U.S. ENVIRONMENTAL PROTECTION AGENCY

OFFICE OF INSPECTOR GENERAL
 

Opportunities for EPA-Wide 

Improvements Identified 

During Review of a 

Regional Time and 

Materials Contract 

Report No. 13-P-0209 April 4, 2013 

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about the EPA OIG. 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

Report Contributors: Eric Lewis 

Khadija Walker 

Christine Baughman 

Rodney Rice 

Nyquana Manning 

Abbreviations 

A&E Architect and Engineering 

CMM Contracts Management Manual 

CO Contracting Officer 

COR Contracting Officer Representative 

EPA U.S. Environmental Protection Agency 

EPAAR EPA Acquisition Regulations 

FAR Federal Acquisition Regulations 

IGCE Independent Government Cost Estimate 

OAM Office of Acquisition Management 

OIG Office of Inspector General 

OMB Office of Management and Budget 

SOW Statement of Work 

Cover photo:	 The facility to treat sediment dredged from the Spring Creek Arm of the 

Keswick Reservoir at the Iron Mountain Mine Superfund Site, Shasta County, 

California. It was constructed under task order 45 and operated under task 

order 50 of contract EPS90804. (Photo courtesy of CH2M Hill, Inc.) 

Hotline 

To report fraud, waste, or abuse, contact us through one of the following methods: 

e-mail: OIG_Hotline@epa.gov write: EPA Inspector General Hotline 

phone: 

fax: 

1-888-546-8740 

202-566-2599 

1200 Pennsylvania Avenue, NW 

Mailcode 2431T 

online: http://www.epa.gov/oig/hotline.htm Washington, DC 20460 
 

 

 

 

 

 

 

U.S. Environmental Protection Agency 13-P-0209 

April 4, 2013 Office of Inspector General 

At a Glance 

Why We Did This Review 

The purpose of this review was to 

determine whether, for time and 

materials contracts, the U.S. 

Environmental Protection Agency 

(EPA) has a process to verify that 

contractor personnel met the 

qualifications specified in the 

contract and received the level of 

services for which it paid. We 

focused our review on remedial 

action contract EPS90804 awarded 

by EPA Region 9. The government 

should only use a time and 

materials contract when it cannot 

accurately estimate either the 

extent or duration of the work, or 

anticipate costs with any 

reasonable degree of confidence. 

Contract EPS90804 supports EPA 

responses to releases of hazardous 

substances and counter-terrorism. 

Under this contract, the region pays 

the contractor a fixed hourly rate for 

labor plus other direct costs. 

A Region 9 contracting officer and 

contracting officer representatives 

monitor the contractor’s activity. 

This report addresses the 

following EPA Goal or 

Cross-Cutting Strategy: 

 Strengthening EPA's Workforce 

and Capabilities 

For further information, contact 

our Office of Congressional and 

Public Affairs at (202) 566-2391. 

The full report is at: 

www.epa.gov/oig/reports/2013/ 

20130404-13-P-0209.pdf 

Opportunities for EPA-Wide Improvements Identified 

During Review of a Regional Time and Materials Contract 

What We Found 

EPA Region 9 did not require its contracting personnel to verify that personnel for 

the contractor had the qualifications necessary to execute contract EPS90804. This 

may be an EPA-wide problem in managing time and materials contracts. In 

addition, Region 9 contracting personnel did not consistently: 

 Update the statement of work that identifies the work it expects the 

contractor to perform so EPA can use the statement of work to monitor 

performance. 

 Document the review of the qualifications of contractor personnel performing 

the contract tasks. 

 Document the reviews of monthly progress, contractor performance, and 

quality of deliverables. 

 Become familiar with the contract. 

 Issue memorandums appointing contracting officer representatives (CORs). 

These practices put EPA at risk of not receiving the level or quality of service for 

which it paid. As the services ordered under the contract were to restore the 

environment after the releases of hazardous substances, services that do not meet 

the standards EPA intended under the contract could increase risk that human 

health and the environment were not adequately protected. 

Additionally, EPA Region 9 personnel negotiated a prohibited profit clause in the 

contract, resulting in EPA improperly paying the contractor over $1.5 million in 

additional profit. 

 Recommendations and Planned Agency Corrective Actions 

We recommend that the Regional Administrator for Region 9 direct the contracting 

officer for EPS90804 to require CORs to document oversight according to 

regulations and policies, which he agreed to do. We also recommend that the 

Regional Administrator recover funds for the prohibited clause, as well as 

determine if the clause is in other contracts and recover funds for those contracts. 

Finally, we recommend that the Assistant Administrator for Administration and 

Resources Management enforce the requirement for CORs to ensure contract staff 

meet the qualifications, and review EPA’s practices for paying contractors who 

perform similar activities. For the latter recommendations, the EPA officials 

provided alternative corrective action without completion dates or they disagreed. 

EPA must provide a corrective action plan in its final response. 
 

 

 

 

UNITED STATES ENVIRONMENTAL PROTECTION AGENCY 

WASHINGTON, D.C. 20460 

THE INSPECTOR GENERAL 

April 4, 2013 

MEMORANDUM 

SUBJECT:	 Opportunities for EPA-Wide Improvements Identified During Review of a 

Regional Time and Materials Contract 

Report No. 13-P-0209 

FROM: Arthur A. Elkins Jr. 

TO:	 Jared Blumenfeld, Regional Administrator 

Region 9 

Craig E. Hooks, Assistant Administrator 

Office of Administration and Resources Management 

This is a report on the subject evaluation conducted by the Office of Inspector General (OIG) of 

the U.S. Environmental Protection Agency (EPA). This report contains findings that describe the 

problems the OIG has identified and corrective actions the OIG recommends. This report 

represents the opinion of the OIG and does not necessarily represent the final EPA position. 

This report contains the intended corrective actions and planned completion date for one 

recommendation. This recommendation is considered resolved. The report also contains four 

recommendations that the Agency and OIG are in disagreement and are considered unresolved. 

Action Required 

In accordance with EPA Manual 2750, resolution should begin immediately upon issuance of the 

report. We are requesting a meeting between the Region 9 Administrator, the Assistant 

Administrator for Administration Resources Management, and the Assistant Inspector General 

for Program Evaluation, to start the resolution process and attempt to obtain resolution. 

If resolution is still not reached with 30 days, the Region 9 Administrator and the Assistant 

Administrator for Administration and Resources Management are required to complete and 

submit the dispute resolution request to the Chief Financial Officer to continue the resolution 

process. We have no objections to the further release of this report to the public. We will post 

this report to our website at http://www.epa.gov/oig. 
 

If you or your staff have any questions regarding this report, please contact 

Carolyn Copper, Assistant Inspector General for Program Evaluation, at (202) 566-0829 

or copper.carolyn@epa.gov; or Eric Lewis, Product Line Director, Special Reviews, at 

(202) 566-2664 or lewis.eric@epa.gov. 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Opportunities for EPA-Wide Improvements Identified 13-P-0209 

During Review of a Regional Time and Materials Contract 

Table of Contents 

Chapters 

1 Introduction ....................................................................................................... 1
	

Purpose ....................................................................................................... 1 

Background ................................................................................................. 1 

Scope and Methodology.............................................................................. 2 

Prior Evaluation/Audit Coverage ................................................................. 3 

2 Region 9 Should Improve Documenting Contract Oversight 

Activities and Requirements............................................................................. 4
	

SOW Is the Basis for Work Performed........................................................ 4 

Region 9 CORs Did Not Always Review or Document Review of 

Region 9 Task Order CORs Did Not Always Document 

 Reviews of Monthly Progress, Contractor Performance, 

Region 9 Did Not Always Comply With Directives or Best Practices, or 

Region 9 Did Not Always Modify the SOW ................................................. 5 

 Qualifications of Contractor Personnel Who Billed EPA .................... 7 

and Quality of Deliverables ............................................................... 10 

 Consistently Issue COR Appointment Memorandums ...................... 13 

Conclusion................................................................................................... 14 

Recommendations ..................................................................................... 14 

Agency Comments and OIG Evaluation ...................................................... 15 

3 Contract Included a Prohibited Payment Clause ............................................ 16
	

Paying Profit on Subcontracts Is Prohibited ................................................ 16 

Contract Inappropriately Allows Paying Profit on Subcontracts .................. 16 

EPA Disagrees That the Clause Was Inappropriate or Duplicative ............. 18 

Conclusion............................................................................................... 20 

Recommendations ...................................................................................... 20 

Agency Comments and OIG Evaluation ..................................................... 21 

Status of Recommendations and Potential Monetary Benefits .............................. 22
	

Appendices 

A Process for Issuing a Task Order Under Contract EPS90804........................ 23
	

B Cost Proposal Evaluation Checklist ................................................................. 24
	

C Task Order Cost/Hours Verification Form ....................................................... 26
	

-continued-
 

 

 

Opportunities for EPA-Wide Improvements Identified 13-P-0209 

During Review of a Regional Time and Materials Contract 

D Office of Acquisition Management Comments to Recommendations .......... 27 

E Region 9 Comments to Report Recommendations ........................................ 29
	

F Region 9 Technical Comments and OIG Evaluation ...................................... 34 

G Distribution ......................................................................................................... 40
	
 

 

Chapter 1

Introduction 

Purpose 

The purpose of this review was to determine whether, for time and materials 

contracts, the U.S. Environmental Protection Agency (EPA): (1) had a process to 

verify that contractor personnel met the qualifications specified in the contract, 

and (2) received the services for which it paid. We focused our review on 

remedial action contract EPS90804. 

Background 

EPA Region 9 awarded remedial action contract EPS90804 to CH2M Hill, Inc., 

on September 24, 2008. Under the contract, the contractor provides professional 

architect/engineer, technical, and management services to the EPA to support 

activities under the Comprehensive Environmental Response, Compensation and 

Liability Act of 1980. This contract is intended to address and/or mitigate 

endangerment to public health, welfare, or the environment; and to support states 

and communities in preparing for responses to releases of hazardous substances. 

The base performance period was 3 years, with options for up to 7 more years. 

EPA awarded the first option period, extending the contract to September 23, 

2013. The contract ceiling was not to exceed $116,250,000. 

Contract EPS90804 is a fixed rate indefinite delivery/indefinite quantity award 

term contract. The contract provides for the government to order work through 

task orders, including fixed rate time and materials type task orders. A time and 

materials task order is a vehicle for acquiring services based on direct labor hours, 

at specified fixed hourly rates, and actual cost for materials. Fixed hourly rate 

includes wages, overhead, general and administrative expenses, and profit. This 

type of pricing may be used only when it is not possible at the time of placing the 

contract to accurately estimate the extent or duration of the work, or anticipate 

costs with any reasonable degree of confidence. Such a pricing method provides 

no incentive to the contractor for cost control or labor efficiency. Thus, EPA must 

overcome the disadvantages of contracts with fixed rate/time and materials type 

pricing arrangements by having enough properly trained staff to adequately 

perform and document reviews of invoices, monthly progress, contractor 

performance, and daily oversight to provide reasonable assurance that the 

contractor uses efficient methods and effective cost controls. In 2012, in response 

to the Administration’s Campaigns to Cut Waste, and OMB’s memo Reduced 

Contract Spending for Management Support Services, EPA released guidance 

which encouraged the agency to move from “high-risk” contracts, which include 

time and materials contracts, to more fixed price contracts. 

13-P-0209 1 
 

 

 

 

 

 

Region 9 provided for multiple levels of monitoring the work. To help contracting 

officers (COs) manage the contract, COs used a memorandum to appoint contracting 

officer representatives (CORs) in accordance with Federal Acquisition Regulation 

(FAR) at 48 CFR Section 1.604. This included a contract-level COR as well as task 

order CORs. 

The contracting officer issues task orders for government-required work to be 

performed. For each task order, the task order COR drafts the statement of work 

(SOW) to identify the work EPA wants the contractor to perform, as well as the 

independent government cost estimate (IGCE) on how much the work might cost. 

Once the task order is issued, it is the responsibility of the task order COR to 

monitor the contractor’s performance to ensure that EPA obtains a quality 

product, on time, and within cost. Monitoring includes giving technical direction, 

reviewing deliverables, conducting meetings, reviewing monthly progress reports 

and invoices, and evaluating contractor performance. 

Scope and Methodology 

We conducted our work from January to December 2012 in accordance with 

generally accepted government auditing standards issued by the Comptroller 

General of the United States. Those standards require that we plan and perform 

the review to obtain sufficient, appropriate evidence to provide a reasonable basis 

for our findings and conclusions based on our objectives. We believe that the 

evidence obtained provides a reasonable basis for our findings and conclusions 

based on our review objectives. 

We selected contract EPS90804 because it had the largest dollar value of regional 

contracts that included time and materials task orders, based on the Office of 

Acquisition Management’s (OAM’s) active contracts list as of June 2011. When we 

started work, the CO had issued 64 task orders funded for $97.8 million. All of these 

task orders were time and materials. We selected a sample of 12 out of the 64 task 

orders (18 percent), which represented 63 percent of the contract dollars (table 1). 

Table 1: Task orders reviewed 

Number Site name Date issued Amount funded 

7 Frontier Fertilizer 12-29-2008 $9,612,753.00 

8 Frontier Fertilizer 12-30-2008 1,960,000.00 

17 Sulphur Bank 12-30-2008 1,897,613.00 

23 B.F. Goodrich 12-31-2008 4,130,475.00 

40 Iron Mountain Mine 02-20-2009 512,312.67 

45 Iron Mountain Mine 04-13-2009 20,692,769.33 

49 El Monte 06-23-2009 900,000.00 

50 Iron Mountain Mine 06-23-2009 18,560,340.00 

51 Lava Cap 07-23-2009 381,387.00 

53 Frontier Fertilizer 08-31-2009 2,499,997.43 

55 Ordot Landfill 05-21-2010 149,973.00 

60 Glendale Chromium 09-26-2011 300,000.00 

Total for Task Orders Reviewed $61,597,620.43 

Source: OIG analysis 

13-P-0209 2 
 

 

 

 

We interviewed the Region 9 staff managing the contract, including the current 

CO; Contract Acquisition Manager, who was the CO who negotiated and signed 

contract EPS90804; the current contract-level COR; the eight Region 9 staff 

serving at the time as task order CORs for the 12 task orders reviewed; and their 

supervisors. We reviewed the supporting documentation for each task order in the 

sample as well as applicable laws, regulations, and guidance documents. 

Prior Evaluation/Audit Coverage 

The following Office of Inspector General (OIG) reports addressed issues related 

to the scope of our review 

	 Report No. 09-P-0242, Contractor Invoice Internal Controls Need 

Improvement, September 23, 2009. 

	 Report No. 10-R-0113, EPA Should Improve Its Contractor Performance 

Evaluation Process for Contractors Receiving Recovery Act Funds, 

April 26, 2010. 

	 Report No. 12-P-0320, Policies Needed for Proper Use and Management 

of Cost-Reimbursement Contracts Based on Duncan Hunter Act, March 6, 

2012. 

13-P-0209 3 
 

 

 

 

 

Chapter 2

Region 9 Should Improve Documenting 

Contract Oversight Activities and Requirements 

EPA Region 9 did not require its contracting personnel to verify that personnel for 

the contractor have the qualifications necessary to execute contract EPS90804. 

This may be an EPA-wide problem in managing time and materials contracts. 

This occurred because EPA did not use an appropriate government surveillance 

plan to review the work of the contractor. Specifically, the lack of contract 

oversight put EPA at risk of not receiving the level or quality of service for which 

it paid. Region 9 contracting personnel did not consistently: 

 Modify the SOW that identifies the work it expects the contractor to 

perform so that the region can use the SOW to monitor performance. 

 Document the review of the qualifications/résumés of contractor personnel 

performing the contract tasks. 

 Document the reviews of monthly progress, contractor performance, and 

quality of deliverables. 

 Become familiar with the contract. 

 Issue memorandums appointing CORs . 

A time and materials-type pricing arrangement provides no profit incentive to the 

contractor for cost control or labor efficiency. Therefore, appropriate government 

surveillance of contractor performance is required to give reasonable assurance 

that efficient methods and effective cost controls are being used. The FAR and 

EPA Acquisition Regulations (EPAAR), as well as other EPA and Office of 

Management and Budget (OMB) guidance, address the need for documentation in 

these situations. Region 9’s inconsistent documentation to support decisions and 

management of this contract poses a risk that it will not receive the level and 

quality of services for which it paid. As the services ordered were to restore the 

environment after the releases of hazardous substances, this risk could endanger 

public health and welfare. 

SOW Is the Basis for Work Performed 

According to the February 2009 EPA Contracts Management Manual (CMM), 

Section 11.1, the SOW is one of the main documents in the procurement process, 

from initiation through completion. The SOW: 

 Delineates the tasks that the contractor must perform. 

 Describes essential technical needs or requirements that the contractor 

must fulfill. 

 Provides the standards that the government will use to determine that the 

contractor met the contract requirements. 

13-P-0209 4 
 

 

 

The SOW serves as the basis for performance under the contract. The June 2010 

EPA Guide for Preparing Independent Government Costs Estimates [IGCE] states 

that the SOW provides the foundation to determine the price, performance 

schedule, and deliverables (EPA Guidance 2010, p 8). Contract EPS90804, 

Attachment 1, requires that the contractor perform all activities identified in the 

SOW of the individual task orders. 

Region 9 Did Not Always Modify the SOW 

The contract clause H.42(n)1 requires the contractor to develop a work plan to 

achieve the objectives listed in the SOW. However, some task order CORs relied 

on the contractor-prepared work plan to establish government objectives and to 

monitor contractor progress. There were differences between the deliverables in 

the SOW and the work plan prepared by the contractor. This occurred because the 

task order CORs did not always keep notes or track changes to deliverables 

agreed upon in meetings with the contractor and failed to communicate those 

changes to the CO. Region 9 contracting personnel should modify the SOW 

accordingly to show the changes and the rationale for the agreed-upon terms. 

Development of the Work Plan 

The COR prepares a SOW for each task order and related IGCE, and gives the 

documents to the contract-level COR, who gives them to the CO. After any 

needed changes are made, the CO gives the SOW (but not the IGCE) to the 

contractor. The COR then participates, as needed, in negotiations with the 

contractor and CO to ensure a mutual understanding of the work that EPA wants 

the contractor to perform. Based on these negotiations, the COR may revise the 

SOW to reflect changes agreed upon during the meeting. The contractor then 

prepares the work plan. The work plan details the contractor’s approach to 

performing the tasks identified in the SOW, lists the related deliverables, 

estimates the cost to perform the work, and identifies the name and function of 

staff considered key personnel to deliver the work. 

To ensure that the work plan reflects the needs of EPA, the task order COR 

compares the work plan to the SOW and IGCE. Recently, the CO introduced a 

Cost Proposal Evaluation Checklist to assist task order CORs in evaluating work 

plans (see appendix B). As the checklist was introduced after some of the task 

orders were issued, only 6 of the 12 task orders that we reviewed had a completed 

checklist to document the task order COR’s review of the work plan. If the work 

plan is acceptable to the task order COR, the contract-level COR, and the CO, the 

CO issues the task order, attaching both the SOW and work plan. Appendix A 

outlines the best practices for issuing the task order. 

13-P-0209 5 
 

 

 

 

 

Deliverables in SOW and Work Plan Were Not Always Consistent 

When comparing the work plan to the SOW, the task order COR should pay 

particular attention to the deliverables to ensure that Region 9 receives the 

services needed. For six task orders with completed checklists, there were 

differences between the SOW and work plan, including differences in 

deliverables. The task order COR did not document these differences in the 

checklist. Thus, the task order CORs did not ensure that deliverables in the work 

plans were consistent with the deliverables in the SOWs. For the 12 task orders 

reviewed, the SOWs had 120 deliverables and the work plans had 109. The 

deliverables in the SOW and work plan were the same for two task orders. For 

10 task orders, there were differences of 54 deliverables between the SOWs and 

the work plans, as shown in table 2. For example, some of the SOWs included 

deliverables not in the work plan, and some work plans included deliverables not 

in the SOWs. Thus, EPA risks the possibility of (1) needing work that the 

contractor did not perform and/or (2) paying for work that was not essential. 

Table 2: Deliverables in SOWs and work plans differed 

Task order Number of differences in deliverables 

7 5 

8 10 

17 18 

23 0 

40 3 

45 1 

49 10 

50 1 

51 2 

53 2 

55 0 

60 2 

Totals 54 

Source: OIG analysis 

In contrast to EPA’s policy and best practices, the CORs considered the 

documenting of scoping meetings to be optional. However, in some of these 

meetings, the deliverables in the SOW were changed. As a result, the SOW’s list 

of deliverables differed from the lists in the work plan because task order CORs’ 

documentation of scoping meetings is discretionary. According to EPA’s CMM, 

CORs must set-up a file system containing all relevant documentation, including 

the basic contract, internal correspondence, technical direction, contract 

deliverables received and reviewed, payment file, and other items that will 

provide an audit trail of the actions on the acquisition. 

EPA’s Records Management policy requires that there should be documentation 

to show a clear picture of how the Agency conducts its business and makes 

decisions. This can include meetings and conference calls where decisions are 

made. EPA’s October 2008 COR training material tells CORs, as a best practice, 

13-P-0209 6 
 

 

 

 

 

that all meetings must be documented. Further, the COR training material states 

someone who attended the meeting should prepare minutes and provide a copy to 

all those who attended. The minutes generally document who attended, the reason 

for the meeting, discussions, and who will handle action items. Four of the six 

task order CORs stated that they did not always take scoping meeting notes. Two 

of these six stated they took notes but could not provide them; one of those two 

said she destroyed her notes because her office was moving and she believed she 

no longer needed them.1 

Some task order CORs and the contract-level COR said that when task order CORs 

recommended approving the work plan they were accepting that the deliverables 

reflected EPA’s expectations without actually comparing them to the SOW. 

However, this is in opposition to the FAR requirement that the SOW must include 

the description of work performed. In addition, EPA’s suggested best practice has 

the SOW as the most critical element of the task order. It helps ensure a common 

understanding of project requirements by the contractor and the government, and 

assists the COR in monitoring the project and evaluating deliverables. 

Not all task order CORs used the SOW as the primary document to monitor 

contract work. One task order COR stated that she used the work plan as the 

primary document to monitor the expected deliverables because it was the most 

accurate document after the scoping meeting. Another task order COR stated that 

he used the SOW in conjunction with the work plan and other documents to 

monitor expected deliverables. The task order CORs’ practice of using the 

contractor’s work plan to track progress leaves it at risk of the contractor 

changing the nature of the agreed-upon contract services. This entails great risk to 

the government. 

The EPA Records Management Manual, Chapter 1, states that there should be 

documentation to show a clear picture of how EPA conducts its business and 

makes decisions. If task order CORs do not document results of scoping meetings, 

they are not keeping records that reflect a clear understanding of how EPA agreed 

to tasks committed to by the contractor. There is no internal control in place for 

EPA to assure that contractors are committing to agreed-upon tasks delineated in 

the scoping meetings. EPA, using the SOW, should identify and define the 

requirements for the goods and services. 

Region 9 CORs Did Not Always Review or Document Review of 

Qualifications of Contractor Personnel Who Billed EPA 

Once Region 9 and the contractor agree on the task order work, the contractor 

must provide qualified staff to perform it. However, the task order CORs did not 

consistently review the qualifications of contractor staff listed in the work plans. 

1

 Two of the CORs included in our sample of eight did not attend scoping meetings because they were appointed 

after the task order was issued, to replace the original COR. 

13-P-0209 7 
 

 

 

Contract EPS90804 identified the qualifications for each labor category and made 

the contractor responsible for ensuring contract staff met required qualifications. 

For time and materials or labor hour contracts, the FAR states in 52.232-7(a) that 

the hourly rates shall be paid for all labor performed on the contract that meets the 

labor qualifications specified in the contract. It does not identify who must ensure 

the labor meets the specified qualifications, but EPA suggests the COR do so as a 

best practice. According to the COR basic training material, the COR can request 

the contractor to submit resumes outlining the qualifications of staff to perform 

the work. 

Region 9 should improve its review and document as part of the review contractor 

personnel identified on task orders. Four of eight task order CORs, managing four 

task orders, stated they did not review the qualifications of contract staff. The 

remaining four task order CORs, managing eight task orders, stated that they 

reviewed the qualifications of key staff proposed in the work plan. However, the 

CORs we asked did not provide any documentation supporting this claim. The 

CORs lacked documentation of sufficient controls to assure that the contractor 

used qualified personnel to provide the service for which EPA paid. 

Because the Region 9 CORs do not consistently review or document their review 

of qualifications, EPA is relying solely on the contractor to ensure that the 

personnel billed under the contract are qualified to perform agreed-upon tasks. 

Contract EPS90804 requires that individuals billed must meet the qualifications 

for the labor categories specified in the contract. Clause B.3 identifies the 

qualifications for each labor category and requires that the contractor employee 

meet the qualifications set forth in the contract for the labor category. According 

to contract attachment 5, Invoice Preparation Instructions, the face of each 

voucher should contain the following certification: “I certify that all payments 

requested are for appropriate purposes and in accordance with the agreements set 

forth in the contract.” Thus, because the CORs do not consistently review or 

document the review of the qualifications of contractor staff, EPA is 

inappropriately allowing the contractor to determine that its staff met the 

qualifications of the labor categories required to accomplish the work specified in 

the contract. This increases the risk of the contractor substituting lesser-qualified 

staff while EPA pays the rate for fully qualified individuals. In 2009, the OIG 

found that a contractor billed EPA for staff that did not meet the minimum 

qualifications specified in the contract. As a result, OIG recommended that EPA 

disallow the costs of the labor hours charged. 

Review of Contractor Qualifications is Required 

EPA OAM’s Interim Policy Notice issued in September 2010 requires task order 

CORs to verify that billed hours were worked by qualified personnel at the labor 

categories charged. Further, the memorandum appointing the task order CORs 

states that CORs must assure the contractor uses the levels of personnel 

13-P-0209 8 
 

 

 

 

 

 

contracted for and needed to perform the contractual requirements, and that the 

level of personnel contracted for is not diluted by the excessive use of lowercaliber personnel. Additional support for the review of qualifications is listed 

below. 

 FAR Subsection 16.601(a) states the hourly rate means the rate(s) 

prescribed in the contract for payment for labor that meets the labor 

category qualifications of a labor category specified in the contract. 

 FAR Subsection 52.232-7(a) states that hourly rates shall be paid for all 

labor performed on the contract that meets the labor qualifications 

specified in the contract. Labor hours incurred to perform tasks for which 

labor qualifications were specified in the contract will not be paid if the 

work is performed by employees who do not meet the qualifications 

specified in the contract. 

 The September 2008 EPA COR training materials, Chapters 4 and 6, state 

that CORs can review résumés of proposed staff for task orders. 

EPA Does Not Believe Verification of Qualifications Is Necessary 

EPA does not enforce the FAR requirement to ensure contract staff meet labor 

qualifications. The OAM Director stated that he is not concerned with the 

education level or amount of experience possessed by any staff member as long as 

they can perform the work required, and if EPA has a policy requiring EPA to 

review credentials of all those working on tasks the requirement needs to be 

changed. The CO believes there are no requirements for EPA to review the 

qualifications of any staff. He also stated that EPA takes the contractor’s word for 

the qualifications of its staff; EPA is not the contractor’s human resource office. 

According to the CO, verifying qualifications of contractor personnel was 

crossing the line into personal services and deemed unnecessary because EPA 

evaluated key personnel during the contract selection process. 

The FAR defines a personal services contract in Subsection 37.104(a); it states a 

personal services contract results in an employer-employee relationship between 

government personnel and the contractor’s employees. A process to ensure 

contract staff meet the qualifications specified in the contract has no connection to 

personnel services. Specifically, checking a sample of the qualifications/résumés 

of the contractor staff satisfies the requirements in FAR Subsection 16.601 that 

the government only pay contractor staff that meet the qualifications specified in 

the contract. This better assures that the government obtained the level of service 

for which it paid. It does not allow EPA contracting personnel to direct the work 

of the contractor’s employees. In fact, reviewing qualifications does not require 

any direct contact between the contractor’s employees and Region 9 task order 

CORs. 

13-P-0209 9 
 

 

 

 

Contract Staff Billed Did Not Match Key Contract Staff Proposed 

The contractor did not identify in the work plans most of the individuals who 

were ultimately billed. As shown in table 3, for the 12 task orders reviewed, the 

work plans identified 229 individuals as key staff. However, 46 of these 229 

individuals (20 percent) were never billed. Conversely, the contractor billed for 

1,029 individuals but 846 (82 percent) were not in the work plans. According to 

the CORs, they did not attempt to review the qualifications of the 846 personnel 

not listed in the work plans. 

Table 3: Individuals on work plans did not match those billed 

Task 

order 

Number of key staff on work plan Number of individuals billed 

Total Billed Total 

Not in 

work plan 

7 17 13 110 97 

8 11 10 88 78 

17 15 15 148 133 

23 4 4 102 98 

40 21 17 64 47 

45 53 49 164 115 

49 10 5 27 22 

50 68 53 194 141 

51 6 5 59 54 

53 10 5 26 21 

55 8 2 17 15 

60 6 5 30 25 

Totals 229 183 1,029 846 

Source: OIG analysis 

Task order CORs explained that these differences in staffing did not pose a 

concern as such differences are common with large contractors. However, if the 

contractor bills individuals not mentioned in the work plans and the task order 

CORs are unaware of the background of these individuals, Region 9 cannot 

ensure their qualifications comply with the terms of the contract. This increases 

the risk that the contractor is billing the government for work performed by lessqualified individuals. 

Region 9 Task Order CORs Did Not Always Document Reviews of 

Monthly Progress, Contractor Performance, and Quality of Deliverables 

Region 9 did not consistently document the review of monthly progress or the 

quality of deliverables. Although there was a form available to evaluate contractor 

performance on a monthly basis, task order CORs did not use it. Documentation 

on the quality of deliverables varied between task orders. The FAR requires in 

Subsection 16.601 that the government review the contractor’s performance to 

provide reasonable assurance that the contractor is using efficient methods and 

cost controls, and FAR Subsection 46.104 requires that the government must 

document decisions regarding the acceptability of products. EPA guidance and 

13-P-0209 10 
 

 

 

 

contract EPS90804 also require that Region 9 have documentation showing that it 

conducted appropriate performance reviews of the contractor. Region 9 could 

better support the reasonableness of the payments to the contractor and the formal 

contractor evaluations with more consistent documentation on the contractor’s 

monthly progress and the quality of deliverables. Further, if a dispute arises 

concerning deliverables, Region 9 would have the documentation needed to 

support its decisions. 

Monthly Progress Reviews Not Documented 

FAR Subsection 46.401(a) requires that quality assurance surveillance plans 

should be prepared in conjunction with the preparation of the statement of work. 

The plans should specify all work requiring surveillance and the method of 

surveillance. Contrary to the requirements in the FAR, no surveillance plan was 

prepared for contract EPS90804. Instead of a surveillance plan, contract 

EPS90804 attachment 8, Award Term Incentive Plan, addressed monitoring 

categories. Attachment 8 briefly described a method of surveillance. The method 

described that formal evaluations will generally be performed annually, but EPA 

will informally evaluate the contractor’s performance on a monthly basis as part 

of the invoice/ status report approval process. However, task order CORs did not 

complete the portion of the invoice approval form that would have documented 

the monthly progress review. Thus, EPA failed to use the tool described in the 

method of surveillance. If an appropriate government surveillance plan had been 

prepared and executed, it would have improved controls for task orders on 

contract EPS90804. 

Contract EPS90804, clause G.2, requires the contractor to submit monthly 

progress reports and invoices. The EPA CMM states that the government must 

document to show appropriate review of contract invoices for cost 

reasonableness. The task order CORs used the Task Order Costs/Hours 

Verification Form to certify that they reviewed the monthly invoice and verify 

that the contractor made sufficient progress to support paying for the work 

performed. The verification form had two sections (see appendix C). The first 

section was the mandatory verification statement mentioned above; the second 

was an optional section to assess contractor’s performance. For the task orders 

reviewed, all the task order CORs filled out the required section for the invoices. 

Most task order CORs did not have documentation on the extent of their review of 

the invoice. The current verification form only requires that the task order CORs 

certify that they reviewed the invoice but does not account for the depth of the 

review. Two of the eight task order CORs who managed six task orders could 

provide documentation, in addition to the verification forms, that they reviewed 

monthly invoices. For example, both of these task order CORs had records 

challenging or suspending amounts invoiced. Other task order CORs stated that 

they reviewed invoices but could not provide documentation. When we 

13-P-0209 11 
 

 

questioned one of these task order CORs about progress and costs invoiced, the 

COR was unable to give explanations showing she understood the invoice. 

Contract EPS90804 attachment 8, Award Term Incentive Plan, stipulated that 

Region 9 will continually monitor the contractor’s performance and will 

informally evaluate the performance monthly. As mentioned before, the 

verification form had an optional portion for the task order CORs to assess 

contractor’s performance. This section covered the quality of services delivered, 

effectiveness of management, and timeliness of performance. For the task orders 

reviewed, none of the task order CORs completed the contractor performance 

section of the verification forms. The CO and a supervisor stated that there have 

been times when EPA made changes to the contractor deliverable reports. 

Every 6 months, the task order CORs are supposed to complete a formal 

evaluation of the contractor’s performance. If task order CORs completed the 

monthly assessment for contractor performance, there would be better support for 

the semi-annual assessment. By not completing the evaluation section of the 

verification form, EPA has missed an opportunity to provide better oversight of 

taxpayer funds. 

Task Order CORs Did Not Consistently Document Their Review of 

the Quality of Deliverables 

Numerous directives require EPA to document that it accepts deliverables. FAR 

Subsection 46.104(c)(2) requires that agencies document decisions regarding the 

acceptability of products. The September 2010 EPA OAM’s An Acquisition 

Guide for Executives requires that program managers identify the deliverables that 

are required for their programs, such as overseeing technical programs and 

inspecting and accepting contract deliverables. “EPA’s focus has traditionally 

been on ensuring funds are obligated...oversight is needed to ensure that funds 

are used for their intended purpose and in accordance with applicable terms and 

regulations (EPA Guidance 2010, p 25).” The appointment memorandum requires 

that task order CORs inspect completed work and/or services, certify acceptance 

or non-acceptance of work, and review and evaluate the contractor’s 

accomplishment of technical objectives. The appointment memorandum requires 

that task order CORs: 

 Inspect completed work and/or services. 

 Certify acceptance or non-acceptance of work. 

 Review and evaluate the contractor’s accomplishment of technical 

objectives. 

 File (among other things) copies of deliverables, comments on 

deliverables, and approvals of deliverables. 

The CO stated he relied on task order CORs to review the quality of deliverables, but 

the documentation on the reviews was inconsistent. Six of the 8 task order CORs, 

managing 10 task orders, indicated that they evaluated the quality of the deliverables 

13-P-0209 12 
 

 

 

for their task orders. However, the documentation supporting these evaluations 

varied. Examples of how the task order CORs documented approval included 

e-mails, the related verification form, a signed approval page in the deliverable, or 

posting the deliverable to the Web page for the site. Two task order CORs, managing 

six task orders, said they sometimes gave oral approval of deliverables. 

Two of the eight task order CORs who managed two different task orders could not 

provide documentation to support that they reviewed the quality of their deliverables. 

When we asked one of these task order CORs how that COR reviewed the quality of 

her task order deliverables, the COR could not provide an answer. 

Region 9 Did Not Always Comply With Directives or Best Practices, 

or Consistently Issue COR Appointment Memorandums 

The CMM and the appointment memorandums identify the task order CORs’ 

responsibilities. The COR training materials identify task order COR best 

practices. The CMM requires that CORs be familiar with the contract terms and 

conditions, and keep a copy of the contract in their files. The memorandums 

require that the CORs: 

 Ensure that the contractor complies with the task order statement of work 

or specifications. 

 Assure that the contractor uses the levels of personnel contracted for and 

necessary for performance of contractual requirements. 

 Review contractor invoices and recommend approval/disapproval for 

payment as appropriate. 

 Monitor the task order performance. 

 Review and evaluate the contractor’s accomplishment of technical 

objectives 

The COR training manual tells CORs that as a best practice: 

 When needed, modify the SOW. 

 Review qualifications of contractor staff. 

 Review contractor performance. 

 Review the quality of deliverables. 

Task order CORs not being familiar with contract clauses is counter to the 

directives of the CMM and the appointment memorandum. We found that some 

task order CORs did not read contract EPS90804. They seemed unaware of 

contract clauses such as the requirement in Attachment 8 that EPA will informally 

evaluate contractor performance on a monthly basis. 

In addition, only two task order CORs received appointment memorandums; the 

current CO issued these memorandums. The task orders issued before this CO 

13-P-0209 13 
 

 

 

 

 

started managing the contract did not have appointment memorandums for the 

task order CORs. This illustrates the need for the CO to issue appointment 

memorandums and effectively communicate what is expected of task order CORs 

on a regular basis.2 

Conclusion 

Region 9 does not enforce the FAR requirement that contract staff meet labor 

qualifications specified in the contract. Because CORs do not consistently review 

or document the review of contractor staff qualifications, EPA may be allowing 

the contractor to determine that its staff met the qualifications of the labor 

categories required to accomplish the work specified in the contract. This 

increases the risk of the contractor substituting lesser-qualified staff while EPA 

pays the rate for fully qualified individuals. Further, not all task order CORs used 

the SOW as the primary document to monitor contract work. The task order 

CORs’ practice of using the contractor’s work plan to track progress increases the 

risk of the contractor changing the nature of the agreed-upon contract services 

without the CORs knowledge. Also, Region 9 did not consistently document the 

review of monthly progress or the quality of deliverables. Consequently, if a 

dispute arises concerning deliverables, Region 9 may not have the documentation 

needed to support its decisions. Finally, we found that some task order CORs did 

not read contract EPS90804, and CORs not being familiar with contract clauses is 

counter to the directives of the CMM and the appointment memorandum. 

Recommendations 

We recommend that the Regional Administrator, Region 9: 

1. Direct the CO for contract EPS90804 to: 

a.		 Require that minutes of scoping meetings are prepared, provided to 

those who attended, and committed to the official contract file. 

b.		 Instruct task order CORs to modify the SOW, if needed, to show 

changes to which EPA and the contractor agreed in the scoping 

meeting. 

c.		 Instruct task order CORs to continue to complete the Cost Proposal 

Evaluation Checklist for each task order and commit it to the 

official contract file. 

d.		 Instruct task order CORs to complete the Task Order Costs/Hours 

Verification Form in its entirety, including the contractor 

performance evaluation section. 

e.		 Instruct task order CORs to commit to the official contract file a 

record of deliverables received and whether they were acceptable. 

2 FAR Subsection 1.602-2(d)(6) did not require the CO to use appointment memorandums to appoint CORs until 

March 16, 2011. However, the EPA CMM required appointment memorandums in 2009. 

13-P-0209 14 
 

 

 

 

We recommend that the Assistant Administrator for Administration and 

Resources Management: 

2.		 Direct OAM to require task order CORs to evaluate the qualifications of 

contractor key staff proposed by the contractor in the work plan. The task 

order CORs should also review qualifications for samples of the non-key 

staff billed on invoices. 

Agency Comments and OIG Evaluation 

The Regional Administrator agreed to recommendation 1 and provided a 

timeframe for implementing it. In his comments, the Regional Administrator said 

that the Agency believes that many of the recommendations included in 

chapter 2 of the report have merit and point out opportunities for Region 9 to 

improve the contract oversight being provided by CORs. The region’s response 

on recommendation 1 is complete and the recommendation will be designated as 

open with agreed-to actions pending. 

Regarding recommendation 2, the Assistant Administrator for Administration and 

Resources Management agreed that if the contract contains personnel 

requirements such as required education or years of experience for contractor 

staff, the CO and task order CORs must review and evaluate those qualifications. 

He indicated that Region 9 was no longer using this contracting approach in new 

procurements. OAM would use its balanced scorecard performance management 

and measurement program to determine the need for additional guidance on 

performance based contracting approaches. The balanced scorecard addresses and 

implements solutions to various acquisition planning, evaluation, award, and 

administration issues Agency-wide. We do not have sufficient information to 

determine whether the proposed method meets the intent of our recommendation, 

nor did OAM provide a timeframe for completing it. Therefore, we consider 

recommendation 2 to be unresolved. 

13-P-0209 15 
 

 

 

 

Chapter 3

Contract Included a Prohibited Payment Clause 

Region 9 negotiated a prohibited clause in contract EPS90804 that allowed for 

paying profit on subcontracts. Paying profit on subcontracts under an indefinite 

delivery/indefinite quantity contract with time and materials pricing arrangements 

is duplicative and prohibited by the FAR. As a result, the contractor billed, and 

EPA paid, over $1.5 million for profit on subcontracts. EPA must take appropriate 

actions to prevent future payments of duplicative profit on subcontracts. 

Paying Profit on Subcontracts Is Prohibited 

Beginning in February 2007, the FAR prohibited paying profit on subcontracts 

under time and materials pricing arrangements. FAR Subsection 16.601(b) states 

that a time and materials contract provides for acquiring supplies or services 

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

overhead, general and administrative expenses, profit, and the actual cost of 

materials (with certain exceptions). “Materials” includes subcontracts. Further, 

the related clause for payments under time and materials pricing arrangements— 

FAR Subsection 52.232-7(b)(7)—specifically states that the government will not 

pay profit or fees to the prime contractor on materials.3 Therefore paying profit to 

the contractor on subcontracts is inappropriate under time and materials pricing 

arrangements. 

As noted in chapter 1, contract EPS90804 is a fixed rate, indefinite 

delivery/indefinite quantity contract. The indefinite delivery/indefinite quantity 

requirement gives the government flexibility in both quantities and delivery 

scheduling of orders. Indefinite delivery contracts may provide for any 

appropriate cost or pricing arrangement. 

Besides the above prohibition, profit is also prohibited as a percentage of cost. 

Paying the cost of the subcontracts plus a percentage of that cost for profit 

resembles a cost-plus-a-percentage-of-cost contract, which FAR prohibits. FAR 

Subsection 16.102(c) states: “The cost-plus-a-percentage-of-cost system of 

contracting shall not be used (citations omitted).” 

Contract Inappropriately Allows Paying Profit on Subcontracts 

Contract EPS90804, clause B.3, contains the pricing schedule for the contract. It 

requires that Region 9 pay the contractor: 

3 There are two exceptions to not paying profit on subcontracts. They pertain to materials, supplies, and services that 

are sold or transferred between any divisions, subdivisions, subsidiaries, or affiliates of the contractor under a 

common control. These exceptions do not apply to contract EPS90804. 

13-P-0209 16 
 

 

 A fixed rate per hour for identified labor categories. 

 Travel costs.
	

 Subcontract costs. 

 Other direct costs.
	

 Profit of 4.00 percent applicable to subcontracts only. 

Through April 27, 2012, the contractor billed Region 9 the cumulative amount of 

$38,104,278.36 for subcontracts, plus cumulative profit on the subcontracts of 

$1,524,196.44. Under the terms of the contract, EPA is still liable to the 

contractor for excess profits on work to be completed. 

One plausible reason why the FAR prohibits the profit clause is because it is 

duplicative. The fixed hourly rates paid for the identified labor categories include 

profit. The CO stated that he did not understand the rationale for the clause 

because the Region 9 Acquisition Manager negotiated it when he served as the 

CO. We received conflicting responses from the Region 9 Acquisition Manager 

on this issue. 

	 Initially the Region 9 Acquisition Manager stated that the 4.00 percent 

was for costs associated with managing the subcontracts and the contract 

erroneously identified it as subcontract profit. However, this explanation is 

not consistent with a September 2008 negotiation document he signed. In 

the document, there was consistent use of the term “profit” regarding the 

fee to be applied to the cost of subcontracts. In addition, in negotiating this 

item, the Acquisition Manager used EPAAR Subsection 1515.404-471, 

EPA structured approach, for developing profit or fee objectives. 

	 After the OIG team’s visit during this review, the Region 9 Acquisition 

Manager received confirmation from the contractor that the 4.00 percent 

was profit. The contractor stated it referred to it as a fee. The Region 9 

Acquisition Manager stated that the contractor’s use of that term confused 

him and he interpreted the fee as overhead. The agency should have 

understood that the FAR prohibits both “fees” and “profits.” 

	 The Region 9 Acquisition Manager also stated that remedial action 

contracts issued by other regional offices might have this clause. However, 

we found only two other remedial action contracts that were similar in 

type and date to those issued by Region 4, and they did not include the 

clause. 

The issue extends beyond contract EPS90804. The Region 9 Acquisition Manager 

signed at least one other contract that included time and materials task orders with 

similar payments for profit. Region 9 awarded remedial action contract EPS90803 

on June 24, 2008, which also provided that the region would pay profit of 

4.00 percent applicable to subcontracts only. 

13-P-0209 17 
 

 

 

 

EPA Disagrees That the Clause Was Inappropriate or Duplicative 

In August 2012, the Region 9 acquisition staff, the OAM Director, and members 

of his staff disagreed that the 4.00 percent profit on subcontracts allowed by 

contract EPS90804 is duplicative and inappropriate. The Agency stated: 

	 Type of Contract: Contract EPS90804 is not a time and materials contract 

because they issued task orders with other pricing arrangements under this 

contract. 

	 Risk in managing subcontracts: The contract requires the contractor to 

subcontract the construction work. Management of construction is riskier 

than some other types of architect and engineering services, so the 

contractor should be entitled to additional profit above that in the fixed 

hourly rates for managing construction subcontracts. The contractor 

proposed that EPA compensate them for the increased risk by adding 

additional profit only on the subcontracts. This might cost EPA less than if 

the contractor had increased the profit ratio in their fixed rates. 

	 Types of subcontracts: The subcontracts negotiated were often fixed price 

or firm-fixed rate, and thus the additional 4.00 percent is fixed in a similar 

manner rather than billed as a percentage of cost. 

Type of Contract 

For the 12 task orders we evaluated, EPA paid the contractor on a time and materials 

basis as allowed by the contract clauses cited below. Since EPA chose to acquire 

these services using a time and materials arrangement, the related limitations apply 

and the contractor is not entitled to additional profit that the FAR prohibits. 

	 Clause B.2 (b) permits the government to order work by using a fixedprice, firm-fixed rate with a cost reimbursement line item for other direct 

costs, or fixed rate time and materials type task orders. 

	 Clause B.3 meets the definition of time and materials in FAR Section 

16.601 because it provides for paying the contractor based on direct labor 

hours at specified fixed hourly rates plus the cost of materials. 

The Director and his staff could not provide FAR references to justify paying the 

additional profit. The Agency stated that the clause in FAR Subsection 52.232-7 

prohibiting the payment of profit on subcontracts was not included in the contract 

and therefore does not apply. That clause was not in the contract, even though the 

FAR requires it in contracts when applicable. FAR Subsection 52.301 provides a 

matrix on the applicability of the clauses and provisions. We disagree that 

excluding the clause from the contract exempts EPA from that requirement. This 

matrix indicates the clause in FAR Subsection 52.232-7 is required when 

applicable for time and materials contracts, and for labor hour contracts. The 

contract contained a clause addressing payments under fixed rate contracts. 

Clause G.3, from EPAAR Subsection 1552.232-73, limits the reimbursement of 

materials to cost. Thus, EPA should prohibit profit on subcontracts under contract 

13-P-0209 18 
 

 

 

 

EPS90804 task orders with time and materials pricing arrangements. Further, 

FAR Subsection 16.601 applies even without the payment clause in 52.232-7. 

Risk in Managing Subcontracts 

Regarding whether managing construction subcontracts is riskier than other types 

of architect and engineering services, under a time and materials arrangement, the 

government factors in the risk since the contractor will be paid for the work 

performed at a fixed hourly rate that includes profit. Of the 12 task orders we 

evaluated, task orders 45 and 50 billed the most dollars for subcontracts 

($16.6 million and $11.5 million, respectively). As required by the statement of 

work, the work plan for task order 45 included the following architect and 

engineering services related to the subcontracts: 

	 Task 3 – Procurement of Subcontract: This subtask includes completing all 

subcontracting efforts for the Phase II work including pre-bid, award, and 

post-award activities. 

	 Task 4 – Management Support: The purpose of this task is to manage and 

monitor the subcontracts implemented under this task order, and to develop, 

implement, and document procedures for confirmation that the work 

activities are performed in accordance with the contract documents. 

	 Task 5 – Detailed Resident Inspection: The purpose of this subtask is to 

provide field supervision of remedial activities that are scheduled to take 

place under this task order. The remedial activities include construction of the 

disposal cell and pipelines. 

The above tasks show that EPA paid the contractor directly for managing the 

subcontracts. Under task order 45, the contractor billed EPA over $2.5 million for 

labor on the above three tasks. Task order 50 included these same tasks. For task 

order 50, the contractor billed EPA a total of $4.7 million for labor on these three 

tasks. The fixed rates for each of the related labor hours included profit. 

Consequently, the additional 4.00 percent is duplicative. 

Types of Subcontracts 

Region 9 acquisition staff does not believe the 4.00 percent profit resembles the 

prohibited cost-plus-a-percentage-of-cost type of contract. According to them, 

some of the subcontracts negotiated were fixed price. Since these subcontractors 

were not paid on a cost basis, the related 4.00 percent is not cost-plus-apercentage-of-cost. However, the method for determining the price of the 

subcontracts is not pertinent. The pricing arrangement between the contractor and 

its subcontractor could be fixed price, fixed rate, or something else. Whatever it 

was, contract EPS90804 provided for reimbursing the contractor for the actual 

cost. The 4.00 percent profit rate was applied to that amount. Thus, it resembles 

the prohibited cost plus a percentage of cost type of contract. 

13-P-0209 19 
 

 

 

 

In response to this review, the OAM Director agreed to have his staff (1) work 

with the Region 9 acquisition staff to assess and possibly restructure how EPA 

will pay the contractor for such work, and (2) determine how EPA paid other 

remedial action contractors for managing construction subcontracts. 

Conclusion 

Paying profit to the contractor on subcontracts is inappropriate under time and 

materials pricing arrangements. However, Region 9 negotiated such a clause in 

contract EPS90804. As a result, through April 27, 2012, the contractor billed, and 

EPA paid, over $1.5 million for profit on subcontracts. EPA is liable to the 

contractor for additional profit on work to be completed under this contract. 

Region 9 has at least one other contract (EPS90803) that included time and 

materials task orders with similar payments for profit on subcontracts. EPA 

acquisition staff disagreed that paying profit on subcontracts was inappropriate. 

However, they could not provide FAR references to justify such payments. 

Recommendations 

We recommend that the Regional Administrator, Region 9: 

3.		 Direct the CO for contract EPS90804 to: 

a.		 Remove the profit clause or terminate the contract so that Region 9 

no longer has to pay profit on subcontracts. 

b.		 Recover the 4.00 percent profit paid. 

4.		 Coordinate with the EPA OAM to: 

a.		 Perform an independent review of all current Region 9 contracts 

with time and materials pricing provisions to determine whether 

they contain profit payment clauses. 

b.		 If the review finds these clauses, take appropriate actions to 

recover the profits paid and remove the clause to prevent such 

payments in the future. 

We recommend that the Assistant Administrator for Administration and 

Resources Management: 

5.		 Ensure that OAM conducts and documents the results of the review 

prompted by this evaluation of all remedial action contracts to: 

a.		 Determine the best method for paying the remedial action 

contractors for all subcontract management costs. 

b.		 Consistently apply this method for all remedial action contracts 

Agency-wide. 

13-P-0209 20 
 

 

 

Agency Comments and OIG Evaluation 

As summarized below and detailed in appendixes D and E, the Regional 

Administrator for Region 9 and Assistant Administrator for Administration and 

Resources Management disagreed that paying additional profit on the 

subcontracts was inappropriate. They proposed alternative corrective actions for 

recommendations 3, 4 and 5. The Regional Administrator also provided technical 

comments, which we include in appendix F, and provided a response. 

Regarding recommendation 3, the Regional Administrator said that both 

Region 9 and the OAM disagree that the profit clause in the contract represents a 

prohibited payment. Thus, termination of the contract or removal of the clause is 

unnecessary and there is no need to recover the amounts paid. However, he 

proposed an alternate action. Future contacts would include a negotiated 

comprehensive set of rates that segregates those specialties associated with 

architectural and engineering services and those associated with construction 

oversight services. Each set of rates can include costs and profits representative of 

the work being conducted. We commend Region 9 for proposing that the terms of 

future contracts address cost and profit differently. However, that does not resolve 

the issues with the current contract. We disagree with the Regional 

Administrator’s position, and consider recommendation 3 unresolved. 

Regarding recommendation 4, the Regional Administrator said that OAM had 

already independently reviewed this contract, similar Region 9 contracts, and 

their clauses before award. OAM also recently performed oversight reviews of 

Region 9 with no findings on these provisions. In reviewing these contracts, 

Region 9 and OAM both considered these provisions to be appropriate. As an 

alternative corrective action, the Regional Administrator proposed that future 

contracts issued by Region 9 would use different pricing arrangements. However, 

according to the Assistant Administrator, both Region 9 and the OAM agree that 

the methodology of applying the 4.00 percent premium negotiated in the subject 

contract for construction management required corrective action. We consider this 

recommendation unresolved. 

Regarding recommendation 5, the Assistant Administrator said that OAM has 

surveyed other similar headquarters and regional contracts and determined that no 

other office is using the pricing methodology associated with this finding. He also 

stated that OAM will use the balanced scorecard process to assess the need for 

additional guidance on adequate file documentation and proper payment 

procedures. The fact that OAM determined that no other office was using this 

pricing methodology casts doubt on the validity of Region 9 applying this 

method. We disagree with the proposed corrective action using the balanced 

scorecard. Our recommendation was to identify the methods currently used to pay 

remedial action contractors for managing subcontracts, determine the best 

practices, and use them throughout EPA. We believe the proposed alternative 

corrective action will not do this, so we consider this recommendation unresolved. 

13-P-0209 21 
 

 

 

 

 

 

 

 

 

 

 

 

 

Status of Recommendations and 

Potential Monetary Benefits 

POTENTIAL MONETARY 

RECOMMENDATIONS BENEFITS (in $000s) 

Rec. 

No. 

Page 

No. Subject Status1 Action Official 

Planned 

Completion 

Date 

Claimed 

Amount 

Agreed-To 

Amount 

1 

2 

3 

4 

5 

14 

15 

20 

20 

20 

Direct the CO for contract EPS90804 to: 

a. Required that minutes of scoping meetings are 

prepared, provided to those who attended, and 

committed to the official contract file. 

b. Instruct task order CORs to modify the SOW, if 

needed, to show changes to which EPA and the 

contractor agreed in the scoping meeting. 

c. Instruct task order CORs to continue to complete the 

Cost Proposal Evaluation Checklist for each task order 

and commit it to the official contract file. 

d. Instruct task order CORs to complete the Task Order 

Costs/Hours Verification Form in its entirety, including 

the contractor performance evaluation section. 

e. Instruct task order CORs to commit to the official 

contract file a record of deliverables received and 

whether they were acceptable. 

Direct OAM to require task order CORs to evaluate the 

qualifications of contractor key staff proposed by the 

contractor in the work plan. The task order CORs should 

also review qualifications for samples of the non-key staff 

billed on invoices. 

Direct the CO for contract EPS90804 to: 

a. Remove the profit clause or terminate the contract so 

that Region 9 no longer has to pay profit on 

subcontracts. 

b. Recover the 4.00 percent profit paid. 

Coordinate with the EPA OAM to: 

a. Perform an independent review of all current Region 9 

contracts with time and materials pricing provisions to 

determine whether they contain profit payment 

clauses. 

b. If the review finds these clauses, take appropriate 

actions to recover the profits paid and remove the 

clause to prevent such payments in the future. 

Ensure that OAM conducts and documents the results of the 

review prompted by this evaluation of all remedial action 

contracts to: 

a. Determine the best method for paying the remedial 

action contractors for all subcontract management 

costs. 

b. Consistently apply this method for all remedial action 

contracts Agency-wide. 

O 

U 

U 

U 

U 

Regional 

Administrator, 

Region 9 

Assistant 

Administrator for 

Administration and 

Resources 

Management 

Regional 

Administrator, 

Region 9 

Regional 

Administrator, 

Region 9 

Assistant 

Administrator for 

Administration and 

Resources 

Management 

9/30/13 

$1,524 

O = recommendation is open with agreed-to corrective actions pending 

C = recommendation is closed with all agreed-to actions completed 

U = recommendation is unresolved with resolution efforts in progress 

13-P-0209 22 

1 
 

 

             

                       

           

                   

         

                     

       

                       

     

                     

   

             

                   

                         

           

                   

                   

   

                   

 

Appendix A 

Process for Issuing a Task Order Under Contract EPS90804 

EPA

• Task order COR prepares the SOW and IGCE.

• Contract‐level COR and CO review (and change if needed) the SOW and

IGCE.

• CO sends the SOW to the contractor.

Scoping

Meeting

• CO, contract‐level CO, and task order COR meet with representatives of

the contractor to discuss the SOW.

• Someone prepares minutes of the meeting and gives the minutes to

those who attended the meeting.

EPA

• If needed, based on the scoping meeting, the task order COR revises

the SOW and IGCE.

• Contract‐level COR and CO review (and change if needed) the revised

SOW and IGCE.

• CO sends the revised SOW to the contractor.

Contractor

• The contractor prepares the work plan and sends it to EPA.

EPA

• Task order COR compares the work plan to the SOW and IGCE, and

recommends whether the work plan is acceptable.

• CO and contract‐level COR review the work plan and the

recommendation of the task order COR, requesting changes from the

contractor if needed.

• When satisfied, the CO issues the task order to the contractor.

Source: OIG analysis 

13-P-0209 23 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Appendix B 

Cost Proposal Evaluation Checklist 

Task Order Project Officer:
	

Site Name: 

Task Order Number: 

Cost Proposal Dated: 

1. Addressing the Statement of Work (SOW) 

a. Does the Contractor address all tasks outlined 

in the SOW? 

Yes No (see below) N/A 

g. Are proposed staff levels for each task 

reasonable to accomplish the tasks? 

Yes No (see below) N/A 

b. Does the Contractor include any work not 

required in the SOW? 

Yes (see below) No N/A 

h. Is a reasonable level of clerical/home office 

support staff proposed? 

Yes No (see below) N/A 

c. Is the proposed schedule acceptable? 

Yes No (see below) N/A 

i. Are appropriate hours proposed for each staff 

level? 

Yes No (see below) N/A 

d. Is the management structure sound? Is 

appropriate QA oversight staff included? 

Yes No (see below) N/A 

j. Is a reasonable budget developed for each 

activity? 

Yes No (see below) N/A 

e. Does the technical approach and methodology 

for accomplishing each task appear effective? 

Yes No (see below) N/A 

k. Is there enough detail in the WP and budget 

structure to support future cost recovery? 

Yes No (see below) N/A 

f. Does the Contractor demonstrate a thorough 

understanding of the task order? 

Yes No (see below) N/A 

l. If fieldwork is to be done, is preparation of a 

HASP, QAPP and FSP included? 

Yes No (see below) N/A 

TOPO comments regarding (1) above: 

2. Travel 

a. Are the number and length of trips, number of 

travelers, fares, and duration reasonable and 

acceptable? 

Yes No (see below) N/A 

TOPO comments regarding (2) above: 

3. Subcontracting 

a. Are the proposed subcontracting efforts and b. Are laboratory services, other than CLP, 

costs reasonable and acceptable? appropriate? 

Yes No (see below) N/A Yes No (see below) N/A 

TOPO comments regarding (3) above: 

13-P-0209 24 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4. Other Direct Costs 

a. Do reproduction (production copier) costs 

appear reasonable and appropriate? 

Yes No (see below) N/A 

c. Are Postage and Shipping costs reasonable 

and appropriate? 

Yes No (see below) N/A 

b. Are proposed material and equipment costs 

reasonable and appropriate? 

Yes No (see below) N/A 

d. Government-furnished property is justified, 

where appropriate. 

Yes No (see below) N/A 

TOPO comments regarding (4) above: 

5. Cost Proposal 

a. Is the Contractor’s total proposed budget 

within a reasonable range of the IGCE? 

Yes No (see below) N/A 

c. Have the Indirect Rates and Service 

Center Rates already been negotiated and 

included in the contract? 

Yes No (see below) N/A 

b. Is the proposed budget within reasonable 

range of the IGCE for each task? 

Yes No (see below) N/A 

TOPO comments regarding (5) above: See Attachment A. 

6. TOPO Recommendation 

I have reviewed the Contractor’s Cost Proposal, and make the following recommendation: 

Cost Proposal is recommended for approval as submitted. The Contractor’s cost proposal adequately 

addresses the Statement of Work. Any proposed travel, subcontracting, and other direct costs have been reviewed and 

are necessary and reasonable. The proposed budgets are reasonable (see #5 above for discussion regarding cost 

reasonableness). 

Cost Proposal is not recommended for approval. Cost Proposal approval is not recommended for the following 

reason(s): 

Partial Cost Proposal approval is recommended. The following tasks/subtasks are recommended for approval as 

submitted. For these tasks/subtasks recommended for approval, The Contractor’s cost proposal adequately addresses 

the Statement of Work. Any proposed travel, subcontracting, and other direct costs have been reviewed and are 

necessary and reasonable. The Cost Proposal budgets for these tasks/subtask are reasonable (see #5 above for 

discussion regarding cost reasonableness). List tasks/subtasks recommended for approval: 

The remaining tasks/subtasks are not recommended for approval for the following reason(s): 

TOPO Signature and Date: 

(Submit Completed form to the Project Officer) 

13-P-0209 25 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Appendix C 

TASK ORDER COSTS/HOURS VERIFICATION FORM 

Please Return the Forms to (SFD-2) by <<Date>> 

Date of Distributing the Monthly Progress Report and Invoice to TOPO: <<Date>> 

Contractor: 

CH2M HILL 

Contract No.: 

EP-S9-08-04 

Period of Performance for This Invoice: 

«Period of Performance» 

Invoice No: «Invoice No» Amount: «Amount Billed» 

TOPO: «RPM Name» «Mail Code» Contract PO: 

TO No.: 

«TO No» Title: «TO Title» Site Name: «Site Name» 

Please check one of the statements below and provide verification signature. Keep the invoice and monthly report 

for your record. Any unreasonable and/or confusing information should be brought to the attention of the 

contractor and the Contract Project Officer in a prompt fashion. 

______ I agree with this invoice. Sufficient progress has been made by the contractor to support payment of 

the work performed. 

______ Contractor must provide additional justification for verification of costs and/or hours on this task 

order.

 ______ Cost listed below should be withheld since they can not be verified. 

Comments/Explanation: 

Optional Monthly Contractor Performance Evaluation: The minimum acceptable rating is “Good.” The rating 

below “Good” or any problem areas indicated below should be addressed immediately by Project Officer and 

contractor Program Manager. Please rate each criterion: 

5 – Outstanding 4 – Excellent 3 – Good 2 – Fair 1 – Poor 0 - Unsatisfactory 

Quality of Services Delivered Rating: _______ Effectiveness of Management Rating: 

Initiative in Meeting Contract Requirement 

Rating: _______ 

Timeliness of Performance Rating: _______ 

Cost Control Rating: _______ Business Practices Rating: 

Customer Satisfaction Rating ________ 

List Any Positive Feedback or Problem Areas That Need To Be Addressed: 

Signature & Date: 

I have reviewed the monthly progress and financial reports and verify to the best of my ability the costs incurred. 

13-P-0209 26 
 

 

 

 

 

Appendix D 

Office of Acquisition Management Comments to 

Recommendations 

UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
	

WASHINGTON, D.C. 20460
	

OFFICE OF
	

ADMINISTRATION
	

AND RESOURCES
	

MEMORANDUM MANAGEMENT

SUBJECT: OAM Response to OIG Draft Report, Improved Management Needed for EPA 

Contract EPS90804 to Address Risk of Misusing Funds 

FROM: Craig E. Hooks, Assistant A d mi nistrato r 

TO: Carolyn Copper 

Assistant I n s p e c t o r General for Program Evaluation 

The Office of Administration and Resources Management appreciates the opportunity to 

review and comment on the December 14, 2012 Office of Inspector General draft report titled 

"Improved Management Needed for EPA Contract EPS90804 to Address Risk of Misusing 

Funds." In order to provide a timely response to the findings and recommendations, Region 9 

is submitting its response separately. However, we have coordinated our responses. 

The report contains a review of contract EPS90804 awarded b y Region 9 in FY 2008. Since 

that time, the Office of Acquisition Management has implemented an oversight a n d compliance 

review program under the EPA Balanced Scorecard Performance Management and Measurement 

Program. This program addresses and implements solutions to various 

acquisition planning, evaluation, award, and administration issues agency-wide. 

Recommendations and Responses r e l a t e d t o OAM: 

Recommendation 2. Direct OAM to require Task Order Contracting Officer Representatives 

(CORs) to evaluate the qualifications of contractor key staff proposed by the contractor in the 

work plan. The Task Order CORs should also review qualifications for samples of the non-key 

staff billed on invoices. 

OAM Response: OAM agrees if the contract contains personnel requirements such as required 

education or years of experience for vendor staff, then Task Order CO's and CORs must review 

13-P-0209 27 
 

 

 

 

 

 

and evaluate those qualifications. However, OAM does not believe this is the best approach for
	

managing contract performance. Rather, OAM supports performance based procurement
	

approaches which require the vendor to identify the labor categories and mix required to ensure
	

successful contract performance. This approach shifts the risk of contract performance to the
	

vendor, w h i c h is the intent of performance based contracting and the reason why this approach
	

is the preferred procurement method. Under this approach, per FAR 7.1 only 

key personnel are subject to government approval. OAM does not support u s i n g terms and conditions 

that include qualifications for contractor staff and does not intend to continue this procurement approach.
	

Furthermore, Region 9 is no longer using this contracting approach in new remediation procurements. 

However, notwithstanding that this finding results from review of a single contract, OAM will use the 

BSC PMMP process to determine the need for
	

additional guidance on performance basedcontracting approaches.
	

Recommendation 5. Ensure that the OAM conducts and documents the results of the review prompted 

by this evaluation of all remedial action contracts to:
	

a. Determine the best method for paying the remedial action contractors for all subcontract 

management costs. 

b. Consistently apply this method for all remedial action contracts agency-wide. 

OAM Response: While both Region 9 and OAM agree that the methodology of applying the 

4% premium negotiated i n the subject contract for construction management required corrective action, 

those costs do not qualify as prohibited payments. Region 9 has already indicated how they will 

appropriately address similar situations for future contracts, as applicable. Additionally, OAM has 

surveyed other similar headquarters and regional contracts and determined that no other office is using 

the pricing methodology associated with this finding. OAM will use the BSC PMMP process to assess 

need for additional guidance on adequate file documentation and proper payment procedures. 

Should you have any questions regarding this response, please contact John Bashista, Director of the 

Office of Acquisition Management, at (202) 546-4310. 

cc: Nanci Gelb, Principal Deputy Assistant Administrator, OARM 

John Bashista, Director, Office of Acquisition Management,OARM 

Raoul Scott, Acting Deputy Director, Office of Acquisition Management, OARM Sandy 

Womack,Audit Follow-up Coordinator, OARM 

Alexander Kramer, Contracting Chief, Region 9 

Arthur Elkins, Jr., Inspector General 

Alan Larsen, Counsel to the Inspector General 

Melissa Heist, Assistant Inspector General for Audit,OIG 

Eileen McMahon, Assistant Inspector General for Congressional, Public Affairs, and 

Management, OIG 

13-P-0209 28 
 

 

 

 

Appendix E 

Region 9 Comments to Report Recommendations 

UNITED STATES ENVIRONMENTAL PROTECTION AGENCY 

REGION IX
	

75 Hawthorne Street
	

San Francisco, CA 94105 

MEMORANDUM 

SUBJECT: Response to Office of Inspector General Draft Report No. OPE-FY12-0008 

Improved Management Needed for EPA Contract EPS90804 to Address Risk of 

Misusing Funds 

FROM: Jared Blumenfeld 

Regional Administrator, Region 9 

TO: Carolyn Copper 

Assistant Inspector General for Program Evaluation 

Thank you for the opportunity to respond to the issues and recommendations in the subject 

audit report. Following is a summary of the Agency's overall position, along with its position on 

each of the report recommendations. For those report recommendations with which the 

Agency agrees, we have provided either high-level intended corrective actions and estimated 

completion dates to the extent we can or reasons why we are unable to provide high-level 

intended corrective actions and estimated completion dates at this time. For those report 

recommendations with which the Agency does not agree, we have explained our position and 

proposed alternatives to recommendations. For your consideration, we have included a 

Technical Comments Attachment to supplement this response. We officially request that the 

Technical Comments Attachment be included with the draft report. 

AGENCY'S OVERALL POSITION 

The Agency has reviewed the findings included in the draft report. The Agency believes that 

many of the recommendations included in Chapter 2 of the report have merit and point out 

opportunities for Region 9 to improve the contract oversight being provided by Contracting 

Officer's Representatives (COR). With respect to the findings and recommendations included 

in Chapter 3, the Agency does not concur with the report's assertion that the subcontract profit 

clause represents a prohibited payment. The Agency's reasoning is included in the responses 

below as well as the Technical Comments Attachment. 

13-P-0209 29 
 

 

 

 

 

 

 

AGENCY'S RESPONSE TO REPORT RECOMMENDATIONS 

Agreements 

No. Recommendation High-Level Intended Corrective 

Action(s) 

Estimated Completion by 

Quarter and FY 

1. We recommend that the 

Regional Administrator, 

Region 9, direct the CO for 

contract EPS90804 to 

require that: 

a. Minutes of seeping 

meetings are 

prepared, provided to 

those who attended, 

and committed to the 

official contract file. 

b. Task Order CORs 

modify the SOW, if 

needed, to show 

changes to which EPA 

and the contractor 

a. Minutes will be prepared for 

each seeping meeting and 

provided to participants as 

well as included in the official 

task order file for each order. 

b. Task Order CORs will modify 

the SOW prior to issuance 

with a task order to reflect 

any changes agreed upon 

during the seeping meeting 

3rd Quarter FY 2013 

4rdQuarter FY 2013 

agreed in the seeping 

meeting. 

c. Task Order CORs 

continue to complete 

the Cost Proposal 

Evaluation Checklist 

for each task order 

c. Task Order CORs will continue 

to complete the Cost Proposal 

Evaluation Checklist for each 

task order and commit it to the 

official contract file. 

Already Implemented 

and commit it to the 

official contract file. 

d. Task Order CORs 

complete the Task 

Order Costs/Hours 

Verification Form in its 

entirety, including the 

contractor 

performance 

evaluation section. 

d. Task Order CORs will be 

required to complete the Task 

Order Cost/Hours Verification 

Form in its entirety. Should 

any performance issues arise 

they will be noted in the 

contract performance section 

and reported to the contract 

level COR. 

4th Quarter FY 2013 

e. Task Order CORs 

commit to the official 

contract file a record of 

deliverables received 

and whether they were 

acceptable. 

e. Task Order CORs will commit 

to the official task order file a 

record of deliverables 

received and whether or not 

they were acceptable. 

4th Quarter FY 2013 

13-P-0209 30 
 

 

 

Disagreements
	

No. Recommendation Agency Explanation/Response Proposed Alternative 

3. Direct the CO for contract 

EPS90804 to: 

a. Remove the profit clause 

or terminate the contract so 

that Region 9 no longer has 

to pay profit on subcontracts. 

b. Recover the 4 percent 

profit paid. 

a. As noted in the subject draft 

report and the Technical 

Comments Attachment item 

numbers 6 and 7, R9 and OAM 

disagree with assertion in the 

report that the profit clause 

included in the contract 

represents a prohibited 

payment. The agency used an 

appropriate EPAAR clause 

1552.232-73 in lieu of the 

referenced FAR clause 52.232-

7 which acknowledges a 

difference between materials 

subcontracts and separately 

addresses other subcontracted 

efforts. EPAAR 1552.232-

73(b)(2) does not prohibit profit 

from being paid on a 

subcontract. Additionally, these 

subcontracts are not 

"incidental" services and thus 

do not meet the definition of 

materials in FAR 16.601. The 

profit clause does not qualify as 

cost-plus-percentage-of-cost 

either for the reasons noted in 

the report and Technical 

Comments Attachment item 

number 8. Since the Agency 

does not consider the profit 

clause a prohibited payment, 

termination of the contract or 

removal of the clause is 

unnecessary. 

b. Since the Agency does not 

consider the profit clause a 

prohibited payment, there is no 

reason to recover the amounts 

paid since they represent 

legitimate costs. 

a. In order to avoid future 

confusion on this issue, 

R9 suggests that when 

an audited subcontract 

administration rate or 

G&A rate is not 

available for a particular 

contractor; that all future 

contracts include a 

negotiated 

comprehensive set of 

rates that segregates 

those specialties 

associated with A&E 

services and those 

associated with 

construction oversight 

services. Then each set 

of rates can include 

costs and profits 

representative of the 

work being conducted. 

If that structure is 

implemented, the 

current separate profit 

clause will no longer be 

necessary. 

b. Same alternative as a. 

above 

13-P-0209 31 
 

 

 

 

 

4. Coordinate with the EPA 

Office of Acquisition 

Management to: 

a. Perform an independent 

review of all current Region 9 

contracts with time and 

materials pricing provisions to 

determine whether they 

contain profit payment 

clauses. 

b. If the review finds these 

clauses, take appropriate 

actions to recover the profits 

paid and remove the clause 

o prevent such payments in 

the future. 

a. 

b. 

OAM has already 

independently reviewed this 

contract, similar R9 contracts, 

and their clauses prior to 

award. OAM has also 

performed oversight reviews of 

Region 9 recently with no 

findings on these provisions of 

the contract. In reviewing 

these contracts, Region 9 and 

OAM have both considered 

these provisions to be 

appropriate. 

Since the independent reviews 

have already been performed 

and did not find these clauses 

to be prohibited payments, no 

further action is necessary. 

a. 

b. 

R9 proposes to issue 

any future contracts in 

accordance with our 

alternative 3.a. 

Same alternative as a. 

above 

CONTACT INFORMATION 

If you have any questions regarding this response, please contact Alexander Kramer, 

Regional Acquisition Manager in Region 9 at 415-972-3126. 

Attachments: 

Technical Comments 

cc: Nanci Gelb, Principal Deputy Assistant Administrator, OARM 

John Bashista, Director, Office of Acquisition Management, OARM 

Raoul Scott, Acting Deputy Director, Office of Acquisition Management, OARM 

Sandy Womack, Audit Follow-up Coordinator, OARM 

Alexander Kramer, Contracting Chief, Region 9
	

Kevin Castro, Project Officer, Region 9
	

Nancy Riveland, Superfund Program Management Section Chief, Region 9 

Nancy Lindsay, Superfund Deputy Director, Region 9 

Janie Thomas, Comptroller, Region 9 

13-P-0209 32 
 

Magdalen Mak, Audit Follow-up Coordinator, Region 9 

Arthur Elkins, Jr., Inspector General 

Alan Larsen, Counsel to the Inspector General 

Melissa Heist, Assistant Inspector General for Audit, OIG 

Eileen McMahon, Assistant Inspector General for Congressional, Public Affairs, and 

Management, OIG 

13-P-0209 33 
 

 

 

 

Appendix F 

Region 9 Technical Comments and OIG Evaluation 

Technical Comment #1 

Page 5 of the above referenced report states: 

"...some task order CORs relied on the contractor-prepared work plan to establish government 

objectives and to monitor contractor progress." 

Region 9 believes this statement is factually incorrect and confuses the purposes of the SOW and 

contractor workplan. Government objectives are not re-established by the contractor. The work plan 

provides a greater level detail, but the basic objectives of the project remain the same. It is more 

appropriate to think of the documents in different contexts. As a part of a performance based 

contract, the SOW outlines the primary objectives and general methodologies for accomplishing 

task order requirements. The contractor's work plan provides specific numbers of hours and the 

technical approach that will be used to meet the objectives outlined in the SOW. The additional 

level of detail in the workplan further supports SOW requirements rather than redefining its 

objectives. 

OIG Evaluation: The statement in the report is factually correct, i.e., some CORs relied on the 

work plan. Specifically, CORs for six task orders relied on the work plans to monitor. Here are 

examples of what some of them stated: 

	 The COR relied on the work plan that the contractor produces to capture what was 

discussed in the scoping meeting for the task order. 

	 The SOW is not an accurate documentation of the contracted deliverables so the work 

plan may be different. 

	 The work plan would be one of the ways he would direct the work to be performed. If it 

was signed by the task order COR, that meant it reflected the work expected by the 

Agency. 

Technical Comment #2 

Page 6 of the report immediately above the included table states: 

"EPA risks the possibility of (1) needing work that the contractor did not perform and (2) paying for 

work that was not essential." 

Region 9 believes this statement is misleading since the mistakes identified reflect errors in the 

administrative process which would have corrected the listed deliverables in the task orders. There 

was little real risk to the government in not receiving needed services or paying for additional work 

since COR oversight ensured the level of services provided was appropriate. 

13-P-0209 34 
 

 

 

 

 

OIG Evaluation: EPA’s documentation does not support this assertion that there was no real 

risk. The table in the report shows that there were deliverables in the SOWs that were not in 

work plans, which indicates there was work that EPA needed that the contractor did not perform. 

In addition, there were work plans that had deliverables that were not in the SOWs, which 

indicates there was work that the contractor performed that EPA had not identified as essential. 

In the latter case, it appears the contractor is dictating to the government what the government 

needs. 

Technical Comment #3 

The top of the last paragraph on page 7 of the report states: 

"The task order CORs' practice of using the contractor's work plan to track progress leaves it at risk 

of the contractor changing the nature of the agreed-upon contract services. This entails great risk to 

the government. 

Region 9 believes this statement is misleading and its assertion of the risk to the government is 

inaccurate.Using both the SOW and workplan concurrently does not violate reasonable contract 

oversight procedures.When task orders are issued, the workplan is officially incorporated as an 

attachment to the order. Region 9's task orders explicitly state that "the work plan,along with any 

stated assumptions or caveats, shall not supersede the requirements of this Statement of Work." 

However, using both documents helps to mitigate risk by ensuring the COR has adequate 

information to perform task order oversight. It is generally expected that CORs would track some 

project details based on the contractor workplan because it includes more detailed information on 

the contractor's technical approach than the SOW. 

OIG Evaluation: We understand that the work plan has more detail than the SOW, and agree 

that the SOW and work plan can be used together to oversee contracts. However, the two should 

be in agreement. As stated in the report, we found instances where the work plans and SOWs had 

different deliverables. See analysis in technical comment 2. Further, some CORs stated they 

relied on the work plan and not the SOW to oversee task orders. See analysis in technical 

comment 1. When the SOW and work plan disagree, using only the work plan creates the risk 

that the government is not getting the services for which the task order was intended. 

Technical Comment #4 

At the bottom of Page 8, the report states: 

"Thus, because the CORs do not verify the qualifications of contractor staff, EPA is inappropriately 

allowing the contractor to determine that its staff met the qualifications of the labor categories 

required to accomplish the work specified in the contract. 

Region 9 believes this statement is inaccurate and misleading. The contract specifically states the 

qualifications expected of the individual labor categories utilized. This statement from the contractor 

on the invoice is a legal certification on the contractor's behalf that they are providing costs and 

personnel in accordance with the contract. EPA has the final approval over all costs claimed. EPA 

is not allowing the contractor to substitute its assessment of qualifications since they have already 

13-P-0209 35 
 

 

 

 

 

 

been defined in the contract document. This is a matter of compliance. If the contractor is falsely 

certifying the experience of their personnel, that is a matter for the EPA OIG to investigate. False 

claims investigations fall outside the purview of individual COR's responsibility and would be more 

appropriately handled by auditors and the responsible contractor. 

OIG Evaluation: The statement in the report is accurate. Although the CORs could review the 

qualifications of those billed under the contract, they have not been directed to do so. The 

contract provides that the COR receives an invoice from the contractor and that they have the 

right to review, among other things, qualifications of persons billed. Clause B.1 incorporates by 

reference FAR clause 52.212-4 Alternate I, which states: 

(4) Access to records. At any time before final payment under this contract, the 

Contracting Officer (or authorized representative) will have access to the following (access 

shall be limited to the listing below unless otherwise agreed to by the Contractor and the 

Contracting Officer): 

(i) Records that verify that the employees whose time has been included in any invoice 

meet the qualifications for the labor categories specified in the contract... 

Also, while Region 9 states that the certification on the invoice is sufficient support that 

contractor’s qualifications are in accordance with the contract, OAM contradicts this. According 

to the Assistant Administrator’s response to the draft report, OAM contends that if the contract 

contains personnel requirements, task order COs and CORs must evaluate those qualifications. 

Further, the U.S. Government Accountability Office’s Standards for Internal Control in the 

Federal Government requires that management must put internal controls in place to ensure 

compliance with applicable laws and regulations and to prevent and detect fraud. The OIG’s role 

is to conduct audits relating to program operations, not to assume management’s role in 

safeguarding government resources. The OIG does not replace the responsibility of EPA’s 

program to establish internal controls in their daily operations. 

Technical Comment #5 

Towards the bottom of page 9, the report states: 

"The CO believes there are no requirements for EPA to review the qualifications of any staff. He also 

stated that EPA takes the contractor's word for the qualifications of its staff;EPA is not the 

contractor's human resource office. According to the CO, verifying qualifications of contractor 

personnel was crossing the line into personal services and deemed unnecessary because EPA 

evaluated key personnel during the contract selection process. The OIG finds no support for that 

position." 

Region 9 asserts that this statement is factually inaccurate and misrepresents statements made by 

the CO. The CO did not say there are no requirements for EPA to review the qualifications of any 

staff. As noted, the CO referenced the required reviews of personnel resumes in the preaward 

selection process. Similar to the response in Technical Comment #5, the CO stated that additional 

checks are a matter of compliance. If the contractor is falsely certifying the experience of their 

personnel and knowingly providing personnel that do not have the experience required and 

identified in the contract, that is a matter for EPA audit and investigation personnel. Systematic false 

claims investigations fall outside the purview of standard contract management. Furthermore, if a 

COR were to review all resumes beyond a simple matching of qualifications to the labor category 

13-P-0209 36 
 

 

 

 

 

definitions- and then tell the contractor which individuals were qualified in their opinion to staff the 

task order; COR would essentially be directing the contractor on staffing and employment decisions 

which are personal services by definition. 

OIG Evaluation: The statement in the report was accurate. We received contradictory 

statements from the CO concerning the requirement for CORs to review contractor 

qualifications. 

(1) In February 2012, the CO stated there were no requirements to review the qualifications 

of any staff. 

(2) In May 2012, the CO stated that the task order CORs were expected to assure that 

contractor personnel met the qualifications needed to complete the tasks in the task order, 

and would expect that task order CORs request resumes as needed. 

As stated in the report, the OIG maintains that having CORs review qualifications does not cross 

the line into personal services. The contract clause gives EPA the right to review the contractor's 

documentation on qualifications. Similarly, the COR training materials state that CORs can 

request qualifications. The report did not suggest that the CORs do more than match the 

qualifications of those billed under the contract to the labor category definitions. That would 

allow EPA to determine it got the level of services for which it paid. Otherwise, the contractor 

determines how much EPA must pay. 

Technical Comment #6 

Page 15 of the report states: 

"FAR Subsection 16.601(b) states that a time and materials contract provides for acquiring supplies 

or services based on direct labor hours at specified fixed hourly rates that include wages, overhead, 

general and administrative expenses, profit, and the actual cost of materials. Materials includes 

subcontracts. Further, the related clause for payments under Time and Materials pricing' 

arrangements-FAR Subsection 52.232-7(b)(7)-specifically states that the government will not pay 

profit or fees to the prime contractor on materials." 

Under this contract, the labor rates and profit included in pre-negotiated rates are meant to cover the 

primary services of the contract which are Architect and Engineering (A&E). EPA has required for 

this class of contract that A&E firms subcontract out construction services that are related to the 

A&E work performed. The definition in FAR 16.601 "Materials" (2) covers "Subcontracts for supplies 

and incidental services for which there is not a labor category specified in the contract." The 

referenced report makes the blanket statement that all subcontracts are materials, but the qualifier of 

“incidental” is not reflected. As the report notes, $38,104,278.36 was incurred in subcontracts 

which, while not a majority, does not necessarily qualify as "incidental" services. Similarly, some of 

the labor categories included in the contract would cover the services performed by subcontractors; 

however, the Agency has required that the prime contractors use sub contractors for all construction 

work.Thus if the services are not "incidental," the classification as materials is incorrect and the 

restriction on profit from FAR 52.232-7 is no longer applicable. In that case, the 4% profit on those 

subcontracts is not a prohibited payment. 

13-P-0209 37 
 

 

At the time of award in an IDIQ contract, there is no reasonable way to estimate the types or number 

of construction related requirements; however the A&E contractor is responsible for management of 

those construction subcontracts and subcontracts for other services as well. Since EPA has required 

that some services be subcontracted, and the requirements cannot be estimated at award, including 

a separate profit rate on subcontracts is a legitimate approach. Profit rates may be reasonably 

different for services that entail more contractor risk, uncertainty, or different market requirements. 

For instance, a construction management contractor is expected to be named on the bond for the 

construction being performed. That is a potentially large liability and risk that does not occur with 

A&E services. The report incorrectly implies that just allowing for profit on subcontract 

administration is enough to mitigate the inherent risks like the example of bond liability that occur in 

different services. The 4% negotiated in this case is actually substantially lower than the industry 

standard of approximately10% for construction management services. 

OIG Evaluation: We disagree. The Regional Administrator asserts that paying 4.00 percent profit on 

subcontract costs is acceptable because the subcontracts are not “incidental” services. This is because 

(1) the contractor was required to subcontract out construction services, and (2) the value of the 

subcontracts exceeds $38 million. Since the subcontracts are not “incidental,” they do not meet the 

definition of “material” in FAR 16.601. Thus, the profit on the subcontracts is not a prohibited 

payment. 

Except for one task order that was fixed price, the task orders issued under contract EPS90804 had 

time and material pricing arrangements. Whether “incidental” or not, the only way the contactor 

under a time and materials pricing arrangement can be reimbursed is if the subcontracts are billed as 

material. The other option, payment at the fixed hourly rate, would not apply. When contract 

EPS90804 was awarded, according to clause B.4, the line item for subcontracts was estimated to be 

$30 million of the $110 million contract ceiling. Finally, clause B.5(d) includes constructions 

services as part of the subcontract line item because it states, in part: 

Specific activities which generally necessitate utilization of the [subcontract] CLIN 

include, but are not limited to: well-drilling, analytical services (when not provided by 

the Government), special consultants to support technical projects or to serve as expert 

witnesses, aerial mapping, surveying, fencing, or construction activities associated 

with a Remedial Action. 

The Regional Administrator indicated that EPA required some services to be subcontracted, so 

including a separate profit rate on subcontracts is a legitimate approach. He stated that profit rates 

may be reasonably different for services that entail more contractor risk, and offered as an example 

being named on the bond for construction work performed. Further, according to the Regional 

Administrator, the 4.00 percent negotiated in this contract is substantially lower than the industry 

standard of approximately 10.00 percent for construction management services. 

This position ignores the FAR prohibition on profit under time and material pricing arrangements, 

except for the profit in the fixed hourly rates. Thus, an industry standard of 10.00 percent is not 

relevant. Also, even if the contractor was concerned about additional risks due to reliance on 

subcontractors, a partial remedy may be found in contract clauses H.30 and H.40. These clauses 

appear to allow the contractor to shift some of the bond risk to the subcontractors. 

13-P-0209 38 
 

 

 

 

 

 

 

 

 

Technical Comment #7 

At the bottom of page 17, the report states: 

"The contract contained a clause addressing payments under fixed rate contracts. Clause G.3, from 

EPAAR Subsection 1552.232-73, limits the reimbursement of materials to cost." 

R9 used the cited EPAAR clause 1552.232-73 in lieu of the referenced FAR clause 52.232-7. EPAAR 

1552.232-73 further acknowledges a difference between materials subcontracts and separately 

addresses other subcontracted efforts. EPAAR 1552.232-73(b)(2) does not prohibit profit from being 

paid on a subcontract. 

OIG Evaluation: We disagree with the statement that EPAAR 1552.232-73(b)(2) does not 

prohibit profit from being paid on a subcontract. As stated in the report, this clause limits the 

reimbursement of materials to cost only. Thus, it does prohibit profit on subcontracts. Further, 

according to FAR 52.201(a), an agency modification of a FAR clause cannot alter the substance 

of the clause. Since 52.232-7 prohibits paying a contractor profit on material, EPAAR 1552.232-

73 cannot allow it. 

Technical Comment #8 

At the bottom of page 18, the report states: 

"However, the method for determining the price of the subcontracts is not pertinent. The pricing 

arrangement between the contractor and its subcontractor could be fixed price, fixed rate, or 

something else.Whatever it was,contract EPS90804 provided for reimbursing the contractor for the 

actual cost. The 4.00 percent profit rate was applied to that amount. Thus, it resembles the prohibited 

cost plus a percentage of cost type of contract." 

The statement included above is factually inaccurate and conflates different contract types 

erroneously. If a contract is fixed-price or fixed rate, then companies are not being reimbursed on an 

actual cost basis. For example,if EPA is charged on a fixed price basis for the installation of 

monitoring wells, the contractor is paid the same per well installed whether it takes 10 hours or 40 

hours. If the per well cost is $5,000 the cost with the 4% profit is $5,200. The number of wells is 

determined by EPA's needs not the prime contractor and the fact remains that the cost to EPA is still 

only $5,200 per well regardless of whether it takes 40 hours instead of the expected 10. The 

contractor remains incentivized to minimize costs in order to keep below the fixed amount provided. 

This is a very different scenario than the prohibited cost-plus percentage-of-cost where contractor 

would be incentivized to utilize as many hours and materials as possible since profit increases as 

those costs increase. Thus the method for determining the price of the subcontracts is pertinent and 

the arrangement in the Contract does not create the incentive that is the reason for the prohibition on 

cost-plus-percentage-of-cost type contracts. The two arrangement do not resemble one another. 

OIG Evaluation: It is irrelevant what the agreement is between the subcontractor and contractor 

in terms of reimbursements. Under this contract, money that the contractor pays to the 

subcontractor can be claimed by the contractor as a cost to be reimbursed by EPA. The 

additional 4.00 percent gives the contractor incentive to claim services as subcontracts that 

would otherwise not be. 

13-P-0209 39 
 

 

Appendix G 

Distribution 

Office of the Administrator 

Assistant Administrator for Administration and Resources Management 

Regional Administrator, Region 9 

Agency Follow-Up Official (the CFO) 

Agency Follow-Up Coordinator 

General Counsel 

Associate Administrator for Congressional and Intergovernmental Relations 

Associate Administrator for External Affairs and Environmental Education 

Principal Deputy Assistant Administrator, Office of Administration and Resources Management 

Deputy Regional Administrator, Region 9 

Director, Office of Acquisition Management, Office of Administration and Resources Management 

Contracting Chief, Region 9 

Audit Follow-Up Coordinator, Office of Administration and Resources Management 

Audit Follow-Up Coordinator, Region 9 

13-P-0209 40