oversight

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)

                        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
      . .- ,,- ,.- -,._-   -   ,- -   -_---        -   .- ..,.   .- .-




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