September 1, 2011

AUDIT REPORT

REPORT NO. IG-11-025 (ASSIGNMENT NO. A-10-013-00)

OFFICE OF AUDITS

NASA’S USE OF RECOVERY ACT FUNDS TO REPAIR 

HURRICANE DAMAGE AT JOHNSON SPACE CENTER

OFFICE OF INSPECTOR GENERAL

National Aeronautics and 

Space Administration
REPORT NO. IG-11-025

Final report released by:

Paul K. Martin

Inspector General

Acronyms

CLIN Contract Line Item

CO Contracting Officer

COTR Contracting Officer’s Technical Representative

CSC Computer Sciences Corporation Applied Technology Division

FAR The Federal Acquisition Regulation

JSC Johnson Space Center

OIG Office of Inspector General

OMB Office of Management and Budget
SEPTEMBER 1, 2011

REPORT NO. IG-11-025

OVERVIEW

NASA’S USE OF RECOVERY ACT FUNDS 

TO REPAIR HURRICANE DAMAGE AT

JOHNSON SPACE CENTER

The Issue

The American Recovery and Reinvestment Act of 2009 (Recovery Act) requires a

significant level of transparency and accountability to ensure that Recovery Act funds are 

expended in accordance with the Act’s requirements and to make information about these 

expenditures readily available to the public. In support of these objectives, Federal 

Offices of Inspectors General oversee agency compliance with the Office of Management 

and Budget’s (OMB) Implementing Guidance for the Act.

1

In 2009, NASA received a total of $1 billion in Recovery Act funds.

 This guidance sets forth the

requirements agencies must follow in awarding and modifying contracts funded with 

Recovery Act funds. NASA’s Procurement Information and Grant Information Circulars

provide additional guidance for NASA contracts. 

2

The objective of our audit was to assess cost, schedule, and performance of the JSC 

contracts, as well as JSC’s compliance with applicable OMB and NASA guidance. We 

reviewed the performance of nine of the largest contractors hired by JSC to perform 

Recovery Act work. This group included one quality assurance contractor; seven 

construction contractors that performed repair work directly; and JSC’s existing facilities 

support services contractor, Computer Sciences Corporation Applied Technology 

Division (CSC), which performed construction oversight. In total, we reviewed 

$41 million of the $50 million in Recovery Act contract actions awarded by JSC. 

 Of this amount, 

NASA allocated $50 million to Johnson Space Center (JSC) for the repair of buildings 

and facilities damaged in September 2008 by Hurricane Ike. Between June 15, 2009, and 

September 30, 2010, JSC, using Recovery Act funds, issued new contracts and modified 

several existing contracts to repair roofs and loggia on several dozen buildings; replace

leaking windows; waterproof exterior building panels; repair street, parking lot, and 

sidewalk lights; reconstruct a hangar at Ellington Field; and refloat a barge dock on Clear 

Lake. 

 1 Office of Management and Budget, “Updated Implementing Guidance for the American Recovery and 

Reinvestment Act of 2009” (M-09-15, April 3, 2009).

2 NASA also received $52 million in reimbursable funds from other Federal agencies, including the 

National Oceanic and Atmospheric Administration and the Department of Energy, to assist these agencies 

in meeting their Recovery Act goals. 
OVERVIEW

ii REPORT NO. IG-11-025 

Results

In general, we found that the work performed by the nine contractors in our review met 

cost, schedule, and performance milestones, and that JSC’s use of Recovery Act funds for 

these contracts generally complied with OMB and NASA guidance. However, we 

identified a number of issues pertaining to the construction-related delivery orders JSC 

awarded to CSC. Specifically, we found that by awarding delivery orders to CSC rather 

than to a contractor that had the resources to perform the repair work directly, JSC 

incurred up to $1.8 million in excessive project oversight costs. In addition, we found 

that JSC did not negotiate with CSC project oversight costs that significantly exceeded 

independent Government estimates or otherwise appeared excessive. We also found that 

JSC project management officials approved the payment of $348,534 in questionable 

risk-related costs to CSC. We question the methodology CSC used to calculate these 

costs and whether they were reasonable under the Federal Acquisition Regulation (FAR). 

Lastly, we found that JSC officials allowed unauthorized individuals to recommend 

payment of CSC invoices. 

JSC’s Award of Three Delivery Orders Resulted in Payment of up to $1.8 Million in 

Excessive and Questionable Costs. CSC is NASA’s fourteenth largest contractor with 

over $253 million in contract actions in fiscal year (FY) 2009, including a facilities 

support services contract with JSC.3

JSC’s Recovery Act Project Manager told us that at the time the decision was made to 

award the delivery orders to CSC, JSC officials did not believe they had sufficient time to 

compete, award, and obligate Recovery Act funds to ensure the hurricane repairs were 

completed in a timely manner. Therefore, in an effort to speed distribution of the funds, 

JSC officials decided to use the existing CSC contract rather than compete and award the 

work directly to contractors to perform the repairs. However, we found that JSC 

competed other Recovery Act contracts and disbursed the associated funding within 

similar timeframes as the CSC delivery orders. 

 Through a series of delivery orders on this contract, 

JSC awarded approximately $12.5 million to CSC for construction-related hurricane 

repair work using Recovery Act funds. CSC in turn hired qualified subcontractors to 

perform the work and charged JSC a fee for oversight of the subcontractors’ work. We 

reviewed cost proposals for three of the delivery orders with a combined value of 

approximately $8.2 million and found that the amount allocated to the subcontractors 

who performed the actual repair work totaled $5.9 million, while CSC’s charge for 

overseeing their work totaled nearly $2 million, or 33 percent of the subcontractors’ 

costs. 

JSC further contends that awarding the delivery orders to CSC was necessary to ensure 

the projects were properly managed and supervised and that the required safety personnel 

 

3 Federal Procurement Data System, “Federal Procurement Data System – Next Generation Top 100 

Contractors Report FY 2009,” https://www.fpds.gov/fpdsng cms/index.php/reports (last accessed 

February 28, 2011).
OVERVIEW

REPORT NO. IG-11-025 iii

were on-site. However, all of the repair work JSC awarded, including the work awarded 

to contractors other than CSC, required proper supervision and management, and it is 

unclear to us why another qualified contractor could not have satisfied this requirement. 

With regard to the need for on-site safety personnel, JSC personnel could not explain 

why only CSC was capable of satisfying this requirement. We believe that had JSC 

awarded the work covered by the CSC delivery orders directly to qualified construction 

companies, as it did for other Recovery Act funded hurricane repair work, it could have 

saved up to $1.8 million in project oversight costs.4

JSC Did Not Negotiate Project Oversight Costs with CSC. We found that JSC did not 

negotiate with CSC regarding its Recovery Act cost proposals to ensure NASA was 

receiving the best value for the three delivery orders we reviewed. Specifically, two of 

CSC’s cost proposals exceeded the independent Government estimate and the third 

proposal contained project oversight costs of nearly 40 percent of total subcontractor 

costs. Although the technical evaluation prepared by JSC officials for one of the delivery 

orders noted that the project oversight costs proposed by CSC exceed the amount 

provided in the Government estimate by 16 percent, it did not recommend that JSC 

negotiate with CSC in an effort to reduce these costs. Similarly, JSC accepted without 

negotiation project oversight rates of 35 and 40 percent for the other two delivery orders. 

Best practices in the construction industry indicate that the costs for general conditions –

which comprise project oversight costs including supervision, overhead, profit, and a 

portion of general and administrative costs – should equal 15 percent of direct 

construction costs. JSC Recovery Act project staff agreed that this was a reasonable rate 

for organizations other than NASA, but noted that “JSC’s project requirements for an onsite Safety & Health System Professional increase project costs substantially.” However, 

even taking this additional requirement into account, CSC’s project oversight rates were 

significantly above the industry standard. Accordingly, we question the reasonableness 

of CSC proposed costs and believe that JSC should have negotiated the proposed rates 

with CSC to ensure it was receiving the best value for its money.

JSC Paid $348,534 for Questionable Risk-Related Costs. We found that two CSC 

delivery orders for Recovery Act-funded hurricane repair work included $348,534 in 

questionable charges. The FAR requires that contractors exclude from proposals costs 

“for events whose effect cannot be measured so precisely as to provide equitable results 

to the contractor and the Government,” but provides that such costs “should be disclosed 

separately (including the basis upon which the [cost] is computed) to facilitate the 

negotiation of appropriate contractual coverage.” JSC’s contract with CSC permitted 

CSC to include “risk of poor subcontractor performance” and “other risks of doing 

business.” Accordingly, in their cost proposals, CSC included risk-related charges 

involving such events as subcontractor default, property damage, grounds cleanup, and 

hurricane mobilization. However, JSC did not obtain the information necessary to 

 4 We excluded from our questioned costs the approximately $140,000 JSC paid CSC for the on-site safety 

professional on the assumption that these costs would have been necessary no matter who performed the 

work. 
OVERVIEW

iv REPORT NO. IG-11-025

determine if CSC’s basis for these costs was appropriate and reasonable. In addition, we 

found that in several instances CSC used different probabilities to account for the same 

risk. For example, for the risk of “Property Damage,” CSC indicated a 50 percent 

probability of occurrence under one delivery order and a 60 percent probability under 

another. Similarly, for the risk event “Hurricane Mobilization,” CSC estimated the 

probability at 50 percent for one delivery order and 55 percent for another. CSC’s 

inconsistent application of the methodology used to develop these risk-based costs 

coupled with JSC’s failure to review the basis for these costs prior to agreeing to pay 

them leads us to question the $348,534 in risk-based costs that JSC paid to CSC.

Unauthorized Persons Recommended Payment of CSC Invoices. The contracting 

officer’s technical representative (COTR) delegation letter for CSC’s contract allows 

only the COTR to recommend the payment of contractor invoices.5

The JSC Recovery Act Project Manager stated that the JSC program managers were 

involved in reviewing and recommending CSC invoices for payment as part of their 

“monitoring contractor progress” duties, which is permissible under NASA’s FAR 

Supplement. While we agree that it is permissible and indeed advisable for COTRs to 

receive assistance from project managers in monitoring contractor progress, we do not 

believe this provision authorizes JSC’s program managers to recommend payment of 

invoices without proper delegation. Moreover, allowing unauthorized individuals such as 

the project or program manager to make payment recommendations increases the risk 

that improper payments will occur.

 However, we found 

that JSC project and program managers, who were not delegated this responsibility,

recommended the payment of seven invoices totaling over $9 million.

Management Action

JSC incurred up to $1.8 million in excessive project oversight costs and paid $348,534 in 

questionable risk-related costs to CSC. However, JSC agreed to pay these amounts as 

part of a fixed-price contract and therefore was obligated to pay CSC for these charges. 

To address the issues we identified, we recommended the Recovery Act Implementation 

Executive work with NASA’s Assistant Administrator for Procurement to: (1) provide 

updated guidance or training to address the proper selection of contract vehicle, including

considerations for use of existing contracts in lieu of new awards and a reminder to 

evaluate proposals for excessive pass-through costs in accordance with the FAR; 

(2) include in cost analysis training presentations and materials procedures to ensure that 

contracting officers verify contractor-proposed charges for individual cost elements 

against appropriate supporting documentation, evaluate rates proposed by the contractor

to ensure their reasonableness, and document this determination in the contract files; and 

(3) remind contracting officers that for contracts where a COTR has been appointed, only 

the COTR is authorized to recommend invoices for payment. If, on a particular contract, 

 5 NASA FAR Supplement (NFS) 1842.270(b) requires contracting officers to sign a separate COTR 

delegation letter for each COTR assigned to a contract.
OVERVIEW

REPORT NO. IG-11-025 v

someone other than the assigned COTR is in a better position to review technical 

progress for payment purposes, remind contracting officers that a formal delegation 

naming that individual as an alternate COTR is required.

In response to our draft report, NASA’s Chief Financial Officer concurred with our 

recommendations, stating that the Agency’s Recovery Act Executive will work with 

NASA’s Assistant Administrator for Procurement to improve existing processes. 

Specifically, by October 2011 NASA’s Assistant Administrator will add a training 

module to NASA’s cost and pricing training to ensure the proper selection of contract 

vehicles. Further, the Assistant Administrator will ensure that presentations and 

materials for upcoming cost analysis training scheduled to be conducted by November 

2011 includes procedures on analyzing the individual cost elements of non-standard rates 

such as those proposed by CSC in a risk coefficient. Additionally, Agency training will 

continue to emphasize rate review and analysis, cost reasonableness determinations, and 

file documentation. The Assistant Administrator will also remind contracting officers 

that for contracts on which a COTR has been delegated authority to recommend invoices 

for payment, only the COTR is authorized to recommend invoices for payment to the 

contract officer. We consider the Agency’s proposed actions responsive and will close 

the recommendations upon completion and verification of those actions.

The Agency also provided technical comments on our draft report, which we 

incorporated as appropriate.

SEPTEMBER 1, 2011

REPORT NO. IG-11-025

CONTENTS

INTRODUCTION

Background _________________________________________ 1

Objectives __________________________________________ 4

RESULTS

JSC’s Award of Three Delivery Orders Resulted in up to $1.8 Million 

in Excessive and Questionable Costs____________________ 6

APPENDIX A

Scope and Methodology_______________________________ 15

Review of Internal Controls ____________________________ 16

Prior Coverage ______________________________________ 17

APPENDIX B

Schedule of Questioned Costs Paid to Contractor ___________ 18

APPENDIX C

Report Distribution___________________________________ 22

INTRODUCTION

REPORT No. IG-11-025 1 

INTRODUCTION

Background

On February 17, 2009, the American Recovery and Reinvestment Act (Recovery Act) 

became law. The Recovery Act seeks to strengthen the U.S. economy by creating new 

jobs, spurring technological advances in science and health, and investing in 

infrastructure. The Act requires a significant level of transparency and accountability to 

ensure that funds are expended in accordance with its requirements and that information 

about expenditures is readily available to the public. In addition, the Act provides that 

whenever possible agencies should compete contracts and utilize small businesses when 

awarding Recovery Act funds. 

NASA received approximately $1 billion under the Recovery Act, which it allocated to 

the following mission areas:

6

• Science: $400 million to accelerate the development of the Tier 1 set of Earth 

Science climate research missions recommended by the National Academies 

Decadal Survey, increase the Agency’s supercomputing capabilities, and maintain 

current workforce levels on and increase the likelihood of achieving the scheduled 

launch date of the James Webb Space Telescope. 

 

• Aeronautics: $150 million for system-level research, development, and 

demonstration activities related to aviation, safety, environmental impact 

mitigation, and the Next Generation Air Transportation System.

• Exploration: $400 million to develop safe and robust capabilities for human 

space exploration and stimulate efforts within the private sector to develop and 

demonstrate technologies that enable commercial human spaceflight capabilities. 

• Cross-Agency Support: $50 million to restore NASA-owned facilities damaged 

by natural disasters in 2008. 

All of the direct funds NASA designated for Cross-Agency Support were made available 

to the Johnson Space Center (JSC) to restore NASA-owned facilities damaged in 

September 2008 by Hurricane Ike, the most expensive weather catastrophe in Texas 

history and the third costliest hurricane to strike the United States.7

 

6 NASA also received approximately $52 million in reimbursable Recovery Act funds from other Federal 

agencies, including the National Oceanic and Atmospheric Administration and the Department of Energy.

 JSC closed for 61⁄2 

business days due to damage from the hurricane. 

7 Purva Patel, “Pricetag for Ike: $15 billion, insurers say,” January 28, 2010, 

http://www.chron.com/disp/story.mpl/business/6839732 html (accessed February 28, 2011).
INTRODUCTION

2 REPORT NO. IG-11-025

The repairs of hurricane damage at JSC were performed in two phases. The first phase 

involved high-priority repairs paid for with Space Shuttle facilities program funds. The 

second phase of work was funded with the $50 million in Recovery Act funds. This 

second phase of work included:

• Repair of roofs on more than 20 buildings;

• Replacement of 2,370 windows in Building 1;

• Replacement of more than 100 street, parking, and sidewalk lights;

• Repair of exterior panels on 36 buildings, including replacing over 200,000 linear 

feet (nearly 40 miles) of caulking, and cleaning and waterproofing over 1 million

square feet of building panels;

• Repair of loggia ledges on 11 buildings

• Reconstruction of an aircraft hangar at Ellington Field;

• Repair of the JSC barge dock on Clear Lake; and

• Replacement of damaged carpet in one building.

Figure 1. Damage to JSC Building Caused by Hurricane Ike

Source: Johnson Space Center

To accomplish this repair work, JSC created nine work packages of activities of a similar 

kind, area, or operation: two large roof and loggia packages covering more than two 
INTRODUCTION

REPORT NO. IG-11-025 3

dozen individual projects and seven smaller packages each totaling less than $3.5 million. 

JSC competitively awarded the two larger packages through an invitation-for-bid process

and directly awarded the seven smaller packages to small disadvantaged businesses. In 

addition, JSC awarded 19 firm-fixed price delivery orders to Computer Sciences 

Corporation Applied Technology Division (CSC) using an existing facilities support 

services contract. In total, JSC awarded approximately $45 million in Recovery Act

contract actions for repair work to eight construction companies and CSC. As part of this 

audit, we reviewed the performance of CSC and seven of the eight construction firms.

8

JSC also awarded over $5 million in Recovery Act funds for support services such as 

building inspection, institutional safety, environmental services, facilities support, and 

administrative support. JSC awarded one task order to CSC for facilities support services 

and made awards to four other support services contractors. We reviewed the 

performance of one of these contractors – Gilbane Building Company – that received

$3.5 million in Recovery Act funds. Table 1 provides a summary of the contract actions 

we examined.

 

 8 We did not review one award totaling $82,578.73 due to its small size.
INTRODUCTION

4 REPORT NO. IG-11-025

Table 1. Johnson Space Center Cross-Agency Support 

Recovery Act Contracts Actions as of December 31, 2010

Contractor’s Name Total Awarded Total Reviewed Percent

All American Brothers Company, LLC $898,180.00 $847,300.00 94

Competitive Choice, Inc. $82,578.73 $0 0

CSC Applied Technology Division a,b $12,493,313.69 $5,488,369.00 44

DRI Commercial Corporation $8,027,463.70 $8,027,463.70 100

Gee Cee $2,883,758.00 $2,883,758.00 100

Rycars Construction $10,040,522.92 $10,040,523.00 100

SIA Construction $1,834,945.78 $1,834,945.78 100

Specpro Environmental Services c $4,359,716.92 $4,359,716.92 100

W.A. Robbins $3,985,607.02 $3,985,607.02 100

Subtotal Construction Contracts $44,606,086.76 $37,467,683.42 84

Anadarko Industries, Inc. $438,998.09 $0 0

CSC Applied Technology Division d $207,246.00 $0 0

Earth Resources Technology, Inc. $425,025.82 $0 0

Gilbane Building Company $3,522,977.06 $3,522,977.06 100

4W Solutions $791,489.72 0 0

Subtotal Support Services 

Contracts

$5,385,736.69 $3,522,977.06 65

Total Construction and Support 

Services Contracts $49,991,823.45 $40,990,660.56 82

a Due to issues identified during fieldwork with CSC’s charges for risk and project oversight, we 

expanded our sample to include an additional delivery order valued at $2.7 million.

b JSC classified the contract actions for the building repair tasks as construction, even though the awards 

were delivery orders under CSC’s facilities support services contract.

c We reviewed 2 separate Specpro contracts. 

d In addition to the construction delivery orders, CSC received a separate task order to provide facilities

support services as required during the execution of hurricane repairs completed by other contractors. 

Source: Adapted from JSC’s Cross-Agency Support Overview Update, Recovery Act contracts and 

contract modifications documentation (August 31, 2010).

Objectives

The overall objective of our audit was to assess JSC’s use of Recovery Act funds to 

achieve cost, schedule, and performance milestones, as well as compliance with OMB 

and NASA guidance. Specifically, we examined whether JSC used reliable cost 

estimates in expending these funds, accomplished milestones within cost estimates, 
INTRODUCTION

REPORT NO. IG-11-025 5

completed work within established schedule baselines, accomplished stated goals and 

objectives, and monitored the use of small business contractors. 

To accomplish our objective, we reviewed approximately $41 million of the $50 million 

in Recovery Act contract actions awarded by JSC for hurricane repair work and other 

associated tasks. We selected nine of the largest contractors that received JSC awards, 

including eight that performed hurricane repair work and one support services contractor 

that inspected the work. We interviewed Agency officials and reviewed contracts, 

contract modifications, delivery orders, task orders, proposals, invoices, technical 

progress reports, and other documentation. We also assessed NASA’s and the 

contractors’ compliance with NASA and OMB guidance and with applicable

requirements of the Federal Acquisition Regulation (FAR). We reviewed internal 

controls as appropriate. See Appendix A for details of the audit’s scope and 

methodology, our review of internal controls, and a description of prior related audit 

coverage. 
RESULTS

6 REPORT NO. IG-11-025

JSC’S AWARD OF THREE DELIVERY ORDERS 

RESULTED IN PAYMENT OF UP TO

$1.8 MILLION IN EXCESSIVE AND 

QUESTIONABLE COSTS

The nine firms in our sample of contractors JSC hired to perform repair work all met 

cost, schedule, and performance milestones. However, we found that by awarding

three delivery orders to CSC, the Center’s existing support services contractor, rather 

than directly to construction firms with the resources to directly perform the work,

JSC incurred up to $1.8 million in excessive costs. We also found that JSC did not

negotiate with CSC on the proposed project oversight costs that exceeded 

independent Government estimates or otherwise appeared excessive; JSC project 

management officials approved the payment to CSC of $348,534 in questionable 

risk-related costs; and JSC contracting personnel permitted individuals other than the 

contracting officer’s technical representative (COTR) to recommend payment of 

CSC invoices, increasing the risk of improper payment under the contract. 

JSC Incurred up to $1.8 Million in Excessive Project Oversight 

Costs

In FY 2008, JSC competitively awarded CSC a large facilities support services contract 

with a combined estimated base value of over $291 million through FY 2011. Under this

contract, CSC provides support services in areas such as administration; repairs and 

maintenance; utility operations; information technology; and engineering, design, and 

construction. Other NASA Centers have similar contracts for support services with other 

firms. Since September 2009, JSC has awarded CSC 19 delivery orders for Recovery 

Act-funded hurricane repair work totaling over $12.5 million under this competitive 

contract.

We reviewed three of the Recovery Act delivery orders awarded to CSC worth 

approximately $8 million. We found that of this amount, $5.9 million paid for 

subcontractor costs and nearly $2 million, or 33 percent of the total subcontractor costs, 

went to CSC for its project oversight (see Table 2).9

 9 CSC’s project oversight costs included the cost of CSC’s project oversight team, risk, general and 

administrative costs, and profit.

CSC hired subcontractors to 

perform a majority of the construction work identified on the three delivery orders, and 

acted in a project oversight capacity supervising the work of the subcontractors it hired. 

According to CSC’s cost proposals, its project oversight costs consist of the project 

oversight team’s labor, risk (which CSC identifies as costs from project delays), general 
RESULTS

REPORT NO. IG-11-025 7

and administrative costs, and profit. In accordance with the support services contract, 

CSC was permitted to charge these costs as a percentage of subcontractor costs.

Table 2. Subcontractor Cost and CSC Project Oversight Amounts for 

Delivery Orders 1011, 1168, and 1201a

Delivery 

Order

Subcontract 

Base Dollar 

Amount

CSC Project 

Oversight 

Amount

CSC Project 

Oversight 

(Percent) Description

1011 $2,117,170 $550,464 26.00 Replace roof on cafeteria building

1168 $1,714,278 $599,997 35.00

Repair, caulk, and waterproof 

panels on 13 JSC buildings

1201 $2,083,181 $827,335 39.72

Repair, caulk, and waterproof 

panels on 17 JSC buildings

 Total $5,914,629 $1,977,796 33.44

a

The CSC Recovery Act awards included 19 delivery orders for facility repairs totaling $12.5 million. 

We selected three of these delivery orders for review, totaling approximately $8.2 million or 65 percent 

of the total Recovery Act award. 

Source: CSC’s delivery order proposals.

JSC’s Award of Three Delivery Orders to CSC Resulted in Excessive Oversight 

Costs. JSC’s Recovery Act Project Manager indicated that JSC awarded the delivery 

orders to CSC rather than to qualified construction firms through a new competition for 

several reasons. First, JSC personnel believed that they needed to utilize the existing 

CSC contract to ensure the repairs were completed in a timely manner. However, we 

found that JSC conducted a new competition for other large Recovery Act contracts and

disbursed that funding to individual contractors within timeframes that were similar to, 

and sometimes shorter than, the time it took to award the delivery orders to CSC. For 

example, for two of the large Recovery Act construction contracts, 74 and 108 days 

elapsed between issuance of the solicitation and award. In contrast, for CSC delivery 

order 1168, 122 days elapsed between the dates JSC issued the request for quote and 

awarded the delivery order (see Figure 2). In addition, the periods of performance for the 

newly competed contracts and the delivery orders under the competitive CSC facilities 

support services contract were not materially different, ranging from 180 to 436 days for 

the construction contracts and 220 days to 336 days for the delivery orders.
RESULTS

8 REPORT NO. IG-11-025

Figure 2. Sequence of Three CSC Delivery Orders Reviewed in Line with JSC’s Recovery 

Act Contract Awarding Events

NASA Procurement Information Circular 09-06 states that “[t]he Recovery Act, and all 

associated guidance, expresses a clear preference for award of fixed-price, competitive 

contracts. [Contracting officers] shall support these principles and maximize the use of 

fixed-price, competitive contracts, as appropriate, in awarding contracts that use 

Recovery Act funding.”10

The Recovery Act states that funds are to be awarded primarily using competitive 

procedures. NASA practices full and open competition where prudent. There are 

instances where in the highly complex and specialized business of space that noncompetitive contract mechanisms are warranted. 

 Further, the “Competition in Contracts” paragraph of NASA’s 

Revised Recovery Plan states, in part:

JSC carried out these principles in creating nine work packages of activities similar in 

kind, area, and operation, and competitively awarding the two larger work packages and 

directly awarding the seven smaller packages to small disadvantaged businesses. 

However, for the remaining hurricane repairs, JSC did not obtain bids from other 

qualified construction contractors. Instead, JSC used the competitively awarded facilities 

support services contract to award delivery orders to CSC to complete the hurricane 

repairs. We believe that by using the existing facilities support services contract to award

this work to CSC, JSC, while not violating NASA’s Recovery Act principles or OMB’s 

Recovery Act guidance, missed an opportunity to realize potential cost savings that could 

have been achieved by newly competing some or all of this work. 

 10 NASA Procurement Information Circulars 09-06D – H, General Principles (b), dated August 10, 2009 –

November 23, 2010.
RESULTS

REPORT NO. IG-11-025 9

Second, JSC contends that awarding the delivery orders to CSC was necessary to ensure 

the projects were properly managed and supervised and that on-site safety personnel were 

provided. However, all of the repair work JSC awarded, including the work awarded to 

contractors other than CSC, required proper supervision and management, and it is 

unclear to us why another qualified contractor could not have satisfied this requirement. 

Indeed, the proposals submitted by CSC’s subcontractors for delivery orders 1168 and 

1201 indicated that they would provide insurance, labor, materials, equipment, and 

supervision for the proposed projects. With regard to the need for on-site safety 

personnel, JSC personnel could not explain why only CSC was capable of satisfying this 

requirement.

In our view, if JSC had awarded these delivery orders to a qualified construction 

contractor with the resources to conduct the necessary repair work, thus eliminating the 

intermediary, the Center could have saved up to $1.8 million of the nearly $2 million in 

project oversight costs paid to CSC (see Appendix C for a Schedule of Questioned 

Costs).11

JSC Did Not Negotiate Excessive Project Oversight Costs with CSC

We found that CSC’s project oversight costs for delivery order 1011 substantially 

exceeded the independent Government estimate of 10 percent for such services. The 

technical evaluation prepared by JSC personnel for this delivery order noted this

disparity. However, the technical evaluator neither questioned CSC’s proposal nor 

recommended further negotiation; instead, the evaluator recommended adjusting the 

Government estimate to allow for CSC’s higher project oversight percentage and 

accepting CSC’s proposal.

The technical evaluations of the proposals for the two other CSC delivery orders we 

reviewed did not specifically discuss CSC’s oversight costs and associated rates in 

relation to the independent Government estimate, so we were unable to conduct a similar 

comparison for those two proposals. However, our review of those technical evaluations 

showed that JSC did not raise concerns about the percentages of the proposed project 

oversight costs – 35 percent for delivery order 1168 and nearly 40 percent for delivery 

order 1201 – or the amounts CSC was charging for project oversight. Instead, the 

technical evaluations recommended accepting CSC’s proposed costs as fair and 

reasonable. 

Best practices in the construction industry indicate that the costs for general conditions, 

which include project oversight plus overhead, profit, and a portion of general and 

administrative costs, should equal 15 percent of direct construction costs. JSC Recovery 

Act project staff agreed with the rates indentified by the industry guidance but indicated 

 11 We excluded from our questioned costs the approximately $140,000 JSC paid CSC for the on-site safety 

professional on the assumption that these costs would have been necessary no matter who performed the 

work. 
RESULTS

10 REPORT NO. IG-11-025

that “JSC’s project requirements for an on-site Safety & Health System Professional 

increase the percentage substantially.” However, even considering this additional cost, 

the project oversight rates charged by CSC significantly exceeded the industry standard. 

In our view, JSC should have negotiated these rates to ensure the Government was 

receiving the best value.

The FAR states that the contracting officer is responsible for negotiating a price that is 

fair and reasonable to both the Government and the contractor. However, there were no 

negotiations related to delivery orders 1168 and 1201. The price negotiation memoranda 

prepared by JSC contracting personnel for these delivery orders states that negotiations 

were not conducted based on information provided in the technical evaluations. The 

technical evaluation for delivery order 1168 states, “Even though the overall Contractor’s 

costs are greater than the IGE (Independent Government Estimate), the Contractor’s 

proposed costs should be accepted, as the basis of the estimate was not given a definitive 

quantity.” We question this rationale given that for this delivery order, CSC was 

performing specified repairs on 13 JSC buildings. Therefore, we believe that JSC did not 

have sufficient justification for allowing proposed project costs that exceeded the 

independent Government estimate or for accepting CSC’s project oversight costs as 

reasonable without negotiation of these costs with CSC. 

JSC Paid $348,534 for Questionable Risk-Related Costs

The FAR requires contractors to exclude from estimates costs “for events whose effect 

cannot be measured so precisely as to provide equitable results to the contractor and the 

Government,” and provides that such costs “should be disclosed separately (including the 

basis upon which the [cost] is computed) to facilitate the negotiation of appropriate 

contractual coverage.”12

We found that two of the CSC delivery orders included charges for risk of $348,534.

 

13

The JSC Recovery Act Project Manager told us that the CSC contract provision regarding 

these costs “represents a reasonable, allowable, and necessary basis for pricing risk items 

in the delivery orders” and that “the [Contracting Officer] views this practice as a cost of 

 

The underlying CSC facilities support services contract permitted the inclusion of these 

costs based on the elements of “risk of poor subcontractor performance and reperformance” and “other risks of doing business.” In calculating these costs, the contract 

allowed CSC to consider such risk events as property damage, subcontractor dispute, 

subcontractor default, legal action, environmental non-compliance, worker injuries, other 

mishaps, Recovery Act audit, unanticipated barriers/protection, grounds cleanup, and 

hurricane mobilization/demobilization costs.

 12 FAR 31.205-7 (c)(2)

13 JSC did not require CSC to provide documentation to support the project management oversight costs for 

delivery order 1011; therefore, we were unable to determine the amount of risk charged to NASA for that 

delivery order.
RESULTS

REPORT NO. IG-11-025 11

doing business that is not necessarily captured in the contractor’s rates and factors . . ..” 

However, we found no evidence in JSC’s CSC contract files that would explain the basis 

for the risk-based costs associated with the two delivery orders. Accordingly, we 

requested that JSC obtain this information from CSC for our review. 

In their initial response, CSC did not provide JSC any documentation to support how they 

had calculated these costs. We then requested further clarification from JSC regarding 

the basis for CSC’s calculations. In response, the JSC Recovery Act Project Manager 

stated: 

CSC built a list of risks associated with performing a project of this magnitude and 

applied a probability impact against each risk. The contractor [CSC] determined that 

the primary risk in these two projects was the uncertainty of delays and the associated 

labor costs of the oversight team. The project duration and project variables listed 

above created uncertainty (risk) for CSC in approaching this fixed-price project. The 

contractor did not have applicable history data on these uncertainties. CSC 

management brainstormed and used expert judgment to identify and quantify the risk 

events. The costs included in the risk coefficient were only those associated with the 

CSC Project Oversight Team labor.

As part of their response to our request for clarification, CSC provided a document for 

each delivery order entitled “Risk Estimate.” According to these documents, CSC 

developed the cost for risk events using project oversight labor costs and the probability 

that a particular risk event would occur. However, CSC did not provide this information 

to JSC as part of its cost proposals, and JSC only requested the information from CSC as 

a result of our inquiries. We therefore question how JSC could have determined that 

these costs were appropriate when the basis for them was not disclosed at the time the 

proposals were submitted or approved. As a result, we believe that JSC’s actions were

inconsistent with the FAR in permitting the inclusion of these contingency costs in CSC’s 

proposals without first determining the basis for these costs and whether they were 

reasonable.

In addition, based on our review of the documents CSC provided, we question the 

methodology CSC used to develop the costs associated with certain risk events. Both 

delivery orders 1168 and 1201 were for the restoration and waterproofing of building 

panels, and both provided for the use of the same subcontractor and for all of the work to 

be performed during the same time period. However, we noted that in several instances 

CSC used different probabilities on each delivery order to account for the same risk. For 

example, for the risk “Property Damage” CSC indicated a 50 percent probability of 

occurrence under delivery order 1168 and a 60 percent probability under delivery order 

1201. Similarly, for the risk event “Hurricane Mob[ilization]/Demob[ilization],” CSC 

estimated the probability at 50 percent for delivery order 1168 and 55 percent for delivery 

order 1201. We also question the basis on which CSC quantified this risk because 

researchers at the University of Houston, using available prior-year reference data from 
RESULTS

12 REPORT NO. IG-11-025

the National Hurricane Center and NOAA, predicted the probability of a hurricane hitting 

anywhere in the state of Texas in 2010 at only 35 percent.14

The FAR states that a cost is allowable only when it is reasonable, allocable, and 

complies with the terms of the contract and the limitations set forth in FAR subpart 

31.2.15

We are concerned about CSC’s methodology for calculating risk and that JSC did not 

request or review this methodology at the time the proposals were submitted or 

approved. Consequently, we question whether the $348,534 in risk costs JSC paid to 

CSC was reasonable within the meaning of the FAR (see Appendix C for a Schedule of 

Questioned Costs).

 A cost is reasonable if it does not exceed the amount that a prudent person would 

pay under similar circumstances in the conduct of competitive business. To ensure 

compliance with acquisition regulations, contracting officers must review proposed costs 

for reasonableness and allowability. 

Unauthorized Persons Recommended Payment of Invoices

We reviewed seven CSC invoices totaling over $9 million and noted that individuals 

other than the contracting officer (CO) or the COTR recommended them for payment. 

Specifically, either the JSC project manager or program manager recommended these 

seven invoices for payment. The NASA FAR Supplement requires contracting officers 

to sign a separate COTR delegation letter for each COTR assigned to a contract.16 

Further, section 3(g) of NASA’s COTR Delegation requires the designated COTR to 

review contractor invoices and recommend approval for payment, as appropriate; COTRs 

cannot re-delegate their duties and responsibilities.17

According to the JSC Recovery Act Project Manager, JSC does not delegate the authority 

to recommend payment to the project manager overseeing performance of the delivery 

orders. However, the Recovery Act Project Manager stated that “it’s permissible under 

NASA’s FAR supplement for the COTR to receive assistance for the purpose of 

monitoring contractor progress and gathering information. It is from this perspective that 

we engage the [program managers] in the review of [Recovery Act] invoices.” While we 

agree that it is permissible and indeed advisable for COTRs to receive assistance from 

project managers in monitoring contractor progress, we do not believe that a provision 

allowing for such review justifies managers recommending payment of invoices. 

Moreover, allowing unauthorized individuals such as the project or program manager to 

make payment recommendations increases the risk that improper payments will occur. 

 14 Erin D. McKenzie, “UH Researchers Predict Probability of Hurricane Hitting Texas,” University of 

Houston Engineering News, June 15, 2010.

15 FAR 31.201.2.

16 NASA FAR Supplement (NFS) 1842.270(c).

17 NASA Form 1634.
RESULTS

REPORT NO. IG-11-025 13

Recommendations, Management’s Response and Evaluation of 

Management’s Response

JSC incurred up to $1.8 million in excessive project oversight costs and paid $348,534 in 

questionable risk-related costs to CSC. JSC agreed to pay these amounts as part of a 

fixed-price contract and therefore was obligated to pay CSC for the work it performed.

However, to address the issues we identified, we recommended that the Agency’s 

Recovery Act Implementation Executive work with NASA’s Assistant Administrator for 

Procurement to:

Recommendation 1. Provide guidance or training to address the proper selection of contract 

vehicle, to include considerations for use of existing contracts in lieu of new awards. Such 

guidance or training should include a reminder to evaluate proposals for excessive passthrough costs in accordance with the FAR and ensure proper documentation in the file for 

determinations of value added by the prime when a large portion of the work will be 

subcontracted.

Management’s Response: Concur. The Assistant Administrator for Procurement will 

add a training module to NASA’s cost and pricing training to ensure the proper selection 

of contract vehicles. 

Estimated Completion Date: October 2011

Evaluation of Management’s Response. Management’s proposed actions are 

responsive to the intent of the recommendation. Therefore, the recommendation is 

resolved and will be closed upon completion and verification of the proposed action.

Recommendation 2. Include in cost analysis training presentations and materials procedures 

to ensure that contracting officers verify contractor-proposed charges for individual cost 

elements against appropriate supporting documentation; evaluate rates proposed by the 

contractor to ensure their reasonableness; and document this determination in the contract 

files.

Management’s Response: Concur. The Assistant Administrator for Procurement will 

assure that, in upcoming cost analysis training, presentations and materials will include 

procedures on analyzing individual cost elements which make up non-standard rates, 

such as those proposed by CSC in a risk coefficient. Additionally, Agency cost analysis 

training will continue to emphasize rate review and analysis, cost reasonableness 

determinations, and file documentation.

Estimated Completion Date: November 2011 

Evaluation of Management’s Response. Management’s proposed actions are 

responsive to the intent of the recommendation. Therefore, the recommendation is 

resolved and will be closed upon completion and verification of the proposed action.
RESULTS

14 REPORT NO. IG-11-025

Recommendation 3. Remind contracting officers that for contracts that have an appointed 

COTR, only the COTR is authorized to recommend invoices for payment. If, on a particular 

contract, someone other than the assigned COTR is in a better position to review technical 

progress for payment purposes, then remind contracting officers that a formal delegation 

naming that individual as an alternate COTR is required.

Management’s Response: Concur. The Assistant Administrator for Procurement will 

remind contracting officers that for contracts on which a COTR has been delegated 

authority to recommend invoices for payment, only the COTR is authorized to 

recommend invoices for payment to the contract officer.

Estimated Completion Date: October 2011

Evaluation of Management’s Response. Management’s proposed actions are

responsive to the intent of the recommendation. Therefore, the recommendation is 

resolved and will be closed upon completion and verification of the proposed action.
APPENDIXES

REPORT NO. IG-11-025 15

APPENDIX A

Scope and Methodology

We performed this audit from September 2010 through August 2011 in accordance with 

generally accepted government auditing standards. Those standards require that we plan 

and perform our work to obtain sufficient, appropriate evidence to provide a reasonable 

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

evidence obtained during this audit provides a reasonable basis for our findings and 

conclusions based on our objectives.

From a total of 14 Cross-Agency Support contractors performing Recovery Act work at 

JSC, we selected and reviewed a judgmental sample of 9 contractors that received 

$41 million in Recovery Act funds from February 17, 2009, through September 30, 2010. 

For most of the contracts we reviewed, we examined all related task and delivery orders. 

However, for CSC we judgmentally selected two delivery orders totaling $5.5 million 

from a total of 67 construction-related delivery orders with a total value of $12.5 million. 

Because of the issues we identified during our fieldwork involving CSC’s charges for 

risk and project oversight, we expanded our sample to include an additional CSC delivery 

order valued at $2.7 million that we reviewed only for the identified areas of concern. 

Thus, for risk and project oversight we selected three CSC delivery orders for review 

totaling $8.2 million, or 65 percent of the total construction-related Recovery Act award. 

As part of our review, we interviewed Agency program and project officials and 

reviewed contracts, contract modifications, delivery orders, task orders, proposals, 

invoices, technical progress reports, and other documentation to determine whether the 

projects funded met cost, schedule, and performance milestones. We also examined 

whether NASA’s and the award recipients complied with Agency and OMB guidance, as 

well as applicable FAR requirements. We performed our work at Headquarters and JSC, 

the Center that awarded or modified all of the Recovery Act procurement actions for 

Hurricane Ike damage repairs. The projects reviewed at JSC fall under the Cross-Agency 

Support: Institutional Investments Program. 

To accomplish our objective, we also reviewed the following:

• American Recovery and Reinvestment Act of 2009, February 17, 2009;

• Office of Management and Budget “Updated Implementing Guidance for the 

American Recovery and Reinvestment Act of 2009,” April 3, 2009;

• NASA Procurement Information Circular (PIC) 09-06D, “Contracting with 

Recovery Act Funds,” October 14, 2009;
APPENDIX A

16 REPORT NO. IG-11-025

• NASA Procurement Information Circular (PIC) 09-06E, “Contracting with 

Recovery Act Funds,” December 24, 2009;

• NASA Procurement Information Circular (PIC) 09-06F “Contracting with 

Recovery Act Funds,” April 1, 2010;

• NASA Procurement Information Circular (PIC) 09-06G, “Contracting with 

Recovery Act Funds,” April 7, 2010; and

• NASA Procurement Information Circular (PIC) 09-06H, “Contracting with 

Recovery Act Funds,” November 23, 2010.

Use of Computer-Processed Data. We used computer-processed data to perform this 

audit. The NASA Shared Services Center records JSC’s Recovery Act disbursement data 

in SAP, NASA’s financial management system, when invoices are processed. This data 

is recorded at the contract line item number (CLIN) level to enable tracking of specific 

Recovery Act disbursements against project costs. We reviewed the invoices submitted 

by CSC and traced them to SAP to verify invoice disbursements were posted against the 

proper project line item. In several instances, we found that project costs were 

incorrectly posted in SAP based on the identified CLIN. As a result, SAP did not identify 

the disbursement information at the project level. These incorrect postings did not have 

an impact on the overall cost of the contract, and therefore this issue is not included as a 

finding in our report. However, these incorrect postings do indicate internal control 

deficiencies at the NASA Shared Services Center (NSSC), which we brought to the 

attention of NASA management. 

We also used data from federalreporting.gov, Recovery.gov, and the Federal Procurement 

Data System to perform this audit. These systems are maintained by other agencies. We 

confirmed the reliability of data obtained from these systems by comparing it to selected 

hard copy source data (contract award documents, contractor invoices), without issue. 

Review of Internal Controls 

We reviewed NASA’s policies, procedures, and internal controls that address the JSC 

Cross-Agency Support: Institutional Investments Program’s compliance with the 

requirements of the Recovery Act as identified in the “Updated Implementing Guidance 

for the American Recovery and Reinvestment Act of 2009,” issued by OMB, April 3, 

2009. We also reviewed the Program’s compliance with NASA Procurement 

Information Circular (PIC) 09-06E, “Contracting with [Recovery Act] Funds,” 

December 24, 2009, by obtaining and reviewing technical progress reports, financial 

reports, invoices, and other project deliverables. We met with the Recovery Act 

Implementation Executive and NASA Office of Procurement officials to gain an 

understanding of NASA’s processes for awarding Recovery Act contracts and 

modifications to existing contracts as detailed in the Procurement Information Circular. 

We reviewed this Circular to determine whether the Agency documented the internal 

controls required to award contracts and whether the controls were sufficient to ensure 

NASA was complying with Recovery Act provisions, OMB Guidance, and NASA 
APPENDIXES

REPORT NO. IG-11-025 17

policy. Further, we interviewed procurement officials at JSC and asked them to identify 

the internal control mechanisms in place at the Center level to ensure compliance with 

the Recovery Act. In addition, we asked them to discuss the contract performance 

process and provide supporting documentation to ensure their internal controls were 

functioning effectively. As discussed in this report, NASA’s process for awarding 

Recovery Act contracts could be improved. Our recommendations, if implemented, will 

improve the controls over the Recovery Act award process.

Prior Coverage

During the last 5 years, the NASA Office of Inspector General (OIG) and the 

Government Accountability Office (GAO) have issued three memorandums and four 

reports related to the subject of this report. Unrestricted reports can be accessed over the 

Internet at http://oig.nasa.gov/audits/reports/FY11 (NASA OIG) and http://www.gao.gov

(GAO).

We considered the following memorandums and reports in planning and performing our 

audit activities: 

NASA Office of Inspector General

“Final Memorandum on Analysis of NASA’s Final Program-Specific Recovery Act 

Plans” (IG-10-005, January 5, 2010)

“Final Memorandum on Analysis of NASA’s Final Agency-Wide Recovery Act Plan” 

(IG-10-006, January 5, 2010) 

“Final Memorandum on Review of Open Audit Recommendations Affecting Recovery 

Act Activities” (IG-10-014, May 20, 2010)

“Audit of NASA’s Recovery Act Procurement Actions at Johnson Space Center, 

Goddard Space Flight Center, Langley Research Center, Langley Research Center, and 

Ames Research Center” (IG-10-017, July 27, 2010)

Government Accountability Office

“NASA: Assessments of Selected Large-Scale Projects” (GAO-10-227SP, February 1, 

2010)

“NASA: Key Management and Program Challenges” (GAO-10-387T, February 3, 2010)

“Recovery Act: Contracting Approaches and Oversight Used by Selected Federal 

Agencies and States” (GAO-10-809, Jul 15, 2010)
APPENDIX B

18 REPORT NO. IG-11-025

SCHEDULE OF QUESTIONED COSTS 

PAID TO CONTRACTOR

Questioned Costsa Amount Page

Unreasonable Costs

Amount paid for project oversight, less 

Safety Specialist

$1,837,796 10

Amount paid for risk events $348,534 13

 Total questioned costs $2,186,330

a Questioned Costs are expenditures that are questioned by the OIG because of an alleged 

violation of legal, regulatory, or contractual requirements, are not supported by adequate 

documentation at the time of the audit, or are unnecessary or unreasonable. 
APPENDIX C 

REPORT NO. IG-11-025 19

MANAGEMENT COMMENTS
APPENDIX C 

20 REPORT NO. IG-11-025 
APPENDIX C 

REPORT NO. IG-11-025 21
APPENDIX D

22 REPORT NO. IG-11-025

REPORT DISTRIBUTION

National Aeronautics and Space Administration

Administrator

Deputy Administrator

Chief of Staff

Chief Financial Officer/Recovery Act Senior Accountable Official

Recovery Act Implementation Executive

Director, Johnson Space Center

NASA Advisory Council’s Audit, Finance, and Analysis Committee

Non-NASA Organizations and Individuals

Office of Management and Budget

Deputy Associate Director, Energy and Science Division

Branch Chief, Science and Space Programs Branch

Government Accountability Office

Director, NASA Financial Management, Office of Financial Management and 

Assurance

Director, NASA Issues, Office of Acquisition and Sourcing Management

Recovery Accountability and Transparency Board

Congressional Committees and Subcommittees, Chairman and 

Ranking Member

Senate Committee on Appropriations

Subcommittee on Commerce, Justice, Science, and Related Agencies

Senate Committee on Commerce, Science, and Transportation

Subcommittee on Science and Space

Senate Committee on Homeland Security and Governmental Affairs

House Committee on Appropriations

Subcommittee on Commerce, Justice, Science, and Related Agencies

House Committee on Oversight and Government Reform

Subcommittee on Government Organization, Efficiency, and Financial Management

House Committee on Science, Space, and Technology

Subcommittee on Investigations and Oversight

Subcommittee on Space and Aeronautics
REPORT NO. IG-11-025 23

Major Contributors to the Report:

Laura Nicolosi, Director, Mission Support Directorate 

John Apker, Project Manager 

Mark Benson, Auditor

Dennis Clay, Auditor

Myra Thompson, Auditor

Curt Brown, Procurement Specialist

Frank Mazurek, Attorney
September 1, 2011

REPORT No. IG-11-025

OFFICE OF AUDITS

OFFICE OF INSPECTOR GENERAL

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Visit http://oig.nasa.gov/audits/reports/FY11/ to obtain additional copies of this report, or contact the 

Assistant Inspector General for Audits at 202-358-1232.

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usefulness of this report, please send your comments to Mr. Laurence Hawkins, Audit Operations and 

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