U.S. DEPARTMENT OF ENERGY
                 OFFICE OF INSPECTOR GENERAL
                              
                              
                              
                              
                              
                              
                      FOLLOWUP AUDIT ON
           THE PROCUREMENT OF SUPPORT SERVICES FOR
            THE ENERGY INFORMATION ADMINISTRATION
                              
                              
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Report No.:  CR-B-97-03              Capital Regional Audit Office
Date of Issue:  May 6, 1997          Germantown, Maryland  20874
                              
 
 
 
                      FOLLOWUP AUDIT ON
           THE PROCUREMENT OF SUPPORT SERVICES FOR
            THE ENERGY INFORMATION ADMINISTRATION
                              
                              
                      TABLE OF CONTENTS
 
 
                                                    Page
 
         SUMMARY . . . . . . . . . . . . . . . . . .  1
 
PART I - APPROACH AND OVERVIEW . . . . . . .. . . . . 3
 
         Introduction . . . . . . . . . . . . . . . . 3
 
         Scope and Methodology . . . . . . . . . .  . 3
 
         Background . . . . . . . . . . .  . . . . .  4
 
PART II - FINDING AND RECOMMENDATION. . . . . . ....  5
 
         Use of Firm-Fixed-Price Contracts. . ......  5
 
PART III - MANAGEMENT AND AUDITOR COMMENTS . . . . . 10
 
PART IV -  APPENDIX A . . . . . . . . . . . . .  .   11
                                
                    
                    
                    U.S. DEPARTMENT OF ENERGY
                   OFFICE OF INSPECTOR GENERAL
                    OFFICE OF AUDIT SERVICES
                                
                        FOLLOWUP AUDIT ON
             THE PROCUREMENT OF SUPPORT SERVICES FOR
              THE ENERGY INFORMATION ADMINISTRATION
                                
                                
Audit Report Number:  CR-B-97-03
 
                             SUMMARY
 
 
  This audit was performed to follow up on actions taken in
response to our July 1990 report on "Procurement of Support
Services for the Energy Information Administration" (CR-OC-90-2).
The report stated that over 50 percent of the work under the cost-
reimbursement contracts examined was recurring, could have been
estimated with a reasonable degree of accuracy, and was suitable
for fixed-price contracting.  The Federal Acquisition Regulation
states that contracting officers should avoid protracted use of
cost-reimbursement contracts after experience provides a basis
for firmer pricing.
 
  In responding to the prior report, the Office of Procurement
Operations (Procurement) advised that it would work closely with
the Energy Information Administration (EIA) to identify work
susceptible to fixed-price contracting.  Although EIA stated a
preference for broad statements of work and cost-reimbursement
contracts because they provide greater flexibility in
accomplishing program objectives, it agreed to develop more
definitive statements of work as its contracts expired.
 
  EIA and Procurement had made little progress towards awarding
firm-fixed-price contracts.  Much of EIA's contract work
continued to be recurring in nature, but it had not developed
statements of work that were appropriate for awarding firm-fixed-
price contracts.  EIA and Procurement could not agree that the
requirements of a firm-fixed-price contract had been met for two
contracts that were subsequently awarded as labor hour contracts.
As a result, none of the 14 EIA contracts valued at $202 million,
which were active in 1996, were firm-fixed-price contracts.
 
  In this report, we recommended that EIA take advantage of the
recently enacted Federal Acquisition Streamlining Act.  This Act
allows task-by-task contracting and should facilitate the use of
firm-fixed pricing when EIA segregates out those tasks that can
be definitized and estimated with a reasonable degree of
accuracy.
 
  The Administrator, EIA, agreed with the finding and
recommendation and stated that management is committed to
establishing guidelines and policies for best value contracting.
Actions are underway to identify tasks where the work to be
performed can be estimated with a reasonable degree of accuracy,
and EIA plans to award one fixed-price task order in August 1997.
 
 
 
 
 
________/s/___________
Office of Inspector General
                             
                             
                             PART I
                                
                      APPROACH AND OVERVIEW
 
 
INTRODUCTION
 
  This audit was performed to follow up on actions taken in
response to our July 1990 report on "Procurement of Support
Services for the Energy Information Administration" (CR-OC-90-2).
The audit disclosed that over 50 percent of the work under six of
the cost-reimbursement contracts examined was recurring and could
have been estimated with a reasonable degree of accuracy making
the work suitable for fixed-price contracting.  The report made
recommendations to the Head of Procurement and the Administrator,
EIA.  These recommendations were to comply with procurement
regulations by identifying recurring tasks that were susceptible
to fixed-price contracting, preparing definitive statements of
work that would permit fixed-price contracting, and awarding
fixed-price contracts.
 
  Procurement recognized the benefits of fixed-price contracting
and agreed to work closely with the EIA to identify work
susceptible to fixed-price contracting.  These efforts resulted
in the award of two labor hour contracts but no firm-fixed-price
contracts.
 
  The purpose of this followup audit was to review Procurement
and EIA actions to develop definitive work statements for
recurring tasks that are suitable for firm-fixed-price contracts.
The audit objective was to determine what progress Procurement
and EIA have made in utilizing firm-fixed-price contracts.  In FY
1996, EIA had 14 contracts valued at about $202 million that were
issued as cost reimbursement and labor hour contracts.
 
SCOPE AND METHODOLOGY
 
  This followup audit was performed from September 1996 through
January 1997 at the EIA and Procurement Headquarters in
Washington, DC.  Audit work included evaluating the corrective
actions taken on the prior audit recommendations.  Discussions
were held with officials in Procurement and EIA, and we reviewed
organizational controls over the procurement process as well as
policies, procedures, and practices related to the selection of
contract types.
 
  To determine whether EIA's work continued to be recurring in
nature, we compared the work performed on present contracts to
the contract tasks included in the prior audit.  Five support
service contracts with a total value of about $44.2 million were
reviewed.  For these contracts, the EIA contract files, including
the statements of work, were reviewed and discussions were held
with the EIA officials about the contractors' duties and
responsibilities.
 
  The audit was made in accordance with generally accepted
Government auditing standards for performance audits and included
tests of internal controls and compliance with laws and
regulations to the extent necessary to satisfy the audit
objective.  Accordingly, we assessed the internal controls
regarding the selection of contracting methods.  Because our
review was limited, it would not necessarily have disclosed all
internal control deficiencies that may have existed.  We did not
rely on computer-processed data to accomplish the audit
objective.  A formal exit conference was waived by EIA on May 1,
1997.
 
BACKGROUND
 
  The mission of the EIA, which was established in 1977, is to
provide essential, relevant, and timely energy information to the
Executive Branch, the Congress, state governments, and the
public.  This work involves collecting energy information,
analyzing this information, and designing and issuing
publications.
 
  Much of the data collection is recurring with the results being
summarized in various weekly, monthly, annual, and triennial
energy reports.  Specific EIA offices and divisions concentrate
on energy resource reserves; energy production, consumption,
distribution, sales, and technology; and data related to the
availability of future energy resources in light of national
needs.
 
  EIA uses contractors in many aspects of its operation--from the
collection of energy information to its publication.  At the time
of the 1990 audit, contractor support was being provided under 12
multi-year contracts valued at about $173 million.  All were cost-
reimbursement contracts and annual expenditures under these
contracts were about $34 million.  In Fiscal Year 1996, support
services were being procured under 12 multi-year cost-
reimbursement type contracts and two labor hour contracts valued
at about $202 million with annual expenditures of about $40
million.
 
  This followup report disclosed a continuing need to use firm-
fixed-price contracts, which should be considered by management
in preparing the yearend assurance memorandum on management
controls.  Part II of this report provides details on our finding
and recommendation.  Part III of this report includes detailed
management and auditor comments.
                             
                             
                             PART II
 
                   FINDING AND RECOMMENDATION
 
                Use Of Firm-Fixed-Price Contracts
 
 
FINDING
 
  Procurement regulations require the Department to avoid
protracted use of cost-reimbursement contracts after experience
provides a basis for firmer pricing.  The prior audit found that
EIA had awarded cost-reimbursable contracts for recurring work
that was suitable for fixed pricing.  The Office of Inspector
General recommended the preparation of definitive statements of
work suitable for fixed-price contracting.  However, EIA and
Procurement had made little progress in awarding firm-fixed-price
contracts.  As yet, no firm-fixed-price contracts have been
awarded because EIA and Procurement have not identified recurring
tasks and developed the definitive statements of work necessary
for this type of contract.  As a result, the potential of firmer
prices obtainable through using firm-fixed-price contracts had
not been realized although EIA spends about $40 million annually
for contract support.
 
RECOMMENDATION
 
  We recommended that the Administrator, Energy Information
Administration, assist the  Deputy Assistant Secretary for
Procurement and Assistance Management in conforming to the
recommendations in the prior audit report and to take advantage
of recent changes in contract law by:
 
   o identifying and segregating out recurring tasks where the work
     to be performed can be estimated with a reasonable degree of
     accuracy,
   
   o preparing definitive statements of work for recurring tasks
     that enable the use of firm-fixed-price tasks and contracts, and
   
   o pursuing changes in contracting practices to facilitate
     awarding firm-fixed-price tasks.
 
MANAGEMENT REACTION
 
 
  The Administrator, Energy Information Administration, agreed
with the finding and recommendation.  EIA is committed to
establishing guidelines and policies for best value contracting.
Actions are underway to identify the work that can be awarded as
fixed-price and one fixed-price task order is planned to be
awarded in August 1997.
 
                       
                       
                       DETAILS OF FINDING
 
 
REQUIREMENTS FOR FIRM-FIXED-PRICE CONTRACTING
 
  The Federal Acquisition Regulation (FAR) provides a selection
of contract types grouped into two broad categories: fixed-price
and cost-reimbursement contracts.  The specific contract types
range from firm-fixed-price in which the contractor has full
responsibility for the performance costs and resulting profit or
loss to cost-plus-fixed fee in which the contractor has minimal
responsibility for the performance costs and the negotiated fee
(profit) is fixed.  In between, there are various incentive
contracts in which the contractor's responsibility for the
performance, costs and profit or fee incentives offered are
tailored to the uncertainties involved in contract performance.
 
  The FAR states that cost-reimbursement type contracts are
suitable only when uncertainties preclude accurate estimates of
contract performance; otherwise, fixed-price contracts should be
used.  The FAR also states that in a series of contracts in the
course of an acquisition program, changing circumstances may make
a different contract type appropriate in later periods than that
used at the outset.  In particular, contracting officers should
avoid protracted use of cost-reimbursement or time and materials
contracts after experience provides a basis for firmer pricing.
 
  In June 1993, the Secretary of Energy formed a Contract Reform
Team, chaired by the Deputy Secretary, to evaluate the
contracting practices of the Department and to formulate specific
proposals for improving those practices.  This report, "Making
Contracting Work Better and Cost Less," was issued in February
1994 and concluded that, as the largest civilian contracting
agency, the Department must significantly reform its contracting
practices.  The team found that most of the Department's support
service contracts did not provide explicit incentives for quality
performance and cost control.  The contracts often combined, in a
single support service contract, widely diverse requirements
(e.g. recurring and non-recurring requirements).  This practice
of combining requirements inhibited development of performance-
based work statements, firm pricing arrangements, and objective
performance measurements.
 
  New contracting approaches were promoted by the 1994 Federal
Acquisition Streamlining Act (FASA).  The FASA provides for multi-
award contracts with task assignments written as either firm-
fixed-price, cost-plus-award-fee, or cost-plus-fixed-fee.
Individual tasks can then be more narrowly defined for shorter
periods of time, which would create a contract vehicle more
suitable for fixed-price contracts.  For each individual task,
EIA can decide whether it is more suitable for fixed-price or
cost-type contracting.  EIA officials expect this type of
contract to be in place by mid-1998.  In the interim, EIA has
plans to use similar contracts in place at other Federal agencies
and has approval to use a multi-award contract at the Department
of Transportation.
 
WORK PERFORMED BY EIA CONTRACTORS
 
  EIA and Procurement have made little progress towards awarding
firm-fixed-price contracts.  The recommendations made in our July
1990 report were designed to bring the contracting process into
compliance with the FAR for EIA's energy survey work that was
recurring in nature.  EIA continues to use cost-type support
service contracts, and Procurement has not awarded any fixed-
price contracts.
 
  Our prior audit found that work under six cost-plus-fixed-fee
contracts was recurring and could have been estimated with a
reasonable degree of accuracy, which would enable the use of
fixed-price contracting.  We recommended the preparation of
definitive statements of work that would permit fixed-price
contracting.  We also recommended that EIA analyze the cost-
reimbursement contracts not included in the audit to identify
additional work suitable for more firm-fixed-price contracting.
 
  The majority of EIA's workload pertains to data collection and
publication of reports on energy-related subjects.  Data is
collected by various surveys and completion of EIA data
collection forms from which reports are prepared periodically.
To determine if the nature of EIA's work had changed since the
prior audit, five contracts were reviewed that involved tasks
similar to those previously reviewed.  Most of the survey work
performed under the task assignments for these contracts was
recurring for many years and had not changed materially since our
1990 audit report.  This was confirmed in discussions with EIA
staff responsible for these contracts.  Discussion of several of
these surveys and how long this work has been performed by
contractors follows:
 
   o EIA has used contractors since 1977 to collect and report data
     from oil and gas companies on a weekly, monthly, and annual basis
     relating to national oil and gas production, importation, and
     usage.  For example, the contractor performs all survey
     processing activities to receive, edit, and tabulate data on a
     weekly basis for several surveys including a refinery report, a
     bulk terminal report, a product pipeline report, and a crude oil
     stock report.  There are about 450 respondents that provide data
     for the weekly surveys.
   
   o Contractors have been used since before 1983 to collect and
     report data on electricity usage.  One report produced is the
     monthly Power Plant Report that includes data on the generation
     of electricity, fuel consumption, and fuel stocks with a
     reporting universe consisting of about 735 electric utilities.
     The report is used to analyze U.S. energy consumption; the supply
     and demand for coal, natural gas, petroleum, hydroelectric, and
     nuclear energy; and the total generation of electricity.
   
   o Contractor surveys of energy consumption and expenditures in
     residential and commercial buildings have been performed since
     1978 and are currently performed every 3 years.  The surveys
     involve interviewing a national sample of building owners, which
     requires contractors to have a field organization to perform
     these interviews.  For example, the commercial building survey is
     designed to include about 5,000 personal interviews with building
     owners/managers throughout the United States with data collected
     on building size, location, energy sources, and energy
     consumption.  After completing the interviews, the contractor is
     responsible for manual and automated edits and consistency checks
     of the data and adjustments for nonresponsive interview requests.
     The contractor must deliver to EIA a clean, edited file for use
     as input in statistical and analytical publications.
   
   o Contractors have conducted annual surveys of oil and gas well
     operators since 1982 to prepare annual reports on domestic oil
     and gas reserves.  The main purpose of the survey is to provide
     timely estimates of proven reserves on a national level.  The
     annual surveys involve annually contacting about 5,000 oil and
     gas well operators and operators of about 800 natural gas
     processing plants in the country.  Ongoing requirements consist
     of routine data collection, data processing operation and
     maintenance, table generation, analytic and technical writing,
     etc.  Special requirements may include system enhancements, data
     research projects, etc.
 
  We recognize that there may be unique work that cannot be
anticipated when a task is approved.  In the future, in order to
permit firm-fixed-price contracting, it would be necessary to
provide separate tasks for any unanticipated work that could not
be covered under the provisions of the firm-fixed-price task.  In
addition, while the number of respondents to particular surveys
may change over time as the universe of companies change, EIA
should be able to anticipate such changes and incorporate this
information into its contracting process.
 
REASONS RECOMMENDATIONS IN PRIOR AUDIT REPORT NOT IMPLEMENTED
 
  EIA and Procurement have not identified recurring tasks and
developed definitive statements of work that are necessary for
firm-fixed-price contracting.  The present contracts include
recurring work as well as work that is unique and arises as the
contract progresses.  However, EIA program offices did not want
to split this work into separate contracts because they believed
it would complicate the work process by involving the use of
multiple contractors.  However,  the use of a firm-fixed-price
contract requires that every task is specifically defined for the
entire contract term.  The unforeseen, less definable tasks are
more suitable for cost-type contracts.
 
  After the 1990 audit, EIA stated that it reviewed its support
service contracts as they came up for renewal to consider the use
of firm-fixed-price contracting.  EIA attempted to write
definitive statements of work for two contracts that were
initially proposed to be firm-fixed-price contracts.  However,
Procurement did not agree that the statements of work prepared by
EIA were appropriate for firm-fixed-price contracts.  EIA
believed it had made progress in cost control since our previous
audit, because two labor hour contracts, which are a form of time
and materials contracting, and three cost-plus-award-fee
contracts were issued instead of cost-plus-fixed-fee contracts.
However, it has not awarded any firm-fixed-price contracts.  This
condition continues because EIA's proposed work statements did
not meet Procurement's requirements for firm-fixed-price
contracting (i.e. tasks that could be specifically defined were
not segregated from those that could not).
 
BENEFITS OF FIRM-FIXED-PRICE CONTRACTING
 
  The benefits available to the Government by using firm-fixed-
price contracting have not been realized although EIA spends
about $40 million annually for contract support.  One benefit is
that the cost of services is reduced through competition among
the bidders prior to contract award.  Also, this type of contract
shifts the risk of rising costs to the contractor who has more
control over such costs.  Fixed-price contracts are preferred
over cost-reimbursement contracts because costs incurred above
the contract price are absorbed by the contractor while costs
under the contract price represents profit.  This incentive is
lacking under cost-reimbursement contracts, which pay the
contractors' actual costs.  In the prior audit, we estimated that
for five of the six contracts in the review, actual costs would
exceed the stated contract amounts by an average of 34 percent.
EIA relies extensively on small business contractors to perform
much of its survey contract work.  Although this may limit the
competition to these groups for certain contracts, the use of
firm-fixed-price contracting within that group is not precluded.
 
  The multi-award contracts proposed as part of contracting
reform process offers a new alternative for EIA to separate tasks
into parts that can be specifically defined and parts that cannot
be specifically defined.  EIA should facilitate awarding firm-
fixed-price tasks by pursuing changes in the contracting
practices.
 
 
                            PART III
                                
                 MANAGEMENT AND AUDITOR COMMENTS
 
 
  In response to this report, the Administrator, Energy
Information Administration, concurred with the finding and
recommendation.  A summary of management's comments and our
response follows.
 
  Recommendation.  Conform to the recommendations in the prior
audit report and take advantage of recent changes in contract law
by (1) identifying and segregating out recurring tasks where the
work to be performed can be estimated with a reasonable degree of
accuracy, (2) preparing definitive statements of work for
recurring tasks that enable the use of firm-fixed-price tasks and
contracts, and (3) pursuing changes in contracting practices to
facilitate awarding firm-fixed-price tasks.
 
  Management Comments.  Concur.  Management stated that EIA is
committed to establishing and implementing guidelines and
policies for best value contracting.  The EIA Administrator and
the Deputy Assistant Secretary for Procurement and Assistance
Management intend to work together to bring the new contract
initiatives to realization within the EIA.  After the new
multiple award contract (EIA Omnibus Procurement) is awarded, and
in using other agencies' multiple award contracts, EIA will have
the capability to put the new contracting initiatives into
effect.  With the multiple award contract, EIA will have the
option of awarding either firm-fixed-price or cost-plus-fixed-fee
task orders.  Action will be taken to identify tasks where the
work to be performed can be estimated with a reasonable degree of
accuracy.  With advice and assistance from Procurement
Operations, the EIA Contracting Officer's Representatives and
Technical Monitors will be asked to identify tasks that are
suitable for fixed-price awards.  EIA plans to award a fixed-
price task order to a small business in early August 1997 using
the Department of Transportation's Information Technology Omnibus
Procurement.
 
  Management commented that clarification is needed in the
report, Part I, Background, which stated that "In Fiscal Year
1996, support services were being procured ...with an annual
expenditure of about $40 million."  Management stated that in
1996 contract obligations totaled $32 million, and will be less
in 1997.  Management also confirmed that none of EIA's support
service contracts were fixed price.  However, in 1996 EIA stated
it did award over $4 million in simplified acquisitions, which
were fixed price procurements.
 
  Auditor Comments.  Management's planned actions are responsive
to the recommendation.  Concerning the clarification requested
relating to the estimate of Fiscal Year 1996 expenditures of
about $40 million, this was based on the contracts valued at
about $202 million with a duration of about 5 years that were in
effect when the audit was performed.  The $4 million in
simplified acquisitions involved small procurements that totaled
$25,000 or less for items such as automated data processing
equipment and training costs.
 
                                                       APPENDIX A
                                                                 
                                                                 
                             PART IV
                                
          Reports Issued by the Department of Energy's
                   Office of Inspector General
 
 
                                
Report Number                          Report Title
 
 
CR-B-95-06    Audit of Department of Energy Support Service
              Contracting
 
CR-BC-91-01   Review of Headquarters Use of Cost-Reimbursement
              Contracts
 
CR-OC-89-02   Procurement of Headquarters Support Service
              Contracts
                                     
                                     
                                     IG Report No.CR-B-97-03
                                                            
                                                            
                                
                                
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