United States General Accounting Office ;’ Rep&t to the Chairman, Committee on Foreign Affairs, House of Representatives : October1990 FOREIGN ASSISTANCE AID Can Improve Its Management of i Overseas Contracting ,- .. : ..,_ National Security and International Affairs Division B-238446 October 5, 1990 The Honorable Dante B. Fascell Chairman, Committee on Foreign Affairs House of Representatives Dear Mr. Chairman: In response to your request, we have reviewed selected components of the Agency for International Development’s (AID) contracting and procurement system. This report focuses on (1) AID'S overseas contracts that are subject to the full and open competition requirements of the Federal Acquisition Regulation and (2) a number of issues concerning AID'S ability to plan and effectively manage its procurement of goods and services. We are sending copies of this report to the Administrator of AID; the Director, Office of Management and Budget; cognizant congressional committees; and other interested parties. We will also furnish copies to others upon request. The report was prepared under the direction of Harold J. Johnson, Director, Foreign Economic Assistance Issues. He can be reached at (202) 275-5790, should you or your staff have questions. Other major contributors are listed in appendix III. Sincerely yours, Frank C. Conahan Assistant Comptroller General Executive Summ~ - As of October 1989, active overseas contracts, grants, and cooperative Purpose agreements financed by the Agency for International Development (AID) totaled $2.6 billion. Of this amount, $427 million had been awarded through contracts that were subject to the requirements for full and open competition, which means, basically, allowing all sources capable of meeting the government’s needs to compete for contracts. The Chairman, House Committee on Foreign Affairs, was concerned that AID'S procurement system might have become too cumbersome for effec- tive overseas operations and requested that GAO l determine whether the requirement for full and open competition, as provided by the Competition in Contracting Act of 1984 and the Federal Acquisition Regulation, adversely affects the ability of AID'S overseas missions to contract for goods and services in a timely manner; l identify potential options for streamlining and simplifying the current system or procurement regulations; and l determine whether AID needs to improve management of its overseas procurement operations. AID'S primary contracting and procurement activities involve direct con- Background tracts subject to the Federal Acquisition Regulation, and host country contracts, grants, or cooperative agreements that are not subject to the regulation. The Federal Acquisition Regulation requires full and open competition when awarding most direct contracts, except, for example, when only one responsible source exists for an item and no other item will satisfy agency requirements. AID has additional authority under the Federal Property and Administrative Services Act of 1949, as amended, (40 U.S.C. 474) to waive full and open competition when it impairs for- eign assistance programs. AID uses this authority, for example, to waive full and open competition for overseas contracts valued at $100,000 or less. AID direct contracts are managed through a decentralized system of over 70 procurement organizations. These authorities are located in Wash- ington, DC., and at missions and field offices in developing countries. AID'S Procurement Executive is responsible for ensuring that the agency implements procurement policies, regulations, and standards. However, he does not supervise overseas contracting officers or have responsi- bility for host country contracts. GAO, in coordination with AID, surveyed AID'S overseas missions and field offices with a series of questions about procurement matters and sent a Page2 GAO/'NSIADS1S1ForeilplABeistrnce Ekecutlve sllmmaly questionnaire to each of AID’Soverseas contracting officers. The responses to the survey and questionnaire are referred to throughout the report to help describe AID’Scontracting problems and issues. GAO also visited six overseas missions and one regional support office. A more complete discussion of GAO’Sobjectives, scope, and methodology is in chapter 1. Full and open competition procedures increased the time required to Results in Brief award an overseas contract as compared to less than full and open con- tracting procedures; however, the average time to award such contracts appeared reasonable when compared to (1) AID contract guidance, (2) available data on award times for AID/Washington contracts, and (3) AID officials’ perceptions of reasonable overseas award times. At five mis- sions and one regional support office, full and open competition con- tracts averaged between 5 and 9 months to award, compared to between 3 and 5 months for less than full and open competition contracts. At these locations, GAOanalyzed 12 contracts that required longer than average time to award. They were all delayed by factors unrelated to the requirements for full and open competition. Full and open competition requirements did not unreasonably delay con- tract awards. However, the overseas procurement acquisition process has been hindered by (1) management weaknesses, such as poor pro- curement planning during project design; (2) fragmented procurement organizational structures at the missions; (3) insufficient procurement- related training for mission personnel; (4) inadequate assurance of mis- sion contracting officers’ independence; (5) a confusing handbook system for procurement guidance; and (6) the absence of specific gui- dance on follow-on contracts. GAO’s Analysis Time Requirements for AID guidance states that AID/Washington should take about 6 months to Overseas Competition award a full and open competition contract. GAO’sanalysis of all new direct contracts awarded in fiscal years 1987 and 1988 at five missions Appear Reasonable and one regional support office showed that at four of these offices, the average award time for full and open competition was 6 months or less. At the other two, full and open competition averaged 8 and 9 months, respectively. Although a time frame of between 6 to 9 months is not Page 3 GAO/‘NStAD91Sl Foreign Assistance considered unreasonable, according to AID'S Competition Advocate, it can disrupt project implementation if project designers do not properly plan and realistically schedule procurements. Improvements Needed in Inadequate procurement planning, which was identified as a manage- Mission Procurement ment weakness in the late 1970s by the AID Administrator and by GAO in its report AID Slow In Dealing With Project Planning and Implementation Planning Problems (GAO/IL?-80-33,July 15, 1980), continues to impede the overseas contracting process. In responding to GAO’Squestionnaire, about two- thirds of the 30 contracting officers identified inadequate procurement planning as a factor delaying overseas procurement, while about 25 per- cent identified full and open competition as a source of delay. Based on case study reviews by GAOof the direct contracting process at six locations, procurement plans often were not prepared during project design or, when prepared, did not provide sufficient detail to be mean- ingful. In one case, for example, project implementation delays resulted because project designers did not allow enough time for the completion of a key contracting step. Poor planning also resulted in the project’s technical advisers arriving in the country before computers needed by these advisers were delivered. Factors contributing to poor planning included a lack of (1) automated baseline data on contracting time frames, which is needed to provide the missions with realistic sched- uling guidelines; (2) clearly defined agencywide requirements and stan- dards, which would help ensure that procurement planning is done at the missions and would assist project officers in preparing procurement plans; (3) sufficient procurement-related training for project staff, which would enhance their understanding of the contracting process; and (4) contracting officer participation in the project procurement planning process, which would minimize legal and procedural difficulties. Centralized Procurement The organizational structure for procurement at AID'S overseas missions Organization and has typically split responsibilities for direct and host country contracts between contracting and program/project offices. This structure has Reporting Needed in the resulted in nonprocurement professionals making key procurement deci- Missions sions during project design and implementation and inadequate control and oversight over Am-funded program acquisitions. page4 GAO/'NSIAD9131ForeignAssi&mce Executive Summary Other organizational weaknesses include the failure of the missions to ensure contracting officers’ independence by having all overseas con- tracting officers report to the deputy mission director, as recommended by the AID Procurement Executive. Contracting officers expressed con- cerns that they do not have sufficient independence from mission officials. Improvements Needed in The majority of the missions responding to the survey reported confu- Procurement Guidance sion among their staff about AID’S procurement guidance. Respondents frequently mentioned two primary sources of confusion-an inadequate indexing system and the large number of handbooks containing procure- ment procedures. Confusion also existed among mission staff over the use of follow-on contracts because AID had not provided specific gui- dance to clarify Federal Acquisition Regulation provisions. makes several recommendations to the AID Administrator to Recommendations GAO strengthen procurement planning, improve mission procurement man- agement, enhance overseas contracting officers’ independence, and improve AID’S procurement guidance. (See ch. 4.) In commenting on a draft of this report, AID stated that it generally Agency Comments agreed with the report’s recommendations, and plans to take action to implement them. (See app. II.) Page 6 GAO,‘NSIALb9131 Fore&n Assistance Contents Executive Summary 2 Chapter 1 8 Introduction Regulatory and Legislative Framework for AID Contracting 8 AID’s Contracting System 9 Overseas Awards Subject to Full and Open Competition 11 Objectives, Scope, and Methodology 14 Chapter 2 16 Award Times for Full and Open Competition Procedures Contract Award Times for Overseas Missions 16 18 Mission Full and Open Suggested Changes to Current Procedures 20 Competition Contracts Appear Reasonable Chapter 3 26 Management of Inadequate Procurement Planning 25 Systemic Management Weaknesses Contribute to 29 Overseas Contracting Inadequate Procurement Planning and Procurement Procurement Management Not Integrated 32 Should Be Improved Procurement Staffing Requirements Not Routinely 36 Determined - Chapter 4 36 Conclusions and Recommendations 37 Agency Comments 38 Recommendations Appendixes Appendix I: Prior Studies of AID Contracting Appendix II: Comments From the Agency for International Development Appendix III: Major Contributors to This Report 44 Tables Table 1.1: AID Overseas Direct Contracts Awarded in 12 Fiscal Years 1987-1989 Table 1.2: Direct Contracts Awarded by AID Overseas 13 Missions in Fiscal Year 1989 Page6 GAO/NSL4D-Sl~l Fore&m Asdstana Table 1.3: AID Missions’ Direct Contracting Actions in 13 Fiscal Year 1989 Table 2.1: Average Contracting Times at Five Missions 19 and One Regional Support Office Table 2.2: Fiscal Year 1989 Contracts Above and Below 23 the $100,000 Waiver Ceiling _-.- Figures Figure 1.1: AID Procurement Organization 10 Figure 1.2: Overseas Contracts, Grants, and Cooperative 12 Agreements Figure 2.1: Full and Open Competition Procedures for 17 Technical Services --- Abbreviations AID Agency for International Development CICA Competition in Contracting Act FAR Federal Acquisition Regulation GAO General Accounting Office page 7 GAO/NSIAD.Sl-31 Foreign Assistance Chapter 1 Introduction The US. foreign economic assistance program, which is currently administered in approximately 70 foreign countries by the Agency for International Development (AID), has become increasingly complex and difficult to manage. In an effort to design a better assistance program, the Chairman and the Ranking Minority Member of the House Com- mittee on Foreign Affairs established the Task Force on Foreign Assis- tance. In its February 1989 report, the Task Force raised fundamental questions about whether AID'S contracting and procurement system had become too cumbersome for effective program implementation. The Chairman subsequently requested that we study (1) whether the requirements of the Federal Acquisition Regulation (FAR) for full and open competition have impeded timeliness in overseas contracting and (2) whether opportunities exist for AID to improve procurement manage- ment in such areas as planning, staffing, and training. Because the FARonly applies to AID direct contracts, the primary focus of this report is AID'S overseas direct contracting and procurement system’ and its management of that system. This report also discusses AID'S organizational structure for direct and host country contracts in its overseas missions. Host country contracts are legally binding agree- ments between a host country agency and a contractor to provide goods and services for AID-approved projects. ~-___~ The Competition in Contracting Act (CICA) of 1984 significantly changed Regulatory and several existing procurement statutes. These changes were implemented Legislative Framework h t rough two revisions of the FAR, effective on April 1, 1985, and Feb- for AID Contracting ruary 3, 1986. The FAR requires federal agencies to . base contract awards on full and open competition (defined, essentially, as allowing all sources capable of satisfying the government’s needs to compete for a contract award); l publish notices of proposed contract actions in excess of $25,000 in the Commerce Business Daily to encourage competition; . develop a coordinated and comprehensive approach to procurement planning; and ‘AID activities not covered by this report include direct contracts for agency and mission operations, interagency agreements, project grants and cooperative agreements, and nonproject assistance. Page8 Chapter 1 introduction l limit the use of other than full and open competition to seven specified exceptions.2 In addition to the exceptions to full and open competition specified in CICA and the FAR, the Federal Property and Administrative Services Act of 1949, as amended (of which CICA is a part), provides that the act does not apply if foreign assistance objectives would be impaired. AID has used this nonimpairment provision to waive CICA’S full and open compe- tition requirement for acquiring personal services contracts performed overseas and for direct contracts awarded overseas to sources in- country that are $100,000 or less. Other legal requirements also restrict AID’S overseas procurement. The Foreign Assistance Act of 1961, as amended, generally requires procure- ment from US. sources. To implement the requirements, AID has estab- lished a complex set of geographic codes for monitoring product source, origin, and nationality. Also, the Cargo Preference Act of 1954 requires the use of U.S. flag vessels when ocean transportation is used to trans- port U.S. government-financed commodities. AID is responsible for ensuring that commodities imported by foreign borrowers and grantees under AID loan and grant agreements are shipped in accordance with these requirements. Approvals of waivers and exemptions within the agency are necessary for deviations from these legislative requirements. -.~~ contracts directly for goods and services through a decentralized AID’s Contracting AID system of procurement organizations referred to as “head of contracting System activity” authorities. These authorities are located in Washington, DC., and at over 70 missions and field offices worldwide. Organizational Federal law requires executive agencies to designate a senior procure- Responsibilities ment executive to ensure that the agency implements procurement poli- cies, regulations, and standards. The law also requires agencies to designate a competition advocate to promote the use of full and open competition for contracts awarded by the agency. The AID Procurement Executive oversees two procurement-related offices-the procurement Planning, Policy and Evaluation Staff and the Office of Procurement. (See fig. 1.1.) AID'S Competition Advocate is the Chief of the Planning, ‘For example, FAR requirements for full and open competition are not required when (1) there is only one responsible source and no other supplies or services will satisfy agency requirements or (2) an agency has such an unusual and compelling urgency for an acquisition that the government would be seriously injured unless it ( m limit the number of sowxs solicited. Page 9 GAO/NSIADSl-31 Fore&n Assistance Chapter 1 Introduction Policy, and Evaluation Staff. This office is responsible for (1) formu- lating AID procurement policies, (2) evaluating the adequacy of AID’S worldwide direct contracting system, and (3) controlling the process by which AID employees are delegated authority to sign contracts. The Office of Procurement is responsible for providing ND/Washington direct contracting support and for the selection of contracting officers. Figure 1.1: AID Procurement Organization I I . r- I Bureau for Management Services Planning, Procurement Policy, Executive and Evaluation --I Staff I . L .- Bureau for Latin America and the Caribbean ,..- - AID Geographic 1.I Organizations Overseas Page 10 GAO/NSLAIh9131 Foreign Assistance Mission Contracting Each overseas mission and field office is an independent contracting office, subject to limitations of the contracting authority of its principal Organization officers. AID’s overseas professional contracting officers are granted authority to sign contracts based on individual qualifications, receiving authorizations ranging from $500,000 per contract to an unlimited amount. In addition, mission directors may sign AID direct contracts with a cumulative value of $250,000 for personal services contracts and $100,000 for other types of contracts. Mission directors also are dele- gated authority to approve host country contracts. According to the Competition Advocate, mission directors generally re-delegate their host country contracting approval authority to other mission officials, such as the regional legal adviser. Contracting officers have no role in the host country contracting process, unless it is assigned to them by the mission director. Missions and field offices are under the direction and supervision of the AID Assistant Administrator of the geographic bureau that has responsi- bility for the country program. The Competition Advocate stated that neither the Office of Procurement nor the Planning, Policy, and Evalua- tion Staff directly supervise the activities of overseas contracting officers. He also stated that AID’S Procurement Executive and Competi- tion Advocate have no formal responsibilities for approving, monitoring, or assessing the procedures used by the overseas missions for host country contracting. Decentralized overseas operations increase the complexity of AID’S pro- curement system. They also make the agency vulnerable to control and accountability problems. Our previous reviews and those of the AID Inspector General and others have identified several weaknesses in AID’S overseas contracting and procurement system (see app. I). These weak- nesses demonstrate that any actions to streamline or expedite AID con- tracting must weigh the advantages of saving time with the potential for exposing the agency to a greater risk of fraud and abuse. About 16 percent ($427 million) of the financial instruments used by OverseasAwards AID’s overseas missions to implement projects were contracts based on Subject to Full and full and open competition. As shown in figure 1.2, most overseas awards Open Competition were implemented through host country contracts, which are not subject to the FAR. Page 11 GAO,‘NSIAB91-31 Foreign Assistance Chapter1 Introduction Figure 1.2: Overseas Contracts, Grants, and Cooperative Agreements (Dollars In MIllions) Other Than Full and Open ($358) Full and Open Competition ($427) Host Country ($1.452) Grants and Cooperative Agreements ($373) Overseas awards active as of October 1, 1999, based on AID data as of January 1990. Information may understate context amounts because of continuous updating and reporting from the missions. Other than full and open contracts include amendments and various forms of limited competition. Host country contract information is based on a survey of AID missions; other data is from AID’s COORS data base. AID provides other forms of assistance not depicted in the chart, such as cash transfers and the commodity import program. We also examined the level of competition used by AID’S overseas mis- sions for awarding direct contracts financed in fiscal years 1987 through 1989. We found that AID awarded between 37 and 64 percent of its over- seas direct contracts based on full and open competition (see table 1.1). Table 1.1: AID Overseas Direct Contracts Awarded in Fiscal Years 1987-1989~ Dollars In millions Full and open Other than full and open Percent Percent Total 1987 $66 41 $126 59 $212 1988 113 37 195 63 308 1989 ----196 64 110 36 306 Total $395 48 $431 52 $826 aBased on AID data, January 1990 Totals for fiscal year 1989 may be understated because missions continuously update and report contract !nformatlon Page 12 GAO/NSL4Lh9131 Foreign Assistance Chapter 1 introduction Overseas Direct In fiscal year 1989, AID’S overseas missions awarded $306 million in direct contracts. According to AID’S data, the principal types of direct Contracting in Fiscal Year contracts entered into by the overseas missions were (1) contracts for 1989 goods and services with firms, universities, and nonprofit institutions; (2) contracts for personal services of an individual; (3) contracts for nonpersonal services of an individual; and (4) contracts made under the Small Business Act. Table 1.2 shows the principal types of direct contracts awarded by AID in fiscal year 1989, and whether they were awarded baaed on full and open competition. Table 1.2: Direct Contracts Awarded by AID Overseas Missions in Fiscal Year Dollars in millions 1989 Full and Other than full Type __------- open and Open Total Inshtutional aoods and serwces 5156 554-3m Personal services contracts 9 16 25 Other contracts with an lndivldual a 2 2 .__ Small busmess 31 36 89 Total $198 $110 $306 aLess than $1 mllllon Baaed on data provided by AID, the five missions awarding the largest total amount of direct contracts in fiscal year 1989 were Pakistan, Egypt, El Salvador, Jamaica, and Guatemala, as shown in table 1.3. Table 1.3: AID Missions’ Direct Contracting Actions in Fiscal Year 1989 Dollars in millions Full and open Other than full and open Mission ~-- Percent Percent Total Pakistan 565 83 517 17 $102 Egypt 29 69 13 31 42 El Salvador 14 70 6 30 20 Jamaica d b 16 100 16 Guatemala 6 -__ 60 4 40 10 Others 63 ---- 54 54 46 117 Total 5197 64 511 O-----36 5307= aLess than $1 millton. bLess than 1 percent. ‘Total does not match other tables because of roundlng Page 13 GAO/NSL4D-9131 For&m kssiatmce Chapter 1 rntrodllction The Chairman, House Committee on Foreign Affairs, requested that we Objectives, Scope,and (1) determine whether the requirements for full and open competition, Methodology as contained in CICA and FAR, adversely affect the ability of AID’S over- seas missions to contract for goods and services in a timely manner; (2) identify potential changes to current regulations and procedures that could expedite procurement; and (3) determine whether AID needs to improve management of its overseas procurement operations. We reviewed the procedures and procurement management used by AID to award overseas direct contracts to determine whether the requirements for full and open competition have impeded contract award times and to identify opportunities for improved management. We reviewed contract files and discussed policies and regulations with AID officials in AID/ Washington and at the AID missions in Egypt, Guatemala, Honduras, Indonesia, Kenya, and Pakistan. We also reviewed files and interviewed AID officials at the regional support office in Kenya, which provides direct contract support to over 12 East and South African missions and offices. The missions and regional support office we visited accounted for about 52 percent of all overseas direct contract awards in fiscal year 1989. Case Analyses of the Since AID’s data system could not provide information on the time Contracting Process and required for overseas contracting or the factors affecting timeliness, we conducted case analyses of the direct contracting process at five mis- Computer Profile of AID sions and one regional support office.3 To develop data on contract award averages, we calculated the time it took to award all new direct contracts in fiscal years 1987 and 1988 at each location. We then examined the factors that affected the timeliness of contracting for 36 individual contracts. At each location, we selected (1) three full and open competition contracts-the two contracts that took the longest time to award and the one contract that took the shortest time and (2) three less than full and open competition contracts-the two contracts that took the longest time to award and the one contract that took the shortest time. To obtain an overall profile of AID overseas awards, we used data from AID’S Contract On-line Reporting System. AID uses this system for reporting its procurement actions to the government-wide Federal Pro- curement Data System. All the tables and numbers used in this report and calculated from AID’S data base were verified with AID. %se study analyses of the direct contracting process were not done at the mission in Kenya because the regional support office handles the majority of this mission’s contracts. Page 14 GAO/NSIAB9131 Foreign Assistance chapter 1 Introduction Worldwide Surveys: We coordinated our work with AID’S Coordinating Group for Improving Contracting Officer Agency Operations and Efficiency.4 Specifically, we coordinated with AID on the preparation of a questionnaire on contracting procedures, Questionnaire and Mission which was mailed to all overseas contracting officers to ensure a global Survey perspective on AID’s overseas contracting. Again, in coordination with AID, we prepared a series of questions about mission procurement prac- tices and cabled them to all AID missions. We mailed the questionnaire to all 35 contracting officers AID listed as being overseas as of March 1989. We later found that two officers were not in-country at the time of our survey; they were dropped from our survey. Of the 33 overseas contracting officers, 31 returned the ques- tionnaire for a response rate of 94 percent. The mission survey was sent to all of AID’S overseas missions and offices. In the survey, we asked the missions to identify specific problems and issues that affected their contracting systems and to report on their procurement management. Thirty missions, accounting for over two-thirds of the dollar value of fiscal year 1989 direct con- tracts, responded to the survey. Our review was performed from May 1989 to May 1990 in accordance with generally accepted government auditing standards. *The Gxrdiitiig Group for Improving Agency Operations and Efficiency was established in 1988 to identify opportunities for improving AID management in critical areas, including contracting and procurement. Page 15 GAO/NSIAD91Sl Foreign Assistance Award Times for Mission F’ull and Open Competition Contracts Appear Reasonable FAR requirements for full and open competition have been criticized for delaying contracting and impeding overseas assistance programs. Our analysis of contracting at five missions and one regional support office indicated that awarding contracts based on full and open competition took longer than using other contracting procedures. However, the average time to award full and open competition contracts was consis- tent with AID guidelines and with AID officials’ perceptions of reasonable overseas contracting times. In addition, when we examined full and open competition contracts that had taken longer than average to award, none had been delayed by the requirements for full and open competition. A consultant for AID’S Coordinating Group also concluded that although current procedures for contracting could be improved, they have not been a major impediment in the AID system. Most of AID’S overseas contracting officers, as well as many mission offi- cials, recommended modifications to procurement regulations and proce- dures to expedite overseas direct contracting. The majority of missions responding to the survey recommended improvements in agency pro- curement guidance. Mission officials and contracting officers also con- sistently recommended that AID (1) develop an expedited process for awarding follow-on contracts and (2) raise the $100,000 ceiling for waiving full and open competition and publishing notices of proposed contract awards in the Commerce Business-__ Daily for overseas contracts. Under full and open competition procedures, the AID award process typi- Full and Open tally begins when the mission project officer sends a fully authorized Competition project implementation order to the contracting officer. The order pro- Procedures vides, among other things, information on the goods and services required of a contractor, the estimated cost, and time period when goods or services are required that the contracting officer uses to draft the request for proposals document. After receiving the order and preparing the requests, the contract officer must advertise the proposed contract in the Commerce Business Daily, unless exempted, at least 15 days before issuing the request for proposals. After the 15-day waiting period, the contracting officer issues requests to interested contractors, who are given at least 30 days to respond. The major steps in competing a typical full and open competition contract for technical services at AID are illustrated in figure 2.1. Page 16 GAO/NSIAB91-31 Foreign Assistance Chapter 2 Award Times for Mission FWI and Open Competition Contracts Appear Reasonable Figure 2.1: Full and Open Competition Procedures for Technical Services Fully Authorized Order Received by Contractino Officer + v h Request for Proposals Drafted Based CommerceBusiness Daily Notification on Order Request for Proposals Issued Contractor Proposals Received + + * . Technical Evaluation of Proposals Cast Evaluation of Proposals I Competitive Range Established Negotiations + Selection of Winning Contractor b I Contract Signed Page 17 GAO/NSIAB91Sl Foreign Assistance Chapter2 Award Times for Mission Fhll and Open Cmnpetition Contracta Appear Reasonable Several of the missions responding to the survey indicated that the time Contract Award Times required to process a full and open competition contract overseas has for Overseas Missions been excessive. However, AID’Scontracting information management system did not contain the information needed to determine actual con- tract processing times or to identify the factors contributing to procure- ment delays. To test the reasonableness of overseas contracting times, we (1) examined the files for all new contracts awarded in fiscal years 1987 and 1988 at five missions and one regional support office, (2) cal- culated the contracting times for these contracts-the elapsed time from the date the project officer signed the project implementation order to the date the contract was signed, and (3) compared the contracting times with relevant AID guidance and time standards to determine if the time requirements appeared reasonable. The following are the AID gui- dance and relevant time standards that we used to compare the mission contracting times. . The Project Officers’ Guidebook: Management of Direct AID Contracts, Grants, and Cooperative Agreements states that AID/Washington full and open competition contracts take about 6 months to award and that missions should allow time for their own requirements. . An internal AID study found that ND/Washington full and open competi- tion contracts awarded in fiscal year 1986 took an average of 7.8 months. . Analyses in 1989 by the consultant for AID’SCoordinating Group for Improving Agency Operations suggest that a time frame of 6 to 10 months is reasonable for awarding full and open competition contracts. . Officials at several missions we visited thought that a range of 4 to 9 months is reasonable for awarding full and open competition contracts overseas. Full and open competition contracts at five missions and one regional support office took an average of 5 to 9 months to award, whereas lim- ited competition contracts took an average of 3 to 5 months. Four of the six-Guatemala, Honduras, Indonesia, and the regional support office in Kenya-awarded full and open competition contracts within the 6- month guidance for AID/Washington contracts, even though the missions and the regional support office do their own contracting. The average contracting times at all six locations also matched the time frames sug- gested by mission officials and by the Coordinating Group’s consultant as being reasonable to award full and open competition contracts. In a May 1989 report to the Coordinating Group, the consultant concluded that expectations of shorter contracting times for full and open competi- tion contracts wcbre not realistic, and that overly optimistic expectations Page 18 GAO/NSIAD91-31 Foreign Assistame Chapter 2 Award Times for Mission Pull and Open Competition Contracts Appear Reasonable may account for concern among some missions about delays. Table 2.1 shows the average award times at the five missions and the regional support office. Table 2.1: Average Contracting Times at Five Missions and One Regional Support In months Office Full and open Other than full and open competition competition Pakistan 9 3 EgW 8 4 Guatemala 6 5 Honduras 5 4 Kenyab 5 3 lhdonesla 5 3 aAward times for the rrwslon in Egypt and the regional offlce !n Kenya include scme fiscal year 1989 contracts %eglonal support offlce AID’S Competition Advocate said that 6 to 10 months for awarding a full and open competition contract overseas is reasonable if procurement needs are properly planned. He noted that full competition, whether in the United States or overseas, typically requires 45 days to advertise the proposed action and wait for proposals to be returned. Additional time is necessary for evaluation, negotiation, and other required actions. He noted that when time became critical, missions could exercise several options for waiving full and open competition under the FAR. AID’S Competition Advocate also pointed out that although full and open competition typically takes more time than less than full and open com- petition, the benefits of competition should not be understated. The ben- efits, according to the Competition Advocate, include minimizing collusion and protecting against fraud and abuse, ensuring that prices are fair and reasonable, and improving project concepts and program designs. Many of the overseas contracting officers responding to the questionnaire also agreed that full and open competition provided bene- fits. For example, 61 percent of the contracting officers stated that full and open competition is generally more advantageous than limited com- petition in helping control program costs; 87 percent stated that full and open competition is more advantageous in encouraging new suppliers to compete for AID contracts. Officials at several missions we visited also indicated that full and ()pen competition has provided important bene- fits, including hightlr yllality project proposals and more innovative development approachc>s, as well as cost control. Page 19 GAO/NSIAB9131 Foreign Assistance Chapter 2 Award Times for Mission Full and Open Competition Contracts Appear Reasonable Little Evidence That FAR Although average award times for full and open competition contracts at five missions and one regional support office were generally consis- Caused Delays tent with AID guidance, some contracts took as long as 11 to 15 months to award. To determine whether provisions of the FAR delayed contracts that took longer than average, we examined 12 full and open competi- tion contracts-two contracts that took the longest times to award at five missions and one regional support office. Our analysis showed that each contract was delayed by management and administrative factors unrelated to the FAR. Following are some examples of contract delays unrelated to the FAR. . In Honduras, where the average contracting time was 5 months, one contract that took 7 months to award was delayed because a local hire AID official on the evaluation committee disqualified himself after dis- covering he had a potential conflict of interest. . Also in Honduras, processing of a contract was delayed because the host country official responsible for authorizing the procurement took 6 months to do so. l In Pakistan, a contract that took 13 months to award was delayed when the contractor who was hired to help prepare the request for proposals defaulted and had to be replaced. l At the regional support office in Kenya, a contract that took over 10 months to award was delayed because the mission’s project officer was in Washington, DC., for language training. . In Guatemala, contracting for a water development project took 10 months because steel specifications were wrong and had to be changed, requiring the mission to notify all offerors of the change and ask for revised proposals. Although 23 contracting officers indicated, in response to the question- SuggestedChangesto naire, that AID’S overseas contracting should remain subject to the FAR, Current Procedures 19 indicated that the requirements for competition or other procedures should be changed. Similarly, two-thirds of the missions responding to the survey (20 of 30), recommended modifying procurement procedures. The missions also suggested that AID l improve its handbooks and other procurement guidance, . develop an expedited process for follow-on contracting, and l increase the $100,000 limit for waiving full and open competition and advertising in the Commerce Business Daily for overseas contracts. Page 20 GAO/NSL4@9131 Foreign Assistance chapter 2 Award Times for Mission Full and Open Cmnpetition Contracts Appear Reasonable Improve Procurement Mission officials told us that AID procurement guidance has been poorly organized and located in too many handbooks and other documents. The Guidance majority of missions responding to the survey also reported confusion over AID’S handbook system. Handbook issues frequently identified by the respondents included an inadequate indexing system and the large number of handbooks containing procurement procedures. AID procure- ment guidance is located in a wide range of sources, including program handbooks, the AID Acquisition Regulation, and Contract Information Bulletins. In addressing this issue, the consultant for AID’S Coordinating Group concluded that better guidance would be helpful, especially for non- procurement personnel in the field. The consultant also concluded that a concordance of relevant procurement provisions would be an option. AID’S Competition Advocate also agreed that a more useful index could help reduce confusion at the missions. Expedite Follow-On Eleven of the 30 missions responding to the survey indicated that follow-on contracting procedures have been an obstacle. In appropriate Contracting instances, they would like to award follow-on contracts, which are new noncompetition contracts to contractors already in place. Mission offi- cials stated that follow-on contracts were particularly justified for con- tract extensions ranging from 2 years to 1 year or less because of the prohibitive costs of hiring and putting a new contractor in place. Addi- tionally, they said that a new contractor could not easily develop good working relationships with host government officials in such a short time, yet good working relationships were vital for project success. FARprovisions allow follow-on contracting, in some circumstances, without competition. According to the AID Competition Advocate, these contracts can be used when an award to another contractor would result in substantial duplication of cost or unacceptable delays to agency pro- grams. To exercise this authority, the contracting officer must comply with certain requirements, including advertising the proposed follow-on action in the Commerce Business Daily. AID’S Competition Advocate agreed that mission officials are confused and uncertain about FAR follow-on contract procedures. In particular, AID has not provided its missions specific guidance on when follow-on work is justified and what procedures should be followed. The Competition Page 21 GAO/NSIAB9lJl Foreign Assistance chapter 2 Award Times for Mission Full and Open Competition Contrscts Appear lkasonable Advocate stated that several issues need clarification. For example, con- tracting officers need to be directly involved in planning the procure- ment so that the required provisions for follow-on work could be followed. Other factors to consider include the type of contract and the potential applicability of current provisions in the regulations. Increase the $100,000 AID missions can waive the requirements for full and open competition, Waiver Authority as well as the requirement to advertise proposed actions in the Com- merce Business Daily, for overseas contracts of $100,000 or less. To use the waiver, AID must solicit bids only from contractors located overseas and award the contract through less than full and open competition pro- cedures, which require obtaining and considering offers from as many potential offerers as is practical. Fifteen of the 30 missions responding to the survey indicated that they favored raising the waiver ceiling. AID contracting officers and mission officials agreed that the waiver ceiling should be increased to (1) reflect inflation and (2) reduce the administrative burden of competing small-value contracts that local con- tractors can more economically and effectively carry out. The con- tracting officer in Guatemala said that, based on his experience, U.S. firms with operations only in the United States were not competitive with host country firms for contracts under $200,000, and sometimes more. He also pointed out that U.S. firms wishing to compete for small- value contracts often have done so through branch offices in the host country or through local affiliates. AID’s Competition Advocate agreed. However, he did not support an increase any higher than $200,000 because AID might become more vul- nerable to contracting abuse, and some U.S.-based firms might be excluded from participating in AID programs. In this review, we did not assess the relative benefits and risks of increasing the $100,000 ceiling, thus we do not make any recommendation concerning this matter. Based on the nonimpairment provision of the Federal Property and Administrative Services Act of 1949, AID has the statutory authority to increase the waiver limit, if foreign assistance objectives would be impaired. According to the Competition Advocate, AID has exercised this authority periodically to increase the waiver ceiling for inflation-from $25,000 in 1965 to $50,000 in 1977, to the current $100,000 level in 1982. If the $100,000 waiver ceiling were adjusted for inflation, it would be about $130,000 as of the fourth quarter of 1989. Table 2.2 shows the number of fiscal year 1989 overseas direct contract actions that were in Page 22 GAO/NSIAB9131 Foreign Assi&a.nce Chapter 2 Award Times for Mission Full and Open Competition Contracts Appear Reasonable various cost ranges, and the percentage of overseas contracting for which they accounted. Table 2.2: Fiscal Year 1989 Contracts’ Above and Below the $100,000 Waiver Dollars in millions ~~____ Ceiling Value of Contract Number Percent Total Percent 5100,000 or less 1,031 80 $7.8 3 $100,001 to $130,000 26 2 2.9 1 $130,001 to $200,000 38 3 8.2 2 $200,001 to 5300,000 26 2 8.8 2 Over 5300,000 167 13 258.1 92 Total 1,288 100 $281.4 100 aPersonal services contracts are excluded from this analysts because AID has established a blanket wafver from full and open competltlon for these contracts Other Issues Several of the survey respondents identified other problems and issues to consider in streamlining AID’S overseas procurement system. In partic- ular, two issues the missions identified are related to AID procurement policy and the Foreign Assistance Act of 1961, as amended. 0 Should the use of blanket waivers from U.S. source and origin require- ments be expanded, particularly for vehicles and commodities not made in the United States. Source and origin requirements restrict AID from procuring goods and services from countries other than the United States, unless a waiver is obtained. For example, using the authority del- egated to him, the AID Administrator authorized a blanket waiver for certain motorcycles and right-hand drive vehicles as unavailable in the United States. l Can the process for waiving requirements to ship goods and services on U.S. carriers (cargo preference) be expedited, especially for countries that receive little, if any, U.S. shipping service. The Cargo Preference Act of 1954 requires that at least 50 percent (by weight) of &n-financed commodities must be shipped on U.S. flag commercial vessels, to the extent the rates are fair and reasonable. As an illustration of the perceptions on these two issues, the mission in Egypt responded that current U.S. source and origin requirements have necessitdted countless waivers due to the lack of interest by U.S. sup- pliers or the unavailability of certain commodities from the United States. It also stated that the Cargo Preference Act requirements for 1J.S.flag vessels can i 1) cost up to five times that of non-U.S. flag ships Page 23 GAO/NSIADsl-31 Foreign Assistance Chapter 2 Award Times for Mission Full and Open Competition Contracts Appear Reasonable and (2) cause lengthy delays while shipments are consolidated for trans- port on a U.S. flag vessel. Several other missions raised similar concerns about U.S. source and origin and cargo preference rules applicable to the AID program. Page 24 GAO/W&4D.9131 Foreign Assistance Chapter 3 Management of OverseasContracting and Procurement Should Be Improved The major obstacle to an efficient AID contracting system is inadequate procurement management in the overseas missions. We found that pro- curement plans, critical to the effectiveness of any contracting system, often were not prepared by the missions during project design. When prepared, however, these plans generally did not provide sufficient detail to ensure timely contracting actions or effective use of FAR regula- tions. Several systemic management weaknesses, such as AID'S failure to provide clearly defined agencywide standards for procurement planning and sufficient procurement-related training, contributed to the absence of comprehensive procurement planning at the missions. The effectiveness of overseas acquisition operations has been further diminished by the organizational structure for contracting and procure- ment in many missions. Most missions have not assigned responsibility for project procurement activities to one office or person, resulting in fragmented procurement decision-making and oversight. In addition, many contracting officers expressed concern that AID has not suffi- ciently assured their independence from mission officials, The majority of the contracting officers and almost one-half of the mis- Inadequate sions agreed that AID has not adequately planned its procurements. Fur- Procurement Planning th er, about two-thirds of the contracting officers who responded to the questionnaire (20 of 30) indicated that inadequate procurement plan- ning-for example, no plans, inadequate specifications for goods and services, and unrealistic cost estimates-has impeded AID'S overseas contracting process. Most of the contracting officers identified inade- quate procurement planning as a greater obstacle to timely contracting than the full and open competition requirements of the FAR. Analysis of the survey responses to procurement planning questions indicates that the missions were closely divided on whether the lack of procurement planning was an operational problem at their mission (13 indicated that it was a problem and 15 indicated that it was not). In its response to the survey, the regional support office responsible for pro- viding contract services to several African missions claimed that the absence of comprehensive and thorough procurement planning has been endemic throughout .4ID. Our case study analyses supported the views of those AID officials who identified weaknesses in overseas procurement planning practices. These case studies revealed that procurement planning during project design generally was either nonexistent or lacked sufficient detail to be Page 26 GAO/NSIAD9131 Forei@ Assistance Chapter 3 Mma.@nent of Overseas Contracting and Procurement Should Fe Improved meaningful, which, in some cases, may have delayed contract awards and limited the benefits of contract negotiations. AID internal evaluations of overseas contracting management and a memorandum from a prior AID Administrator have indicated that inade- quate procurement planning has been a fundamental management weak- ness for years. The AID Administrator concluded over 12 years ago that AID had not adequately planned its procurements, often resulting in incomplete identification of project needs and insufficient allocation of time for contract activities. The Administrator at that time tasked all assistant administrators and office heads to ensure that the projects they approved included realistic procurement plans. However, systemic weaknesses in planning continued into the 1980s. In our 1980 report’ we noted that while AID was attempting to improve pro- curement planning, inadequate procurement planning continued to adversely affect project implementation. We found, for example, that procurement plans were not always prepared, and, in those cases where they were prepared, many lacked specific information, were incomplete and unrealistic, and were prepared after the project agreement was signed rather than during project design and approval phase. The AID Procurement Executive, in each of his annual contract certification reviews conducted since 1986, also concluded that meaningful procure- ment planning has been only sporadically done during project design. Planning Requirements Federal regulations require procurement planning for government pro- Not Systematically curement, and AID handbooks point out that successful implementation of projects is closely related to the care with which the procurement of Addressed in Project Plans goods and services is planned. For example, the handbooks recommend that project officers consult mission contracting officers early in the project planning process to minimize potential procedural and legal diffi- culties. AID handbooks, however, do not require mission compliance with current guidance on key elements of procurement plans. As a result, we found many of the same planning weaknesses identified in our 1980 report. Missions were not routinely preparing project procurement plans or, when they did, insufficient detail was provided. Our analyses of new contracting actions by t.he missions in Egypt, Gua- temala, Honduras, Indonesia, Pakistan, and the regional support office ‘AID Slow In Dealing With I'ro~rc t Planning and Implementation Problems, (GAO/ID-80.33, July 15, 1980). Page 26 GAO/NSIADsl-31 Foreign Assistance Chapter 3 Manactement of Overseas Contracting and Procurement Should Be Improved in Kenya showed both inconsistencies and inadequacies in project pro- curement planning. During our case study reviews, we found that none of the project paper+ in Indonesia contained procurement plans. Simi- larly, we found little evidence of systematic procurement planning as a part of project design in Egypt. At the other three missions and the regional support office (Guatemala, Honduras, Pakistan and Kenya), project papers generally contained procurement plans. However, a com- parison of these plans with AID guidance, which describes procurement planning processes, showed that the plans did not systematically address suggested planning elements, such as . explaining the choice to use an AID direct contract versus a host country contract; . preparing a complete list of goods and services that will be procured by contract, including specifications and expected source, origin and nationality; l scheduling the (1) critical dates for proposed contracts, (2) preliminary sequencing of deliveries and (3) interrelationships between goods and services; l including a budget and financing scheme; and . defining contract administration activities, such as audit and close out procedures. We found significant variation among the procurement plans in the amount of information provided. Many of the procurement plans we examined provided little more than generic descriptions of require- ments, their expected source, origin, and nationality, or an explanation of the decision to use a host country or AID direct contract. Although some project papers included contract milestones in other project paper sections, we found that these milestones were not consistently scheduled for all procurement activities and were difficult to track. In our view, the lack of clearly defined agency standards and requirements directly contributed to these procurement planning deficiencies. An agricultural project in Guatemala provides a specific example of the types of procurement planning problems experienced by overseas mis- sions. According to a mission official, the implementation of this project was delayed because project designers did not allow for the time needed to prepare and have the prqject implementation order approved. The order initiates the contracting process and provides’a description of the “Project papers summarize arralyses atied out during project development and represent the final proposed project design. Page 27 GAO/NSLADSl-31 Foreign kssistame -- Chapter3 Management of Overseas Contracting and Procurement Should Be Improved procurement, upon which the contract will be based. Preparation and approval of the order took about 3 months; yet, the project designers scheduled only 2 months from the time the host country signed the pro- ject agreement until issuance of the requests for proposal. Poor planning also resulted in the project’s technical advisers arriving in the country before computers needed by these advisers were delivered. Poorly Prepared Project According to an official on the Planning, Policy, and Evaluation Staff, the project implementation order is the logical extension of the procure- Implementation Orders ment planning process. Preparation of the order further refines project requirements identified during initial project design. Moreover, prepara- tion and timely authorization of a fully detailed order is critically impor- tant because it is both the first step in the contracting process and the basic foundation of the resultant contract. The order, for example, is supposed to accurately identify the goods and services required of the contractor (the statement of work), the estimated cost and time period, logistical support arrangements, and other details necessary to facilitate the negotiation and execution of a contract. Contracting officers indicated in their responses to the questionnaire and in follow-up in@rviews that orders often did not have enough infor- mation for them to begin t,he contracting process. Contracting delays sometimes occurred because the contracting officer either had to seek clarification or return the order to the project office for revision. Approximately two-thirds of the contracting officers reported that incomplete statements of work in orders have impeded t,he contracting process. In addition, a majority of the contracting officers reported that one-half or more of the orders (for new contracts in fiscal years 1987 and 1988) did not provide clearly defined breakouts of budget costs or clearly defined criteria for evaluating contract proposals, According to some contracting officers, better prepared orders sub- mitted on a timely basis would enable them to handle contracting actions in a routine, systematic, and timely manner. Contracting officers noted that they have received a significant number of “urgent oders,” which did not provide sufficient time for contracting. Some contracting officers stated that these orders are often of such pressing urgency that all other contract actions had to be delayed while they dealt with the “crisis.” For example, in Egypt, a contracting officer received an order for a $2-million modification to a contract 10 days before it expired; yet, the project office knew of the need for the modification for over 2 months. To meet this deadline, the contracting officer had to stop work Page 28 GAO/NSIADSI-31 Foreign Assistance chapter3 Management of Overseas Contracting and PmcurementShouldBe Improved on all other contracts. In addition, the lack of advance notice limited the contracting officer’s ability to negotiate and possibly resulted in a higher contract cost. Certain systemic weaknesses have contributed to inadequate procure- Systemic Management ment planning by the missions. These weaknesses include the lack of Weaknesses (1) data on the time required for various contracting actions, (2) agency- wide standards for procurement planning, (3) procurement-related Contribute to training for project staff, and (4) contracting officers participation in Inadequate project procurement planning. Procurement Planning Base-Line Data for We found that guidelines for scheduling overseas contracting were gen- erally not available in AID or, where available, they were based on Procurement Planning Not imprecise estimates. In Honduras, for example, the contracting division Available did not provide the project officers with written guidance on the time needed at the mission for each step in the contracting process. Although guidelines on the time required for various contract phases had been provided by the contracting staff in Guatemala, they were based on rough estimates and not actual mission averages. Analyses by the consultant for AID’S Coordinating Group also have con- cluded that project officers generally did not have guidance on the time needed for contracting activities. The consultant noted that the only basis for procurement planning in AID has been rough estimates. These rough estimates, the study concluded, cannot be validated because AID does not have data on the actual length of the contracting process for various types of procurement. Thus, many AID officials have based their plans on their own often highly optimistic expectations, resulting in dis- appointments and complaints about contracting delays. Agencywide Standards for AID handbooks have not provided agencywide standards for procure- Procurement Planning Not ment plans or established clear requirements for project procurement planning. One-half of the missions responding to the survey question on Provided mission orders reported that they also did not have orders establishing a procedure or requirement for procurement planning. The absence of standards to assist project officers in preparing procurement plans and making planning decisions has directly contributed to inefficiencies in overseas procurement. Page 29 GAO/NSIAD.Sl-31 Foreign Assistance - Chapter 3 Management of Overseas Contracting and F’mcurement Should Be Impmved Insufficient Procurement- AID officials widely viewed the limited participation of mission staff in procurement-related training, particularly project and program officers, Related Training as a major cause of inadequate procurement planning. Ninety percent of the contracting officers responding to the questionnaire stated that inadequate project staff training in contracting and procurement has impeded AID'S contracting process. Similarly, AID'S consultant reports that approximately 80 percent of the missions responding to the survey indicated that the training and experience of all staff involved in con- tracting has been inadequate. In his report to the Coordinating Group, the AID consultant concluded that inadequate training of project officers may be the most pervasive weakness in AID'S entire procurement system. Analysis of mission responses to the survey further indicates that AID has not adequately ensured project officer participation in three critical training courses dealing with project design, project implementation, and contracting for nonprocurement personnel. According to the mis- sions responding to the survey question on training, just over one-half (52 percent) of the direct hire project officers and only 8 percent of the foreign service nationals (non-U.S. citizen) project officers had com- pleted the project design course. Participation was higher for the project implementation course; 75 percent of direct hires and 56 percent of the foreign service nationals reported completion of this course. Relatively few project officers (17 percent of the direct hires and 4 percent of the foreign service nationals) had completed the course on contracting for nonprocurement personnel. Another training issue identified by some mission officials was the lack of contracting and procurement knowledge and skills among mission management. For example, regional contracting officers stated that senior mission managers, who have the authority to sign contracts within certain dollar limits, frequently have had little or no formal training in procurement. One officer suggested that (1) mission man- agers should attend formal training on contracting requirements and procedures and (2) procurement training should be a prerequisite to granting contracting authority to nonprocurement professionals, such as executive officers, deputy directors, and mission directors. Contracting Officers Not Contracting officers did not systematically participate in procurement Participating in Project planning during project design, which, in the view of some mission offi- cials and contracting officers, has led to inadequate procurement plan- Procurement Planning ning. Current AID guidance recommends consultations with contracting officers, as well as other mission officials, early in the process of Page 30 GAO/NSIAl%91-31 Foreign Assistance Chapter 3 Management of Overseas Contracting and ProcwementShouldBe Improved reviewing pre-implementation options to ensure that legal and proce- dural difficulties are minimized. Many missions, however, did not usu- ally have contracting officers formally participate in project procurement planning. Sixty-three percent of the contracting officers responding to the questionnaire stated that they did not usually partici- pate in the preparation of procurement plans and 50 percent stated that they did not usually approve completed plans. In the view of several contracting officers, their collaboration with pro- gram officers in procurement planning would help reduce the time required for acquisitions by (1) providing realistic contracting time frames, (2) improving the quality of project implementation orders in the initial planning stages, and (3) pointing out possible contracting problems early in the process. To improve the timeliness of contracting through better planning, many contracting officers were in favor of requiring that contracting officers participate in preparing and possibly approving project procurement plans. For fiscal year 1990, the mission in Honduras instituted an overall mis- sion procurement planning process, designed to address contracting inefficiencies resulting from inadequate project procurement planning. The Mission Director required project officers to submit lists of pro- posed procurements, schedules, dollar values, and the anticipated level of competition to the contracting officer. At the time of our field work, the contracting officer was developing a mission-wide procurement plan based on the project-specific procurement plans. Anticipated benefits of these actions were (1) proactive rather than reactive management of the contracting workload, (2) increased accountability as an agreement is reached between the contracting officer and project staff on anticipated needs and delivery schedules, and (3) enhanced project staff under- standing of the contracting process and rationale for mission manage- ment’s decisions on contract priorities. Although the effect on mission operations cannot be determined at this time, mission-wide procurement plans could improve the ability of mis- sions to manage their contracting workload, as well as reduce costs through block buys of routine project procurement such as vehicles. Page 31 GAO/NSIAD9131 Foreign Assistance Chapter 3 Management of Overseas Contracting and F’rocurement Should Be lmpmved Our review indicated that the organizational structure for contracting Procurement and procurement in AID’S overseas missions has not been conducive to Management Not effective procurement management. Responsibilities for direct and host Integrated country contracts were typically split between contracting and pro- gram/project offices in overseas missions. This division resulted in non- procurement professionals making key procurement-related decisions and inadequate control and oversight of overall mission contracting actions. In addition, several contracting officers indicated that they have concerns about their independence to discharge their contracting responsibilities effectively. Contracting Most missions (20 out of the 24 missions responding to the survey ques- Responsibilities Not tion) stated that they have not integrated direct and host country con- tracting responsibilities under a single office. Division of these Integrated responsibilities has been a serious organizational weakness because (1) contracting officers, who are the agency’s contracting experts, have not been systematically involved in host country contract approval or oversight; (2) project officers, who administer host country contracting at the missions, have not received sufficient procurement-related training; and (3) missions have not always maintained accurate informa- tion on host country contracting, which accounts for a substantial pro- portion of AID’S funding. Over one-half of the contracting officers responding to the questionnaire stated that it has not been the usual practice at their mission(s) for them to approve host country contracting procedures or for them to routinely review host country contracts for final approval. Generally, mission and regional contracting officers’ responsibilities have been limited to direct contracts, grants, and cooperative agreements, whereas project officers typically have overseen host country contracting by (1) arranging host country contracting capability assessments; (2) assisting host country ministries with contracting procedures, such as preparing proposals and developing cost estimates to facilitate analysis of proposals; (3) reviewing proposed host country contracts; and (4) monitoring the host country ministry and performance of the contractor. As noted ear- lier, most project officers have not been sufficiently trained in con- tracting procedures, and consequently may not be qualified to assist in such activities. The consultant for AID’S Coordinating Group agreed that the split in responsibilities for direct and host country contracts has been a serious agencywide organizational problem. In our view, the lack of host Page 32 GAO/NSIAD-91-31 Fore@ Assistance Chapter 3 Management of Overseas Contracting and Frncurement Should Be Improved country contracting oversight by qualified contracting officers, coupled with the division of responsibility among several offices and individuals, is also an internal control weakness. For example, accurate and up-to- date information on the number and dollar value of AID-financed host country contracts was not available at many of the missions we visited. The mission in Egypt (which is responsible for over one-half of AID'S active host country contracts) did not have a system to identify the number of host country agencies implementing AID-financed host country contracts or to determine whether these agencies’ contracting capabilities had been assessed, as required by AID regulations. Contracting Officer The contracting officer’s first responsibility is to protect the overall Independence Questioned interests of the U.S. government and to ensure that agencies meet their procurement needs in the most effective manner consistent with appro- priate regulations and laws. Because contracting officers must have a certain amount of independence to fulfill this role, the AID Procurement Executive has recommended that overseas contracting officers and staff report to the deputy mission director. Analysis of the questionnaire responses indicated that the recommended organizational placement of contracting officers has not been done by all missions. Over 40 percent (13 out of 30)” of the overseas contracting officers stated that either they or the mission’s supervisory contracting officer reported to an official lower than the deputy mission director. According to the Competition Advocate, under this management struc- ture, contracting officers have (1) not been in a position to participate equally with other senior mission officers in program procurement deci- sions and (2) been typically excluded from meetings in which key pro- curement decisions are made, which may have resulted in grants being used instead of contracts to avoid competition requirements. Also, seven of the contracting officers reported to the executive officer, who is also usually responsible for administrative procurement. The Competition Advocate stated that this situation may lead to an unacceptable bal- ancing of contracting priorities because contracting officers may be pressured to give lower priority to project procurement needs. 3However, five contracting officers (representing over 16 petrel& of the respondents) indicated that the organizational placement of contracting officers at their mission was in the process of being changed to that recommended by the Procurement Executive. One of the 31 contracting officers responding to the questionnairr did not answer the question. Page 33 GAO/NSIAD-91-31 Foreign Assistance Chapter 3 Management of Ove- Contracting and Procurement Should Be Improved Many contracting officers, however, expressed concern that reporting to the deputy mission director may not be sufficient to ensure their inde- pendence. Respondents to the contracting officer’s questionnaire stated that (1) contracting officers should either report directly to the Procure- ment Executive (about 36 percent) or (2) the annual performance rat- ings of overseas contracting officers should be reviewed by the AID Procurement Executive (just under one-half). Individual contracting officers stated that the current practice of having their performance rat- ings prepared and reviewed by mission officials creates the potential for undue pressure to make their contracting decisions conform with mis- sion interests. Some contracting officers shared the view that an inherent conflict exists among the roles of contracting officers, project managers, and mission management, which hinders mission manage- ment from objectively rating contracting officers. To insulate them from this conflict, two contracting officers and one mission survey respondent suggested that AID adopt rating procedures for contracting officers that are similar to those established for regional legal advisers. AID/Washington officials confirmed that the ratings of regional legal advisers are reviewed in Washington, D.C., to help shield these officials when they make rulings and decisions that are unpopular with mission management. Moreover, we were told that personnel in AID’s Office of the General Counsel have informally suggested to agency management that the ratings of contracting officers should be reviewed in AID/Washington, because these officers are subject to the same pres- sures as regional legal advisers. Under an appraisal system modeled after that of the regional legal advisers, contracting officer ratings would still be written by mission officials who have direct knowledge of performance, but these ratings would be independently reviewed by the Procurement Executive for bal- ance, consistency, and fairness. Upon review, the Procurement Execu- tive could intercede on behalf of contracting officers by adding reviewer comments that become part of the official personnel record. Page 34 GAO,‘NSlADSlSl Foreign Assistance chapter3 Management of Overseas Contracting and Procurement Should Be Improved As of March 1989, AID reported that 35 contracting officers were Procurement Staffing assigned to its overseas missions and field offices. Many AID officials, Requirements Not however, stated that additional contracting officers and contract sup- Routinely Determined port staff are needed to handle the contracting workload in the field. . Sixty-three percent of the contracting officers responding to the ques- tionnaire stated that inadequate contracting and procurement staff levels have impeded the contracting process. l Over one-half of the missions responding to the survey question on staffing (based on AID analysis) considered the number of available con- tracting staff as being inadequate for their needs. l Contracting certification reviews of individual missions by the Procure- ment Executive often have resulted in recommendations for additional contracting staff. We did not determine whether contracting staff shortages exist. The functional allocation of direct hire staff slots in the missions has been left primarily to the discretion of individual mission directors, whose decisions, according to some AID officials, have rarely been based on a systematic assessment of the contracting staff resources needed to administer contracts for a given assistance program portfolio. According to AID’S Competition Advocate, AID does not have a contracting and pro- curement staffing plan for overseas operations. Page 36 GAO,‘NSIAD-91-31 Forei@~ Amistance Chapter 4 - .- Conclusions and Recommendations -- -~.- The major obstacles to efficient acquisition by AID'S overseas missions are not related to the FAR requirements for full and open competition, but rather to poor procurement planning and fragmented organizational arrangements in the missions. The long-standing failure of AID to develop a sound approach to procurement planning may be the single most serious obstacle to an efficient overseas contracting system. The following are some of the specific deficiencies in procurement planning that AID needs to address. . Procurement plans were not systematically prepared as part of project and program design. . Contracting officers generally did not participate in procurement planning. 0 Agency standards, requirements, and baseline data were not provided to assist project officers in preparing procurement plans. l Project staff and mission management did not receive sufficient pro- curement-related training. In assessing whether the FAR impedes overseas operations, we found that it applies to only a small portion of the financial instruments avail- able for implementing projects; thus, its overall impact is limited. As expected, contracts awarded based on full and open competition require more time than those awarded under other than full and open competi- tion. However, t.he additional time requirements for full and open com- petition, on average, appeared reasonable when compared to available data on AID/Washington contracting time frames. According to AID'S Competition Advocate, if procurement is properly planned in advance, basing awards on full and open competition can substantially benefit the foreign assistance program by improving project concepts, controlling costs, and helping t,o minimize opportunities for fraud and abuse. Although most of AID'S contracting officers endorsed the FAR,many also recommended increasing the authority for waivers from the require- ment for full and open competition for overseas contracts. Several con- tracting officers and mission officials stated that a higher dollar threshold for overseas competition would relieve the administrative burden of advertising small-value contracts that could be awarded to local sources. In considering such a change, AID needs to consider (1) the potential effect of increasing the waiver threshold on the ability of 1J.S. firms to participate in the U.S. assistance program, (2) the extent to which cost control would be compromised, and (3) the extent to which contractor favoritism might be increased under less than full and open competition. Page 36 GAO/NSIADSl-31ForeignAssistance Chapter 4 Conclusions and Recommendations The missions also stat,ed that AID’S procurement guidance is poorly organized and located in too many handbooks and other sources for effi- cient use in overseas contracting. Clearly, AID needs to improve its pro- curement guidance to make the most effective use of applicable regulations. The Competition Advocate stated that many missions were confused about the requirements for competing follow-on contracts and when follow-on contracts can be awarded to contractors in place without re-advertisement and competition. Specific AID guidance is needed in this area. Other inefficiencies in the acquisition process include the organizational structure for contracting and procurement in the overseas missions, which, in our view, unnecessarily fragments decision-making, control, and oversight over direct and host country contracts. We agree with the consultant for AlIJ’S Coordinating Group that the split in responsibilities for direct and host country contracts has been a serious agencywide organizational problem. Although we did not directly solicit the views of the missions or overseas contracting officers on this issue, we found that most missions do not have a unified procurement organization to pro- vide a single focal point for all project procurement responsibilities, operations, and accountability. Moreover, contracting officers, who are AID’S procurement experts, are frequently excluded from key mission acquisition activities, such as procurement planning and approval of host, country contracts. Also, many contracting officers did not report to the deputy mission director, as recommended by the AID Procurement Executive. This restricts their independence and organizational influ- ence. The desire of many contracting officers to have the Procurement Executive review their annual performance rating further indicates that AID has not sufficiently ensured their independence or insulated them from undue pressures by mission management. We recommend that the Administrator: Recommendations .AID l Strengthen mission procurement planning by (1) establishing clear requirements for procurement planning during project design and imple- mentation; (2) requiring contracting officer clearance of project procure- ment plans; (3) developing a procurement planning model for overseas operations, which includes the development of baseline data on the actual time required for major procurement actions and standard for- mats for procurement plans; and (4) ensuring that project officers and mission management receive procurement-related training necessary to effectively design and manage programs. Page 37 GAO/NSW9131 Foreign Assistance Chapter 4 Conclusions and Recommendations l Improve procurement management by (1) placing host country and direct contracting responsibilities within one office and (2) requiring that the senior contracting officer at overseas missions report to the deputy mission director. 0 Enhance the independence of overseas contracting officers by requiring that annual performance ratings of overseas contracting officers be reviewed and approved by the agency’s Procurement Executive. Improve procurement guidance for the missions by, at a minimum, l developing a better index for AID handbooks and other policy guidance that lists procurement topics and cites the specific sources that deal with the topic. In addition, specific guidance should be provided to the missions identifying (1) when follow-on work is justified without re- competition and (2) the procedures that should be followed when plan- ning the original contract for a possible extension or follow-on work. - In commenting on a draft of this report, AID stated that it generally Agency Comments agreed with the report’s recommendations, and plans to take action to implement them. ND also raised some specific comments which have been incorporated into the report as appropriate. (See app. II.) Page 38 GAO/NSIADB1-31 Foreign As&stance Page 39 GAO/‘NSIAIS91.31 Foreign Assist~ce Appendix I Prior Studies of AID Contracting Prior studies and reviews from several sources have identified a range of problems in AID’S contracting and procurement system, such as insuf- ficient number of direct-hire staff and inadequate internal controls. In response to these studies and reviews, AID has taken a number of steps to improve its contracting and procurement system. Our report, Foreign Economic Assistance: Better Controls Needed Over Our Reviews Property Accountability and Contract Close Outs (GAO/NSIAD-90-67, Jan. 22, 1990), identified weaknesses in internal controls over direct contracts that AID had not reported in its December 29, 1988 Federal Manager’s Financial Integrity Act report. These weaknesses included inadequate accountability for project-funded, nonexpendable property in the possession of contractors, and AID policy and reporting require- ments that were not sufficient to ensure systematic closeout and audit of completed contracts at the two missions we visited. AID internal audits and evaluations had identified similar weaknesses in these areas, but AID audit recommendations had not been satisfactorily resolved. These weaknesses made the agency unnecessarily vulnerable to the misuse, by contractors, of AID-financed property. The weaknesses could also potentially result in (1) delays in deobligating or decommitting funds, (2) unfulfilled contractual commitments, and (3) lack of assur- ance that only allowable contract costs had been paid. Our reviews of AID programs during the 1980s examined other aspects of the agency’s contracting and procurement system. The more promi- nent contracting issues we identified include the following: l Our report, Foreign Aid: Improvement Needed in Management of Tech- nical Services Contracts (GAO/NSIAD87-183,Aug. 18, 1987), pointed out that AID did not have adequate management controls over centrally managed (Am/Washington) direct contracts. Specifically, AID had failed to (1) adequately monitor contractor compliance with contract terms, (2) ensure that expenditures were charged to the proper account, and (3) provide operational guidance specifying contract requirements. Inad- equate AID management controls over centrally funded contracts resulted in expenditures being charged to the wrong accounts. Also, AID had insufficient management assurances that funds were used as intended and that services had been rendered. l Our report, Direct Contracting by the Agency for International Develop- ment Can be Better Managed (GAO/NSLAD-~~-~O~, July 9, 1984), also iden- tified weaknesses in 4ID’S management of direct contracting. The contracts examined generally contained vague statements of work, Page 40 GAO/NSlAD.Sl-31 Foreign Assistance Appmlix I Prior studies of AID chtracting leaving many unanswered questions about contractors’ obligations and AID expectations. The effects of vague statements of work included con- tract implementation delays and poor contractor accountability. AID also had not compiled data on the extent of, and reasons for, contract amend- ments and noncompetitive procurements. Without this data, AID could not accurately report on noncompetitive actions, or identify possible opportunities to enhance competition in the agency. l We reported in Managing Host Country Contracting Activities (GAO/ ID-82-42, June 2, 1982) that AID had not developed a centralized inventory of host country contracts. We stated that information on host country contracts could improve AID’S operational capabilities by (1) enabling AID to readily inform the Congress, AID managers, and auditors on contract activities; (2) assisting in evaluating the impact of host country con- tracting policy; (3) assisting in obtaining more economical and efficient audit coverage; and (4) providing a basis for exchanging contract cost information and serving to alert AID officials on problem contractors, . According to our report, AID Slow in Dealing with Project Planning and Implementation Problems (GAO/ID-80-33, July 15, 1980), delays in ordering and receiving project commodities occurred because (1) AID management had not adequately planned procurements, (2) project officers were not adequately trained in procurement and supply management, and (3) AID had not issued clear instructions on project implementation. To improve planning, AID stated that it was revising its central guidance on project design and implementation and was developing an integrated training program for project management personnel. Certification reviews of the agency’s direct contracting system con- AID Certification ducted by AID’s Procurement Executive during the 1980s identified sys- Reviews, Audits, and temic weaknesses in overseas contracting and procurement. These Investigations weaknesses included insufficient organizational structures in the mis- sions for ensuring independence of the contracting function and failure of the missions to properly plan their procurements. Audits and investigations by the AID Inspector General have also identi- fied a number of problems in the agency’s contracting and procurement system, including questionable pricing practices by contractors, inade- quate scrutiny of contract costs by AID, and poor monitoring of con- tractor performance. Some criminal activities also were identified, such as the bribery of a foreign national procurement specialist and collusion among bidders. An AID Inspector General report has concluded that the foreign environment in which AID executes its overseas procurement operations is highly vulnerable to fraud. Page 41 GAO/NSlADSl-31 Foreign Assi&mce Appendix I Prior Studies of AID Contracting Beginning in the early 1980s AID’S annual Federal Manager’s Financial Federal Manager’s Integrity Act reports identified several material weaknesses in the Financial Integrity Act agency’s internal controls directly related to the efficiency and effec- Reports tiveness of the contracting and procurement process. They included the following: . Failure of the missions to adequately address the contracting capability of host country agencies responsible for AID-financed host country con- tracts had placed the agency in a situation of sponsoring assistance pro- grams that may not have fundamental management safeguards. . A number of overseas missions had not developed the internal proce- dures and guidance necessary to ensure overall compliance with agency policies and regulations. l AID was forced to use personal service and nonpersonal service contrac- tors to carry out programs because of insufficient numbers of direct-hire staff. l Inadequate audit coverage of development projects and programs, according to a high percentage of AID missions, has increased the agency’s vulnerability to waste and mismanagement. AID actions to improve contracting and procurement have included AID Actions to Improve Contracting l promoting competition in contracting by having competition advocates and Procurement l (typically deputy mission directors) in each of the overseas missions; establishing a data base on contract amendments and noncompetitive actions; . establishing additional overseas mission and regional contract officer positions; 9 offering staff training courses such as the “Federal and AID Acquisition Course” and “Contracting for Nonprocurement Personnel;” . increasing the staff in the Office of Inspector General and expanding the agency’s funding of nonfederal financial and compliance audits; and * developing an inventory of host country contracts and designing a new direct contract information system, which is in the initial stages of implementation. Page 42 GAO/NSlAD91-31 Forei@ Ambtance Appendix II Comments From-the Agency for International Development GAO comments: The wording in the text has been revised to Incorporate the suggested changes AGENCY FOR INTERNATIONAL DEVELOPMENT WASHINGTON D c 20523 Mr. Frank C. Conaha" Assistant Comptroller General United States General Accounting Office 441 G Street, N.W., Room 5055 Washington, D.C. 20548 Dedr MT. Conahan: We nave reviewed the draft report "Foreign Aid: A.I.D. Can Improve Its Clanagement of Overseas Contracting" (Code 472190) and ',re are in general agreement vlth the recommendations contained thereln. Our response to the final report will address the four recommendations and the actions planned o< taken. Sprclflc COlllInentS on the iext of the draft report follow: -- page 12 - it sholild be noted that AID has invoked its inipalrment authorliz; only for overseas contracts that dre $100,000 or less. -- page 13 - it 1s true t;ldt :JS/PPE controls the delegations of contraccing authorlry for the Procurement Executive but ?t LS MS/OP that contr,,ls the selection of Contracting 0 f f 1 c e L !i . -- page 58 - the recommendations on page 58 are slightly different from those s'zated on page 8 of the draft report. -- page 63 - there IS cetarencf to the hrlbery of a Procurement Specialist. It should be noted that this was a foreign national working at one of our overseas ‘I;.s;ions and no cases :law been brought against any U.S. ,11rnct-n1re procurement officials. We appreciate the tine dnd effort expended by your staff in coordlnatlng the datd gathering for this draft report with A.I.D. 's Coordinating Group for Improving Operations and Etflciency. Page 43 Major Contributors to This Report Albert H. Huntington, III, Assistant Director National Security and Lynn B. Moore, Evaluator-in-Charge International Affairs Tetsuo Miyabara, Senior Evaluator and Social Science Analyst Division, Washington, Norman T. Thorpe, Senior Evaluator Donna J. Byers, Staff Evaluator D.C. Jesus A. Martinez. Staff Evaluator Paul D. Alcocer, Site Senior European Office Patrick E. Gallagher, Staff Evaluator Frankfurt, West Robert E. Martin, Staff Evaluator Germany ’ Michael D. Rohrback, Site Senior Far East Office James M. Strus, Senior Evaluator Honolulu, Hawaii Joanna Stamatiades, Staff Evaluator (472190) Page 44 GAO/NSIAD-9131 Foreign Assistance . .- ,,- ,.- -,._- - ,- - -_--- - .- ..,. .- .- Ordering Information The fiit five copies of each GAO report are free. ;V I; KVTR FL Y. 2 are $2 each. Orders should be sent to the following address, :TW panied by a check or money order made out to the i- of Documents, when necessary. 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Foreign Assistance: AID Can Improve Its Management of Overseas Contracting
Published by the Government Accountability Office on 1990-10-05.
Below is a raw (and likely hideous) rendition of the original report. (PDF)