Department of Homeland Security 

U.S. Customs and Border Protection’s 

Management of the Purchase and 

Storage of Steel in Support of the 

Secure Border Initiative 

OIG-12-05 November 2011 
Office ofI//Spec/or General 

U.S. Department or Uomtland Security 

Washington. DC 20528 

Homeland 

Security 

NOV 7- 2011 

Preface 

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

by the Homeland Security Act of2002 (Public Law 107-296) by amendment to the Inspector 

General Act of1978. This is one ofa 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 addresses the effectiveness of the U.S. Customs and Border Protection's management 

of the purchase and storage of steel in support of the Secure Border Initiative. It is based on 

interviews with employees and officials of relevant agencies and institutions, direct observations, 

and a review of applicable documents. 

The recommendations herein have been developed to the best knowledge available to our office, 

and have been discussed in draft with those responsible for implementation. We trust this report 

will result in more effective, efficient, and economical operations. We express our appreciation 

to all of those who contributed to the preparation of this report. 

~;(~

Anne L. Richards 

Assistant Inspector General for Audits 
 

Table of Contents/Abbreviations 
 

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

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

Results of Audit ..................................................................................................................5 
 

Project Planning.............................................................................................................5
 


Project Oversight ...........................................................................................................8 
 

Conclusion ...................................................................................................................11 
 

Recommendations........................................................................................................12
 

Management Comments and OIG Analysis ................................................................12 
 

Appendices 

Appendix A: Purpose, Scope, and Methodology.......................................................15 
 

Appendix B: Management Comments to the Draft Report .......................................16 
 

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

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

Abbreviations 

CBP U.S. Customs and Border Protection 

CO contracting officer 

DHS Department of Homeland Security 

FY fiscal year 

IBWC International Boundary and Water Commission 

LOTSS Long-Term Steel Storage 

IIRIRA Illegal Immigration Reform and Immigrant Responsibility Act of 1996 

NFC National Finance Center 

OIG Office of Inspector General 

SBI Secure Border Initiative 

SSCM Supply and Supply Chain Management 

TI Tactical Infrastructure 
 

OIG
 


Department of Homeland Security 

Office of Inspector General 

Executive Summary 

The Department of Homeland Security’s Customs and Border Protection 

uses infrastructure to impede illegal entry into the United States and 

provide officers access to their areas of operations. Since 2008, Customs 

and Border Protection has spent approximately $1.2 billion to construct 

physical barriers along the southwest border as part of the Department’s 

Secure Border Initiative. About $310 million of the cost was to purchase 

and store steel in support of fence construction. We performed this audit 

to determine the effectiveness of Customs and Border Protection’s 

management of the purchase and storage of steel in support of the Secure 

Border Initiative. 

Customs and Border Protection completed 299 miles of fence; however, it 

did not effectively manage the purchase and storage of steel in support of 

the Secure Border Initiative. It purchased steel based on an estimate 

before legally acquiring land or meeting international treaty obligations. 

In addition, it did not provide effective contract oversight during the 

project: it paid invoices late, did not reconcile invoices to receiving 

documents, and did not perform a thorough review of the contractor’s 

selection of a higher-priced subcontractor or document the reasons for its 

approval of the subcontractor. As a result, Customs and Border Protection 

purchased more steel than needed, incurred additional storage costs, paid 

interest on late payments, and approved a higher-priced subcontractor, 

resulting in additional expenditures of about $69 million that could have 

been put to better use. 

We made five recommendations to improve Customs and Border 

Protection’s management of future fence construction and contract 

oversight. Customs and Border Protection concurred with four 

recommendations, and the Department of Homeland Security proposed an 

alternative to the fifth recommendation that met the intent of that 

recommendation. Customs and Border Protection is taking action to 

implement the recommendations. 

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Background 

Achieving operational control of the U.S. border is one of the key 

missions of the Department of Homeland Security (DHS), and specifically 

U.S. Customs and Border Protection (CBP). CBP’s Border Patrol has 20 

sectors responsible for detecting and preventing illegal entry of aliens into 

the United States between ports of entry. 

Section 102 of the Illegal Immigration Reform and Immigrant 

Responsibility Act of 1996 (IIRIRA) required the Attorney General to 

construct fencing and road improvements to prevent illegal entry at the 

border near San Diego, California.1

 In November 2005, DHS established 

the Secure Border Initiative (SBI) to secure the Nation’s borders and 

reduce illegal immigration. DHS tasked CBP as the executive agent for 

the SBI program. CBP’s SBI Program Management Office was 

responsible for developing and constructing a comprehensive border 

protection system using a combination of technology, known as SBInet, 

and physical barriers, known as Tactical Infrastructure (TI). TI consists of 

roads, lighting, drainage improvements, bridges, and fencing to impede 

illegal entry into the United States and provide officers access to their 

areas of operations. 

Congress amended Section 102(b) of the IIRIRA with the Secure Fence 

Act of 2006, requiring reinforced fence construction and accompanying 

physical barriers in priority areas along the southwest border in California, 

Texas, New Mexico, and Arizona. In September 2006, DHS awarded a 3­

year indefinite delivery/indefinite quantity contract to a prime contractor. 

The contractor was responsible for acquiring, deploying, and maintaining 

SBI technology while providing supply chain management for TI projects. 

The contractor was also responsible for selecting and managing a team of 

subcontractors to support the project. 

In December 2007, the Consolidated Appropriations Act of 2008 further 

amended Section 102(b) of the IIRIRA to require DHS to construct not 

less than 700 miles of reinforced fencing along the southwest border 

“where fencing would be most practical and effective.” In carrying out 

that mandate, the Secretary was required to identify and build 370 miles 

“or other mileage” of priority fencing on the southwest border by 

December 31, 2008. In January 2008, CBP awarded the Supply and 

Supply Chain Management (SSCM) task order to a prime contractor for 

the purchase and storage of steel to support fence construction. The 

1 The Homeland Security Act of 2002, as amended, transferred many authorities of the Attorney General to DHS. 

Section 564 of the Consolidated Appropriations Act of 2008, however, amended section 102 of the IIRIRA to 

replace “Attorney General, in consultation with the Commissioner of Immigration and Naturalization” with 

“Secretary of Homeland Security.” 

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SSCM task order consisted of three contracts for the purchase of steel, 

mesh, and storage. Since fiscal year (FY) 2008, CBP has spent about 

$310 million to purchase and store steel in support of fence construction. 

During the performance of the SSCM task order, the contractor stored and 

distributed the steel from three locations: El Paso, Texas; Houston, Texas; 

and Lynwood, California. CBP consolidated the remaining steel at the 

end of the project to the El Paso, Texas, facility. 

Between the enactment of the Secure Fence Act of 2006 and the time of 

our review, CBP completed nearly 299 miles of fencing at a cost of $1.2 

billion.2

 To date, CBP has constructed about 650 miles of fencing along 

the southwest border, including the miles constructed using the steel from 

the SSCM task order. Table 1 illustrates the fence miles from the SSCM 

task order and the total miles of fencing along the southwest border as of 

March 2011. Table 2 illustrates the total estimated cost for fence 

constructed under the SSCM task order. Figure 1 illustrates some of the 

pedestrian and vehicle fence designs. 

Table 1. SSCM Task Order Miles and Total Miles Along the 

Southwest Border as of March 2011* 

Fence Type Miles Built Total Miles of Fencing 

From SSCM 

Task Order 

Pedestrian 150.57 351.79 

Vehicle 147.98 298.85 

Total 298.55 650.64 

* Figures include approximately 2.35 planned miles that were still under 

construction as of March 2011. 

2

 According to CBP, the cost per mile includes commercial construction, supply chain and planning oversight, 

environmental compliance and cultural mitigation, program management, design, and real estate planning and 

acquisition. 

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Table 2. Average Cost per Mile and Associated Totals of 

Fence Constructed Under the SSCM Task Order 

Fence Type Miles Built Average Total Cost 

From SSCM Cost Per 

Task Order Mile 

Pedestrian 150.57 $6,500,000 $978,705,000 

Vehicle 147.98 $1,800,000 $266,364,000 

Total 298.55 $1,245,069,000 

Figure 1. Examples of Southwest Border Fence Designs 

Pedestrian Fencing 

Vehicle Fencing 

Images Courtesy of CBP 

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Results of Audit 

CBP did not effectively manage the steel and storage purchased under the SSCM task 

order. It purchased steel based on an estimate before legally acquiring land and meeting 

international treaty obligations. CBP did not provide effective contract oversight during 

the project, as demonstrated by paying invoices late and by not reconciling invoices to 

receiving documents. In addition, it did not perform a thorough review of the consent to 

subcontract and did not document the reasons for its approval of the higher-priced 

subcontractor. As a result, CBP purchased more steel than needed, incurred additional 

storage costs, paid interest on late payments, and approved a higher-priced subcontractor. 

The insufficient planning and inadequate contract oversight led to additional expenditures 

of about $69 million that CBP could have put to better use. 

Project Planning 

CBP did not efficiently plan the purchase and storage of steel for the SSCM task 

order. It purchased steel based on an estimate of types of fence per mile. As a 

result, 27,557 tons of extra steel, with a value of about $44 million, remained in 

storage at the end of the task order. Further, CBP incurred $9.8 million in 

additional storage costs because it did not move the remaining steel to a 

government facility for more than 2 years after the original storage contract 

expired. 

Steel Purchased for the SSCM Task Order 

CBP purchased steel based on an estimate of types of fence per mile. In 

March 2008, CBP instructed the prime contractor to purchase 

approximately 145,000 tons3

 of steel before finalizing fence designs. 

According to CBP, at that time it did not have access to all the land where it 

would build the fence and therefore could not properly plan the project or 

determine the appropriate fence design for all the planned miles. Because 

CBP did not have access to all the land, it based the initial purchase on an 

estimate completed in December 2007. CBP attributed the decision to 

purchase the steel in bulk to the December 31, 2008, deadline, an agreement 

with the supplier to purchase the steel at January 2008 prices, and 

production times for steel. 

Additionally, CBP did not obtain necessary approval to build all planned 

fence segments before acquiring the steel. CBP was aware that it might be 

required to build new fence along the southwest border. To address this 

possibility, CBP performed multiple environmental assessments in areas 

where it might be required to build. In 2007, CBP performed an 

3

 According to CBP, the quantity of steel purchased included a 10% allowance for unanticipated design changes; it 

did not intend for the additional steel to be excess at the end of the contract. 

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environmental assessment and determined that a permanent fence would 

result in adverse affects to the flood plain and recommended building a 

movable fence. Despite this recommendation, the steel that CBP 

purchased was of a type to build a permanent fence. CBP purchased 

approximately 11,300 tons, or $20.5 million worth of steel to build 14 

miles of permanent fence along the Rio Grande Valley. However, CBP 

did not meet the International Boundary Water Commission’s (IBWC) 

criteria for a fence type that would minimize effects of water flow on the 

flood plain. CBP consulted with the IBWC between 2008 and 2010 to 

find a solution to the impact on the flood plain. The IBWC denied support 

of CBP’s proposal of permanent fence in this area because of the potential 

adverse impacts to the flood plain. According to CBP, it did not construct 

a movable fence in this area because of high cost. 

CBP indicated that the bulk purchase saved the government approximately 

$72 million based on the price per ton increase of raw steel from $550 in 

January 2008 to $1,060 in August 2008. Although the cost of raw steel 

did almost double in price, we were not able to validate CBP’s reported 

cost savings. CBP computed the savings using raw steel prices rather than 

the manufactured purchase price. CBP paid $1,655 per ton for most 

(84%) of the steel rather than the $550 per ton used in its cost-savings 

analysis. In addition, CBP used the total amount of steel purchased (about 

145,000 tons) in the calculation, instead of the amount needed 

(approximately 117,000 tons) to build about 299 miles of fence. 

Additional Purchase of Steel 

In September 2009, CBP purchased 34 tons of steel for $23,000, even 

though it had significant quantities of the same steel already in storage. 

According to CBP, the subcontractor offered CBP the steel at a reduced 

price, and CBP determined that it would need it in the future. Table 3 

illustrates the quantities in storage prior to the purchase of additional steel. 

Table 3. Breakdown of Additional Steel Purchase 

Length of Steel Purchase Weight Pieces Weight 

(Pieces) (Tons) Already in (Tons) 

Storage 

21 foot 159 25 24,142 3,683 

20 foot 51 7 35,033 5,091 

25 foot 12 2 12,090 2,196 

Total 222 34 71,265 10,970 

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Storage of Extra Steel 

CBP was not proactive and did not efficiently plan for the storage of steel 

remaining from the SSCM task order. Instead of moving the extra steel to 

a cost-efficient location, CBP extended the original contract and awarded 

a supplemental storage contract. CBP’s decision to extend the storage 

contracts for 2 years resulted in $9.8 million in avoidable storage costs. 

The original storage contract for the SSCM task order covered the period 

from April to December 2008. During this period, CBP was aware that it 

would have at least 24,000 tons of remaining steel but did not begin to 

identify possible government-owned storage facilities until August 2009. 

CBP made multiple revisions to the storage contract until it found a new 

storage site. The revisions extended the original storage contract 15 

months, from January 2009 to March 2010, at a cost of about $5.6 million. 

In April 2010, CBP awarded a 1-year task order, Long-Term Steel Storage 

(LOTSS), under the SSCM task order for storing the steel through March 

2011 for $4.1 million. A CBP legal review, cost/price, and technical 

evaluations of the LOTSS task order determined that the proposed amount 

for the LOTSS task order was unrealistically high and recommended that 

CBP include a memorandum in the contract file to explain why it accepted 

the cost/price proposal and the technical proposal. However, CBP awarded 

the LOTSS task order for $4.1 million without including the memorandum 

or justifying the high cost. According to CBP, the legal review 

recommendation to justify the cost was only a suggestion and the 

contracting office chose not to accept it. 

In July 2010, almost 1 year after it began researching cost-effective storage 

locations, CBP identified a suitable site. In January 2011, CBP paid 

approximately $1 million to prepare the new site and estimated about 

$780,000 to transport the steel to the new facility. At the time of our 

review, CBP was in the process of moving the remaining steel to the new 

site. Table 4 illustrates additional storage costs CBP incurred because of its 

delay in finding a cost-effective site. 

Table 4. Storage Costs Between January 2009 and March 2011 

Task Order Amount 

SSCM Task Order Revision (January 2009–June 2009) $4,250,000 

SSCM Task Order Revision (July 2009–December 2009) $908,385 

SSCM Task Order Extension (January 2010–March 2010) $427,244 

LOTSS Task Order (April 2010–March 2011) $4,167,381 

Total $9,753,010 

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CBP said that it will use the remaining steel to maintain and repair the 

existing fence and has already used some of it for these projects. In January 

2011, CBP transported approximately 500 tons of steel to two areas along 

the southwest border to replace damaged fencing. CBP also indicated that if 

required to build additional fence, it would use the extra steel for future 

construction projects. To ensure that future large-scale projects are as 

efficient as possible, CBP should analyze its performance under the SSCM 

task order and apply lessons learned to future projects. 

Project Oversight 

CBP did not provide effective oversight during the SSCM task order. CBP 

increased the cost of the SSCM task order because it paid invoices late. In 

addition, it did not reconcile invoices and did not perform a thorough review of 

the consent to subcontract documentation. As a result, CBP incurred late payment 

interest charges and could not guarantee that the government received what it paid 

for under the task order. In addition, CBP approved a subcontractor that may 

have added about $13.5 million to the project. 

Interest Payments 

CBP increased the cost of the SSCM task order because it paid invoices 

after the due date. The contractor submitted 28 invoices over the duration 

of the task order. Our review of the invoices showed that CBP paid 7 

(25%) of 28 invoices late under the SSCM task order contract payment 

terms. Late payments occurred because CBP entered the contract into the 

system incorrectly, did not have policies in place for submitting and 

reviewing invoices, and did not establish a notification process to remind 

offices of an invoice coming due. Additionally, CBP applied “net 21” as 

payment terms rather than the standard “net 30” terms. As a result, CBP 

paid approximately $282,000 of interest during the SSCM task order. 

Table 5 lists the seven invoices that accrued interest. 

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Table 5. Contractor Invoices That Accrued Interest* 

Invoice Due Date Payment Date Days Interest 

(interest starts the day after) Late Paid 

1 June 21, 2008 August 26, 2008 65 $29,819 

2 August 8, 2008 August 26, 2008 17 $44,915 

3 August 23, 2008 August 26, 2008 2 $5,257 

4 August 28, 2008 September 5, 2008 7 $61,718 

5 September 14, 2008 September 26, 2008 11 $55,213 

9 November 13, 2008 November 26, 2008 12 $48,241 

11** December 16, 2008 December 29, 2008 12 $36,465 

Total $281,628 

*The National Finance Center (NFC) calculated the interest from the day after the due 

date through the payment date using rates of 4.75% (January 2008–June 2008) and 

5.125% (July 2008–December 2008). The U.S. Department of the Treasury determined 

the applicable interest rates 

**CBP made two interest payments for invoice #11 for $36,465; one payment of 

$19,752 and the second payment was $16,713. Our review determined the second 

payment was a duplicate. CBP was aware of the duplicate payment and as of July 

2011, it had not recovered the duplicate payment. Without the duplicate payment, the 

total interest paid would have been about $265,000. 

CBP did not have policies and procedures for submitting and reviewing 

invoices. It also did not have clear guidance on the proper office to route 

invoices to, or timelines for the review process. In addition, CBP did not 

have a notification process to remind offices of an invoice coming due. 

CBP applied accelerated payment terms to the SSCM task order. 

According to Title 5 of the Code of Federal Regulations 

§1315.14(c)(1)(iii) and CBP operating procedures, the standard payment 

terms for supplies and services are 30 days after receipt of an invoice, or 

“net 30.” However, CBP agreed to payment terms of 21 days after the 

receipt of an invoice, or “net 21.” According to CBP, the accelerated 

payment was an incentive for the contractor to produce expedited delivery 

schedules. However, as of April 2011, CBP personnel had not provided 

documents to support this statement. If CBP had applied the standard net 

30 payment terms instead of net 21, it would have avoided approximately 

$178,000 (63%) of accrued interest payments. Table 6 illustrates the 

amount of interest that CBP would have saved if it had applied the 

standard payment terms. 

In March 2009, after CBP paid 98% of the contract, it modified the 

contract to adjust the payment terms to net 30. 

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Invoice Interest Paid Interest Paid if Savings 

Number when Net 21 Net 30 Terms 

Terms Applied Applied 

4 $61,718 $0 $61,718 

5 $55,213 $9,202 $46,011 

9 $48,241 $10,338 $37,903 

11 $36,465 $4,558 $31,907 

Total $201,637 $24,098 $177,539 

Table 6. Interest Savings Using the Standard Payment Terms 

Invoice Reconciliation 

The Contracting Office did not reconcile invoices to receiving 

documentation. The National Finance Center (NFC) is responsible for 

ensuring proper expenditure of appropriated funds for CBP. The invoice 

packet that the NFC received included a contracting officer’s (CO) 

technical representative acceptance letter and a contracting specialist’s 

checklist indicating approval for payment. The invoice packets did not 

contain supporting documentation for goods received. According to the 

Contracting Office, it relied on verbal confirmation from the program 

manager that the invoice amounts were accurate. As a result, CBP cannot 

guarantee that the government received the accurate amount of steel for 

which it paid the contractor. 

Consent to Subcontract 

CBP did not perform a thorough review of the consent to subcontract 

documentation and did not document the reasons for its approval of the 

higher-price subcontractor. The Federal Acquisition Regulation states that 

if an approved purchasing system exists, COs may include a Consent to 

Subcontract clause in the contract if additional oversight is necessary 

because of the subcontract type, complexity, or value. The clause allows 

COs to determine whether contractors obtained adequate price competition 

and have a sound basis for deciding to select subcontractors. Although the 

contractor had an approved purchasing system, CBP required the contractor 

to obtain its written consent for subcontracts under the SSCM task order. 

According to CBP, it intended to provide additional oversight of the 

selection of a subcontractor by participating, as a nonvoting member, in 

the contractor Source Selection Board meeting. CBP did not request 

documentation to support the contractor’s decision to select the higherpriced bidder. For example, the contractor’s price proposal showed an 

adjustment to the system-selected bidder by 5% to account for additional 

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transportation costs. However, CBP did not request an explanation or 

review the adjustment. A review of supporting documentation would have 

determined that the contractor did not adequately document its decision to 

select the higher-priced bidder or justify the perceived benefits associated 

with the additional costs. It also would have determined that the contractor 

did not consistently follow the stated evaluation criteria in its request for 

proposals. Additionally, the consent to subcontract documentation did not 

show that the automated purchasing system selected a lower bidder as the 

recommended vendor, and the contractor did not document its reason for 

overriding the system’s selection. CBP did not request documentation to 

support the contractor’s decision and did not justify the contractor’s 

selection. CBP’s lack of oversight may have increased the SSCM task 

order by the adjusted difference in bids of $13.5 million. 

Actions Taken by DHS 

DHS’s Office of the Chief Procurement Officer recognized the importance 

of component oversight of subcontractor selection and issued an 

acquisition alert in April 2011 to DHS heads of contracting activities. The 

purpose of the alert was to emphasize the responsibilities and 

considerations of a CO when evaluating prime contractors’ source 

selection decisions. According to the alert, COs must review a 

contractor’s notification and supporting data to ensure that the proposed 

subcontract is appropriate for the risks involved and consistent with 

current policy and sound business judgment. At a minimum, the alert 

required COs to review all contractor requests for subcontract consent. 

These reviews must consider, among other things, whether the contractor 

performed adequate cost or price analysis or price comparisons. 

Conclusion 

CBP did not efficiently plan for the purchase and storage of steel in support of the 

SBI. CBP purchased the steel based on an estimate before legally acquiring land 

or meeting international treaty obligations. In addition, CBP did not provide 

effective oversight during the project because it made late payments, did not 

reconcile invoices, and did not perform a thorough review of the consent to 

subcontract before approving the selected subcontractor. CBP needs to ensure 

that it applies lessons learned from the SBI project to future projects. The 

insufficient planning prior to the purchase of steel and the inadequate oversight of 

the SSCM led to the purchase of extra steel, additional storage costs, interest paid 

on late payments, and approval of a higher-priced subcontractor. As a result, CBP 

spent about $69 million that it could have put to better use. 

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Recommendations 

We recommend that the Assistant Commissioner of the Office of 

Administration: 

Recommendation #1: Continue to relocate extra steel in storage to a 

more cost effective site. 

Recommendation #2: Perform a lessons learned analysis of the SSCM 

task order and apply the results to future projects. 

Recommendation #3: Develop and communicate policies and procedures 

for reconciling invoices. 

Recommendation #4: Develop a reminder notification process to warn 

appropriate offices that invoices are due. 

Recommendation #5: Require contractors to inform the contracting 

officer if they override the automated purchasing system. 

Management Comments and OIG Analysis 

We obtained written comments on the draft report from CBP’s Assistant 

Commissioner, Office of Internal Affairs. We reviewed the comments 

and, where appropriate, made changes to the report. According to its 

response to the draft report, CBP did not agree with the report’s 

conclusions. According to CBP, the report did not acknowledge the 

context in which CBP made many of its business decisions related to the 

purchase and storage of steel, contract oversight, and subcontractor 

selection. We recognize the constraints placed on CBP by The Secure 

Fence Act of 2006, but we maintain that if CBP had ensured that it legally 

acquired the land and met international treaty obligations before it 

purchased the steel, it would have reduced the cost to purchase and store 

the steel. 

CBP agreed that it made late payments, but stated that our finding did not 

reflect corrective actions it took before late payments became a systemic 

issue. We recognize that there were no additional interest payments after 

invoice #11 related to the SSCM task order. However, CBP did not 

provide a copy of the corrective action plan it said it developed and 

implemented. OIG further maintains that the Contracting Office did not 

reconcile invoices to receiving documentation because the invoices it 

received did not contain sufficient detailed information to perform those 

reconciliations. 

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We also recognize that CBP intended to provide additional oversight of 

the selection of a subcontractor by its appointment of a representative. 

The CBP representative participated as a nonvoting member in the 

contractor Source Selection Board meeting but did not request 

documentation to support the contractor’s decision to select a higherpriced bidder. We believe that CBP needs to improve its processes and 

develop plans in anticipation of further construction of the fence along the 

border. 

We included a copy of the management comments in their entirety in 

appendix B. The following is an evaluation of CBP’s official response. 

Management Response on Recommendation #1 

CBP concurred with the recommendation and stated that it relocated the 

remaining steel inventory to a government-owned site in Fabens, Texas, 

on March 31, 2011. 

OIG Analysis: We consider CBP’s actions responsive and consider the 

recommendation resolved. However, it will remain open until CBP 

provides additional documentation. The DD 1149 CBP provided does not 

contain sufficient detail, and the additional inventory data did not account 

for the remaining steel. The recommendation will remain open until CBP 

provides a reconciled inventory of the remaining steel at the new 

government-owned site. 

Management Response on Recommendation #2 

CBP concurred with the recommendation. CBP’s Facilities Management 

& Engineering will coordinate with the U.S. Army Corps of Engineers and 

other internal stakeholders in a lessons learned session. The results of this 

session will include a lessons learned document that CBP will provide to 

OIG. 

OIG Analysis: We consider CBP’s actions responsive to the 

recommendation and consider the recommendation resolved. However, it 

will remain open until CBP provides the lessons learned document. 

Management Response on Recommendation #3 

CBP concurred with the recommendation and will develop and 

communicate policies and procedures for reconciling invoices. CBP’s 

Procurement Directorate is in the process of establishing and aligning 

invoice approval procedures based on lessons learned, a recent 

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reorganization, and the need to manage prescribed timelines to avoid late 

payment interest penalties. 

OIG Analysis: We consider CBP’s actions responsive to the 

recommendation and consider the recommendation resolved. However, it 

will remain open until CBP provides invoice policies and procedures. 

Management Response on Recommendation #4 

CBP concurred with the recommendation. CBP’s Financial Management 

Office will determine if its financial system can be programmed to send 

reminder notices regarding invoice payment due dates. If the system can 

be programmed to do so, CBP will include the notification process in the 

invoice procedures currently being developed. 

OIG Analysis: We consider CBP’s actions responsive to the 

recommendation and consider the recommendation resolved. However, it 

will remain open until CBP provides documentation that a reminder 

notification process is in place, whether the financial system can be 

programmed or not. 

Management Response on Recommendation #5 

CBP did not concur with the recommendation because it requires 

contractors to inform the CO if they override the automated purchasing 

system, which involves a change to the regulations. DHS proposed an 

alternative recommendation: Emphasize the importance of the contracting 

officer’s responsibility to adequately review a consent request and 

supporting data, including the contractor’s cost or price analysis of 

subcontracts. 

OIG Analysis: Although CBP did not concur with the recommendation, 

DHS’s alternative recommendation meets the intent to provide additional 

oversight to ensure that government representatives mitigate risk to the 

government in the subcontractor selection process. We consider this 

recommendation resolved, but it will remain open until CBP provides 

documentation on the steps it is taking to implement the Department’s 

guidance on the importance of the CO’s responsibility. 

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Appendix A 

Purpose, Scope and Methodology 

This report provides the results of our work to determine the effectiveness 

of CBP’s management and oversight over the purchase and storage of 

steel used for SBI. To achieve our objectives, we— 

Reviewed the contract documentation for the SSCM task order and 

the LOTSS task order applicable to the purchase and storage of 

steel; 

Interviewed CBP headquarters officials; CBP COs in Arlington, 

Virginia, regarding the steel purchase contract; CBP Budget Office 

officials in Indianapolis, Indiana; and Defense Contract Audit 

Agency and Defense Contract Management Agency officials in 

Huntsville, Alabama; 

Reviewed invoices that the contractor submitted to determine 

whether the invoices were complete and had accrued interest; 

Reviewed Environmental Impact Statements for areas where CBP 

planned to build TI; 

Reviewed CBP inventory records for the extra steel; 

Reviewed design changes related to the SSCM task order; 

Reviewed policies and procedures, including the Federal 

Acquisition Regulation, DHS Acquisition Manual, and CBP 

Directives; and 

Reviewed prior audit reports regarding SBI and TI. 

We conducted this performance audit between October 2010 and April 

2011 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. 

U.S. Customs and Border Protection’s Management of the Purchase and Storage of Steel in 
 

Support of the Secure Border Initiative 
 

Page 15
 

MEMORANDUM FOR CHARLES K.. EDWARDS

ACIlNG INSPECfOR GENERAL

DEPARTMEl'fT-OF HOMElAt'ID SECURITY

FROM: Assistant QnnmissionerOffice ofInternal Affairs

SUBJECT: u.s. Customs and Border Protection's Response to the Office ofInspector

General's Draft Report Entitled, "U.S. Customs and Border ProlCClion's

Management ofthe Purchase and StorugeofSteel in Support oCthe Secure

Border Initiative" .

 

Thank you for the opportunity to review and offer commenls on the Department ofHomeland Security

(DRS) Office ofthe Inspector General (OIG) draft report entitled ·'U.S. Customs and Border

Protection's Management ofthe Purchase and Stomge ofStocl in Support ofthe Secme Border

lnitiative," dated June 20, 2011. U.S. Customs and Border Protection (CDP) has reviewed the draft

report and takes exception with several findings and conclusions in the report given they are nOI

supported by program or procurement documentation. While we agree that the program incurred

unanticipated costs, we markedlyOisagree with the amount ofthese costs and the reasons why they

were incurred. In short, ofthe $69 million questioned in the repol;1, we agree that approximately

$282,000 in unanticipated costs wen: attributable to cuors in wing CBP's accounting system 10

properly process invoices and track steel as an asset. CBP immediately responded to these early

challenges, c:orrecting them within 60 calendar days, resulting in DO late payments thet"c:after-. The

balance ofthe costs discussed in the draft report WQ"C not program overruns. or funds spent unwisely

as we briefly discussed here.

1be OIG made five recommendations in its draft report. CBP concun with Recommendations 1i1.1f2.

N3, and #4 and does DOt coocur with Reconuneodations #5.

Pro1te! Planning

In general., CBP wholly disagrees with the report's conclusion that $44 million in excess steel was

purchased as a result ofpoor management practices. While CBP does continue to maintain an

inventory ofstruetural stocl we find that the report fails to admowledge the context in which CBP

made many ofits business decisions related to the purchase of stee~ for example:

• The report fails to oonsider the constraints placed on the agency by the The Secure Fence Act

0[2006, as amended, that required CBP to deploy 670 miles oftaetical iofrastmcture within

ani 8-month timeframe.

Appendix B 

Management Comments to the Draft Report 

July 29, 2011

U.S. Customs and Border Protection’s Management of the Purchase and Storage of Steel in 

Support of the Secure Border Initiative 
 

Page 16
 

2

• Prior to launching full scale procu.mnent and oonstruetioo activities CBP did, in fact, use

ICS90TlS learned from initial small fr:ncc: construction projects to plan the full deployment.

These early projects, like PF-70. demonstrated availability orand oompetilion for materials

within the construction industry - including structural steel- that played a significant role in

the successful, timely, and cost effective execution ofthe fence program.

• Project plllIlnins: was quite thorough in the context oflhc deadline for fence construction

completion. Specifically, the "fence toolbox" which included detailed and tested fence designs

was finalized and completed in December 2007 before steel was ordered. This plWl.lling work

provided a soWld estimating tool for detailing what CBP's steel requirements would be.

• As one ofthe largest materiel requirements ofthe program, structural steel production and

timely delivCl)' was critical to avoiding widespread oonstruction delays dming program

Cltccution. 1bc time required for both fence construction and the receipt ofmanufactured steel

materials required CBP to place its steel order in early in Fiscal Year (FY) 2008. Further,

estimated savings of$72.4 million \VaS aclrieved by using this acquisition strategy.

• 1be rem.aini..ng stnlCtUta1 steel not used for work-related to The Set:ure Fence Act is being used

for maintenance and some new construction work.. The principal advantage to CBP bere is

that the steel used for maintenance activities is the same production quality and has the same

finish as currently installed fencing.

Further, the report also states that CBP proceeded with the ordering ofsteel prior to "obtaining

necessary construction approval." However, as CBP's Office ofChiefCounsel explained during the

audit engagement, Pumulllt to Section 102(a) ofthe Illegalimmigration Reform and Immigrant

Responsibility Act 0/1996, as originally enacted and as it currently reads, the Secretary ofHomeland

Security has long hlUl. the approval and authority from Congress to construct physical barriers and

roads in the vicinity ofthe border in areas of high iUegal entry. Moreover, beginning in FY 2007,

Congress began appropriating significant money to CBP, via the Border Security, Fencing,

lnftastructure and Tcclmology (BSFIl) appropriation. for the construction oftactical infrastrucrure as

well as the installation ofborder seauity technology. A3 such, CBP did in fact. possess the authority 10

constroct border fencing when the Supply and Supply Chain Management (SSCM) task order was

awarded in January 2008. While the program did manage through several delays. they were related to

the legal process for land acquisition, and ensuring that the United States complied with the

requirements of certain treaties with Mexico and not poor program execution or planning.

Project Oversigbt

CBP takes exception to the following statement used throughout the DIG report: "CBP did Dot provide

effec1ive oversight." This statement is found in the Executive Summary, Results ofAudit, Project

Oversight and Conclusion sections ofthe DIG report. This statement as written in the report are based

on OlG's findings: (1) that invoices were paid late; (2) nOI reconciling iovoices to receiving reports;

and (3) not having visibility into the subcontractor selection process.

First, CBP agrees that in fact late paymeots were made, bUI this finding does nOI reflc:et the fact thai

com:ct:ive actions were taken before late payments became a systemic issue. CBP agrees that the

program incurred unanticipated. costs; however, CBP disagrees with the causes oftbose costs as

described in the draft report. The unanticipated costs wct'c more ac:curatcly atmbuted to systemic

Appendix B 

Management Comments to the Draft Report 

U.S. Customs and Border Protection’s Management of the Purchase and Storage of Steel in 
 

Support of the Secure Border Initiative 
 

Page 17
 

3

errors and problems in implementing the payment system at the very beginning ofllie program. In

response to these early problems, the program developed and implemented an action plan and

R:OOvc:n:d. There were 00 late paymCIllS afta anrccting the early acc:ounting and invoice problems.

Second, cap used extensive documentation to reconcile invoices. This documentarion consisted of

SSCM Financial Status Report (Funds and Manhour Expenditure Report). Task Execution Plan (labor

& materials); Ind Steel Mesh Weekly Status which were provided to OIG during the audit.

Third, CBP had extensive visibility into the contractor's subcontractor selection process. This

subcontract was awarded with both CSP's concurrence and participation in the source selection

process. The report inaccurately concludes that the selection ofthe subconuaetor led to additional

costs (SI3.5M) over a lower price offeror. The subcontract was awarded as a ''best value"

procurement and price alone was nollhe detc:nnining faacr. It is entirely appropriate for the

govemme:ot and contractor to use "best valuc" procedmes in determining award of contracts or

suboontmcts when the situation wamnts as presmbed in FAR Part 15.100. In addition, CBP disagrees

with the implications that significant savinp aodIor cost avoidances would have been ac:bievcd by the

selection ofme lowest bidder. The "best value" trade-offselection significantlyreduccd pc:rfonnance

risk facing the program. The program managers were faced with the urgency to get the program

started as soon as possible and the need to obtain large quantities ofsteel within significant time

constraints. As a result, the selection ofthe subcontractor with a proven record to delivCl" the required

large quantities ofsteel under tight time constraints was made in accordance to the "best value"

criterion instead of a "lowest cosf'. CBP considers that the contractor made a valid management

decision.

With regard 10 "Consent to Subcontract," the DHS Office ofthe Chief Procurement Officer (OCPO)

and CBP believe that this section, as currently written, is inaccurate and should either (8) be deleted in

its entirety, or (b) be rewritten based on our collUI1ents that follow. The draft repon incorrectly asserts

that CBP did not have visibility into the prime contractor's subcontractor selection process. The draft

report furthc- inaccurately asserts thai the contractor did not notify CBP that it selected a vendor that

was $13.5 million more than the vendor cboSOl by its automaled purchasing syslem. However,

supporting docwnents show that CBP was fully awan: oflhe initial price diffCl"eDCe ($29 million) at the

time ofthe source selection decision as well as the difference after the transportation adjustment (S13.5

million).

1be record shows that the CBP contraeting personnel were closely involved in the prime contractor's

source selection process and were fully aware ofthe price differences. 1be CBP Supervisory Contract

Specialist panicipated as a non-voting member in the Source Selection Board meeting where the

source selection process was discussed in detail and the best value decision was made. The slide

presentation ofthis meeting was submitted as part ofthe consent request. In addition, CBP

documented that it obtained and reviewed the source selection documents and approved the prime

contractor's requcst for consent to subcontract,. as required under FAR 44.202.

With regard to the contractor overriding their automated procurement system, our review found that

due to technical limitations, the automated template could not effectively be used for determining the

best value supplier for SSCM. For example, the template did not penni! input ofsub-faClors used in

the source seloetioD evaluation for SSCM. Thus, we believe that the override wasjUSlifiedtherefore,. we recommend deleting this assertion from the final report. 

Appendix B 

Management Comments to the Draft Report 

U.S. Customs and Border Protection’s Management of the Purchase and Storage of Steel in 
 

Support of the Secure Border Initiative 
 

Page 18
 

 4

However, we recognize that this subcontract review included some deficiencies. We believe the

contractor failed to adequately document their source selection decision to select the higher-priced

bidd«, includingjustifying the pereeived benefits associated with additional costs; and (2) the

oonlrnetor, in its evaluation oCthe proposals, failed to consistently foUow the stated evaluation criteria

in its request for proposal (RFP). We also accept that CBP should have performed a more oomplete

review ofthe supporting data and documented the reasons for eBP's approval oftbe higher-price

subcontractor. To correct this problem moving forward, the DHS OCPO issued an acquisition alert to

all contracting personnel emphasizing the need to perfonn adequate subcontract reviews. as discussed

in the paragraph that follows.

DHS's OCPO recognized the importance of component oversight ofsubcontractor selection and issued

an acquisition alert in April 2011 to DHS heads of contracting activities. 1bc: purpose ofthe alert was

to emphasize the responsibilities and considenttions of a CO when evaluating prime COnlmctors'

source selection decisions. According to the alc:n,. COs must review a contnlClors DOtification and

supporting data to ensure that the proposed subcontract is appropriate for the risks involved and

oonsistC:llt with current policy and sound business judgmcot. At a minimwn, the alert required COs to

review all contractor requests for subcontract consent. These reviews must consider, among other

things., whether the contrnctor peri"onned adequ.atc: cost or price analysis or price comparisons. lbis

alert adequately addresses the deficiency found during the review.

Conclusion and Recommendadons

CBP believes that the report's conclusion should be rewriuen based on the general and detailed

technical comments provided herein. Specifically, in thercport's conclusion, CBP recommends

replacing "$69 million" with "$282,000" based solely on the payment of prompt payment interest.

The OIG's fivercoommendations and CBP's actions to address them are described below.

Recommendation #1: Continue to relocate extra steel in storage to a more cost effective site.

CBP Response: Coocur. CBP addressed this finding independently in March 2011. CBP relocated

the remaining stt:d inventory to a governroent-owned site in Fabens, Texas. This activity was

completed on Man::h 31, 2011. Fonns Do..l 149, anached, substantiate completion ofthis action. CBP

respectfully requests that the OIG close this recommendation.

Due Date: Complete.

Recommendation #2: Perform a lcssowleamed analysis ofthe Supply and SupplyCbain

Management task order and apply the results to future projects.

CDP Response: Concur. CBP's Facilities Management & Engineering (FM&E) will engage in a

lessons learned session that will include both internal stakeholders and representatives from the u.S.

Army Corps ofEngineers who were involved in the execution ofthe PF 225 and \IF 300 programs for

which the steel was purchased. The outputs ofthis lessons learned session will include a lessons

leamed document that will be shared with the OIG to close this recommendation.

Due Date: OCtober31,20l1

Appendix B 

Management Comments to the Draft Report 

U.S. Customs and Border Protection’s Management of the Purchase and Storage of Steel in 
 

Support of the Secure Border Initiative 
 

Page 19
 

5

Rtglmmendation #3: Develop and communicate policies and procedures for reconciling invoices.

CBP Response: Concur. CBP will develop and communicate policies and procedures for reconciling

invoices. CBP is in the proc:e:ss ofresolving a related recommendation foUDd in the GAO 11-68

"SECURE BORDER INITIATIVE: Controls Over Contractor Payments for the S8l Technology

ComPODCDt Need Improvement" final report. The Procurement Direccorate is in the process of

establishing and aligning invoice approval procedures based on "lessons learned," a recent

reorganization, and the need to manage prescribed time lines to avoid laic payment interest pellalties.

Also, CBP is improving the awareness afthe ris1:::s associated with the various contrac:l types through

its DeW COTR Management Program. announced in April 2011, 10 Contracting Officers (COS) and

Contracting Officer Technical Representatives (CQTRs).

CBP has established an integrated project team (lP1) who arc currently drafting a directive to outline

the invoice review and approval process, which will include identifying risk-based steps for various

contract types. The directive will also focus on timeliness ofinvoice receipt, review and proper

handling through the payment process. The IPT is currently analyzing the invoice receipt through

payment process. Upon determining the most effective process it will be included in the CBP

directive. A CSP-wide communication plan will also be developed after the directive is approved and

issued to ensure all CBP stakeholders and procurement penonnel Wldcrstand the invoice review and

approval process.

Due Dlte: August 31, 2011

Recommendation #4: Develop a reminder notification process to warn appropriate offices that

invoices are due.

CBP Response: Concur. CBP iscurrcntly conrdinating with our Financial Management Office to

dctcn:ninc ifSAP, CBP's financial system, can be programmed to sc:od reminder notices 10 the

appropriate personnc1 regarding the invoice payment due dates. This remi~notice will also be

included in the directive ifSAP has the capability.

Due Dlle: August 31, 2011

Recommendation #5: Require contractors to infonn the Contracting Officer ifthey override the

automated purchasing system.

eRP Response: Non-eoncur. DHS does not concur with this recommendation. This

recommendation would require contractors to infonn the Contracting Officer ifthey override the

automated p~asing system (this would involve a change to the regulations, which in turn would

require following the regulatory process). As discussed above, we do not believe this was an issue in

the subcontractor selection. CBP was fully aware ofthe price differential and the contractor's rationale

, for selecting the lrigher priced subcontractor. Thus, the deficiencies in the review ofthe subcontract

did not have any material relationship to the contractor's decision to override the automated purchasing

system.

If a recommendation is included., we recommend it read as follows:

Emphasize the importmrt:e o/the contrtu::ting ojJieer'sresponsibility to adeqUO/ely review a consent

request and supporting data, including the conlTactor's C05t or price ana1~i.s 0/subcontracts.

Appendix B 

Management Comments to the Draft Report 

U.S. Customs and Border Protection’s Management of the Purchase and Storage of Steel in 
 

Support of the Secure Border Initiative 
 

Page 20
 

Note that iftbe recommendation is rewritten as DHS leconnnends, lhen DHS will oon<:ur with the

rec:ommmdatiOD (and has already implemented that reoommendatioa via oW" acquisition alen).

••••••••••••••

With regard to the classification ofthe rqxn1, CBP has identified information within this report that

warrants a "POI" Official Use Only" classification. CBP's technical and sensitivity comments related to

the infonnation included in the drafl.T~rtan; included in Attachment A.

Once again. lhmk you for the opportunity to comment 00 the draft report. CBP looks forward to

working with you on future homeland security engagements. Ifyou have any questions regarding this

response, please oontact me or have a member of your staff oontaa Ms. Lynn Richardson, CBP Audit

Liaison, Office ofInternal Affairs, at (202) 344·2953.

Attaclunents:

See Attachment A for teclmical comments and sensitivity review.

See Attachment B for procurement supporting documentation.

See Attachment C for fence toolbox and 001149 supporting documentation.

Appendix B 

Management Comments to the Draft Report 

U.S. Customs and Border Protection’s Management of the Purchase and Storage of Steel in 
 

Support of the Secure Border Initiative 
 

Page 21
 

Appendix C 

Major Contributors to this Report 

Linda Howard, Director 

Sean Pettersen, Audit Manager 

Lindsey Koch, Auditor-in-Charge 

Peter Christopher, Program Analyst 

Apostolos Exarchos, Program Analyst 

Thomas Hamlin, Program Analyst 

Edwin Soto, Program Analyst 

U.S. Customs and Border Protection’s Management of the Purchase and Storage of Steel in 

Support of the Secure Border Initiative 
 

Page 22
 

 

Appendix D 

Report Distribution 

Department of Homeland Security 

Secretary 

Deputy Secretary 

Chief of Staff 

Deputy Chief of Staff 

General Counsel 

Executive Secretariat 

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 

CBP Audit Liaison 

Office of Management and Budget 

Chief, Homeland Security Branch 

DHS OIG Budget Examiner 

Congress 

Congressional Oversight and Appropriations Committees, as 

appropriate 

U.S. Customs and Border Protection’s Management of the Purchase and Storage of Steel in 

Support of the Secure Border Initiative 
 

Page 23
 

 

 

ADDITIONAL INFORMATION AND COPIES 

To obtain additional copies of this report, please call the Office of Inspector General 

(OIG) at (202)254-4100, fax your request to (202)254-4305, e-mail your request to our 

OIG Office of Public Affairs at DHS-OIG.OfficePublicAffairs@dhs.gov, or visit our OIG 

websites at www.dhs.gov/oig or www.oig.dhs.gov. 

OIG HOTLINE 

To report alleged fraud, waste, abuse or mismanagement, or any other kind of criminal 

or noncriminal misconduct relative to Department of Homeland Security programs and 

operations: 

• Call our Hotline at 1-800-323-8603 

• Fax the complaint directly to us at (202)254-4292 

• E-mail us at DHSOIGHOTLINE@dhs.gov; or 

• Write to us at: 

DHS Office of Inspector General/MAIL STOP 2600, 

Attention: Office of Investigation - Hotline, 

245 Murray Drive SW, Building 410 

Washington, DC 20528 

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