Background

In recent years, agencies have increasingly placed orders against existing  contracts that have been awarded by another agency to save time and  administrative effort. Rather than going through the often lengthy process  involved in awarding a new contract for services—soliciting offers,  evaluating proposals, and awarding the contract—agencies can place task  orders against established indefinite quantity contracts that meet their  needs. When placing orders against multiple-award task order contracts,  agencies are generally required to ensure that contractors have a fair  opportunity to be considered for each order with certain exceptions (such  as urgency or logical follow-on). For GSA Schedule contracts, agencies are  required to follow ordering procedures such as reviewing prices from at  least three contractors, evaluating prices for services requiring a statement  of work, and seeking price reductions for large orders.
Interagency contracting is often handled by entrepreneurial, fee-for- service organizations, where agency contracting units operate like a  business and provide contracting assistance to other agencies for a fee.  The Interior contracting office that placed the orders for interrogation and  other services—the Southwest Branch of Interior’s National Business  Center, located in Fort Huachuca, Arizona—is one such organization. This  office’s contracting activity, primarily on behalf of other agencies, has  increased substantially over the past 3 years, with reported obligations  increasing from $609 million in fiscal year 2002 to $1.02 billion in fiscal  year 2004.
The fee-for-service procurement process generally involves three parties:  the agency requiring a good or service; the agency placing the order or  awarding the contract; and contractors providing the goods and services  the government needs. The requiring agency officials determine the goods  or services needed and, if applicable, prepare a statement of work,  sometimes with the assistance of the ordering organization. The  contracting officer at the ordering office ensures that the contract or order  is properly awarded or issued (including any required competition), and  administered under applicable regulations and agency requirements. If  contract performance will be ongoing, a contracting officer’s  representative—generally an official at the requiring agency with relevant  technical expertise—is normally designated by the contracting officer to  monitor the contractor’s performance and serve as the liaison between the  contracting officer and the contractor.
At the same time as use of interagency contracting has increased, DOD has  also increased its use of contractors in military operations. Particularly  since the 1991 Gulf War, contractors have taken over support positions  that were traditionally filled by government personnel. For example, a  company that CACI later acquired began providing intelligence support to  the Army in Germany in 1999. When the Army in Europe deployed  intelligence personnel to the Iraq theater in 2003, CACI employees went  with them. Following the announcement of the end of major combat in  May 2003, the Army, as part of the Coalition Joint Task Force Seven  (CJTF-7), was expecting a non-hostile situation and did not plan for an  insurgency. It was unprepared for the volume of Iraqi detainees and the  need for interrogation and other intelligence and logistics services. An  Army investigative report from August 2004 noted that the CJTF-7  headquarters in Iraq lacked adequate personnel and equipment and that  the military intelligence units at Abu Ghraib were severely under- resourced.
The out-of-scope orders for interrogation and other services issued by  Interior have been terminated. However, the Army has continued  contracting for intelligence functions and logistics services through bridge  contracts awarded on a sole source basis to CACI. The original term of the  contracts was 4 months, and the Army subsequently exercised options for  an additional 2 months, through early 2005. According to an Army official,  the contract terms were recently extended further to allow the Army  adequate time to competitively award contracts for these services.
Recently, in the Ronald W. Reagan National Defense Authorization Act for  Fiscal Year 2005,  Congress took steps to ensure the proper use of  interagency contracts by DOD, the largest customer for these types of  contract arrangements. The act prohibits DOD from procuring goods and  services above the simplified acquisition threshold (generally $100,000)  through a contract entered into by an agency outside DOD, unless the  procurement is done in accordance with procedures prescribed by DOD  for reviewing and approving the use of such contracts. The conference  report accompanying the legislation established expectations that    DOD’s procedures will ensure that any fees paid by DOD to the  contracting agency are reasonable in relation to work actually  performed;  the supplies or services are consistent with the appropriated funds  being used;  the goods and services procured are within the scope of the non-DOD  contract vehicle; and    such orders are in compliance with all applicable DOD-unique statutes,  regulations, directives, and other requirements prior to approval.
Further, the act required reviews of certain non-DOD contracting offices  to determine if they are compliant with Defense procurement  requirements.  If an office is deemed non-compliant, DOD could be  prohibited from ordering, purchasing or otherwise procuring property or  services in excess of $100,000 through that contracting office. In addition,  a recent change to the Federal Acquisition Regulation (FAR), effective July  2004, added language to make it clear that a contracting officer placing an  order against a GSA Schedule on another agency’s behalf is responsible for  applying that agency’s regulatory and statutory requirements.

	Breakdowns Occurred When Interior Procured Interrogation and Other Services for DOD

The process of procuring interrogation and other services for DOD broke  down at numerous points. In general, breakdowns in the procurement  process, such as not following competition requirements and not properly  justifying the decision to use interagency contracting, occurred when the  orders were issued. The process also broke down during the  administration of the contract, as the contractor’s performance was not  adequately monitored. Because the officials at Interior and the Army  responsible for the orders did not fully carry out their roles and  responsibilities, the contractor was allowed to play a role in the  procurement process normally performed by the government. This  situation increased the risk that the government would not get the services  it needed at reasonable prices and in compliance with competition and  other contracting requirements.

		Task Orders Were Out of Scope of Underlying Contract

Orders issued outside the scope of the underlying contract do not satisfy  legal requirements under the Competition in Contracting Act for  competing the award of government contracts. In such cases, the out-of- scope work should have been awarded using competitive procedures or  supported with a justification and approval for other than full and open  competition. The Interior IG and GSA have determined that 10 of the 11  task orders issued by Interior to CACI for interrogation and other services  in Iraq were outside the scope of the underlying GSA information  technology contract. The Army has also determined that interrogation  services were outside the scope of the contract.
The labor category descriptions in the GSA contract were, in most cases,  significantly different from the descriptions on DOD’s statements of work  and do not accurately represent the work that the contractor performed.  Table 1 demonstrates some of the disparities between the labor categories  in DOD’s statements of work and the information technology contract.
CACI representatives stated that they determined the salary and benefits  the company would pay interrogators and screeners and then selected the  GSA information technology contract labor categories that would  sufficiently cover the company’s employee salary and benefits expenses,  overhead, and profit. In other words, CACI selected the labor categories in  the contract for cost and pricing purposes, rather than as a reflection of  the work to be performed. Army representatives in Iraq told us that the  services on the orders for interrogators, screeners, and logistics support  were not information technology services. The Interior contracting officer  also had concerns about whether the orders were within scope, asking the  contractor for a verbal and, later, written explanation as to how the labor  categories in the contract were related to the services the company was to  provide in Iraq.
The contracting officer neglected to follow a requirement for legal review  that could have raised questions about whether the orders were within  scope. A July 2001 Interior policy requires legal review for all proposed  solicitations in excess of $500,000 for non-commercial items and $2 million  for commercial items. Interior contracting officials stated that they did not  believe this requirement extended to orders placed on GSA contracts.  Representatives from Interior’s offices of general counsel and acquisition  policy, however, told us that orders placed on GSA contracts are subject  to legal review and that the orders for interrogation and other services  should have been reviewed.
Further, the Interior contracting officer did not perform the required  evaluation of the contractor’s proposed approach for addressing DOD’s  requirements. Normally, when ordering services from GSA Schedules that  require a statement of work, the ordering office is responsible for  evaluating the contractor’s level of effort and mix of labor proposed to  perform the specific tasks being ordered and for making a determination  that the price is reasonable. In this situation, however, the Interior  contracting officer did not evaluate the mix of labor categories or establish  that the level of effort was reasonable. Although documents in Interior’s  contract files provided that “technical review does not take exception to  the proposal,” no documentation exists to support the statement that an  evaluation was performed and, in fact, Interior contracting officials told us  that no such review was done.

		DOD Task Order Competition Requirements Were Not Followed

In addition to violating competition rules by placing orders that were not  in the scope of the underlying contract, Interior contracting officials also  did not comply with requirements contained in section 803 of the National  Defense Authorization Act for Fiscal Year 2002 relating to DOD’s purchase  of services from GSA Schedule contracts. Specifically, for DOD orders for  services over $100,000 placed on GSA contracts, notice must be provided  to all GSA Schedule contractors offering the required services or to as  many contractors as practicable to ensure that offers will be received from  at least three contractors. If three offers are not received, a written  determination must be made that no additional contractors could be  identified despite reasonable attempts to do so. The requirements that  DOD orders be placed on a competitive basis can be waived in writing for  certain circumstances such as urgency. Section 803 requirements applied  to the Iraq orders, even though Interior was the contracting agency,  because DOD regulations require application of section 803 provisions to  orders placed by non-DOD agencies on behalf of DOD. The Interior  contracting office, however, placed the orders directly with CACI without  notifying other prospective contractors. Interior did not make any written  determination that no additional contractors could be identified or that the  competition requirement should be waived in this case.

		Decision to Use Interagency Contracting Was Not Properly Justified

In contracting through Interior, the Army did not follow requirements to  justify use of interagency contracts. According to procurement  regulations, an Economy Act determination and findings should have been  approved by an Army contracting officer or another designated official to  justify the use of Interior to acquire the services for the Army. The  Economy Act authorizes agencies to enter into mutual agreements to  obtain supplies or services by interagency acquisition. The FAR mandates  that the requiring activity document that an Economy Act order is in the  agency’s best interest and that it cannot obtain the goods and services as  conveniently or economically by contracting directly with a private  source. However, Army personnel did not prepare the determination and  findings, as required.

		Ordering Procedures Meant to Ensure Best Value Were Not Followed

Interior placed the orders with CACI by using a blanket purchase  agreement (BPA) established under the GSA Information Technology  Schedule contract in 1998. BPAs, a simplified method of filling  anticipated repetitive needs for supplies and services, allow agencies to  establish “charge accounts” with qualified vendors. The BPA in this case  was improperly established and improperly used. Interior’s contracting  office did not comply with required BPA procedures meant to ensure the  government receives the best value for its dollars and that competition is  encouraged. Under procedures referred to in the Schedule contract,  ordering offices that establish a single BPA are required to select a  contractor that represents the best value and results in lowest overall cost,  and to inform other contractors of the basis for the selection. We found no  evidence, either in the BPA files or in our discussions with Interior  contracting staff, that these requirements were followed, even though  documents in the contract files state that the BPA is “best value.” In  essence, the BPA was used to direct business to the company on a sole  source basis.
Contracting officials also failed to seek discounts from CACI’s established  GSA contract prices, as required. Applicable procedures in the contract  stipulate, for example, that discounts are to be sought when orders exceed  $500,000. We found that no discounts were sought, even though the value  of the orders for work in Iraq ranged from $953,000 to $21.8 million. In  addition, the procedures in the GSA contract require that BPAs are  reviewed annually to ensure the government continues to receive best  value. These annual reviews were never conducted. Further, the BPA was  improper because it did not contain defined requirements, as stipulated in  the GSA contract. Rather, the BPA states that “the categories of service  provided by this BPA may include but are not limited to” various classes of  information technology services. Finally, in 2001, Interior added several  items and services to the BPA. This action improperly expanded the scope  of services contained in the underlying GSA contract. According to GSA  guidance, such scope expansions are a potential violation of the  Competition in Contracting Act. When we asked Interior’s contracting  officials—including the contracting officer who signed the BPA—about  these additions, they were unable to explain how or why the additions had  been made.

		Contractor’s Performance Was Not Adequately Monitored

One of the contracting officer’s key responsibilities is ensuring that the  government monitors the contractor’s performance. The contracting  officer may assign this responsibility to a contracting officer’s  representative (COR). At Interior, the contracting officer is required to  verify that the COR has the appropriate training and to issue a designation  letter to the COR outlining the duties to be performed. These duties can  include    verifying that the contractor performs the technical requirements of the  contract in accordance with the contract terms, conditions, and  specifications;    monitoring the contractor’s performance, notifying the contractor of  deficiencies observed during surveillance, and directing appropriate  action to effect correction; and  reporting to the contracting officer in a monthly report the  performance of services rendered under the contract.
We found that Interior’s contracting officials never verified that the Army  personnel serving as CORs had the appropriate training and, with one  exception, sent the COR designation letter either months after the fact or  not at all. Interior officials, including the contracting officer who placed  the orders for DOD, had no explanation for why contractor surveillance  policies were not followed. Moreover, the contracting officer had little to  no communication with the CORs in Iraq and did not follow up to obtain  monthly reports from them on the contractor’s performance.
Proper surveillance of the contractor’s performance under the orders was  especially critical because the work was done on a time and materials  basis, where services are billed on the basis of direct labor hours at  specified fixed hourly rates (which includes wages, overhead, general and  administrative expenses, and profit). According to the FAR, time and  materials contracts require appropriate government oversight because  there is no incentive for the contractor to control costs or be efficient.  This requirement was recently reiterated in a September 2004 memo from  DOD’s Director, Defense Procurement and Acquisition Policy, which  states that, because labor hour and time and materials contracts usually  require significant surveillance to ensure the government receives good  value, CORs should be appointed to verify the appropriateness of labor  categories and the reasonableness of the number of hours worked.
In Iraq, the Army CORs responsible for the orders for interrogation and  other services performed limited surveillance of the contractor’s  performance. Contractor employees were stationed in various locations  around Iraq, with no COR or assigned representative on site to monitor  their work. One contractor interrogator who had been located at the Abu  Ghraib prison told us that, although he interacted with military personnel  at the prison, he had no interaction with the COR. Further, although the  COR in Baghdad stated that he relied on other military personnel on site to  report back to him, a recent Army investigative report showed that the  military personnel on site were not given guidance on how to oversee the  contractors. In fact, one of the military interrogators at Abu Ghraib prison  indicated that the primary point of contact for the contractors was the  contractor’s on-site manager, with no mention of the COR. The Army  investigative report pointed to this lack of contractor surveillance at the  Abu Ghraib prison as a contributing factor to the environment in which  the prisoner abuse occurred. The report noted that it is very difficult, if not  impossible, to effectively administer a contract when the COR is not on  site and that the Army needs to improve its oversight of contractors’  performance to ensure that the Army’s interests are protected.

		Contractor Played a Role in the Procurement Process Normally Performed by Government Personnel

In procuring the interrogation and other services in Iraq, Interior and Army  officials abdicated their contracting responsibilities to a large degree. In  this void, the contractor played a significant role in developing, issuing,  and administering the orders, including  identifying the contractor’s BPA with Interior as the contract vehicle to  provide the services;    drafting statements of work;    suggesting that Army officials use the company’s rough order of  magnitude price as the government cost estimate;    acting as a conduit for information from the Army in Iraq to the Interior    providing the Interior contracting office with a draft justification and  approval to award additional work to the company on a sole source  basis;    sending invoices directly for payment; and  requesting that construction work be performed under the BPA, which  would have also been out of scope from the GSA Schedule contract,  although subsequent discussions between CACI and Interior  contracting officials resulted in the work being awarded separately on  a sole source basis due to urgency.
By acting in this manner, the contractor effectively replaced government  decision-makers in several aspects of the procurement process. For  example, a contractor employee proposed the initial requirements package  for human intelligence, which included interrogators, and provided  information to the Army personnel regarding skill sets needed for  positions. Contractor employees also identified the company’s BPA with  Interior as the contract vehicle to provide the services. Contractor officials  acknowledge they helped to draft statements of work, with contractor  employees in Iraq sending the statements of work to company  headquarters in the United States for suggestions. In fact, one of the  statements of work we found in official contract files was on the  contractor’s letterhead. We also found that contractor employees wrote a  draft justification and approval for Interior to award additional work  noncompetitively to the company. Such a level of participation by the  contractor creates a conflict of interest and undermines the integrity of the  competitive contracting process.
Contractor officials explained that they marketed their services directly to  Army intelligence and logistics officials in Iraq because of relationships  they had developed over time. According to contractor officials, Army  officials told them to work directly with the Interior contracting office  because the DOD contingency contracting office in Iraq was focused on  obtaining other necessary services. They also told us that, because military  communication channels were not adequate, they communicated directly  with the Interior contracting office. Interior contracting officials went  along with this arrangement, citing problems in reaching Army officials in  Iraq. The contract files contain emails between the contractor and Interior  contracting officials on matters such as funding requests, statements of  work, and COR assignments. Further, a COR responsible for the logistics  orders told us that contractor officials informed him that Interior had  merged two task orders; he was unaware that this had occurred.  According to contractor officials, because Army and Interior officials  allowed contractor personnel to act as the go-between, the contractor sent  its invoices directly to Interior for payment after the COR signed them, as  opposed to the normal practice of having government personnel perform  this task.

	Need for Strong Management Controls

Although use of streamlined contracting vehicles can be beneficial, they  must be effectively managed to ensure compliance with the FAR and to  protect the government’s interests. When a requiring agency’s contracting  needs are being handled by an outside agency, effective management  controls become even more critical due to the more complex environment  involved. Management controls, synonymous with internal controls, are an  integral component of an organization’s management that provide  reasonable assurance that operations are effective and efficient and that  employees comply with applicable laws and regulations. Two controls  include management oversight and training. When these controls are not  in place, particularly in a fee-for-service environment, more emphasis can  be placed on customer satisfaction and revenue generation than on  compliance with sound contracting policy and required procedures. We  found an absence of these management controls for the 11 orders that  were issued and administered for interrogation and other services.

		Lack of Management Oversight

Significant problems in the way Interior’s contracting office carried out its  responsibilities in issuing these orders were not detected or addressed by  management. Further, managers at this office told us that they  intentionally created an office culture of providing inexperienced staff  with the opportunity to learn contracting by taking on significant  responsibilities. More experienced contracting officers were responsible  for overseeing and reviewing less experienced and trained purchasing  agents and contract specialists. However, some staff told us that the  contracting officers’ reviews were not always thorough and appeared to be  a “rubber stamp.” Further, some staff indicated discomfort at the level of  responsibility given to less experienced personnel and believed oversight  of the activities of these employees was inadequate.
Moreover, Interior’s headquarters did not exercise thorough oversight of  the contracting activity that placed the orders. An April 2003 Interior  Acquisition Management Review concluded that the contracting office was  highly effective, despite the fact that the review identified a number of  problems where contracting personnel did not comply with sound  contracting practices. Nonetheless, an Interior headquarters official told  us that the contracting office did not require extensive oversight, based in  part on the determination that the office was highly effective. The review  cited the following:    A conscious decision was made not to comply with Interior’s  requirements for legal review because the office believed the reviews  took too long.
A general weakness in cost support was noted. For instance, “best  value” analysis was cited in sole source awards. Also, the contracting  office accepted contractors’ proposed prices without analyzing the cost  and pricing data in depth to ensure that the prices were fair and  reasonable. Further, the contractor’s proposed cost and the  government’s cost estimate were identical without any explanation.
Labor rates included in contracts and orders were not adequately  justified.
Competition requirements were not followed when placing orders  using BPAs.
The review’s conclusion that the office was highly effective was based in  part on the office’s peer review process, where contracting actions were  reviewed by a second person as a management control. However, the  review found no consistent methodology or format for the peer reviews  and little or no information on results. Rather, the process for conducting  and reporting the results of the reviews varied from individual to  individual. Based on our interviews with Interior employees, we found that  the peer reviews were often conducted by personnel with little contracting  experience and training.
Adequate management oversight is particularly critical to ensuring that  interagency fee-for-service contracting organizations, such as the Interior  contracting office, comply with procurement regulations. The fee-for- service arrangement creates an incentive to increase sales volume in order  to support other programs of the agency that awards and administers an  interagency contract. This may lead to an inordinate focus on meeting  customer demands at the expense of complying with required ordering  procedures. The managers at Interior’s contracting office promote a  business-like entrepreneurial philosophy modeled after the private sector  and empower employees to market services, interact with contractors, and  make decisions in support of acquisitions. We found examples where the  Interior contracting office marketed its BPA with CACI to federal agencies  as a way to obtain services quickly without competition. Further, the  performance measures for individual employees at Interior’s contracting  office, which measure quality, teamwork, and customer service,  specifically state that customer satisfaction is a high priority in achieving  good customer service. In fact, Interior’s Acquisition Management Review  of the contracting office focused heavily on customer satisfaction as a  performance metric. Several of the office’s customers were interviewed,  and their compliments were summarized in detail as a key section of the  review.
The Army also lacked management oversight of the contracting activity for  interrogation and other services. This lack of oversight is evidenced by  some questions that were raised by the Army’s Chief of Contracts in Iraq in  February 2004, about 6 months after the initial orders were placed. The  Chief of Contracts asked the Interior contracting office    whether the orders were against a GSA contract and what the contract    what labor rates were included in the contract,    whether there was a performance description for contractor personnel    whether all contractor employees in Iraq were in accordance with the    who had been keeping track of the labor hours the contractor billed to    whether Interior had received monthly status reports on the  contractor’s performance, and    whether an Economy Act determination and findings had been  prepared.
Further, DOD is required to have a management structure in place for the  procurement of services that provides for a designated official in each  military department and defense agency to exercise responsibility for the  management of the procurement of services by that department or  agency. This management structure is to include a means by which  employees of the departments and defense agencies are accountable to the  designated officials for carrying out certain requirements. These  requirements include ensuring that services are procured by means of  contracts or task orders that are in the best interest of DOD and are  entered into or issued and managed in compliance with applicable  statutes, regulations, directives, and other requirements, regardless of  whether the services are procured by DOD directly or through a non-DOD  contract or task order. These requirements also include approving, in  advance, any procurement of services above certain thresholds that is to  be made through the use of a contract entered into, or a task order issued,  by a government official outside DOD. Notwithstanding the requirement  for this management structure, it is clear that DOD’s implementation did  not ensure that these requirements were met in procuring the  interrogation and other services through Interior.

		Lack of Adequate Training

Interior’s contracting office personnel and Army personnel in Iraq that  were responsible for the orders for interrogation and other services lacked  adequate training on their contracting responsibilities. While a warranted  contracting officer at Interior signed the orders, certain requirements were  not understood or followed, such as the need for legal review and  competition. Further, an inexperienced purchasing agent administered the  BPA on a day-to-day basis, including preparing various contracting  documents. The employee had taken only one basic contracting course,  even though the contracting office’s training requirements require  purchasing agents to take three contracting courses. Moreover, one staff  member who had not taken the required training for a purchasing agent  position was promoted to a contract specialist position. Several  contracting employees we spoke with were concerned about the  frequency and consistency of training they had received. We found that  employees took training on their own initiative and that the training was  not monitored or enforced by managers.
Army personnel in Iraq responsible for overseeing CACI employees’  performance in Iraq were not adequately trained to properly exercise their  responsibilities. An Army investigative report concluded that the lack of  training for the CORs assigned to monitor contractor performance at Abu  Ghraib prison, as well as an inadequate number of assigned CORs, put the  Army at risk of being unable to control poor performance or become  aware of possible misconduct by contractor personnel. We found that the  personnel acting as CORs did not, for the most part, have the requisite  training and were unaware of the scope of their duties and responsibilities.  For example, they did not know that they were required to monitor and  verify the hours worked by the contractor and instead just signed off on  the invoices provided by the contractor. During the course of our work,  we found confusion about whether the CORs were required to meet  Interior’s or DOD’s training requirements. DOD and Interior officials told  us that no policy or guidance exists on this matter when interagency  contracting is used.
One COR for the logistics orders in Iraq, who had prior contracting  experience, observed problems with two orders as soon as he was  designated COR in February 2004. The concerns included: (1) a “clear  mismatch” between the underlying contract and the statement of work,   (2) the fact that no invoices had been submitted for work that began  several months earlier, (3) Army personnel not overseeing and verifying  time cards, (4) significant delays and issues in communicating with  Interior’s contracting office, and (5) significant problems with the  administration of the orders by both the government and the contractor.

	Too Early to Tell If Actions to Increase Oversight and Improve Training Will Be Effective

The discovery of the problems with the Iraq orders encouraged Interior  and DOD to take corrective actions aimed at improving management  oversight and training, particularly as they pertain to interagency  contracting. However, due to the recent nature of these efforts, it is too  soon to tell how effective they will be.
In June 2004, Interior issued a policy memorandum prohibiting its  contracting officers from acquiring interrogation or human intelligence  services “regardless of the dollar value” for internal or external customers.  Further, to focus attention on proper use of GSA contracts, Interior plans  to evaluate its use of GSA contracts in its fiscal year 2006 agencywide  targeted performance review, an annual self-reported review by each of its  contracting activities focusing on issues that are deemed important by top  executives.
Also in June 2004, Interior’s National Business Center, which has direct  oversight responsibility for the contracting office that placed the orders  for DOD in Iraq, clarified for its contracting activities the requirements for  competition when ordering on behalf of DOD. At the same time, it updated  its policy outlining COR requirements, emphasizing the need for written  designation letters; issued new guidance for using BPAs and GSA  contracts; and clarified its legal review policy. Moreover, the National  Business Center intends to hire an additional manager whose  responsibilities will include overseeing the contracting activities under the  Center’s purview. Officials at Interior agree that management controls are  critical in fee-for-service contracting offices with a focus on customer  service, and, in comments on this report, Interior stated that the National  Business Center has established a new performance rating system that  provides incentives to contracting officials to exercise due diligence.
Officials at the Interior contracting office that ordered the services for the  Army told us that they are no longer placing orders against the CACI BPA.
Once all orders expire, the BPA will be terminated. In addition, in  December 2004, the contracting office released a revised independent  quality review process to include specific checks for GSA contract actions,  including whether the maximum order threshold is exceeded, section 803  competition compliance, and scope determination with a labor category  verification. Officials also plan to review the amount of activity on all  existing BPAs to determine if these BPAs are still needed and to assess  whether prices are competitive.  Interior, in commenting on this report,  stated that the contracting office has also established a policy to ensure  that BPAs are reviewed annually.
In addition, Interior has taken steps to improve training for its contracting  officers. For fiscal year 2005, Interior has required each of its contracting  activities to certify that all warranted contracting officers have taken two  training courses on GSA contract use. Further, the contracting office that  placed the orders for the Army has re-instituted regular, formal training  seminars for newer contracting staff. It has also implemented a new  mentoring program to augment training standards and assist new  employees in learning on the job. However, a mechanism is not yet in  place to track or monitor the training.
DOD, for its part, issued a policy in October 2004, signed by high-level  officials from the Office of the Comptroller and the Office of Acquisition,  Technology, and Logistics, requiring that military departments and defense  agencies establish procedures for reviewing and approving the use of  other agencies’ contracts. The procedures are to ensure that the use of  another agency’s contract is in the best interest of DOD; tasks are within  the scope of the contract being used; funding is being used in accordance  with appropriation limitations; unique terms and conditions are provided  to the ordering activity; and data are collected on the use of outside  ordering activities. The procedures took effect in January 2005. Most  military services have outlined procedures where the requiring activity is  responsible for coordinating with the contracting office, and in some cases  the legal and financial offices, when planning to use interagency  contracting and for documenting compliance with the policy’s guidelines.  While the policy does not include a mechanism for monitoring the  departments’ implementation plans, ensuring ongoing compliance with the  policy, or sharing information across DOD, agency officials stated that  these functions are being performed informally.

	Recommendations for Executive Action

While the actions Interior and DOD have recently put in place or plan to  initiate are positive steps, additional actions are needed to further refine  these efforts.  Accordingly, we recommend that:  The Secretary of the Interior take the following four actions:    Ensure that management reviews of Interior contracting offices  emphasize and assess whether contracting officials are trained  adequately and BPAs are used appropriately.
Ensure that performance measures for contracting officials provide  incentives to exercise due diligence and comply with applicable  contracting rules and regulations.
Ensure that CORs are properly designated when contracts are awarded  or orders are issued for other agencies and that they have met  appropriate training requirements.
Direct the National Business Center at Fort Huachuca to take the    Establish a consistent methodology for conducting peer reviews of  contracting actions and ensure that experienced and trained  contracting officials perform the reviews.
Ensure that reviews of BPAs are done annually, as required by the  FAR, to determine whether they still represent best value.
Ensure that the contracting staff are properly trained and effective  mechanisms are in place to track the training.
The Secretary of Defense take the following action:    Develop a mechanism to track implementation of the new policy that  establishes procedures for reviewing and approving the use of non- DOD contracts and to ensure that the military services and defense  agencies have the opportunity to share information on how they are  implementing it.

	Agency Comments and Our Evaluation

We provided a draft of this report to DOD, Interior, and CACI for review  and comment. Their written comments are included as appendices II, III,  and IV, respectively.
DOD agreed with our recommendation to develop a mechanism to track  implementation of the new policy that establishes procedures for  reviewing and approving the use of non-DOD contracts. DOD plans to post  implementation policies on its web site and is considering establishing a  community of practice on this issue. Our draft report contained a second  recommendation to ensure that CORs are properly assigned, as  appropriate, for all orders that DOD places on interagency contracts and  that they are provided requisite training. Because DOD recently concurred  with a similar recommendation in another GAO report, we have deleted  this recommendation.
Interior agreed with all of our recommendations and outlined actions and  plans to address the issues that we identified in our report. In general,  Interior is taking actions to improve oversight and training for its  contracting staff, in particular for the National Business Center offices.  In  some cases, officials initiated corrective actions during the course of our  review, as we brought issues to their attention.
While acknowledging that our report identified a number of areas where  the government can improve its contracting processes, CACI took issue  with several aspects of the report:
CACI suggested that our report does not adequately take into  account the impact of the wartime environment in Iraq. We believe  that our report adequately references the wartime situation. As  CACI pointed out, the wartime circumstances may have justified  the government’s use of non-competitive contracting procedures.   However, such authorized flexibilities were not employed by the  agencies involved.  Instead, as described in the report, Interior  improperly used CACI’s GSA contract in servicing its DOD  customer.
CACI offered a number of detailed comments to support its  position that the orders fell within the scope of the GSA contract.  We did not find these arguments convincing. Every government  agency involved determined that most of the work performed on  the orders was out of scope. Contrary to CACI’s assertion, our  finding was not based merely on a comparison of the labor  categories in CACI’s GSA contract and those in the orders’  statements of work, but on the material differences between the  services authorized by the GSA contract and the services actually  ordered by Interior and provided by CACI. While some of the  services involved information technology, that, by itself, does not  mean that those services (such as interrogation of detainees) can  be ordered from CACI’s GSA contract. The GSA contract is for the  performance of certain commercial-type information technology  services, not for any service that happens to involve the use of  information technology. As noted in our report, the Army officials  we spoke with stated that the services were not information  technology services. In addition, while CACI’s earlier orders from  GSA’s Federal Technology Service may help explain how the  services in Iraq came to be ordered by Interior, it is not  determinative of the proper use of that contract in this situation.
On the issue of the contractor playing an unusually large role in  actions normally performed by government officials, CACI defends  its actions as being appropriate in the wartime environment. The  intent of that section of our report is not to suggest that the  contractor acted with malfeasance; rather, we highlight the fact  that, because the government officials did not exercise due  diligence in carrying out their duties, the contractor was either  allowed or encouraged to step in to fill the void. Further, CACI  refers to our description of out-of-scope construction work and the  drafting of the sole source justification as “incomplete and out of  context.” Based on our audit work with Interior and CACI officials,  we found that CACI intended to include the construction work on  the order for intelligence services under the BPA. However,  because subsequent decisions by CACI contracting personnel and  Interior’s contracting office led to a separate, sole source award,  we revised the wording in our report to reflect this outcome. The  contractor did—as CACI’s response confirms—draft a sole source  justification for additional construction work. As stated above, we  included this in our report to demonstrate how the contractor was  encouraged to perform duties normally fulfilled by government  personnel.
CACI questioned whether our findings on the lack of adequate  contractor surveillance were well-founded. Our findings are not  based solely on our discussion with the contractor interrogator  who had been located at Abu Ghraib prison; rather, they are based  on our file reviews and a number of discussions with DOD officials.
We are sending copies of this report to the Director, Office of Management  and Budget, the Secretaries of Defense and the Interior, and CACI. We will  make copies available to others on request. In addition, this report will be  available at no charge on GAO’s Web site at http://www.gao.gov.
If you have any questions about this report, please contact me on (202)  512-4841 or Michele Mackin on (202) 512-4309. Other major contributors to  this report were Alexandra Dew, James Kim, Adam Vodraska, and Tatiana  Winger.

Appendix I: Scope and Methodology

We conducted our work at the Department of the Interior, including its  National Business Center headquarters and office at Fort Huachuca,  Arizona; and the Department of Defense (DOD), including the Defense  Procurement and Acquisition Policy office and the Department of the  Army. We also met with representatives of CACI, International, Inc.  (CACI) and the General Services Administration (GSA).
To determine what breakdowns occurred in the process of procuring  interrogation and other services and the contributing factors to the  breakdowns, we reviewed contract files on the 11 orders issued to CACI to  understand the facts about how the orders were issued. We also reviewed  internal controls and guidance to assess what safeguards were in place to  ensure compliance with regulations, including training requirements and  performance evaluation factors at the National Business Center’s office in  Fort Huachuca. We reviewed the two orders for interrogators, placed in  August and December 2003, to corroborate GSA’s and Interior’s  determination that the orders were out of the scope of the GSA contract.  We also identified and analyzed pertinent policies and regulatory  requirements governing the contracting process to assess whether  Interior, Army, and contractor officials operated in compliance with those  requirements. We interviewed Army representatives who were responsible  for overseeing the contractor’s performance in Iraq. We spoke with  officials at the Interior’s Offices of Acquisition and Property Management,  National Business Center, and employees of the Fort Huachuca office who  were involved with the orders for interrogation and other services.  Additionally, we interviewed several CACI employees, including a  contractor interrogator, and attorneys representing CACI. We used GAO’s  Standards for Internal Control in the Federal Government   (GAO/AIMD-00-21.3.1, November 1999) as criteria to demonstrate the  importance of management controls such as oversight and training.
To evaluate the extent to which actions taken by Interior and DOD address  contributing factors to breakdowns in the procurement process, we  identified and reviewed steps taken by these agencies, such as newly  released policies and guidance. In particular, we reviewed recently issued  policies from Interior’s headquarters, National Business Center, and the  contracting office at Fort Huachuca, as well as DOD.
We conducted our review from July 2004 to January 2005 in accordance  with generally accepted government auditing standards.

Appendix II: Comments from the Department of Defense

Appendix III: Comments from the Department of the Interior

Appendix IV: Comments from CACI International Inc.

Appendix IV: Comments from CACI  International Inc.

Appendix V: Summary of Task Orders Issued to CACI for Work in Iraq

	order value Description of order

Selected labor categories from  the CACI contract  $19,915,407  Provide interrogation support.
Provide screening cell management and  support.
Provide support to man, organize, and  execute as members of the Open Source  Intelligence Team.
Provide special security and security support  to the intelligence function.
Provide and maintain an operational property  book team.
Provide technical and functional knowledge  of the total property book system.
Provide technical and training support  services for a military information technology  system.
Assist in performance of human intelligence  and counterintelligence missions.
Assist in intelligence support staff and  analytical functions.
Establish and staff a Command Automation  Logistics Assistance/Instructional Team.
Provide technical and functional knowledge  of the total property book system.
Program/Project Manager, Subject  Matter Expert I  Maximum order values include order modifications made subsequent to the order date.

Summary:
Why GAO Did This Study

In recent years, federal agencies have increasingly turned to interagency contracts--where one agency, for example, places an order under an existing contract for another agency--as a way to streamline the procurement process. Interagency contracting can offer benefits of improved efficiency, but this approach needs to be effectively managed. To learn more about some of the challenges of interagency contracting, we reviewed the process that the Department of Defense (DOD) used to acquire interrogation and certain other services through the Department of the Interior to support military operations in Iraq. On behalf of DOD, Interior issued 11 task orders, valued at over $66 million, on an existing contract. This report identifies breakdowns in the procurement process, contributing factors that led to the breakdowns, and the extent to which recent actions by Interior and DOD address these contributing factors.

What GAO Found

DOD, faced with an urgent need for interrogation and other services in support of military operations in Iraq, turned to the Department of the Interior for contracting assistance. Numerous breakdowns occurred in the issuance and administration of the orders for these services. The breakdowns included issuing orders that were beyond the scope of the underlying contract, in violation of competition rules; not complying with additional DOD competition requirements when issuing task orders for services on existing contracts; not properly justifying the decision to use interagency contracting; not complying with ordering procedures meant to ensure best value for the government; and inadequate monitoring of contractor performance. Because the officials at Interior and the Army responsible for the orders did not fully carry out their roles and responsibilities, the contractor was allowed to play a role in the procurement process normally performed by the government. A lack of effective management controls--in particular insufficient management oversight and a lack of adequate training--led to the breakdowns. When these management controls are not in place, particularly in an interagency fee-for-service contracting environment, more emphasis can be placed on customer satisfaction and revenue generation than on compliance with sound contracting policy and required procedures. Significant problems in the way Interior's contracting office carried out its responsibilities in issuing the orders for interrogation and other services on behalf of DOD were not detected or addressed by management. Further, the Army officials responsible for overseeing the contractor, for the most part, lacked knowledge of contracting issues and were not aware of their basic duties and responsibilities. In response to the above concerns, Interior and DOD have taken actions to strengthen management controls. For example, Interior has re-issued or clarified several policies for its contracting personnel and has required them to take training on the proper use of General Service Administration contracts. DOD has issued a new policy requiring that military departments and defense agencies establish procedures for reviewing and approving the use of other agencies' contracts. These actions are a positive step toward addressing some of the contributing causes to the breakdowns GAO found, but it is too soon to tell how effective they will be.