’s review and approval
regulations governing submission by the District for contracts, and
interviewed Authority and District officials involved in contract award and
contract administration. We also reviewed several reports of studies done
                                                                       7
by other entities on the Authority and District’s procurement process.
However, as agreed with your offices, we did not review the Authority’s
process or controls for ensuring that its review and approval regulations
governing District contracts were being followed.

Although our findings can only be applied to the contracts we reviewed,
other reviews of the Authority and District’s procurement processes have
reported similar findings and conclusions. For example, DSIC reviewed


7
 Report of Investigation Into The District’s Awarding of Certain Contracts and The Termination of
Employment of Mr. Michael T. Hernon, Government of the District of Columbia, Office of The
Inspector General, March 1999.

Report of the Audit of the District of Columbia Financial Responsibility and Management Assistance
Authority Contracts, Digital Systems International Corporation, January 1999.

A Crisis in Management: An Assessment of the Contracting Operations of the District of Columbia,
District of Columbia Financial Responsibility and Management Assistance Authority, March 6, 1997.




Page 8                                                   GAO/GGD-99-134 Procurement Practices
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                        over 100 Authority contracts that totaled $47.2 million and were awarded
                        between August 1995 and September 1998.

                        We conducted our review in Washington, D.C.; Houston, TX; and Chicago,
                        IL; from September 1998 to July 1999 in accordance with generally
                        accepted government auditing standards. We obtained comments on a
                        draft of this report from the Authority and the District’s CPO. These
                        comments are summarized in the agency comment section of this report
                        and are discussed in the report where appropriate. Appendix III contains
                        the Authority’s written comments and our specific responses to those
                        comments.

                        Although the Authority’s procurement regulations set forth some basic
The Authority Did Not   requirements for contract award, we found that the Authority did not
Always Comply With      always comply with its procurement regulations or follow sound
Its Procurement         contracting principles for the nine contracts that we assessed. As stated
                        previously, the Authority’s former Executive Director was able to waive
Regulations             almost any provision of the regulations; however, he stated that a waiver
                        was not granted for any of the contracts awarded by the Authority.

                        In its comments on a draft of this report, the Authority said that our
                        statement that “according to the former Executive Director, the provisions
                        in the procurement regulations have never been waived” is not quite
                        accurate. The Authority commented that its former Executive Director
                        said that its regulations had never been waived in writing. The former
                        Executive Director did not make this distinction when we met with him.
                        While the Authority’s regulations do not state whether the waiver has to be
                        in writing, we disagree with the Authority’s position that once a contract is
                        executed by its Executive Director and approved by the Chair, any
                        irregularities with respect to its award have been waived.

                        The failure to follow the Authority’s regulatory requirements could occur
                        at several stages in the contracting process, and the Executive Director
                        may not necessarily be aware of what regulatory requirements his
                        contracting staff may have failed to follow. If the execution of a contract
                        by the Executive Director constitutes a waiver of any Authority
                        contracting requirement, regardless of whether the Executive Director
                        knew of a contracting deficiency, there would be essentially no
                        accountability for the actions of the Authority or its employees. Such a
                        process would, in effect, render the regulations useless.

                        The contract files we reviewed indicated that the Authority sought
                        competition for seven of the nine contracts we assessed. However, the



                        Page 9                                     GAO/GGD-99-134 Procurement Practices
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                               contract files contained little or no evidence that the Authority (1)
                               documented its basis for contract selection for the three contracts where it
                               is specifically required by the regulations; (2) prepared written justification
                               for one sole source contract award or a series of “modifications” to
                               another contract that, in effect, was a sole source award; or (3)
                               documented its contract negotiations as required by the regulations for the
                               two contracts where the Authority stated that negotiations had occurred.

                               After we completed our review of the ten contract files, we notified the
                               Authority of missing documents and requested that they be provided. On
                               May 21, 1999, the Authority’s former Executive Director provided us with a
                               letter to explain how he made his contract selection decisions, but did not
                               provide any additional documentation.

Basis for Contract Selection   Of the 9 contracts we assessed, we found that the Authority did not
                               document its basis for contract selection, as specifically required by its
Generally Not Documented       regulations, for the three contracts that were awarded to Managing Total
                               Performance, Management Partners, and the Urban Center. The
                               Authority’s regulations require the Executive Director’s decision for
                               contract selection to be supportable, documented, reasonable, and based
                               on the technical evaluation report for contracts that total $500,000 or
                               more. For example, there was no evidence in the contract file documenting
                               the Authority’s basis for awarding to Managing Total Performance a
                               $796,600 contract for phase I management reform work or adding $10.6
                               million in modifications to this contract. The contract file also contained
                               information that indicated that the Authority received several other
                               proposals but contained no documentation explaining why Managing Total
                               Performance was selected or the other proposals were not selected.

                               In addition, under simplified contracting, when written proposals are
                               received the evaluation panel is required to document the basis for its
                               initial recommendation for contract selection, including a brief description
                               of why the recommended proposal offers the best value of all proposals
                               received. The evaluation panel’s basis for its initial recommendation for
                               contract selection was not documented in the contract files for the four
                               contracts where simplified contracting procedures applied. For example,
                               the Authority awarded a $54,000 contract which was later modified to
                               $94,500 to the Gaebler Group to establish a management task force to
                               provide management and technical assistance to its former CMO. The
                               Authority’s contract file contained six proposals in response to the
                               solicitation, but there was no evidence in the contract file documenting the
                               Authority’s basis for selecting the Gaebler Group. There also was no
                               evidence in the contract file that the other five firms were not qualified or



                               Page 10                                     GAO/GGD-99-134 Procurement Practices
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were less qualified to provide the required services. In addition, the
Authority’ s technical evaluation panel and its former CMO both initially
recommended another contractor.

The other cases involve the three contracts the Authority awarded to
Thompson, Cobb, Bazilio and Associates totaling over $153,000 to audit its
financial statements and the enrollment in the District’s public schools.
However, the Authority did not document its basis for selecting this
particular contractor for any of the three contracts. The absence of a
clearly documented selection process left no written record to review the
basis for contract selection for the contracts we assessed or to determine
whether the awards were made at the lowest cost or best value and
whether offerors were treated fairly.

In response to our request for the basis for contract selections for the
contracts we reviewed, with respect to the former CMO contracts, the
Authority’s former Executive Director said that the proposals submitted
were evaluated by the selection committee. However, the final decisions
concerning contract awards to vendors, the acceptability of individuals
proposed as members of the team, and the tasks to which teams and
individuals were assigned were made by the former CMO. In addition, the
former Executive Director specifically acknowledged that the Gaebler
Group was not the recommendation of the selection committee and said
that the former CMO determined that she needed additional management
assistance and believed that the Gaebler Group could perform the tasks
within the time constraints. There was nothing in the contract file to
explain the former CMO’s position.

The former Executive Director also said that he determined that it was in
the Authority’s best interest to approve the $10.6 million in modifications
to the Managing Total Performance contract, even though the total price of
the modifications was greater than the original contract price, because the
Authority and District agencies had already fallen behind in implementing
management reform. Finally, the former Executive Director said that he
awarded the three contracts to Thompson, Cobb, Bazilio and Associates
based on recommendations from the Authority’s contracting staff and his
personal knowledge and experience with the firm.

In commenting on a draft of this report, the Authority said that the basis
for contract selection for the contracts awarded to the Gaebler Group,
Management Partners, the Urban Center, and Managing Total Performance
is contained in memorandums dated March 18, 1998, and September 4,
1997. However, these documents do not contain the Executive Director’s



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                                basis for contractor selection. In addition, the contract files contained no
                                explanation of the difference between the evaluation panel’s
                                recommendation and the selection of the Gaebler Group as previously
                                discussed.

                                The Authority commented that the Executive Director’s signature on the
                                contract as the contracting officer constitutes documentation for the basis
                                for contract selection. The Authority also believes that the award of a
                                contract in accordance with the recommendation of the selection team is
                                an adoption of that recommendation and is thus the basis for contract
                                selection. We agree in cases of simplified contracting where the Executive
                                Director accepts the panel’s recommendation that the Executive Director’s
                                signature on the contract constitutes documentation of the basis for
                                contract selection, as asserted by the Authority. However, according to
                                the Authority’s regulations, specifically chapter 5, section F.1., the
                                Executive Director is required to prepare a memorandum detailing the
                                procurement and the rationale for the contract selection for contracts over
                                $500,000. Therefore, under these formal contracting procedures, the
                                Executive Director’s signature on the contract would not satisfy this
                                regulatory requirement.

Justification for Sole Source   We found that the Authority did not comply with its regulations when it
                                awarded one sole source contract and executed a series of “modifications”
Contracts Not Always            to another contract that became, in effect, a sole source award. The
Substantiated                   Authority’s regulations require that all sole source contracts be
                                accompanied by a written justification and, if the contract exceeds
                                $100,000 on an annual basis, be approved by the Authority’s Chair.
                                However, we found that the Deputy Management Officer for the
                                Authority’s former CMO entered into a verbal agreement on a
                                noncompetitive basis without written justification or the Authority Chair’s
                                approval. The contractor, Boulware, was to provide executive recruitment
                                services for six senior-level management positions that were already
                                included in the scope of work for another contract. Authority officials said
                                that the verbal agreement was an unauthorized procurement but later
                                ratified the agreement and awarded a $105,000 sole source contract to
                                Boulware.

                                According to the written justification that was prepared 3 months after the
                                verbal agreement, the Authority’s basis for the sole source award was
                                twofold. First, the original contractor was not performing in accordance
                                with the terms of the contract; however, we found nothing in the original
                                contractor’s file to substantiate this assertion. Second, as stated in the
                                justification the selected firm was the only firm with the requisite



                                Page 12                                    GAO/GGD-99-134 Procurement Practices
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knowledge and skills to perform the required services; however, this
assertion was also not substantiated by any documents in the contract
files. To the contrary, documentation in the Boulware contract file
suggests that Boulware’s original proposal to perform similar services was
initially rejected by the Authority because it contained the highest hourly
rate among the five proposals received in response to another solicitation,
according to Authority officials. In addition, there was nothing in the
contract files that indicated that the other firms were not qualified or were
less qualified to perform the required services.

It should also be noted that our review of the Authority’s justification for
the noncompetitive procurement to Boulware determined that, the
contract files contained conflicting information. The Authority’s April 24,
1998, justification for awarding a sole source contract to Boulware to
provide search and recruitment services for six positions stated that the
current contractor, PAR Group, working for the Authority in the area of
executive recruitment, had been unable to deliver candidates within the
desired time frame, which affected the CMO’s office and other District
agencies. The justification further stated that, as a result of PAR Group’s
poor performance, it was necessary to enter into a contract with a firm
that had a track record for performance in the area of executive
recruitment. However, also in the PAR Group contract files was another
Authority justification dated the same day—April 24, 1998—for
noncompetitive procurement of a proposed modification to expand the
PAR Group’s search and recruitment activities to include six additional
positions. The justification stated that the PAR Group was doing an
excellent job in a cost-effective and timely manner. Further, the
justification said that, under these circumstances, it was considered
unlikely that another contractor, unfamiliar with the proposed work,
would perform the required tasks as cost effectively or in as timely a
manner as the PAR Group had done. According to the Authority, the
conflicting dates on the memorandums were the result of a typographical
error.

In reference to the two sole source justifications for the PAR Group and
Boulware, the Authority commented that a comparison of the two
justifications is initially confusing and said that the date of the Boulware
sole source justification is incorrect and is a typographical error. We agree
that the two sole source justifications are confusing and brought this to the
Authority’s attention on several occasions during our review. However, the
Authority did not provide us with a definitive response until we received
its written comments on the draft. We revised our report to reflect the
Authority’s comments.



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Notwithstanding the Authority’s explanation of the dates, our point is that
the sole source justification for Boulware was based in part on the
Authority’s statement that the PAR Group was performing poorly.
However, nothing in the PAR Group contract file showed that PAR Group
was performing poorly as asserted in the sole source justification. Further,
there is nothing in the contract file to support the former Executive
Director’s assertion that the Authority’s Board had imposed very tight 30-
day schedules for filling certain positions. Additionally, the PAR Group
contract did not contain any evidence of the cited 30-day schedule for
filling the positions.

In another contract, the Authority did not substantiate the award of sole
source contracts to Managing Total Performance. On September 4, 1997,
the Authority awarded a $796,600 management reform contract to
Managing Total Performance with a base term of 90 days. This contract
also provided for an option and further provided that, if the option were
exercised, the option term of the contract was from December 1, 1997,
through December 1, 1998. Authority officials confirmed that this
modification was not exercised by December 4, 1997, when the contract
expired.

When a contract has expired, the contractual relationship that existed is
terminated and that the issuance of a modification after the expiration
                                                                     8
date, in effect, would be the award of a new sole source contract.
However, the Authority did not treat this award as a new sole source
contract or justify it in writing, and there was no evidence of approval by
the Authority’s Chair in the contract file, as required by the Authority’s
regulations. Further, according to Authority officials, the District’s CPO,
who signed the modification that purported to exercise the option, was
authorized to prepare the proposed modifications for the Authority.
However, Authority officials said that they did not intend for the District’s
CPO to execute modifications without the Authority’s approval because
the contract was an Authority contract.

In explaining this situation to us on June 17, 1999, Authority officials said
that the Managing Total Performance contract was similar to several other
management reform contracts awarded by the Authority. These contracts,
they said, were intended to have two phases—development of proposed
reforms and the implementation of proposals accepted by the Authority;
however, events did not turn out entirely as planned. They said that phase I
resulted in many more proposals than could be funded. Consequently, the
8
    65 Comp. Gen. 25 (1985); 85-2 C.P.D. ¶ 435.




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Authority had to analyze them and decide which ones to approve. At the
same time, Authority officials said that they were under a lot of pressure
from Congress and others to move more quickly toward producing results.
Accordingly, they asked the District’s CPO to perform the administrative
tasks necessary to modify the contracts to proceed with the
implementation phase. However, while these actions were under way,
Authority officials said the Managing Total Performance contract expired.
Finally, Authority officials said that they did not realize that the District
had not done or documented cost/price analysis or negotiations for
modifications 1 through 14 of the Managing Total Performance contract.

In written comments on a draft of this report, the Authority questioned our
conclusion that it failed to “substantiate the award of sole source contracts
to Managing Total Performance.” As recognized by the Authority, this
conclusion was based on our view that the initial Managing Total
Performance contract, awarded on September 4, 1997, with an option
clause, had expired before the option was exercised. We concluded that
since the contract had expired, the issuance of a modification exercising
the option after expiration, was in effect the award of a new sole source
contract that should have been justified in writing and approved by the
Authority’s Chair. The Authority stated that it does not interpret the
Managing Total Performance contract as having expired. It further stated
that for a variety of reasons, the Authority and Managing Total
Performance “understood and agreed” that the contract would remain in
effect beyond the stated term in order to allow for the future exercise of
options for implementation work. The Authority further stated that it, not
GAO, is “the most appropriate interpreter” of what its contracts provide
and noted, as we did in the report, that the Authority is exempt from
District and federal procurement law.

We do not agree with the Authority’s position. The Authority suggests,
without actually stating so, that the Authority and Managing Total
Performance had an oral agreement to extend the contract beyond its
stated term. However, we found no evidence or documentation in the
contract file to suggest when the Authority and Managing Total
Performance might have reached this agreement to extend the contract or
to show that such an understanding and agreement existed. The letter
from the Executive Director to the District’s CPO, dated months after the
contract had expired, authorizing him to process modifications for the
Managing Total Performance contract and the subsequently issued
modifications contain no reference to a prior extension of the contract by
oral agreement. In essence, the Authority has asked us to accept that the




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                             contract had been extended, not based on any additional documentation,
                             but rather on its current explanations of its past intentions.

                             The Comptroller General decision we refer to in the report is cited for the
                             proposition that, as a matter of general contract law, not federal or District
                             procurement law, the attempt to exercise an option on an expired contract
                             can only be viewed as the execution of a new contract. When a contract
                             expires, an unexercised option provision that was part of the contract
                             would expire as well. The Authority’s view— that, despite the lack of
                             evidence in the contract file, we should not question its statement that the
                             contract was extended— highlights the problems caused by the Authority’s
                             failure to document key contract actions. If these actions are not
                             documented, there is no way for the Authority, or any organization
                             reviewing its actions, to know whether it followed its own regulations and
                             the provisions of its own contracts. Also, the lack of adequate
                             documentation makes it difficult to hold the Authority or its employees
                             accountable for their actions.

Inadequate Documentation     Of the nine contracts we assessed, the Authority’s former Executive
                             Director said it conducted contract negotiations for 2 of the 3 contracts
of Contract Negotiations,    awarded under the formal contracting procedures which require the
Cost/Price Analysis, or      documentation of negotiations whenever they occur. However, there was
Independent Cost Estimates   no documentation of negotiations in the contract files for the contracts
                             awarded to Management Partners and the Urban Center for $513,000 and
                             $562,800, respectively. Based on the Authority’s regulations, these 2
                             contracts should have been awarded using the formal contracting
                             procedures because they were for $500,000 or more.

                             In another case, the Authority executed 14 modifications totaling $10.6
                             million to an expired contract with Managing Total Performance, which, in
                             effect, constituted a sole source award. Since the Authority erroneously
                             viewed these actions as modifications to an existing contract, the contract
                             files contained no documentation of negotiations, cost/price analysis, or
                             other steps that may have been taken to determine best value or least cost
                             or would be required for the award of a new contract. While the
                             Authority’s regulations state that the Authority is to provide goods and
                             services at the least cost or representing the best value for the Authority,
                             the regulations do not specify how to accomplish these objectives when it
                             executes contract modifications.

                             In addition, although the regulations do not require negotiations or
                             documentation of negotiations whenever they occur for contracts under
                             $100,000, the former Executive Director said that the Authority conducted



                             Page 16                                    GAO/GGD-99-134 Procurement Practices
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negotiations with qualified offerors for four of the remaining six contracts
we assessed. However, evidence in the contract files indicated that
negotiations occurred for only one of the four contracts for which the
Authority said it conducted negotiations. This was a contract with
Boulware for which a contract approval form stated that the Authority’s
Chief Financial Officer negotiated down Boulware’s proposed rates and
terms of the contract to the extent possible. However, the contract files
did not contain a record of the negotiation process, and the contractor told
us that negotiations did not take place and that the Authority’s Chief
Financial Officer dictated the price.

In its comments, the Authority said that it believes that the dictation of a
maximum price is included in the definition of negotiations. While we
agree, our purpose was to describe the nature of the negotiation and to
point out that the documentation in the contract file did not describe the
nature of the negotiation that took place or the Authority’s rationale for
arriving at the dictated price. Nonetheless, we recognize that the
contractor could have said that the price was too low and then attempted
to negotiate or simply declined the contract.

While the Authority’s regulations do not require independent cost
estimates for all of its contracts, the regulations do authorize the Authority
to develop its own cost/price estimate to help assess the reasonableness of
contractor proposals. For example, the regulations state that, when fair
and adequate price competition is obtained, a comparison among
proposed prices and to the Authority’s estimates is generally adequate to
verify that the prices offered are reasonable. The contract files for two of
the three contracts we assessed where the former Executive Director said
price comparisons were performed did not contain documentation of these
comparisons to show how the Authority determined price/cost
reasonableness.

DSIC also reported that contract negotiations were generally not
documented for several of the contracts it reviewed and that cost/price
analyses were frequently not documented. DSIC also found little evidence
that the Authority prepared or used independent cost estimates for several
contracts and pointed out that the number of hours proposed by some
offerors, within the competitive range, differed by as much as 50 percent.
According to DSIC, the absence of an independent cost estimate makes it
difficult to reconcile differences of such magnitude. DSIC recommended
that the Authority develop independent cost estimates of the hours needed
to perform required services to use as a basis for evaluating technical
proposals and costs.



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                         In his May 21, 1999, letter, the Authority’s former Executive Director said
                         that the Authority’s staff obtained and evaluated cost and pricing
                         information and that, after negotiations by the staff, he determined that the
                         prices were fair and reasonable for 9 of the 10 contracts we reviewed.
                         However, he did not provide any additional documentation or other
                         evidence of actual negotiations or cost/price evaluations.

                         In commenting on a draft of this report, the Authority said that contract
                         negotiations, a cost/price analysis, or an independent cost estimate are not
                         mandatory for all of the contracts we assessed. Although we did not say
                         that these were mandatory for all the contracts we assessed, we further
                         clarified our report in this regard. However, our point continues to be that
                         we did not see any documentation of negotiations the Authority said
                         occurred. We believe that contract negotiations, cost/price analyses, and
                         an independent cost estimate are important tools for ensuring best value
                         and fair and reasonable prices and thus represent good contracting
                         practices.

                         The Authority also commented that the provision for cost/price analysis in
                         its regulations does not require that cost/price analysis be documented in
                         the contract file. In addition, the Authority said that most of its contracts
                         reviewed by GAO are competitive and that documentation for the
                         cost/price analysis is contained in the cost proposal submitted by offerors.
                         We agree that the Authority’s regulations do not specifically require that
                         the cost/price analysis be documented in the contract file, and our report
                         does not state that it is a requirement. We also agree with the comment
                         regarding competitive contracts; however, we question the Authority’s
                         assertion that an offeror’s price proposal constitutes a cost/price analysis
                         by the Authority.

                         The District’s CPO did not comply with the Authority’s or the District’s
District’s CPO Did Not   procurement regulations when he entered into an emergency sole source
Comply With Authority    contract totaling $153,800 and when he awarded a subsequent contract for
or District              $893,000 as an emergency sole source contract without justifying the
                         emergency procurement or obtaining approval from the Authority. Both of
Procurement              these contracts were to Smart Management Services to provide
Regulations              management reform services to the Authority’s former CMO.

                         Concerning the first contract, according to the District’s CPO, in February
                         1998, he received an oral procurement request from the Authority’s former
                         CMO to obtain consulting services to assist her with reconciling the
                         District’s fiscal year 1998 budget and management reform anomalies.
                         According to the District’s CPO, the former CMO provided him with the



                         Page 18                                    GAO/GGD-99-134 Procurement Practices
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names of five or six firms that she considered qualified to perform the
tasks and said that she needed a firm that could start to work immediately.
The District’s CPO said that he phoned the firms on the list and that only
one firm–Smart Management Services—was available to start to work
immediately. However, he did not maintain a record of his telephone
conversations with the firms. He said that a list of the firms was not
retained because the initial contract was processed as a sole source
procurement. Shortly thereafter, the District’s CPO entered into an
emergency sole source contract totaling $153,800 with Smart Management
Services without either justifying how the procurement met the terms of
an emergency procurement, as the District’s procurement regulations
require, or obtaining the Authority’s approval. The Authority’s review and
approval regulations for District contracts require that all sole source
contracts and modifications issued under the direction of the District’s
CPO be submitted to the Authority for review and approval prior to award.
In addition, the District’s CPO did not comply with District procurement
regulations when he modified the purchase order agreement three times to
increase the scope of services and costs. The District’s procurement
regulations state that contracts done on an emergency basis are not to be
modified to expand the scope or extend the time of the procurement
unless a limited number of additional services are needed to satisfy an
ongoing emergency requirement.

The contract file for the second contract, which was also awarded to
Smart Management Services 4 months after the first emergency sole
source contract, did not contain evidence that the District’s CPO justified
how the procurement met the terms of an emergency procurement as the
regulations require or submitted the $893,000 emergency sole source
contract to the Authority for review and approval. The contract required
Smart Management Services to provide consultant services to the
Authority’s former CMO for a 1-year period. The Authority’s review and
approval regulations for District contracts specifically require that sole
source contracts and contracts for consultant services issued by or under
the direction of the CPO be submitted to the Authority for review prior to
award. The District’s regulations define an emergency procurement as one
responding to a situation, such as a flood, epidemic, riot, or other reason
set forth in a proclamation by the Mayor, that creates an immediate threat
to the public, health, welfare, or safety of its citizens. Moreover, under the
District’s procurement regulations, an emergency procurement is limited
to not more than 120 days, and the contracting officer is required to initiate
a separate nonemergency procurement if a long-term requirement for
services is anticipated.




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In comments on a draft of this report, the District’s CPO said that the draft
report incorrectly links the term “emergency” to the regulatory context of
fire, flood, or endangerment to public health when no such context was
cited or intended and said that the justification was clearly stated in
writing. We disagree and believe that the District’s procurement
regulations, which were used by the District’s CPO as the basis for
justifying the emergency sole source contract, are specific on what
constitutes an “emergency” procurement as stated in our report. In
addition, our draft report states that the written justification did not
explain how the procurement met the terms of an emergency procurement
as required by the District’s regulations.

According to the District’s CPO, he was advised by his General Counsel,
after consulting with the Authority’s Deputy General Counsel and Chief
Financial Officer, that the contract did not have to be submitted to the
Authority for approval because the contract, which obligated
approximately $330,000 during fiscal year 1998, was less than the $500,000
threshold specified in the Authority’s February 26, 1998, resolution, which
requires District contracts in excess of $500,000 to be submitted for review
and approval. We believe that, based on Section 4.1.E of the Authority’s
review and approval regulations governing District contracts, the District’s
CPO was required to submit this contract to the Authority for its review
and approval. Section 4.1.E states that all proposed sole source contracts
awarded by the CPO must be submitted to the Authority prior to award.

In commenting on our finding that the Smart Management Services
contract for $893,000 should have been submitted to the Authority for
review and approval, the District’s CPO commented that the value of the
contract was less than the $500,000 approval threshold prevailing at the
time and therefore did not require Authority review and approval. This is
not consistent with our understanding of the regulations or the value of the
contract. As our report states, our basis for concluding that the District’s
CPO was required to submit this sole source contract to the Authority for
review and approval is Section 4.1.E of the Authority’s review and approval
regulations for District contracts.

In August 1998, the Authority terminated this contract because it believed
that the contract contained several deficiencies. In particular, the
Authority stated that the contract was awarded on a sole source basis and
that under federal statutes and Authority resolutions, the Authority should
have approved it. The Authority also said that it appears that the principal
consultant who performed the main task under the contract was
designated as a Deputy Management Officer reporting directly to the CMO



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                       B-281962




                       and spent most of her time in a staff function. Thus, the Authority
                       concluded that the compensation terms for the principal consultant and
                       the two additional senior consultants were in excess of the levels that
                       could be paid and justified for even the most senior positions in the
                       District government.

                       This same contract was also the source of an investigation by the District’s
                       Office of Inspector General at the request of the Authority. The Inspector
                       General issued a report on the results of the investigation and concluded
                       that the District’s CPO was required to submit the $893,000 emergency sole
                       source contract to the Authority for approval, but failed to do so, and also
                       improperly awarded the contract as an emergency procurement. With
                       regard to the submission of the contract to the Authority for review and
                       approval, the Inspector General considered the Authority’s February 26,
                       1998, resolution to be clear on what type of contracts are required to be
                       submitted to the Authority for review and approval, and we agree.

                       Further, the Inspector General said that the District’s procurement
                       regulations have their own very strict definition of an emergency. For
                       example, an emergency includes such conditions as a flood, epidemic, riot,
                       or other reason set forth in a proclamation by the Mayor. As such, the
                       Inspector General concluded that the CPO acted outside the scope of the
                       District’s procurement regulations when he awarded the $893,000 contract
                       as an emergency sole source contract because the situation did not
                       constitute an emergency as prescribed in the regulations. However,
                       because the Authority subsequently terminated the contract in August
                       1998, the Inspector General did not recommend any further action and
                       deferred the issue to the Mayor for final disposition.

                       Contract administration constitutes an integral part of the procurement
Weaknesses in the      process that ensures that the government gets what it paid for. It involves
Authority’s Contract   those activities that are performed after a contract has been awarded to
Administration         determine how well the contractor performed with regard to meeting the
                       requirements of the contract. The Authority’s procurement regulations do
                       not contain detailed provisions on contract administration. The regulations
                       state that the Authority plans to monitor contractor performance and
                       certify satisfactory performance prior to payment of any contractor
                       invoice.

                       We saw little or no evidence of how the Authority monitored or certified
                       satisfactory contractor performance for the nine contracts we assessed.
                       According to Authority officials, they relied on the contractor’s work
                       statements to monitor the contractor’s performance. However, we found



                       Page 21                                   GAO/GGD-99-134 Procurement Practices
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that the statements of work for these nine contracts generally did not
contain thorough descriptions of the required services, expected results,
and standards for measuring the contractor’s performance and
effectiveness as required by the Authority’s procurement regulations. For
example, we found that three separate firms had contracts with the same
statements of work that required them to “develop and execute strategies
for implementing existing management reform and improvement projects
and work with, and within agencies to develop an overall operational
improvement strategy.” Additionally, the work statements for these three
contracts did not have standards for measuring the contractor’s
performance as required by the Authority’s regulations. The development
of statements of work is important because they provide a basis for
monitoring the contractor’s performance to ensure that the contractor has
performed satisfactorily and delivered the required goods and services
before payment of invoices.

Equally important, for the nine Authority contracts we assessed, the
Authority contracted and paid for goods and services totaling $13 million;
yet, there was no evidence in the contract files that it received the required
deliverables for three of the nine contracts. The Authority’s contract files
contained evidence indicating that it received the required deliverables for
four contracts. For two of the five contracts where there was no evidence
in the contract files, we relied on the documentation maintained by two of
the three contractors we visited to determine whether the contractor
provided the required deliverables. Those two contractors provided us
with copies of their required deliverables that indicated that they met the
terms of their contracts. Although the contract files for the other three
contracts contained invoices, there was no evidence that they were always
reviewed and approved and did not contain statements that the
contractor’s performance was satisfactory, thus making it difficult to
determine whether the deliverables were received for these three
contracts.

In commenting on a draft of our report, the Authority said that our finding
that it lacked a system for contract administration is incorrect and that it
has a definitive system that is understood by its staff. While the Authority
acknowledges, as our report states, that its procurement regulations
contain few provisions concerning contract administration, it did not
provide any evidence to support its statement that it has a definitive
contract administration system that is understood by its procurement staff.
The Authority further states that under its system, staff are expected to
keep the Executive Director and contracting staff informed of any
changes, significant problems, and the general status of contract work.



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This system was not documented in the contract files. To the contrary, we
found that, with respect to the Boulware contract, Authority staff entered
into a verbal agreement without the Authority’s knowledge.

 In reference to our statement that we found little evidence of how the
Authority monitored or certified satisfactory contractor performance for
the nine contracts we assessed, the Authority commented that it has
always interpreted the requirement for certification of satisfactory
performance in its regulations to mean approval by cognizant Authority
personnel of contractor invoices submitted for payment. The Authority
also said that all contractor invoices must be reviewed and approved by
the cognizant staff member. We agree that contractors’ invoices should be
reviewed and approved by appropriate Authority staff prior to payment.
However, we also believe that the signing of an invoice authorizing
payment does not constitute certification of satisfactory performance as
described by the Authority’s regulations.

In addition, we noted that there were several invoices stamped paid with
no apparent signature authorizing payment. For example, the Authority
payment records provided to us for the Urban Center contract included
copies of five checks and invoices paid to the contractor totaling $514,325.
For two of the five payment records, where the invoices totaled $140,350,
there was no indication on the invoices that they had been reviewed or
approved. Two other checks, totaling $250,075, had no invoices to support
the amount of or purpose for the payment. We noted that the file contained
a document stating that the contract was terminated due to “possible
fraudulent invoices.” This document was dated subsequent to the paid
dates of the checks and invoices cited above. In another example, the
contract file contained a payment record of an invoice for the Gaebler
Group in the amount of $18,073. We noted, however, that the invoice
contained in the contract file was not annotated to show that the Authority
reviewed the invoice and there was no signature approving it for payment.

The Authority also disagreed with our finding that the statements of work
for the nine contracts we assessed did not contain thorough descriptions
of the required service, expected results, and standards for measuring the
contractor’s performance and effectiveness. As our report clearly states,
the Authority’s regulations require that statements of work contain
thorough descriptions of the required services, expected results, and
standards for measuring the contractor’s performance and effectiveness.
The statements of work for the nine contracts we assessed did not contain
such information. The Authority further commented that with regard to
the former CMO contracts, performance type statements of work were not



Page 23                                   GAO/GGD-99-134 Procurement Practices
                         B-281962




                         feasible and that the management task force contracts, in essence,
                         provided a group of personnel with municipal management experience to
                         act as the newly appointed staff of the former CMO. We believe that the
                         situation the Authority described is similar to a personnel situation and do
                         not believe that performance expectations would have been unreasonable.

                         The Authority commented that, contrary to the statement in the draft
                         report that invoices in the contract files for the Gaebler Group,
                         Management Partners, and the Urban Center were not always reviewed
                         and approved, no invoice was ever paid without approval. We do not state
                         that invoices were paid without approval. We state that there was no
                         evidence in the contract files that invoices provided by the Authority were
                         always reviewed and approved. We did, as previously pointed out, find
                         instances of invoices stamped paid without annotation of approval or
                         written certification of satisfactory contractor performance.

                         Finally, in reference to our statement that there was no evidence in the
                         contract files that the Authority received the required deliverables for
                         three of the nine contracts we assessed, the Authority commented that it
                         has never been the Authority’s practice to require that copies of
                         deliverables and invoices be kept in the contract files. We do not state that
                         copies of deliverables should be maintained in the contract files. However,
                         we believe that a document in the file certifying that the contractor met the
                         terms of the contract and provided the required deliverables is a good
                         procurement practice. The Authority further stated that most of its
                         contracts provide that payment be made after satisfactory delivery of
                         specified deliverables and that it has never made such a payment without
                         receipt of satisfactory work. Our report does not state that the Authority
                         made payments without receipt of satisfactory work. We state that, based
                         on our review of the contract files, there was no evidence in three of the
                         nine contract files we assessed that the Authority received the required
                         deliverables and that we were able to find evidence indicating that the
                         Authority received the deliverables for the other six contracts.

                         We found no documentation in the contract files that the District’s CPO
Evidence That the        monitored the contractor’s performance or received required deliverables
District’s CPO           for the two contracts that he awarded. The District’s procurement
Monitored Contractor’s   regulations state that it is the responsibility of the contracting officer to
                         ensure that the contractor performs in accordance with the terms of the
Performance Was Not      contract before payment of any contractor invoice. In addition, as stated
Available                previously, the Authority transferred the Managing Total Performance
                         contract to the District’s CPO for administration. District officials told us
                         that they have an individual who is responsible for monitoring the



                         Page 24                                    GAO/GGD-99-134 Procurement Practices
                       B-281962




                       contractor’s performance to ensure that the terms of the contract are met
                       before payment of invoices. However, there was no evidence in the
                       contract file to substantiate this assertion.

                       In commenting on a draft of this report, the District’s CPO said that the
                       draft report incorrectly states that contract administration was the
                       responsibility of the District’s Office of Contracting and Procurement. As
                       our report states, according to the District’s procurement regulations, it is
                       the responsibility of the contracting officer to ensure that the contractor
                       performs in accordance with the terms of the contract before payment of
                       any contractor invoice.

                       Several factors appear to have contributed to the Authority’s contracting
Factors Contributing   problems. The Authority’s former Executive Director attributes the
To Procurement         contracting problems to the short period in which the Authority had to
Problems               carry out its “massive and formidable” tasks. We do not believe that the
                       existence of statutory timeframes should exempt the Authority from fully
                       complying with its procurement regulations.

                       In its January 1999 report, DSIC, which reviewed over 100 Authority
                       contracts awarded between August 1995 and September 1998, said that the
                       Authority generally followed its streamlined procurement regulations.
                       However, DSIC also identified some of the same problems we did. DSIC
                       attributes the Authority’s contracting problems, in part, to the Authority’s
                       emphasis on achieving its programmatic mission in a short time period and
                       its lack of procurement expertise. DSIC also identified such problems as
                       no independent cost estimates, no documentation of actual analysis of the
                       Authority’s declaration of fair and reasonable price for modifications and
                       sole source contracts, inadequate training for contracting staff, and lack of
                       documentation in the contract files.

                       In its written comments on a draft of this report, the Authority points out
                       that DSIC, the consultant firm retained by the Authority, concluded in its
                       report that the Authority generally followed its procurement regulations.
                       We acknowledge this in our report. However, we believe that it is equally
                       important to point out that, although DSIC’s report contained many
                       examples of the problems it found with the Authority’s procurement
                       practices, the report did not explain the basis for the statement that the
                       Authority generally followed its streamlined procurement for all the
                       contracts reviewed. The report was unclear as to whether this conclusion
                       applied to all of the 109 contracts or some portion of the contracts. In
                       addition, DSIC officials were not able to provide any documentation to
                       support this statement.



                       Page 25                                    GAO/GGD-99-134 Procurement Practices
  B-281962




  DSIC made several recommendations to the Authority to address the
  problems it identified and said in its January 1999 report that the Authority
  had begun to act on them. In a January 13, 1999, letter to DSIC, the
  Authority stated that it

• would begin developing cost estimates of the hours needed to perform
  required services,
• had assigned a procurement specialist to maintain its contractor files and
  use a standardized contract file folder and checklist to maintain
  accountability,
• had established an informal 3 week minimum response time for all its
  solicitations to encourage competition resulting in lower costs, and
• would continue to make resources available to incorporate education and
  training for all staff involved in its contracting activities.

  We believe that, if effectively implemented, the actions the Authority says
  it has taken and plans to take should help correct some of the problems
  that both DSIC and we identified.

   In addition, we believe other factors that were not addressed by DSIC’s
  recommendations may have contributed to the failure of Authority staff to
  follow the procurement regulations. First, while the Authority’s Executive
  Director delegated contracting responsibilities to various members of the
  Authority’s staff, he had not fully defined areas of responsibility and
  accountability among the contracting staff. For example, while the
  Authority’s former Executive Director signed the contracts as the
  Contracting Officer, it was not always apparent who was responsible for
  ensuring that key contract award and administration decisions were
  documented and maintained in the contract files.

  In its comments on a draft of our report, the Authority disagreed with our
  statement that its Executive Director had not fully defined the areas of
  responsibility and accountability among the contracting staff and that it
  was not always apparent who was responsible for ensuring that key
  contract award and administration decisions were documented and
  maintained in the contract files. The Authority said that members of its
  professional staff have always been fully aware of their contracting
  responsibilities. Our report points out that there was no documentation in
  the contract files to show who was responsible for contract
  administration, and the Authority did not provide any additional
  information with its written comments.




  Page 26                                    GAO/GGD-99-134 Procurement Practices
              B-281962




              Second, the Authority had not provided its contracting staff with guidance
              on how to implement its procurement regulations to ensure compliance.
              For example, the Authority’s regulations state that they are intended to
              permit the Authority to award contracts based on least cost or best value,
              and require that statements of work contain performance standards,
              contractors’ performance be monitored, and certification be provided that
              the contractor performed satisfactorily. However, the Authority had not
              issued guidance to its contracting staff on how these requirements are to
              be implemented to comply with the procurement regulations. Equally
              important, the Authority had not provided its contracting staff with
              guidance for awarding and administering those procurement actions not
              specifically covered by its regulations, such as contracts over $100,000 and
              below $500,000, or for executing contract modifications, or contract
              options.

              In its comments on a draft of this report, the Authority disagreed with our
              statement that it had not provided its contracting staff with guidance on
              how to implement its procurement regulations. Our report states that we
              found no written guidance on how the Authority’s staff was to implement
              its procurement regulations. In addition, when we asked the Authority for
              supporting documentation, none was provided. DSIC also found this to be
              a problem and recommended that the Authority improve its procurement
              process by providing standardized procedures on how to implement its
              procurement regulations.

              Finally, the lack of specific requirements in the Authority’s procurement
              regulations for all of its contracting activities appeared to have contributed
              to the problems that we found with the Authority’s procurement practices.
              For example, the regulations do not specify the procedures that should be
              followed for awarding contracts between$100,000 and $500,000, and for
              executing contract modifications and contract options. In addition, there
              was no evidence in the contract files we reviewed that the Executive
              Director determined the type of procurement method—that is simplified or
              formal-- that should be applied to the contracting situations stated above.

              Regarding the two contracts awarded by the District’s CPO without the
              Authority’s approval, we did not determine whether the Authority had an
              adequate mechanism for ensuring that these contracts are submitted to the
              Authority for review and approval prior to award.

              The Authority was established essentially to repair the District’s failing
Conclusions   financial condition and to improve the effectiveness of it’s various entities.
              We recognize that, as the Authority has pointed out, it was a newly



              Page 27                                    GAO/GGD-99-134 Procurement Practices
  B-281962




  established organization and was expected to accomplish the majority of
  its tasks in a relatively short period of time, and thus had to award many
  contracts quickly. However, we believe that it was also important for the
  Authority to lead by example by better adhering to its own regulations,
  ensuring accountability and integrity, and by not following the same type
  of practices that it was established to correct in the District.

  We also recognize that any new organization is bound to experience start-
  up difficulties and take some time to operate effectively. However, the
  majority of the Authority’s contract actions that we reviewed were
  awarded almost 3 years after the Authority was established. We believe
  that this was a sufficient amount of time after establishment to expect an
  effective procurement operation that follows its own requirements and
  provides assurance that the objectives of its requirements are met.

  The actions that the Authority says it has taken or plans to take based on
  DSIC’s report, if effectively implemented, should help correct some of the
  problems both DSIC and we identified. However, we do not believe that
  these actions are likely to fully resolve the problems we found. They do
  not fully address findings that the Authority did not fully define the roles
  and responsibilities of its procurement staff or provide guidance to its staff
  on how to (1) determine best value; (2) develop performance standards for
  work statements; (3) monitor contractors’ performance and certify
  satisfactory performance; (4) document its basis for contractor selection
  and justification for sole source awards; and (5) provide its contracting
  staff with guidance for awarding and administering those procurement
  actions not specifically covered by its regulations, such as contracts
  between $100,000 and $500,000, and for executing contract modifications,
  or contract options.

  Perhaps even more importantly, we do not believe that the Executive
  Director’s position on waiver of the Authority’s regulations, certifying
  satisfactory performance, or extending and modifying an expired contract
  reflect sound contracting principles. We believe that in accordance with
  good procurement practices

• any waivers by the Executive Director of the Authority’s contract
  regulations should be justified and in writing;
• the basis for contract award should be documented, particularly when the
  selected source is different from the source recommended by the technical
  evaluation panel;




  Page 28                                    GAO/GGD-99-134 Procurement Practices
                             B-281962




                           • contract files should contain a written certification, signed by an
                             appropriate official, stating that the contractor’s performance was or was
                             not satisfactory; and
                           • all contract extensions should be in writing and cannot be modified or
                             extended.

                             We did not determine whether the Authority had processes or controls to
                             ensure that its review and approval regulations governing the submission
                             of District contracts were being followed. However, it was apparent that
                             the two contracts we reviewed that were awarded by the District’s CPO
                             were awarded without being reviewed and approved by the Authority as
                             required by the Authority’s regulations governing District contracts.

                             To improve its contracting operations, we recommend that the Chair of the
Recommendations to           Authority
the Chair of the
Authority                  • require the Executive Director to (1) approve and justify all waivers of
                             Authority contracting regulations in writing, (2) only extend contracts in
                             writing and prohibit the Executive Director from extending or modifying
                             expired contracts, and (3) include in contract files a written certification,
                             signed by an appropriate official, stating that the contractor’s performance
                             was or was not satisfactory;
                           • direct the Executive Director to (1) fully define the roles and
                             responsibilities of the Authority’s procurement staff; (2) prepare a written
                             plan for contracting that includes methods for ensuring compliance with
                             the procurement regulations; (3) provide guidance to the procurement
                             staff on areas, such as determining best value, developing performance
                             standards for work statements, monitoring and certifying contractors’
                             performance, preparing written justifications for sole source awards,
                             documenting the basis for contract selection, awarding contracts that are
                             between $100,000 and $500,000, and executing contract modifications, or
                             contract options;
                           • hold the Executive Director and other procurement staff accountable for
                             ensuring that they follow the Authority’s procurement regulations; and
                           • require the Executive Director to assess whether the Authority’s processes
                             and controls for the review and approval of District contracts prior to
                             award are effective and, if not, make appropriate changes.

                             On July 21, 1999, the Authority’s Executive Director provided written
Authority’s and District     comments on a draft of this report that are reprinted in appendix III.
CPO’s Comments and           Although the Authority said it would seriously consider our proposed
Our Evaluation               recommendations and recognized that its procurement practices have not
                             been perfect, it expressed concern and disagreement with portions of the



                             Page 29                                    GAO/GGD-99-134 Procurement Practices
B-281962




draft that pertained to the contracts it awarded. The Authority did not
provide any additional documentation with its written comments.

The Authority said that the 10 contracts we reviewed were not a
representative sample and that 5 in particular were not typical of Authority
contracts in general. Our report does not suggest that the contracts we
reviewed were selected randomly. To the contrary, our report describes in
detail how we selected the contracts we reviewed, and discusses the
circumstances surrounding the award of the five contracts awarded on the
behalf of the CMO that the Authority says are not representative of how it
carries out its contracting function. Our report states that DSIC, the
Authority’s contractor, did identify some of the same problems we did but
we do not state that these problems are representative of all Authority
contracts.

The Authority also commented that the draft report assumed that its
regulations applied to all 10 of its contracts we reviewed. Our report does
not state that the Authority’s regulations for formal contracting apply to all
nine of the Authority’s contracts we assessed for compliance. However, we
agree that our report was not as clear as it could have been in this regard
and clarified our report to the extent we could, given that the Authority
had not specified what requirements applied to contracts between
$100,000 and $500,000 or for contract modifications or options.

Finally, the Authority disagreed with several of our interpretations and
application of its regulations, and believes that its procurement regulations
and how the Authority interprets or implements them are generally
adequate and appropriate in light of its situation. We continue to believe
that our interpretation and application of Authority regulations are
generally appropriate and that the manner in which the Authority has
applied its regulations and has conducted its contracting activities in some
instances is not consistent with sound contracting principles or practices.
In particular, we believe that the Authority’s views regarding waivers of its
regulations, certification of satisfactory contractor performance, and the
extension and modification of expired contracts may prevent the Authority
from meeting its contracting objectives and does not provide adequate
internal controls to prevent abuses from occurring. Another problem is
the lack of clarity as to what requirements apply to contracts between
$100,000 and $500,000.

The Authority’s comments on issues that it disagrees with us on and our
assessment of the Authority’s comments are discussed as appropriate in
the body of the report. We also made specific technical changes to clarify



Page 30                                    GAO/GGD-99-134 Procurement Practices
B-281962




our report based on suggestions by the Authority. Finally, we have made
additional recommendations to the Authority to address our concerns in
certain areas.

On July 12, 1999, the District’s CPO provided comments on a draft of this
report. He disagreed with our findings with respect to the contracts he
awarded. We believe that our findings are well documented and are
correct. His specific comments and our responses are discussed in the
appropriate sections of our report.

We are sending copies of this report to Senator Kay Bailey Hutchison,
Senator Richard J. Durbin, and to Representative James P. Moran and
Representative Eleanor Holmes Norton in their capacities as Chair or
Ranking Minority Member of Senate and House Subcommittees. We are
also sending copies to the Honorable Anthony A. Williams, Mayor, District
of Columbia; Ms. Alice Rivlin, Chair, District of Columbia Financial
Responsibility and Management Assistance Authority; and other interested
parties. Copies will also be made available to others upon request. GAO
contacts and staff acknowledgments are listed in appendix IV. If you have
any questions, please call me or Tammy R. Conquest on (202) 512-8387.




Bernard L. Ungar
Director, Government Business
 Operations Issues




Page 31                                   GAO/GGD-99-134 Procurement Practices
Contents



Letter                                                                                                 1


Appendix I                                                                                            34

Summary of Contract
Terms for 12 Contracts
Included in Our
Review
Appendix II                                                                                           36

Review of Thompson,
Cobb, Bazilio and
Associates Contract
(FY96/FRA#2)
Appendix III                                                                                          37

Comments From the
Authority
Appendix IV                                                                                           44

GAO Contacts and
Staff
Acknowledgments




                         Abbreviations

                         CMO         Chief Management Officer
                         CPO         Chief Procurement Officer
                         DSIC        Digital Systems International Corporation




                         Page 32                                     GAO/GGD-99-134 Procurement Practices
Page 33   GAO/GGD-99-134 Procurement Practices
Appendix I

Summary of Contract Terms for 12 Contracts
Included in Our Review

           a
Contract                   Contract    Contract      Contract type     Purpose                    Dollar amountContract status
                               date    action                                                                  as of 8/99
Boulware                     9/1/98    Sole source   Fixed fee         Executive recruitment           $105,000In progress
98-C-018                               award                           service

PAR Group                     3/9/98   Competitive   Fixed fee         Executive recruitment            38,500 Closed
98-C-007                               award                           service

 Mod. 1                       4/ /98                 Fixed fee         Executive recruitment            75,000 Closed
                                                                       service
Managing Total                9/4/97   Competitive   Fixed fee labor   Management reform               796,600 Closed
Performance                            award         hour
          b
97-C-031D

 Mod. 1-14                7/8/98 and   Sole source   Fixed price       Management reform            10,600,000 In progress
                             9/10/98   award

The Gaebler Group           3/24/98    Competitive   Fixed unit price Establish a                       94,500 Closed
98-C-003C                              award         labor hour       management task
                                                                      force
Management Partners         3/24/98    Competitive   Fixed unit price Establish a                      517,000 Closed
98-C-003B                              award         labor hour       management task
                                                                      force

The Urban                   3/24/98    Competitive   Fixed unit price Establish a                      562,800 Terminated
Center                                 award         labor hour       management task
98-C-003A                                                             force
Thompson, Cobb, Bazilio
and Associates:

 FY96/FRA #2               10/18/95    Competitive   Fixed price       Audit FY95 financial             23,392 Closed
                                       award                           statement

 FY96/FRA #2                  1/3/97   Option 1      Fixed price       Audit FY96 financial             23,392 Closed
                                                                       statement

 FY97/FRA #2                  3/3/97   Option 2      Fixed price       Audit FY96 financial              5,000 Closed
                                                                       statement
                                                                       (Internal controls)

 97-C-047                   12/1/97    Option 3      Fixed price      Audit FY 97 financial             35,000 Closed
                                                                      statement
Thompson, Cobb, Bazilio       3/4/98   Competitive   Fixed unit price Audit DCPS enrollment             97,500 Closed
and Associates                         award         labor hour
98-C-001
Thompson, Cobb, Bazilio     4/20/98    Sole source   Fixed price       Prepare                          20,900 Closed
and Associates                         award                           financial/accounting
98-C-008                                                               manual

Thompson, Cobb, Bazilio     8/20/98    Competitive   Fixed fee         Audit FY98 financial             34,818 In progress
and Associates                         award                           statement
98-C-010




                                         Page 34                                              GAO/GGD-99-134 Procurement Practices
                               Appendix I
                               Summary of Contract Terms for 12 Contracts Included in Our Review




           a
Contract           Contract   Contract      Contract type       Purpose                      Dollar amountContract status
                       date   action                                                                      as of 8/99
Smart Management    2/27/98   Sole source   Labor hour rate Consultant services                   153,800 Closed
Services                      award
8052-AA-NS-4-JW
Smart Management    6/15/98   Sole source   Firm fixed price Consultant services                    893,416 Closed
Services                      award
8112-AA-NS-4-JW

                               a
                               With the exception of the 2 Smart Management Services contracts, which were awarded by the
                               District's CPO, the Authority awarded the other 10 contracts.
                               b
                               This contract expired on December 4, 1997, because the Authority did not exercise its option. In
                               addition, between July 8, 1998, and September 10, 1998, the District CPO, on behalf of the Authority,
                               modified the expired contract 14 times, thus, in effect, awarding new sole source contracts. The
                               modifications ranged in price from $39,460 to $5,250,000.
                               Source: Authority procurement files.




                               Page 35                                                 GAO/GGD-99-134 Procurement Practices
Appendix II

Review of Thompson, Cobb, Bazilio and
Associates Contract (FY96/FRA#2)

              As previously stated, 1 of the 10 contracts we reviewed was awarded
              before the Authority’s regulations were adopted in March 1996. However,
              the Authority did not provide us with any information on what regulations,
              if any, it used to award this contract. This contract was awarded to
              Thompson, Cobb, Bazilio and Associates on October 18, 1995, for $23,392.
              Thompson, Cobb, Bazilio and Associates was contracted to audit the
              Authority’s financial statements. The contract provided for a base period
              and the option to renew the contract for two additional years. During our
              review of the Thompson, Cobb, Bazilio and Associates contract, we found
              that the basis for contractor selection was not documented in the contract
              file, nor was there a copy of the request for proposal.

              In response to our request for documentation on its basis for selecting
              Thompson, Cobb, Bazilio and Associates, the Authority stated that this
              contract was an open market solicitation, meaning that only those firms
              that requested it were mailed a copy of the solicitation. In response to our
              follow-up request, the Authority stated that Thompson, Cobb, Bazilio and
              Associates submitted the only proposal received in response to the
              advertised solicitation. The Authority also said that the Executive
              Director’s decision to award this contract was based on the firm’s
              technical and cost proposals, the recommendations of members of his staff
              who handled the procurement, and his personal knowledge and
              experience with the firm.

              The Authority also exercised three options over the 2-year term of this
              contract. Although the base contract required the Authority to negotiate
              the terms and conditions of these options, the contract file did not contain
              documentation that the Authority negotiated the terms and conditions for
              two of the options exercised. In addition, the file did not show that the
              Authority prepared a contract modification to exercise these two options.
              A confirmation letter from the contractor was the only evidence in the
              contract file that the Authority exercised the first two contract options.
              However, for option 3, the contract file contained a follow-on contract
              signed by the Authority that included the terms and conditions for this
              option as required by the base contract.

              Although we did not find evidence that the Authority monitored or
              certified that the contractor performed satisfactorily, we noted that the
              contract file contained evidence that the Authority received the required
              deliverables for the base contract and the three options.




              Page 36                                    GAO/GGD-99-134 Procurement Practices
Appendix III

Comments From the Authority




See p. 30.




               Page 37        GAO/GGD-99-134 Procurement Practices
                      Appendix IIII
                      Comments From the Authority




See p. 30.




See pp. 5 - 6.



See pp. 1, 2, 12.


Now on pp. 10 - 12.




See p. 30.




                      Page 38                       GAO/GGD-99-134 Procurement Practices
                   Appendix IIII
                   Comments From the Authority




See pp. 13 – 14.




                   Page 39                       GAO/GGD-99-134 Procurement Practices
                   Appendix IIII
                   Comments From the Authority




See pp. 14 - 16.




Now on p. 16.




See p. 17.




                   Page 40                       GAO/GGD-99-134 Procurement Practices
                    Appendix IIII
                    Comments From the Authority




 See p. 17.




 See pp. 21 - 24.




See pp. 22 – 23.




See pp. 22 – 23.




                    Page 41                       GAO/GGD-99-134 Procurement Practices
                         Appendix IIII
                         Comments From the Authority




See p. 24.




See p. 24.




Now on p. 3.


Now on p. 4.

See p. 9.


Now on p. 6.




Now on. pp. 9, 25, 26.




                         Page 42                       GAO/GGD-99-134 Procurement Practices
                      Appendix IIII
                      Comments From the Authority




Now on pp. 26 - 27.




See p. 27.




                      Page 43                       GAO/GGD-99-134 Procurement Practices
Appendix IV

GAO Contacts and Staff Acknowledgments


                  Bernard L. Ungar (202) 512-8387
GAO Contacts      Tammy R. Conquest (202) 512-5234


                  In addition to those named above, Geraldine Beard, Alan Belkin, John
Acknowledgments   Brosnan, William Chatlos, Bruce Goddard, and Seth Taylor also made key
                  contributions to this report.




                  Page 44                                GAO/GGD-99-134 Procurement Practices
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