Department of Homeland Security
 

Department of Homeland Security Compliance 

with the Federal Acquisition Regulation 

Revisions on Proper Use and Management of 

Cost-Reimbursement Contracts 

OIG-12-133 September 2012
 
 

SEP 28 2012 

MEMORANDUM FOR: Nick Nayak 

Chief Procurement Officer 

Department of Homeland Security 

FROM: Anne L. Richards 

SUBJECT: DepartmentfoffHomelandfSecurityfCompliancefwithfthef 

FederalfAcquisitionfRegulationfRevisionsfonfProperfUsefandf 

ManagementfoffCost-ReimbursementfContractsff 

ff

Assistant Inspector General for Audits

 OFFICE OF INSPECTOR GENERAL 

 Department of Homeland Security 

 Washington, DC 20528 / www.oig.dhs.gov

Attached for your action is our final report, DepartmentfoffHomelandfSecurityf 

CompliancefwithfthefFederalfAcquisitionfRegulationfRevisionsfonfProperfUsefandf 

ManagementfoffCost-ReimbursementfContracts.f We incorporated the formal comments 

from the Office of the Chief Procurement Office in the final report. 

The report contains two recommendations aimed at improving the Department’s use 

and management of other than firm-fixed-price contracts. Your office concurred with 

the recommendations. Based on information provided in your response to the draft 

report, we consider the recommendations resolved. Once your office has fully 

implemented the recommendations, please submit a formal closeout letter to us within 

30 days so that we may close the recommendations. The memorandum should be 

accompanied by evidence of completion of agreed-upon corrective actions. 

Consistent with our responsibility under the InspectorfGeneralfAct, we are providing 

copies of our report to appropriate congressional committees with oversight and 

appropriation responsibility over the Department of Homeland Security. We will post 

the report on our website for public dissemination. 

 

Please call me with any questions, or your staff may contact John E. McCoy II, Deputy 

Assistant Inspector General for Audits, at (202) 254-4100. 

Attachment 

 

 

 

 

 

 

 

 

 

 

 OFFICE OF INSPECTOR GENERAL 

Department of Homeland Security 

Table of Contents 

Executive Summary............................................................................................................. 1 


Background ........................................................................................................................ 2 


Results of Audit ................................................................................................................... 4 


Contract-Type Selection Requirements .................................................................. 4 


Assignment of Acquisition Workforce Resources................................................... 8 


Recommendations ............................................................................................... 13 


Management Comments and OIG Analysis ......................................................... 14 


Appendixes 

Appendix A: Objectives, Scope, and Methodology ............................................ 16 


Appendix B: Management Comments to the Draft Report ............................... 19 


Appendix C: Major Contributors to This Report ................................................ 22 


Appendix D: Report Distribution ........................................................................ 23 


Abbreviations 

COR Contracting Officer Representative 

COTR Contracting Officer Technical Representative 

DCMA Defense Contract Management Agency 

DHS Department of Homeland Security 

FAC-COR Federal Acquisition Certification for Contracting Officer 

Representative 

FAC-COTR Federal Acquisition Certification for Contracting Officer Technical 

Representative 

FAR Federal Acquisition Regulation 

FY fiscal year 

OIG Office of Inspector General 

OMB Office of Management and Budget 

www.oig.dhs.gov OIG-12-133 
 

 

 

 

 

 

 

 OFFICE OF INSPECTOR GENERAL 

Department of Homeland Security 

Executive Summary 

Cost-reimbursement contracts and other non-firm-fixed price contracts provide limited 

incentive for contractors to control costs. In the past, these types of contracts have 

been used without appropriate justification or sufficient management and oversight. 

As a result, these contract vehicles pose a high risk for wasting or misusing taxpayer 

funds. 

Federal Acquisition Regulation Case 2008-030, Proper Use and Management of Cost 

Reimbursement Contracts, responded to Congressional and Presidential requirements to 

revise the Federal Acquisition Regulation to include guidance over the use and 

management of other than firm-fixed-price contracts, to include cost-reimbursement, 

time-and-material, and labor-hour. This case amended the Federal Acquisition 

Regulation to require documentation justifying the selection of contract type, and the 

assignment of acquisition workforce resources to support other-than-firm-fixed-price 

contracts. We reviewed the Department’s compliance with the Federal Acquisition 

Regulation Case 2008-030, to address a Congressional mandate in the Duncan Hunter 

National Defense Authorization Act for fiscal year 2009. 

The Department of Homeland Security (DHS) did not always comply with the revisions in 

the Federal Acquisition Regulation Case 2008-030, Proper Use and Management of Cost 

Reimbursement Contracts. DHS did not always document required information to justify 

the selection of other than firm-fixed-price contract-types and did not always assign 

acquisition workforce resources to manage other-than-firm-fixed-price contracts in 

accordance with the revisions. These conditions existed because DHS policies do not 

completely align with the Federal Acquisition Regulation Case requirements, or in some 

instances, because acquisition personnel did not comply with existing policies. As a 

result, DHS may not award or manage these contracts properly, increasing the risk 

associated with the procurement of goods and services. 

We made two recommendations intended to improve the Department’s use of other 

than firm-fixed-price contracts. DHS concurred with our recommendations and is taking 

steps to implement them. 

www.oig.dhs.gov 1 OIG-12-133 
 

 

 

 

 

 OFFICE OF INSPECTOR GENERAL 

Department of Homeland Security 

Background 

In fiscal year (FY) 2010, Federal agencies collectively spent more than $535 billion 

through contracts to acquire goods and services in support of their missions. Agencies 

obligated more than 35 percent of this total using other than firm-fixed-price contracts. 

Due to their nature, other-than-firm-fixed-price contracts increase the risks of 

inefficiency and waste. With the United States facing increasing fiscal pressures, there is 

a growing need to ensure that Federal agencies make the most efficient and effective 

use of their resources. To address these concerns, both Congress and the 

Administration recently strengthened controls over the use and management of other 

than firm-fixed-price contracts. 

Contract-Type Selection 

The Federal Acquisition Regulation (FAR) identifies a wide selection of contract types 

available to the Government, including firm-fixed price, cost-reimbursement, and timeand-materials contracts. The objective is to select a contract-type that results in 

reasonable contractor risk and provides the contractor with the greatest incentive for 

economical performance. 

The FAR states that the firm-fixed-price contract provides for a price that is not subject 

to any adjustment on the basis of the contractor’s cost experience in performing the 

contract. Usually, the firm-fixed-price contract is the contract-type best suited for 

minimizing risk and maximizing value for the Government because it provides the 

contractor with the greatest incentive for economical performance. It also imposes the 

minimal administrative burden upon the contracting parties. 

While the firm-fixed-price contract is preferred, the Government may award an other 

than firm-fixed-price contract-type when uncertainties cannot be managed by the 

contractor within economically reasonable bounds. For example, the FAR allows the 

government to award: 

•	 Cost-reimbursement contracts when circumstances do not allow the agency to 

define its requirements sufficiently or when uncertainties involved in contract 

performance do not permit costs to be estimated with sufficient accuracy; and 

•	 Time-and-materials and labor-hours contracts only when it is impossible, at the 

time of placing the contract, to estimate accurately the extent or duration of the 

work or to anticipate costs with any reasonable degree of confidence. 

www.oig.dhs.gov 2	 OIG-12-133 
 

 

 

 

 

 

 

 OFFICE OF INSPECTOR GENERAL 

Department of Homeland Security 

These other than firm-fixed-price contract-types require the Government to absorb a 

greater portion of the risk up front, but they can help avoid costly contingencies that 

contractors would pass on to taxpayers if forced to offer their services on a fixed-price 

basis. Under cost-reimbursement contracts, the Government pays the contractor based 

on allowable incurred costs rather than the delivery of a completed product or service. 

Under time-and-materials contracts, the Government pays the contractor fixed hourly 

rates that include wages, overhead, general and administrative expenses, and profit; 

based on the number of labor hours billed by the contractor. These terms provide 

contractors with limited incentive to control costs. In the past, these types of contracts 

have been used without appropriate justification or sufficient management and 

oversight. Furthermore, these contract types increase the Government’s administration 

costs. Excessive reliance on other than firm-fixed-price contracts increases the risk that 

funds will not be properly safeguarded. 

In FY 2009, DHS obligated $2.53 billion (17.7 percent of all contracts) for costreimbursement contracts and $2.54 billion (17.8 percent of all contracts) for time-andmaterials and labor-hour contracts. In FY 2010, DHS obligated $2.62 billion (19.3 

percent of all contracts) for cost-reimbursement contracts and $2.54 billion (18.7 

percent of all contracts) for time-and-materials and labor-hour contracts. 

Use and Management of Other Than Firm-Fixed-Price Contracts 

Recently, the Government has increased efforts to regulate the use and management of 

other than firm-fixed price contracts. Congress addressed cost-reimbursement 

contracts in section 864 of the Duncan Hunter National Defense Authorization Act for 

Fiscal Year 2009. Specifically, the Act required the FAR be revised to include guidance 

regarding 1) when and under what circumstances cost-reimbursement contracts are 

appropriate; 2) the acquisition plan1 findings necessary to support a decision to use 

cost-reimbursement contracts; and 3) the acquisition workforce resources necessary to 

award and administer cost-reimbursement contracts. The Act also required each 

agency’s Inspector General to determine the agency’s compliance with the new 

requirements. Addressing similar themes, President Obama issued a Presidential 

Memorandum on Government Contracting on March 4, 2009, directing agencies to 

become more fiscally responsible in their contract actions and cut contract costs. 

Additionally, in July 2009, the Office of Management and Budget (OMB) directed 

agencies to reduce the use of high-risk contracts (i.e. cost-reimbursement, time-andmaterial, and labor-hour). 

1

 As defined by the Defense Acquisition University, an acquisition plan is a written document that 

addresses all technical, business, management, and other significant considerations that will control an 

acquisition. 

www.oig.dhs.gov 3 OIG-12-133 
 

 

 

 

 OFFICE OF INSPECTOR GENERAL 

Department of Homeland Security 

To implement the Act and the Presidential Memorandum, the Department of Defense, 

the General Services Administration, and the National Aeronautics and Space 

Administration jointly issued FAR Case 2008-030 interim rule (Proper Use and 

Management of Cost-Reimbursement Contracts) on March 16, 2011 with immediate 

implementation. FAR Case 2008-030 broadened the Act’s scope to include all other 

than firm-fixed-price contracts including time-and-material and labor-hour contracts, 

which share similar risks as cost-reimbursement contracts. It introduced requirements 

that fall into two broad categories: 1) acquisition planning and contract-type selection, 

and 2) assignment of acquisition workforce resources. 

On March 2, 2012, the regulators adopted the interim rule as final with a few minor 

revisions that did not change the substance of the interim rule’s requirements. The final 

rule became effective on April 2, 2012. 

Results of Audit 

DHS did not always comply with the revisions in FAR Case 2008-030 (FAR Case), Proper 

Use and Management of Cost Reimbursement Contracts. DHS did not always document 

required information to justify the selection of other than firm-fixed-price contract 

types, and did not always assign acquisition workforce resources to manage other than 

firm-fixed-price contracts in accordance with the revisions. This occurred because DHS 

policies do not completely align with the FAR Case requirements, or in some instances, 

because acquisition personnel did not comply with existing policies. As a result, DHS 

may not award or manage these contracts properly, increasing the risk associated with 

the procurement of goods and services. 

Contract-Type Selection Requirements 

DHS’ written acquisition plans did not always contain required contract-type 

selection information and contracting officers did not always ensure the 

adequacy of contractors’ accounting systems. This occurred because DHS policy 

does not completely align with the FAR or acquisition personnel (i.e. preparers 

and reviewers/approvers of the required documentation) did not comply with 

existing policies. As a result, DHS may not award or manage these contracts 

properly, increasing the risk associated with the procurement of goods and 

services. 

www.oig.dhs.gov 4 OIG-12-133 
 

 

 

 

 

 

 OFFICE OF INSPECTOR GENERAL 

Department of Homeland Security 

DHS’ Acquisition Plans 

FAR Case 2008-030 requires agencies to develop written acquisition plans for 

other than firm-fixed-price contracts. These plans shall include specific 

information on why the particular contract-type was selected and be approved 

at least one level above the contracting officer. We reviewed a judgmental 

sample of 59 DHS other than firm-fixed price contracts with a total value of 

about $1.5 billion to evaluate DHS’ compliance with requirements.2

 All 59 DHS 

other than firm-fixed-price contracts did not comply with these requirements as 

follows: 

•	 The written acquisition plans for 29 of the 59 contracts in our sample did 

not contain contract-type selection information. 

The Homeland Security Acquisition Manual establishes different types of 

written acquisition plans depending on the acquisition dollar thresholds. 

The acquisition planner must develop a Formal Written Acquisition Plan 

for acquisitions of $10 million or more. For acquisitions of less than $10 

million, acquisition personnel must develop an Advance Acquisition Plan 

or an Abbreviated Acquisition Plan if the acquisition contains sensitive 

information. Both the Formal Written Acquisition Plan and the 

Abbreviated Acquisition Plan require contract-type selection information 

in accordance with FAR Case 2008-030. However, DHS policy does not 

require such information to be included in the Advanced Acquisition Plan. 

These 29 contracts required Advance Acquisition Plans and therefore did 

not contain all the required contract-type discussions in FAR Case 2008­

030. For 15 of the 29 contracts, some information regarding contracttype selection was included in the Determination and Findings document, 

which have been required prior to the FAR Case to justify the selection of 

time-and-materials and labor-hour contract-types. However, 

Determinations and Findings are not required for all other than firmfixed-price contracts and they do not require FAR Case 2008-030’s 

specific, targeted discussions and analyses. For example, Determinations 

and Findings do not require discussions of: 

o	 Government’s additional risk and the burden to manage the 

contract-type selected; 

2

 Details about the selection methodology and sampled contracts are presented in Appendix A. 

www.oig.dhs.gov 5	 OIG-12-133 
 

 

 

 

 

 

 

 

 

 

 

 OFFICE OF INSPECTOR GENERAL 

Department of Homeland Security 

o	 Government resources necessary to plan for, award, and 

administer the contract-type selected; and 

o	 Actions planned to minimize the use of other than firm-fixed-price 

contracts on future acquisitions for the same requirement and to 

transition to firm-fixed price contracts to the maximum extent 

possible for non-commercial time-and-materials and labor-hour 

contracts. 

•	 Twelve written acquisition plans, covering 27 of the 59 contracts in our 

sample, contain some, but not all of the required contract-type selection 

information as shown in table 1. 

Table 1: FAR Case 2008-030 Requirements of which Formal Written Acquisition 

Plans were Not Compliant (More than $10 million) 

FAR Case 2008-030 Requirement FAR Reference 

Acquisition 

Plans Not 

Compliant 

% Not 

Compliant 

Explain how additional risks of 

the contract-type were identified 16.103(d)(1)(ii)(A) 10 of 12 83% 

Discuss plans to transition to 

firm-fixed-price contracting for 

future acquisitions of the same 

requirement 

16.103(d)(1)(iv)(D) 9 of 12 75% 

Discuss the additional risk of 

contract type and how the risks 

would be mitigated 

16.103(d)(1)(ii)(B),(C) 9 of 12 75% 

Analyze facts and reasoning 

supporting the selection of the 

contract-type 

16.103(d)(1)(iv)(A),(B) 5 of 12 42% 

Explain fee provision, if 

applicable 16.103(d)(1)(v) 4 of 4 100% 

Approval one level above the 

contracting officer 7.103(j) 3 of 12 25% 

Assess the government 

resources needed to plan, award, 

and administer the contract-type 

selected 

16.103(d)(1)(iv)(C) 3 of 12 25% 

Source: DHS OIG. 

The plans we reviewed were formal written acquisition plans covering 

acquisitions of $10 million or more. The Homeland Security Acquisition 

www.oig.dhs.gov 6	 OIG-12-133 
 

 

 

 

 OFFICE OF INSPECTOR GENERAL 

Department of Homeland Security 

Manual issued by DHS Office of the Chief Procurement Officer required 

contract-type selection information in the formal acquisition plan prior to 

the FAR Case. For the most part, this information met the FAR Case 

requirements. DHS expanded its existing policy in June 2011 to include 

FAR Case provisions not previously covered. 

Nine of the twelve plans were approved one level above the contracting 

officer. However, the documented contract-type selection information 

did not include all required FAR Case requirements. We concluded that 

approving officials did not ensure these required elements were included 

prior to approving the plans. 

• 3 of the 59 contracts did not have a written plan. 

The contracting officer assigned to these 3 contracts said there was no 

formal written acquisition plan for these contracts because they were 

“bridge” contracts to continue the performance of the existing contracts 

until the follow-on contracts were awarded. 

Adequacy of Contractor’s Accounting System 

FAR Case requires that prior to agreeing on an other than firm-fixed-price 

contract type, the contracting officer shall ensure that the contractor’s 

accounting system will permit timely development of all necessary cost data in 

the form required by the proposed contract type. We reviewed 13 or 100 

percent of the cost-reimbursement contracts in our sample of 59 contracts, and 

for 6 (46.2 percent) of these the contracting officer did not properly ensure the 

adequacy of the contractors’ accounting system. 

For one contract, the contracting officer used a Defense Contract Management 

Agency (DCMA) letter as evidence of the contractor’s accounting system 

validation. The letter stated that DCMA’s approval of the contractor’s 

accounting system was contingent on verification of the effectiveness of 

corrective actions implemented for deficiencies noted. The contracting officer 

did not demonstrate adequate consideration of the issue by documenting the 

accounting system deficiencies as an additional risk of selecting a costreimbursement contract and identifying contract monitoring activities to 

mitigate the risk, as required by the FAR. 

The evidence supporting the validation of the accounting system for another 

cost-reimbursement contract was based on a checklist completed by the 

contractor as opposed to a third party. The contracting officer relied on the 

www.oig.dhs.gov 7 OIG-12-133 
 

 

 

 

 

 

 

 OFFICE OF INSPECTOR GENERAL 

Department of Homeland Security 

contractor’s self-assessment and did not seek any additional information on the 

adequacy of the accounting system before awarding the contract. 

Furthermore, the contracting officers for three additional contracts confirmed 

they did not ensure the adequacy of the contractors’ accounting systems. For 

one of these contracts, the contracting officer said he erroneously omitted the 

evaluation. Another contracting officer, responsible for two of these contracts, 

said he did not ensure the adequacy of the contractor’s accounting system 

because of extreme time pressure. For the last of the seven contracts, we found 

no evidence of the validation of the contractor’s accounting system in the file 

and the contracting officers provided no explanation for this lapse. 

The adequacy of the contractor’s accounting system affects the quality and 

validity of the contractor data upon which the Government must rely for its 

oversight of the contractor and contract performance. By not ensuring the 

adequacy of contractors’ accounting systems, DHS may reimburse contractors 

for unallowable costs. 

Assignment of Acquisition Workforce Resources 

DHS did not always designate Contracting Officer Representatives (COR) prior to 

contract awards. DHS’ CORs were not always properly certified or qualified by 

training and experience, and were not always nominated by the requirements 

officials. Also, DHS’ COR designation letters did not always include all the 

elements required by FAR Case. For example, some designation letters did not 

specify the period covered by the designation, or that the COR may be personally 

liable for unauthorized acts. This occurred because DHS’ acquisition workforce 

policies are inconsistent—both internally and with FAR Case — and DHS’ 

acquisition personnel did not always comply with existing policies. Not properly 

designating resources to oversee and support other than firm-fixed-price 

contracts increases the risk that funds will not be properly safeguarded. DHS 

needs to improve controls to ensure timely assignment of adequate and proper 

resources to support the award and administration of other than firm-fixed-price 

contracts. 

COR Nomination by Requirements Officials 

FAR Case requires the acquisition planner to ensure that the requirements 

official, responsible for identifying, developing and/or managing the acquisition 

requirement, nominates a COR as early as practicable in the acquisition process. 

Current DHS procedures require a COR nomination package to be included with 

www.oig.dhs.gov 8 OIG-12-133 
 

 

 

 

 

 

 

 OFFICE OF INSPECTOR GENERAL 

Department of Homeland Security 

the procurement request, but does not explain what shall be included in the 

nomination package. Some components have created forms and procedures 

specifying what will be included with the nominations, while others have not yet 

developed or updated their procedures. 

Twenty-three (40 percent)3 of 59 contracts in our sample, did not have COR 

nomination packages and/or evidence of the CORs’ nomination by the 

requirements official. CORs should be selected based on nomination packages 

by the requirements official demonstrating the COR’s certification level, training, 

and experience. This process facilitates the timely appointment of a properly 

certified COR with the training and experience commensurate with the 

responsibilities and helps ensure that the COR will have the tools needed to 

perform his assigned duties. 

COR Designation Prior to Contract Award 

CORs are qualified individuals designated and authorized by the contracting 

officer to assist in the technical monitoring and administration of the contract. 

For other than firm-fixed-price contracts, FAR Case requires agencies to 

designate and authorize in writing a properly trained COR prior to contract 

award. Additionally, the FAR Case states involvement of the program office at 

the early stages of the acquisition facilitates proper contract management and 

oversight, especially for other than firm-fixed-price contracts. 

Twenty-four (41 percent)3

 of 59 contracts in our sample, did not have CORs 

designated in writing prior to contract award. DHS designated a COR after 

contract award for 23 of these 24 contracts. Sixty-eight was the average number 

of days between contract award and COR designation. In two cases, DHS 

designated the COR after our review identified that a COR was not assigned. 

Additionally, one contract did not have a COR designated before the contract 

was cancelled. 

DHS Acquisition Workforce Policy, which existed prior to the FAR changes, stated 

that appointing a COR early in the definition phase of the requirement was 

“desirable.” DHS issued new procedures on the required timing of COR 

designations in its COR Essential Elements Guidebook in September 2011, 6 

months after the FAR changes. The COR Guidebook, which is still in place, 

3

 Percentage is based on our review of 58 contracts. The contracting officer for one of the 59 contracts in 

our review retained contracting officer representative’s duties, as allowed by the FAR Case. Therefore, 

this contract was not reviewed for this provision. 

www.oig.dhs.gov 9 OIG-12-133 
 

 

 

 

 

 

 OFFICE OF INSPECTOR GENERAL 

Department of Homeland Security 

requires DHS’ contracting officers to designate CORs “upon” contract award. In 

addition, on January 30, 2012, DHS revised its Acquisition Workforce Policy, 

stating that the contracting officer “should” appoint a COR early in the contract 

definition phase of the requirement for all contracts. However, the policy did 

not provide a specific mandate requiring the appointment of a COR prior to 

contract award for other than firm-fixed-price contracts. 

COR Certification, Training, and Experience 

FAR Case requires the contracting officer to designate and authorize a COR who: 

(a) is certified and maintains certification in accordance with the Office of 

Management and Budget (OMB) memorandum titled “The Federal Acquisition 

Certification for Contracting Officer Technical Representative” (FAC-COTR) dated 

November 26, 2007; and (b) is qualified by training and experience 

commensurate with the responsibilities to be delegated in accordance with 

department/agency guidelines. Subsequent to the FAR Case, the FAC-COTR 

memorandum was superseded by a new OMB memorandum “The Federal 

Acquisition Certification for Contracting Officer Representative” (FAC-COR) 

issued on September 6, 2011 with an implementation date of January 1, 2012.4 

•	 Federal Acquisition Certification for Contracting Officer Technical 

Representative 

The FAC-COTR required 40 hours of training before an individual is 

certified as a COR. To maintain certification, the COR needed to earn 40 

continuous learning points every 2 years. Thirty-seven of the 59 

contracts in our sample had a COR assigned prior to January 1, 2012; and 

of these, all were certified in accordance with OMB FAC-COTR 

memorandum. 

•	 The Federal Acquisition Certification for Contracting Officer 

Representative 

OMB’s revised memorandum, effective January 1, 2012, established a 

three-tiered certification, with each tier requiring a different level of 

training and experience. The memorandum included a COR Appointment 

Criteria Matrix to help contracting officers select a COR with the 

appropriate level of training and experience. It stated that one risk factor 

to consider when selecting a COR is contract-type and listed other than 

4

 The term “COTR” changed to “COR” to align with the FAR. 

www.oig.dhs.gov 10	 OIG-12-133 
 

 

 

 

 OFFICE OF INSPECTOR GENERAL 

Department of Homeland Security 

firm-fixed-price contract types as a significant or high risk. The 

memorandum invited agencies to add criteria to the matrix as 

appropriate for their situations and gave agencies the option to 

“grandfather” COTRs in as Level II CORs. The policy required agencies to 

develop guidance to ensure their CORs were FAC-COR certified. 

On January 30, 2012, DHS developed its risk-based COR certification level 

program in its Acquisition Workforce Policy. This policy provided the 

minimum mandatory training for FAC-COR certification at DHS. The policy 

requires the appointed COR to have a Level III FAC-COR for high-risk 

contracts. This rule applies to existing and new contracts. For existing 

contracts, contracting officers were required to reappoint the CORs after 

ensuring they were certified at a Level III. Appointment letters for both 

reappointments and new appointments need to indicate the required 

and current level of COR certification. Additionally, the revised 

Acquisition Workforce Policy requires the appointed COR to have 

appropriate and current certification at the time of appointment. 

We reviewed the certification and appointment letters for CORs 

appointed before and after January 1, 2012.5

 The CORs appointed to 

these contracts were not in compliance with the DHS policy established 

to meet the OMB FAC-COR certification requirements as follows: 

o	 The appointment letters for all contracts did not indicate the 

required and/or current COR certification level. DHS requires 

acquisition personnel to use an appointment letter template 

included in DHS’ Homeland Security Acquisition Manual when 

designating a COR; however, this template has not yet been 

updated to include the COR certification level requirement. 

o	 Only the CORs appointed to six contracts were certified at a Level 

III. We talked to selected contract acquisition personnel for these 

contracts and they said that they were not aware of the 

requirement for Level III. 

o	 At the time of our review, none of the CORs appointed prior to 

January 2012 had been reappointed (37 contracts in our sample). 

o	 The certification for 2 of the 18 CORs appointed after January 1, 

2012, had expired prior to their appointment. For the first 

contract that did not have a properly certified COR, we identified 

5

 At the time of our review, a COR had not been appointed to four contracts in our sample. Therefore, 

these four contracts were not reviewed and this reduced our sample size for this section to 55. 

www.oig.dhs.gov 11	 OIG-12-133 
 

 

 

 

 

 OFFICE OF INSPECTOR GENERAL 

Department of Homeland Security 

that the certification had expired 41⁄2 months before appointment. 

Based on our conversation with the COR’s supervisor 6 months 

after appointment, the COR was still trying to complete required 

hours to maintain certification. As a result of our review, a new 

properly certified COR was appointed to the contract. 

The certification for the COR appointed to the second contract 

had expired 7 months prior to appointment. Based on our 

conversation with the COR and the component’s acquisition 

specialist, they believed that the training requirement was for 

every 4 years instead of every 2 years. This COR was assigned to 

the contract for 4 months without proper certification. As a result 

of our inquiry, this COR obtained the required hours. 

As stated in the OMB FAC-COR memorandum, strengthening the acquisition 

workforce is critical to ensuring that the Government gets the best value for the 

goods and services it procures annually. Appointing a properly trained and 

experienced COR will help ensure that payment is only made to contractors who 

perform in accordance with contract terms and conditions, and that contract 

performance will address program needs. 

COR Designation Letters 

For all other than firm-fixed-price contracts, FAR Case requires the contracting 

officer to designate a COR in writing with copies furnished to the contractor and 

the contract administration office. The written designation shall: 

•	 Specify the extent of the COR’s authority to act on behalf of the 


contracting officer;
 

•	 Identify the limitations of the COR’s authority; 

•	 Specify the period covered by the designation; 

•	 State that the authority is not re-delegable; and 

•	 State that the COR may be personally liable for unauthorized acts. 

On April 6, 2011, DHS issued a COR designation letter template that addresses 

each of the required elements in its Homeland Security Acquisition Manual. DHS 

requires acquisition personnel to use this template when preparing COR 

appointment letters to ensure format consistency across DHS. 

www.oig.dhs.gov 12	 OIG-12-133 
 

 

 

 

 

 

 

 OFFICE OF INSPECTOR GENERAL 

Department of Homeland Security 

In most instances, DHS ensured that its COR designation letters complied with 

FAR Case. Of the 55 COR designation letters reviewed, 6 (10.9 percent) did not 

contain all the required elements in the FAR Case. Of these 6 letters, one did not 

state that the COR’s authority is not re-delegable, while another did not state 

that the COR may be personally liable for unauthorized acts. Three more letters 

did not include either of these two requirements. One designation letter only 

included the period covered by the designation. Contracting Officers did not 

prepare these letters using the COR designation letter template in the Homeland 

Security Acquisition Manual. 

A designation letter that complies with the FAR requirements is important for 

ensuring that the COR understands the responsibilities and limitations of the 

COR designation. Not understanding the COR authority could lead to 

unauthorized commitments and contractual and legal disputes with the 

contractor. 

Conclusion 

DHS did not always comply with the requirements in the FAR Case for the proper 

use and management of other-than-firm-fixed-price contracts. DHS written 

acquisition plans did not always contain all required information justifying the 

selection of other-than firm-fixed-price contracts, and contracting officers did not 

always ensure the adequacy of the contractors’ accounting systems. Also, DHS did 

not always nominate and designate properly certified and trained CORs to manage 

and oversee other than firm-fixed-price contracts. As a result, DHS risks awarding 

contracts that are wasteful or otherwise not well designed to serve the Federal 

Government's needs, paying for unallowable costs, and not being able to 

manage the risk associated with the goods and services being procured. 

Recommendations 

We recommend that the Chief Procurement Officer: 

Recommendation #1: 

Updates Department of Homeland Security acquisition policies to comply with all 

Federal Acquisition Regulation Case 2008-030 requirements for proper use and 

management of other-than-firm-fixed-price contracts, ensuring Department of 

Homeland Security policy: 

www.oig.dhs.gov 13 OIG-12-133 
 

 

 

 

 

 

 OFFICE OF INSPECTOR GENERAL 

Department of Homeland Security 

•	 Requires that acquisition plans for all other than firm-fixed-price 

contracts contain all required information to support the selection of 

contract type; 

•	 Describes the type of documentation to be included as part of the 

Contracting Officer Representative nomination package and requires that 

it is included in the contract file to demonstrate nomination by the 

requirements official; and 

•	 Requires that Contracting Officer Representatives are designated and 

authorized in writing prior to contract award for all other-than-firm-fixedprice contracts and orders. 

Recommendation #2: 

Reaffirm guidance (e.g. Homeland Security Acquisition Manual and Acquisition 

Workforce Policies) to ensure acquisition personnel understand how the Federal 

Acquisition Regulation Case 2008-030 requirements affect existing and future 

contracts and orders. In doing so, ensure to communicate the following: 

•	 Other than firm-fixed-price acquisition plans shall be approved and 

signed at least one level above the contracting officer, and before 

approval, these plans shall contain required information supporting the 

selection of contract type; 

•	 Contracting officers shall ensure that the contractor’s accounting system 

will permit timely development of all necessary cost data in the form 

required by the proposed contract type; 

•	 Contracting officers shall appoint properly certified, trained, and 

experienced Contracting Officer Representatives to support other than 

firm-fixed-price contracts and remove those who fail to meet these 

requirements; and 

•	 Contracting officers shall use the Contracting Officer Representative 

designation letter template in Appendix W of the Homeland Security 

Acquisition Manual to ensure compliance with the FAR Case 

requirements. 

Management Comments and OIG Analysis 

DHS provided formal comments to our report. DHS also provided technical 

comments which were incorporated in the final report where appropriate. DHS 

concurred with both of our recommendations. Appendix B includes a copy of 

the management comments in their entirety. Our evaluation of DHS’ response to 

the draft report follows. 

www.oig.dhs.gov 14	 OIG-12-133 
 

 

 

 

 OFFICE OF INSPECTOR GENERAL 

Department of Homeland Security 

Management Response to Recommendation #1: The CPO concurs with this 

recommendation and is developing updated policy and guidance to require that 

acquisition plans for other than firm-fixed-price contracts properly address 

contract type selection. Additionally, DHS will issue Homeland Security 

Acquisition Manual and Contracting Officer Representative Guidebook revisions 

to clarify DHS implementation of FAR Case 2008-03, Proper Use and 

Management of Cost Reimbursement Contracts, changes to reinforce statutory, 

regulatory, and policy requirements. 

OIG Analysis: We consider this recommendation resolved because steps are 

being taken to implement it. However, it will remain open until DHS provides 

documentation to support that the planned corrective actions are completed. 

Management Response to Recommendation #2: The CPO concurs with this 

recommendation and states that it: 1) updated Acquisition Workforce policy, 2) 

will update the Homeland Security Acquisition Manual and Contracting Officer 

Representative Guidebook policy, and 3) has issued policy reminders and e-mail 

notices to DHS acquisition personnel reaffirming guidance to ensure that 

acquisition personnel understand how the FAR Case 2008-030 requirements 

affect existing and future contract orders. 

OIG Analysis: We consider this recommendation resolved because steps are 

being taken to implement it. However, it will remain open until DHS provides 

documentation to support that the planned corrective actions are completed. 

www.oig.dhs.gov 15 OIG-12-133 
 

 

 

 

 OFFICE OF INSPECTOR GENERAL 

Department of Homeland Security 

Appendix A 

Objectives, Scope, and Methodology 

The Department of Homeland Security (DHS) Office of Inspector General (OIG) was 

established by the Homeland Security Act of 2002 (Public Law 107-296) by amendment 

to the Inspector General Act of 1978. This is one of a series of audit, inspection, and 

special reports prepared as part of our oversight responsibilities to promote economy, 

efficiency, and effectiveness within the Department. 

This report provides the results of our work to determine whether DHS complied with 

revisions to the FAR on the use of cost-reimbursement contracts, as prescribed in the 

FAR Case 2008-030. To accomplish our objective, we reviewed applicable Federal laws, 

regulations, and sections of the FAR revised by FAR Case 2008-030, to identify 

requirements for the use and management of other-than-firm-fixed-price contracts. 

To gain an understanding of internal controls significant within the context of the audit 

objective and to determine compliance with the FAR Case 2008-030, we evaluated 

Department and component-specific procurement policies and procedures. We also 

interviewed representatives from the Department’s Office of the Chief Procurement 

Officer and Components (i.e. Federal Emergency Management Agency, U.S. Coast 

Guard, Office of Procurement Operations, Immigration and Customs Enforcement, U.S. 

Customs and Border Protection, Citizenship and Immigration Services, and the 

Transportation Security Administration) to obtain an understanding of their processes 

and internal controls to ensure compliance with the new FAR changes. 

We judgmentally selected a sample of 59 DHS contracts solicited and awarded between 

the dates of March 17, 2011 to March 16, 2012, to determine whether contract-type 

and Contracting Officer Representative documentation complied with requirements 

promulgated by FAR Case 2008-030. The sampled contracts were of the following types: 

•	 Cost-Reimbursement - used only when circumstances do not allow the agency to 

define its requirements sufficiently to allow for a fixed-price type contract or 

uncertainties involved in contract performance do not permit costs to be 

estimated with sufficient accuracy to use any type of fixed-price contract. In this 

type of contract, the Government assumes the inherent risks, which are 

uncertain and speculative labor hours, labor mix, and/or material requirements. 

•	 Time-and-Materials - provide for acquiring supplies or services on the basis of (1) 

direct labor hours at specified fixed hourly rates that include wages, overhead, 

general and administrative expenses, and profit; and (2) actual cost for materials. 

www.oig.dhs.gov 16	 OIG-12-133 
 

 

 

 

 

 OFFICE OF INSPECTOR GENERAL 

Department of Homeland Security 

•	 Labor-Hours - are a variation of the time-and-materials contract, differing only in 

that materials are not supplied by the contractor. 

•	 Indefinite-delivery - used to acquire supplies and/or services when the exact 

times and/or exact quantities of future deliveries are not known at the time of 

contract award. There are three types of indefinite-delivery contracts: definitequantity, requirements, and indefinite-quantity. 

Our sample covered six procurement offices within DHS: Federal Emergency 

Management Agency, U.S. Coast Guard, Office of Procurement Operations, Immigration 

and Customs Enforcement, U.S. Customs and Border Protection, and the Transportation 

Security Administration; we did not review classified contracts. We selected contracts 

with a total base and all options dollar value equal to or greater than $750,000, with the 

exception of Office of Procurement Operations’ contracts whose dollar value was equal 

to or greater than $1 million. The 59 contracts totaled approximately $1.5 billion in 

total base and all options value. We determined whether contract documentation 

complied with the following guidance promulgated under the FAR Case 2008-030: 

FAR 

Reference 

Requirement 

1.602-2(d) and Written evidence the contracting officer has designated and authorized a 

7.104(e) contracting officer’s representative (COR) on all contracts and orders that are 

other than firm-fixed-price. The contracting officer shall verify the COR or COTR is 

a Government employee, qualified by training and experience in accordance with 

department/agency guidelines, and certified in accordance with the Office of 

Management and Budget memorandum. Additionally, the contracting officer will 

ensure the COR or COTR has been delegated the appropriate responsibility and will 

identify any limitations on the authority of the COR/COTR; 

1.604* 

1.602-2(d)(4)* 

COR needs to maintain a file for each assigned contract. A COR may not be 

delegated functions that have been delegated to a contract administration office. 

7.103(d), (e), Review of policy prescribed by the agency head or its designee to ensure 

(f) and (j) compliance with 7.103(d), (e), (f), and (j). Evidence that acquisition planners 

7.105(b)(3) documented the files to support the selection of the contract type in accordance 

with the following paragraph from Subpart 16.1: the statement of work is closely 

aligned with the performance outcomes and cost estimates; a written plan was 

prepared for other than firm-fixed-price contracts; established criteria and 

thresholds on the level of detail for written acquisition plans; acquisition plans 

comply with FAR 7.104 and Part 16; and acquisition plans for other-than-firmfixed-price contracts are reviewed and approved at least one level above the 

contracting officer. 

7.105(b)(5)(iv) Documentation of the strategy to transition from other-than-firm-fixed-price 

contracts to firm-fixed-price contracts. 

16.103(d) Additional documentation when other than a firm-fixed-price contract type is 

selected. 

www.oig.dhs.gov 17	 OIG-12-133 
 

 

 OFFICE OF INSPECTOR GENERAL 

Department of Homeland Security 

16.104 Contracting Officer’s consideration of combining contract types if the entire 

contract cannot be firm-fixed-price. 

16.301-2 Circumstances in which to use cost-reimbursement and the documented rationale 

for selecting an other than firm-fixed-price contract type. 

16.301-3 

16.104 (i) 

42.302(a)(12) 

When a cost-reimbursement contract may be used, documentation that the 

contracting officer considered all factors per FAR 16.104, including the adequacy of 

the contractor’s accounting system; and documentation that the contracting 

officer has ensured that adequate Government resources are available to award 

and manage other than firm-fixed-price contract awards. 

Source: FAR *We did not verify compliance with FAR 1.604 and 1.602-2(d)(4) during this review. 

We conducted this performance audit between April and July 2012, pursuant to the 

Inspector General Act of 1978, as amended, and according to generally accepted 

government auditing standards. Those standards require that we plan and perform the 

audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based upon our audit objectives. We believe that the evidence 

obtained provides a reasonable basis for our findings and conclusions based upon our 

audit objectives. 

www.oig.dhs.gov 18 OIG-12-133 
 OFFICE OF INSPECTOR GENERAL 

Department of Homeland Security 

 

Appendix B 

Management Comments to the Draft Report 

 

u.s. Dql.rtmcnl of 1I0mtlu ci S«lIrlly 

Wl5hin&1On, DC 20S28 

Homeland 

Security 

September 26, 2012 

MEMORANDUM FOR: Anne L. Richards 

Assistant Inspector General for Audits 

FROM: 

~;~;~;;;;~~:~~I~~ SUBJECT: Draft 0 10 Report: "Department of'Homcland Security 

Compliance with the FedcraJ Acquisition Regulation Revisions on 

Proper Use of Cost-Reimbursement Contracts" (Projoct No. 12-

135-AUD-DHS) 

Thank you for the opportunity to review and comment on this draft report. The U.S. Department 

of Homeland Security (DHS) appreciates the Office of Inspector GenCl"RI's (OIO's) work in 

conducting its review and issuing this rcpart. 

'I11e draft report contained two recommendations with which the Department concurs. 

Specifically. the 010 recommended that the DHS ChierProcurement OffiCl.-,( (CPO): 

Rccommcndlltion 1: Update Department ofHomciand Security acquisition policies to comply 

with all Federal Acquisition Regulation Case 2OQ8..()30 requifl ... 'I1lt!nts for proper usc and 

management ofother-than-liml-fixed-price contracts, ensuring Department of Homel and 

Security policy: 

• Requires that acquisition plans ror uU othcr-than-finn-fixoo-price contracts contain all 

required infonnation to support thc selection of contract type; 

• Describes the type of documentation to be included as part of the Contmcting Officer 

Representati ve nomination package and requires that it is included in the contract file to 

demonstrate nomination by the requirements o ffici al; and 

• Requires that Contracting Officer Reprcsenlativcs arc designated and authorized in 

writi ng prior to contract award for all other-than-finn·fixed·pricc contracts lind orders. 

Response: Concur. The CPO agrees that updrued policy and guidance arc necessary to ensure 

compliance with Federal Acquisition Regulation (FAR) requirements for proper use of and 

management of othcr-than-firm-fixcd-pricc contracts. On August 15, 2012, the CPO 

www.oig.dhs.gov 19 OIG-12-133 
 OFFICE OF INSPECTOR GENERAL 

Department of Homeland Security 

 

Acquisition, Policy and Legislation (APL) Division issued updated policy and guidance to 

require that acquisition plans for othcr than-finn~fixed- rice contracts properly address contract 

type selection. 

Additionally, APL will issue Homeland Security Acquisition Manual (HSAM) and Contraf..iing 

Officer Representative (COR) Guidebook revisions to clarify DHS impleml.'l1tation of FAR Case 

2008-03, Proper Use and Management of Cost Reimbursement Contracts, changes to reinforce 

statutory, regulatory, and policy requirements. Changes will include: 

• Clarifying the procurement request requirements in HSAM 3004 to include the COR 

nomination package, and describing the contents of the package; 

• Changing the requirement in HSAM 3007 and associated Acquisition Planning Guide to 

require FAR compliant Acquisition Plans for all non-firm-fixed-price contracL~ above thc 

simplified acquisition threshold; 

• Removing all references in the HSAl\1 and other policy documents to the Acquisition 

Planning Forecast System as a complete substitute for a FAR compliant Acquisition Plan 

for all non-firm-fixed-price contracts above the simplified acquisition threshold; and 

• Adding additional information in HSAM 4042 and Appendix W to ensure that CORs are 

appointed prior to contract award, thot the Contracting Officer receive a full COR 

nomination package and the Contracting Officer's appointment of the COR includes the 

certification level and an explanation of why that certification level is necessary tor the 

tasks to be performed during contract administration. Estimated Completion Date 

(EeD): October 31, 2012. 

Recommendation 2: Reaffinn guidance (e.g., Homeland Security Acquisition MlUlual and 

Acquisition Workforce Policies) to ensure acquisition pl.'TSonncl understand how the Federal 

Acquisition RcguJation Case 2008~030 requiremcnts affect existing and future contracts and 

ordcrs. In doing so, ensure to communicate the following: 

• Ot er~than firm fixcd pr cc contract acquisition plans shall be approved and signed at 

least one level above the Contracting Officer and before approval, these plans shall 

contain required information supporting the selection of contract type; 

Contracting Officers shall ensure that the contractor's accounting system will permit 

timcly development of all noccssary cost data in the form required by thc proposed 

contract type; 

• Contracting Officers shall appoint properly cl.Ttificd, trained, and experienced 

Contracting Officer Representatives to support other-than~firrn-fixed-price contracts and 

remove those who fail to meet these requirements; and 

• Contracting Officers shall use the Contracting Officer Representative designation letter 

template in Appendix W of the Homeland Security Acquisition Manual to ensure 

compliance with the FAR Case requirements. 

2 

www.oig.dhs.gov 20 OIG-12-133 
 OFFICE OF INSPECTOR GENERAL 

Department of Homeland Security 

 

Response: Concur. The CPO agrees that DBS needs to reaffirm guidancc to cnsure thaI 

acquisition personnel undersland how the FAR Casc 2008-03 requirements affect ex.isting and 

future contract orders. 

APL issued Regulatory Reminder 12-02 ''Planning and Approving Non-Fixed Priced Actions" 

on August 15, 2012. This reminder listed each important FAR change incorporated by FAR 

Case 2008-030 and gave instructions on what was necessary for Contracting Officers to comply 

with each of these new policies. This regulatory reminder was designed to make required FAR 

compliance easier and simplify the means of compliance, all with a goal of ensuring that 

Contracting Officers and Components comply with the statutory, regulatory, and policy 

requirements of the new FAR policies. 

CPO's Acquisition Workforce division issued an e-mail notice, entitled \leOR Appointment 

Requirements and Revised Policy" on August 10,2012, reminding contract specialists and 

Contracting Officer to adhere to the COR certification requirements outlined in September 2011 

Office of Federal Procurement Policy guidance. 

Concurrent with the rt.1l1indcr e-mail, Acquisition Workforce also updated and published the 

revised COR certification policy, (:ntitled "DHS Fedeml Acquisition Certification for 

Contracting Officer's Representatives Policy." The revised policy clarifies that for othcr-thanfirm-fIxed-price contracts, Contracting Officers must appoint a Level III certified COR. 

Additionall y, as stated under Recommendation 1, APL will issue HSAM and COR Guidebook 

revisions to clarify DHS implementation of FAR Case 2008-03, Proper Use and Management of 

Cost Reimbursclnl;:ut Cuutrnct:s ciHUlges to reinforce statutory, regulatory, and policy 

requirements. One of the changes to the Guidebook will be an update to Appendix W to ensure 

compliance with the FAR case requirements. ECO: October 31,2012. 

Again, thank you for the opporrunity to review and comment on this draft report. Technical 

comments were submitted previously under separate cover. Please feci free to contact me if you 

have any questions. We look forwurd to working with you in tbe future. 

3 

www.oig.dhs.gov 21 OIG-12-133 
 

 

 OFFICE OF INSPECTOR GENERAL 

Department of Homeland Security 

Appendix C 

Major Contributors to This Report 

Donald Bumgardner, Director 

Yeseira Diaz, Audit Manager 

Gloria Medina-Ortiz, Auditor 

Apostolos Exarchos, Program Analyst 

Victor Leung, Program Analyst 

Enrique Leal, Auditor 

Kevin Dolloson, Communications Analyst 

Ignacio Yanes, Independent Referencer 

www.oig.dhs.gov 22 OIG-12-133 
 

 

 

 

 

 

 

 OFFICE OF INSPECTOR GENERAL 

Department of Homeland Security 

Appendix D 

Report Distribution 

Department of Homeland Security 

Secretary 

Deputy Secretary 

Chief of Staff 

Deputy Chief of Staff 

General Counsel 

Executive Secretary 

Director, GAO/OIG Liaison Office 

Assistant Secretary for Office of Policy 

Assistant Secretary for Office of Public Affairs 

Assistant Secretary for Office of Legislative Affairs 

Acting Chief Privacy Officer 

Undersecretary for Management 

Chief Procurement Officer 

DHS Component Liaison, U.S. Coast Guard 

DHS Component Liaison, Federal Emergency Management 

DHS Component Liaison, Immigration and Customs Enforcement 

DHS Component Liaison, Transportation Security Administration 

DHS Component Liaison, Customs and Border Protection 

DHS Component Liaison, Office of Procurement Operations 

DHS Component Liaison, Citizen and Immigration Services 

Office of Management and Budget 

Chief, Homeland Security Branch 

DHS OIG Budget Examiner 

Congress 

Congressional Oversight and Appropriations Committees, as appropriate 

www.oig.dhs.gov 23 OIG-12-133 
 

ADDITIONAL INFORMATION AND COPIES 

To obtain additional copies of this document, please call us at (202) 254-4100, fax your 

request to (202) 254-4305, or e-mail your request to our Office of Inspector General 

(OIG) Office of Public Affairs at: DHS-OIG.OfficePublicAffairs@oig.dhs.gov. 

For additional information, visit our website at: www.oig.dhs.gov, or follow us on Twitter 

at: @dhsoig. 

OIG HOTLINE 

To expedite the reporting of alleged fraud, waste, abuse or mismanagement, or any 

other kinds of criminal or noncriminal misconduct relative to Department of Homeland 

Security (DHS) programs and operations, please visit our website at www.oig.dhs.gov 

and click on the red tab titled "Hotline" to report. You will be directed to complete and 

submit an automated DHS OIG Investigative Referral Submission Form. Submission 

through our website ensures that your complaint will be promptly received and 

reviewed by DHS OIG. 

Should you be unable to access our website, you may submit your complaint in writing 

to: DHS Office of Inspector General, Attention: Office of Investigations Hotline, 245 

Murray Drive, SW, Building 410/Mail Stop 2600, Washington, DC, 20528; or you may 

call 1 (800) 323-8603; or fax it directly to us at (202) 254-4297. 

The OIG seeks to protect the identity of each writer and caller.