##### STATEMENT OF

##### 

##### JOEL S. GALLAY

##### DEPUTY INSPECTOR GENERAL

##### U.S. GENERAL SERVICES ADMINISTRATION

##### 

##### BEFORE THE 

##### SUBCOMMITTEE ON MANAGEMENT, INTEGRATION AND OVERSIGHT

##### COMMITTEE ON HOMELAND SECURITY

##### UNITED STATES HOUSE OF REPRESENTATIVES

##### 

##### JUNE 16, 2005 

##### 

Mr. Chairman, Mr. Meek and Members of the Subcommittee:

Thank you for this opportunity to discuss our office's recent audit of
task orders issued by GSA's Federal Technology Service (FTS) Client
Support Centers (CSCs). Our reviews included the procurement of services
and equipment for the Border Patrol's Remote Video Surveillance (RVS)
program, part of the Department of Homeland Security's overall
Integrated Surveillance and Intelligence System.

# Audits of GSA Contracting Practices

Over the past several years, we have performed a number of audits of FTS
contracting practices at its Client Support Centers across the nation.
The FTS Centers assist Federal agencies in identifying technology
solutions and acquiring, deploying, managing and using them. FTS revenue
from client agencies for these services has significantly increased over
the last several years and reached \$5.4 billion in FY 2004.

In a series of audit reports beginning in early 2003, we identified
numerous improper task order and contract awards, including improper
sole-source awards, work outside the contract scope, lack of support for
fair and reasonable pricing, improper task order modifications, frequent
inappropriate use of time-and-materials task orders, misuse of small
business contracts, and failure to enforce contract provisions. Overall,
we found that FTS failed to adequately ensure that contracting laws and
regulations were followed.

######### 

######### Review of Homeland Security Task Orders

Our 2004 audit[^1] was part of a nationwide review requested by the GSA
Administrator in response to our earlier findings. In this review we
sampled over 300 task orders awarded by FTS, including 13 that related
to the RVS project.[^2] The task orders included: (1) installation of
surveillance cameras to be mounted on poles and other structures; (2)
construction of towers for microwave transmission equipment; (3)
installation of monitoring equipment in Border Patrol facilities located
along the U.S.-Canada and U.S.-Mexico borders; and (4) provision of a
maintenance and repair facility. The total value of the 13 orders
included in the audit sample was \$43.4 million.

Our review concluded that there were a number of significant
deficiencies in the RVS procurement, as well as a lack of adequate
progress in actually implementing the RVS security improvements, and
chronic inattention on the part of both GSA and the Border Patrol to the
administration of the contract and management of the project. Despite
the critical nature of these security improvements and nearly \$20
million already paid to the contractor for the eight RVS installations
in our sample, as of the end of our field work in Summer 2004, none of
the eight sites had fully operational RVS systems. At some of these
locations, no equipment had been installed, and at others, problems with
the equipment installed to date have rendered the system incomplete and
unreliable. Contracting deficiencies occurred in five broad areas: lack
of competition for contract award; use of an inappropriate contract
vehicle; inadequate contract administration and project management;
contractor's providing less expensive equipment; and ineffective
management controls.

######## Lack of Competition in RVS Contract Award

##### From meetings with CSC officials, we determined that the contract for the RVS project was not conducted with full and open competition as required by federal acquisition regulations. According to FTS records, in the fall of 1998, the Immigration and Naturalization Service (INS), at that time the Border Patrol's parent agency, issued a Request for Proposal for the RVS project. In response, several vendors made oral presentations at INS headquarters in Washington, D.C. 

##### In November 1999, FTS awarded an initial task order to International Microwave Corporation (IMC) for \$2 million, for the purchase and installation of cameras and monitoring equipment at one RVS location. Despite our repeated requests, no documentation was provided evidencing the criteria used to evaluate the vendors' proposals or the analysis that led to the award to IMC. 

##### One year later, in December 2000, FTS awarded a Blanket Purchase Agreement (BPA)[^3] to IMC and a team of vendors for RVS cameras and monitoring equipment to be installed at dozens of locations across the nation. Although the work under this BPA far exceeded, in dollar amount and extent of work, the initial task order, it was nonetheless awarded to IMC without further competition, contrary to federal acquisition regulations. The BPA increased the contract value to more than \$257 million. This new contract represented an orders of magnitude increase over the initial award, and should have been formally competed to allow interested, qualified vendors the opportunity to provide contract proposals.

##### In proposing the BPA, the vendor asserted that substantial savings to the Government would result from additional discounts off the FSS Schedule pricelists for the monitoring equipment. However, no such savings occurred. For example, one item we found on schedule, a Hitachi camera, was priced under the BPA at more than double the FSS Schedule price. The BPA called for hundreds of these cameras at a unit cost about \$2700 higher than the FSS schedule price. Moreover, the vast majority of the items to be supplied were not on IMC's or any of the teaming vendors' FSS Schedule pricelists. Other equipment was subsequently purchased from a company partially owned by the prime contractor.

### Inappropriate Contract for Construction Services

A considerable portion of the RVS project required construction work,
including the use of backhoes, cranes, bulldozers and boring equipment
to install foundations, erect poles and towers up to 300 feet in height,
and connect to utilities. Skilled craftsmen such as electricians,
carpenters, steeplejacks, and heavy equipment operators were employed to
build and install the components of the system. Engineering firms were
needed to design the installation and define the specific requirements
for each location. IMC's FSS schedule contract, and those of its team
members, did not include the services necessary to perform such work.

The FSS Schedule contract with IMC was a commodities contract for
furnishing radios and microwave transmission equipment, not construction
work. It contained none of the requisite references to construction laws
and regulations that protect employee wages, workplace safety, the
environment, the integrity of the procurement process, or ensure timely
delivery and quality of workmanship. Congress has determined, with the
passage of numerous such laws, that there are inherent risks to the
Government and special requirements associated with construction work.
For example, the Davis-Bacon Act requires prevailing wage
determinations; these requirements were not incorporated into the task
orders, resulting in a potential unfunded liability to the Government.
Furthermore, Government personnel procuring construction services
require specialized training and experience. FTS personnel lack that
training and expertise. In the case of the RVS program, FTS undertook
projects it had neither the authority nor skills to properly procure and
manage.

# Inadequate Contract Administration and Project Management

Due to inadequate contract administration and project management on the
part of FTS and the Border Patrol, as of the end of our field work in
Summer 2004, none of the eight locations we reviewed had fully installed
and operational RVS systems, despite almost \$20 million in payments to
IMC. FTS's lack of oversight of its task orders resulted in several
questionable practices involving customers and contractors, including
payment made for shoddy work, work that was incomplete or never
delivered to the Government, and unexplained increases in billing rates.
Neither the BPA nor the individual task orders included detailed
specifications, thus often leaving interpretation of the Border Patrol's
needs up to the contractor.

Our site visit to one location in Washington State revealed serious
problems with the quality of the installation of equipment. Cameras and
other pieces of equipment were not functioning and had numerous
reliability problems resulting in significant down-time and the need for
frequent repairs. Border Patrol officials performed a technical
inspection of the work and identified numerous problems. Remediation
efforts were underway by the contractor at the time we made our visit.

At three other locations (Tucson Station, Arizona, Carrizo Springs,
Texas, and Detroit, Michigan), although task orders had been issued one
to two years earlier, no equipment had been delivered and no work was
underway at the time we contacted Border Patrol officials. At three
additional locations (Buffalo, New York, Nogales, Arizona, and Laredo,
Texas), some equipment had been installed but the components were not
operational. In Buffalo, only four of 59 cameras had been installed. At
Nogales and Laredo, some work had been done, but system components were
still not operational as other equipment, such as microwave towers, had
yet to be installed. On our visit to Naco, Arizona, some equipment had
been delivered, but there was no evidence of installation. We found
parts in storage and laying on the desert floor adjacent to Border
Patrol property. According to Border Patrol officials, no contractor
personnel had been on-site since the equipment was delivered to Naco
about a year prior to our visit.

Border Patrol officials at the Arizona locations raised concerns about
workmanship and adherence to national electrical codes and, in
particular, protection against lightning strikes. The Border Patrol's
local electronic technicians had been left largely in the dark as to the
equipment to be furnished or the design of the system to be provided; no
one provided them with design drawings or specifications for the
equipment.

The table below summarizes the status of RVS improvements at each of the
eight sites we reviewed:

  ------------------- -------------- ---------- ----------------- --------------
  **State Location**  **Value**      **Date     **Status**        **Amount Paid
                                     Issued**                     to the
                                                                  Contractor**

  Carrizo Springs, TX \$ 4,742,500   12/09/02   Not Installed     \$ 2,190,169

  Nogales, Arizona    \$ 3,048,500   11/15/01   Partially         1,758,980
                                                Installed         

  Laredo, Texas       \$ 4,156,175   10/25/02   Partially         4,114,933
                                                Installed         

  Naco, Arizona       \$ 3,536,550   06/29/01   Not Installed;    2,850,649
                                                some equipment    
                                                delivered         

  Tucson Station,     \$ 2,345,000   05/21/02   Not Installed     623,974
  Arizona                                                         

  Detroit, Michigan   \$ 3,343,500   05/13/03   Not Installed     362,880

  Buffalo, New York   \$ 5,287,500   01/31/03   Partially         1,347,713
                                                Installed         

  Blaine, Washington  \$ 6,695,182   11/24/99   Operational       6,624,367
                                                Problems          

  Totals:             \$33,154,907                                \$19,873,665
  ------------------- -------------- ---------- ----------------- --------------

Delays were often attributable to the acquisition of the land where the
camera monopoles or transmission towers were to be installed. The task
orders required the contractor, at a cost to the Government of about
\$280,000, to provide assistance to the Government in acquiring the
sites, but did not define what specific work was required. Border Patrol
officials told us that little assistance in acquiring the property had
been provided by the contractor. Instead, Border Patrol officers
themselves were charged with identifying property owners and negotiating
leases or access rights.

It made little sense for FTS to issue task orders for procurement and
installation of the RVS system before sites had been acquired. Yet that
is what occurred. The contractor ordered equipment and billed the
Government for equipment that languished in warehouses.

Delays in installation and operation of the RVS components were also
exacerbated by FTS officials extending, without adequate justification,
the period of contract performance for the task orders. Of the 13 task
orders sampled, there were 18 contract modifications to extend the
period of performance, none of which included proper justification for
the extension.

Further, due to lack of contract oversight, some Management,
Administration, and Engineering task orders inappropriately specified
higher billing rates than required. In one order for \$3.1 million for
labor costs and program management support, FTS incorporated higher
labor rates from another IMC contract into the task order with a sole
source justification, costing the Government an additional \$600,000. A
task order for \$1.8 million of additional funding for program
management support similarly incorporated the higher labor billing rate,
resulting in an estimated additional cost to the Government of
\$219,000. These task orders were performed on a time-and-materials
basis, yet the invoices submitted to the FTS, and which FTS paid, did
not include the required support for hours worked and hourly billing
rates.

[Providing Less Expensive Equipment Without Contracting Officer
Approval]{.underline}

In numerous instances, the contractor did not provide the thermal
imaging camera equipment that its pricing worksheets identified as a
component of the contract line items provided for in the BPA. Instead,
the contractor provided less expensive cameras having less capability.
According to the contract files, there was no corresponding reduction
price to the Government, and approval for the changes was not obtained
from the FTS contracting officer.[^4] This created a potential for
overpayments of at least \$6.5 million for thermal imaging cameras when
medium-range cameras were provided instead of the more expensive
long-range ones.

Bills of material reviewed during our audit, used by the contractor to
price the Border Patrol project, provided for FLIR brand thermal imaging
cameras with doubler lenses at a cost of \$48,500. The doubler lens,
valued at \$10,000, expanded the camera's range of vision. The Border
Patrol purchased several hundred of these cameras, but few actually
included the doubler lens. As of the end of our field work, the Border
Patrol's master inventory data showed 396 FLIR brand thermal imaging
cameras, but only 78 were delivered with the doubler lens, resulting in
a potential overcharge to the Government of approximately \$3,180,000
(318 x \$10,000).

### The contractor provided two types of other cameras that also did not come with doubler lenses, and were uncooled, medium-range cameras, as opposed to the cooled, long-range cameras that were built into the contract price. The master inventory data showed 328 ISAP brand cameras. This camera was priced on the FSS multiple award schedule at \$38,500, resulting in a potential overcharge to the Government of at least \$3.28 million (\$48,500 - \$38,500 = \$10,000; 328 x \$10,000 = \$3,280,000). The Border Patrol inventory also showed 70 BAE brand cameras, another less expensive thermal imaging camera, priced at \$23,080, resulting in a potential overcharge of \$1,779,400 (\$48,500 -- \$23,080 = \$25,420; 70 x \$25,420 = \$1,779,400).

### Contractor officials[^5] told us that thermal imaging cameras with doubler lenses were not required for every installation, and that the contract gave the Border Patrol the flexibility to decide which type of camera it needed. However, we learned from the contractor that each BPA contract line item that included a thermal camera installation was priced to include the more expensive camera with doubler lens. No adjustment to the BPA price to reflect the less expensive equipment was offered by the contractor or requested by FTS.

[Ineffective Management Controls.]{.underline}

Overall, for the RVS task orders we reviewed, we determined that FTS did
not have adequate internal controls to ensure that the procurements were
made and executed in accordance with applicable regulations. Contracting
officers often did not get involved in the development of requirements
or decisions on procurement methodology until the Border Patrol had
already made those crucial decisions. Consequently, orders were signed
that often were flawed from the beginning.

FTS contracting officials did not adhere to federal acquisition
regulations governing purchases under the multiple award schedule and as
a result failed to obtain adequate competition and ensure fair and
reasonable pricing for the Government. Time-and-materials task orders
were issued to contractors with no review of labor hours to ascertain
the level of effort necessary to accomplish the work, and there was no
evaluation of the proposed mix of labor skills to determine if the
contractor's proposal met the needs of the Government.

In many instances, FTS approved payment for services and installations
never inspected. FTS failed to visit the sites or adequately verify
whether or not services invoiced were actually rendered, and whether
work had actually been completed. In some cases, FTS paid for products
that were not installed, or were still sitting in the contractors' or
manufacturers' warehouses.

In summary, from our review of the task orders for the RVS
installations, it is clear that neither FTS nor the Border Patrol
adequately fulfilled its responsibilities in administering the contract
and managing the project. Proper adherence to government contracting
competition requirements was lacking. Task orders awarded to contractors
failed to adequately define the actual work to be performed. Improper
contracting vehicles were used to accomplish client agency objectives.
Border Patrol officials failed to bring contractor deficiencies to FTS'
attention, and FTS itself performed no inspections. Nevertheless, the
contractor continued to receive payment for incomplete work. RVS systems
remained to be fully installed long after the specified contract
performance period, and installed equipment did not operate properly.

# Lessons Learned

The RVS program reflected many of the problems that can arise when
attempting to execute major projects without the benefit of sound
acquisition planning and effective project management and oversight.
There are a few fundamentals of good contracting that, if properly
adhered to, would have greatly increased the chances for overall project
success.

First, the client agency is in the most knowledgeable position to
develop the requirements for its own programs. It knows best what the
agency's program objectives should be. It also should recognize what its
in-house capabilities are and be able to determine if outside assistance
is required to better define its contract requirements. GSA's role
should be to ensure that the client's requirements are described in
sufficient detail to allow potential vendors to prepare proposals and to
foster competition in response to the Government's stated needs.

Second, sufficient time must be set aside to allow for proper
acquisition planning. GSA and the client agency need to collaborate at
the earliest possible time to identify the most appropriate and
efficient procurement vehicle and to ensure there is proper competition.
The procurement vehicle selected should provide the full scope of
services and commodities that have been identified as necessary to
accomplish the project. Attempting to "shoehorn" a broad and complex
project into a narrowly defined contract vehicle is a recipe for
problems further down the road; it may also unfairly preclude awards to
vendors who may be better qualified to accomplish the work. Proper
competition of a project among several vendors or teams of vendors will
generally produce a wider range of potential solutions, and often
generates questions from the vendors about the project that may identify
problems not addressed in the original plan. It affords the greatest
assurance of obtaining the best value for the government.

Third, the evaluation of proposals received from contractors is the
responsibility of GSA as the contracting agency. Experts in the client
agency's program, however, should participate as members of evaluation
panels or technical advisors. Evaluations of proposals should be
performed in accordance with the factors established by the Government
during the acquisition planning process and conducted with integrity and
independence and in accordance with established regulations and
practices.

Finally, the contracting officer should establish a formal plan
identifying the roles and responsibilities of GSA and the client agency
in ensuring that the contract terms and conditions relating to quality,
quantity and timeliness are met. The Government representatives charged
with these responsibilities must collectively possess the knowledge,
training and experience to handle the job. The responsibilities and
authorities of the team members should be defined in writing by the
contracting officer and/or the project manager. Just as musicians need a
conductor to make them into an orchestra, a project needs a single
overall director to make sure that all the parts come together in a
planned sequence. Communication among team members at all levels and
effective oversight by the agencies involved is crucial to ensuring that
the often unforeseen complications and disruptions that can affect any
large project can be addressed before they become serious problems.

We firmly believe that had the RVS program followed these basic precepts
of proper government contracting, the mission of the client agency and
the interests of the taxpayer would have been far better served.

Before closing, I think it is important to let the Committee know that
GSA and FTS have made a number of improvements since our initial audits.
In July 2004, the Administrator, in conjunction with DoD, launched the
"Get it Right" program to help ensure proper contracting practices. The
initiative has led to the implementation of better controls across FTS
nationwide, as well as individual Client Support Center management
improvement plans. It has resulted in greatly increased attention to
ensuring adequate competition, determining best value, and utilizing and
properly administering the appropriate contract vehicles. These efforts
have been fully supported by GSA's management team. We believe the
agency is making genuine progress in addressing the serious contracting
deficiencies found in our reviews.

In conclusion, the RVS effort was in many respects a major project gone
awry. A principal reason was the failure to follow basics: to adhere to
proper procurement rules and practices; to ensure there was adequate
planning, selection of an appropriate contracting approach, and open
competition; to ensure on-going communication between GSA and the client
agency, and between headquarters and on-site users; and to ensure there
was attentive contract administration and effective oversight of
contractor performance. All of these are simply basic elements of good
procurement practices. Our review of FTS contracting, and the experience
with the Border Patrol's RVS program, demonstrates just how important
such basics are to protecting the public interest and to the proper
stewardship of taxpayer funds.

Mr. Chairman, that concludes my formal statement. I would be happy to
answer any questions you or members of the Subcommittee may have.

[^1]: "Compendium of Audits of the Federal Technology Service Regional
    Client Support Centers," dated December 14, 2004.

[^2]: As our work was a review of GSA's procurement practices, we did
    not review the overall efficiency, effectiveness, or management of
    the RVS program.

[^3]: A BPA (blanket purchase agreement) is a vehicle which provides a
    simplified method of filling agencies' anticipated repetitive needs
    for supplies or services. BPAs are typically established under
    existing multiple award schedule (MAS) contracts, but can also be
    freestanding arrangements. This BPA was a teaming arrangement
    involving six FSS MAS contractors whose products and services would
    be used to provide the RVS' components.

[^4]: There is some evidence that the contractor may have informed
    headquarters Border Patrol personnel of the planned substitution of
    cameras. However, GSA contracting officials were not so informed.

[^5]: L-3 Communications acquired IMC in February 2003, and became the
    contractor of record on the project.