Who Should Read This Report and Why? DoD contracting officials, program managers, and military personnel involved in the administration and oversight of contractor performance and costs on service contracts should read this report. This report discusses problems identified in contract oversight for service contracts that may lead to DoD accepting substandard performance by contractors, paying for services and items not received, and awarding contracts to vendors with a history of substandard performance.
Background. Office of Federal Procurement Policy Letter No. 93-1, “Management Oversight of Service Contracting,” May 18, 1994, encourages Inspectors General to conduct vulnerability assessments of service contracting. This report represents the sixth DoD audit of service contracts, but is the first to look exclusively at surveillance of service contracts, an area identified as problematic in previous reports. This audit was initiated because of the increasing significance of contracts for services in DoD. From FY 1993 though FY 2004, DoD procurement of services increased from $61.9 billion to $127.4 billion, an increase of 106 percent. In FY 2004, DoD spent $230.7 billion purchasing goods and services costing over $25,000. Of the $230.7 billion, $127.4 billion (55 percent) were for services. This report evaluates whether DoD provided sufficient oversight for service contracts to ensure that contractors performed in accordance with contract specifications.
Results. For the 23 judgmentally selected service contracts reviewed, contracting officers usually appointed representatives to monitor contractors’ performance. However, contracting officials and requiring activity personnel did not provide sufficient contract oversight for service contracts to ensure that contractors were performing in accordance with contract specifications. Of 23 contracts reviewed, 3 contained required quality assurance surveillance plans, 14 had no surveillance plans, and 6 had inadequate surveillance plans. Non-Defense Contract Audit Agency (DCAA) officials approved vouchers for 13 contracts. In addition, contracting and program offices performed cursory reviews of contractor performance against costs for 12 contracts, did not adequately record past performance history for 10 contracts, and did not use performance-based contracting methods for 18 contracts. Overall, DoD could not be assured that it received the best value when contracting for services. The Under Secretary of Defense for Acquisition, Technology, and Logistics needs to emphasize to senior contracting officials and program managers the requirement to develop quality assurance surveillance plans for service contracts and ensure that program office officials are sufficiently trained on the preparation of quality assurance surveillance plans that emphasize the use of metrics.
The Under Secretary also needs to revise current policies and procedures to clearly define the roles and responsibilities of contract administration personnel; ensure that contract and program office personnel coordinate with the DCAA office that has the responsibility for voucher review for all cost reimbursement and time-and-materials service contracts; and include in all contracts Section G, “Contract Administration,” the roles and responsibilities of contract administration personnel. Acquisition Executives for the Army, the Navy, the Air Force, and the Director, Defense Information Systems Agency, need to provide quality assurance surveillance plan training to program office officials. The Commander, U.S. Army Corps of Engineers, Engineering and Support Center, Huntsville, and the Chief, Defense Information Technology Contracting Organization, Scott Air Force Base, should consider using DCAA services for prepayment voucher approvals, confirmation of rates, and review of contractor systems to ensure that off-site accounting for costs is proper. See the Findings section of the report for the detailed recommendations.
We also reviewed the management control program as it related to contract surveillance for service contracts. We identified a material management control weakness for the Military Departments and the Defense Information Systems Agency. Although the Government Accountability Office has designated DoD contract management a “high-risk” area, Military Departments and the Defense Information Systems Agency did not have management controls in place to ensure adequate surveillance was performed on contracts, particularly cost-reimbursement and time-and-materials contracts.
Management Comments and Audit Response. The Acting Director of Defense Procurement and Acquisition Policy, answering for the Office of the Under Secretary of Defense for Acquisition, Technology, and Logistics, partially concurred with our recommendation that senior officials and program managers coordinate with DCAA to ensure the surveillance of contract costs. The Acting Director stated that contracting personnel should contact DCAA when assistance is required, rather than requiring upfront coordination on all contracts. The Acting Director also partially concurred to coordinate with contract and program personnel and DCAA to avoid duplication of voucher reviews for all cost-reimbursement and time-and-materials service contracts. The Acting Director stated that his office would issue guidance that defines the roles and responsibilities of contract administration personnel, program office personnel, and DCAA. The Acting Director also disagreed with listing contract administration personnel roles and responsibilities within contract Section G, “Contract Administration.” The Acting Director stated that DoD guidance will be issued that defines contract administration personnel roles and responsibilities; therefore, listing roles and responsibilities in every contract is duplicative and inefficient. However, the Acting Director stated that deviations from DoD guidance would require the defining of roles and responsibilities within Section G of the contract.
Though the Acting Director of Defense Procurement and Acquisition Policy stated that upfront coordination of all contracts is not necessary, all parties should conduct upfront coordination to preclude risks of contractor noncompliance. Listing surveillance personnel roles and responsibilities within contract Section G of the contract ensures that contracting officer and oversight personnel are aware of their responsibilities, and the responsibilities of all personnel and agencies involved with each contract. We request that the Office of the Under Secretary of Defense for Acquisition, Technology, and Logistics reconsider his position and provide comments on the final report by November 28, 2005. A discussion of management comments is in the Finding section of the report and the complete text is in the Management Comments section.
No management comments were received from the Army. We provided a copy of the draft report on July 25, 2005. We request that the Army Acquisition Executive submit comments to the final report by November 28, 2005.
Any comments or suggestions should be sent to: auditnet@dodig.mil