United States General Accounting Office

GAO Testimony

Before the Permanent Subcommittee on Investigations,

Committee on Governmental Affairs,

U.S. Senate

For Release on Delivery

Expected at

9:30 am EST

Friday

October 31, 1997

INSPECTORS GENERAL

Concerns About Advisory

and Assistance Service

Contracts

Statement of Robert P. Murphy,

General Counsel

GAO/T-OSI/AIMD-98-28

Madam Chairman, Senator Glenn, and Members of the Subcommittee:

I am pleased to be here today to discuss the results of a survey GAO

conducted at the request of the Subcommittee concerning contracts for

advisory and assistance services that were awarded by the 27

Presidentially appointed Inspectors General (IG) during fiscal years 1995,

1996, and 1997 (as of June 30, 1997). I will also discuss the results of the

Subcommittee’s request that we examine in detail the award of two

advisory and assistance contracts by the Department of the Treasury

Office of Inspector General (OIG). Those were a sole-source management

study contract awarded to Sato & Associates and a consulting services

contract awarded to KLS, using other than full and open competition.

I am accompanied this morning by the Deputy Director of our Office of

Special Investigations, Don Wheeler, and the Associate Director for Audit

Oversight and Liaison from our Accounting and Information Management

Division, Ted Barreaux.

The Competition in Contracting Act of 1984 and the Federal Acquisition

Regulations require full and open competition for government contracts

except in a limited number of situations. One exception to using full and

open competition is when the agency’s need is of such unusual and

compelling urgency that the government would be seriously injured unless

the agency is permitted to limit the number of sources from which it

solicits proposals. Even when an unusual and compelling urgency exists,

the agency is required to request offers from as many potential sources as

is practicable under the circumstances. This means that an agency may

limit a procurement to one firm only when the agency reasonably believes

that only that firm can perform the work in the available time. Further, for

each noncompetitive procurement action, the agency is required to

prepare a complete and sufficient statement identifying the specific legal

exception to competition requirements relied upon by the agency and

justifying the noncompetitive award.

Advisory and

Assistance Service

Contracts Awarded by

IGs

Twenty-six of the 27 Presidentially appointed IGs responded to our survey

of the extent to which they procured advisory and assistance services,

describing the types of services procured and the types of contracts used

in acquiring the services, and indicating whether the services were

noncompetitively procured. Advisory and assistance services are provided

under contract by nongovernmental sources to support or improve an

organization’s policy development, decision-making, management and

Page 1 GAO/T-OSI/AIMD-98-28
administration, program management and administration, and research

and development activities.

Nineteen of the 26 IGs procured advisory and assistance services during

the 3-year period, awarding 208 contracts, task orders, or purchase orders,

most of which were for audit and/or investigative work. These awards

were initially valued at approximately $29 million to 80 different

contractors. Of the 208 contract actions, about 84 percent (176) were

competitively awarded. For the remaining 32, we examined the written

justifications required to use other than full and open competition. The

written justifications were adequate for 18 actions and for 14 actions

awarded by five different IGs, the justifications were not adequate.

Except for the two Treasury IG contracts that I will discuss in a moment,

and that the Subcommittee had already asked us to examine, time did not

permit a determination of whether there actually was an acceptable

justification for the 14 noncompetitive acquisitions. In the case of the two

Treasury IG contracts, which were the highest priced of the 14

inadequately justified noncompetitive acquisitions and among the highest

priced of all of the 208 IG acquisitions, there were no adequate

justifications for using other than full and open competition in their award.

Sato & Associates Contract Shortly after her confirmation as Treasury IG, Ms. Valerie Lau contacted

Frank S. Sato—a former IG at both the Department of Transportation and

the Veterans Administration—to request that he perform a management

review of her office. She told the Treasury Procurement Services Division

(PSD) that she wanted Mr. Sato to perform the management review. In

response to this request, on January 9, 1995, PSD awarded a $88,566

sole-source management study contract to Sato & Associates on the basis

of unusual and compelling urgency. The contract also contained an option

to assist in implementing recommendations made in the contract’s final

report. A subsequent modification to the contract exercised that option

and raised the total estimated contract cost to $113,326. The actual

amount billed by Mr. Sato was $90,776.

In explaining why the sole-source award to Mr. Sato was justified, Ms. Lau

explained that her need to limit competition was urgent and compelling

because, among other reasons, the study would assist her as a new

appointee to quickly make reassignments in her senior executive ranks.

She said the study would also help her to marshal the resources needed to

Page 2 GAO/T-OSI/AIMD-98-28
conduct financial audits required by the Government Management Reform

Act of 1994 and the Chief Financial Officer Act of 1990.

Although Ms. Lau’s stated reasons provide some support for her position,

the facts do not establish that her ability to perform her duties would have

been seriously impaired had the procurement been delayed by a few

months in order to obtain full and open competition. Even assuming that a

limited competition was warranted, it is clear that the agency violated the

applicable statute and regulation by failing to request offers from as many

potential sources as was practical under the circumstances.

Ms. Lau was aware that at least three other former IGs had performed

similar management reviews of OIGs. We interviewed two of these former

IGs. Both stated that they could have met Ms. Lau’s urgent time frame to

perform the contract. In fact, they were hired by Mr. Sato to work on the

Treasury OIG contract, performing as consultants. We are aware of no

reason why it was impractical for the agency to have requested offers from

at least the three other known sources for the work.

While Sato & Associates was conducting the Treasury management

review, the firm submitted an unsolicited proposal for $91,012 to provide

similar work to the Department of the Interior OIG. The Department of the

Interior conducted a full and open competition. In June 1995, Interior

awarded a management study contract to Sato & Associates for

approximately $62,000 less than the firm’s unsolicited proposal. The

proposals, objectives, and final reports submitted by the contractor were

substantially the same for both jobs. For example, the final report for

Treasury included 30 recommendations and the Interior report had 26

recommendations. Eighteen of the recommendations in both reports were

substantially the same. The final cost to Interior was $28,920. This suggests

that the price of Sato & Associates’ sole-source contract for the Treasury

OIG effort, $90,776, was artificially high.

KLS Contract Regarding the second contract that you asked us to examine, Ms. Lau told

us that in the spring of 1995, she asked the Office of Personnel

Management (OPM) to conduct a workplace effectiveness study of her

office. She planned to contract with OPM for an implementation plan to

address problems identified in the initial study. However, in April 1995,

OPM concluded that it was unable to do any follow-on work because of

reorganization and downsizing. Instead, in July 1995, OPM provided

Page 3 GAO/T-OSI/AIMD-98-28
Treasury with a list of 12 consultants who were capable of doing the

follow-on work.

OIG staff added two names to the OPM list; Ms. Lau selected 4 from the

list of 14 consultants, added two names herself, and instructed her special

assistant to invite bids from at least the six individuals she had identified.

One consultant was unavailable and another could not provide a

preliminary proposal by August 30, 1995. OIG staff met with each of the

remaining four consultants to describe the agency’s needs and request

written proposals. Following receipt of the proposals and oral

presentations by the offerors, two OIG officials selected Kathie M. Libby,

doing business as KLS, a consultant from OPM’s list, as the successful

contractor. Ms. Lau concurred with the selection.

On September 12, 1995, PSD awarded a time-and-materials, consulting

services contract to Kathie M. Libby, doing business (with two other

consultants) as KLS. The original term of the contract was for 1 year with

an estimated cost of $85,850. Among other tasks, the contract called for

KLS to review and analyze the OPM survey data and to provide advice and

assistance in the development and implementation of change management

plans and models.

The contract was awarded on the basis of unusual and compelling

urgency. The justification for the urgency stated, “It is imperative that the

services begin no later than September 11, 1995, in order to have the

consultants provide a briefing to managers attending the September 14,

1995, OIG managers conference.” This determination reflected Ms. Lau’s

desire to convey to her managers that she intended to correct problems

identified in the OPM study because similar management studies had been

conducted in the past, but there had been no follow-through on the

studies’ recommendations.

We conclude that the OIG’s justification for limiting the competition was

not reasonable. The primary reason advanced by Ms. Lau for the urgency

determination was the need to have the consultant provide a briefing at an

OIG management conference. While KLS consultants did attend the

conference, they did not receive a copy of OPM’s preliminary results until

the conference. They were present for the limited purpose of introducing

themselves to the OIG staff and informing the staff that KLS would work

with them to implement the OPM study recommendations.

Page 4 GAO/T-OSI/AIMD-98-28
We believe that Ms. Lau’s ability (1) to convey to her managers that the

problems identified in the OPM study would be addressed and (2) to

correct those problems would not have been seriously impaired had the

announcement of the actual consultant been delayed a few months in

order to obtain full and open competition. Ms. Lau could still have

informed the conference participants that she intended to hire such a

consultant expeditiously, and the actual expeditious hiring of the

consultant would have demonstrated to her employees that she was

serious in her intention to pursue the OPM recommendations.

In addition to the legal improprieties in the contract awarded, we also

identified a pattern of careless management in the procurement process

and in oversight of performance under the contract. We found that the

agency engaged in poor procurement planning in that it failed to fully

understand its needs and clearly articulate those needs to the contractor.

Furthermore, OIG did not prepare a written solicitation, including a

statement of work. Instead, OIG relied upon oral communications and

failed to effectively communicate with consultants from whom it solicited

proposals.

In this regard, Ms. Libby explained to us that the agency had not

specifically identified to her its needs and that she had misunderstood the

work to be performed as explained in her initial telephone conversation

with OIG. Her proposal was based on her belief that OIG already had

management task forces or employee groups studying what changes were

needed to address the issues raised in the OPM study and that KLS was to

serve only in an advisory capacity to those working groups. Soon after

conducting her initial briefings, she learned that this was not the case and

that the work that needed to be done was different from what she believed

when she presented her proposal. This resulted in five modifications that

increased the contract’s total price to $345,050 and extended the period of

performance for 1 year.

The largest modification made to the KLS contract—issues concerning the

revision of the performance appraisal system—was outside the scope of

the original contract, and OIG should have obtained this additional work

through a separate, competitive procurement. Had OIG properly prepared

for the procurement, it could have determined whether revision of the

performance appraisal system should have been included in the scope of

the original contract or procured separately—thus eliminating this

modification.

Page 5 GAO/T-OSI/AIMD-98-28
Finally, we identified management deficiencies in oversight of the work

performed under contract. In several instances, KLS performed and billed

for work that was not included in the contract statement of work.

Furthermore, the OIG official responsible for authorizing payment

performed under the contract told us that she did not verify that any work

had been performed under the contract prior to authorizing payment. She

also told us that she did not determine whether documentation for hotel

and transportation costs claimed by KLS had been received even though

she authorized payment for these travel expenses.

Madam Chairman, that completes my prepared statement. We would be

happy to respond to any questions you or other members of the

Subcommittee may have at this time.

Page 6 GAO/T-OSI/AIMD-98-28
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