Summary

In March 2003, the Department of State (State) awarded a sole-source contract to EmbSEC, a Virginia limited liability corporation, for work at U.S. embassies. The contract currently has a ceiling price of $354 million. The contractor is required to install and maintain technical security equipment, such as alarms, cameras, and controlled-access equipment; establish X-ray capability for special projects; and maintain and repair physical security products. The contractor also procures equipment and materials and operates the warehouse where they are stored. EmbSEC was created as a joint venture, mentor/protege partnership under the Small Business Administration's (SBA) 8(a) business development program. A joint venture in the 8(a) program is an agreement between an 8(a) participant and one or more businesses to work together on a specific 8(a) contract. SBA regulations state that the purpose of the mentor/protege relationship is to enhance the capabilities of the protege and to improve its ability to successfully compete for contracts. The EmbSEC joint venture is comprised of RDR, Inc., the mentor, and BP International (BPI), the protege, an 8(a) firm at the time the contract was awarded. The terms of the EmbSEC joint venture state that RDR will perform operations support, database development, and security system design and installation under the contract, in addition to performing administrative services under the joint venture, such as accounting and contract administration. BPI is to provide program management, warehousing, computer resource, and procurement services. EmbSEC's only source of revenue is its contract with State. We received a tip on our fraud hotline regarding the EmbSEC contract. The objectives of our review, conducted under the authority of the Comptroller General to conduct evaluations on his own initiative, were to determine (1) the basis for awarding the contract without competition, (2) the effect of treating travel costs, which comprise a large portion of contract costs, as firm, fixed-price, and (3) whether contract administration is being effectively carried out. We are sending a separate management letter to the Administrator of the Small Business Administration (SBA) regarding this contract.

State relied on a waiver of 8(a) competitive thresholds, granted by SBA in 2001, to award the sole-source contract to EmbSEC. An SBA official approved the waiver on behalf of the Associate Administrator for 8(a) Business Development. However, the waiver was improper because SBA was not authorized to grant it. SBA can only authorize sole-source 8(a) awards above the competitive thresholds (1) for specific procurements and (2) if it determines that other 8(a) firms cannot compete for the requirement. In this case, SBA authorized State to make sole-source 8(a) awards in any amount for contracts that "supplement the security of U.S. Government diplomatic posts and protect the lives of Departmental personnel." The waiver was not tied to a specific procurement, but was a blanket waiver that could be applied to any contract pertaining to security at diplomatic posts. According to contracting officials, they have struggled to administer this contract and exercise appropriate oversight. For example, after the contractor notified State of accidental errors it had made in pricing its proposals, the contracting office took initial steps in November 2005 to request an audit by the Defense Contract Audit Agency due to concerns about the pricing errors and other aspects of the contract, such as travel costs. However, the office has not followed up to actually get the audit under way because it lacked the staff to do so. Much of the contracting officer's time has been taken up with resolving disagreements with the contractor. In July 2006, EmbSEC complained to State about a large number of outstanding requests for adjustments to task order prices, some of which are more than a year old, and $2.8 million in work completed or partially completed without a corresponding contractual document under which it could submit invoices. State officials told us they have recently taken actions in response, such as permitting partial funding for work begun before final negotiations on all price components are complete. We also found that the contracting office was not monitoring the percentage of the work being performed by the subcontractor as opposed to the 8(a) joint venture.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Implemented" or "Not implemented" based on our follow up work.

Recommendations for Executive Action