IG-02-013

AUDIT 

REPORT LOCKHEED MARTIN SPACE OPERATIONS’ 

USE OF PROFESSIONAL AND CONSULTANT 

SERVICES 

March 26, 2002

 National Aeronautics and 

Space Administration

OFFICE OF INSPECTOR GENERAL
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Acronyms 

ACO Administrative Contracting Officer 

CSOC Consolidated Space Operations Contract 

DCAA Defense Contract Audit Agency

DCMA Defense Contract Management Agency 

DOD Department of Defense 

FAR Federal Acquisition Regulation 

LMSO Lockheed Martin Space Operations 

NPD NASA Policy Directive 

SEAT Science, Engineering, Analysis, and Test
March 26, 2002 

W 

TO: A/Administrator

FROM: W/Counsel to the Inspector General

SUBJECT: INFORMATION: Lockheed Martin Space Operations’ Use of 

Professional and Consultant Services

 Report Number IG-02-013 

The NASA Office of Inspector General has completed an audit of Lockheed Martin 

Space Operations’ (LMSO’s)1

 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 procurements of professional and consultant services that did 

not meet Federal Acquisition Regulation (FAR) requirements for competition and 

professional and consultant service costs that did not meet FAR requirements for 

allowability. Specifically, LMSO officials had not prepared written justifications for 

noncompetitive procurements of services and did not maintain evidence on the nature and 

scope of the furnished services. As a result, the Agency has reduced assurance that 

LMSO obtained the best available source or price for professional and consultant services 

and that the work performed was proper and did not violate law or regulations. Also, 

$383,777 charged to NASA for professional and consultant services may include 

unallowable costs. 

Background

LMSO manages and performs two major contracts with NASA’s Johnson Space Center 

(Johnson), the Consolidated Space Operations Contract (CSOC), NAS9-98100, and the 

Science, Engineering, Analysis, and Test (SEAT) contract, NAS9-19100.3

 The CSOC 

 

1

 LMSO, based in Houston, Texas, is a business unit of Lockheed Martin Technology Services Group in

Cherry Hill, New Jersey. 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

 NASA awarded NAS9-19100 to Lockheed Martin Engineering and Sciences Company, but due to

reorganizations and other changes within Lockheed, the contract is currently managed and performed by

LMSO. 
2 

and SEAT contract require LMSO to comply with FAR requirements pertaining to 

professional and consultant services. The contracts require LMSO to competitively 

award subcontracts to the maximum extent possible. This includes documenting efforts 

to identify potential sources for the services and the reasons sources were incapable of 

performing the subcontract requirements. The Defense Contract Management Agency 

(DCMA) is responsible for the Government’s oversight of LMSO’s purchasing system.

In addition, the FAR states that professional and consultant 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 LMSO 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 LMSO’s incurred costs for allowability. 

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.4

 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 coordinate with the DCMA to require LMSO to prepare 

written justifications for future noncompetitive selections of professional and consultant

services and to maintain documentation on the details of actual services performed by the 

professionals or consultants including deliverable items such as required analyses and 

reports. Adequate documentation provides NASA assurance that professional and 

consultant service subcontracts are allowable contract costs and that LMSO awarded the 

subcontracts to the best available source at a reasonable price, particularly in the absence 

of competition. We also recommended that NASA request that DMCA include 

professional and consultant service subcontracts in future risk assessments and reviews of 

LMSO’s purchasing system and that DCAA review LMSO costs for professional and 

consultant services in future incurred cost audits. Because the professional and 

consultant service subcontracts are vulnerable to improper use, additional review by the 

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

 

4

 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 

(GAO) identified consultant service costs as sensitive in publication GAO/AFMD-8.1.2, “Guide for 

Evaluating and Testing Controls Over Sensitive Payments,” May 1993. 
3 

Management’s Response and OIG Evaluation

NASA concurred with the findings and recommendations. The DCMA will initiate 

actions to ensure that LMSO prepares written justifications when professional or

consultant services are obtained noncompetitively and that LMSO maintains 

documentation identifying the nature and scope of furnished professional and consultant 

services. Further, DMCA will include professional and consultant service subcontracts in 

future risk assessments and purchasing system reviews and the DCAA will include costs 

for professional and consultant services in the next incurred cost audit. 

Management’s completed actions are responsive to the recommendations. Details on the 

status of the recommendations are in the recommendation sections of the report. 

[original signed by]

Francis P. LaRocca 

Enclosure 

Final Report on Audit of Lockheed Martin Space Operations’ Use of Professional and 

Consultant Services 
LOCKHEED MARTIN SPACE OPERATIONS’ USE OF 

PROFESSIONAL AND CONSULTANT SERVICES
March 26, 2002 

W 

TO: M/Associate Administrator for Space Flight

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

FROM: W/Assistant Inspector General for Audits 

SUBJECT: Final Report on the Audit of Lockheed Martin Space Operations’ Use of 

Professional and Consultant Services 

 Assignment Number A-00-021-02 

Report Number IG-02-013 

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 the 

recommendations were responsive and are sufficient to close the 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 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 F. 

[original signed by]

Alan J. Lamoreaux 

Enclosure 

cc: 

AI/Associate Deputy Administrator 

B/Acting Chief Financial Officer 

B/Comptroller

BF/Director, Financial Management Division

G/General Counsel

H/Assistant Administrator for Procurement 

JM/Director, Management Assessment Division
Contents 

Executive Summary, i 

Introduction, 1 

Findings and Recommendations, 3 

Finding A. Controls Over Noncompetitive Procurements of 

Professional and Consultant Services, 3 

Finding B. Contractor Support for Professional and Consultant

Service Costs, 8 

Appendix A - Objectives, Scope, and Methodology, 13 

Appendix B - Summary of Prior Reviews and Findings, 15 

Appendix C - Subcontracts Reviewed, 17 

Appendix D - Task Directives Reviewed, 18

Appendix E – Management’s Response, 19

Appendix F - Report Distribution, 25
NASA Office of Inspector General 

IG-02-013 March 26, 2002

 A-00-021-02 

Lockheed Martin Space Operations’ Use of Professional 

and Consultant Services 

Executive Summary 

Background. Under the CSOC contract, LMSO manages and provides space operations 

services to meet the requirements of NASA’s space flight and science programs. The 

CSOC is a $2 billion cost-plus-award-fee contract with a period of performance from

October 1, 1998, to December 31, 2003. Under the SEAT contract, LMSO provides 

support to Johnson’s science, engineering, analysis, and test functional areas. The SEAT 

contract is a $1.7 billion cost-plus-award-fee contract with a period of performance from 

May 1, 1993, to December 31, 2003. 

To carry out its responsibilities under the two contracts, LMSO frequently procures 

goods and services from other sources through subcontracts. This approach includes 

obtaining professional and consultant services. Contractors, such as LMSO, are required 

to follow Government policies regarding competition in awarding their subcontracts and 

must keep sufficient records to support the related costs subsequently charged to the 

Government. Prior NASA Office of Inspector General and Department of Defense 

Office of Inspector General audits have identified weaknesses in prime contractor 

controls over professional and consultant services (see Appendix B). We performed this 

audit as part of our continuing effort to provide oversight in areas that are sensitive and 

that present a risk to NASA. 

The DCMA is responsible for the Government’s oversight of LMSO’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. 

Objective. The overall audit objective was to determine whether NASA had adequate 

controls over LMSO’s use of professional and consultant services. Specifically, we 

determined whether LMSO’s management controls ensured compliance with FAR 

requirements for such services. See Appendix A for details on the audit objectives, 

scope, and methodology. We reviewed six subcontracts, valued at $10.9 million, for 

professional services that LMSO awarded under the CSOC as of December 31, 2000. 

We also reviewed one $9.9 million subcontract for professional services that LMSO 

awarded under the SEAT contract (see Appendix C). 

Results of Audit. NASA’s controls over LMSO's use of professional and consultant 

services can be improved, and LMSO’s management controls did not ensure compliance 

with FAR requirements. Weaknesses in the procurement and contract administration 
processes exist in this sensitive cost area that, taken in combination, pose a potential risk 

to NASA. For two of seven professional and consultant service subcontracts we 

reviewed, LMSO officials had not properly justified noncompetitive procurements 

(Finding A) and did not maintain sufficient records on actual services performed 

(Finding B). As a result, NASA has reduced assurance that LMSO obtained the best 

available source or price for the services paid for under the two subcontracts. Further, 

$383,777 charged to NASA for professional and consultant services may include 

unallowable costs. 

Recommendations. We recommended that NASA ask the DCMA administrative 

contracting officer (ACO) to: (1) require LMSO to prepare written justifications when 

professional or consultant services are obtained noncompetitively, (2) include 

professional and consultant service subcontracts in reviews of LMSO’s purchasing 

system, and (3) require LMSO to establish procedures for obtaining temporary 

professional services through subcontracts. We also recommended that NASA ask the 

DCAA to review costs for temporary professional services obtained under two5

 LMSO 

subcontracts in DCAA’s next incurred cost audit and to include professional and 

consultant service costs in samples selected for future incurred cost audits. 

Management’s Response. NASA concurred with all the recommendations and has 

requested that DCMA and DCAA take the recommended actions. 

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

responsive and commend the Agency for taking immediate actions to strengthen 

oversight of LMSO’s professional and consultant service subcontracts. 

 

5

 Two of seven subcontracts we reviewed may include professional and consultant service costs that do not

meet FAR requirements for allowability (Finding B). 

ii
Introduction 

LMSO’s Responsibilities in Subcontracting. The Agency’s CSOC and SEAT 

contracts give LMSO authority to subcontract for professional and consultant services 

and require LMSO to award and administer subcontracts according to requirements in 

FAR, Part 44, “Subcontracting.” LMSO 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 LMSO subcontracts for professional 

and consultant services involved sources not subject to Government oversight.6

 FAR 

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

including the Government policy of full and open competition in contracting.7

 

LMSO obtained temporary professional services to conduct work on the CSOC and 

SEAT contracts through two competitively awarded subcontracts with Liberated Staffing 

Services, Inc. (Liberated).8,9

 Under the subcontracts, Liberated provided temporary 

professionals on a direct labor hour basis through task directives issued by LMSO. 

LMSO paid Liberated $0.95 for each hour the temporary professionals worked. For the 

subcontract with Liberated under the CSOC, LMSO also paid Liberated a 7-percent 

handling fee on travel costs incurred by the temporary professionals. LMSO acquired the 

services of 130 professionals under 305 task directives issued to Liberated through 

May 2001. 

Oversight of Professional and Consultant Services. NASA delegated some contract 

administration responsibilities for the CSOC and SEAT contracts, including reviews of 

LMSO’s purchasing system, to the DCMA. The DCMA is responsible for conducting 

purchasing system reviews to evaluate LMSO’s purchasing of material and services, 

including subcontracts. The DCMA ACO uses the purchasing system review as a basis 

for approving LMSO’s purchasing system. 

The most recent DCMA purchasing system review at LMSO occurred in September 

1997, and the DMCA ACO approved the purchasing system on October 8, 1997. The 

 

6

 Many subcontractors providing professional services to LMSO do not have contracts with the 

Government and, therefore, are not subject to Government oversight. An example of such oversight is a

DCMA review of purchasing systems. 7

 FAR, Part 6, "Competition Requirements," prescribes policies and procedures to promote full and open

competition in the acquisition process. 8

 LMSO uses subcontract G962318J76 to obtain services under the SEAT contract. The period of 

performance for this subcontract is October 1, 1998, through September 30, 2002, with an option to extend

through December 31, 2003. The estimated value of the subcontract, with options, is $9.9 million. 9

 LMSO uses subcontract GA67386B14 to obtain services under the CSOC. The period of performance for 

this subcontract is August 30, 1999, through December 31, 2002, with options to extend the period to 

December 31, 2003. The subcontract has a not-to-exceed value of $6 million through December 31, 2001. 
approval remains in effect until withdrawn or canceled by the ACO. In September 2000, 

the DCMA prepared a risk assessment10 on LMSO’s purchasing system and concluded 

that LMSO’s operations posed a low risk to the Government. The DCMA will prepare 

another risk assessment in calendar year 2003 to determine the need for a purchasing 

system review. 

 

10 Every 3 years, starting with the DCMA ACO’s approval of LMSO’s purchasing system, the DCMA

performs a risk assessment to determine whether a full review of the purchasing system is necessary. If the 

assessment indicates risks are acceptable, no actions are taken until the next risk assessment. If risks are 

considered unacceptable, the DCMA performs a full review of the contractor’s purchasing system. 

2
Findings and Recommendations 

Finding A. Controls Over Noncompetitive Procurements of 

Professional and Consultant Services 

LMSO did not properly justify the noncompetitive hiring of temporary professionals and 

consultants. Specifically, LMSO did not prepare written justifications for professional 

services on 16 task directives, totaling $1.02 million, that we reviewed under the 2 

subcontracts with Liberated. This condition occurred because LMSO officials identified 

the individuals it favored for providing professional and consultant services and arranged 

the individual's rates of compensation in a manner that circumvented LMSO's approved 

purchasing system. Further, since 1997, the DCMA performed only risk assessments11

rather than full purchasing system reviews of LMSO's procurement system. As a result, 

NASA had reduced assurance that LMSO obtained the best possible sources for the 

services at the most reasonable prices, and there is an increased risk of potential conflicts 

of interest. 

 

Federal Contracting Requirements 

FAR, Part 6, "Competition Requirements," directs contracting 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 

analysis results, identify other sources that are available, explain the selected source's

unique qualifications, and explain why the available sources that were not selected were 

unqualified. 

FAR, Part 44, “Subcontracting,” requires the LMSO to comply with Government policies 

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

ensure LMSO competitively awards subcontracts to the maximum extent practical, the 

CSOC and SEAT contract incorporated FAR Clause 52.244-5, “Competition in 

Subcontracting.”

11 DCMA conducts risk assessments to determine whether a contractor purchasing system review is needed 

based on factors having a bearing on the risk posed to the Government. Factors include, but are not limited 

to, results of previous reviews of the contractor’s purchasing system, the amount of time since the last

review, and the contractor’s Government contract mix. Therefore, a risk assessment would not necessarily 

identify problems with proper justifications for noncompetitive procurements. 

3
LMSO Acquisition Procedures 

LMSO implemented Purchasing Procedure P-003, “Limited Source Procurements,” (July 

1997) to establish procurement procedures for maximizing competition in subcontract 

awards. By its own terms, the procedure “applies to all procurements,” and its stated 

purpose is to “provide a policy concerning limited source procurements and to maximize 

competition in all aspects of procurement.” The procedure prescribes substantial 

requirements to justify and support with documentation any decision to procure goods or 

services on a noncompetitive basis. Procedure P-003 requires LMSO personnel 

requesting a noncompetitive procurement to prepare either a “letter of justification” or a 

“limited source questionnaire” that includes detailed explanations of: 

• the reason comparable goods or services will not suffice; 

• other sources that have been considered and, if none, why; 

• the reason the recommended source is the only one that can provide the 

required product or service, including sufficient facts and rationale; and 

• the reason services cannot be obtained through other agencies or companies, 

when the services of a particular individual or company are requested. 

LMSO also had established procedures to avoid potential conflicts of interest regarding

individuals hired to provide management and proposal support services. Lockheed Martin 

Purchasing Procedure P-062, “Retaining Management or Proposal Support Contractor 

Services,” required management and proposal support contractors12 to sign a Conflict of

Interest Disclaimer Statement. The purpose of the disclaimer was to prevent potential

conflicts of interest that could result from hiring prior Lockheed employees, NASA 

employees, or others who were personally involved in the program or technical area in which 

they would be providing services. 

Written Justifications Not Prepared

For all 16 task directives reviewed (see Appendix D), LMSO did not prepare written 

justifications for the temporary professionals hired on a noncompetitive basis. Although 

Liberated was contractually required to furnish LMSO qualified professionals, officials at 

LMSO identified, by name, the specific individuals it wanted Liberated to retain as 

temporary professionals. LMSO also estimated the number of hours for the individuals 

 

12 LMSO defines a management and proposal support contractor as “an independent contractor possessing

special knowledge, skill, or training which may be combined with operational experience, whose services 

take the form of advice, information, opinions, recommendations or assistance to management and who

will not interface with present or potential customers, legislators, or legislative personnel. The contractor

may be used to assist executive management in areas such as strategic planning, technical development,

policy formulation, market opportunities, and decision making or may provide services in support of a 

specific bid opportunity or program such as review teams and proposal support.” 

4
and specified the maximum cost. As a result, Liberated had no independent discretion 

under the subcontracts with LMSO and performed only the administrative functions 

associated with processing the necessary paperwork for hiring, paying, and reimbursing 

the individuals LMSO identified. 

LMSO retained all discretion and authority to determine who was to be hired and the cost 

for the 16 task directives we reviewed. Therefore, it is our opinion that LMSO, not 

Liberated, conducted the procurements and was subject to the competition requirements of 

the CSOC and SEAT contracts and LMSO’s internal procurement procedures. LMSO

should have selected temporary professionals on a competitive basis to the maximum 

practical extent or should have justified the decision not to use competitive procedures as 

set forth in LMSO’s Purchasing Procedure P-003. 

LMSO Practice 

LMSO officials stated that it was LMSO practice not to prepare written justifications on

temporary professional services obtained under the two subcontracts with Liberated.13 The 

officials also stated that letters of justifications were not required because the subcontracts 

with Liberated were task order-type subcontracts that LMSO awarded on a competitive 

basis. However, Procedure P-003 states, “All purchase requisitions, requests for 

subcontracts or other forms of request for directed, single or sole source items must be 

accompanied by a letter of justification or a completed limited source questionnaire . . . .” 

The 16 tasks fit the category of “other forms of request,” and the requirement would, 

therefore, apply. In our opinion, the requests were within the requirements of LMSO 

Procedure P-003, and LMSO should have prepared written justifications for the 

professionals hired without full and open competition for the services. 

DCMA Oversight of Subcontracts 

NASA delegated surveillance of LMSO’s purchasing system to the DCMA for both the 

CSOC and SEAT contracts. Subcontract management issues, such as a lack of 

justifications for noncompetitive awards, should normally be identified during DCMA’s 

review and approval of a contractor’s purchasing system. However, DCMA’s last full 

review of LMSO’s purchasing system was in 1997, prior to award of the subcontracts with 

Liberated. DCMA officials told us that the purchasing system and the decision to continue 

its approval is re-evaluated every 3 years. Because DCMA had limited resources, it used a 

risk assessment to determine whether a full purchasing system review was needed. Based 

on the results of its risk assessment performed in September 2000, DMCA determined that 

a full purchasing system review was not needed. A DCMA risk assessment, however,

would not necessarily identify the types of problems we identified during the audit because 

 

13 LMSO’s practice was to prepare written justifications on other subcontracts for professional services. 

We reviewed five other subcontracts for professional services that LMSO awarded to companies other than 

Liberated. LMSO noncompetitively awarded four of the five subcontracts. LMSO officials prepared

written justifications for those four subcontracts. 

5
the assessment focuses on the past performance of the contractor, and the volume, 

complexity, and dollar value of the subcontracts. The focus on the past performance of the 

contractor includes considering the results of Government audits. Therefore, DCMA 

should consider this finding in its future risk assessments and include professional and 

consultant service subcontracts in its reviews of the LMSO purchasing system. 

Increased Risks to NASA 

LMSO’s practice of not preparing written justifications reduces the assurance that the

best possible sources were obtained for the services at the most reasonable prices. Under 

the contracting process with Liberated, LMSO officials identified the individuals it 

favored for providing services and arranged the rates of compensation for the individuals 

in a manner that circumvented LMSO’s approved purchasing system and, in effect, left 

NASA without assurance that the costs incurred for temporary professional services were 

reasonable. Further, without adequate justifications for noncompetitive selections from a 

single source, DCMA oversight reviews cannot be as effective in evaluating the 

contractor’s system of internal controls, such as identifying potential conflicts of interest. 

Improvements Needed 

We understand NASA’s need to delegate some contract administration functions to 

DCMA and to rely on DCMA to help ensure that the contractor has effective procedures 

and follows them. We also understand the need for DCMA to focus limited resources 

and to use a risk-based approach to the extent possible in overseeing subcontract 

management. However, LMSO’s use of the two subcontracts to obtain temporary 

professionals to support NASA work on a directed, sole-source basis is not consistent 

with the intent of Government policies on competition and is not in NASA’s best 

interests. Accordingly, NASA and the DCMA need to take actions to ensure LMSO 

complies with competition requirements and follows LMSO established procedures on 

limited source procurements. 

Recommendations, Management’s Response and Evaluation of 

Response 

The NASA Johnson Center Director should direct the contracting officers for 

NAS 9-98100 and NAS 9-19100 to coordinate with the DCMA ACO to: 

1. Require LMSO to follow its established internal procedures by preparing 

written justifications for future noncompetitive selections of temporary 

professionals obtained under the subcontracts with Liberated. 

2. Include professional and consultant service subcontracts in future LMSO 

risk assessments and purchasing system reviews. 

6
Management’s Response. Concur. NASA asked the DCMA to direct LMSO to prepare 

written justifications for future competitive selections of temporary professionals as 

required by LMSO’s established internal procedures. NASA also asked the DCMA to 

review professional and consultant service subcontracts as part of the next regularly 

scheduled contractor purchasing system or risk assessment review. The complete text of 

management’s response is in Appendix E. 

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. 

 

7
Finding B. Contractor Support for Professional and Consultant Service 

 Costs 

Professional and consultant services costs did not meet FAR requirements for 

allowability. Specifically, for 7 (44 percent) of the 16 task directives14 we reviewed, 

adequate support did not exist for costs charged to NASA. This occurred because LMSO 

officials did not consider the services to be professional and consultant services as 

defined by the FAR and, therefore, did not maintain evidence of actual services 

performed.15 In addition, LMSO did not have written procedures for obtaining temporary 

professional services through subcontracts. Without evidence for the nature and scope of 

the services provided by the temporary professionals, NASA has reduced assurance that 

the work performed was proper and did not violate law or regulations. Further, $383,777 

charged to NASA for professional and consultant service subcontracts may include 

unallowable costs. 

FAR, NASA, and GAO 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 the following: 

• 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. 

• Consultant’s work products and documents related to the work the consultant 

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

memoranda and reports.16

NASA Policy Directive (NPD) 1200.1A, “Internal Management Controls and Audit 

Liaison and Followup,” June 1, 2000, requires management to establish management

 

14 Thirteen of the task directives were under the subcontract with Liberated for the SEAT contract. The

other three task directives were under the subcontract with Liberated for the CSOC. 15 FAR Subpart 31.201-2(d) requires contractors to maintain records, including supporting documentation, 

adequate to demonstrate that costs claimed have been incurred, are allocable to the contract, and comply 

with applicable cost principles in the FAR and agency supplements. FAR Subpart 31.205-33 further

identifies records contractors are to maintain in support of professional and consultant services costs. 16 Trip reports should indicate persons the consultant visited and subjects the consultant discussed during

the visits. 

8
controls that protect resources, including contract funds, from improper use and to ensure 

actions are in compliance with laws and regulations. 

The 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 should ensure that 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 identifying risks,

such as sensitive payment areas, and in carrying out its control responsibilities under 

NPD 1200.1A. 

LMSO Procedures 

LMSO had procurement procedures that were approved by the Government. The 

procedures included maintaining documentation to support costs billed to NASA and the 

Government. However, LMSO did not have a written procedure that addressed 

documenting costs for professional and consultant services and the requirements of FAR 

Part 31.205. 

Task Directives for Professional Services 

LMSO did not have adequate evidence to support the costs charged to NASA for 7 of the 

16 task directives we reviewed.17 Therefore, some or all of the related costs on the seven 

tasks directives may not be allowable under FAR requirements. The deficiencies in 

documentation follow: 

• Insufficient detail on invoices. Neither Liberated’s invoices to LMSO nor the 

professionals’ invoices18 to Liberated on the seven task directives included 

adequate descriptions of the actual services performed by the professionals. 

Liberated’s invoices to LMSO were based on invoices that the temporary 

professionals had submitted to Liberated. The invoices reflected the total number 

of hours worked on specific task directives during the reporting period, which was 

usually a week. Under the terms of the two subcontracts with Liberated, LMSO 

task order managers must sign each temporary professional's invoice before it is 

submitted to Liberated. Liberated generated a weekly invoice for billable hours 

based on the professionals’ invoices. Liberated then submitted its invoices and 

copies of the professionals’ invoices to LMSO. LMSO paid the invoices and 

billed NASA without requiring descriptions of the services. 

 

17 LMSO officials had adequate evidence to support the costs charged to NASA for the other nine task

directives. 

18 Liberated required the professionals’ to submit timecard-like invoices titled “Receiving Reports.” 

9
• Undocumented work products. LMSO officials could not provide us evidence of 

work products or other records to support the actual work performed by the 

temporary professionals under the seven task directives. The LMSO files did not 

contain work products or other records, such as trip reports, minutes of meetings, 

collateral memoranda, or reports to show that the temporary professionals 

performed all the tasks called for in the task directives. 

The following table shows the seven task directives and Liberated’s charges to LMSO

through May 25, 2001. 

Task Directives Not Meeting FAR Requirements 

Task Directive Number Contract Billed Amounts

35 SEAT $ 35,665

36 SEAT 79,329

145 SEAT 24,939

146 SEAT 41,301

187 SEAT 36,430

325 SEAT 14,099

7400-09/02-002 CSOC 152,014

Total $383,777

Applicability of FAR to the Provided Services 

LMSO officials involved in the seven task directives believed that the FAR did not apply 

to the services the temporary professionals provided.19 LMSO officials could not clearly 

explain the distinction between the services provided under the seven task directives and 

other professional services the officials believed were subject to the FAR. 

However, it is our opinion that the services provided on the seven tasks were covered by 

the FAR and that LMSO should have had the required information for the services to be 

considered allowable and billed to NASA. Examples of the services provided on the 

seven tasks follow: 

• An engineer with experience in robotics was hired under task directive 35 to 

support the SEAT contract. The task involved trouble-shooting support in the 

Robotic System Evaluation Laboratory and identifying alternative operational 

methods and equipment. An LMSO official initially estimated the task would 

 

19 FAR 31.205-33(a) defines professional and consultant services as “services rendered by persons who are 

members of a particular profession or possess a special skill and who are not officers or employees of the 

contractor.” The FAR section further states that the services are “generally acquired to obtain information, 

advice, opinions, alternatives, conclusions, recommendations, training, or direct assistance, such as studies, 

analysis, evaluations, liaison with Government officials, or other forms of representation.” 

10
take 200 hours at a cost of $10,190, but the task was subsequently amended to 

700 hours at a cost of $35,665. The task directive stated that the task was to result 

in several work products, including a conceptual system design, an 

implementation plan, and a system specification document. However, LMSO 

officials could not provide us the work products prepared by the engineer. 

• An aeronautical engineer was hired under task directive 7400-09/02-002 to 

support the CSOC contract. The task involved (1) evaluating and recommending 

technical solutions and approaches for operations automation related to CSOC 

mission control center operations, (2) supporting LMSO’s development of 

fixed-price contracting plans, and (3) performing other tasks as assigned. An 

LMSO official initially estimated the task for 1,000 hours at a cost of $75,950, but 

subsequently added another 1,000 hours at an additional $75,950. The directive 

did not identify specific work products to be furnished by the engineer. LMSO 

officials could not provide us work products prepared by the engineer to support 

the costs incurred under the task. 

 

For the seven tasks, LMSO officials did not have adequate detailed information as 

required by the FAR on either the invoices or actual work products. In our opinion, these 

services and deliverable products fit the FAR examples of professional and consultant 

services for "... alternatives, studies, recommendations... ,” and LMSO should have had 

the required documentation to support the costs charged to NASA. 

We discussed our concerns on these tasks with a DCAA official20 who stated that the 

nature of the tasks was within the definition of the FAR and that such documentation is 

generally expected and needed to verify incurred costs. 

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. The approach also balances 

the audit staff and time required to review an item in relation to the risk of it being 

unallowable and its dollar value. The dollar value of individual professional and 

consultant service subcontracts are normally lower than other items of incurred costs. 

Although professional and consultant services subcontracts are sensitive to improper use 

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

review because of their lower dollar value. 

Effect on Contract Costs 

Without evidence for the nature and scope of the services provided by the temporary 

professionals, NASA has reduced assurance that the work performed was proper and did 

 

20 DCAA has responsibility for reviewing incurred costs on Government contracts and final proposed costs 

prior to contract closing to determine whether the costs are allowable and properly allocated.

11
not violate law or regulations. Lacking adequate supporting information, we question 

whether the $383,777 charged to NASA on these seven tasks adequately met FAR 

requirements and, therefore, may not be allowable. The DCMA should direct LMSO to 

improve its procedures for obtaining temporary professional services, and the DCAA 

should examine the allowability of the costs. 

Recommendations, Management’s Response, and Evaluation of 

Response 

The NASA Johnson Center Director should direct the NASA contracting officers for 

NAS 9-98100 and NAS 9-19100 to: 

3. Request the DCMA ACO to require LMSO to establish formal, written 

procedures for obtaining temporary professional services through 

subcontracts including the following: 

• Controls for determining whether the services are professional and 

consultant services as defined by FAR 31.205-33(a). 

• Documentation maintained on the details of actual services performed 

by the professionals or consultants including deliverable items such as 

required analyses and reports. 

 

4. Request the DCAA to review LMSO costs for professional and consultant 

services obtained under subcontracts G962318J76 and GA67386B14 in the 

next incurred cost audit and to include professional and consultant 

services costs in samples selected for future incurred cost audits. 

Management’s Response. Concur. NASA asked the DCMA to initiate actions to 

ensure the adequacy of LMSO’s procedures for obtaining professional and consultant 

services through subcontracting. NASA also asked the DCMA to have the DCAA audit 

costs relating to temporary professional services obtained under the subcontracts with 

Liberated available for the next incurred cost audit and to include professional and 

consultant services in representative audit samples for future incurred cost audits. In 

addition, the fiscal year end incurred costs audits will resolve the $383,777 in potential 

unallowable costs (see Appendix E). 

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 over 

Lockheed Martin Space Operation’s (LMSO’s) use of professional and consultant

services. Specifically, we determined whether the contractor’s management controls 

ensured compliance with Federal Acquisition Regulation (FAR) requirements. 

Scope and Methodology 

The initial scope of the audit was professional and consultant service subcontracts that 

were active in 1998 - 2000 under NAS9-98100. During that period, LMSO had six active 

professional and consultant service subcontracts totaling $10.9 million. Based on the 

results of our review, we expanded the scope of the audit to include a $9.9 million 

subcontract under NAS9-19100. We examined the subcontracts, statements of work, 

single-source justification memoranda, cost and price analyses, consultants’ invoices and 

work products, payment approvals, task directives, and miscellaneous correspondence. 

We also compared each subcontract against requirements in the FAR and relevant LMSO 

policies and procedures, interviewed contractor personnel who requested the consultant 

services, LMSO procurement officials, NASA contracting officers, Defense Contract 

Audit Agency managers, and the Defense Contract Management Agency 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 subcontracts for professional and consultant services. We determined 

that management controls over compliance with the FAR allowability requirements and 

over justifications for noncompetitive procurements need improvement as discussed in 

Findings A and B. 

13
Appendix A 

Audit Field Work 

We performed audit field work from February 2001 through January 2002 at Johnson 

Space Center and at LMSO facilities in Houston, Texas. We performed the audit in 

accordance with generally accepted government auditing standards. 

14
Appendix B. Summary of Prior Reviews and Findings 

NASA Office of Inspector General Reviews. The NASA Office of Inspector General 

issued two audit reports on contractors’ use of professional and consultant services and 

two audit reports on subcontract management. (Copies of the four reports are available at 

www.hq.nasa.gov/office/oig/hq/issuedaudits.html.) 

“Thiokol’s Use of Professional and Consultant Services,” Report Number 

IG-01-019, March 30, 2001. Thiokol Propulsion’s justifications for noncompetitive 

procurements of the professional and consultant services were inadequate and untimely. 

As a result, NASA had reduced assurance that Thiokol obtained the best available source 

or price for consultant services paid for under the seven subcontracts reviewed. In 

response to our recommendations, the NASA administrative contracting officer, in 

conjunction with the Defense Contract Management Agency (DCMA), requested Thiokol 

(1) to ensure that contractor personnel submit justifications for noncompetitive 

procurements to include a statement addressing efforts to identify other sources and the 

reasons why other sources are incapable of performing the subcontract requirements and 

(2) to ensure that the justifications be submitted and approved prior to initiation of work. 

The DCMA administrative contracting officer instructed the Defense Contract Audit 

Agency (DCAA) to include professional and consultant services costs as part of the 

incurred cost audit for calendar year 1999. Further, the NASA contracting officer 

requested the DCMA administrative contracting officer to (1) include professional and 

consultant services costs, including the allocation of these services, in their surveillance 

reviews and (2) notify the NASA contracting officer when NASA did not receive 

reasonable benefits as a result of the allocation.

“Untied Space Alliance’s Use of Professional and Consultant Services,” Report 

Number IG-01-012, March 16, 2001. United Space Alliance (USA) officials charged 

NASA for professional and consultant services costs that did not meet Federal 

Acquisition Regulation (FAR) requirements for allowability and prepared inadequate and 

untimely justifications for noncompetitive procurements of the professional and 

consultant services. Specifically, 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; or prepare written justifications for the 

noncompetitive awards prior to initiation of the work. As a result, USA charged NASA 

$468,673 for the services that did not meet FAR requirements for allowability, and the 

Agency had reduced assurance that USA obtained the best available source or price for 

professional and consultant services. In response to our 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 services costs in its next audit of USA’s incurred costs. NASA also directed 

USA to maintain additional support for decisions to award professional and consultant 

services subcontracts on a noncompetitive basis. In addition, the DCMA established a 

process that includes reviews of professional and consultant service subcontracts in 

semiannual surveillance reviews. 

15
Appendix B 

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

September 16, 1999, and “Raytheon Subcontract Management,” Report Number 

IG-00-002, 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. 

Department of Defense (DOD) Inspector General Reviews. The DOD Office of 

Inspector General issued two audit reports on consultant service contracts. 

“Contracts for Professional, Administrative, and Management Support Services," 

Report Number D-2000-100, March 10, 2000, and “Use of Unpaid Consultants by 

the DoD Exchange Services,” Report Number D-2001-005, October 16, 2000. Report 

Number D-2000-100 discusses a review of 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 DOD Office of Inspector General recommend that the Deputy Under 

Secretary of Defense (Acquisition Reform) develop training on planning and defining 

requirements for contracts for professional, administrative, and management support 

services; train contracting and program personnel in the award and administration of 

contracts for these services; and emphasize, in the training, the need to avoid the kinds of 

deficiencies noted in the report. 

Report Number D-2001-005 discusses the Army and Air Force Exchange Service’s 

inappropriate engagements of consultants who had financial affiliations with 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. The DOD Office of Inspector General recommended that the Commander, 

Army and Air Force Exchange Service, require the consultants to file financial disclosure 

reports and attend annual ethics training, alter the relationship between its board of 

directors and the consultants, and establish policy on the use of unpaid consultants.

16
Appendix C. Subcontracts Reviewed 

Subcontract Number Dollar Value

Consolidated Space 

Operations Contract 

 (NAS 9-98100): 

 GA67386B14* 

 G998717B28 

 GB53786B14 

$ 6,000,000

4,053,232

409,050 

 GA74257B22 300,000

 OB53780B14 97,500

 G998721B28 ____30,000

 Subtotal $10,889,782

Science, Engineering, 

Analysis and Test Contract 

(NAS 9-19100): 

 

 G962318J76* 9,952,982

 Total $20,842,764

 

* Subcontract with Liberated Staffing Services, Inc.

17
Appendix D. Task Directives Reviewed

 

Contract Number

Task Directive 

Number

Billed 

Hours

Billed

Dollars

NAS 9 - 19100 14 1,605 $ 81,775

NAS 9 – 19100 35* 700 35,665

NAS 9 – 19100 36* 1,557 79,329

NAS 9 – 19100 135 1,331 81,569

NAS 9 – 19100 145* 471 24,939

NAS 9 – 19100 146* 780 41,301

NAS 9 – 19100 148 787 41,278

NAS 9 – 19100 180 1,505 67,650

NAS 9 – 19100 187* 688 36,430

NAS 9 – 19100 325* 252 14,099

NAS 9 – 19100 336 841 53,529

NAS 9 – 19100 343 444 24,398

NAS 9 – 19100 366 130 6,819

NAS 9 – 98100 7400-09/02-001 1,120 65,064

NAS 9 – 98100 7400-09/02-002* 2,001 152,014

NAS 9 – 98100 7110-5/8-004 1,986 210,469

 Totals 16 16,198 $1,016,328

* Lockheed Martin Space Operations (LMSO) did not maintain adequate documentation 

to support the work actually performed by the professionals and consultants under these 

seven task orders. LMSO billed NASA a total of $383,777 for the seven task orders. 

18
Appendix E. Management’s Response

19
Appendix E 

20
Appendix E 

21
Appendix E 

22
Appendix E 

23
Appendix E 

24
Appendix F. Report Distribution 

National Aeronautics and Space Administration (NASA) Headquarters

A/Administrator

AI/Associate Deputy Administrator 

B/Acting Chief Financial Officer

B/Comptroller

BF/Director, Financial Management Division

G/General Counsel

H/Assistant Administrator for Procurement

HK/Director, Contract Management Division

HS/Director, Program Operations Division

J/Assistant Administrator for Management Systems

JM/Director, Management Assessment Division

L/Assistant 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

Senior 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

Senate Committee on Governmental Affairs

House Committee on Appropriations

House Subcommittee on VA, HUD, and Independent Agencies

House Committee on Government Reform

25
Appendix F

Chairman and Ranking Minority Member – Congressional Committees and 

Subcommittees (Cont.)

House Subcommittee on Government Efficiency, Financial Management, and 

 Intergovernmental Relations

House Subcommittee on Technology and Procurement Policy

House Committee on Science

House Subcommittee on Space and Aeronautics, Committee on Science

Congressional Member 

Honorable Pete Sessions, U.S. House of Representatives

26
NASA Assistant Inspector General for Audits 

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