Additional Copies 

To obtain additional copies of this report, visit the Web site of the Department of 

Defense Inspector General at http://www.dodig.mil/audit/reports or contact the 

Secondary Reports Distribution Unit at (703) 604-8937 (DSN 664-8937) or fax 

(703) 604-8932. 

Suggestions for Future Audits 

To suggest ideas for or to request future audits, contact the Office of the Deputy 

Inspector General for Auditing at (703) 604-9142 (DSN 664-9142) or fax (703) 

604-8932. Ideas and requests can also be mailed to: 

ODIG-AUD (ATTN: Audit Suggestions) 

Department of Defense Inspector General 

400 Army Navy Drive (Room 801) 

Arlington, VA 22202-4704 

Acronyms 

BPA Blanket Purchase Agreement 

CICA Competition in Contracting Act 

CIFA Counterintelligence Field Activity 

COR Contracting Officer’s Representative 

DFARS Defense Federal Acquisition Regulation Supplement 

DISA Defense Information Systems Agency 

DITSCAP Defense Information Technology Security Certification and 

Accreditation Process 

DOI Department of the Interior 

FAR Federal Acquisition Regulation 

FMR Financial Management Regulation 

FPDS-NG Federal Procurement Data System-Next Generation 

GAO Government Accountability Office 

GSA General Services Administration 

IG Inspector General 

JITC Joint Interoperability Test Command 

MIPR Military Interdepartmental Purchase Request 

NAVSEA Naval Sea Systems Command 

NCR National Capital Region 

O&M Operation and Maintenance 

OMC Open Market Corridor 

QASP Quality Assurance Surveillance Plan 

RDT&E Research, Development, Test, and Evaluation 

SBA Small Business Administration

2 

DISTRIBUTION: 

UNDER SECRETARY OF DEFENSE FOR ACQUISITION, TECHNOLOGY, 

 AND LOGISTICS 

UNDER SECRETARY OF DEFENSE (COMPTROLLER)/CHIEF FINANCIAL 

 OFFICER 

UNDER SECRETARY OF DEFENSE FOR INTELLIGENCE 

ASSISTANT SECRETARY OF THE AIR FORCE (FINANCIAL MANAGEMENT 

 AND COMPTROLLER) 

DIRECTOR, DEFENSE INFORMATION SYSTEMS AGENCY 

DIRECTOR, COUNTERINTELLIGENCE FIELD ACTIVITY 

NAVAL INSPECTOR GENERAL 

AUDITOR GENERAL, DEPARTMENT OF THE ARMY 
Department of Defense Office of Inspector General 

Report No. D-2007-044 January 16, 2007 

(Project No. D2005-D000CF-0276.000) 

FY 2005 DoD Purchases Made Through the 

Department of the Interior 

Executive Summary 

Who Should Read This Report and Why? DoD contracting officials, program 

managers, and financial managers should read this report because it discusses contracting 

and funding issues related to DoD procurements made through an outside agency. The 

audit identified 22 potential violations of appropriation laws. 

Background. This report is one of several reports on DoD purchases made through nonDoD agencies. We performed this audit as required by section 811, “Inspector General 

Reviews and Determinations,” of Public Law 109-163, “National Defense Authorization 

Act for Fiscal Year 2006.” We conducted this audit jointly with the Department of the 

Interior (DOI) Inspector General. The audit focused on whether purchases of goods and 

services made by DOI on behalf of DoD were made in accordance with applicable laws 

and regulations. Specifically, we examined the policies, procedures, and internal controls 

to determine whether DoD had a legitimate need to use DOI, whether DoD clearly 

defined requirements, whether DOI and DoD properly used and tracked funds, and 

whether DOI complied with Defense procurement requirements. 

The audit focused on two DOI contracting centers that procure goods and services for 

DoD: 

• GovWorks, located in Herndon, Virginia, which is a franchise fund authorized by 

the Government Management Reform Act; and 

• Southwest Acquisition Branch, National Business Center, a working capital fund 

located at Fort Huachuca, Arizona. 

In FY 2005, GovWorks and the Southwest Acquisition Branch procured goods and 

services worth $1.66 billion for DoD. 

Results. Both DoD and DOI did not comply with laws and regulations. Specifically, 

DoD and DOI had the following problems. 

• DoD used DOI contracting officials who did not adequately document and 

support that the prices paid were fair and reasonable. Multiple inadequacies 

occurred in the areas of sufficient support for decisions, technical reviews, legal 

views, Government cost estimates, and Government surveillance. Also, 

competition was not usually obtained. Therefore, DoD has no assurance that it is 

obtaining best value for its purchases. Acquisition Executives for the Army, 

Navy, Air Force, and Defense agencies should make program and contracting 

offices aware of recurring deficiencies in the development of independent 
ii 

Government cost estimates, technical evaluations, and price negotiation 

memorandums, and implement an enforcement program that ensures those 

deficiencies do not reoccur (finding A). 

• DoD customers permitted GovWorks to retain and use funds that had expired. 

Violation of the bona fide needs rule and other financial rules resulted in 

22 potential violations of the Antideficiency Act. Additionally, we identified 

about $393 million in potentially expired appropriations that were still on the 

books at GovWorks and being used to purchase goods and services for DoD. The 

Under Secretary of Defense (Comptroller)/Chief Financial Officer should review 

the funds and require all expired funds to be deobligated and returned to the 

treasury (finding B). 

• The Southwest Acquisition Branch and the Naval Postgraduate School 

implemented an Internet-based procurement system, the Open Market Corridor, 

before obtaining security accreditation, reviewing internal controls, performing a 

legal review, or obtaining agency head approval. Further, the Southwest 

Acquisition Branch contracting officer granted contract-ordering authority to a 

DoD employee who issued $135 million in contract awards without having a 

contracting officer warrant. The Under Secretary of Defense for Acquisition, 

Technology, and Logistics should terminate DoD use of the Open Market 

Corridor (finding C). 

• The Counterintelligence Field Activity did not follow the required procedures for 

obtaining leased office space in the National Capital Region. The 

Counterintelligence Field Activity, through GovWorks, obtained a 10-year, 

$100 million lease that violates a myriad of laws including potential violations of 

the Antideficiency Act. The contracting process also circumvented the required 

congressional review for leases of this size. The Deputy Under Secretary of 

Defense for Intelligence should notify the General Services Administration and 

various congressional committees of the violations and form a planning 

committee to explore the best way to remedy the problems. In addition, the 

Counterintelligence Field Activity and its co-tenants should halt payment on the 

lease to avoid further potential violations of the Antideficiency Act. The lease 

may have cost the Counterintelligence Field Activity up to $2.7 million annually 

more than if leased through the General Services Administration (finding D). 

• The Southwest Acquisition Branch contracting officers improperly delegated 

many of their responsibilities to the contracting officer’s representative for 

support contracts for the Joint Interoperability Test Command. As a result, no 

one determined price reasonableness or provided fair opportunity for purchases of 

goods and services under the multiple-award contracts (finding E). 

The DoD internal controls over management of appropriated funds were not adequate. 

We identified a material internal control weakness pertaining to DoD management of 

appropriated funds. We believe that some purchases made by the Counterintelligence 

Field Activity may have intentionally violated the Antideficiency Act. Therefore, we 

referred these matters to the Deputy Inspector General for Investigations for further 

review. 

Based on the severity of the problems at the Southwest Acquisition Branch, we 

recommend the Under Secretary of Defense for Acquisition, Technology, and Logistics 

should not initiate new DoD contracts or orders at the Southwest Acquisition Branch 

until DOI establishes acquisition controls to resolve those problems. The Acquisition 
iii 

Executives for the Army, Navy, Air Force, and Defense agencies also need to make 

program and contracting offices aware of any recurring deficiencies in the development 

of independent Government cost estimates, technical evaluations, and price negotiation 

memorandums, and implement an enforcement program that ensures those deficiencies 

do not reoccur. Other recommendations to the Under Secretary of Defense for 

Acquisition, Technology, and Logistics that will correct deficiencies identified in this 

report are contained in DoD Inspector General Report No. D-2007-007, “FY 2005 DoD 

Purchases Made Through the General Services Administration,” October 30, 2006. 

Recommendations to the Under Secretary of Defense (Comptroller)/Chief Financial 

Officer are included in DoD Inspector General Report No. D-2007-042, “Potential 

Antideficiency Act Violations on DoD Purchases Made Through Non-DoD Agencies,” 

January 2, 2007. Recommendations to DOI are in DOI Inspector General Report No. XIN-MOA-0018-2005, “Audit of FY2005 Department of the Interior Purchases Made on 

Behalf of the Department of Defense,” January 9, 2007. 

Management Comments and Audit Response. The Office of the Under Secretary of 

Defense for Acquisition, Technology, and Logistics; the Under Secretary of Defense 

(Comptroller)/Chief Financial Officer; the Deputy Under Secretary of Defense for 

Intelligence; the Acquisition Executives for the Army, Navy, and Air Force; the Director, 

Defense Information Systems Agency; and the Acting Director, Counterintelligence Field 

Activity provided comments to our draft report. 

The Director of Defense Procurement and Acquisition Policy (Director of Defense 

Procurement), commenting on behalf of the Office of the Under Secretary of Defense for 

Acquisition, Technology, and Logistics, concurred with the recommendations. The 

Director of Defense Procurement stated that DOI provided information indicating that 

DOI has established more vigorous operational practices and procedures to ensure 

actions taken on behalf of DoD are compliant with statute, policy, and regulation. The 

Director requested that we ascertain the results of these corrective actions during our next 

review. The Director of Defense Procurement also stated that because the most recent 

option to extend the contract for the Open Market Corridor was not exercised, 

termination of the use of the Open Market Corridor System was not necessary. 

The Acquisition Executives for the Army, Navy, and Air Force concurred with the 

recommendations. 

The Under Secretary of Defense (Comptroller)/Chief Financial Officer concurred with 

the recommendations. The Acting Deputy Chief Financial Officer identified new policy 

published October 16, 2006, that provides guidance on the need for specificity when 

preparing purchase orders and funding documents. The Comptroller also directed all 

Components to review interagency agreements and coordinate the return of expired funds 

with the outside agency. As of January 2007, the DoD Component reviews have resulted 

in the deobligation of $451.3 million for DoD. Additionally, the Acting Deputy Chief 

Financial Officer stated that they were working with DOI to identify and facilitate the 

return of expired or excess funding. 

The Acting Director of the Counterintelligence Field Activity neither concurred nor 

nonconcurred with the recommendations. The Acting Director questioned whether the 

statutory restrictions were applicable to the Counterintelligence Field Activity. We 

maintain that the CIFA contract is a lease and not a service contract as illustrated by the 

contract language and by the parties involved in the lease. Considering this lease to be a 

service contract could allow any DoD activity to obtain leased space without going 

through the General Services Administration and cause numerous violations of law in 

each instance. 
iv 

The Director for Procurement, Defense Information Technology Contracting 

Organization concurred with the recommendations. The Director stated that Defense 

Information Systems Agency head of the contracting activity is creating a contracting 

branch at the Joint Interoperability Test Command at Fort Huachuca. The Director also 

stated that a September 2005 review by the Defense Information Systems Agency 

Inspector General also concluded that too much authority had been delegated by the DOI 

contracting officer to the Joint Interoperability Test Command contracting officer’s 

representative. 

We request that the Naval Criminal Investigative Service and the Air Force Office of 

Special Investigations provide comments on the final report by February 16, 2007. See 

the Findings section of the report for a discussion of the management comments and the 

Management Comments section of the report for the complete text of the comments.
Table of Contents 

Executive Summary i

Background 1

Objectives 2

Review of Internal Controls 3

Findings 

A. Contracting Problems 4 

B. Funding Issues Relating to the Department of the Interior Contracting 26 

C. Open Market Corridor 40 

D. Contract for Leased Office Space 49 

E. Joint Interoperability Test Command 66 

Appendixes 

A. Scope and Methodology 72 

B. Prior Coverage 74 

C. Department of the Interior Contract Actions Reviewed 77 

D. GovWorks Contracting Problems 84 

E. Southwest Acquisition Branch Contracting Problems 87 

F. Potential Antideficiency Act Violations 89 

G. Report Distribution 100 

Management Comments 

Office of the Under Secretary of Defense for Acquisition, Technology, 

and Logistics 103 

Office of the Under Secretary of Defense (Comptroller)/Chief Financial 

Officer 107 

Office of the Under Secretary of Defense for Intelligence 109 

Department of the Navy 110 

Department of the Air Force 122 

Defense Information Systems Agency 123 

Counterintelligence Field Activity 126 
1 

Background 

We performed this audit to meet requirements of section 811, Public Law 

109-163, “National Defense Authorization Act for Fiscal Year 2006,” January 6, 

2006. Section 811 states: 

“(a) INSPECTOR GENERAL REVIEWS AND DETERMINATIONS.— 

(1) IN GENERAL.—For each covered non-defense agency, the Inspector 

General of the Department of Defense and the Inspector General of such 

non-defense agency shall, not later than March 15, 2006, jointly— 

(A) review— 

(i) the procurement policies, procedures, and internal 

controls of such non-defense agency that are applicable to the 

procurement of property and services on behalf of the Department 

by such non-defense agency; and 

(ii) the administration of those policies, procedures, and 

internal controls; and 

(B) determine in writing whether— 

(i) such non-defense agency is compliant with defense 

procurement requirements; 

(ii) such non-defense agency is not compliant with defense 

procurement requirements, but has a program or initiative to 

significantly improve compliance with defense procurement 

requirements; or 

(iii) neither of the conclusions stated in clauses (i) and (ii) 

is correct in the case of such non-defense agency.” 

This report addresses the Department of the Interior (DOI), one of the nondefense agencies we are required to audit under section 811. Separate audit 

reports will address DoD purchases made through other non-defense agencies: 

the Department of the Treasury, the General Services Administration (GSA), and 

the National Aeronautics and Space Administration. To comply with the 

FY 2006 Defense Authorization Act, the DoD Inspector General (IG) and the 

DOI IG reviewed contract actions made by DOI on behalf of DoD. We reviewed 

contracts at two DOI contracting activities: GovWorks and the Southwest 

Acquisition Branch. 

GovWorks. GovWorks is a franchise fund in Herndon, Virginia, authorized by 

the Government Management Reform Act of 1994 (Public Law 103-356). The 

Interior Franchise Fund was established by Public Law 104-208 and the fund life 

was extended through September 2006 by Public Law 109-115. In October 2005, 

DOI transferred GovWorks, which was part of the DOI Minerals Management 

Service, to the DOI National Business Center. 
2 

Southwest Acquisition Branch. The Southwest Acquisition Branch, National 

Business Center, is part of a working capital fund authorized by section 1467, 

title 43, United States Code (43 U.S.C. 1467). The Southwest Acquisition Branch 

is located at Fort Huachuca, Arizona. The contracting center was initially known 

as the Directorate of Contracting Mission Team and was operated by the U.S. 

Army Intelligence Center and Fort Huachuca. The contracting center was 

transferred from DoD to DOI on January 14, 2001. Although the Southwest 

Acquisition Branch is a working capital fund and may choose to operate under 

working capital rules, it has elected to operate under the Economy Act. 

Therefore, Government customers to the Southwest Acquisition Branch must 

follow special rules pertaining to the Economy Act provided in the Federal 

Acquisition Regulation (FAR) Subpart 17.5. 

Interagency Purchases Through DOI. During FY 2005, DOI awarded 16,017 

purchases totaling $2.6 billion for other governmental activities. Of those 

purchases, GovWorks and the Southwest Acquisition Branch on behalf of DoD 

awarded 8,784 contract actions (purchases) valued at $1.66 billion. Of the 

8,784 contract actions, 49 were awarded from existing DoD contracts. Contract 

actions awarded on behalf of DoD represent about 55 percent of the purchases 

awarded by DOI on behalf of others. Table 1 shows FY 2005 interagency 

purchases made through DOI. 

Table 1. FY 2005 Interagency Purchases Made Through DOI

Contracting 

Center 

FY 2005 

DoD 

Purchases 

FY 2005 

Total 

Purchases 

FY 2005 DoD 

Dollars 

(in billions) 

FY 2005 

Total Dollars 

(in billions) 

Southwest 

Acquisition 

Branch

2,034 (46%) 4,443 $0.731 (60%) $ 1.210 

GovWorks 6,750 (58%) 11,574 0.929 (67%) 1.377 

Total 8,784 (55%) 16,017 $1.660 (64%) $ 2.587 

We reviewed 49 DOI contracts actions awarded during FY 2005 for purchases 

valued at $277.1 million. The 49 contracts from which the contract actions were 

awarded had an estimated value of $2.9 billion. Of the 49 contracts reviewed, 25 

were for products and 24 were for services. See Appendix C for a list of contracts 

reviewed. For each contract reviewed, we reviewed selected issues including 

competition involving only one offer, price reasonableness decisions, reviews of 

contractor proposals, Government cost estimates, legal reviews, and Government 

surveillance. We reviewed Government cost estimates, reviews of contractor 

proposals, and Government surveillance only for contracts for services. 

Objectives 

Our overall audit objective was to review DoD procedures for purchases through 

DOI. Specifically, we examined the policies, procedures, and internal controls to 

determine whether DoD had a legitimate need to use DOI, whether DoD clearly
3 

defined requirements, whether DOI and DoD properly used and tracked funds, 

and whether DOI complied with Defense procurement requirements. We also 

examined how DOI accepted and fulfilled the DoD requirements. See 

Appendix A for a discussion of the scope and methodology. See Appendix B for 

prior coverage related to the objectives. 

Review of Internal Controls 

We identified systemic material internal control weaknesses as defined by DoD 

Instruction 5010.40, “Managers’ Internal Control (MIC) Program Procedures,” 

January 4, 2006. Defense Components did not always use the proper 

appropriations and sometimes used appropriated funds that had expired to procure 

goods and services through DOI. These practices potentially violated the 

Antideficiency Act. Additionally, Defense Components did not perform recurring 

reviews of their obligations, as required by the Defense Financial Management 

Regulation, to determine whether the funds could be deobligated. Finally, 

Defense Components did not always define requirements with sufficient 

specificity to meet legal requirements for forming a valid obligation. This 

practice permitted the Military Interdepartmental Purchase Request to be used 

like a deposit slip for a bank rather than a well-defined list of supplies and 

services to be procured. We believe that failure to perform the required 

obligation reviews and the lack of specificity when defining requirements were 

contributing factors to the potential funding violations. We discuss these 

problems in detail in finding B. Implementing Recommendation B. should 

correct these control weaknesses. 
4 

A. Contracting Problems 

In FY 2005, GovWorks and Southwest Acquisition Branch contracting 

offices awarded DoD purchases valued at $1.66 billion that could have 

been awarded by DoD contracting offices. These purchases included 

$592 million that GovWorks awarded from GSA Federal supply 

schedules, and $5 million from existing DoD contracts. For the 49 

contracts reviewed, DOI contracting officials awarded contracts and 

orders for DoD purchases in a sole-source environment, especially for the 

purchase of services. Also, contracting officials did not adequately 

document and support that the prices paid were fair and reasonable. Of 

the 49 contracts reviewed, we identified the following problems: 

• competition involving only one offer (27/491 contracts or 

55 percent), 

• unsupported price reasonableness decisions (25/49 contracts or 

51 percent), 

• inadequate technical review of contractor proposals (19/242 or 

79 percent), 

• inadequate Government cost estimates (22/24 or 92 percent), 

• inadequate legal review (18/49 or 37 percent), and 

• inadequate Government surveillance (23/24 or 96 percent). 

Contracting officials used the competition regulations to justify their 

award decisions after receiving only one offer instead of fostering a 

competitive environment involving head-to-head competition. In three 

instances, contracting officials violated the competition regulations. In 

addition, contracting officials relied on incomplete and cursory reviews of 

contractor-proposed costs to determine that prices paid were fair and 

reasonable. Accordingly, DoD has no assurance that it is obtaining best 

value for purchases awarded by contracting officials. 

Contracting Criteria 

Public Law 98-369, “The Competition in Contracting Act of 1984.” This act 

generally provides that full and open competition should be used when soliciting 

offers and awarding Government contracts. Contracting through the Section 8(a) 

Program is one of the statutory exceptions to the rule requiring full and open 

competition of procurements. 

Public Law 100-656, “The Business Opportunity Development Reform Act of 

1988.” This act states that an acquisition offered under the Section 8(a) Program 

 

1

 49 reviewed, including both products and services. 

2

 24 of the 49 contracts reviewed were for services. 
5 

to the Small Business Administration (SBA) must be awarded on the basis of 

competition if the anticipated award price of the contract (including options) 

exceeds $3 million (for service contracts), and if a reasonable expectation exists 

that at least two Section 8(a) firms will submit offers at a fair market price. 

FAR 19.805, “Competitive 8(a).” This section implements Public Law 100-656. 

Neither Public Law 100-656 nor the FAR excludes indefinite-delivery, 

indefinite-quantity contracts from the $3 million threshold. Competition of orders 

below the competitive threshold is possible with SBA approval. FAR 19.805 also 

permits contracts valued at more than the $3 million competitive threshold to be 

awarded on a sole-source basis if the SBA accepts the requirement on behalf of a 

business owned by an Indian tribe or an Alaskan Native Corporation. 

FAR 16.504(c), “Multiple Award Preference.” This section requires that 

contracting officers must, to the maximum extent practicable, give preference to 

making multiple awards of indefinite-quantity contracts under a single solicitation 

for the same or similar supplies or services to two or more sources. FAR 16.504 

also requires that contracting officers document the decision whether or not to use 

multiple awards in the acquisition plan or contract file. For contracts for advisory 

and assistance services that exceed $10 million and 3 years, contracting officers 

are required to use multiple-award contracts. 

FAR Part 10, “Market Research.” This section requires that agencies use the 

results of market research to determine the sources capable of satisfying the 

agency’s requirements. 

FAR 7.105, “Content of Written Acquisition Plans.” This section states that 

acquisition plans should indicate the prospective sources of supplies and services 

that can meet the DoD requirement. 

FAR 15.404-1, “Proposal Analysis Techniques.” This section states that the 

contracting officer is responsible for evaluating the reasonableness of the offered 

prices.

FAR 15.402, “Pricing Policy.” This section states that contracting officers must 

purchase supplies and services from responsible sources at fair and reasonable 

prices. 

FAR 15.406-3, “Documenting the Negotiation.” This section states that the 

contracting officer must document in the contract file the principal elements of 

the negotiation agreement including documentation of fair and reasonable pricing. 

FAR 13.106-3, “Award and Documentation.” This section states that before 

awarding contracts, the contracting officer must determine that the proposed price 

is fair and reasonable. 

FAR 17.104, “General.” This section states that multiyear contracting is a 

special contracting method to acquire known requirements in quantities and total 

cost not over planned requirements for up to 5 years unless otherwise authorized 

by statute, even though the total funds ultimately to be obligated may not be 

available at the time of contract award. This method may be used in sealed 

bidding or contracting by negotiation. 
6 

The National Defense Authorization Act for Fiscal Year 2002, Section 803, 

(Section 803). Section 803 places more stringent competition requirements for 

contracts for services awarded using Federal supply schedules. It requires 

contracting officials to compete Federal supply schedules orders for purchases of 

services in excess of $100,000 or justify waivers of this requirement. Defense 

Federal Acquisition Regulation Supplement (DFARS) 208.404-70 implements 

Section 803. 

DFARS 208.404-70(d). This section states that a single or multiple blanket 

purchase agreement (BPA) may be established against Federal supply schedules if 

the contracting officer reviews established BPAs no less than annually to 

determine whether the BPA still represents the best value. 

 Market Research 

DoD requiring activities used DOI to purchase products and services normally 

purchased by DoD activities. These purchases included information technology 

hardware, software, and support services, as well as low-dollar purchases of 

military clothing and equipment. See Appendix C for a complete list of items 

purchased. DoD incurs additional costs when using DOI because it pays fees to 

DOI for its services. We reviewed whether DoD had a legitimate need to use 

DOI to make purchases of low-dollar military equipment, the use of DOI to 

purchase products and services from the GSA Federal supply schedules, and the 

use of DOI to purchase items from existing DoD contracts. In all of these 

situations, DoD should have been able to award contracts for these types of 

purchases, which would have been a better business decision. 

Low-Dollar Military Purchases. We reviewed 29 contracts awarded by 

GovWorks, including 13 contracts awarded for low-dollar purchases of military 

equipment. For 12 of these contracts, DoD paid GovWorks a 4-percent fee for its 

services. For one of these contracts, DoD paid GovWorks a 3-percent fee. 

Southwest Acquisition Branch contracting officials also awarded at least two 

low-dollar contracts for the purchases of military-related items under an 

indefinite-delivery, indefinite-quantity contract awarded to Networld Exchange, 

Inc. For those contracts, Networld collected a 2-percent fee from DoD requiring 

activities and then distributed 0.50 percent of the fee to the Naval Postgraduate 

School and 0.25 percent to the DOI National Business Center. See finding C for a 

detailed analysis of audit issues related to the Networld contract. Table 2 lists the 

13 GovWorks and 2 Southwest Acquisition Branch contracts awarded for the 

purchases of low-dollar military items for DoD requiring activities. 
7 

Table 2. Low-Dollar Purchases of Military Items 

DOI Contract Purchase Description Cost DOI Fee 

(percent) 

GovWorks 

40385 Weapons Cleaning Kits $ 3,390.00 4 

43150 Men’s Explosive Handler’s Coveralls 7,650.00 4 

43270 Body Armor 61,112.00 3 

40387 Waterproof Gloves 10,170.00 4 

43280 Goggles and Balaclavas 1,328.00 4 

42985 Waterproof Gloves 13,038.00 4 

41907 Radio Pouches 3,168.00 4 

42912 Body Armor 71,137.60 4 

42981 Tactical Knee and Elbow Pads 604.55 4 

42925 Combat Helmets and Covers 19,740.00 4 

43329 Tactical Knee and Elbow Pads 1,158.60 4 

43349 Duffel Bags 1,369.00 4 

42987 9-Millimeter Pistol Holsters 9,706.20 4 

 

Southwest 

Acquisition Branch

 

NBCHD020037 

Order 1670 Body Armor 15,052.00 2 

NBCHD020037 

Order 1596 Military Clothing 65,120.26 2 

DoD requiring activities should have contracted directly with the vendors for 

these purchases because they were low-dollar purchases and of a type routinely 

made within DoD. Furthermore, it is likely that DoD already has a contract in 

place for items such as body armor, weapons cleaning kits, clothing, and 

9-millimeter pistol holsters. If DoD had used existing DoD contracts, it would 

have avoided DOI fees and could have put the money to better use. 

Purchases From Federal Supply Schedules. GovWorks and Southwest 

Acquisition Branch provided information showing that they awarded $1.66 billion 

of purchases for DoD in FY 2005. This amount included GovWorks purchases of 

$928,778,444.85 and Southwest Acquisition Branch purchases of 

$730,924,804.28. GovWorks used GSA Federal supply schedules for at least 

$550.3 million of its DoD purchases (58.1 percent), and Southwest Acquisition 

Branch used GSA Federal supply schedules for at least $41.7 million 

(5.7 percent) of its DoD purchases. For most of these awards, DoD paid 

GovWorks a 4-percent fee ($22 million). DoD also paid GSA, through the 

contractor, a 0.75-percent fee for the use of its Federal supply schedule. Had 

DoD gone directly to GSA Federal supply schedules, it could have avoided the 

$22.8 million of DOI fees. That money could have been used to increase the DoD 

acquisition workforce or other DoD priority needs. 
8 

For 19 of the 49 contracts we reviewed in detail, valued at $102 million, 

GovWorks and Southwest Acquisition Branch contracting officials used GSA 

Federal supply schedules to make purchases for DoD, including five GSA Federal 

supply schedule blanket purchase agreements. The amount of time and effort 

expended by contracting officials to award the Federal supply schedule orders 

was minimal. The DoD contracting activities could have purchased the products 

and services directly from the schedules via e-Buy. Had DoD requiring activities 

performed market research, they would have also identified the Federal supply 

schedule contracts that DOI used to purchase the items and services. 

Purchases From Existing DoD Contracts. In FY 2005, GovWorks awarded 

49 contract actions, valued at $5 million, from existing DoD contracts. Although 

our sample did not include any of the 49 contract actions, we did evaluate four 

contract actions, valued at $507,727.54. Three of the four orders issued were for 

low-dollar amounts ranging from $22,000 to $29,000. The two DoD contracts 

and four orders are shown in Table 3. 

Table 3. Existing DoD Contracts Used By DOI to Award DoD Purchases 

Contracts and Orders Value DoD Contracting and Requiring Activity 

DABL01-03-D-1009 $ 500,000,000.00 Army Contracting Agency 

 Order 43000 428,532.00 Army Civilian Personnel Regionalization 

 Order 40379 29,316.00 Army Command and Control Support Agency 

 

DAAB15-01-A-1005 BPA (No Value) Army Contracting Agency 

 Order 44214 27,825.04 Deployment Process Modernization Office 

 Order 41019 22,054.50 Walter Reed Army Medical Center 

Order Total $507,727.54 

DoD requiring activities provided various reasons for using GovWorks instead of 

going directly to the DoD contracts. A contracting official at one DoD requiring 

activity stated that its Army contracting office was responding very slowly to 

other actions, especially those involving open market solicitations; the contracting 

official was concerned that they would not be able to award a new contract before 

the existing contract expired. A contracting official at another DoD requiring 

activity stated that: 

We used DOI because they are able to expedite the contracting process. 

DOI supported CCSA’s [Command and Control Support Agency] 

ability to operate continuously through time sensitive equipment 

purchases in an environment when DoD contract specialists appeared 

to be overwhelmed with numerous actions. 

A contracting official at another DoD requiring activity stated that it had stopped 

using its DoD contracting office because the office did not have enough 

contracting people to handle the requirements. Had contracting officials at DoD 

requiring activities performed adequate market research, they should have been 

able to identify the existing DoD contracts as DOI did. However, based on the 

statements of contracting officials at the DoD requiring activities, they would not 

have used DoD contracting offices even if they identified the existing DoD 

contracts. Although DoD contracting offices may be overburdened with work, 
9 

paying DOI a fee to use DoD contracts does not make good business sense. A 

better solution would be to increase the staff or the numbers of DoD contracting 

offices. Figure 1 illustrates how the process worked. 

Figure 1. DOI Use of DoD Contracts for DoD Requirements 

Competition Involving Only One Offer 

Of the 49 contracts reviewed, 27 contracts were awarded when only one offer was 

received. GovWorks and Southwest Acquisition Branch contracting officials 

used a variety of contracting approaches to award DoD purchases. These 

included awards to Section 8(a) contractors, the use of GSA BPAs and Federal 

supply schedule orders, multiple-award orders, and full and open competition 

awards. Regardless of the approach used, DOI contracting officials consistently 

awarded contracts in a sole-source environment after only obtaining one offer. 

Competition involving only one offer and price reasonableness problems occurred 

more for the purchases of services than for products at both GovWorks and 

Southwest Acquisition Branch. Price reasonableness problems for service 

contracts occurred because of the absence of detail in DoD reviews of 

contractor-proposed costs and independent Government cost estimates. Table 4 

shows the types of contracts DOI used, how many we reviewed, and the number 

of contracts that had only one offer. 
10 

Table 4. Contracts Awarded as a Result of One Offer

Contract Type Contracts Reviewed Only One Offer 

Section 8(a) Awards 9 (Including 2 Orders 

Under One Contract) 

9 

GSA Federal Supply Schedule 

Orders 

14 6 

GSA Federal Supply Schedule 

BPAs 

5 3 

Multiple-Award Orders Task Orders 4 Task Orders 2 

Open Market Purchases 12 5 

Open Market Corridor Purchases 5 2 

Total 49 27 

Section 8(a) Awards. No competition occurred for 9 of the 49 DOI contracts 

reviewed because the contracts were awarded to Section 8(a) contractors. Public 

Law 98-369, “The Competition in Contracting Act of 1984,” states that full and 

open competition should be used when soliciting offers and awarding 

Government contracts. Contracting through the Section 8(a) Program is one of 

the statutory exceptions to the rule requiring full and open competition of 

procurements. 

Public Law 100-656, “The Business Opportunity Development Reform Act of 

1988,” implemented under FAR 19.805, “Competitive 8(a),” states that an 

acquisition offered under the Section 8(a) Program to the SBA must be awarded 

on the basis of competition if the anticipated award price of the contract 

(including options) exceeds $3 million (for service contracts), and if a reasonable 

expectation exists that at least two Section 8(a) firms will submit offers at a fair 

market price. FAR 19.805 permits contracts valued at more than $3 million to be 

awarded on a sole-source basis if the SBA accepts the requirement on behalf of a 

concern owned by an Indian tribe or an Alaskan Native corporation. Contracting 

officials awarded four of the eight Section 8(a) contracts to Alaskan Native 

corporations and one contract to a tribally-owned company. Neither Public Law 

100-656 nor the FAR excludes indefinite-delivery, indefinite-quantity contracts 

from the $3 million threshold. Competition of orders below the competitive 

threshold is possible with SBA approval. 

Southwest Acquisition Branch contracting officials awarded two Section 8(a) 

contracts each valued at exactly $3 million. No competition occurred under these 

contracts. Contracting officials justified their decision not to compete two of 

these contracts because, according to the Small Business Act as implemented by 

FAR Part 19, competition among Section 8(a) contractors does not have to occur 

until the contract value exceeds $3 million. Documentation for one of these 

contracts stated: 

This requirement is being issued as an 8(a) directed contract. In 

accordance with FAR 19.805-1, a sole source contract that does not 

exceed the 8(a) competitive threshold may be awarded to an 8(a) 

concern that has been accepted by the Small Business Administration. 
11 

Shortly after award, the value of one of these contracts exceeded the $3 million 

threshold. Southwest Acquisition Branch contracting officials awarded 

contract NBCHD050038 on September 1, 2005, for $3 million. On September 2, 

2005, Southwest Acquisition Branch contracting officials awarded task 

order 0001, valued at $2,994,992.00. On September 30, 2005, they awarded task 

order 0002, valued at $99,500.00. 

Although Southwest Acquisition Branch contracting officials did not violate the 

regulations, they could have competed those two contracts among Section 8(a) 

companies. Table 5 lists the eight Section 8(a) contracts reviewed. 

Table 5. Section 8(a) Awards 

Contract Type of Company Purchase 

Description 

Value 

(millions) 

1435-04-03-RC-73024 Section 8(a) Alaskan 

Native Corporation 

Building Lease $ 1.6 

1435-04-03-RC-70941 Section 8(a) Alaskan 

Native Corporation 

Building Lease 100.0 

NBCHD050016 Service-Disabled Veteran 

Business Enterprise 

Telecommunication 

Equipment 

3.0 

NBCHD020092 Section 8(a) TriballyOwned Corporation Products, Services, 

Studies, Systems 

Development 

200.0 

NBCHD010004 Section 8(a) Alaskan 

Native Corporation 

Information 

Technology Systems 

Engineering 

Assistance 

100.0 

NBCHC050072 Section 8(a) Step-Enabled 

Software Toolset 

1.8 

NBCHD050038 Section 8(a) Small 

Disadvantaged HawaiianNative-Owned 

Computer Systems 

Design Services 

3.0 

NBCHD040033 Section 8(a) Alaskan 

Native Corporation 

Hardware, Software, 

Technical Support 

Services 

200.0 

Total $609.4 

GSA Federal Supply Schedule Orders. The National Defense Authorization 

Act for Fiscal Year 2002, Section 803, places more stringent competition 

requirements on contracts for services awarded using Federal supply schedules. It 

requires contracting officials to compete Federal supply schedule orders for 

purchases of services in excess of $100,000 or justify waivers of this requirement. 

DFARS 208.404-70 implements Section 803. 

Of the 49 contracts reviewed, 14 were GSA Federal supply schedule orders, 

including 11 orders issued by GovWorks and 3 orders issued by Southwest 

Acquisition Branch. For 3 of the 11 orders, GovWorks obtained only one offer, 

including one order for which GovWorks contracting officials did not comply 

with Section 803 competition requirements. Southwest Acquisition Branch 
12 

contracting officials obtained only one offer for each of the three GSA Federal 

supply schedule orders they awarded, including two orders for which they did not 

comply with Section 803 requirements. We questioned the following three 

Federal supply schedule orders. 

Federal Supply Schedule Order 71705. On February 4, 2003, 

GovWorks contracting officials awarded order 71705 for the purchase of 

management support services. The value of the order was $608,663.28. 

Modification 0005, dated December 22, 2004, added $640,242.48 to exercise 

option year 2. GovWorks sent a request for quote to three GSA schedule holders 

and received only one proposal. According to DFARS 208.404-70(c), for the 

acquisition of services valued more than $100,000, if three offers are not received, 

contracting officials should have determined and stated in writing that no 

additional contractors could be identified despite reasonable efforts to fulfill the 

work requirements. The contract file did not contain documentation clearly 

explaining the efforts to obtain offers from at least three contractors. 

Federal Supply Schedule Order NBCHF030277. On April 28, 2003, 

contracting officials awarded order NBCHF030277 for the purchase of technical 

support services. The value of the order was $2,005,925. Modification 0011, 

dated September 2, 2005, added $132,983.99 of incremental funding to the 

contract. Southwest Acquisition Branch awarded the order on a sole-source basis 

citing FAR 16.505(b)(2)(ii) and 6.302-1, stating that only one awardee was 

capable of providing the supplies or services required at the level of quality 

required because the supplies or services ordered are unique or highly specialized. 

Although DFARS 208.404-70(b) allows competition to be waived based on 

FAR 16.505(b)(2)(ii), this exception does not seem to apply to this particular 

purchase. In December 2005, DOI Southwest Acquisition Branch contracting 

officials decided not to exercise a contract option and instead recompeted the 

contract. We commend the contracting officials for recompeting the contract. 

Federal Supply Schedule Order NBCHF040500. On September 27, 

2004, Southwest Acquisition Branch contracting officials awarded 

order NBCHF040500, valued at $10,157,346, for the purchase of 

performance-oriented training services for the U.S. Army Quartermaster Center 

and School. Modification 0003, dated September 26, 2005, added $195,000 of 

incremental funding to the contract. Contracting officials competed this purchase 

by submitting the request for quote to contractors under the GSA Advantage 

Logworld contract, a Federal supply schedule contract that helps Federal agencies 

procure comprehensive logistics solutions to enhance or replace existing 

operations. The contracting officer stated the following in a memorandum 

regarding competition: 

Received statement of work on 24 Aug 2004 to submit proposal on 

GSA Advantage/Logworld Contract. RFQ [request for quote] 56454 

was submitted and only one contractor from the Logworld sent quote. 

The quote was transmitted to the client at US Army Quartermaster at 

Fort Lee, VA. Was evaluated and client suggested that [contractor] 

was evaluated and accepted to meet the Governments requirements. 

According to DFARS 208.404-70(c), for the acquisition of services valued more 

than $100,000, if three offers are not received, contracting officials should have 

determined in writing that no additional contractors could be identified despite 
13 

reasonable efforts to fulfill the work requirements. The documentation should 

clearly explain the efforts to obtain offers from at least three contractors. The 

contract file did not contain documentation explaining the efforts to obtain offers 

from three contractors as required by DFARS 208.404-70(c). 

GSA Federal Supply Schedule Blanket Purchase Agreements. Contracting 

officials awarded 5 of the 49 contracts reviewed as GSA Federal supply schedule 

BPAs. GovWorks awarded four of the BPAs and Southwest Acquisition Branch 

awarded one BPA. For BPAs 1435-04-05-BP-41582 and 1435-04-05-BP-40699, 

GovWorks contracting officials issued the request for quote through e-Buy, the 

GSA electronic quote system. Contracting officials complied with the 

competition regulations despite receiving only one offer because DFARS 

208.404-70(C)(2) states that e-Buy is one medium for providing fair notice to all 

contractors. 

For BPAs 1435-04-04-BP-32178 and 1435-04-04-BP-32200, awarded in 

October 2003, another GovWorks contracting official made two awards after 

initially receiving three offers. In September 2005, the contracting official 

decided not to issue any further work under these BPAs because having only two 

companies on the BPAs would not satisfy future competition requirements. We 

commend this contracting official for promoting a competitive environment. 

We reviewed BPA NBCHA010033, awarded on June 4, 2001, as part of our 

review of modification 0002 issued under order 0024 on December 17, 2004. 

Competition involving more than one offer did not occur for this BPA. 

Documentation in the files states: 

Competition was conducted by reviewing Schedule 70, SIN [special 

item number] 132-51, of the GSA contract number GS-35F-0323J and 

comparing prices of the listed vendors. 

In addition to no competition, the estimated cost of BPA NBCHA010033 

increased significantly. The original not-to-exceed amount was $1 million when 

BPA NBCHA010033 was awarded on June 4, 2001. However, as of 

November 2004, the total amount obligated was $116.5 million. In addition, the 

period of performance for BPA NBCHA010033 was open-ended. The period of 

performance is discussed in detail later in the report. 

In addition, on March 18, 2005, the contracting officer’s representative performed 

a review of the BPA and stated that he did not see any evidence of compliance 

with Section 803. We also believe the award of BPA NBCHA010033 was 

inappropriate and not in compliance with Section 803. On March 30, 2006, a 

Southwest Acquisition Branch contracting supervisor stated that the contracting 

officer decided in late 2004 not to issue any further orders under BPA 

NBCHA010033. Table 6 identifies the BPAs reviewed. 
14 

Table 6. Blanket Purchase Agreements Awarded for DoD Purchases 

Blanket Purchase 

Agreement Number 

Award 

Date 

Estimated 

Value 

(in millions) 

Period 

(in years) 

Competition 

GovWorks 

1435-04-05-BP-41582 2/25/05 $ 29.0 5 1 Offer 

1435-04-05-BP-40699 1/28/05 103.6 5 1 Offer 

1435-04-04-BP-32178 

1435-04-04-BP-32200 

10/08/03 

10/29/03 

No Value 

Established

5 

5 

3 Offers 

2 Awards 

 

Southwest 

Acquisition Branch 

NBCHA010033 6/4/01 1.0 Indefinite 1 Offer 

Had GovWorks contracting officials made awards directly from the Federal 

supply schedules instead of using BPAs, competition would have occurred for 

each order awarded instead of only once when the BPA was awarded. 

Contracting officials did not always provide an adequate rationale for using 

BPAs, which limit competition. For example, according to documentation in the 

contract files, the benefit of using a BPA was to: 

Eliminate contracting and open market costs such as: the search for 

sources; the development of technical documents and solicitations; and 

the evaluation of bids and offers. 

That documentation suggests that contracting officials viewed competition and 

price reasonableness efforts as obstacles to the contract award process rather than 

ways to obtain products and services at fair prices. 

Use of Multiple-Award Contracts. FAR 16.504 requires that contracting 

officers must, to the maximum extent practicable, give preference to making 

multiple awards of indefinite-quantity contracts under a single solicitation for the 

same or similar supplies or services to two or more sources. FAR 16.504 also 

requires that contracting officers document the decision whether or not to use 

multiple awards in the acquisition plan or contract file. For contracts for advisory 

and assistance services that exceed $10 million and 3 years, contracting officers 

are required to use multiple-award contracts. 

Of the 49 contracts reviewed, 4 contracts were part of multiple-award 

arrangements. GovWorks contracting officials awarded three of the contracts and 

Southwest Acquisition Branch awarded one contract. However, GovWorks and 

Southwest Acquisition Branch each awarded four non-multiple-award contracts 

that may have been suitable for multiple-award contracts. None of these eight 

questionable non-multiple-award contracts had documentation in the contract files 

showing that contracting officials had evaluated whether these contracts were 

suitable for multiple-awards. Table 7 shows the eight contracts that may have 

been suitable for multiple awards, including the five BPAs discussed in the 

previous section. 
15 

Table 7. Contracts Suitable for Multiple Award 

Contract Contract 

Value 

(millions) 

Purchase Description Period of 

Performance 

(in years) 

GovWorks 

40699 

GSA BPA 

$103.6 Professional Engineering Services 5 

32200 

GSA BPA 

None Environmental Advisory Services 5 

32178 

GSA BPA 

None Develop Geospatial Representations 

of Naval Installation Boundaries 

5 

41582 

GSA BPA 

29.0 Contractor Support Services for the 

Defense Logistics Enterprise 

Services Program 

5 

Southwest 

Acquisition Branch 

 

NBCHF040532 

GSA Federal Supply 

Schedule Order 

38.6 Contractor Support Services for 

Business Processes 

5 

NBCHD030003 

Full & Open 

46.0 Personnel Security Research and 

Development Services 

10 

NBCHA010033 

GSA BPA 

1.0 Consultation, Facilitation, and 

Survey Services 

Indefinite 

NBCHC050174 

Full & Open 

39.0 Technical, Engineering, and 

Administrative Support Services 

5 

Open Market Purchases. Of the 49 contracts reviewed, 12 were awarded on the 

open market, including 5 contracts awarded after only one offer was received. 

GovWorks contracting officials awarded 4 of the one-offer open market contracts 

and Southwest Acquisition Branch awarded 1 of the one-offer open market 

contracts. 

Contract Periods of Performance Beyond 5 Years. Four of 20 Southwest 

Acquisition Branch contracts reviewed had periods of performance in excess of 

5 years. These awards resulted in a single contractor retaining the work for up to 

15 years or more. Table 8 lists these contracts. 
16 

Table 8. Contracts for Services With Performance Periods 

Greater Than 5 Years 

Contract Date Awarded Period of 

Performance 

(in years) 

Purchase Description 

NBCHD030003 February 11, 

2003 

10 Personnel Security Research 

and Development Services 

NBCHA010033 June 4, 2001 Indefinite Consultation, Facilitation, and 

Survey Services 

NBCHD020037 July 8, 2002 15 Research and Development 

for Development of Electronic 

Storefront 

NBCHC020001 

NBCHC020002 

NBCHC020003 

(Multiple-Award) 

October 9, 2001 8 Administrative, Testing, and 

Engineering Support 

On May 7, 2005, contracting officials awarded task order 0004, valued at 

$2,338,155.00, under contract NBCHD030003, awarded on February 11, 2003, 

valued at $46 million. Southwest Acquisition Branch contracting officials stated 

that they could award the contract for a 10-year period of performance because 

the requirements were unknown. The acquisition plan for the contract states that 

contracting officials did not have to follow the procedures for multiyear 

contracting under FAR Part 17. The acquisition plan states: 

After consulting FAR Part 17, the multi-year methodology of 

contracting is not applicable to this acquisition, as the quantity to be 

obtained cannot be defined. FAR 17.104 states that multi-year 

contracting is a special contracting method to acquire known 

requirements in quantities and total cost not over planned requirements 

for up to five years unless otherwise authorized by statute. The 

services to be purchased for this requirement will be obtained through 

the issuance of task orders against the basic contract. The requirements 

and quantities are not known, and cannot be accurately estimated at this 

time therefore multi-year contract does not apply. 

Southwest Acquisition Branch contracting official’s rationale for the 10-year 

period of performance was not justified because extremely long contracts 

precludes flexibility in meeting changes in the marketplace. Further, the only 

offer received was from the incumbent contractor, who had been providing the 

services for the previous 5 years under an expiring contract. The acquisition plan 

states: 
17 

[DoD requiring activity] has awarded previous contracts to obtain 

research and development support in the areas described in paragraph 

1.b. above. The current contract was awarded via full and open 

competition to [contractor] for an estimated value of $25,000,000, and 

a performance period of five-years. The current contract expires in 

June 2003. 

For BPA NBCHA010033, awarded on June 4, 2001, the period of performance 

was initially open-ended. The contract files stated, “this BPA will continue for 

the duration of the [contractor] contracts, and any modifications there to.” Based 

on that description, the BPA could continue indefinitely as long as the Federal 

supply schedule was extended. As of September 3, 2004, the period of 

performance was through September 30, 2004, and ultimately extended to 

March 31, 2009. Contracting officials decided in late 2004 not to issue any 

further orders under BPA NBCHA010033. 

For contract NBCHD020037, awarded to Networld on July 8, 2002, we reviewed 

five orders awarded in FY 2005. Southwest Acquisition Branch contracting 

officials created a long-term sole-source environment with Networld under this 

contract. The 15-year contract period for contract NBCHD020037 was unusually 

long. Contractors other than Networld are not likely to receive future awards 

because Networld developed Open Market Corridor and is maintaining the 

system. See finding C for information on other problems with 

contract NBCHD020037. 

Contract files for NBCHC020001, NBCHC020002, and NBCHC020003, part of a 

multiple-award arrangement awarded on October 1, 2001, did not explain the use 

of an 8-year period of performance. 

Until DOI contracting officials base their price reasonableness determinations on 

the results of detailed analyses, there is no assurance that DoD customers are 

obtaining products and especially services at a fair and reasonable price. 

Price Reasonableness Decisions 

Contracts for services tended to have more problems with price reasonableness 

than did the contracts for products. Of the 49 contracts reviewed, 24 were for the 

purchases of services and 25 were for products. For 20 of the 24 contracts for 

services and 5 of the 25 contracts for products, contracting officers did not 

adequately document and support that the prices paid were fair and reasonable. 

GovWorks contracting officials did not adequately document and support price 

reasonableness decisions for 10 of 29 contracts reviewed. Eight contracts were 

for services and two contracts were for products. Contracting officials obtained 

only one offer for 9 of the 10 contracts. Southwest Acquisition Branch 

contracting officials did not adequately document and support price 

reasonableness decisions for 15 of 20 contracts reviewed. Twelve contracts were 

for services and three contracts were for products. Contracting officials obtained 

only one offer for 13 of these contracts. 
18 

At both GovWorks and Southwest Acquisition Branch, contracting officials based 

price reasonableness decisions on brief statements and cursory reviews of 

contractor-proposed costs by DoD requiring activities instead of on detailed 

analyses of contractor-proposed costs. Contracting officials also accepted 

independent Government cost estimates developed by DoD requiring activities 

that did not adequately explain the basis for the estimates. Price reasonableness 

problems occurred more frequently on contracts for which only one offer was 

received. 

Review of Contractor Proposals 

For 19 of 24 contracts for services, DoD requiring activities and DOI performed 

incomplete technical reviews of contractor proposals. Of the nine GovWorks 

contracts for services, eight contained incomplete reviews of contractor proposals. 

Of the 15 Southwest Acquisition Branch contracts for services, 11 contained 

incomplete reviews of contractor proposals. Table 9 provides some examples of 

cursory reviews performed of contractor-proposed costs. 
19 

Table 9. Review of Contractor Proposals 

Contracts and 

Orders 

Contract 

Value 

(millions) 

Cursory Review 

NBCHD030003 

Order 0004 

$ 2.3 Technical evaluation for order 0004 consisted of an email from the DoD requiring activity to the DOI 

contracting officer, which stated, “Approved.” 

NBCHA010033 

Order 0024 

10.1 Technical evaluation for order 0024 consisted of an email from the DoD requiring activity to the DOI contract 

specialist, which stated, “I have read the proposal and 

cost estimate and approve. I will be sending the MIPR 

tomorrow.” 

NBCHF040500 10.2 Technical evaluation consisted of an e-mail from the 

DoD requiring activity stating: “The technical evaluation 

of the RFQ [request for quote] for the employ of 

instructors, admin, IT [information technology] armorers, 

and Logistics Warrior personnel for employment at the 

QMC&S [Quartermaster Center and School] is 

acceptable. Award the contract to [contractor]” 

41582 

Order 42525 

28.0 Could not locate technical evaluation for order 42525. 

However, the award decision document stated: “The 

technical evaluation was based on the BPA evaluation 

and a quick review of the quote by [Contractor] for this 

task order was conducted by the COTR [contracting 

officer’s technical representative] and was determined to 

be acceptable. . . ” 

NBCHF030277 2.0 Technical evaluation consisted of an e-mail stating: “I 

concur with [contractor’s] cost proposal and believe it is 

the best value for the support that Systems Engineering 

requires.” 

Regardless of the contract value, technical evaluations of contractor proposals for 

services that we questioned consisted of brief statements and short e-mails 

containing general statements. When evaluations mentioned costs, they focused 

on labor rates and labor categories, and not labor hours. DOI contracting officials 

should have asked DoD requiring activities to provide more detail instead of 

accepting the prices and awarding the contracts. DoD requiring activities need to 

place more emphasis on documenting and supporting their reviews of 

contractor-proposed costs.

Independent Government Cost Estimates 

For 22 of 24 contracts for services, DoD requiring activities developed 

incomplete and inadequate estimates. Independent Government cost estimates 

usually consisted of lists of labor rates, labor categories, and labor hours with no 

explanation of how DoD requiring activities developed the estimates. One 

estimate did not have a list of labor rates or hours. Instead, the unsigned, undated 
20 

estimate consisted only of a list of labor categories along with dollar values 

related to each labor category. Despite the lack of detail in these estimates, 

contracting officials awarded the contracts. DoD requiring activities need to 

place more emphasis on documenting and supporting information contained in 

independent Government estimates. 

Legal Reviews 

A DOI memorandum from the Office of the Secretary, dated February 2, 2001, 

requires that the Office of the Solicitor perform legal reviews for all proposed 

solicitations in excess of $500,000 for noncommercial items and in excess of 

$2 million for commercial items. The memorandum also requires legal review for 

all proposed negotiated contractual documents prior to award on acquisitions in 

excess of $500,000. The documents submitted for review should include but are 

not limited to technical and price negotiation memorandums, the proposal of the 

successful offeror, any audits or waivers of audit, and the independent 

Government cost estimate. 

The DOI National Business Center decided not to comply with this policy. A 

DOI National Business Center report, “Acquisition Management Review for 

Acquisition Services Division Southwest Acquisition Branch,” April 30, 2003, 

stated: 

The DOI Acquisition Regulation (DIAR), as amended by the 

Department of the Interior Acquisition Policy Release (DIAPR) 2001-

3, establishes Department wide legal review standards for acquisitionrelated documents. The office made a conscious decision not to 

comply with the stated policy because the Solicitor’s office was unable 

to provide timely service to them. This is not to say that there was a 

complete absence of solicitor review, but it was considerably less than 

the Departmental regulation anticipated. Arrangements have been 

made for a dedicated solicitor to be assigned to their office, so the 

problem should be alleviated within the next six months. In addition, 

they asked that consideration be given to raising the review thresholds 

applicable to their office since the dollar values of their work are much 

higher that the rest of the Department. 

It is interesting to note that part of the solution to the problem of untimely service 

by the solicitor’s office was to increase the legal review thresholds. 

On May 5, 2006, the Minerals Management Service Chief, Policy and Acquisition 

Information Systems Branch issued a memorandum to the Assistant Director, 

GovWorks Directorate, National Business Center. The memorandum states that 

DOI does not require its Office of the Solicitor to conduct a legal review of any 

DOI delivery or task order issued under any indefinite-delivery, 

indefinite-quantity contract. The chief also states that he researched the entire 

legal review policy and it does not require any type of legal review on any 

delivery or task order issued under a Federal supply schedule. 

DOI did not perform legal reviews for 18 of 49 contracts reviewed, valued in 

excess of $500,000. These included nine Federal supply schedule orders and nine 

indefinite-delivery, indefinite-quantity orders valued at more than $500,000. 
21 

According to the May 5, 2006, Minerals Management Service Chief, Policy and 

Acquisition Information Systems Branch memorandum, DOI legal reviews were 

not required. Table 10 identifies some of the Federal supply schedule and 

indefinite-delivery, indefinite-quantity orders GovWorks and Southwest 

Acquisition Branch awarded even though DOI had not performed legal reviews of 

them. 

Table 10. Examples of DOI Contracts Awarded Without Legal Review 

Contract Contract Type Value 

(in millions) 

GovWorks 

 41582/Order 42525 GSA BPA Federal Supply Schedule 

Order 

$28.0 

40699/Order41801 GSA BPA Federal Supply Schedule 

Order 

 9.4 

32178/Order 73545 GSA BPA Federal Supply Schedule 

Order 

 1.5 

1435-04-02-CT85531/Order 43387 Indefinite-Delivery, 

Indefinite-Quantity 

Multiple-Award Order 

 3.9 

 

Southwest Acquisition 

Branch 

 

NBCHF030277 GSA Federal Supply Schedule 

Order 

2.0 

NBCHF040532 GSA Federal Supply Schedule 

Order 

38.6 

NBCHF040500 GSA Federal Supply Schedule 

Order 

10.2 

NBCHA010033/Order 0024 GSA BPA Federal Supply Schedule 

Order 

10.1 

NBCHD020092/Order 0116 Indefinite-Delivery, 

Indefinite-Quantity 

4.2 

NBCHD030003/Order 0004 Indefinite-Delivery, 

Indefinite-Quantity 

2.3 

NBCHD010004/Order 0049 Indefinite-Delivery, 

Indefinite-Quantity 

6.9 

When GovWorks and Southwest Acquisition Branch legal officials did review 

contracts, the reviews were documented by signature of the person making the 
22 

review but contained no explanation or details about potential legal issues 

identified during the legal review. 

Government Surveillance 

We questioned the adequacy of Government surveillance for 23 of the 

24 contracts for services reviewed. DFARS 201.6, “Contracting Authority and 

Responsibilities,” states that contracting officers may designate qualified 

personnel as their authorized representatives to assist in either technical 

monitoring or administration of a contract. It also states that a contracting 

officer’s representative must be designated in writing. Contract files for 3 of the 

24 service contracts reviewed did not have contracting officer’s representative 

letters. Contract files for 9 of the 24 contracts had contracting officer’s 

representative letters that were not signed by the contracting officer and the 

contracting officer’s representative. 

Quality Assurance Surveillance Plan Requirements. Twenty-three of the 

24 service contracts reviewed did not have quality assurance surveillance plans 

(QASP). FAR 46.103, “Contracting Office Responsibilities,” states: 

Contracting offices are responsible for receiving from the activity 

responsible for technical requirements any specifications for 

inspection, testing, and other contract quality requirements essential to 

ensure the integrity of the supplies or services (the activity responsible 

for technical requirements is responsible for prescribing contract 

quality requirements, such as inspection and testing requirements or, 

for service contracts, a quality assurance surveillance plan). 

According to FAR Subpart 46.4, “Government Contract Quality Assurance,” a 

QASP should be prepared in conjunction with preparation of the statement of 

work. The QASP should specify all work requiring surveillance and the method 

of surveillance. FAR Subpart 46.4 states: 

Government contract quality assurance shall be performed at such 

times (including any stage of manufacture or performance of services) 

and places (including subcontractors’ plants) as may be necessary to 

determine that the supplies or services conform to contract 

requirements. Quality assurance surveillance plans should be prepared 

in conjunction with the preparation of the statement of work. The 

plans should specify – (1) All work requiring surveillance; and (2) The 

method of surveillance. 

A QASP enables thorough and comprehensive monitoring of contractor 

performance. A QASP is used to measure contractor performance and ensure that 

the Government receives the quality of services called for under the contract, 

paying only for services received in accordance with the terms of the contract. 

Acquisition Executives for the Army, the Navy, and the Air Force, and Defense 

agencies should provide adequate training to requiring activity personnel on 

preparing QASPs. 

Documentation. Defense Procurement and Acquisition Policy recognizes the 

importance of adequately documenting pricing actions and the problems that can 
23 

occur as a result of poor documentation. In its Contract Pricing Guide, dated 

September 16, 2002, Defense Procurement and Acquisition Policy states: 

Need for Good Documentation. Good documentation is essential to 

good contracting. As time goes on, you forget times, dates, persons 

involved, and other elements that are important in all aspects of 

contracting and pricing in particular. 

While fresh in your mind, you should document: 

• Events; 

• Actions; and 

• Decisions. 

Problems from Poor Documentation. Lack of good documentation can 

create serious problems. Since you will not always be available to 

explain what you did, or why, other contracting personnel will not 

know what happened, or about any special circumstances that may 

have affected your decisions. If your files lack proper documentation: 

• Other contracting personnel may take the time to accomplish 

an action or make a decision that you have already completed. 

These actions or decisions may conflict with yours. 

• Legal advisors and management review teams may question 

your action of lack or action because they do not have all of 

the relevant information. 

• You will find that the lack or documentation is generally 

treated as a lack of action. If it is not documented, it never 

happened. 

Contributing Factors Related to Contracting Deficiencies 

Although contracting officials placed a high priority on obtaining customer 

satisfaction, they did not foster a competitive environment, demonstrate that the 

prices paid for DoD purchases were fair and reasonable, or adequately document 

contract files. Using the competition regulations to justify awards based on one 

offer was the rule rather than the exception, and price reasonableness 

determinations were based on incomplete and cursory reviews of contractor 

proposals. 

Recommendations, Management Comments, and Audit 

Response 

The majority of the recommendations to help solve the deficiencies identified in 

finding A are included in DoD Inspector General Report No. D-2007-007, 
24 

“FY 2005 DoD Purchases Made Through the General Services Administration,” 

October 30, 2006. 

A.1. We recommend that the Under Secretary of Defense for Acquisition, 

Technology, and Logistics not initiate new DoD contracts or orders at the 

Southwest Acquisition Branch until the Department of the Interior 

establishes a control environment and framework to resolve the contracting 

deficiencies. 

Under Secretary of Defense for Acquisition, Technology, and Logistics 

Comments. The Director, Defense Procurement and Acquisition Policy 

commented on behalf of the Under Secretary of Defense for Acquisition, 

Technology, and Logistics. He concurred with the recommendation. The 

Director stated that the amount of work performed at the Southwest Branch on 

behalf of the Military Departments had decreased significantly from FY 2005 to 

FY 2006. This decrease was due in part to the decision to proceed with new work 

at the Southwest Branch only on a selective basis. The Director stated that DoD 

has received information from DOI which documents that earlier this year, DOI 

established an aggressive corrective action plan to address and resolve identified 

contracting deficiencies within the National Business Center Southwest 

Acquisition Branch. DOI took specific action to rescind contracting officer 

warrants and performed assessments of each contracting officer’s work products. 

After a comprehensive internal and independent review of each contracting 

officer’s work, DOI took action to issue warrants to qualified contracting 

officers. The information provided indicates that they have established more 

vigorous operational practices and procedures to ensure actions taken on behalf of 

DoD are compliant with statute, policy, and regulation. The Director requested 

that we ascertain the results of these corrective actions during our next review.

Audit Response. The Director’s comments are responsive. We commend the 

Director and DOI for initiating corrective actions to address the serious problems 

that the joint audits found. As requested, we will evaluate the results of those 

corrective actions during our next review. 

A.2. We recommend that Acquisition Executives for the Army, Navy, Air 

Force, and Defense agencies make program and contracting offices aware of 

any recurring deficiencies in the development of independent Government 

cost estimates, technical evaluations, and price negotiation memorandums, 

and implement an enforcement program that prevents those problems from 

reoccurring. 

Army Comments. The Deputy Assistant Secretary of the Army (Policy and 

Procurement) concurred with the recommendation. 

Navy Comments. The Deputy Assistant Secretary of the Navy (Acquisition 

Management) concurred with the recommendation. He stated that the Assistant 

Secretary of the Navy (Financial Management and Comptroller) and the Assistant 

Secretary of the Navy (Research, Development, and Acquisition) had participated 

in an interdepartmental working group to develop financial management policy 

for Non-Economy Act orders. The guidance stresses that development and 

review of proposed Non-Economy Act procurement requests is a collaborative 

effort of program, comptroller, and contracting personnel. Implementing this 
25 

financial management policy on Non-Economy Act orders will inform program 

personnel of their roles and responsibilities under Non-Economy Act acquisitions. 

Air Force Comments. The Assistant Secretary of the Air Force (Acquisitions) 

concurred with the recommendation. The Assistant Secretary stated that Air 

Force users of interagency acquisitions must provide independent Government 

estimates and should participate in technical evaluations as required for each 

acquisition. Air Force Contracting and Air Force Finance will issue an updated 

Air Force Military Interdepartmental Purchase Request (MIPR) guide in early 

2007. The guide will address audit concerns by requiring that a contracting 

analyst and a financial analyst review all MIPRs for compliance with acquisition 

and financial policies and procedures. Additionally, the Assistant Secretary stated 

that she would issue a memorandum reiterating the importance of compliance 

with applicable policies and regulations when using MIPRs. Further, Air Force 

Acquisition will implement the corrective actions put forth by the Under 

Secretary for Defense for Acquisition, Technology, and Logistics in its response 

to this draft report. 

Audit Response. The Army, Navy, and Air Force comments are responsive to 

the recommendation.
26 

B. Funding Issues Relating to the 

Department of the Interior Contracting 

DoD and DOI did not always follow the bona fide needs rule when 

acquiring goods and services with 1-year operation and maintenance 

(O&M) funds. DoD activities “banked” funds at DOI for future use and 

did not deobligate the funds after they were no longer needed or had 

expired. GovWorks routinely used the expired funds to purchase DoD 

requirements. In some cases, GovWorks used expired funds to obtain 

goods and services 4 years after the funds expired. Overall, we identified 

up to $393 million in expired DoD appropriations still on GovWorks 

accounting records. DoD fund managers should review and deobligate 

these appropriations. Use of appropriated funds after they expired and 

bona fide needs rule violations resulted in 22 potential Antideficiency Act 

violations on the 49 contracts we reviewed. 

Funding Criteria 

Bona Fide Needs Rule. Appropriations are available for limited periods. An 

agency must incur a legal obligation to pay money within an appropriation’s 

period of availability. If an agency fails to obligate funds before they expire, they 

are no longer available for new obligations. Expired funds retain their “fiscal 

year identity” for 5 years after the end of the period of availability. During this 

time, the funds are available to adjust existing obligations or to liquidate prior 

valid obligations. However, expired funds are not available for new obligations 

nor can they be used to purchase new requirements. 

Appropriations are available only for the bona fide needs of an appropriation’s 

period of availability (31 U.S.C. 1502(a)). The bona fide needs rules states: 

The balance of an appropriation or fund limited for obligation to a 

definite period is available only for payment of expenses properly 

incurred during the period of availability, or to complete contracts 

properly made within that period of availability and obligated 

consistent with section 1501 of this title. However, the appropriation 

or fund is not available for expenditure for a period beyond the period 

otherwise authorized by law. 

Antideficiency Act. Congress passed the Antideficiency Act to curb the fiscal 

abuses that frequently created “coercive deficiencies” that required supplemental 

appropriations. The Antideficiency Act consists of several statutes that mandate 

administrative and criminal sanctions for the unlawful use of appropriated funds 

[31 U.S.C. 1341, 1342, 1350, 1351, and 1511-1519]. These statutory provisions 

enforce the Constitutional budgetary powers entrusted to Congress with respect to 

the purpose, time, and amount of expenditures made by the Federal Government. 

Violations of other laws may trigger violations of Antideficiency Act provisions 

(for example, the “bona fide needs rule,” 31 U.S.C. 1502(a)). Knowing and 

willful violators are subject to fines and imprisonment for up to 2 years. 

DoD Financial Management Regulation Guidance. Annual 

Appropriation Acts define the use of each appropriation and set specific timelines 
27 

for use of the appropriations. However, the DoD Financial Management 

Regulation (FMR), volume 2A, chapter 1, provides guidelines on most commonly 

used DoD appropriations for determining the correct appropriation to use when 

planning acquisitions. 

Expenses and Investments. All costs are classified as either an expense 

or an investment. Expenses are costs of resources consumed in operating and 

maintaining the DoD and typically have an approved threshold of $250,000 for 

expense and investment determinations. Investments are costs to acquire capital 

assets, such as real property and equipment, and have a cost higher than the 

currently approved dollar threshold of $250,000. Costs budgeted in the O&M 

appropriations are considered expenses. Costs budgeted in the procurement 

appropriation are considered investments. Costs budgeted in the research, 

development, test, and evaluation (RDT&E) appropriations include both expenses 

and investments. 

RDT&E Appropriations. Development, test, and evaluation 

requirements, including designing prototypes and processes, should be budgeted 

in the RDT&E appropriations. In general, all developmental activities included in 

bringing a program to its objective system are to be budgeted in RDT&E. 

RDT&E funds are available for obligation for 2 years. 

O&M Appropriations. Expenses incurred in continuing operations and 

current services are budgeted in the O&M appropriations. Modernization costs 

under $250,000 are considered expenses, as are one-time projects, such as 

development of planning documents and studies. O&M funds are available for 

obligation for 1 year. 

Minor Construction. FMR volume 2B, chapter 6 states that an 

unspecified military construction project costing no more than $750,000 may be 

funded from appropriations available for O&M. Minor construction projects 

costing more than $750,000 may not be performed unless 10 U.S.C. 2805 

requirements are met. 

Requirements for Obligation of Funds for Interagency Orders 

When a Government agency orders supplies or services through another agency, 

it must create an obligation that legally defines the items it is procuring and 

obligates agency funds to pay for the procurement. DoD Components generally 

use the Military Interdepartmental Purchase Request (MIPR) (DD Form 448) as 

the obligating document for interagency orders. The obligation must also meet 

several legal and regulatory requirements. 

• An obligation must be definite and certain. [GAO Red Book, volume 

II, page 7-3]. 

• Funds are to be obligated only for the purposes for which they were 

appropriated [31 U.S.C. 1301(a)]. 

• Funds are to be obligated only to satisfy the bona fide needs of the 

current fiscal year [31 U.S.C. 1502(a); DoD FMR, volume 3, chapter 

8, paragraph 080303A]. 
28 

• Funds are to be obligated only if there is a genuine intent to allow the 

contractor to start work promptly and to proceed without unnecessary 

delay [DoD FMR, volume 3, chapter 8, paragraph 080303B].

• Current funds are to be obligated when the Government incurs an 

obligation (or a liability) [DoD FMR, volume 3, chapter 8, paragraph 

080302]. 

• Funds are not to be obligated in excess of (or in advance of) an 

appropriation, or in excess of an apportionment or a formal 

subdivision of funds [31 U.S.C. 1341 and 1517].

The Comptroller General has also held that it is improper to “bank” appropriated 

funds with another agency to cover future year needs.3 

Requirements for Review of Outstanding Obligations and Commitments. 

Defense agencies are required by DoD FMR, volume 3, chapter 8, section 080401 

to perform reviews of unliquidated obligations and commitments three times each 

year: 

Fund holders, with assistance from supporting accounting offices, shall 

review commitment and obligation transactions for timeliness, 

accuracy, and completeness during each of the four month period 

ending on January 31, May 31, and September 30 of each fiscal year. 

Fund holders are DoD officials that receive a documented 

administrative subdivision of funds including apportionments, 

allocations, suballocations, allotments, and suballotments through their 

funding chain of command or from other government departments, 

agencies, and activities holding an administrative subdivision of funds. 

The requirement for reviews of commitments and obligations applies to 

all appropriations and funds of all DoD Components. This requirement 

applies not only to direct appropriations, but also to all reimbursable 

transactions, as well as the Department’s revolving and trust funds. 

DoD Compliance With Fiscal Law and Defense Regulations on 

Specificity of Obligations, Obligation Amounts, and Bona 

Fide Needs 

DoD Components did not always comply with appropriations law when procuring 

goods and services through GovWorks. We found 22 potential Antideficiency 

Act violations, including potential violations of the bona fide needs rule and 

obligating documents that did not have the required level of specificity. 

Additionally, large sums of money were transferred to GovWorks by MIPRs 

without the required support for how the amount of funds was determined and 

with a nonspecific description of goods or services to be acquired. Although the 

DoD agencies have the primary responsibility for compliance with fiscal law, 

 

3

 Implementation of the Library of Congress FEDLINK Revolving Fund, B-288142, September 6, 2001; 

Continued Availability of Expired Appropriation for Additional Project Phases, B-286929, April 25, 

2001. 
29 

certain GovWorks advice to its customers and specified GovWorks procedures 

fostered these practices. 

Requirement for Specificity in Obligations. To establish a valid obligation and 

satisfy requirements in 31 U.S.C. 1501, an agency has to be specific in defining 

its requirements. However, the GovWorks Web site encouraged its customers to 

submit MIPRs with undefined requirements and to use MIPRs primarily as a 

vehicle to transfer funds into an account (bank account) instead of assigning a 

specific requirement to a specific amount. 

The Comptroller General has defined an obligation as “a definite commitment 

which creates a legal liability of the Government for the payment of appropriated 

funds for goods and services ordered or received.” The Comptroller General has 

cautioned that the obligating of appropriations must be “definite and certain” and 

that an advance of funds to a working fund does not in itself serve to obligate the 

funds. The statute requires documentary evidence of a binding agreement for 

specific goods or services. An agreement that fails this test is not a valid 

obligation. The Comptroller General has ruled that a purchase order that lacks a 

description for the products to be provided is not sufficient to create a recordable 

obligation. When the Comptroller General determines an obligation does not 

meet the specificity test, the obligation has been ruled invalid. 

The FAR and DoD FMR have requirements for specificity for Economy Act 

Orders but do not provide specific guidance on franchise fund orders such as 

GovWorks. Nevertheless, we believe that these same rules are applicable. FMR 

volume 11A, paragraph 030401, states that intragovernmental support agreements 

need to be specific, definite, and certain in naming the work encompassed by the 

order and the terms of the order itself. Both FMR volume 11A, paragraph 

030501, and FAR 17.504 require that the ordering official provide a description 

of the supplies and services on the order. 

GovWorks encouraged its customers to describe requirements in general rather 

than specific terms when developing MIPRs as shown in the Project Description 

(see Figure 2). However, when the terms are not specific, they do not meet the 

requirements for a valid obligation and GovWorks will not have the necessary 

detail to immediately process the order as required by DoD FMR, volume 3, 

chapter 8, paragraph 080303B. Also, the sample document encourages customers 

to submit a statement of work if available; the statement of work should be a 

mandatory requirement for acquisition of services to meet the requirement for 

specificity. We reviewed descriptions used for 103 MIPRs that funded 29 

contract actions at GovWorks to determine whether the MIPRs met the specificity 

requirements. Sixty-five (63.1 percent) of the 103 MIPRs did not meet the 

requirement for specificity. For example: 

• Contract action 43270 for the purchase of body armor used a MIPR 

that stated “Funding provided for the procurement and fielding of 

AT/FP [Anti-Terrorism/Force Protection] shipboard equipment 

utilized for the protection of Navy Afloat Assets.” 

• Contract action 41432 for the purchase of three wide-screen plasma 

television screens was based on a MIPR that stated, “Purpose of this 

MIPR is to provide funds for the purchase of DMS [Defense 
30 

Messaging System] equipment through the Pentagon IT [information 

technology] Store.” 

An order should be sufficiently detailed to permit the contracting officer to 

immediately place the order without the need for further customer consultation. 

For supplies, we believe that the description should include a listing of the items, 

with specifications, to be procured. It should also specify the required quantities 

of each item, delivery requirements, and fund citation. For services, the ordering 

official needs to attach a detailed statement of work to the MIPR. 
31 

Figure 2. Sample MIPR From the GovWorks Web Site4

 Used to Help 

Customers Prepare MIPRs

 

4 https://www.govworks.gov/docs/MIPRsample_04122006.pdf
32 

Obligation Amount. The GAO Red Book, volume II, states that the precise 

amount of the Government’s liability should be recorded as the obligation when 

that amount is known. However, an agency’s best estimate should be used when 

the precise amount is not known, and the basis for the estimate must be shown on 

the obligating document. DoD customers did not always supply to GovWorks 

support for the obligation amounts. The MIPRs appeared to be serving as a way 

to transfer funds into a “bank” rather than as a way to place orders. To ensure 

that the MIPR is properly used as an obligating document and not just a means to 

transfer funds, we believe that DoD needs to require that MIPRs be supported by 

an attached Government cost estimate. The Government cost estimate could 

provide the required support for the obligated amount, could be used by the 

contracting officer as partial support for cost reasonableness, and should be 

consistent with the description of the supplies or services being procured. Our 

review of the 29 contracts placed through GovWorks showed that only 37 

(36.3 percent) of the 103 MIPRs funded were within 10 percent of the total listed 

on the MIPR.

Potential Violations of the Bona Fide Needs Rule. Overall, we identified 

22 potential Antideficiency Act violations relating to the 49 contracts reviewed. 

We believe that some of the violations are the result of DoD customers not 

understanding the bona fide needs rule and GovWorks promoting the franchise 

fund as a way to circumvent time limits on the use of appropriated funds. 

Since 1999, GovWorks has advertised to its customers that the customers may use 

appropriated funds submitted to GovWorks until the funds are exhausted, 

irrespective of the appropriation fund period of availability. GovWorks has relied 

on legal opinions from its Solicitor to support that position. Demonstrating this 

position, GovWorks included the following “Frequently Asked Question” on its 

Web site:

4. Is there a legal opinion that supports GovWorks retaining 

project funds in the Interior Franchise Fund until expended or 

bona fide? 

Yes. Under the authority of the Government Management Reform Act 

(GMRA) and guidance from GAO, GovWorks may retain project 

funds obligated by the requesting agency under an order to GovWorks 

for a bona fide need. Project funds are retained until expended. 

[retrieved from the GovWorks Web site www.govworks.gov on May 

18, 2006] 
33 

Similarly, a 1999 GovWorks brochure (Figure 3) emphasized that funds may be 

sent to GovWorks and held until spent. 

Figure 3. Advertisement Brochure From GovWorks

Appendix F identifies the orders that did not follow the bona fide needs rule and 

potentially violated the Antideficiency Act. We found 22 potential violations of 

the bona fide needs rule including 2 potential violations of the purpose statute 

[31 U.S.C. 1301(a)]. 

Many of the bona fide needs rule violations occurred when DoD activities 

transferred funds in bulk to GovWorks using MIPRs that described the 

acquisition only in general terms; then, DoD activities would convey the actual 

requirements to GovWorks via telephone or e-mail well after the date on which 

they submitted the MIPR. We believe the date that the specific requirements 

were conveyed to GovWorks was the date of the requirement—not the date that 

the MIPR was submitted. 

For example, on December 21, 2004, GovWorks contracting officials awarded 

contract 41181, valued at $108,196, for the purchase of decision network 

equipment for the Pentagon Telecommunications Service Center. Instead of 

using FY 2005 O&M funds to pay for this purchase, GovWorks contracting 

officials used portions of funds from four expired O&M MIPRs to fund the 

purchase, including 3 MIPRs in which the funds expired on September 30, 2001, 

and one MIPR in which the funds expired on September 30, 2004. Further, on 

January 18, 2005, GovWorks contracting officials deobligated $26,399.03 from 

one MIPR in which the funds expired on September 30, 2001. GovWorks 

replaced those funds with funds from four other expired O&M MIPRs, including 
34 

one MIPR in which the funds expired on September 30, 2000. Use of FY 2000, 

2001, and 2004 Army O&M funds to satisfy FY 2005 requirements does not meet 

the intent of the bona fide needs rule. Table 11 shows the four MIPRs initially 

used to initially fund contract 41181. Table 12 shows the four additional MIPRs 

used to replace one of the original MIPRs (MIPR1JDIT0N046). Appendix F 

provides more detail on funding issues identified with contract 41181 and other 

contracts reviewed. 

Table 11. MIPRs Initially Used to Fund DOI Contract 411815

MIPR MIPR 

Amount 

MIPR Date Description of Acquisition on 

MIPR 

MIPR1MINTPR070 $ 6,831.30 September 14

, 2001 

“Funds are provided for the 

acquisition of ADP [automatic 

data processing] and supplies 

through the Pentagon IT 

[information technology] store” 

MIPR1JDIT0N046 26,399.03 July 10, 2001 “Funds are provided for the 

acquisition of toner cartridges 

through the Pentagon IT store” 

MIPR1KINTWS058 38,803.30 July 24, 2001 “Funds are provided for the 

acquisition of ADP and 

supplies through the Pentagon 

IT store” 

MIPR4MINTMM125 36,162.37 September 17

, 2004 

“The purpose of this MIPR is to 

provide funds for equipment 

through the Pentagon IT store” 

 Total $108,196.00 

 

5

 Awarded December 21, 2004. 
35 

Table 12. MIPRs Used to Replace MIPR Number MIPR1JDIT0N046 

MIPR MIPR 

Amount 

MIPR Date Description of Acquisition on 

MIPR 

MIPR0MGSAIT092 $ 160.00 September 29

, 2000 

“Funds are provided for the 

acquisition of ADP [automatic data 

processing] products and services 

through the Pentagon IT 

[information technology] store, 

under project number DOI84011” 

MIPR1MITST0074 3,176.76 September 24

, 2001 

“Funds are provided for the 

acquisition of ADP and supplies 

through the Pentagon IT store’ 

MIPR4LINTMM111 11,393.50 August 18, 

2004 

“The purpose of this MIPR is to 

provide funds for equipment 

through the Pentagon IT store” 

MIPR4MINTMM130 11,668.77 September 24

, 2004 

“The purpose of this MIPR is to 

provide funds for the purchase of 

DMS [defense messaging system] 

equipment through the Pentagon 

IT store” 

 Total $26,399.03 

Expired Appropriations at GovWorks 

About $393 million in “banked” DoD funds at GovWorks may have expired. 

DoD Components need to review these funds for possible deobligation to 

preclude their use in future acquisitions that may result in additional violations of 

the bona fide needs rule. 

Summary of Expired Funds. At our request, GovWorks prepared a spreadsheet 

showing outstanding fund balances, by funding document, for all of its customers 

as of October 27, 2005. We filtered the spreadsheet by removing all non-DoD 

customers, funding documents that cited current funds or working capital funds, 

and MIPRs with a balance of $1 or less. About 12.5 percent of the remaining 

transactions had either missing or erroneous information on the appropriations 

used. For those transactions, we identified and excluded MIPRs that had been 

received during FY 2005 and later. Two of the appropriations specified multiple 

periods of availability. The appropriation account sublimits were used to 

distinguish the period of availability. Because GovWorks did not record 

appropriation sublimits in its management system, we could not determine 

whether those funds expired; therefore, we included funds over 1 year as 

potentially expired for those two appropriations. 

The remaining MIPRs appear to be expired funds that DoD fund managers should 

deobligate. Table 13 provides a summary of our analysis. 

On February 17, 2006, we provided the spreadsheet showing expired MIPRs to 

staff of the Deputy Under Secretary of Defense (Comptroller)/Chief Financial 

Officer. The Comptroller’s staff noted that a substantial amount of the funds 
36 

were FY 2005 O&M funds. The staff believed that a significant portion of the 

funding could be orders for services that are still in process and may be 

legitimately used. We agreed that there might be a portion of the funds identified 

that could be legitimately used. However, we disagree with the Comptroller’s 

staff on the potential magnitude without a thorough analysis. The cutoff period 

for the data we obtained was 27 days after the end of the fiscal year, and the 

majority of the purchases by GovWorks were for products instead of services. 

Fund managers should further research the funds listed in the spreadsheet and 

deobligate the funds that have expired. 
37 

Table 13. Summary of Potentially Expired DoD Appropriated Funds on the 

Books at GovWorks as of October 27, 2005 

Appropriation Account and Availability Amount Percent 

Operation & Maintenance (1 Year Appropriation) 

2002 $ 4,016.28 0.0

2003 29,796,230.95 7.6

2004 46,211,939.67 11.7

2005 185,107,140.73 47.1

Other Procurement (3 Years Appropriation) 

2003 574,388.14 0.1

Research, Development, Test, and Evaluation 

(2 Years Appropriation) 

2002 33,628.46 0.0

2003 5,243,082.62 1.3

2004 1,045,824.99 0.3

Family Housing Operation and Maintenance, Navy 

and Marine Corps (1 Year Appropriation) 

2003 42,220.13 0.0

2004 11,817.53 0.0

Defense Health Program, Defense 

2002 9,746.81 0.0

2003 2,384,143.33 0.6

2004 17,244,420.42 4.4

2005 56,790,402.84 14.4

Office of Inspector General 

2004 52,839.00 0.0

2005 1,697.41 0.0

Aircraft Procurement (3 years Appropriation) 

2003 2,310.70 0.0

Blank-Appropriation Account or Invalid Account 

1998 17,842.47 0.0

1999 3,423.95 0.0

2000 234,435.29 0.1

2001 354,613.12 0.1

2002 4,139,278.29 1.1

2003 4,709,446.37 1.2

2004 883,334.33 0.2

2005 38,416,568.70 9.8

Total $393,314,792.53 100.0 
38 

Reviewing Appropriations Three Times a Year. The large sums of expired 

appropriations on GovWorks’ books indicate that DoD Components are not 

performing the reviews three times a year and deobligating appropriations when 

orders have been completed or the funds have expired. To reinforce the 

requirement, the Under Secretary of Defense (Comptroller)/Chief Financial 

Officer released the March 27, 2006, memorandum “Proper Use of Interagency 

Agreements with Non-Department of Defense Entities Under Authorities Other 

Than the Economy Act.” The memorandum directed DoD Components to: 

• review all interagency agreements to determine their status, close out all 

completed agreements, and return all funds remaining on completed 

agreements no later than June 30, 2006; 

• deobligate expired funds unless they meet criteria identified in the prior 

memorandum, “Proper Use of Interagency Agreements for NonDepartment of Defense Contracts Under Authorities Other Than the 

Economy Act,” dated March 25, 2005; 

• mark on future interagency agreement funding documents that funds are 

available for services for period not to exceed 1 year from the date of 

obligation and acceptance of the order, and require the servicing agency 

to return unobligated funds to the ordering activity after 1 year from the 

acceptance of the order or upon completion of the order; 

• certify that the goods acquired under the agreement are legitimate, 

specific requirements representing a bona fide need of the fiscal year in 

which the funds are obligated; 

• attest on obligation reviews three times a year that all existing interagency 

agreements are consistent with DoD policy; and 

• report to the Comptroller’s office on amounts reviewed and deobligated 

no later than July 15, 2006. 

Recommendations, Management Comments, and Audit 

Response 

Recommendations to the Under Secretary of Defense (Comptroller)/Chief 

Financial Officer to initiate preliminary reviews of potential Antideficiency Act 

violations are in DOD Inspector General Report No. D-2007-042, “Potential 

Antideficiency Act Violations on DoD Purchases Made Through Non-DoD 

Agencies,” January 2, 2007. 

B. We recommend that the Under Secretary of Defense (Comptroller)/Chief 

Financial Officer: 

1. Issue guidance to DoD Components on the need for specificity 

when they prepare the Military Interdepartmental Purchase Requests to 

order goods and services.
39 

2. Review the $393 million potentially expired funds and require all 

expired funds to be deobligated and returned to the treasury. 

Under Secretary of Defense (Comptroller)/Chief Financial Officer 

Comments. The Acting Deputy Chief Financial Officer provided comments on 

behalf of the Under Secretary of Defense (Comptroller)/Chief Financial Officer. 

He concurred with Recommendations B.1. and B.2. He stated that policy 

published on the Comptroller’s Web site on October 16, 2006, provides guidance 

on the need for specificity when preparing purchase orders. Additionally, the 

Comptroller had directed all Components to review interagency agreements and 

coordinate the return of excess funds with the outside agency by June 30, 2006. 

As of January 2007, DoD Components have deobligated $451.3 million in 

expired funds. Additionally, the Acting Deputy Chief Financial Officer stated 

that they were working with DOI to identify and facilitate the return of expired or 

excess funding. 

Audit Response. The Acting Deputy Chief Financial Officer’s comments are 

responsive. The Comptroller’s staff told us that the $451.3 million deobligations 

were from all agencies that do procurements for DoD, and the Comptroller office 

could not breakout obligations for DOI. 
40 

C. Open Market Corridor 

The Open Market Corridor (OMC) is an Internet-based contracting system 

developed by a contractor working for the Naval Postgraduate School, 

with contracting support provided by the DOI Southwest Acquisition 

Branch. The OMC was implemented before requirements for security 

accreditation, internal controls, legal review, and agency head approval 

had been satisfied. Additionally, the Southwest Acquisition Branch did 

not adequately oversee the system once it was implemented. As a result, 

activities used the system to award contracts totaling more than 

$238.7 million without adequate reviews. Additionally, the Southwest 

Acquisition Branch granted contract-ordering authority to a lecturer at the 

Naval Postgraduate School who did not have a contracting officer warrant. 

Subsequently, the lecturer, using the OMC, made awards totaling about 

$135 million on behalf of the Naval Postgraduate School and other Army, 

Navy, and Air Force activities. 

Requirements for Implementing an Internet-Based 

Procurement System 

FAR Subpart 4.5, “Electronic Commerce in Contracting,” encourages the Federal 

Government to use electronic commerce whenever practicable or cost-effective. 

However, before an automated system can be brought on-line, several steps have 

to be completed to ensure that system has the proper security, internal controls, 

legal sufficiency, and approval to operate. These steps are necessary to ensure 

that the system operates as designed and data and controls have a reduced risk for 

compromise. 

Security Accreditation. DoD Instruction 5200.40, “DoD Information 

Technology Security Certification and Accreditation Process (DITSCAP),” 

December 30, 1997, establishes a standard DoD-wide process, set of activities, 

general tasks, and a management structure to certify and accredit information 

systems.6

 DITSCAP protects and secures information systems and other elements 

that make up the Defense Information Infrastructure. The instruction applies to 

DoD Components, their contractors, and their agents. It implements requirements 

of the Computer Security Act of 1987 (Public Law 100-235); Office of 

Management and Budget Circular 130, “Management of Federal Information 

Resources”; and other DoD instructions. 

Internal Controls. Management controls are the organization, policies, and 

procedures used to reasonably ensure that: 

• programs achieve their intended results; 

• resources are used consistent with agency mission; 

 

6

 On July 6, 2006, the DoD Chief Information Officer issued the “Interim Department of Defense (DoD) 

Information Assurance (IA) Certification and Accreditation (C&A) Process Guidance,” which 

superseded the DITSCAP. 
41 

• programs and resources are protected from waste, fraud, and 

mismanagement; 

• laws and regulations are followed; and 

• reliable and timely information is obtained, maintained, reported, and used 

for decision-making. 

The Office of Management and Budget Circular A-123, Federal Managers’ 

Financial Integrity Act (Public Law 97-255); the Federal Financial Management 

Improvement Act (Public Law 101-576); Federal Information Security 

Management Act of 2002; Chief Financial Officers Act of 1990; and “Standards 

for Internal Control in the Federal Government,” Report No. 

GAO/AIMD-00-21.3.1, November 1999, require sound internal controls. 

Legal Sufficiency. FAR 1.602-2 states that contracting officers must ensure 

performance of all necessary actions for effective contracting, ensure compliance 

with the terms of the contract, and safeguard the interests of the United States in 

its contractual relationships. To perform these responsibilities, contracting 

officers have wide latitude to exercise business judgment but are required to 

request and consider the advice of specialists, including legal staff, as appropriate. 

Approval to Operate an Internet-Based Accounting System. FAR 4.502(b) states that agencies have broad discretion in selecting the hardware 

and software used for electronic commerce. However, after consulting with the 

Administrator of the Office of Federal Procurement Policy, the agency head must 

determine that the system conforms with requirements of section 30 of the Office 

of Federal Procurement Policy Act (41 U.S.C. 426) and specific standards 

identified in FAR 4.502(b) before deploying electronic commerce systems. 

Other Compliance Requirements. Office of Management and Budget Circular 

A-127, “Financial Management Systems,” July 30, 1993, states that financial 

management systems and processing instructions must be clearly documented in 

accordance with the Federal Financial Management Systems Requirements 

published by the Joint Financial Improvement Program and other applicable 

requirements. All documentation (for example, software, system, operations, user 

manuals, operating procedures) must be up to date and readily available for 

examination. Acquisition systems such as the OMC should conform to 

requirements in “Acquisition/Financial Systems Interface Requirements,” Joint 

Financial Improvement Program, report number JFMIP-SR-02-02, June 2002. 

Contracting for the Development and Operation of the OMC 

OMC operates under contract number NBCHD020037, an indefinite-delivery, 

indefinite-quantity contract awarded by the Southwest Acquisition Branch on 

July 18, 2002, to Electronic-Co, Inc., which does business as Networld Exchange 

(Networld). The OMC system began as a research project sponsored by the 

Naval Postgraduate School in Monterey, California, to streamline the Federal 

acquisition process. The OMC contract was competed in compliance with FAR 

Part 15. 
42 

Because Networld developed the OMC system at its own expense, the contract 

made Networld eligible for a fixed-price percentage fee of 1.25 percent of each 

award made through OMC. The contract also states that the Naval Postgraduate 

School and DOI will receive 0.50 percent and 0.25 percent respectively, on each 

of the awards. The Southwest Acquisition Branch has contracting authority for 

the OMC, but the contracting officer has the authority and option to delegate 

administrative contract authority to any Federal Government employee with a 

contracting warrant. The OMC contract will extend to the year 2017 if the 

Southwest Acquisition Branch exercises all contract options. 

The OMC contract can be used to procure commercial products or services as 

defined in FAR Part 12. Networld is the prime contractor, and any vendor that 

signs up to sell its goods or services through the OMC becomes a subcontractor to 

Networld. All contractors who have registered in the central contractor 

registration database are eligible to become subcontractors to Networld. As of 

August 2006, OMC had 952 participating vendors and 120 Government activities 

registered to make purchases through OMC. Participating vendors received 

contracts totaling $131.1 million during FY 2005 from both DoD and non-DoD 

business. 

OMC Problems 

We reviewed five DoD orders placed through the OMC in detail, the overall 

operations of the system, and the documentation available for the system. 

Additionally we surveyed other acquisitions made through the system by 

administrative ordering officers approved by DOI Contracting Officer and for 

whom DOI contracting officer was to provide oversight. 

DOI and the Naval Postgraduate School did not complete many of the required 

steps before bringing the system on-line. The DOI contracting officer did not 

adequately oversee the system and transactions processed through the system. 

Security Accreditation. The Naval Postgraduate School had not performed the 

required DoD Information Technology Security Certification and Accreditation 

Process (DITSCAP) prior to deploying the OMC. DITSCAP is a process that 

helps ensure systems operate at an acceptable level of risk. DITSCAP 

certification is typically required for connection to DoD and other Federal 

systems, networks, and applications. Security is important to an acquisition 

system because of the need to provide confidentiality, maintain continuity of 

operations, and ensure integrity of the data. 

Internal Controls. Neither the Naval Postgraduate School nor DOI evaluated 

internal controls prior to deploying the OMC. We observed weaknesses in system 

documentation, internal control procedures, and in operation of the system. 

Additionally, the Southwest Acquisition Branch did not adequately oversee the 

system. 

Documentation. Neither the Southwest Acquisition Branch nor the Naval 

Postgraduate School could provide system documentation for the OMC. System 

documentation of dataflow and control points within the system is needed to 

facilitate internal control reviews of the system. 
43 

Vendor Selection and Bid Period. The OMC permitted ordering officers 

to select which vendors would receive solicitations. Participating OMC vendors 

could not see the solicitations posted in the OMC unless they were a designated 

recipient of the solicitation; therefore, vendors had no opportunity to protest if 

they believed they were not given a fair opportunity to participate in a 

solicitation. Additionally, the OMC did not have built-in restrictions on how 

short of a period vendors were given to respond to the solicitations. Contracting 

officers are required by FAR 5.203(b) to provide a reasonable opportunity to 

respond to a solicitation. Unreasonable response times limit competition. Some 

OMC awards were made within hours of the solicitation. 

Separation of Duties. The OMC permitted the ordering officer to select 

the list of eligible vendors and conduct the solicitation. The contracting officer’s 

role was to ratify the actions taken by the ordering officer. Accordingly, the 

ordering officer could influence the award process by restricting eligible vendors. 

Additionally, the ordering officers performed functions normally performed by a 

contracting officer. 

Oversight. Initially, the contracting officer, who was responsible for 

overseeing the system, was unable to provide a list of either the customers or 

participating vendors who were using the system, or information on orders being 

placed through the system, other than orders she had placed. After inquiring with 

Networld and the Naval Postgraduate School, the contracting officer learned that 

she could obtain that information from the on-line system. The lack of 

continuous monitoring of the solicitations made through the OMC was an internal 

control weakness. 

Contracting Practices. Inadequate oversight and other internal control 

weaknesses contributed to what we believe were abusive contracting practices: 

• Sixteen vendors to the OMC appeared to be Government employees or 

firms that appeared to be affiliated with Government employees. 

Awards to Government employees are prohibited by FAR Subpart 3.6 

and may result in violations of criminal statutes pertaining to 

Government ethics. 

• Sole-source awards did not have required justifications. 

• Awards were made to vendors that did not appear to be vendors for the 

commodities being sought. For example: 

- A contract for office furniture was awarded to a company that did 

not appear to be a furniture dealer, while another participating 

vendor that specialized in office furniture sales, Office Depot, was 

not given an opportunity to bid on the solicitation. The company 

that received the award did not have a commercial address, and the 

company’s central contractor registration did not indicate that it 

was a furniture dealer. The solicitation did not identify the type 

and quantity of furniture items being procured. 

- An order for armor protection for use on Army military vehicles 

located in combat zones was awarded to a Section 8(a) vendor 

specializing in software development and building construction. 
44 

The solicitation did not include any technical specifications for the 

armor protection, and the proposal did not identify a manufacturer. 

Staff of the Army Tank-automotive and Armaments Command 

told us that the company was not a recognized dealer in armor 

protection for military vehicles. Because the solicitation lacked 

specifications and the proposal did not identify the manufacturer, 

we could not determine whether the purchase created a safety issue 

for military personnel who relied on the armor for protection. 

• Fair and reasonable prices were not paid for all purchases. We 

reviewed specified purchases and compared prices paid to vendors 

through the OMC with suggested retail prices and prices available 

through GSA schedules and found what we believed was overpricing. 

We referred selected transactions to the DoD Deputy Inspector General for 

Investigations and the Navy Acquisition Integrity Office for further review. 

Certain matters were subsequently referred to the Naval Criminal Investigative 

Service and the Naval Audit Service. 

Legal Review of OMC Contract. The Southwest Acquisition Branch did not 

obtain a legal review of the OMC prior to deploying the system. After the system 

was deployed, the Deputy Assistant Secretary of the Navy for Acquisition 

Management requested that DOI review legal issues pertaining to the OMC. 

Subsequently, the DOI Solicitor did a legal review on October 3, 2002, and 

identified several deficiencies that needed to be corrected. However, as of 

August 2006, the contracting officer has not addressed the legal deficiencies. In 

addition, we believe that the OMC contract raises several other complex legal 

issues that have not been adequately recognized or addressed. 

• Because the OMC contract required Networld to develop the OMC 

system at its own cost and did not require the Government to purchase 

a minimal amount or to make any commitment on its part, the contract 

may not be enforceable. For the contract to be binding, the minimum 

quantity in the contract must be more than a nominal quantity. 

• Because the Networld contract treated all participating vendors as 

subcontractors to Networld, the legal authority for the Government to 

oversee any transactions made through the OMC is unclear. The FAR 

is not likely to apply to such transactions. Instead, competition 

between subcontractors is traditionally under the purview of the prime 

contractor, not the Government, and is subject to applicable State 

laws. This situation also raises questions on the ability of participating 

vendors to successfully protest unfair competitions because the 

Government generally declines to get involved with disputes between 

prime contractors and its subcontractors. 

• Ordering agencies are precluded from making procurements from a 

performing agency that fails to comply with the Competition in 

Contracting Act (CICA) when contracting for a requirement 

[10 U.S.C. 2304(f)(5)(B); 41 U.S.C. 253(f)(5)(B)]. Executive 

agencies cannot contract without providing full and open competition 

unless one of the statutory exceptions listed in FAR 6.302 applies. 

Contracts awarded without full and open competition must cite the 
45 

applicable statutory exception. Because the level of competition under 

the OMC is restricted to the 952 participating vendors, and even those 

vendors do not have access to all the solicitations, and because none of 

the solicitations we reviewed cited exceptions to the CICA, we do not 

believe that the OMC complies with CICA requirements. 

• FAR 2.101(b) states that the General Services Administration Web site 

FedBizOpps.gov is to be the single Government point-of-entry for 

Federal Government procurement opportunities over $25,000. The 

OMC did not comply with requirement. 

• The contract with Networld had options to extend the contract until the 

year 2017. We understand the desire of the Southwest Acquisition 

Branch to provide adequate incentives for Networld to participate in 

the venture because Networld developed the system at its own 

expense. However, the contract period seemed excessive and had no 

mechanism for other vendors to compete against Networld in future 

years. This issue is discussed in further detail in finding A. 

• The legal model for Networld as a prime contractor with participating 

vendors as subcontractors precludes contracting officers from 

incorporating standard and optional contract clauses into the individual 

orders awarded through the OMC. Contract clauses apply to the prime 

contractor and the FAR has no mechanism to make contract clauses 

applicable only to specific subcontractors. Contract clauses, when 

used appropriately, can protect both the Government’s and the 

contractor’s interest by clearly defining the terms and conditions of the 

solicitation. Additionally, permitting Networld to serve as a prime 

contractor for the broad array of supplies and services processed 

through the system did not appear to be within the scope of the 

contract. The contract was for Networld to implement and manage an 

Internet-based electronic storefront. 

• The Networld contract did not have provisions requiring that data 

records pertaining to the solicitations be retained or protected as 

prescribed by FAR Subpart 4.7. 

Approval to Operate the OMC. Neither the Southwest Acquisition Branch nor 

the Naval Postgraduate School obtained approval from the agency head as 

required by FAR 4.502(b) before deploying the OMC. The Naval Postgraduate 

School told us that the President of the school had approved its operation. DOI 

senior acquisition management overseeing the Southwest Acquisition Branch told 

us that they were not aware that the system existed. 

Procurements by the Naval Postgraduate School 

In August 2003, a lecturer at the Naval Postgraduate School applied to the OMC 

contracting officer for ordering officer authority under that contract. The 

contracting officer knew that the lecturer did not have a contracting officer 

warrant. However, because the lecturer had graduated from law school and had 

training equivalent to that required of a contracting officer, the contracting officer 
46 

granted the lecturer ordering authority, with a $5 million limit on each 

transaction. The contracting officer then decided in May 2005 to revoke the 

lecturer’s ordering authority, citing the fact that he did not have a contracting 

officer warrant as the reason for the revocation. 

During his appointment, the lecturer awarded 1,616 contract actions totaling 

almost $135 million through the OMC on behalf of the Naval Postgraduate 

School and all of the Services. Table 14 summarizes the awards made by the 

lecturer. 
47 

Table 14. Awards Made by a Naval Postgraduate School Lecturer Who 

Lacked a Contracting Officer Warrant 

Activity Award Amount

Air Force Real Property Agency $ 1,136,403.60 

Air Force Directorate of Strategic Planning-AF/XPX 1,529,690.28 

Army Base Realignment and Closure Office 546,221.20 

Army Central Technical Support Facility 569,070.30 

Army National Guard, California 172,459.96 

Army Office of Economic Manpower Analysis 10,131,687.74 

Combating Terrorism Center 103,255.00 

Commander, Naval Surface Force, Atlantic Fleet 249,532.80 

Commander, Navy Installations 5,884,142.66 

Commander, Navy Region Southwest 288,815.96 

Commander, Submarine Force, Atlantic Fleet 59,670.00 

Commander, U.S. Army Dugway Proving Ground 25,000.00 

Commander, U.S. Pacific Fleet 153,245.00 

Fleet Numerical Meteorology and Oceanography Center 18,456,075.48 

Fort Leavenworth Directorate of Installation Support 22,075,977.94 

Headquarters, 3rd Brigade, 91st Division 931,179.41 

Headquarters, Fifth U.S. Army 2,203,112.28 

Headquarters, Marine Corps 78,336.00 

Headquarters, U.S. Army Europe 117,300.00 

Joint Special Operations University 10,812.20 

Marine Corps Air Station, Yuma, Arizona 151,136.58 

Naval Air Depot, North Island 350,000.00 

Naval Facilities Engineering Command 5,624,878.19 

Naval Health Research Center 688,852.77 

Naval Postgraduate School 35,791,077.42 

Naval Special Warfare Command 8,142,801.07 

Naval Strike and Air Warfare Center 2,151,834.99 

Naval Weapons Station Seal Beach 46,331.00 

Navy Public Works Center 365,254.96 

Office of Naval Intelligence 250,000.00 

Office of the Under Secretary of Defense for Personnel and Readiness 300,000.00 

Space and Naval Warfare Systems Command, Tampa 7,240,711.49 

U.S. Army Engineer District, Sacramento District 239,686.56 

U.S. Central Command Air Force 8,073.50 

U.S. Army 222d Base Support Battalion 757,723.14 

U.S. Army Garrison, Hawaii 4,754,053.71 

U.S. Army Heidelberg Germany 2,807,560.82 

U.S. Naval Ship Repair Facility 268,506.17 

U.S. Army Medical Department Center and School 113,147.84 

 Total $134,773,618.02 

Making purchases without a contracting warrant violates FAR 1.601. The awards 

made by the lecturer were not posted to the DD-350 system or the Federal 
48 

Procurement Data System as required by FAR Subpart 4.6; therefore, DoD and 

DOI acquisition managers, the Office of Management and Budget, the Congress, 

and the public had limited ability to oversee these contracts. We referred the 

procurements made by the lecturer to the Navy Acquisition Integrity Office for 

further review. 

Actions by Management 

On January 27, 2006, and February 13, 2006, we briefed the Naval Postgraduate 

School and the Southwest Acquisition Branch on the issues. Both the Southwest 

Acquisition Branch and the Naval Postgraduate School agreed to stop processing 

new orders using the OMC until corrective actions had been taken. In 

March 2006, the Naval Postgraduate School took the OMC offline and initiated 

the DITSCAP through the Space and Naval Warfare Systems Command. On 

August 29, 2006, the DITSCAP certification was completed. We commend 

management for taking action to correct the security accreditation problem; 

however, DoD should not continue to manage or use the OMC system because of 

the serious legal issues and other problems we found. 

Recommendation, Management Comments, and Audit 

Response 

C. We recommend that the Under Secretary of Defense for Acquisition, 

Technology, and Logistics terminate DoD use of the Open Market Corridor 

system. 

Under Secretary of Defense for Acquisition, Technology, and Logistics 

Comments. The Director, Defense Procurement and Acquisition Policy 

provided comments on behalf of the Under Secretary of Defense for Acquisition, 

Technology, and Logistics. He concurred in principle with the recommendation. 

The Director stated that because the most recent option to extend the contract for 

the Open Market Corridor (July 2006) was not exercised and no new orders can 

be placed against that contract, terminating the use of the Open Market Corridor 

System was not necessary. 

Audit Response. The Director’s comments are responsive to the 

recommendation. 
49 

D. Contract for Leased Office Space 

The Counterintelligence Field Activity (CIFA) did not follow the required 

procedures for obtaining office space in the National Capital Region 

(NCR)7

 before deciding to contract for leased space through the 

GovWorks. As a result, its 10-year, $100 million lease was obtained 

through a Section 8(a) contractor rather than the General Services 

Administration as required by law. CIFA violated a myriad of statutes 

including potential violations of the Antideficiency Act, and precluded the 

required congressional review and approval process. The potential 

Antideficiency Act violations stemmed from lack of authority to enter the 

lease and lack of authority to alter the building, violation of the bona fide 

needs rule, purpose violations, and obligations of appropriations for future 

years. Additionally, other Government components who leased excess 

space from CIFA also had committed potential Antideficiency Act 

violations. Furthermore, two GSA appraisals of the CIFA lease 

determined that CIFA may have paid up to $2.7 million more per year 

than it would have cost if CIFA had obtained the same space through 

GSA. Finally, the SBA determined that the contractor did not meet the 

required size standards for the SBA and announced that it intends to 

terminate the lease contract. The resulting dilemma is that CIFA cannot 

make payments on its leased space without potentially violating the 

Antideficiency Act, finding alternate suitable space capable of handling 

CIFA special security requirements may take years, and its existing lease 

could be terminated by SBA at any time. 

Lease of Office Space for the Counterintelligence Field 

Activity 

We reviewed two contracts awarded by GovWorks to TKC Communications on 

behalf of CIFA. 

Contract 1435-04-03-RC-70941 was for a 10-year lease of commercial office 

space in Arlington, Virginia. The contract included monthly rent and other direct 

costs for a monthly facilities lease with nine option years. The award summary 

showed total price of $96,411,630; however, the contract amount was only 

$2,029,082. 

Contract 1435-04-03-CT-73024, initially awarded for $1,615,439, was for 

transition activities to include relocation of contractor staff and Government 

furnished equipment within buildings. The amount of the original contract was 

increased to $16,937,035. 

The contractor for the lease, TKC Communications, Inc., was a Section 8(a), 

Alaskan Native Corporation contractor. Alaskan Native Corporations have a 

special status among Section 8(a) contractors. Under 13 Code of Federal 

 

7

 The NCR includes the District of Columbia; Montgomery and Prince George’s Counties in Maryland; 

Arlington, Fairfax, Loudoun, and Prince William Counties and the cities of Alexandria and Falls Church 

in Virginia; and all cities and other units of Government within those jurisdictions. 
50 

Regulations (C.F.R.), section 124.506(b), Alaskan Native Corporations can 

receive sole-source contracts without having to compete for the award; they are 

not subject to the competition requirements under FAR 19.805. TKC 

Communications fulfilled the contract requirements by entering a lease agreement 

with Charles E. Smith and Company, which owned the office space in Arlington, 

Virginia, and subleasing that space to CIFA under a contract between DOI and 

TKC Communications. The lease contract also included charges for space 

alterations made by the TKC Communications for CIFA at the beginning of the 

lease. 

DoD Requirements for Obtaining Office Space in the National 

Capital Region 

DoD Directive 5110.4, “Washington Headquarters Services (WHS),” October 19, 

2001, paragraph 7.4, makes the Washington Headquarters Services the principal 

DoD liaison with GSA for all administrative services and real property matters, 

including lease administration and enforcement in the NCR. DoD Instruction 

5305.5, “Space Management Procedures, National Capital Region,” June 14, 

1999, is the applicable guidance for obtaining space within the NCR and 

prescribes procedures for obtaining space. Space requests are to be submitted 

through the Washington Headquarters Services. DoD Instruction 5305.5 states 

that requests for space that exceed the Prospectus Threshold Authority, which the 

CIFA lease did, normally require about 3 years to process because of the need for 

coordination with GSA and the Office of Management and Budget, and the need 

for congressional approval. 

Authority to Enter Lease 

The 41 C.F.R. Part 101 (known as the Federal Property Management Regulation) 

gives the GSA exclusive authority for leases. Title 10 U.S.C. 2676, “Acquisition: 

Limitation,” precludes Military Department leases without specific statutory 

authority. 

 (a) No military department may acquire real property not owned by the 

United States unless the acquisition is expressly authorized by law. . . 

Meeting With GSA. On October 28, 2005, we met with the GSA Director, 

Leasing Policy and Performance Division about the TKC Communications 

contract. He told us that his office had not issued a delegation of procurement 

authority to CIFA for this project and that congressional approval would be 

needed to approve a lease of this size. He believed the TKC Communications 

contract was a lease under the guise of a service contract. He told us that GSA 

would not be willing to ratify the CIFA action. 

Legal Review of the Contract for Lease. The DOI Solicitor performed a legal 

review of the TKC Communications contract on June 12, 2003; the Solicitor 

completed a form with a check mark indicating that the contract was legally 

sufficient. The Solicitor told us that he had initially decided not to approve the 

contract, but after learning that a Department of Justice attorney had approved it, 
51 

decided to approve it. CIFA had asked the Chief Counsel of the U.S. Department 

of Justice, Foreign Terrorist Tracking Task Force, to review the proposed lease; 

the Chief Counsel concurred with use of the contractor to provide the office 

space. 

We reviewed the letter containing the Chief Counsel’s concurrences. It appears 

to us to be an acknowledgement of the requirement for leased space rather than a 

legal opinion. In any event, that office would not be the complete authority to 

provide a legal review on DoD leases. 

Requirements for Congressional Approval 

Restrictions on Leases and Alterations That Exceed Prospectus Thresholds 

Authority. Title 40 U.S.C. 3307 establishes prospectus thresholds for Federal 

agencies that are subject to GSA authority. The thresholds apply to construction, 

alteration, purchase, and acquisition of any building to be used as a public 

building, and to lease any space for use for public purposes. The prospectus 

threshold value for each fiscal year is posted on the GSA Web site 

http://www.gsa.gov. If the value of a proposed lease or alterations to a building 

exceeds the thresholds, a prospectus has to be presented to the Senate and the 

House of Representatives for approval. Only GSA is authorized to enter into 

leases that exceed the prospectus thresholds. 

Leased Building Alterations. For FY 2003 and FY 2004, the period that 

building alterations were made to the CIFA leased space, the Prospectus 

Threshold Authority for alterations was $1.1066 million and $1.1450 million, 

respectively. The total cost of space alterations made by CIFA in FY 2003 was 

$14.7 million and at least $7.9 million in FY 2004. The $14.7 million alteration 

was part of contract 1435-04-03-RC-70941. The $7.9 million alteration was also 

made through TKC Communications but under contract 1435-04-03-CT-73024. 

Lease Thresholds. The Prospectus Threshold Authority for leases for FY 2003 

was $2.21 million per year. The CIFA lease agreement required lease payments 

of at least $6.575 million per year for 2004 and subsequent periods. 

By not going through GSA when contracting for the lease and space alterations, 

and because the cost of the lease and alterations exceeded the Prospectus 

Threshold Authority without congressional approval, CIFA potentially violated 

the Antideficiency Act for both the lease amounts and for the alterations to its 

leased space. 

Approval for Computer Space or National Defense Related Space. Title 

40 U.S.C. 3307(f)(1) prohibits Federal agencies from leasing any space to 

accommodate computer and telecommunications operations and secure or 

sensitive activities related to the national defense or security if the average annual 

net rental would exceed the prospectus threshold. However, Federal agencies 

may lease such space if the Administrator of General Services first determines 

that leasing such space is necessary to meet requirements that cannot be met in 

public buildings, and then submits that determination to the Committee on 

Environment and Public Works of the Senate and the Committee on 
52 

Transportation and Infrastructure of the House of Representatives in accordance 

with 40 U.S.C. 3307(f)(1). 

By not submitting the lease requirements pertaining to computer and 

telecommunications operations and national security through GSA, and because 

the lease exceeded the Prospectus Threshold Authority, CIFA potentially violated 

the Antideficiency Act. Additionally, because CIFA did not comply with these 

regulations, the Committee on Environment and Public Works of the Senate and 

the Committee on Transportation and Infrastructure of the House of 

Representatives were not able to review the lease. 

Restrictions on Leases for More Than $1.5 Million in Annual Rental Costs. Title 40 U.S.C. 3307, “Congressional approval of proposed projects,” states that 

resolutions are required by the Committee on Environment and Public Works of 

the Senate and the Committee on Transportation and Infrastructure of the House 

of Representatives before an appropriation can be made to construct or alter any 

building which involves a total expenditure in excess of $1.5 million or to lease 

any space at an average annual rental in excess of $1.5 million. 

Because the CIFA lease contract exceeded both $1.5 million thresholds in 

40 U.S.C. 3307, CIFA also violated this restriction with its lease and alterations. 

This provision further supports our conclusion that CIFA payments on the lease 

potentially violated the Antideficiency Act. 

Notification Requirements. Title 10 U.S.C. 2662(a)(1)(B) requires the 

Secretary of the Military Department to notify Congress of leases of real property 

that will be at an annual rental in excess of $750,000. The section requires a 30-

day notice by providing a report about the proposed transaction to the Senate 

Armed Services Committee and the Committee on Armed Services of the House 

of Representatives. If the lease is made by or on behalf of an intelligence 

component of the DoD, the notification is also to be sent to the Permanent Select 

Committee on Intelligence of the House and the Select Committee on Intelligence 

of the Senate. The contract files did not contain copies of any such notification. 

Potential Funding Violations Resulting From the Lease

Contract

As stated above, CIFA and DOI circumvented numerous laws in contracting for 

leased space. By not following the proper procedures, they entered into a lease 

without the legal authority to do so. Without a legal and authorized agreement, 

no basis exists to obligate and expend Government funds. Because Government 

funds have been obligated, DOI, CIFA, and other organizations renting the leased 

space may have potentially violated the Antideficiency Act. Also, any 

subsequent expenditure of Government funds for this rental space may result in 

additional Antideficiency Act violations. No future payments should be made 

until a legal basis exists to make the payments. 
53 

The contract with TKC Communications had a termination clause, effectively 

obligating the Government to make lease payments for at least a 12-month period 

and repayment of capital improvements. Therefore, the termination provision 

could obligate appropriations of future years, which would violate 

31 U.S.C. 1341(a)(1)(A) and the U.S. Constitution, Article I, Section 9. 

CIFA paid TKC Communications for its lease building alterations using O&M 

appropriated funds. CIFA should have used military construction funds for 

alterations of that magnitude, and military construction projects costing over 

$1.5 million have to be specifically approved by Congress. By not using military 

construction funds, CIFA potentially violated 31 U.S.C. 1301 (known as the 

“Purpose Statute”) and 10 U.S.C. 2805. 

The TKC Communications contract permitted CIFA to repay the costs for its 

building alterations incurred during FY 2003 over the life of the lease. In effect, 

the contractor made a loan of the funds to CIFA and permitted CIFA to repay the 

loan over time. The contract even had an amortization schedule showing interest 

charges. Interest charges are unallowable costs prohibited by FAR 31.205-20. 

Government agencies are required to follow the bona fide needs rule 

[31 U.S.C. 1502(a)] and CIFA should have paid for the alterations during the 

fiscal year in which the expenses were incurred. Obligations which require 

payments from appropriations which have not yet been provided by the Congress 

potentially violate 31 U.S.C. 1341(a)(1)(A) and the U.S. Constitution, Article I, 

Section 9. 

Moving Expenses Within the National Capital Region. Section 8020 of the 

Department of Defense Appropriations Act, 2003 (Public Law 107-248, House 

Report No. 5010) restricts use of funds exceeding $500,000 for relocations within 

the NCR unless waived by the Secretary of Defense. Restrictions on moving 

costs within the NCR have been a recurring section in Defense Appropriation 

Acts since FY 1991. DoD Instruction 5305.5, paragraph 5.2.1.2, requires DoD 

agencies to include a “$500,000 Move Certification” to Washington Headquarters 

Services with its request for space within the NCR. The Move Certification is the 

established control for Washington Headquarters Services to ensure that the 

planned moving costs are below the $500,000 threshold or that the Secretary of 

Defense or his designee has waived the restriction. On October 5, 2005, the 

Acting Deputy Secretary of Defense delegated responsibilities for actions 

pertaining to enforcement of Section 8020 to the Director, Administration and 

Management. Because CIFA did not submit its request through the Washington 

Headquarters Services as required, an independent party needs to determine the 

costs pertaining to the move and determine whether CIFA exceeded the threshold 

for relocation costs. If CIFA relocation costs exceeded the threshold, CIFA needs 

to either advise the Defense Committees of the breach or obtain a retroactive 

waiver of the moving expense restrictions from the Secretary of Defense or his 

designee. 

Violation of SBA Size Standards 

We requested that the SBA Office of Government Contracting determine whether 

TKC Communications met SBA size restrictions imposed by the SBA “Table of 

Small Business Size Standards Matched to North American Industry 
54 

Classification System Codes.” SBA performed the analysis and concluded that 

TKC Communications did not meet the SBA size standards when it entered into 

the CIFA lease contract. As a result, on April 18, 2006, the Associate Deputy 

Administrator for Government Contracting and Business Development, SBA 

stated that SBA intends to terminate the contract for the convenience of the 

Government. 

Appraisal of the CIFA Lease 

GSA Appraisals. We requested that the GSA Director, Leasing Policy and 

Performance Division, appraise the CIFA lease to determine whether the 

Government paid too much for the lease and whether GSA had available and 

suitable space in its inventory when the CIFA lease was signed. GSA appraisers 

used two approaches to appraise fair lease prices at the time that the lease was 

negotiated. The first approach was a standard appraisal that compared the space 

with comparable properties available for lease at the time. Using that approach, 

GSA appraisers concluded that comparable properties would rent for $36.93 per 

rentable square foot. 

The second approach compared existing offers to the Government in the 

Advanced Acquisition Program at the time of the lease. GSA recognized and 

made adjustments for differences between a traditional commercial lease and a 

lease under the Advanced Acquisition Program. GSA concluded that comparable 

properties were $31.87 per rentable square foot through the Advanced 

Acquisition Program. GSA determined that the TKC Communications lease to 

CIFA cost $44.82 per rentable square foot. 

GSA found that some of the CIFA lease terms were not clear about what costs 

were included in the base rent such as the base operating costs. According to 

GSA, the base rent was not determined from the structure of the CIFA lease. 

GSA stated that base rent includes the insurance, property management, equity, 

base construction, parking, basic lighting, basic electrical distribution, exterior, 

and windows. They also noted that base operating costs include utilities such as 

water, electric, gas, cleaning costs, trash removal, window cleaning, and 

maintenance. In an Advanced Acquisition Program offer, the base operating costs 

are always separate. 

GSA also observed the following differences between the CIFA lease through 

TKC Communications and a lease through the GSA Advanced Acquisition 

Program. 

• In the CIFA lease, the base rent is subject to annual escalations. 

However, in an Advanced Acquisition Program offer, the base rent is a 

flat rate for the lease term. 

• GSA concluded that the base operating expense rate of $10.59 per 

rentable square foot under the CIFA lease is very high compared with 

what they believed to be the typical occupancy rate of $5 to $7 per 

rentable square foot for basic office space. GSA also concluded that 

the base operating expense rate under the CIFA lease allowed passthrough of additional expenses, above the base amount, such as utility 
55 

rate hikes. In the Advanced Acquisition Program offer, the base 

operating expense rate increases are limited to the Consumer Price 

Index, thus shifting the risk of increases to the lessor rather than to 

CIFA. 

• The Advanced Acquisition Program offer included a 3-percent broker 

commission which could be converted into 3 1⁄2 months of free rent. 

Since no realtor is involved with finding lease space for the tenant in 

an Advanced Acquisition Program offer, the broker commission is 

incorporated into rent as an added benefit. GSA could not determine 

whether the CIFA lease included a 3-percent broker commission as in 

the Advanced Acquisition Program offer or whether a realtor was 

involved in locating the space, which would mean the realtor received 

the commission. 

• The CIFA lease had a 12-month termination right. GSA noted that the 

cost to terminate might be included in the base rent but it was unclear 

from the lease. 

GSA determined that the CIFA lease cost was as much as $1.6 million to $2.7 

million more per year for its lease through TKC Communications than it would 

have cost through GSA. 

GSA believes the CIFA lease was high and that the lease will always be 

ambiguous concerning several key terms. They also pointed out that the problem 

is only partially the dollar-to-dollar comparative costs but also the potential risks 

and costs associated with the life of the CIFA lease. 

GovWorks Analysis. On June 23, 2006, we provided copies of the two 

appraisals to CIFA and subsequently permitted CIFA to provide copies of the 

appraisals to GovWorks. GovWorks disagreed with the appraisal results and 

stated that certain costs were included in the lease agreement that were not 

considered by the appraisal. On August 21, 2006, GovWorks provided us with a 

comparative analysis of the TKC lease with other leases available at the time. 

The analysis was performed by a Section 8(a) contractor from Bethesda, 

Maryland, that was licensed as a real estate broker in Virginia, Maryland, and the 

District of Columbia. The analysis concluded that the TKC lease “was extremely 

fair and reasonable.” The analysis did not indicate that it was performed in 

accordance with Uniform Standards of Professional Appraisal Practice, nor did it 

indicate that it complied with the Department of Justice Uniform Appraisal 

Standards for Federal Land Acquisition. Additionally, the contractor was not a 

licensed appraiser in Maryland or Virginia, and was not qualified by the SBA to 

perform appraisals. Because of the deficiencies in the analysis procedures and the 

qualifications of the company and its staff, we cannot draw any conclusions from 

the analysis. 

Other Issues 

Because the leased space was larger than it needed, CIFA made the excess space 

available to the Air Force Office of Special Investigations, the Naval Criminal 

Investigative Service, and another non-DoD intelligence component. The 
56 

components paid a portion of the CIFA lease cost by sending MIPRs directly to 

GovWorks or directly to CIFA. The payments by those components also 

potentially violated the Antideficiency Act because CIFA did not obtain the legal 

authority to enter into the original lease. 

The GovWorks contracting officer lacked the special warrant required by DOI for 

lease agreements. The contracting officer had a warrant for Level IV Delegation 

of Authority but did not have the space lease warrant required by DOI. 

Referral for Investigation 

On May 18, 2006, and on May 30, 2006, we briefed senior management and staff 

of CIFA on our audit findings. We advised CIFA during the briefing that it had 

potentially violated the Antideficiency Act and warned that any future payments 

made on the lease could potentially result in additional violations of the 

Antideficiency Act. Specifically, a slide used for both briefings stated: 

We believe CIFA and GovWorks lacked authority to enter the lease. 

This resulted in potential violations of the Antideficiency Act and other 

laws. Payments by CIFA co-tenants (NCIS, AFOSI, and a non-DoD 

Intelligence component) may also result in violations. Accordingly, 

the CIFA should not make new obligations to GovWorks for the 

office space. If payments continue, further potential violations of 

the Antideficiency Act occur. [emphasis added]

Subsequently, we learned that CIFA had continued to make lease payments, 

totaling $2.9 million, from June through August 2006 for the lease. Because we 

believe that CIFA made the subsequent obligations with the full knowledge that 

they may violate the Antideficiency Act, and 31 U.S.C. 1350 establishes criminal 

sanctions against willful violations, we referred this matter to the Deputy 

Inspector General for Investigations for further review. 

Management Comments on the Finding and Audit Response

Counterintelligence Field Activity Comments on the Finding. The Acting 

Director of CIFA stated that the potential violations identified in the report 

resulted from IG conclusions that CIFA had failed to comply with procedural 

rules applicable to DoD activities for leases of real estate. The finding is based on 

the fact that CIFA acquired its office space in Crystal Square 5, Arlington, 

Virginia, using services contracts obtained by GovWorks, rather than occupancy 

agreements with GSA. The Acting Director stated that although outside the scope 

of the report, the Defense Information Technology Contracting Organization had 

obtained a similar services contract for space in Crystal Square 5 on behalf of 

CIFA. In determining the applicability of rules for Government leases, there is no 

Government lease for the space CIFA is occupying. GovWorks and the Defense 

Information Technology Contracting Organization—both are charged by statute 

and regulation with ensuring that contracts comply with law—maintain they did 

not err in obtaining office space for CIFA though services contracts. 
57 

The Acting Director stated that because the contracts did not involve a 

Government leasehold, the congressional review and approval process did not 

apply. Instead, TKC, an Alaskan Native enterprise, leased the space and the 

SBA, on behalf of TKC, entered into services contracts with GovWorks for 

CIFA’s use of the leased space. The Defense Information Technology 

Contracting Organization contracted directly with TKC for CIFA’s other space. 

CIFA agreed to reimburse GovWorks and the Defense Information Technology 

Contracting Organization with MIPRs. Legal counsel at both GovWorks and the 

Defense Information Technology Contracting Organization did not object to this 

acquisition strategy. The Acting Director believed that the report imprecisely 

refers to this contractual arrangement as subleasing. 

The Acting Director stated that no funds in excess of amounts available in its 

O&M appropriations were obligated by CIFA to acquire its space. He stated that 

the O&M funds that CIFA expended to reimburse GovWorks and the Defense 

Information Technology Contracting Organization were from the same 

appropriation that would have been used to reimburse GSA for leased space under 

an occupancy agreement. Therefore, he believes there were no problems with 

obligating that appropriation. 

The Acting Director stated that the CIFA decision to use commercially leased 

space under Government services contracts was the result of an unusual set of 

circumstances. CIFA, its predecessor Office of the Secretary of Defense 

elements, and the defense contractors providing mission support to those agencies 

were already in contractor-furnished office space located in Crystal City buildings 

that CIFA currently occupies at the time CIFA was created in the wake of the 

September 11 terror attacks. CIFA (along with its predecessor Office of the 

Secretary of Defense element) was also serving as the host for, and working 

closely with the Federal Bureau of Investigations Foreign Terrorist Tracking Task 

Force created on October 29, 2001. Some limited GSA leased space was also 

available and being used by CIFA and the Task Force. At the time, though, more 

than 80 percent of CIFA employees were contractors, as were in any of the Task 

Force workers. CIFA sought to consolidate its operation by having this mixed 

work force located primarily in contractor-furnished space. The OIG report, in 

determining that the GSA lease model should have been followed to meet CIFA 

space requirements, does not address the impact of the high ratio of contractor 

personnel who were supporting the mission. This is an issue for consideration in 

the Antideficiency Act violation reviews. 

The Acting Director stated that the report suggests that the termination provisions 

of the contract, calling for payment of unamortized tenant improvement 

allowances and 12 months’ rent, potentially violate the Antideficiency Act 

because it obligates funds from future year appropriations. He stated that in fact, 

these contracts treat each option year or month as a new order. As severable 

services contracts, CIFA funds the orders up to 12 months with its current year 

appropriation. If CIFA elects to terminate its lease, the contracting office must 

issue notice at least 12 months prior. At that time, CIFA will use the current 

appropriation to reimburse GovWorks and Defense Information Technology 

Contracting Organization for services received during the period covered by the 

termination notice. The unamortized buildout allowance is a contingent liability 

and funds are not obligated against it until a certain amount is ascertained. The 

appropriation available at the time the notice is issued will be obligated to fund 

the reimbursement of the unamortized concessions to GovWorks and Defense 
58 

Information Technology Contracting Organization. The Acting Director believed 

that this financial arrangement is consistent with the way GSA charges its tenants 

who vacate space that has been obtained under a non-cancelable lease prior to 

eliding the occupancy agreement term. 

Regarding the potential violation of the Antideficiency Act involving Military 

Construction funds, the Acting Director stated that he did not believe CIFA would 

have to use Military Construction funds. GovWorks and the Defense Information 

Technology Contracting Organization were responsible for paying the contractor, 

not CIFA. CIFA only reimburses the contracting offices. The Acting Director 

stated that the CIFA preliminary review of the potential Antideficiency Act 

violation addressed this funding issue. Because this issue has not been factually 

resolved, and the Government does not have a leasehold interest in this 

contractor-furnished space, final determination of a potential Antideficiency Act 

violation will have to wait for the Comptroller review. 

The Acting Director stated that use of loans to fund tenant improvements was a 

common practice in the commercial real estate business, and GSA employs this 

practice when leasing space for Government tenants. GSA regulations allow the 

agency to add the cost of the amortized tenant improvements to the shell rent in 

its occupancy agreements, allowing the lessor to include interest in the 

amortization amount. The Acting Director stated that this issue was also covered 

in the preliminary review submitted to the DoD Comptroller. 

The Air Force Office of Special Investigations was occupying space in Crystal 

Square 5 when the Office of the Secretary of Defense element that eventually 

became CIFA (Joint Counterintelligence Analysis Group) first moved into the 

building. Subsequently, at the request of the Air Force Office of Special 

Investigations, additional adjacent space was acquired for Air Force use. The 

space occupied by the Naval Criminal Investigative Service and by the non-DoD 

Federal counterintelligence activity was also acquired at request of the Air Force 

Office of Special Investigations. The Acting Director believes the statement in 

the report that CIFA acquired this space in excess of its bona fide needs and made 

it available to these other organizations is factually incorrect. 

Audit Response. The Acting Director stated that because the contract for the 

CIFA leased space was not signed by a Government agency, it did not violate 

statutes giving the GSA exclusive authority for leasing Government space. 

Additionally, the Acting Director believed that our use of the term “subleasing” 

was incorrect. We disagree. The GovWorks contract made the TKC 

Communications lease part of the GovWorks contract. Additionally, the GSA 

Director, Leasing Policy reviewed the GovWorks contract and termed it “a lease 

under the guise of a service contract.” CIFA is now using and paying GovWorks 

for the space that TKC Communications leased from a third party. We conclude 

that the appropriate legal term for this arrangement is “sublease.” 

The Acting Director also stated that the high percentage of contractor personnel at 

CIFA should have been considered when determining whether GSA was required 

to enter the lease. We do not believe that the ratio of contractor to Government 

employees was an appropriate or authorized factor in whether GSA was required 

to make the lease. This ratio conferred no legal authority on CIFA to enter a 

sublease. 
59 

In fact, CIFA has previously made this argument to GSA, and GSA rejected this 

argument. A May 27, 2003, e-mail from a CIFA contractor asked for clarification 

on whether the GSA rules were applicable to space for contractor personnel. The 

contractor’s e-mail stated: 

...We have been working with GovWorks for many months now to 

obtain a lease for our contractor work force. They want a Delegation 

of Procurement Authority before they allow their contractor, TKC 

Communications, to sign the lease with Charles E. Smith for the space 

that we need here in Crystal City... 

2. CIFA is currently located throughout different buildings in Crystal 

City, VA. This haphazard arrangement results in operational 

inefficiency and direct cost to the government in time spent traveling 

between meetings. In order to perform CIFA’s mission more 

efficiently and expediently, [the] Director, CIFA has determined that 

CIFA must consolidate into one facility. In addition, CIFA continues 

to grow rapidly to respond to the dynamic threat environment created 

by world events. CIFA must quickly obtain space to accommodate 

additional personnel. 

3. CIFA is heavily outsourced; comprised of 90% contractor staff and 

10% government. CIFA contractor staff is derived from in excess of 

30 separate contracts. While CIFA’s government personnel currently 

occupy GSA and specialty contractor-leased space, CIFA’s contractor 

personnel require space proximately located to CIFA Headquarters. 

We are seeking a confirmation that GSA does not lease space for 

contractors and therefore a delegation of procurement authority is not 

required. We think that this, either in writing or verbally to the 

GovWorks/DOI staff, will allow us to proceed. . . 

The Deputy Director, Metropolitan Service Center, GSA, responded on the same 

day as follows: 

Although GSA does lease space for DoD elements that house 

contractor personnel, we do not provide space directly for contractor 

companies, they lease their own space. 

If a private corporation that is under contract to the Government is 

going to sign as the lessee, then there is a private sector deal and not a 

government deal and GSA and all our regulation are not involved. If 

any direct Government entity is going to sign as the lessee, then all 

Federal regulations and delegations of authority are involved. 

We believe that the question posed to GSA was somewhat misleading. The 

e-mail to GSA presented the situation as a requirement for space solely for 

contractors rather than space for both CIFA and its contractor personnel. It 

appeared that CIFA elected to interpret the GSA guidance as justification that 

CIFA would not need to obtain a Delegation of Lease Authority from GSA as 

long as no Federal agency signed the lease. In fact, as we discuss in the finding, 

the lease was too large to permit use of a Delegation of Lease Authority and GSA 

would have had to enter into the lease itself. 
60 

On May 28, 2003, the CIFA Director sent a letter to the Team Leader, 

Procurement Operations Branch, GovWorks stating that CIFA had contacted the 

Deputy Director of GSA regarding CIFA’s need to collocate with CIFA 

contractor personnel. The CIFA Director also provided the GovWorks Team 

Leader with the GSA Deputy Director’s statements from the May 27, 2003, email. 

We believe that this practice of using a contractor to obtain Government space 

avoids congressional and senior DoD oversight and could allow other DoD 

activities to avoid similar oversight. Additionally, this practice circumvents the 

review process designed by Congress and makes it difficult to maintain public 

confidence in the DoD procurement process. 

On May 11, 2005, the Deputy Director, Space Policy and Acquisition Directorate, 

Washington Headquarters Services asked GSA in an e-mail about the guidance 

they provided to CIFA on its lease. In an e-mail response, the GSA Deputy 

Director of Metropolitan Service Center said: 

They probably talked to me. As I recall I was asked if a private 

company leased space for a government contract was that ok, and I said 

yes as a private company is a private company. They also asked if a 

government agency had a company do a lease for them was it ok and I 

said no. And I told them they needed to talk to WHS [Washington 

Headquarters Services] before they did any leasing. 

I have been expecting this to hit the auditors someday. Although they 

said they talked to a "Deputy Director at Metropolitan Service Center", 

they did not get a delegation of authority, and statement verbally or in 

writing that what they described was ok with either GSA or WHS, and 

what they did get is direction to go through the process. 

I am ready to talk to any IG or other entity to testify as to what I said 

when asked. As you recall I even spoke with the Director of GSA IT 

[Information Technology] in Auburn, Washington to advise her that 

DOD-WHS and we at Metropolitan were deeply concerned with the 

leases we were hearing about going through IT contracts and the pain 

they caused when that happened. . . . 

We also spoke with GSA Deputy Director of the Metropolitan Service Center. 

He had since retired from the Government but recalled his discussion with CIFA 

and his e-mail to the Washington Headquarters Services. He also told us that he 

had met with the CIFA staff to explain the GSA rules, including the Title 10 

requirements and the requirements for a prospectus. The staff told him that they 

would take that information back to CIFA management. He said that he was 

disappointed that CIFA had elected to go forward with its lease nevertheless. 

We were unable to determine the exact chain of events between the initial inquiry 

to GSA and the subsequent lease arranged through GovWorks. The GovWorks 

contracting officer no longer worked at GovWorks and could not be located. Her 

replacement had since retired. Also, key personnel at CIFA no longer worked at 

CIFA. However, it appeared that CIFA was provided sound advice on the rules 

from GSA but elected to ignore them. 
61 

In response to our draft audit report, the Acting Director also stated that because 

CIFA used O&M funding, which is the same type of funding that would have 

been used had CIFA contracted through GSA, and because it did not exceed its 

O&M appropriation, he did not believe that he had violated the Antideficiency 

Act. This statement, however, ignores a key component of fiscal law—

authorization. 

A federal agency is a creature of law and can function only to the 

extent authorized by law. The Supreme Court has expressed what is 

perhaps the quintessential axiom of “appropriations law” as follows: 

“The established rule is that the expenditure of public 

funds is proper only when authorized by Congress, not 

that public funds may be expended unless prohibited by 

Congress.”8

 

The statutes we cite in finding D show that the Congress specifically prohibited 

agencies from making their own leases without GSA involvement. Leases 

expected to be below the prospectus threshold authority can be made only with a 

GSA delegation of lease authority; leases expected to be above that threshold can 

be made only by the GSA. 

CIFA was not authorized to obligate funds because they had no authority to enter 

into a sublease. By obligating Government funds, they violated 31 U.S.C. 

1501(a)(1)(A), which requires such authority prior to obligating funds, and 

31 U.S.C. 1502(a), which requires compliance with 31 U.S.C. 1501. 

Additionally, even if CIFA had the necessary congressional authorization, another 

Supreme Court ruling9 precludes the use of 1-year appropriated funds (that is, 

O&M funds) to enter a lease beyond a 1-year period. In that Supreme Court case, 

an agency had entered into a long-term lease for office space with 1-year funds, 

but the contract specifically provided that payments for periods after the first year 

were subject to the availability of future appropriations. The court rejected the 

theory that the lease was binding on the Government only for 1 fiscal year, 

stating, 

And since at the time they were made there was no appropriation 

available for the payment of rent after first fiscal year, it is clear that in 

so far as their terms extended beyond that year they were in violation 

of the express provisions of the [Antideficiency Act]. . . 

GSA has authority under 40 U.S.C. 490(e) to obligate funds for its multiyear 

leases one year at a time. CIFA does not have this authority. 

As additional support for the CIFA lease procurement strategy, the Acting 

Director noted that the Defense Information Technology Contracting 

 

8

 United States v. MacCollom, 426 U.S. 317, 321 (1976). 

9

 Leiter v. United States, 271 U.S. 204 (1926) 
62 

Organization had entered a similar lease on behalf of CIFA. The Defense 

Information Technology Contracting Organization lease of real property through 

a contractor is outside the scope of this audit; however, we will consider that 

contract a subject for review in our future audits. 

The Acting Director also questioned whether Military Construction appropriated 

funds were required for the building improvements made by TKC 

Communications. He also questioned whether CIFA had violated the bona fide 

needs rule with the TKC loan and the termination clause within the contract. We 

presume that these arguments are part of the CIFA review of the potential 

Antideficiency Act violations identified in the finding. If so, the merit of those 

arguments will be evaluated by the Office of the Under Secretary of Defense 

(Comptroller)/Chief Financial Officer and its legal counsel. We will review the 

General Counsel’s opinion when it is released. 

The DOI Inspector General addressed the role of GovWorks in the CIFA leased 

space contract in Report No. X-IN-MOA-0018-2005, “Audit of FY2005 

Department of the Interior Purchases Made on Behalf of the Department of 

Defense,” January 9, 2007. 

Recommendations, Management Comments, and Audit 

Response 

Recommendations for the Under Secretary of Defense (Comptroller)/Chief 

Financial Officer to initiate preliminary reviews of Antideficiency Act violations 

relating to lease payments and building alterations for the CIFA lease are included 

in DoD IG Report No. D-2007-042, “Potential Antideficiency Act Violations on 

Purchases Made Through Non-DoD Agencies,” January 2, 2007. 

D.1. We recommend that the Deputy Under Secretary of Defense for 

Intelligence: 

a. Provide notice to the General Services Administration, 

Washington Headquarters Services, and the various affected congressional 

committees of the Counterintelligence Field Activity’s failure to follow 

prescribed procedures when it obtained its office space in Arlington, 

Virginia. The congressional notice should include the Defense Committees, 

the Intelligence Committees, the Appropriations Committees, the Senate 

Committee on Environment and Public Works, and the House Committee on 

Transportation and Infrastructure. 

b. Form an action committee to include representatives from the 

Counterintelligence Field Activity and affected agencies that use the 

Counterintelligence Field Activity space that can assess the issues, identify 

options available to the Counterintelligence Field Activity and its co-tenants 

for suitable office space, and make recommendations on the best strategy 

that will result in the least disruption to the Counterintelligence Field 

Activity and co-tenant’s missions and that will mitigate any potential losses 

to DoD from termination of the Counterintelligence Field Activity lease 

contract. 
63 

Deputy Under Secretary of Defense for Intelligence Comments. The Deputy 

Under Secretary of Defense for Counterintelligence and Security provided 

comments on behalf of the Deputy Under Secretary of Defense for Intelligence. 

He stated that the significant disparity between the draft audit report and the 

CIFA response to the report’s finding precluded him from commenting at this 

time. When those differences are resolved, the Deputy Under Secretary agreed to 

provide notification of actions taken. 

Audit Response. The Deputy Under Secretary’s comments were responsive. We 

believe that the statutory requirements pertaining to real property leases and the 

potential impact of not following those requirements is clear. CIFA had no 

statutory authority to enter into a lease agreement. The way CIFA obtained the 

lease circumvented the congressional review and approval process and violated 

fiscal law. Resolving this dilemma may require legislative relief. It is critical for 

the Deputy Under Secretary and the CIFA to quickly develop a plan of action and 

to consult with the respective congressional committees for a possible resolution. 

Nevertheless, the new General Counsel for CIFA advised us that the CIFA legal 

analysis on these issues has been submitted to the Under Secretary of Defense 

(Comptroller)/Chief Financial Officer for a decision. Once their General Counsel 

makes that legal determination, we believe the Under Secretary of Defense for 

Intelligence will need to consult with Congress on a suitable remedy. 

D.2. We recommend that the Director, Counterintelligence Field Activity: 

a. Determine whether the Counterintelligence Field Activity violated 

funding restrictions imposed by Section 8020 of Defense Appropriation Act, 

2003 and any other fiscal year in which relocation expenses were incurred. If 

such a violation occurred, and a waiver to the restriction cannot be obtained 

retroactively from the Secretary of Defense or his designee and provided to 

the Congressional Defense Committees as required: 

(1) Provide notification to the Defense Committees of Congress that 

the violation occurred. 

(2) Conduct an Antideficiency Act investigation in accordance with 

volume 14 of the Financial Management Regulation. 

Counterintelligence Field Activity Comments. The Acting Director of the 

Counterintelligence Field Activity neither concurred nor nonconcurred with the 

recommendation. He questioned whether the statutory restrictions were 

applicable to CIFA because CIFA was a new organization at the time and it was 

not clear to CIFA that the restriction applied to newly formed organizations. 

Also, the Acting Director stated that CIFA has been in the same building it and its 

predecessor Office of the Secretary of Defense element had occupied from the 

beginning. Nevertheless, the CIFA preliminary analysis concluded that 

payments to TKC to move equipment and furnishings were below the $500,000 

threshold. Subsequently, however, the Washington Headquarters Services had 

told CIFA that not all costs were considered in the CIFA initial analysis. As a 

result, the CIFA investigation on whether the $500,000 threshold had been 

breached was ongoing.
64 

Audit Response. The Acting Director’s comments were responsive. The 

applicability of the threshold to new organizations and the costs that should be 

recognized in that analysis are decisions that should be made by the Washington 

Headquarters Services based on advice from its legal counsel. 

D.3. We recommend that the Directors of Counterintelligence Field Activity, 

Naval Criminal Investigative Service, and the Air Force Office of Special 

Investigations: 

a. Cease payments of funds under contract numbers 1435-04-03-CT73024 and 1435-04-03-RC-70941, to avoid further potential violations of the 

Antideficiency Act. 

b. Submit a request for alternate office space to Washington 

Headquarters Services as required by DoD Instruction 5305.5, “Space 

Management Procedures, National Capital Region,” June 14, 1999. 

Counterintelligence Field Activity Comments. The Acting Director of CIFA 

neither concurred nor nonconcurred with the recommendation. The Acting 

Director stated that the report attributes a number of potential Antideficiency Act 

violations to the procedures employed. CIFA promptly initiated a preliminary 

review of the potential violations after receiving the IG briefing. That review 

provided documentation of the transactions and sought to identify those 

procedural irregularities that might rise to the level of Antideficiency Act 

violations. On August 25, 2006, the CIFA preliminary review was forwarded to 

the DoD Comptroller. If the DoD Comptroller determines there is evidence of 

potential Antideficiency Act violations, she will direct that a formal investigation 

be conducted. CIFA anticipates that a review of its preliminary evaluation will 

resolve these issues. 

Immediately following the OIG briefing to senior staff and management in May 

2006, CIFA began working with Washington Headquarters Services and GSA to 

find a resolution consistent with the finding. CIFA provided data to document its 

space requirements to Washington Headquarters Services, which forwarded the 

space request to GSA; GSA is reviewing the request. Because of Base 

Realignment and Closure Commission 2005, CIFA is scheduled to move to 

Quantico, Virginia, by 2011. GSA has not ruled out the possibility of taking over 

the lease for the space occupied by CIFA. Other DoD agencies in Crystal 

Square 5 are working directly with the Washington Headquarters Services; the 

non-DoD agency is making its arrangements with GSA. 

The Acting Director stated that the necessary reviews are underway to determine 

the extent to which violations of the Antideficiency Act may have occurred. 

Where violations are found, CIFA will take appropriate action. 

The Acting Director stated that CIFA was advised that the SBA no longer plans to 

terminate its contract with TKC. Unless otherwise directed by the DoD 

Comptroller or the Under Secretary of Defense for Intelligence, CIFA does not 

intend to stop reimbursing the Government contracting offices for payments to 

TKC. He believes that until there is a comprehensive plan in place, unilateral 

action of that magnitude would likely create more problems than it would solve, 

especially in view of the SBA decision. 
65 

Audit Response. The Acting Director’s comments were responsive. In our 

opinion, resolving this problem will not be easy and may not be possible without 

legislative relief. The Acting Director also stated in his comments that the OIG 

was aware of the CIFA lease since 2004 but had not raised this as an issue until 

now. Our audit began during calendar year 2005 and the TKC lease was one of 

several contracts selected for review. 

According to CIFA, SBA does not plan to terminate the TKC contract. DoD has 

documentation from SBA which indicates that SBA will terminate the contract. 

DoD has not received documentation stating otherwise from the SBA. Regardless 

of whether SBA terminates the lease, every lease payment made by CIFA is 

another potential Antideficiency Act violation. 

We did not receive comments on Recommendation D.3. from the Naval Criminal 

Investigative Service or the Air Force Office of Special Investigations. 

Therefore, we request they provide comments in response to the final report.
66 

E. Joint Interoperability Test Command 

Southwest Acquisition Branch contracting officers did not follow FAR, 

DFARS, and financial management regulations when awarding purchases 

for the Joint Interoperability Test Command (JITC) under a 

multiple-award omnibus contract valued at $1 billion. Southwest 

Acquisition Branch contracting officers: 

• did not provide multiple awardees a fair opportunity to be 

considered because the contracting officers were not involved at 

all in the contractor selection process, 

• did not make price reasonableness determinations for any of the 

orders, and 

• delegated too much authority to the contracting officer’s 

representative and permitted the contracting officer’s 

representative to perform functions that the contracting officer 

should have performed. 

As a result, the JITC did not comply with Economy Act requirements and 

did not meet requirements of 31 U.S.C. 1501(a) for creating a valid 

obligation. Additionally, there is no assurance that the prices DoD is 

paying under this $1 billion, multiple-award contract are fair and 

reasonable or that the multiple-award contracts are being used properly. 

Criteria

FAR 16.504(c), “Multiple-Award Preference,” requires the contracting officer to 

determine whether multiple awards are appropriate as part of acquisition 

planning. The contracting officer must document the decision whether or not to 

use multiple awards in the acquisition plan or contract file. 

FAR 16.505(b)(1), “Fair Opportunity,” requires the contracting officer to provide 

each awardee a fair opportunity to be considered for each order exceeding $2,500 

issued under multiple delivery-order contracts or multiple task-order contracts. 

FAR 16.505(b)(4), “Decision Documentation for Orders,” requires the 

contracting officer to document in the contract file the rationale for placement and 

price of each order, including the basis for award and the rationale for any tradeoffs among cost or price and noncost considerations in making the award 

decision. This documentation does not have to quantify the trade-offs that led to 

the decision. The contract file needs to identify the basis for exceptions to the fair 

opportunity process. If the agency uses the logical follow-on exception, the 

rationale has to describe a logical relationship between the initial order and the 

follow-on (for example, in terms of scope, period performance, or value). 

FAR 15.404-1, “Proposal Analyses Techniques,” states that the contracting 

officer must evaluate the reasonableness of the offered prices.
67 

FAR 15.402, “Pricing Policy,” states that contracting officers must purchase 

supplies and services from responsible sources at fair and reasonable prices. 

FAR 15.406-3, “Documenting the Negotiation,” states that the contracting officer 

must document in the contract file the principal elements of the negotiation 

agreement, including fair and reasonable pricing. 

FAR 13.106-3, “Award and Documentation,” states that before making award, the 

contracting officer must determine that the proposed price is fair and reasonable.

DFARS 201.602-2, “Responsibilities,” permits contracting officers to designate 

qualified personnel as their authorized representatives to assist in the technical 

monitoring or administration of a contract. A contracting officer’s representative 

(COR) must be designated in writing. The contracting officer must provide a 

copy of this designation to the contractor and the contract administration office 

specifying the extent of the COR authority to act on behalf of the contracting 

officer. The contracting officer may not delegate authority to make any 

commitments or changes that affect price, quality, quantity, delivery, or other 

terms and conditions of the contract. 

Background 

JITC is a component of the Defense Information Systems Agency (DISA) and is 

located at Fort Huachuca, Arizona. JITC has no contracting officers of its own at 

Fort Huachuca and relies on the Southwest Acquisition Branch for its contracting 

support. JITC supports the warfighters’ efforts to manage information on and off 

the battlefield. JITC responsibilities include: 

• being an independent operational test and evaluation assessor of DISA and 

other DoD Command, Control, Communications, Computers, and 

Intelligence acquisitions; 

• identifying and solving combat support systems interoperability 

deficiencies; 

• providing joint interoperability testing, evaluation, and certification; 

• bringing interoperability support, operational field assessments, and 

technical assistance to the combatant commands, Services, and agencies; 

and 

• providing training on Command, Control, Communications, Computers, 

and Intelligence systems, as appropriate. 

On October 9, 2001, the DOI National Business Center, Acquisition and Property 

Management Services Division, Southwest Acquisition Branch awarded three 

contracts (NBCHC020001, NBCHC020002, and NBCHC020003), under a 

multiple-award arrangement on behalf of JITC. The purpose of these multipleaward contracts was to provide JITC with administrative, testing, and engineering 

support required to perform its missions and functions. The period of 

performance included a 2-year base period and three 2-year option periods (total 
68 

8 years). When we began the audit in August 2005, the contracts were in the first 

option period, which expired on February 28, 2006. If all options are exercised 

on all three contracts, the total maximum contract amount will be slightly less 

than $1 billion. The total amount obligated on all three contracts through FY 

2005 was slightly more than $300 million. The total amount obligated as of 

July 2006 was slightly more than $411 million. 

Multiple-award contracts are normally indefinite-delivery, indefinite-quantity 

contracts. Contracting officers make purchases by issuing delivery and task 

orders. The procedures under FAR Subpart 16.5 apply to multiple-award 

contracts and are designed for the use of delivery orders and task orders. Before 

contracting officers award multiple-award contracts, they are required to 

document whether a multiple-award contract is suitable. After awarding the 

contracts, contracting officers must provide fair opportunity to all contractors for 

orders issued under the multiple-award contracts, or cite one of four exceptions to 

fair opportunity. 

Fair Opportunity 

FAR 16.505(b) states that the contracting officer must provide each awardee a fair 

opportunity to be considered for each order exceeding $2,500 issued under 

multiple delivery-order contracts or multiple task-order contracts. The contract 

file needs to identify the basis for exceptions to the fair opportunity process. If 

the agency uses the logical follow-on exception, the rationale has to describe a 

logical relationship between the initial order and the follow-on (for example, in 

terms of scope, period performance, or value). 

Section H.4 of the multiple-award contracts states that the Government, not the 

contracting officer, will give each contractor an opportunity to compete for orders 

of over $2,500. Use of the word “Government” instead of the words “contracting 

officer” is misleading. 

Southwest Acquisition Branch contracting officials did not comply with 

FAR 16.505(b) and did not make fair opportunity for individual purchases under 

the omnibus multiple-award contracts. In fact, the contracting officer delegated 

the entire contractor selection process for individual purchases to the COR. 

The Southwest Acquisition Branch contracting officer stated that she was not 

involved in the contractor selection process for individual purchases made under 

the multiple-award contracts. A Southwest Acquisition Branch chief also stated 

that contracting officers had not made fair opportunity determinations for 

individual purchases under the multiple-award contracts from the time the 

contracts were awarded on October 9, 2001, through June 2006. 

Price Reasonableness Determinations 

FAR 16.505(b)(4), “Decision Documentation for Orders” states that the 

contracting officer shall document in the contract file the rationale for placement 

and price of each order, including the basis for award and the rationale for any 
69 

trade-offs among cost or price and noncost considerations in making the award 

decision. This documentation need not quantify the trade-offs that led to the 

decision. The contract file must also identify the basis for using an exception to 

the fair opportunity process. If the agency uses the logical follow-on exception, 

the rationale must describe why the relationship between the initial order and the 

follow-on is logical (for example, in terms of scope, period of performance, or 

value). 

In addition to not performing fair opportunity analyses, Southwest Acquisition 

Branch contracting officers also did not make price reasonableness 

determinations for individual purchases of goods and services under the multiple 

award contracts. As of July 2006, individual purchases valued at approximately 

$411 million of the overall $1 billion contracts have been awarded without fair 

opportunity and price reasonableness determinations made by contracting 

officers. 

Contracting Officer Responsibilities 

DFARS 201.602-2, “Responsibilities,” permits contracting officers to designate 

qualified personnel as their authorized representatives to assist in the technical 

monitoring or administration of a contract. The contracting officer must 

designate the COR in writing and must provide a copy of that designation to the 

contractor and the contract administration office. The designation must specify 

the extent of the COR authority to act on behalf of the contracting officer. The 

COR may not delegate authority to make any commitments or changes that affect 

price, quality, quantity, delivery, or other terms and conditions of the contract. 

As stated earlier, the Southwest Acquisition Branch contracting officer delegated 

the entire contractor selection process to the COR, including the decision on 

which multiple-award contractor would receive awards of individual purchases of 

goods and services. We believe that the contracting officer delegated too much 

authority to the COR. The following example obtained from an e-mail developed 

by a JITC COR describes how the decision was made to select a particular 

multiple-award contractor for the award of a particular requirement. The e-mail 

states: 

I have awarded the [requirement] competitive TEP [technical 

evaluation proposal] to [contractor]. There were three possible 

choices. I based my decision on my previous flying experience and my 

technical enlisted background. 1) Technical Approach: [contractor] 

had a defined and logical approach to the testing and certification 

process that clearly described their methodology. 2) Experience: 

[contractor] showed a superior background in aviation, 

communications, and Naval platform interoperability certification. 

In a recent command assessment of JITC, a team of DISA subject matter experts, 

including the DISA Office of Inspector General, also determined that the 

contracting officer had delegated too much authority to the COR. In a 

memorandum responding to the DISA report, the Southwest Acquisition Branch 

disagreed that the contracting officer’s authority had been improperly delegated. 
70 

Contributing Factors 

Southwest Acquisition Branch contracting officials’ decision to not administer the 

omnibus multiple-award contracts as indefinite-delivery, indefinite-quantity 

contracts and their decision to not make individual purchases through the use of 

funded delivery and task orders resulted in the problems identified. Even though 

Southwest Acquisition Branch contracting officials awarded the omnibus 

multiple-award contracts as indefinite-delivery, indefinite-quantity contracts, they 

did not consider them indefinite-delivery, indefinite-quantity contracts. 

According to documentation in the contract file: 

These are “C” contracts, as the government did not consider the 

contract a true IDIQ contract with task and/or delivery orders. The 

Contracting Officer Representative is issuing Letters of Instruction 

(LOI) that are not considered Delivery Orders or Task Orders. 

Other documentation states: 

It is noted that the contract is a “C” contract and the entire SOW is 

described in the contract. All funds are obligated by the contracting 

officer at the contract level. The COR has absolutely no authority to 

obligate funds on the contract. 

Finally, other documentation states that: 

LOIs [letters of instruction] do not constitute “contracts” in themselves 

because they do not obligate money on the contract and do not effect 

changes in price, quality, quantity, delivery, or other terms and 

conditions of the contract. 

This information along with contracting officers not making fair opportunity and 

price reasonableness determinations for individual purchases raises the question 

as to whether the requirements were suitable for a multiple-award arrangement in 

the first place. Southwest Acquisition Branch contracting officers should have 

treated the letters of instruction as orders, obligated funds for individual purchases 

at the order level, and followed the procedures contained in FAR 16.505(b)(1). 

Had contracting officials done this, the problems we identified may not have 

occurred. The Southwest Acquisition Branch approach for making purchases 

under the omnibus multiple-award contracts does not promote fair opportunity 

and the spirit of the multiple-award process. 

Conclusion 

The Southwest Acquisition Branch contracting officials’ approach for awarding 

individual purchases under the omnibus multiple-award contracts has resulted in 

approximately $411 million of the overall $1 billion estimated value being 

awarded with no contracting officer involvement in the contractor selection 

process, no contracting officer fair opportunity analyses, and no contracting 

officer price reasonableness 
71 

Recommendations, Management Comments, and Audit 

Response 

E. We recommend that the Director, Defense Information Systems Agency: 

1. Appoint a resident contracting officer at Fort Huachuca, Arizona; 

and 

2. Appoint a Defense Information Systems Agency contracting officer 

to review the duties performed by contracting officer’s representatives 

assigned to the Joint Interoperability Test Command multiple-award 

contracts. The review should focus on whether Southwest Acquisition 

Branch contracting officers delegated too much authority to the contracting 

officer’s representatives.

Defense Information Systems Agency Comments. The Director for 

Procurement, Defense Information Technology Contracting Organization, 

provided comments on behalf of the Director, Defense Information Systems 

Agency. He concurred with Recommendations E.1. and E.2. Regarding 

Recommendation E.1., the Director stated that the head of the contracting activity 

for DISA, who was in charge of the Procurement Directorate of the Defense 

Information Technology Contracting Organization, is creating a contracting 

branch at JITC at Fort Huachuca. The contracting branch will consist of a 

GS-1102-14 contracting officer, one GS-1102-13 contracting officer, and one 

GS-1102-11/12 contract specialist. The DISA head of the contracting activity 

will be a part of the chain of command for those employees. The Director 

anticipated that these individuals would report for duty by the end of January 

2007. 

Regarding Recommendation E.2., the Director stated that DISA had performed a 

review and concluded that DOI contracting officers had delegated too much 

authority to the JITC contracting officer’s representatives. The Director stated 

that a September 2005 review by the DISA Inspector General, which included 

two staff members from the Procurement Directorate Defense Information 

Technology Contracting Organization, had reached the same conclusions. 

Additionally, DISA legal opinions on this issue concluded that “a Contracting 

Officer’s Representative (COR) does not have authority to award task orders nor 

may CORs be delegated such authority.” This legal opinion was based on 

regulations (FAR 1.601, DFARS 201.602-2, and Defense Acquisition Regulation 

Supplement 1.602-2-90). 

Audit Response. The Director’s comments are responsive to Recommendations 

E.1. and E.2. 
72 

Appendix A. Scope and Methodology 

We performed this audit jointly with the Department of the Interior Inspector 

General from August 2005 through August 2006 in accordance with section 811 

of the National Defense Authorization Act for 2006. We reviewed 49 DOI 

contract actions awarded during FY 2005 for purchases valued at $277.1 million. 

The 49 contracts from which the contract actions were awarded had an estimated 

value of $2.9 billion. 

We reviewed two DOI sites that award contracts for DoD: GovWorks, located in 

Herndon, Virginia, and the Southwest Acquisition Branch, located at Fort 

Huachuca, Arizona. For each site, we judgmentally selected contracts or contract 

actions awarded during FY 2005. Our audit primarily focused on the following 

six areas of review. 

Bona Fide Need. We determined whether the DoD requiring activity had 

a bona fide needs for the requirement included on MIPRs sent to DOI. 

Specifically, we determined whether the need was for the fiscal year of the 

appropriation used to finance the requirement. 

Market Research. We determined whether DoD had a legitimate need to 

use DOI to make purchases of low-dollar military equipment, the use of DOI to 

purchase products and services from the GSA Federal supply schedules, and the 

use of DOI to purchase items from existing DoD contracts. 

Competition. We determined whether DOI adequately competed DoD 

purchases according to FAR and DFARS. We reviewed orders issued under 

multiple-award contracts, orders and BPAs issued under GSA Federal supply 

schedules, and awards made to Section 8(a) contractors. 

Price Reasonableness Determinations. We determined whether DOI 

contracting officers adequately documented that the prices paid for DoD goods 

and services were fair and reasonable. We reviewed documentation DOI 

contracting organizations maintained to support DoD purchases made. The 

documentation reviewed included MIPRs, MIPR acceptances, statements of work, 

price negotiation memorandums, technical evaluations, independent Government 

estimates, legal reviews, and determination and findings documents. 

Monitoring Contractor Performance. We reviewed the 24 contracts 

awarded for services and determined whether DOI contracting officers officially 

designated contracting officer’s representatives in writing and whether QASPs 

were prepared in order to specify all work requiring surveillance and the method 

of surveillance. 

Use of Computer-Processed Data. The audit relied on data from the General 

Services Administration Federal Procurement Data System—Next Generation 

(FPDS-NG), the GovWorks Business Information System, and the National 

Business Center, Southwest Acquisition Branch, business activity data to identify 

contracts for review. Although we did not perform detailed testing of the data 

from these systems, we did not identify significant errors in the data. 
73 

FPDS-NG. On September 27, 2005, the Government Accountability 

Office (GAO) sent a memorandum to the Director, Office of Management and 

Budget, called “Improvements Needed to the Federal Procurement Data SystemNext Generation.” The memorandum stated: 

Based on our review, we have concerns regarding whether the new 

system has achieved the intended improvements in the areas of 

timeliness and accuracy of data, as well as ease of use and access to 

data. We also are concerned as to whether the FPDS-NG system has 

the flexibility to capture data on interagency contracting transactions. 

Completion of the FPDS-NG transition provides an opportunity for 

assessing the implementation of the system to date and for considering 

needed adjustments as the contractor begins its next period of 

performance. We are recommending actions to help achieve the 

intended improvements for FPDS-NG, which should be considered as 

part of that assessment. 

Despite the GAO concerns on accuracy of the FPDS-NG system, we relied on the 

data to identify contracting orders that had been fulfilled by DOI through DoD 

contracts and contracts let by other Federal agencies because we believed that the 

FPDS-NG was the best available source for that information. 

GovWorks Business Information System. The audit relied on data from 

the GovWorks Business Information System to identify orders for our review and 

identify MIPRs that were still open. The system had automated links to source 

documents contained in an Adobe Acrobat TM file format. The information 

contained in the system generally agreed with information on the supporting 

documents and selected contract files. One exception was information on DoD 

appropriation symbols, which we found to have about a 12.5 percent error rate. 

We discuss this error and its effect on the audit in finding B. 

Southwest Acquisition Branch, Interior Department Electronic 

Acquisition System Procurement Desktop. We used data from the Interior 

Department Electronic Acquisition System Procurement Desktop. We did not 

discover any errors in the system that would effect our audit conclusions. 

Use of Technical Assistance. Computer engineers from the DoD IG Information 

Technology Branch, Technical Assessment Directorate, reviewed the System 

Security Authorization Agreement for the Open Market Corridor to determine 

whether the contractor to the Naval Postgraduate School properly assessed the 

system’s risk level. The GSA Director, Leasing Policy and Performance Division 

performed independent appraisals of the Counterintelligence Field Activity lease 

with TKC Communications to determine whether the Government paid a fair 

price for the lease. We relied on advice from our General Counsel on 

interpretations of appropriation law and other matters. 

Government Accountability Office High-Risk Area. The Government 

Accountability Office has identified several high-risk areas in DoD. This report 

provides coverage of the Contract Management, Interagency Contracting, and 

Weapons System Acquisition high-risk areas. 
74 

Appendix B. Prior Coverage 

During the last 5 years, the Government Accountability Office (GAO), the 

Department of Defense Inspector General (DoD IG), the Army Audit Agency, the 

Air Force Audit Agency, and the DOI Inspector General (DOI IG) issued 24 

reports relating to interagency contracting and military interdepartmental 

purchases. Unrestricted GAO reports can be accessed over the Internet at 

http://www.gao.gov. Unrestricted DoD IG reports can be accessed at 

http://www.dodig.mil/audit/reports. Unrestricted DOI IG reports can be accessed 

at http://www.doi.oig.gov. 

GAO 

GAO Report No. GAO-06-996, “Interagency Contracting Improved Guidance, 

Planning, and Oversight Would Enable the Department of Homeland Security to 

Address Risks,” September 2006 

GAO Report No. GAO-05-456, “Interagency Contracting Franchise Funds 

Provide Convenience, but Value to DoD is not Demonstrated,” July 2005 

GAO Report No. GAO-05-201, “Interagency Contracting Problems with DoD’s 

and Interior’s Orders to Support Military Operations,” April 2005 

GAO Report No. GAO-05-274, “Contract Management: Opportunities to 

Improve Surveillance on Department of Defense Service Contracts,” March 2005 

GAO Report No. GAO-05-207, “High-Risk Series: An update,” January 2005 

GAO Report No. GAO-03-1069, “Budget Issues: Franchise Fund Pilot Review,” 

August 2003 

GAO Report No. GAO-02-734, “Contract Management: Interagency Contract 

Program Fees Need More Oversight,” July 2002 

DoD IG 

DoD IG Report No. D-2007-042, “Potential Antideficiency Act Violations on 

DoD Purchases Made Through Non-DoD Agencies,” January 2, 2007 

DoD IG Report No. D-2007-032, “FY 2005 DoD Purchases Made Through the 

Department of Treasury,” December 8, 2006 

DoD IG Report No. D-2007-023, “FY 2005 DoD Purchases Made Through the 

National Aeronautics and Space Administration,” November 13, 2006 

DoD IG Report No. D-2007-007, “FY 2005 DoD Purchases Made Through the 

General Services Administration,” October 30, 2006 
75 

DoD IG Report No. D-2005-096, “DoD Purchases Made Through the General 

Services Administration,” July 29, 2005 

DoD IG Report No. D-2003-090, “Use and Control of Military Interdepartmental 

Purchase Requests at the Air Force Pentagon Communications Agency,” May 13, 

2003 

DoD IG Report No. D-2002-110, “Policies and Procedures for Military 

Interdepartmental Purchase Requests at Washington Headquarters Services,” 

June 19, 2002 

DoD IG Report No. D-2002-109, “Army Claims Service Military 

Interdepartmental Purchase Requests,” June 19, 2002 

Army Audit Agency 

Army Audit Agency Report No. A-2002-0536-IMU, “Military Interdepartmental 

Purchase Requests, Logistics Assistance Group Europe,” August 21, 2002 

Air Force Audit Agency 

Air Force Audit Agency Report No. F2005-0006-FBP000, “General Services 

Administration Military Interdepartmental Purchase Request, 353d Special 

Operations Group, Kadena AB, Japan,” November 10, 2004 

Air Force Audit Agency Report No. F2004-0046-FBP000, “General Services 

Administration Military Interdepartmental Purchase Request, 390th Intelligence 

Squadron, Kadena AB, Japan,” August 11, 2004 

DOI IG 

KPMG, under contract with the DOI IG, Report No. E-IN-MMS-0006-2005, 

“Independent Auditors' Report on the Minerals Management Service’s Financial 

Statements for Fiscal Years 2004 and 2003,” March 3, 2005 

KPMG, under contract with the DOI IG, Report No. E-IN-DMO-0058-2004, 

“Independent Auditors’ Report on the Departmental Offices’ Financial 

Statements for Fiscal Years 2004 and 2003,” December 6, 2004 

DOI IG Report No. W-EV-OSS-0075-2004, “Review of 12 Procurements Placed 

Under General Services Administration Federal Supply Schedules 70 and 871 by 

the National Business Center,” DOI Assignment, July 16, 2004 

KPMG, under contract with the DOI IG, Report No. E-IN-MMS-0066-2003, 

“Independent Auditors’ Report on the Minerals Management Service’s Financial 

Statements for Fiscal Years 2003 and 2002,” December 9, 2003 
76 

KPMG, under contract with the DOI IG, Report No. 2003-I-0038, “Independent 

Auditors’ Report on the Interior Franchise Fund’s Financial Statements for Fiscal 

Years 2002 and 2001,” March 21, 2003 

DOI IG Report No. 2002-I-0050, “GovWorks Gainsharing Program and Recovery 

of Costs Related to the Interior Franchise Fund Minerals Management Service,” 

September 2002 












89

Appendix F. Potential Antideficiency Act 

Violations 

GovWorks 

1. DOI Contract 41181. A potential bona fide needs rule violation occurred 

when a GovWorks contracting officer awarded contract 41181 to purchase 

decision agent network equipment for the Pentagon Telecommunications Service 

Center. The value of the contract was $108,196.00. A potential bona fide needs 

rule violation occurred because the contract, awarded on December 21, 2004, was 

funded with three FY 2001 Army O&M MIPRs that expired on September 30, 

2001, and one FY 2004 Army O&M MIPR that expired on September 30, 2004. 

The equipment consisted of commercial items and there was no evidence that a 

long lead-time was required to purchase these items, that the items were needed to 

replenish the inventory, or that there was an unforeseen delay in purchasing these 

items. Use of FY 2001 and FY 2004 Army O&M funds to satisfy FY 2005 

requirements does not meet the intent of the bona fide needs rule. Table F-1 

identifies the MIPRs initially used to fund contract 41181. 

Table F-1. MIPRs Used to Initially Fund DOI Contract 41181 

MIPR Number MIPR 

Amount 

Used 

MIPR Date Description of Acquisition on 

MIPR 

MIPR1MINTPR070 $ 6,831.30 September 14, 2001 “FUNDS ARE PROVIDED FOR 

THE ACQUISITION OF ADP 

AND SUPPLIES THROUGH 

THE PENTAGON IT STORE” 

MIPR1JDIT0N046 26,399.03 July 10, 2001 “Funds are provided for the 

acquisition of toner cartridges 

through the Pentagon IT Store for 

supply” 

MIPR1KINTWS058 38,803.30 July 24, 2001 “FUNDS ARE PROVIDED FOR 

THE ACQUISITION OF ADP 

AND SUPPLY THROUGH THE 

PENTAGON IT STORE” 

MIPR4MINTMM125 36,162.37 September 17, 2004 “The purpose of this MIPR Is to 

provide funds for equipment 

through the Pentagon IT Store” 

 Total $108,196.00 

2. Modification 0001. A potential bona fide needs rule violation occurred when 

a GovWorks contracting officer issued modification 0001 to contract 41181 on 

January 18, 2005. Under modification 0001, the contracting officer removed 

$26,399.03 from one of the original Army O&M MIPRs used to fund 

contract 41181, MIPR1JDIT0N046, dated July 10, 2001, and replaced it with 

funds from four other expired Army O&M MIPRs: one FY 2000 MIPR, one 

FY 2001 MIPR, and two FY 2004 MIPRs. Use of FY 2000, FY 2001, and 

FY 2004 Army O&M funds to satisfy FY 2005 requirements does not meet the 
90

intent of the bona fide needs rule. Table F-2 identifies the four Army O&M 

MIPRs that replaced Army O&M MIPR1JDIT0N046. 

Table F-2. Additional MIPRs Used to Fund DOI Contract 41181 

MIPR Number MIPR 

Amount 

Used 

MIPR Date Description of Acquisition 

on MIPR 

MIPR0MGSAIT092 $ 160.00 September 29, 2000 “Funds are provided for the 

acquisition of ADP products 

and services through the 

Pentagon IT Store, Under 

Project Number DOI84011” 

MIPR1MITST0074 3,176.76 September 24, 2001 “FUNDS ARE PROVIDED 

FOR THE ACQUISITION 

OF ADP AND SUPPLIES 

THROUGH THE 

PENTAGON IT STORE 

PROJECT ID0184880” 

MIPR4LINTMM111 11,393.50 August 18, 2004 “The purpose of this MIPR 

is to provide funds for 

equipment through the 

Pentagon IT Store” 

MIPR4MINTMM130 11,668.77 September 24, 2004 “THE PURPOSE OF THIS 

MIPR IS TO PROVIDE 

FUNDS FOR THE 

PURCHASE OF DMS 

EQUIPMENT THROUGH 

THE PENTAGON IT 

STORE” 

 Total $26,399.03 

3. DOI Contract 40966. A potential bona fide needs rule violation occurred 

when a GovWorks contracting officer awarded contract 40966 to purchase 71 

computer servers for the Pentagon Telecommunications Service Center. The 

value of the contract was $521,679.38. A potential bona fide needs rule violation 

occurred because contract 40966, awarded on November 30, 2004, was funded 

with MIPR4MINIMM125, using FY 2004 Army O&M funds that expired on 

September 30, 2004. The computer servers were commercial items and there was 

no evidence that a long lead-time was required to purchase these items, that the 

items were needed to replenish the inventory, or that there was an unforeseen 

delay in purchasing these items. Use of FY 2004 Army O&M funds to satisfy 

FY 2005 requirements does not meet the intent of the bona fide needs rule. 

4. DOI Contract 41063. A potential bona fide needs rule violation occurred 

when a GovWorks contracting officer awarded contract 41063 to purchase an 

IBM Server Warranty for the Pentagon Telecommunications Service Center. The 

value of the contract was $3,840.00. A potential bona fide needs rule violation 

occurred because contract 41063, awarded on November 24, 2004, was funded 

with O&M funds and Other Procurement that had already expired. Two of the 

MIPRs cited FY 2002 Army O&M funds that expired on September 30, 2002. 
91

One of the MIPRs cited FY 2004 Army O&M funds that expired on 

September 30, 2004. One of the MIPRs cited FY 2002 other procurement funds 

that expired on September 30, 2004. Use of FY 2002 and FY 2004 Army O&M 

funds and FY 2002 Other Procurement funds that expired on September 30, 2004 

to satisfy FY 2005 requirements does not meet the intent of the bona fide needs 

rule. Table F-3 identifies the four MIPRs used to fund contract 41063. 

Table F-3. MIPRs Used to Fund DOI Contract 41063 

MIPR Number MIPR 

Amount Used 

Appropriation MIPR Date 

MIPR2MINTMM077 $1,428.57 FY 02 Army O&M September 4, 2002 

MIPR2MINTMM081 158.20 FY 02 Army O&M September 23, 2002 

MIPR4BINTMM012 1,382.79 FY 04 Army O&M November 19, 2003 

MIPR2LINTMM075 870.44 FY 02 Army Other 

Procurement 

August 9, 2002 

 Total $3,840.00 

5. DOI Contract 41432. A potential bona fide needs rule violation occurred 

when a GovWorks contracting officer awarded contract 41432 to purchase three 

42-inch high-definition plasma televisions for the Pentagon Telecommunications 

Service Center. The value of the contract was $7,476.00. A potential bona fide 

needs rule violation occurred because contract 41432, awarded on February 8, 

2005, was funded with MIPR4MINTMM130, using FY 2004 Army O&M funds 

that expired on September 30, 2004. The equipment consisted of commercial 

items and there was no evidence that a long lead-time was required to purchase 

these items, that the items were needed to replenish the inventory, or that there 

was an unforeseen delay in purchasing these items. Use of FY 2004 O&M funds 

to satisfy FY 2005 requirements does not meet the intent of the bona fide needs 

rule. 

6. DOI Contract 1435-04-02-CT-85531/Order 43387. A potential bona fide 

needs rule violation occurred for 14 of 17 MIPRs used to fund multiple-award 

order 43387, on June 30, 2005, to purchase technical and functional support 

services for the Pentagon Telecommunications Service Center. The value of 

order 43387 was $3,908,420.00 and the period of performance was from July 1, 

2005, through December 31, 2005. The appropriation codes on these MIPRs 

show that FY 2003 O&M funds were cited for one of the MIPRs, FY 2004 O&M 

funds were cited for 13 of the MIPRs, and FY 2005 O&M funds were cited for 3 

of the MIPRs. MIPRs 1 through 13 that we questioned are identified in Table F4. 
92

Table F-4. MIPRs Used to Fund DOI Order 43387 

MIPR Number MIPR 

Amount Used 

Type of 

Funds 

MIPR 

Date 

MIPR 

Acceptance 

Date 

Availability 

of Funds 

1) MIPR3LINTMM101 $1,038,376.96 FY 03 

O&M 

8/29/03 8/29/03 8/29/04 

2) MIPR4GINTMM058 70,000.00 FY 04 

O&M 

4/23/04 4/26/04 4/26/05 

3) MIPR4GINTMM059 25,680.01 FY 04 

O&M 

4/23/04 4/26/04 4/26/05 

4) MIPR4HINTMM069 146,090.92 FY 04 

O&M 

5/26/04 5/26/04 5/26/05 

5) MIPR4JINTMM072 516.00 FY 04 

O&M 

6/4/04 6/7/04 6/7/05 

6) MIPR4JINTMM080 28,000.00 FY 04 

O&M 

6/22/04 6/24/04 6/24/05 

7) MIPR4JINTMM086 9,033.00 FY 04 

O&M 

6/25/04 6/28/04 6/28/05 

8) MIPR4JINTMM089 34,000.00 FY 04 

O&M 

6/25/04 6/28/04 6/28/05 

9) MIPR4KINTMM093 140,100.00 FY 04 

O&M 

7/08/04 7/9/04 7/9/05 

10) MIPR4KINTMM095 3,500.00 FY 04 

O&M 

7/16/04 7/16/04 7/16/05 

11) MIPR4KINTMM096 66,500.00 FY 04 

O&M 

7/16/04 7/16/04 7/16/05 

12) MIPR4LINTMM115 147,000.00 FY 04 

O&M 

8/31/04 8/31/04 8/31/05 

13) MIPR4MINTMM123 570,000.00 FY 04 

O&M 

9/9/04 9/10/04 9/10/05 

14) MIPR4MINTMM129 119,733.76 FY 04 

O&M 

9/24/04 9/24/04 9/24/05 

15) MIPR5BINTMM005 84,000.00 FY 05 

O&M 

11/9/04 11/10/04 11/10/05 

16) MIPR5CINTMM013 1,375,000.00 FY 05 

O&M 

12/13/04 12/15/04 12/15/05 

17) MIPR5HINTMM058 50,918.00 FY 05 

O&M 

5/25/05 5/26/05 5/26/06 

 Total $3,908,448.65 

A potential bona fide needs rule violation occurred related to MIPR number 1 

because the funds expired on September 30, 2003, but were used to partially fund 

order 43387 awarded on June 30, 2005. Potential bona fide needs rule violations 

occurred for MIPRs number 2 through number 8 because the GovWorks 

contracting officer also used them beyond their period of availability to partially 

fund order 43387. A potential bona fide needs rule violation occurred for MIPRs 
93

number 9 through 14 due to the unusually long period between the MIPR 

acceptance dates and the contract award date. Use of FYs 2003 and 2004 O&M 

funds to satisfy FY 2005 requirements does not meet the intent of the bona fide 

needs rule. 

7. DOI Contract 1435-04-02-CT-85531/Order 41160. A potential bona fide 

needs rule and purpose violation occurred when a GovWorks contracting officer 

awarded contract 41160, a multiple-award order, on December 30, 2004, to 

purchase a transitional enhanced communications gateway system and associated 

installation and support for the Pentagon Telecommunications Service Center. 

The value of the contract was $555,738.00. The delivery of the system was no 

later than 120 days from the date of contract 41160, December 30, 2004. A 

GovWorks contracting officer used funds from five MIPRs, totaling $555,738.00, 

to fund the contract. The appropriation codes on these MIPRs show that FY 2003 

Army O&M funds were cited on three of these MIPRs, FY 2002 Army other 

procurement funds were cited for one of the MIPRs, and FY 2003 Army other 

procurement funds were cited on one of the MIPRs. Table F-5 identifies the five 

MIPRs used to fund contract 41160. The MIPRs that we questioned are 

italicized. 

Table F-5. MIPRs Used to Fund DOI Contract 41160 

MIPR Number MIPR 

Amount 

Used 

Appropriation MIPR 

Date 

MIPR 

Acceptanc

e Date 

MIPR3MINTMM113 $120,000.00 FY 03 Army O&M 9/24/03 9/24/03 

MIPR3MINTMM112 120,000.00 FY 03 Army O&M 9/24/03 9/24/03 

MIPR3MINTMM114 200,000.00 FY 03 Army O&M 9/25/03 9/25/03 

MIPR-2-F-D0IIT-045 95,709.55 FY 02 Army Other 

Procurement 

3/15/02 3/22/02 

MIPR3HINTMM058 20,028.45 FY 03 Army Other 

Procurement 

5/21/03 5/22/03 

 Total $555,738.00 

A potential bona fide needs rule violation occurred because the contracting officer 

used funds from three Army O&M MIPRs that expired on September 30, 2003, 

and funds from one FY 2002 Other Procurement Fund MIPR that expired on 

September 30, 2004, to fund order 41160, awarded on December 30, 2004. There 

was no bona fide need in FY 2003 for the funds in the FY 2003 Army O&M 

MIPRs used to partially fund contract 41160 awarded in FY 2005. The 

GovWorks contracting officer did not use the funds until December 30, 2004, 

which was 15 months after the issuance dates of the three O&M MIPRs. Use of 

FY 2003 O&M funds to satisfy FY 2005 requirements does not meet the intent of 

the bona fide needs rule. 

A potential violation of the purpose statute also occurred under contract 41160. 

According to information in the contract file, $492,791 of the $555,739 contract 

value was related to equipment; however, the contracting officer only obligated 

$115,738.00 of other procurement funds under two MIPRs to fund the equipment 

portion of the purchase. The remaining $377,053.20 of equipment was therefore 

funded with the O&M funds used to fund contract 41160. 
94

Two other procurement fund MIPRs contained incorrect information. For 

example, other procurement funds were used for MIPR-2-F-D0IIT-045, issued on 

March 15, 2002. Information in MIPR-2-F-D0IIT-045 states that the funds expire 

on September 30, 2002. Other procurement funds are 3-year funds and 

accordingly would not expire until September 30, 2005. Other procurement funds 

were also used on MIPR3HINTMM058 issued on May 21, 2003. Information in 

MIPR3HINTMM058 states that the funds expire on September 30, 2003. Again, 

other procurement funds are 3-year funds and would not expire until 

September 30, 2006. 

8. DOI Contract 44435. A potential bona fide needs rule violation occurred 

when a GovWorks contracting officer awarded contract 44435 to purchase 40 

laser jet printers for the Pentagon Telecommunications Service Center. The value 

of the contract was $37,643.10. A potential bona fide needs rule violation 

occurred because the contract, awarded on August 29, 2005, was funded with 

MIPR4GINTMM054, using FY 2004 Army O&M funds that expired on 

September 30, 2004. The equipment consisted of commercial items and there was 

no evidence that a long lead-time was required to purchase these items, that the 

items were needed to replenish the inventory, or that there was an unforeseen 

delay in purchasing these items. The delivery date for these items was 30 days 

after the date of the order. Use of FY 2004 Army O&M funds to satisfy FY 2005 

requirements does not meet the intent of the bona fide needs rule. 

9. DOI Contract 41242. A potential bona fide needs rule violation occurred 

when a GovWorks contracting officer awarded contract 41242 on December 10, 

2004, to purchase 75 Microsoft Windows server enterprise 2003 software licenses 

for the Pentagon Telecommunications Service Center. The value of the contract 

was $113,388.00. A potential bona fide needs rule violation occurred because the 

contracting officer used FY 2004 Army O&M funds from MIPR4MINTMM125 

that expired on September 30, 2004, to fund the contract. The equipment 

consisted of commercial items and there was no evidence that a long lead-time 

was required to purchase these items, that the items were needed to replenish the 

inventory, or that there was an unforeseen delay in purchasing these items. Use 

of FY 2004 Army O&M funds to satisfy FY 2005 requirements does not meet the 

intent of the bona fide needs rule. 

10. DOI Blanket Purchase Agreement 40699 (Task Order 41801 

Modification 0002). A potential bona fide needs rule violation occurred when a 

GovWorks contracting officer issued modification 0002 under the task order on 

May 5, 2005. The purpose of modification 0002 was to add incremental funding 

of $920,970.87 to purchase services related to the U.S. Air Force Horned Owl 

Program for the Army Program Management Office for Airborne Reconnaissance 

Low. DOI contracting officials used a portion of the funds from two existing 

MIPRs to fund modification 0002. MIPR4DINT04166 was signed on January 10, 

2004, and accepted on January 15, 2004. A potential bona fide needs rule 

violation occurred because of the unusually long period between the January 15, 

2004, MIPR acceptance date and the May 5, 2005, date that the funds were 

obligated under modification 0002. Use of FY 2004 O&M funds to satisfy 

FY 2005 requirements does not meet the intent of the bona fide needs rule. 

11. DOI Contract 43852. A potential bona fide needs rule violation occurred 

when a GovWorks contracting officer awarded contract 43852 on July 31, 2005, 

to purchase services for the Army Training Support Center. The services related 

to a training ammunition calculator used to calculate ammunition requirements 
95

for training purposes at Army locations. The value of the contract was 

$94,075.78. Contracting officials used funds from MIPR4KBELG3066 issued on 

July 12, 2004, and accepted on July 15, 2004. The period of performance was 

from July 31, 2005, until 3 months after receipt of order, or October 31, 2005. A 

potential bona fide needs rule violation occurred because the GovWorks 

contracting officer used FY 2004 Army O&M funds after their period of 

availability. The MIPR was accepted July 15, 2004 and had a 12-month period of 

availability that ended on July 15, 2005. Also, a potential bona fide needs rule 

violation occurred because of the unusually long period between the July 15, 

2004, MIPR acceptance date and the July 31, 2005, contract award date. Use of 

FY 2004 Army O&M funds to satisfy FY 2005 requirements does not meet the 

intent of the bona fide needs rule. 

12. DOI Contract 40385. A potential bona fide needs rule violation occurred 

when a GovWorks contracting officer awarded contract 40385 on October 15, 

2004, to purchase 226 weapons cleaning kits for Naval Sea Systems Command 

(NAVSEA) Fleet Anti-Terrorism Force Protection. The value of the contract was 

$3,390.00. A potential bona fide needs rule violation occurred because the 

contract was funded with MIPR N6553804MP00018, citing FY 2004 Navy O&M 

funds that expired on September 30, 2004. There was no evidence that a long 

lead-time was required to purchase these items, that the items were needed to 

replenish the inventory, or that there was an unforeseen delay in purchasing these 

items. The items were scheduled to be delivered by November 26, 2004. Use of 

FY 2004 Navy O&M funds to satisfy FY 2005 requirements does not meet the 

intent of the bona fide needs rule. 

13. DOI Contract 43270. A potential bona fide needs rule violation occurred 

when a GovWorks contracting officer awarded contract 43270 on May 20, 2005, 

to purchase 50 sets of T1 special body armor and 100 gamma plates for NAVSEA 

Fleet Anti-Terrorism Force Protection, valued at $61,112.00. A potential 

violation occurred because contract 43270 awarded on May 20, 2005, was funded 

with MIPR N6553804MP00018, citing FY 2004 Navy O&M funds that expired 

on September 30, 2004. There was no evidence that a long lead-time was 

required to purchase these items or that there was an unforeseen delay in 

purchasing these items since the items were to be delivered by June 17, 2005. 

While there was evidence that the purpose of contract 43270 was to replenish 

inventory, the evidence was not convincing. Documentation in the contract files 

stated that the “subject order is to replenish current stock that is distributed to 

various units.” However, we question the use of FY 2004 Navy O&M funds that 

expired on September 30, 2004, to fund this purchase made almost 8 months after 

the end of FY 2004. Use of FY 2004 Navy O&M funds to satisfy FY 2005 

requirements does not meet the intent of the bona fide needs rule. 

14. DOI Contract 40387. A potential bona fide needs rule violation occurred 

when a GovWorks contracting officer awarded contract 40387 on October 17, 

2004, to purchase 226 pairs of gloves and goggles, valued at $10,170.00, for 

NAVSEA Fleet Anti-Terrorism Force Protection. A potential violation occurred 

because the contract was funded with MIPR N6553804MP00018, citing FY 2004 

Navy O&M funds that expired on September 30, 2004. There was no evidence 

that the items were needed to replenish the inventory, that a long lead-time was 

required to purchase these items, or that there was an unforeseen delay in 

purchasing these items. The items were scheduled to be delivered by 

November 26, 2004. Use of FY 2004 Navy O&M funds to satisfy FY 2005 

requirements does not meet the intent of the bona fide needs rule. 
96

15. DOI Contract 43280. A potential bona fide needs rule violation occurred 

when a GovWorks contracting awarded contract 43280 to purchase 15 pairs of 

goggles and 15 balaclavas, valued at $1,328.01, for NAVSEA Fleet 

Anti-Terrorism Force Protection. A potential violation occurred because the 

contract, awarded on May 17, 2005, was funded with MIPRN6553804MP00018, 

citing FY 2004 Navy O&M funds that expired on September 30, 2004. There 

was no evidence that the items were needed to replenish the inventory, that a long 

lead-time was required to purchase these items, or that there was an unforeseen 

delay in purchasing these items. The items were scheduled to be delivered by 

November 26, 2004. Use of FY 2004 Navy O&M funds to satisfy FY 2005 

requirements does not meet the intent of the bona fide needs rule. 

16. DOI Contract 41907. A potential bona fide needs rule violation occurred 

when a GovWorks contracting officer awarded contract 41907 to purchase 132 

radio pouches, valued at $3,168.00, for NAVSEA Fleet Anti-Terrorism Force 

Protection. A potential violation occurred because the contract, awarded on 

January 24, 2005, was funded with MIPR N6553804MP00018, citing Navy 

FY 2004 O&M funds that expired on September 30, 2004. There was no 

evidence that the items were needed to replenish the inventory, that a long leadtime was required to purchase these items, or that there was an unforeseen delay 

in purchasing these items. The items were scheduled to be delivered by 

February 11, 2005. Use of FY 2004 Navy O&M funds to satisfy FY 2005 

requirements does not meet the intent of the bona fide needs rule. 

17. DOI Contract 42912. A potential bona fide needs rule violation occurred 

when a GovWorks contracting officer awarded contract 42912 to purchase 40 

desert camouflage body armor systems, valued at $71,137.60, for NAVSEA 

Mobile Security Force Command. A potential violation occurred because the 

contract, awarded on April 19, 2005, was funded with MIPR N6553803MP00013, 

citing Navy FY 2003 O&M funds that expired on September 30, 2003. The funds 

expired 1 year and 7 months before they were used to fund the contract. Use of 

FY 2003 O&M funds to satisfy FY 2005 requirements does not meet the intent of 

the bona fide needs rule. 

18. DOI Contract 43329. A potential bona fide needs rule violation occurred 

when a GovWorks contracting officer awarded contract 43329 to purchase 20 

pairs of knee pads and 20 pairs of elbow pads, valued at $1,158.60, for NAVSEA 

Mobile Security Force Command. A potential violation occurred because the 

contract, awarded on May 20, 2005, was funded with MIPR N6553804MP00018, 

citing Navy FY 2004 O&M funds that expired on September 30, 2004. There 

was no evidence that the items were needed to replenish the inventory, that a long 

lead-time was required to purchase these items, or that there was an unforeseen 

delay in purchasing these items. The items were scheduled to be delivered by 

June 27, 2005. Use of FY 2004 O&M funds to satisfy FY 2005 requirements 

does not meet the intent of the bona fide needs rule. 

19. DOI Contract 43349. A potential bona fide needs rule violation occurred 

when a GovWorks contracting officer awarded contract 43349 to purchase 12 seal 

bags, valued at $1,369.00, for NAVSEA Mobile Security Force Command. A 

potential violation occurred because the contract, awarded on May 24, 2005, was 

funded with MIPR N6553804MP00018, citing Navy FY 2004 O&M funds that 

expired on September 30, 2004. There was no evidence that the items were 

needed to replenish the inventory, that a long lead-time was required to purchase 

these items, or that there was an unforeseen delay in purchasing these items. The 
97

items were scheduled to be delivered by June 27, 2005. Use of FY 2004 Navy 

O&M funds to satisfy FY 2005 requirements does not meet the intent of the bona 

fide needs rule. 

20. DOI Blanket Purchase Agreement 32178 (Task Order 73545). A 

potential bona fide needs rule violation occurred under task order 73545, awarded 

on October 9, 2003, when GovWorks contracting officials used FY 2003 Office 

of the Secretary of Defense O&M funds beyond the funds availability of use. 

This task order was for technical services related to the development of geospatial 

representations of Navy installation boundaries for the Naval Facilities 

Engineering Command. The period of performance was from October 1, 2003, 

through September 30, 2004. The funds used under NMIPR039209671, dated 

August 14, 2003, and accepted on August 18, 2003, were only available for use 

for a 12-month period ending August 18, 2004. At least some of the 

$1,559,085.08 was used beyond August 18, 2004, because no additional funding 

was added to the task order until April 6, 2005. Use of Office of the Secretary of 

Defense O&M funds after the funds expire does not meet the intent of the bona 

fide needs rule. 

21. DOI Contract 1435-04-03-RC-70941 and DOI Contract 

1435-04-03-RC-73024. The Counterintelligence Field Activity (CIFA) did not 

follow the required procedures for obtaining office space in NCR. Specifically, 

its 10-year, $100 million lease was obtained through a Section 8(a) contractor 

rather than the General Services Administration as required by statute. As a 

result, the lack of authority for CIFA to enter the lease violated a myriad of 

statutes including the Antideficiency Act, and circumvented the required 

congressional review and approval process. See finding D for the detailed 

discussion of lease-related issues. The potential Antideficiency Act violations are 

as follows. 

Lack of Authority to Enter the Lease. Title 40 U.S.C 3307 establishes a 

Prospectus Threshold Authority of $2.21 million for leases in FY 2003. Only the 

General Services Administration is permitted to enter leases in excess of the 

threshold. A potential bona fide needs rule violation occurred because the CIFA 

lease agreement required lease payments of at least $6.575 million per year for 

2004, which was significantly more than the $2.21 million Prospectus Threshold 

Authority. Because CIFA did not follow the prescribed procedure for obtaining 

lease space, it circumvented required congressional notification and approval 

process prescribed in 10 U.S.C. 2662(a)(2), 40 U.S.C. 3307(a), and Federal 

Management Regulation 102-73.65. 

Lack of Authority to Make Building Alterations. Title 40 U.S.C. 3307 

also establishes a Prospectus Threshold Authority for the construction and 

alteration of leased buildings. The prospectus threshold for lease space alterations 

in FY 2003 was $1.106 million. A potential bona fide needs rule violation 

occurred because CIFA made leased space alterations of $14.7 million under 

contract 1435-04-03-RC-70941 during FY 2003 and did not obtain the required 

approval from the Senate and House of Representatives. The Prospectus 

Threshold Authority for lease space alternations in FY 2004 was $1.1450 million. 

A potential bona fide needs rule violation occurred because CIFA made space 

alterations of at least $7.9 million under contract 1435-04-03-RC-73024 during 

FY 2004 and did not obtain the required approval from the Senate and House of 

Representatives. 
98

Potential Violations of the Bona Fide Needs Rule. The TKC 

Communications contract had provisions that permitted CIFA to repay, over the 

life of the lease, the costs for its building alterations incurred during FY 2003. In 

effect, the contractor performed the construction during FY 2003 but permitted 

CIFA to pay for the construction over the duration of the lease. The contract also 

had an amortization schedule showing the interest charges. A potential bona fide 

needs rule violation occurred because CIFA paid the costs of the building 

alterations over the life of the loan instead of paying for the alterations in the 

fiscal year in which they occurred. Additionally, the terms of the contract created 

a liability to the Government before Congress had appropriated the funds. This 

contract potentially violated 31 U.S.C. 341(a)(1)(A) and the U.S. Constitution, 

Article 1, Section 9, clause 7. Similarly, the contracting clause for termination of 

the lease required payment of any remaining balance on the building alteration 

loan and payment of rent for the next 12 months. This contract provision also 

potentially violated 31 U.S.C 1341(a)(1)(A) and the U.S. Constitution, Article 1, 

Section 9, clause 7. 

Potential Violation of Purpose Statute. CIFA paid for its building 

alterations using O&M funds. Military construction funds should have been used 

and the failure to use these funds potentially violated 31 U.S.C. 1301 and 

10 U.S.C. 2805. 

Southwest Acquisition Branch 

22. Others. A potential bona fide needs rule violation occurred for five orders 

issued by Southwest Acquisition Branch contracting officials under 

contract NBCHD020037. The five orders purchased equipment for the DoD 

Office of Inspector General (DoD OIG). Southwest Acquisition Branch 

contracting officials awarded the five orders between September 25 and 

September 29, 2005. For four of the orders, the DoD OIG did not receive the 

items until FY 2006, thus creating a potential bona fide needs rule violation. For 

the other order, we were unable to determine the date items were received; 

however, it is likely that they were not received until FY 2006 because the 

contract was awarded 5 days before the end of the fiscal year. There was no 

evidence that the items were needed to replenish the inventory, that a long leadtime was required to purchase these items, or that there was an unforeseen delay 

in purchasing these items. Table F-6 identifies the five orders that potentially 

violated the bona fide needs rule. Use of FY 2005 funds to satisfy FY 2006 

requirements does not meet the intent of the bona fide needs rule. 
99

Table F-6. Potential DoD OIG Antideficiency Act Violations 

Under Southwest Acquisition Branch Contract NBCHD020037 

Order 

Number 

MIPR 

Date 

Date 

Awarded 

Item 

Description 

Order 

Amount 

Date Received 

1681 9/15/2005 9/29/2005 Laptop 

Computer 

System 

$ 175,032.00 12/16/2005 

12/21/2005 

12/27/2005 

1685 9/15/2005 9/25/2005 Desktop 

Computer 

Systems 

 94,909.00 Unknown 

1687 9/15/2005 9/26/2005 Port 

Replicators 

and 

Adapters 

 40,776.00 10/14/2005 

1688 9/15/2005 9/28/2005 Audio and 

Video 

Simulcast 

System 

 54,569.84 12/9/2005 

1691 9/16/2005 9/28/2005 5JW011 

MetBotz 

Monitoring 

Equipment 

 31,436.66 11/10/2005 

11/14/2005 

 Total $396,723.50 
100

Appendix G. Report Distribution 

Office of the Secretary of Defense 

Under Secretary of Defense for Acquisition, Technology, and Logistics 

Director, Defense Procurement and Acquisition Policy 

Director, Acquisition Resources and Analysis 

Under Secretary of Defense (Comptroller)/Chief Financial Officer 

Deputy Chief Financial Officer 

Deputy Comptroller (Program/Budget) 

Under Secretary of Defense for Intelligence 

Deputy Under Secretary of Defense (Counterintelligence and Security) 

Director, Program Analysis and Evaluation 

Department of the Army 

Assistant Secretary of the Army (Financial Management and Comptroller) 

Auditor General, Department of the Army 

Office of the Administrative Assistant to the Secretary of the Army 

Department of the Navy 

Assistant Secretary of the Navy (Financial Management and Comptroller) 

Assistant Secretary of the Navy for Research, Development and Acquisitions 

Deputy Assistant Secretary of the Navy for Acquisition Management 

Naval Inspector General 

Auditor General, Department of the Navy 

Commander, Naval Sea Systems Command 

Commander, Naval Supply Systems Command 

Commander, Space and Naval Warfare Systems Command 

President, Naval Postgraduate School 

Assistant General Counsel, Acquisition Integrity Office 

Department of the Air Force 

Assistant Secretary of the Air Force (Financial Management and Comptroller) 

Auditor General, Department of the Air Force 

Other Defense Organizations

Director, Defense Contract Audit Agency 

Director, Defense Finance and Accounting Service 

Director, Defense Information Systems Agency 

Joint Interoperability Test Command Office of the Commander 

Director, Defense Logistics Agency 
101

Other Defense Organizations (cont’d) 

Director, Counterintelligence Field Activity 

Director, Washington Headquarters Services 

Non-Defense Federal Organization 

Office of Management and Budget 

Director, Federal Procurement Policy 

Chairman, Acquisition Advisory Panel 

Secretary, Department of the Interior 

Deputy Secretary 

Director, Minerals Management Service 

Director, National Business Center 

Assistant Director, GovWorks 

Team Chief, Southwest Acquisition Branch 

Administrator, General Services Administration 

Director, Leasing Policy, and Performance Division 

Director, Financial Systems Integration Office 

Administrator, Small Business Administration 

Inspector General, Small Business Administration 

Director, Central Intelligence Agency 

Inspector General, Department of the Interior 

Congressional Committees and Subcommittees, Chairman and 

Ranking Minority Member 

Senate Committee on Appropriations 

Senate Subcommittee on Defense, Committee on Appropriations 

Senate Committee on Armed Services 

Senate Committee on Environment and Public Works 

Senate Committee on Homeland Security and Governmental Affairs 

Senate Committee of Select Committee on Intelligence 

House Committee on Appropriations 

House Subcommittee on Defense, Committee on Appropriations 

House Committee on Armed Services 

House Committee on Government Reform 

House Subcommittee on Government Management, Finance, and Accountability, 

Committee on Government Reform 

House Committee on National Security 

House Subcommittee on National Security, Emerging Threats, and International 

Relations, Committee on Government Reform 

House Committee on Permanent Select Committee on Intelligence 

House Committee on Transportation and Infrastructure 

Office of the Under Secretary of Defense for 

Acquisition, Technology, and Logistics 

Comments 

103 

 
104 

 
105 
106 
Office of the Under Secretary of Defense 

(Comptroller)/Chief Financial Officer 

Comments 

107 
108 
Office of the Under Secretary of Defense for 

Intelligence Comments 

109 
Department of the Navy Comments 

110 
Final Report 

Reference 

111 

/ 

Revised 

Revised 
112 
113 
114 
115 
116 
117 
118 
119 
120 
121 
Department of the Air Force Comments 

122 
Defense Information Systems Agency Comments 

123 
124 
125 
Counterintelligence Field Activity Comments 

126 
127 
128 
129 
130 
Team Members 

The Department of Defense Office of the Deputy Inspector General for Auditing, 

Acquisition and Contract Management, prepared this report. Personnel of the 

Department of Defense Office of Inspector General who contributed to the report 

are listed below. 

Richard B. Jolliffe 

Terry L. McKinney 

Kent E. Shaw 

Robert E. Bender 

LaNita C. Matthews 

Karen A. Ulatowski 

Michael T. Banach 

Robert M. Donahoe 

John L. Hatton 

Charles S. Dekle 

Tam T. Phan 

Anh H. Tran 

Jillisa H. Milner