IG-01-012

AUDIT

REPORT UNITED SPACE ALLIANCE’S USE OF PROFESSIONAL

AND CONSULTANT SERVICES

March 16, 2001

National Aeronautics and

Space Administration

OFFICE OF INSPECTOR GENERAL
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Acronyms

CAP Company Acquisition Procedures

DCAA Defense Contract Audit Agency

DCMA Defense Contract Management Agency

DoD Department of Defense

FAR Federal Acquisition Regulation

GAO General Accounting Office

USA United Space Alliance
W March 16, 2001

TO: A/Administrator

FROM: W/Inspector General

SUBJECT: INFORMATION: United Space Alliance’s Use of Professional and

Consultant Services

Report Number IG-01-012

The NASA Office of Inspector General has completed an audit of United Space Alliance's1

(USA's) use of professional and consultant services. Professional and consultant services are

services performed by persons who are members of a particular profession or possess a special

skill and who are not officers or employees of the contractor.2 We found professional and

consultant service costs charged to NASA that did not meet Federal Acquisition Regulation

(FAR) requirements for allowability and inadequate and untimely justifications for

noncompetitive procurements of the professional and consultant services. Specially, we found

that USA officials did not maintain evidence on the nature and scope of the furnished services;

maintain adequate support for decisions to noncompetitively award the service subcontracts;

and prepare written justifications for the noncompetitive awards prior to initiation of the work.

As a result, the $468,673 USA charged to NASA for the services may include unallowable

costs3 and the Agency has reduced assurance that USA obtained the best available source or

price for professional and consultant services.

Background

 

1

 USA is a joint venture between The Boeing Company and Lockheed Martin Corporation.

2

 Federal Acquisition Regulation Part 31.205-33 provides this definition. The NASA budget includes a separately

stated amount for services titled, “professional, administrative, and management advisory services.” The NASA budget

amount applies to services obtained by NASA under a contract and does not apply to professional and consultant

services obtained by a NASA contractor under a subcontract. Therefore, the NASA budget amount does not apply to

the audit objectives and scope.

3

 Three subcontracts that were active in 1998 were also active in 1997. The potentially unallowable costs include

$197,394 incurred in 1997 and $271,279 incurred in 1998 and 1999.
NASA’s Space Flight Operations Contract4

 with USA requires the contractor to comply with

FAR requirements pertaining to professional and consultant service costs. The FAR

2

states that these service costs are allowable costs only when supported by documented

evidence of the nature and scope of the furnished service. Support would include details of the

agreement between USA and the consultant, invoices from consultants that provide sufficient

detail on the nature of the actual services performed, and the consultant’s work products. The

Defense Contract Audit Agency (DCAA) is responsible for reviewing USA’s incurred costs for

allowability.

The contract also requires USA to competitively award subcontracts to the maximum extent

practical. This includes documenting efforts to identify potential sources for the services and the

reasons sources not selected were incapable of performing the subcontract requirements. The

Defense Contract Management Agency (DCMA) is responsible for the Government’s oversight

of USA’s purchasing system, which includes the costs for professional and consultant services.

Contracting for professional and consultant services is susceptible to problems such as

noncompliance with laws and regulations related to competition and conflict of interest,

circumvention of related internal controls, and potential improper use of funds. Although the

costs for these services are generally low-dollar costs, they are considered sensitive costs.5

Weaknesses in the procurement and contract administration processes exist in this sensitive cost

area that, taken in combination, pose a risk of abuse to NASA.

Recommendations

We recommended that NASA direct USA to maintain complete documentation on furnished

consultant services and on decisions to award these service contracts noncompetitively.

Adequate documentation provides NASA assurance that professional and consultant service

subcontracts are allowable contract costs and that USA awarded the subcontracts to the best

available source at a reasonable price, particularly in the absence of competition or an

appearance of a conflict of interest. We also recommended NASA request that DCAA include

reviews of professional and consultant services in future incurred cost audits and that DCMA

incorporate such service subcontracts into reviews of USA’s purchasing system. Because the

 

4

 USA provides services for the Space Flight Operations Contract under contract NAS9-20000.

5

 FAR 9.5, "Organizational and Consultant Conflicts of Interest," states that organizational and consultant conflicts of

interest result when other activities or relationships limit a person's ability to give impartial advice to the Government

or objectively perform contract work. The U.S. General Accounting Office defined sensitive costs in publication

GAO/AFMD-8.1.2, “Guide for Evaluating and Testing Controls Over Sensitive Payments,” May 1993. As recent as

October 2000, the Department of Defense Office of Inspector General reported that the Army and Air Force Exchange

Service did not require unpaid consultants to file financial disclosure reports, which could have assisted in identifying

potential conflicts of interest.
professional and consultant service subcontracts are vulnerable to improper use, additional

review by the DCAA and DCMA will give NASA improved oversight of such services.

3

Management's Response

NASA concurred with the findings and recommendations. The NASA administrative

contracting officer, in conjunction with the DCMA, requested USA to maintain documentation

identifying the nature and scope of furnished professional and consultant services. NASA also

instructed USA to ensure that noncompetitive justifications (1) address efforts to identify other

sources and the reasons other sources could not perform the subcontract requirements and (2)

be submitted and approved prior to initiation of work. The DCAA will include professional and

consultant service costs as part of the incurred cost audit for calendar year 1999.6 Further, the

DCMA established a process to ensure that it includes these service subcontracts in reviews of

USA’s purchasing system.

Details on the status of the recommendations are in the recommendations section of the report.

[original signed by]

Roberta L. Gross

Enclosure

Final Report on Audit of United Space Alliance’s Use of Professional and Consultant

Services

 

6

 The DCAA is currently performing the 1999 incurred cost audit.
UNITED SPACE ALLIANCE’S USE OF PROFESSIONAL AND

CONSULTANT SERVICES
W March 16, 2001

TO: M/Associate Administrator for Space Flight

JSC/AA/Director, Lyndon B. Johnson Space Center

FROM: W/Assistant Inspector General for Auditing

SUBJECT: Final Report on the Audit of United Space Alliance’s Use of Professional and

Consultant Services

Assignment Number A0002100

Report Number IG-01-012

The subject final report is provided for your information and use. Please refer to the Executive

Summary for the overall audit results. Our evaluation of your response is incorporated into the

body of the report. The corrective actions completed for recommendations 1 through 4 were

responsive. Management’s actions are sufficient to close those recommendations for reporting

purposes.

If you have questions concerning the report, please contact Mr. Lorne A. Dear, Program

Director, Procurement Audits, at (818) 354-3360; or Ms. Nora Thompson, Audit Program

Manager, at (757) 864-3268; or Mr. Doug Orton, Auditor-in-Charge, at (281) 244-1159.

We appreciate the courtesies extended to the audit staff. The final report distribution is in

Appendix E.

[original signed by]

Russell A. Rau

Enclosure

cc:

B/Acting Chief Financial Officer

B/Comptroller

BF/Director, Financial Management Division

G/General Counsel

H/Associate Administrator for Procurement
JM/Director, Management Assessment Division
3

bcc:

AIGA Chrons

H/Audit Liaison Representative

JSC/BD5/Audit Liaison Representative

W/JPL/180-300/L. Dear

 LaRC/205/N. Thompson

 JSC/W-JS/D. Orton

 W/N. Cipolla
Contents

Executive Summary, i

Introduction, 1

Findings and Recommendations, 3

Finding A. Contractor Charges for Professional and Consultant

Service Costs, 3

Finding B. Controls over Noncompetitive Procurements of

Professional and Consultant Services, 8

Appendix A - Objectives, Scope, and Methodology, 12

Appendix B - Consultant Subcontracts Reviewed, 13

Appendix C - Summary of Prior Reviews and Findings, 14

Appendix D - Management’s Response, 16

Appendix E - Report Distribution, 28
NASA Office of Inspector General

IG-01-012 March 16, 2001

 A0002100

United Space Alliance’s Use of

Professional and Consultant

Services

Executive Summary

Background. Under contract NAS9-20000,7 USA provides Space Shuttle mission planning;

vehicle processing for flight, flight operations, launch and landing operations; and orbiter and

Space Shuttle vehicle engineering and modifications. NASA awarded the contract to USA on

September 26, 1996, for $6.95 billion, with a 6-year period of performance from October

1996 through September 2002. As of September 20, 2000, the contract value was $8.7

billion.8 Two contract options, if exercised, would extend the contract another 4 years through

September 2006. Because USA performed work almost exclusively for NASA, substantially

all the cost for USA is charged to NASA. For 1998, USA’s claimed costs on NAS9-20000

totaled $1.3 billion, and about $266,0009 of that amount was for professional and consultant

services. USA acquired professional and consultant services to obtain advice, studies, training,

or a liaison with Government agencies. The primary locations of performance on the contract

are Johnson Space Center (Johnson) and the Kennedy Space Center (Kennedy).

The DCMA is responsible for the Government’s oversight of USA’s purchasing system, which

includes the award and management of professional and consultant service subcontracts. The

DCAA is responsible for reviewing incurred costs, including costs for professional and

consultant services.

Objectives. The overall objective was to determine whether NASA had adequate controls

over USA’s use of professional and consultant services. See Appendix A for the specific audit

objectives and methodology. For our review, we selected subcontracts for professional and

consultant services that were active in 1998 and 1999 and had a contract value of $15,000 or

more. Nine subcontracts with a total value of $1.9 million met our criteria for review (see

Appendix B).

 

7

 Under Contract NAS9-20000, NASA reimburses USA for costs it incurred in performing the contract. In addition,

NASA pays award, incentive and performance, and program plus fees to USA. The fees represent USA’s profit on the

contract.

8

 The $8.7 billion applies to contract actions from award through contract modification number 528.

9

 The $266,000 is .02 percent of the $1.3 billion total incurred costs for 1998.
ii

Results of Audit. Controls over USA's use of professional and consultant service

subcontracts need improvement. Weaknesses in the procurement and contract administration

processes exist in this sensitive cost area that, taken in combination, pose a risk of abuse to

NASA. Four of nine professional and consultant service subcontracts we reviewed did not

meet FAR requirements for allowability. The four subcontracts had one or more of the

following deficiencies:

• Inadequately described statements of work (three subcontracts)

• Incomplete invoices from consultants (four subcontracts)

• Undocumented work products (three subcontracts)

As a result, $468,673 charged to NASA for professional and consultant services in 1998 and

1999 may include unallowable costs.10 The NASA administrative contracting officer will make

the final determination on the allowability of the costs (Finding A).

Further, for seven of nine professional and consultant service subcontracts we reviewed, USA

buyers did not require adequate justifications for noncompetitive procurements. Written

justifications for the seven subcontracts had one or more of the following deficiencies:

• Inadequate explanatory statement (six subcontracts)

• Untimely justification for noncompetitive procurement (three subcontracts)

As a result, NASA has reduced assurance that USA obtained the best available source or price

for consultant services paid for under the seven subcontracts (Finding B).

Recommendations. We recommended that management require the Agency’s administrative

contracting officer for contract NAS9-20000 to (1) require USA to maintain documentation to

ensure that professional and consultant service subcontracts meet FAR requirements for

allowability, (2) request the DCAA to include professional and consultant service subcontracts

in samples selected for future incurred cost audits at USA, (3) require USA to prepare

adequate and timely justifications for noncompetitive procurements, and (4) request the DCMA

administrative contracting officer to establish a process that incorporates the contractor's

monthly report of professional and consultant service subcontracts into the semiannual

surveillance reviews of contract NAS9-20000.

Management’s Response. Management concurred with all the recommendations. NASA,

in conjunction with the DCMA, directed USA to maintain required support for professional and

consultant costs and asked the DCAA to include reviews of professional and consultant service

costs in its next audit of USA’s incurred costs. The Agency also directed USA to maintain

additional support for decisions to award professional and consultant service subcontracts on a

 

10 Three subcontracts that were active in 1998 were also active in 1997. The potentially unallowable costs include

$197,394 incurred in 1997 as well as $271,279 incurred in 1998 and 1999.
iii

noncompetitive basis. In addition, the DCMA established a process that includes reviews of

professional and consultant service subcontracts in semiannual surveillance reviews. The

complete text of the response is in Appendix D.

Evaluation of Management’s Response. We consider management’s comments responsive

and commend the agency for taking immediate actions to strengthen oversight of USA’s

professional and consultant service subcontracts.
Introduction

USA's Responsibilities in Subcontracting. NAS9-20000 gives USA authority to

subcontract for professional and consultant services and requires USA to award and administer

subcontracts according to requirements in FAR, Part 44, "Subcontracting." USA must maintain

a purchasing system that promotes efficient and effective use of Government funds. The

purchasing system must include processes that select the best source for a subcontract and

oversight controls that ensure the proper award and administration of subcontracts. Oversight

controls are critical to protecting NASA's interest because most USA subcontracts for

professional and consultant services involved sources not subject to Government oversight.

FAR Part 44 requires USA to comply with Government policies in subcontract awards,

including the Government policy of full and open competition in contracting.

Oversight of Professional and Consultant Services. Normally, NASA delegates oversight

during contract performance to the DCMA. Due to the large size and complex scope of the

USA contract, the NASA administrative contracting officer retains some oversight responsibility

and works with the DCMA administrative contracting officer, when needed, to effectively

perform oversight tasks.

The DCMA conducts a purchasing system review to evaluate USA’s purchasing of material and

services, including subcontracts. The DCMA administrative contracting officer uses the

purchasing system review as a basis for approving the USA purchasing system. In September

1998, DCMA conducted a purchasing system review at USA and recommended approval of

USA’s purchasing system. The NASA administrative contracting officer approved the USA

purchasing system on February 19, 1999.

To maintain Government oversight throughout contract performance, the DCMA administrative

contracting officer conducts consent to subcontract reviews and semiannual surveillance

reviews. Consent to subcontract reviews require USA officials to obtain the DCMA

administrative contracting officer's consent before awarding time and materials subcontracts with

costs of $100,000 or more that are charged directly to the contract. The semiannual reviews in

1999 did not identify deficiencies in the USA purchasing system. Therefore, on March 27,

2000, the DCMA administrative contracting officer issued a letter to USA continuing the

February 19, 1999, approval of USA’s purchasing system.

The DCAA conducts annual audits of incurred costs for contract NAS9-20000 and determines

whether costs meet contract and FAR allowability requirements. DCAA reports those costs

that do not meet allowability requirements to the DCMA administrative contracting officer. The

DCMA administrative contracting officer determines the allowability of the reported costs and

recommends corrective action to the NASA administrative contracting officer. The NASA

administrative contracting officer retains signature authority for the final determination and

recoups any unallowable costs.
2

DCAA completed the 1998 audit of incurred costs and reported the results to the DCMA

administrative contracting officer on September 29, 2000.11 DCAA auditors are currently

performing the 1999 audit of incurred costs.

Prior Reviews. During prior reviews of consultant services and subcontracts, the Department

of Defense (DoD) Office of Inspector General and the NASA Office of Inspector General have

found deficiencies. USA also conducted an internal review of professional and consultant

services. The review concluded that USA needed to better define professional and consulting

services but did not identify deficiencies in the award of consultant subcontracts. See Appendix

C for a summary of the reports and findings.

 

11 DCAA reported the results of the 1998 audit of incurred costs in ”Supplemental Advisory Report on Audit of Final

Indirect Rates and Incurred Costs for Contractor Fiscal Year 1998,” Audit Report

No. 3521-998B10100533-S1, dated September 29, 2000.
3

Findings and Recommendations

Finding A. Contractor Charges for Professional and Consultant

Service Costs

For four of nine subcontracts we reviewed, professional and consultant service costs did not

meet FAR requirements for allowability. Costs do not meet requirements because USA’s

acquisition procedures did not require contractor personnel to maintain documentation of the

nature and scope of professional and consultant services. As a result, the $468,673 charged to

NASA for professional and consultant service subcontracts may include unallowable costs.

FAR, General Accounting Office, and Agency Requirements

FAR, Subpart 31.205-33, “Professional and Consultant Service Costs,” states that

professional and consultant services are allowable costs only when supported by evidence of

the nature and scope of the service the consultant furnished under the subcontract. FAR

requires the contractor to maintain:

• Details of the agreement between the consultant and contractor (for example, work

requirements and rate of compensation) and details of actual services the consultant

performed.

• Invoices from the consultant with sufficient details regarding the time the consultant spent

on the subcontract and the nature of the actual services the consultant performed.

• Consultants' work products and documents related to the work the consultant

performed. Examples include trip reports, minutes of meetings, and collateral

memoranda and reports.12

The General Accounting Office (GAO) Guide for Evaluating and Testing Controls Over

Sensitive Payments provides a framework for management to evaluate the effectiveness of

controls over sensitive payment areas, including professional and consultant services. The guide

states that controls should prevent or detect noncompliance with related laws and regulations

and the misuse of public funds. Specifically, management must ensure contract and consulting

services are authorized, payment amounts are correct, and receipts support the payments for

goods and services.

Although the GAO guide does not require management to follow its framework, the guide

assists management in carrying out its control responsibilities under NASA Policy Directive

(NPD) 1200.1A, “Internal Management Controls and Audit Liaison and Followup,” June 1,

2000. NPD 1200.1A requires management to establish management controls that protect

 

12 Trip reports should indicate persons the consultant visited and subjects the consultant discussed during the visits.
4

resources, including contract funds, from improper use and to ensure actions are in compliance

with laws and regulations.

Professional and Consultant Service Subcontracts

USA officials did not adequately document the nature and scope of the services furnished on

four professional and consultant service subcontracts. The four subcontracts did not meet FAR

requirements in one or more of the following areas:

• Inadequate statements of work. Three subcontracts did not include details of work

requirements. The three subcontracts included only broad, generally worded statements

of work. Additionally, USA officials’ directions to the consultants on specific work to

be performed were oral and undocumented.

• Incomplete consultant invoices. Consultants submitted invoices for the four

subcontracts that reported the time spent on the subcontract, but did not adequately

describe the nature of the services the consultants performed during the reported time.

USA officials paid the invoices without requiring a description of the services.

• Undocumented work products. For three subcontracts, USA officials could not

provide consultant work products or other records evidencing the actual work

performed by the consultants. Consultants provided only oral reports on the work

performed to the USA officials who requested the consultant subcontracts. However,

USA officials did not maintain documentation of the oral reports.

The following table shows the incurred cost for fiscal years 1997 through 1999 and the

identified deficiencies on the four subcontracts. For the 3-year period, incurred costs billed to

NASA for the four subcontracts totaled $468,673. Subcontract 197A001500 included costs

that could be considered lobbying costs. We discussed the subcontract with the NASA

administrative contracting officer during the audit. The NASA administrative contracting officer

is further evaluating the activities associated with these costs to determine their allowability.
5

Professional and Consultant Subcontracts Not Meeting FAR Requirements

Subcontract

Incurred Cost

for 1997

Incurred Cost

for 1998

Incurred Cost

for 1999 Deficiency

197A001500* $ 22,572 $137,419 $20,940 • Incomplete statement of work

• Incomplete invoices

• Undocumented work products

1960421353 160,080 26,670 0 • Incomplete invoices

• Undocumented work products

P000006299 0 0 41,405 • Incomplete statement of work

• Incomplete invoices

197A000435 14,742 39,911 4,934 • Incomplete statement of work

• Incomplete invoices

• Undocumented work products

Total $197,394 $204,000 $67,279

* The subcontract included costs that could be considered lobbying costs. NASA is further evaluating the costs.

USA Acquisition Procedures

USA Company Acquisition Procedures (CAP) 2.421, “Consultant Service Agreements,” and

CAP 12.200, “Consultant Services,” do not require contractor personnel to maintain the

documentation necessary for determining whether the work performed by consultants was

proper and met FAR requirements for allowability. Consequently, USA technical

representatives, who requested the consultant service subcontract, did not prepare, obtain, or

maintain the necessary documentation.

CAP 2.421 and CAP 12.200 specify requirements that USA buyers and technical

representatives must follow when awarding professional and consultant service subcontracts.

CAP 2.421 permits the buyer's technical representative, normally the USA employee requesting

the consultant service subcontract, to direct the consultant's work. CAP 2.241 does not

specifically require the buyers’ technical representatives to document oral directions regarding

the work scope, reports of the actual work the consultant performed, or the consultant's work

products. Further, CAP 2.241 and CAP 12.200 do not require consultants to describe the

actual services performed for the time billed on each invoice.
6

DCMA and DCAA Oversight

DCMA purchasing system reviews and DCAA audits of incurred costs use a risk-based

approach to select individual items for review. The risk-based approach focuses a review on

items for which the risk and expected benefit are greatest and balances the audit staff and time

required to review an item in relation to the risk of it being unallowable and its dollar value. For

years prior to 1998, DCMA purchasing system reviews and DCAA incurred cost audits did not

disclose unallowable consultant costs at USA. The dollar value of individual professional and

consultant service subcontracts are lower than other items of incurred costs for those years.

Although professional and consultant services subcontracts are sensitive to improper use or

conflict of interest, DCMA and DCAA are less likely to select the subcontracts for review

because of their lower dollar value.

Effect on Contract Costs

The USA charges to NASA of $468,673 for the four professional and consultant service

subcontracts may include unallowable costs. We asked DCAA to include the $468,673 as

questioned costs in the 1998 and 1999 audits of USA’s incurred costs. As part of the oversight

process, the DCMA administrative contracting officer will review and determine the allowability

of these costs and recommend corrective action to the NASA administrative contracting officer.

The NASA administrative contracting officer retains signature authority to make the final

determination and recoup any unallowable costs.

The NASA administrative contracting officer is aware of the potential unallowable costs, so we

are not making a related recommendation. However, the NASA administrative contracting

officer should direct USA officials to ensure that the nature and scope of professional and

consultant services are adequately documented. Because professional and consultant service

subcontracts are vulnerable to improper use, the NASA administrative contracting officer

should increase Government oversight of such services through additional review by the DCAA.

Recommendations, Management’s Response, and Evaluation of

Response

The Director, Johnson Space Center, should require the NASA administrative

contracting officer for contract NAS9-20000 to:

1. Direct USA officials to ensure company personnel maintain complete

documentation of the statement of work, actual services the consultant

performed, and nature of the actual services performed for the time billed on

the consultant's invoice.
7

2. Request the DCAA to include professional and consultant service costs in

samples selected for future incurred cost audits.

Management’s Response. Concur. The NASA administrative contracting officer, in

conjunction with the DCMA, notified USA that the DCMA’s surveillance reviews will include

reviews of consultant agreements. The DCMA will review documentation maintained in support

of the statement of work, actual services the consultant performed, and the nature of the actual

services performed for the time billed on the consultant’s invoice. Under authority delegated by

Johnson, the DCMA requested the DCAA to include consultant costs in its audit of USA’s

claimed incurred costs for calendar year 1999. The complete text of management’s response is

in Appendix D.

Evaluation of Management’s Response. Management’s completed actions are responsive

to the recommendations. Management’s actions are sufficient to disposition recommendations 1

and 2 for reporting purposes.
8

Finding B. Controls over Noncompetitive Procurements of

Professional and Consultant Services

For seven of nine professional and consultant service subcontracts we reviewed, USA officials

did not prepare acceptable justifications for noncompetitive procurements. USA procedures do

not sufficiently implement FAR requirements for USA personnel to prepare acceptable

acquisition justifications for noncompetitive procurements. As a result, NASA has reduced

assurance that the contractor obtained the best source and price for the noncompetitive

procurements.

Federal Contracting Requirements

FAR, Part 6, "Competition Requirements," directs contacting officers to take specific actions

that ensure compliance with Government policy on full and open competition in Government

contract awards. The contracting officer must solicit offers from as many potential sources as is

practical. To identify potential sources, the contracting officer conducts a market analysis,

documents the analysis, and retains the documentation in the contract file. A contracting officer

can award a noncompetitive procurement when only a single qualified source is available to

perform the contract requirements. However, the contracting officer must prepare a written

justification that explains why a competitive procurement is not appropriate. The justification

must describe the market analysis and results of the analysis, list other sources that are available,

explain the selected source's unique qualifications, and explain why the available sources that

were not selected are unqualified.

FAR, Part 44, "Subcontracting," requires USA to comply with Government policies in

subcontract awards, including the Government policy of full and open competition. To ensure

USA competitively awards subcontracts to the maximum extent practical, contract NAS9-

20000 incorporated FAR Clause 52.244-5, "Competition in Subcontracting." USA

implemented Procurement Functional Policy and Procedure B-03-11, “Requisitioning,” dated

April 2, 1999, to establish USA procurement procedures for maximizing competition in

subcontract awards. The procedure requires contractor personnel requesting a noncompetitive

procurement valued at more than $2,500 to prepare a written justification describing the need to

acquire goods or services from a single or sole source.

Justifications for Noncompetitive Procurements

Written justifications for the seven noncompetitive procurements of professional and consultant

services included one or more of the following deficiencies:

• Inadequate explanatory statement. For six procurements, justifications stated that

the consultant was uniquely qualified and that other capable sources were not available.

The justifications did not state why the other sources were incapable of performing the
9

subcontract requirements or describe attempts to locate other available sources.

Additionally, justifications and subcontract files did not contain documentation

describing attempts to identify other available sources. For two of the six

procurements, USA personnel requesting the noncompetitive procurement stated they

did not attempt to identify other sources. For four of the six procurements, requesters

stated they attempted to identify other sources, but did not document the attempts on

the justification or maintain other documentation of their attempts.

• Untimely justification. For three procurements, the selected sources began work

before USA personnel requesting the noncompetitive procurement submitted written

justifications to USA buyers. One consultant began work 5 months before the

requester submitted a written justification to the USA buyer; two consultants began

work 1 month before the requesters submitted written justifications to USA buyers.

One of the three procurements involves a potential conflict of interest between the

requesting official and the consultant. We discussed the subcontract with the NASA

administrative contracting officer during the audit, and NASA is further evaluating the

requesting official’s selection of the consultant.

USA Acquisition Procedures

USA procedure B-03-11 requires the USA requester of a noncompetitive procurement to

document supporting rationale on the justification. However, the procedure does not require

requesters to (1) document efforts to identify other sources on the written justification, (2) state

why other sources are incapable of performing the subcontract requirements, (3) maintain

documentation supporting the justifications for noncompetitive procurements, or (4) submit

written justifications for buyer approval before directing the subcontractors to initiate the work.

USA should ensure that requesting personnel submit acceptable and timely justifications for

professional and consultant service subcontracts.

DCMA Oversight

DCMA officials had limited oversight of professional and consultant service subcontracts

because these subcontracts rarely met the criteria for consent established in NAS9-20000.

None of the nine professional and consultant service subcontracts we reviewed were subject to

the DCMA administrative contracting officer’s consent.13 Eight of the nine professional and

consultant service subcontracts were time and materials subcontracts with total costs of less

than $100,000. However, the subcontracts did not require the administrative contracting

officer's consent because the professional and consultant subcontracts were not direct charges

to contract NAS9-20000.

 

13 NAS9-20000 requires that USA obtain the DCMA’s administrative contracting officer’s consent on time and

materials subcontracts whose estimated costs are $100,000 or more and whose costs will be direct charges to contract

NAS9-20000.
10

During the 3-year period between purchasing system reviews, the NASA and DCMA

administrative contracting officers conduct semiannual surveillance reviews of professional and

consultant services subcontracts. The semiannual reviews alternate between reviews of sampled

procurement transactions and process validations. The first semiannual review evaluates about

70 randomly selected transactions for compliance with FAR and USA procedures. For the

second semiannual review, USA officials and the DCMA administrative contracting officer

validate the USA purchasing process. However, because of the risk-based sampling approach,

the semiannual surveillance reviews provide only limited visibility of professional and consultant

services subcontracts.

As a result of our efforts during the audit, USA officials will provide an internal monthly

consultant service subcontract report to the DCMA administrative contracting officer beginning

in November 2000. The report will list active professional and consultant service subcontracts

and include the consultant’s name, subcontract dollar value, description of subcontract services,

type of award (competitive or noncompetitive), and classification of cost (direct or indirect).

The DCMA administrative contracting officer could improve the visibility of USA’s professional

and consultant service subcontracts by incorporating information on the report into the

semiannual surveillance reviews at Johnson and Kennedy.

Effect on Competition and Oversight Reviews

Adequate justifications and supporting documentation are needed to provide NASA assurance

that USA awarded professional and consultant service subcontracts to the best available source

at a reasonable price, particularly in the absence of competition or an appearance of a conflict

of interest. Additionally, adequate documentation facilitates DCMA oversight reviews by

describing the steps the contractor used to identify the available sources and the contractor's

basis for noncompetitively selecting a single source.

Recommendations, Management’s Response, and Evaluation of

Response

The Director, Johnson Space Center, should direct the NASA administrative

contracting officer for contract NAS9-20000 to:

3. Direct USA officials to ensure company personnel requesting noncompetitive

awards of professional and consultant service subcontracts (1) document efforts

to identify other sources, (2) document the reasons other sources were

incapable of performing the subcontract requirements, (3) maintain

documentation supporting justifications for noncompetitive procurements, and

(4) submit justifications to procurement personnel before work is initiated.
11

4. Request the DCMA administrative contracting officer to establish a process

that incorporates the contractor's monthly report of professional and consultant

service subcontracts into the semiannual surveillance reviews of contract

NAS9-20000.

Management’s Response. Concur. Under authority delegated by Johnson, the DCMA

administrative contracting officer directed USA to ensure that noncompetitive justifications

include statements addressing efforts to identify other sources and the reasons other sources are

incapable of performing the subcontract requirements. The DCMA administrative contracting

officer also requested that USA ensure the justifications are submitted to USA’s procurement

office prior to initiation of work. The DCMA will review for compliance with the directions

during future purchasing system surveillance. At DCMA’s direction, USA provides its monthly

Consultant Contracts Report to the DCMA administrative contracting officer. The DCMA

factors the information on the report into the semiannual surveillance reviews.

The complete text of management’s response is in Appendix D.

Evaluation of Management’s Response. Management’s completed actions are responsive

to the recommendations. Management’s actions are sufficient to disposition recommendations 3

and 4 for reporting purposes.
12

Appendix A. Objectives, Scope, and Methodology

Objectives

The overall objective was to determine whether NASA had adequate controls of USA’s use of

professional and consultant services. Specifically, we determined whether the contractor’s

professional and consultant service costs included unallowable costs.

Scope and Methodology

We reviewed professional and consultant service subcontracts that were active in 1998 and

1999. During that period, USA had 13 active professional and consultant service subcontracts

totaling $1.927 million. We examined the subcontracts, statements of work, single-source

justification memoranda, cost and price analyses, consultants’ invoices and work products,

payment approvals, and miscellaneous correspondence. We also compared each subcontract

against requirements in the FAR and relevant USA policies and procedures, interviewed

contractor personnel who requested the consultant services, USA procurement officials, the

NASA administrative contracting officer, and the DCMA administrative contracting officer.

Use of Computer-Processed Data

We obtained computer-generated data on subcontract awards and tested the data by

comparing data to source documents for the sampled subcontracts. The tests showed that the

computer-processed data were sufficiently reliable to be used in meeting the audit objectives.

Management Controls Reviewed

We reviewed management controls over compliance with FAR allowability requirements and

the award of consultant subcontracts. We determined that management controls over

compliance with FAR allowabililty requirements and over the justification of noncompetitive

procurements need improvement as discussed in Findings A and B.

Audit Field Work

We performed audit field work from December 1999 through November 2000 at Johnson

Space Center and at USA’s facility in Houston, Texas. We performed the audit in accordance

with generally accepted government auditing standards.
13

Appendix B. Consultant Subcontracts Reviewed

Subcontract

Dollar Value

Incurred

Cost

(Through

December

1999)

Deficiencies

P0000052061$551,300 $338,027 • Inadequate explanatory statement on justification

• Untimely justification for noncompetitive procurement

1960421353 300,000 186,750 • Incomplete invoices submitted by consultant

• Undocumented work products

• Inadequate explanatory statement on justification

• Untimely justification for noncompetitive procurement

3000082347 25,000 47,043 • None

P000009412 15,000 18,950 • Untimely justification for noncompetitive procurement

197A000435 350,000 59,587 • Inadequate statement of work

• Incomplete invoices submitted by consultant

• Undocumented work products

• Inadequate explanatory statement on justification

197A0015002250,000 180,931 • Inadequate statement of work

• Incomplete invoices submitted by consultant

• Undocumented work products

• Inadequate explanatory statement on justification

197A000838 73,000 22,603 • Inadequate explanatory statement on justification

P000006299 270,400 41,405 • Inadequate statement of work

• Incomplete invoices submitted by consultant

• Inadequate explanatory statement on justification

3000081973 73,500 68,086 • None

 Totals $1,908,200 $963,382

1

 The subcontract included costs that may involve a potential conflict of interest. NASA is

further evaluating the costs.

2The subcontract included costs that could be considered lobbying costs. NASA is further

evaluating the costs.
14

Appendix C. Summary of Prior Reviews and Findings

NASA Office of Inspector General (OIG) Reviews. The NASA OIG issued a

management letter report and two audit reports on subcontract management. (Copies of the

audit reports are available at www.hq.nasa.gov/office/oig/hq/issuedaudits.html.)

“Allied-Signal Subcontract Management,” Report Number IG-99-042,

September 16, 1999, and “Raytheon Subcontract Management,” Report Number IG00-002, December 21, 1999. Purchasing department buyers for the two contractors did not

maintain documentation to support justifications for noncompetitive procurements. The

contractors' purchasing policies did not require contractor personnel to keep supporting

documentation. Additionally, Government oversight reviews of the contractors’ procurement

systems did not include examinations of supporting documentation for noncompetitive

procurements. As a result, NASA had reduced assurance that the contractor maximized the

competition of its subcontracts. In response to our recommendations, NASA management

instructed the contractors to maintain adequate documentation in support of noncompetitive

procurements. NASA management also took actions to include reviews of supporting

documentation in future reviews of the contractors’ purchasing systems.

"Management Letter Regarding Procurement Issues Identified in the Shuttle-Mir

Rendezvous and Docking Missions and International Space Station Operational

Readiness Task Forces Report," February 18, 1998. A NASA subcontractor providing

technical support to a NASA Task Force may have lacked the impartiality needed to make

independent assessments and recommendations because the subcontractor's reviews involved

organizations that funded the subcontract. Also, the noncompetitively awarded subcontract and

subcontract extension did not have adequate justification for a noncompetitive procurement.

The contractor submitted inadequate explanatory statements for the initial award, did not

conduct a market survey or submit a written justification for the subcontract extension, did not

perform an adequate price analysis, and did not obtain the required approvals. Because the

management letter report contains sensitive and proprietary contractor information, we are not

providing additional details regarding the report's recommendations and management's response

to the recommendations.

Department of Defense (DoD) Inspector General Review. On March 10, 2000, the

DoD Inspector General (DoDIG) issued audit report No. D-2000-100, “Contracts for

Professional, Administrative, and Management Support Services.” DoDIG auditors reviewed

procurement procedures for professional, administrative, and management support service

contracts at 15 DoD contracting activities and program offices. The report identified problems

in each of 105 sampled contract actions. Problems included undefined requirements,

inadequate technical reviews, inadequate negotiation memorandums, inadequate competition,

and lack of cost control. The DoDIG also issued audit report No. D-2001-005, “Use of

Unpaid Consultants by the DoD Exchange Services,” dated October 16, 2000. The report

states that the Army and Air Force Exchange Service inappropriately engaged consultants who

had financial affiliations with
15

Appendix C

the Exchange Service. The Exchange Service did not require unpaid consultants to file financial

disclosure reports, which could have assisted in identifying potential conflicts of interest.

USA Review. In July 1998, a USA internal audit report of professional and consulting services

concluded that USA needed to better define professional and consulting services. Beginning in

calendar year 2001, USA plans to conduct annual internal audits of professional and consultant

services.
16

Appendix D. Management’s Response
17

Appendix D

 * The attachment is not included in the report, but can be provided upon request.

*
18

Appendix D

 * The attachment is not included in the report, but can be provided upon request.

*

*
19

Appendix D
20

Appendix D
21

Appendix D
22

Appendix D
23

Appendix D
24

Appendix D
25

Appendix D
26

Appendix D
27

Appendix D
28

Appendix E. Report Distribution

National Aeronautics and Space Administration (NASA) Headquarters

A/Administrator

AA/Chief of Staff

AI/Associate Deputy Administrator

B/Acting Chief Financial Officer

B/Comptroller

BF/Director, Financial Management Division

G/General Counsel

H/Associate Administrator for Procurement

HK/Director, Contract Management Division

HS/Director, Program Operations Division

J/Associate Administrator for Management Systems

JM/Director, Management Assessment Division

L/Acting Associate Administrator for Legislative Affairs

M/Associate Administrator for Space Flight

NASA Centers

Chief Counsel, John F. Kennedy Space Center

Non-NASA Federal Organizations and Individuals

Assistant to the President for Science and Technology Policy

Deputy Associate Director, Energy and Science Division, Office of Management and

 Budget

Branch Chief, Science and Space Programs Branch, Energy and Science Division, Office

 of Management and Budget

Director, Acquisition and Sourcing Management Team, General Accounting Office

Professional Staff Member, Senate Subcommittee on Science, Technology, and Space

Director, Defense Contract Management Agency

Director, Defense Contract Audit Agency

Chairman and Ranking Minority Member – Congressional Committees and

Subcommittees

Senate Committee on Appropriations

Senate Subcommittee on VA, HUD, and Independent Agencies

Senate Committee on Commerce, Science, and Transportation

Senate Subcommittee on Science, Technology, and Space
29

Appendix E

Chairman and Ranking Minority Member – Congressional Committees and

Subcommittees (Cont.)

Senate Committee on Governmental Affairs

House Committee on Appropriations

House Subcommittee on VA, HUD, and Independent Agencies

House Committee on Government Reform and Oversight

House Subcommittee on Government Management, Information, and Technology

House Subcommittee on National Security, Veterans Affairs, and International Relations

House Committee on Science

House Subcommittee on Space and Aeronautics, Committee on Science

Congressional Member

Honorable Pete Sessions, U.S. House of Representatives
NASA Assistant Inspector General for Auditing

Reader Survey

The NASA Office of Inspector General has a continuing interest in improving the usefulness of

our reports. We wish to make our reports responsive to our customers’ interests, consistent

with our statutory responsibility. Could you help us by completing our reader survey? For your

convenience, the questionnaire can be completed electronically through our homepage at

http://www.hq.nasa.gov/office/oig/hq/audits.html or can be mailed to the Assistant Inspector

General for Auditing; NASA Headquarters, Code W, Washington, DC 20546-0001.

Report Title: United Space Alliance’s Use of Professional and Consultant Services

Report Number: Report Date: 

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objectives, scope, and methodology.

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Thank you for your cooperation in completing this survey.
Major Contributors to the Report

Lorne Dear, Program Director, Procurement Audits

Nora Thompson, Program Manager, Procurement Audits

Doug Orton, Auditor-in-Charge

Nancy C. Cipolla, Report Process Manager

Debbie Schuerger, Program Assistant