GAO

United States General Accounting Office

Report to the Chairman, Senate Special

Committee on Aging; and the Chairman,

Committee on Small Business, United

States Senate

September 2000 PENSION BENEFIT

GUARANTY

CORPORATION

Contracting

Management Needs

Improvement

GAO/HEHS-00-130

Page 1 GAO/HEHS-00-130 PBGC Contract Management

Contents

Letter 3

Appendixes Appendix I: Scope and Methodology 40

Appendix II: PBGC Organization Chart 44

Appendix III: Comments From the Pension Benefit Guaranty

Corporation 45

Appendix IV: GAO Contacts and Staff Acknowledgments 58

Table Table 1: Summary of Contracts Reviewed 41

Figures Figure 1: Overview of Plan Processing at PBGC 7

Figure 2: Cumulative Number of Pension Plans Administered

by PBGC, Fiscal Years 1990-1999 9

Figure 3: Cumulative Number of Participants in Pension Plans

Administered by PBGC, Fiscal Years 1990-1999 10

Figure 4: PBGC Contractor-Operated Field Office Locations 11

Figure 5: PBGC Limitation/Nonlimitation Budget, Fiscal Years

1975-1999 13

Figure 6: Pending Benefit Determinations, Fiscal Years 1990-1999 16

Figure 7: New Pension Plans Trusteed by PBGC, Fiscal Years

1990-1999 17
Contents

Page 2 GAO/HEHS-00-130 PBGC Contract Management

Abbreviations

CBD Commerce Business Daily

CCRD Contracts and Controls Review Department

CFO chief financial officer

COTR contracting officer’s technical representative

ERISA Employee Retirement Income Security Act of 1974

FAR Federal Acquisition Regulation

FBA field benefit administration

FTE full-time equivalent

GPRA Government Performance and Results Act of 1993

IOD Insurance Operations Division

IRM information resources management

OIG Office of Inspector General

OMB Office of Management and Budget

PBGC Pension Benefit Guaranty Corporation

TPD Trusteeship Processing Division
Page 3 GAO/HEHS-00-130 PBGC Contract Management

United States General Accounting Office

Washington, D.C. 20548

Health, Education, and

Human Services Division

B-282936 Letr

September 18, 2000

The Honorable Charles E. Grassley

Chairman, Senate Special Committee on Aging

United States Senate

The Honorable Christopher S. Bond

Chairman, Committee on Small Business

United States Senate

The Pension Benefit Guaranty Corporation (PBGC) insures the benefits of

43 million participants from default of their employer-sponsored defined

benefit pension plans.1 Established in 1974 as a self-financing government

corporation, PBGC’s primary responsibility is to collect premiums from the

sponsors of defined benefit pension plans and assume administration of

underfunded plans that either terminate or become insolvent. In the event

of plan termination, PBGC assumes control of plan assets, calculates

benefit amounts, and pays recipients a guaranteed benefit. In fiscal year

1999, about 215,000 retirees received over $902 million in benefit payments

from PBGC. PBGC’s work is performed at its Washington, D.C.,

headquarters and 11 contract office locations throughout the country,

known as field benefit administration (FBA) offices.

To carry out its operations, PBGC relies heavily on the services of

contractors whose headquarters and field employees account for almost

half of the workforce involved in processing PBGC’s workloads. In fiscal

year 1999, about $100 million of PBGC’s $160 million budget was used to

pay for contracting and related expenses.2 Due to the number of

contractors involved in supporting PBGC’s mission, you requested that we

review and assess the effectiveness of PBGC’s contracting activities.

Accordingly, we agreed to (1) determine the basis for PBGC’s decisions

regarding the use of contractors versus government personnel to address

its workloads, (2) assess PBGC’s processes and procedures for selecting

1 Defined benefit plans pay specific retirement benefits, generally based on years of service,

earnings, or both; the sponsoring company is responsible for ensuring that plan assets are

sufficient to pay liabilities.

2 Figure includes about $80 million in personnel costs, $15 million in office rents, and $5

million in travel.
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contractors, and (3) determine how effective PBGC has been in monitoring

the performance of its contractors.

To do our work, we conducted more than 70 in-depth interviews of PBGC

staff and managers, as well as contractors and their employees. We also

reviewed key performance data, internal documents, and the

documentation regarding 15 procurements whose estimated value totaled

over $197 million.3 We conducted our work at PBGC headquarters and six

contractor-operated field locations between June 1999 and May 2000 in

accordance with generally accepted government auditing standards.

Additional information on our scope and methodology is presented in app.

I.

Results in Brief PBGC contracting decisions and its organizational field structure have

been heavily influenced by the need to service rapidly increasing

workloads within existing federal staffing limitations. Faced with a

significant influx of large pension plan failures beginning in the mid-1980s,

PBGC chose to contract for services rather than seeking additional federal

staff during a period of government downsizing. Over time, PBGC

continued contracting for services to address a backlog of hundreds of

thousands of pending benefit determinations which peaked at more than

300,000 in fiscal year 1994. Because PBGC’s focus was on obtaining

necessary services quickly, it has not adequately linked its contracting

decisions to longer-term strategic planning considerations. More recently,

PBGC management has acknowledged the need to better link its decisions

to contract for services and its staffing allocations to future workload

trends. However, PBGC’s actions to date have been limited, despite

automated enhancements that have made work processes more efficient, a

projected leveling-off in workloads over the next several years, and a

steady decrease in the total universe of defined benefit pension plans and

active plan participants nationwide. Thus, PBGC cannot be assured that it

has a cost-beneficial mix of contractor and federal employees, as federal

policy requires, and risks being unprepared for future workload changes as

defined benefit pension plans and participants decline.

We also identified weaknesses in PBGC’s procurement planning and

execution processes. For example, in its first competitive procurement of

3 Total dollar amount includes base year plus option years for the contracts reviewed.
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FBA office services, PBGC’s consolidation of requirements for three

geographically remote contractor offices into a single procurement and

exclusion of the services for a fourth office from the consolidation were

not supported by a business rationale and may have limited competition. In

procuring management services for several other FBA office contracts,

PBGC should have done more to stimulate competition by conducting

outreach and market research activities to identify additional potential

offerors. In reviewing several other contracts, we also could not assess the

basis for PBGC’s award decisions because procurement documentation

was incomplete. We also identified areas where PBGC should consider

using fixed-price rather than labor-hour contracts, which require

considerable management oversight and carry more cost and quality

assurance risks to the agency. Without more effective acquisition planning

and procurement practices, PBGC risks paying too much for contracted

services and receiving inferior performance.

Finally, we identified weaknesses in PBGC’s contractor oversight activities.

PBGC has taken a number of actions to improve its management of

contractors, including automating and centralizing several functions

previously handled in the field locations to allow contractors and their staff

to focus primarily on processing benefit determinations. However, PBGC

does not centrally compile FBA-specific data essential for monitoring the

performance of contractors in field locations. We also identified

weaknesses in PBGC’s quality assurance review process for these field

offices, and in its policies and procedural guidance for PBGC employees

responsible for monitoring contracts. Furthermore, we are concerned that

the current organizational placement of PBGC’s Contracts and Controls

Review Department (CCRD)—which provides audit and internal review

services to PBGC related to contracting—may affect its independence. At

present, this office is located within the PBGC component that is the

second-largest user of contracted services and reports to its head.

The broader management issues and day-to-day operational weaknesses

that we identified in PBGC’s contracting practices could affect its ability to

efficiently and cost-effectively serve the financial needs of millions of

pension plan participants. Accordingly, we are making several

recommendations that focus on the need for PBGC to manage its longerterm contracting needs more strategically and take action to address

specific operational and procedural weaknesses identified in our review of

its contracts. In commenting on this report, PBGC generally agreed with all

of our recommendations and cited actions it has taken or will take to

implement them.
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Background The Employee Retirement Income Security Act of 1974 (ERISA) created

PBGC as a self-financing, nonprofit, wholly owned government

corporation.4 PBGC protects participants in private pension plans from

losing promised benefits due to the termination of underfunded plans.

PBGC’s primary responsibility is to collect premiums from the sponsors of

defined benefit pension plans to insure against default and to assume

administration of plans that become insolvent. In the event of plan default,

PBGC assumes control of plan assets, calculates benefit amounts

commonly referred to as initial determination letters, and pays recipients.

(See plan processing flow chart, fig. 1.)

4 A wholly owned government corporation is generally defined as a corporation pursuing a

government mission assigned in its enabling statute, typically financed at least in part by

appropriations, with assets owned by the government and controlled by board members or

an administrator appointed by the President or department secretary. The Congress

sometimes exempts these corporations from key management laws to provide greater

flexibility than federal agencies typically have in hiring employees, paying salaries/benefits,

disclosing information publicly, and procuring goods and services.
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Figure 1: Overview of Plan Processing at PBGC
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Generally, pension plans under PBGC’s administration, in which final

benefit determinations have not yet been issued, are considered active

plans. When all benefit determinations are issued and participant appeals

are resolved, plans are then closed and moved to ongoing administration

where they generally require limited maintenance to reflect participants’

marital changes, address changes, deaths, and so forth.5

In 1992, we placed PBGC on our list of federal programs at high risk

because a large and growing imbalance between its assets and liabilities

threatened PBGC’s long-term financial viability.6 Through the mid-1990s,

the Congress’ primary concern and our work at PBGC focused mainly on

PBGC’s financial condition. To address PBGC’s financial problems, the

Congress passed the Retirement Protection Act in 1994, which

strengthened minimum funding requirements for plans and increased

premiums paid to PBGC by underfunded plans. In addition, PBGC

improved administration of its insurance programs. Consequently, we

removed PBGC from our high-risk list in 1995.7

Over the years, PBGC’s workloads have grown significantly. In fiscal year

1975, PBGC administered three pension plans with a total of 400

participants. By fiscal year 1999, PBGC had trusteed more than 2,700

pension plans with a total of more than 500,000 participants. (See figs. 2

and 3 for the number of pension plans and participants by fiscal year.)

5 Both federal staff and contractors perform ongoing administration for closed plans.

6 High-Risk Series: Pension Benefit Guaranty Corporation (GAO/HR-93-5, Dec. 1992).

7 High-Risk Series: An Overview (GAO/HR-95-1, Feb. 1995).
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Figure 2: Cumulative Number of Pension Plans Administered by PBGC, Fiscal Years 1990-1999

0

500

1,000

1,500

2,000

2,500

3,000

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

1,514

1,592

1,672

1,749

1,854

1,993

2,226

2,421

2,607

2,717

Fiscal Year
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Figure 3: Cumulative Number of Participants in Pension Plans Administered by PBGC, Fiscal Years 1990-1999

To service its workloads, in fiscal year 1999 PBGC relied on 754 federal

employees 8 and 680 staff employed by contractors. A total of 240

contractor employees are located at PBGC’s 11 contract field offices. (See

fig. 4 for a map of PBGC’s contractor-operated field offices.)

Fiscal Year

0

100,000

200,000

300,000

400,000

500,000

600,000

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

346,000

372,000

330,000 346,400

372,200

441,000

465,000 472,000

512,000

392,000

8 This figure represents full time equivalent (FTE) federal staff ceiling in fiscal year 1999.
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Figure 4: PBGC Contractor-Operated Field Office Locations

These offices are primarily responsible for processing and administering

trusteed plans. PBGC’s Insurance Operations Division (IOD) has oversight

responsibility for these offices and uses the services of an additional 227

contractor employees in the Washington, D.C., headquarters. Many of these

“in-house” contractor employees are located throughout eight Trusteeship
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Processing Divisions (TPD) and perform work similar to the field office

contractors. In some of these areas, they work alongside federal employees

performing the same benefit processing and administration functions.

PBGC also relies on 213 additional employees from firms under contract to

provide actuarial, legal, audit, investment management, and information

resource services. (See app. II for a breakdown of the number of contract

employees used by each PBGC department.)

Although not required to do so in all cases, PBGC follows the regulations

governing contracting by federal agencies. PBGC’s procurement activities,

which include benefit processing and administration services, are not

bound by the Federal Acquisition Regulation (FAR).9 The FAR applies only

to the contracting of goods and services with appropriated funds for the

use of the United States.10 Plan assets, which were privately established

and maintained, are not considered appropriated funds. As a matter of

policy, however, PBGC voluntarily abides by the FAR in procuring all goods

and services.

Although it is a wholly owned government corporation, PBGC is selffinancing in that it receives no general revenues. PBGC’s operating budget

is financed by funds from insurance premiums paid by plan sponsors and

trust assets.11 In fiscal year 1999, PBGC’s total operating budget was $160

million. Although PBGC does not receive general revenues, the portion of

its budget allocated to administrative expenses has been subject to a

statutory limitation since 1985. The Congress revised this limitation in 1989

and again in 1992 to provide PBGC more flexibility to address the rapid and

often unexpected workload increases that followed several large pension

plan failures. These revisions exempted from any limitation all expenses

incurred by PBGC in connection with the termination and management of

pension plans12 and provided PBGC with discretion to determine which

functions and activities qualified as nonlimitation expenses.

9 See Matter of Pension Benefit Guaranty Corporation’s Use of Contingent Fee Arrangement

With Outside Counsel, B-223146 (Oct. 7, 1986).

10 48 C.F.R. 1.104 (applicability of FAR) and 2.101 (definition of acquisition) (1999).

11 Trust assets include assets acquired from terminated plans, investment returns on the

assets, and recoveries from employers responsible for underfunded terminated plans.

12 Activities not subject to limitation include all expenses in connection with the termination

of plans for the acquisition, protection, management, and investment of trust assets; and for

the administration of benefits.
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Over the years, PBGC has expanded the range of activities and functions

classified as nonlimitation expenses, and currently uses these resources to

fund nearly all contractor positions and related costs. This has resulted in a

steep increase in PBGC’s nonlimitation budget, from $29 million in fiscal

year 1989 to $149 million in fiscal year 1999. During the same period,

PBGC’s limitation budget decreased from $40 million to $11 million. Thus,

by fiscal year 1999, only 75 federal employees were funded out of PBGC’s

limitation budget, which receives shared Office of Management and Budget

(OMB) and congressional review and approval. The remaining 1,359 federal

and contractor employees were funded out of PBGC’s nonlimitation

budget, which is primarily subject to review and approval by OMB rather

than the Congress (see fig. 5).

Figure 5: PBGC Limitation/Nonlimitation Budget, Fiscal Years 1975-1999

Fiscal Year

Limitation Nonlimitation

0

20

40

60

80

100

120

140

160

180

75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99

Dollars in Millions

Total

$69 Million

$40 Million

$29 Million

$6 Million

$160 Million

$149 Million

$11 Million
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PBGC Contracting

Decisions Reflect

Short-Term Needs of

the Past

Because PBGC’s contracting decisions and its organizational field structure

have been heavily influenced by the need to service dramatic and often

unexpected workload increases, while adhering to staffing limitations,

decisions to contract for services have not been integrated into PBGC’s

strategic planning considerations. However, potential changes in the future

work environment require PBGC to reassess its staffing, contracting, and

organizational structure needs to best serve current and future pension

plan participants.

Decisions to Contract for

Services Driven By Prior

Workload Pressures

From the mid-1980s to the early 1990s, several large and unexpected

bankruptcies—including LTV Steel, Wheeling Pittsburgh Steel, Eastern

Airlines, and Pan American Airlines—contributed to more than doubling

the number of PBGC pension plan participants from 170,000 to nearly

400,000. In addition to needing help to service the benefit administration

needs of thousands of new participants, PBGC found itself in need of

additional legal counsel and investment advisor services. Rather than

continually seeking significant increases in federal staff during a time of

government downsizing, PBGC increasingly turned to contractors to

provide services.13 Over time, this emphasis on contracting for services

continued as PBGC focused on addressing a backlog of pending benefit

determinations, which peaked at over 300,000 in fiscal year 1994.

More specifically, PBGC often quickly entered into sole-source contracts

with pension office administrators from the insolvent companies to take

advantage of their familiarity with plan provisions as well as their office’s

physical proximity to plan records and participants.14 Over the years, 11

field office contractors have remained with PBGC to perform benefit

administration services for other insolvent plans as they were terminated

and trusteed. Thus, with no linkage to agency strategic planning or

assessment of how PBGC should be organized for maximum efficiency,

these offices have become PBGC’s field office structure.

13 Between 1988 and 1992, FTE allocations remained relatively stable at an average of 540. In

fiscal year 1993, PBGC requested and received an additional 117 FTEs. During this same

period, budget dollars used for contracting grew from $11 million to $79 million.

14 A sole-source contract is entered into or proposed to be entered into after soliciting and

negotiating with only one source.
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Because PBGC’s focus was on obtaining needed staff quickly, it did not

perform a comprehensive analysis of the costs of using contractors versus

federal employees to service its workloads. Nor has PBGC taken actions to

reassess its contracting and staffing needs against projected future

workload changes or to determine how its field structure should be

organized for optimal performance in the longer term. PBGC completed a

limited cost/benefit analysis in 1994 which allowed PBGC to obtain

additional federal staff. However, this analysis was limited in the range and

types of positions reviewed and was never used by PBGC for longer-term

strategic planning purposes. In the absence of such activities, PBGC has

operated for many years without reasonable assurance that it has a costeffective mix of contractors and federal employees.15 In fact, PBGC could

not provide data on the total number of contract employees performing

services for PBGC or a description of how they were deployed across

various PBGC components for the years prior to fiscal year 1995.

Potential Work

Environment Changes

Require PBGC to Better

Link Contracting Activities

to its Strategic Plans

As a matter of policy, the government is expected to rely upon the private

sector to provide services if they can be obtained more economically from

a commercial source.16 However, potential changes in future workloads

attributable in part to increased PBGC productivity, economic trends,

changes in pension laws, and enhanced plan funding suggest that PBGC

should reassess its approach to the acquisition of contract services and

better link its activities to long-term strategic plans. For example, at the

time of our review, PBGC had reduced its backlog of pending benefit

determinations from a high of more than 300,000 in fiscal year 1994 to

about 190,000. PBGC expects to eliminate the backlog and reach a working

inventory of about 120,000 pending determinations in less than 5 years. As

PBGC moves into an era of more real-time processing of benefit

determinations, reassessment of staffing levels and its organizational

structure may be necessary. (See fig. 6 for the number of pending benefit

determinations remaining each year.)

15 In July 1999, shortly after the start of our review, PBGC completed a limited cost

comparison update of some contract and federal staff positions related to benefit

administration services. This effort showed that FBA contractors were generally less costly

than most comparable federal staff. However, the manager responsible for this analysis was

uncertain how this information would be integrated into future strategic planning decisions.

16OMB Circular No. A-76 (Aug. 4, 1983, revised 1999).
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Figure 6: Pending Benefit Determinations, Fiscal Years 1990-1999

PBGC has also improved its ability to target companies that pose the

greatest risk to PBGC and to get underfunded plans to improve their

financial positions, thereby averting major crises. If pension plans are

adequately funded, PBGC is less likely to assume trusteeship and

associated benefit administration workloads. In fact, the data show that the

number of new pension plans taken over by PBGC each year has steadily

decreased and PBGC has not assumed any large and potentially disruptive

plans in several years. (See fig. 7 for the number of new plans trusteed by

PBGC each year.)

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

190,641

207,292

228,244

242,904

259,699

300,685

289,527 297,788

248,269

212,828

Fiscal Year
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Figure 7: New Pension Plans Trusteed by PBGC, Fiscal Years 1990-1999

0

50

100

150

200

250

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

130

184

197

234

136

106

77 77

83

62

Fiscal Year
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In addition, the universe of defined benefit pension plans insured by PBGC

has decreased dramatically from a peak of 112,000 in 1985 to about 40,000

in 1999. This has been accompanied by a decrease in the number of active

plan participants—those currently earning pension accruals and a better

measure of future workloads—from 27 million in 1988 to 23 million in

1996.17 If these trends continue, PBGC’s exposure to future pension plan

failures should be reduced. PBGC expects workloads to remain at about

40,000 to 50,000 new participants per year.

Sound management practices dictate that organizations should periodically

engage in strategic planning and analyses to better position themselves to

meet future challenges. Our prior work on human capital planning suggests

that planning strategies should be linked to current and future human

capital needs, including the size of the workforce; its deployment across

the organization; and the knowledge, skills, and abilities needed by

agencies to pursue a shared vision. Staff deployment, both geographically

and organizationally, should also be made to enhance mission

accomplishment and provide for efficient, effective, and economical

operations.18 In addition, the Government Performance and Results Act of

1993 (GPRA) requires that federal agencies pursue performance-based

management through sound strategic planning.19 To comply with GPRA,

PBGC has developed a fiscal year 2000-2004 strategic plan and an annual

performance plan to guide its operations. While these plans acknowledge

future work environment challenges, they do not detail what those

challenges will be and how staffing, contracting, and organizational

structure decisions will facilitate accomplishment of PBGC’s strategic

goals and objectives. Thus, PBGC still lacks a blueprint for organizing its

contractors and federal staff to cost-effectively meet the needs of current

and future plan participants.

17 Most recent data available on number of active participants.

18 Human Capital: A Self-Assessment Checklist for Agency Leaders (GAO/GGD-99-179, Sept.

1999).

19 GPRA requires federal agencies to implement results-oriented management reforms, such

as conducting strategic planning, establishing program goals and objectives, measuring

progress in meeting those goals, and reporting publicly on that progress. PBGC is subject to

the requirements of GPRA.
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PBGC officials have acknowledged the need to better assess PBGC’s future

workloads and how its staffing levels and contractor mix will support those

workloads. However, PBGC’s actions to date on this initiative have been

limited and it is still giving inadequate consideration to the longer-term

impacts of its decisions regarding the use of contractors. For example,

PBGC initiated a policy change in fiscal year 1999 allowing contract field

offices to perform ongoing administration for all of their closed plans,

regardless of plan size.20 Prior to this policy change, ongoing administration

for hundreds of plans had been consolidated primarily at two designated

field offices. As plans were closed, they were transferred to these two

locations for servicing. Under the policy change, all 11 field offices are

permitted to administer their closed plans, in addition to performing

benefit administration tasks on their active plans.

Several offices we visited were in the process of closing plans that had

represented a significant portion of their business for many years. An

official at one of the largest offices told us that, without ongoing

administration responsibilities or a significant influx of new plans, the

office would likely have insufficient work to continue operations. PBGC’s

chief operating officer, who has ultimate responsibility for field office

oversight, told us that the decision to allow all these offices to administer

their closed plans was based on the assumption that they were best

qualified to address participant inquiries. However, he acknowledged that

PBGC’s focus has been on addressing benefit determination backlogs

rather than on the long-term effects of allowing them to perform routine

plan maintenance activities. We are concerned that PBGC’s ongoing

administration decision was made without sufficient analysis of future

workload trends and staffing considerations and could unnecessarily

perpetuate the existence of some field office contracts if the influx of new

plans trusteed by PBGC levels off over the next several years as expected.

Weaknesses Identified

in PBGC’S

Procurement Practices

Our review of PBGC’s most recent field benefit administration services

procurements identified weaknesses in its procurement planning and

execution processes which could affect competition. Specifically, PBGC

lacked a sound business rationale to support its approach for contracting

for services at four field office locations. PBGC also should have done

more to stimulate competition for its other field office services

20 Prior to the revision, ongoing administration was allowed only for plans with 10,000 or

more participants, or plans requiring special expertise.
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procurements. In reviewing several non-FBA contracts, we identified

additional weaknesses in PBGC’s procurement practices, as described

below.

Procurements for Benefit

Administration Services

Were Not Consistently

Structured

As noted previously, PBGC currently has 11 contracts for FBA services

requirements. PBGC’s first competitive procurement for these services

occurred in 1997, when it solicited offers for four offices’ service

requirements—a total value of about $71 million. We reviewed these

procurements and found that the underlying procurement approach was

not supported by a sound business rationale. (See app. I, table 1, for

specific information on the contracts reviewed.) Such weaknesses in

PBGC’s procurement planning and execution processes could negatively

affect competition. As a result, the agency risks paying too much for

contracted services and receiving inferior performance.

Prior to 1997, procurements for all field office services were conducted on

a sole-source basis because of PBGC’s view that only one responsible

source was capable of performing the work in each location. According to

PBGC’s Procurement Director, the decision to open some field office

services requirements to competition was influenced by concerns

expressed by PBGC’s Office of Inspector General (OIG). The OIG had

reported that some of PBGC’s contracts may have been awarded under

“less than full competition in inappropriate circumstances.” In response,

PBGC competed the requirements for services at those field locations

having the largest contract dollar-values—Miami, Atlanta, Wheeling, and

Wilmington. At that time, a single large contractor—Office Specialists,

Inc.—was incumbent at the Miami, Atlanta, and Wheeling offices. A second

contractor—Benefit Services Unlimited—was incumbent at the Wilmington

office. However, rather than compete the services for these three offices

separately, PBGC consolidated the Miami, Atlanta, and Wheeling service

requirements into a single procurement. The services for the Wilmington

location were excluded from the consolidated procurement and competed

separately. These procurement actions resulted in PBGC’s award of a $47

million, three-site contract to Office Specialists, Inc., and the award of a $24

million Wilmington contract to Benefit Services Unlimited, leaving the

incumbent contractors in place for all four locations.21

21 These figures represent the total contract costs over a term of 4 years.
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PBGC’s procurement director stated that PBGC competed the four largest

field office requirements because they represented most of PBGC’s FBA

contract budget. He also said he believed these large, high-dollar contracts

would attract competition. At our request, the procurement director

provided a written explanation of the procedures used in conducting these

four acquisitions. He stated that, based on the knowledge he and the

director of the Insurance Operations Division have of the “availability of

benefit administration firms that specialize in defined benefit pension plans

terminated in accordance with ERISA,” PBGC was certain that the

employees already working at the sites for which the services requirements

were combined constituted “the only labor pool . . . qualified” to perform

the services. The Procurement Director further stated that out of five

proposals received in response to the solicitation, four were found to be

technically acceptable.22 These four offerors also proposed using the same

group of employees already working at the three sites. In view of “PBGC’s

knowledge of this rather specialized marketplace,” the Procurement

Director stated that requiring the successful offeror to perform at the

Miami, Wheeling, and Atlanta sites would not tend to restrict competition

among responsible firms. However, the procurement director

acknowledged that the services for the Wilmington site were not included

in the consolidated procurement because to do so would have precluded

the incumbent from competing for the work.

Absent legal authority that permits the contracting entity to do otherwise,

federal procurements are generally to be conducted using full and open

competition. As such, solicitations are permitted to contain restrictive

provisions only to the extent necessary to satisfy the needs of an agency.

Because consolidated procurements combine separate requirements into

one award, they have the potential for restricting competition by excluding

potential competitors that can furnish only a portion of the requirement.

Therefore, consolidated procurements must be reasonably necessary to

satisfy the government’s need. The decision to consolidate the

requirements must also be based upon sound business reasons, supporting

the conclusion that the government’s overall needs can be most effectively

provided through a consolidated procurement approach. In sum, PBGC’s

22 The fifth offeror’s proposal offered to provide services only for the Atlanta office. In

addition, a contractor at one of the other FBA offices stated that it would have competed to

provide services at one of the three offices for which services were consolidated. This

contractor said it did not compete in the procurement because of the size of the combined

workload and potential management difficulties associated with a multisite contract.
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reasons for combining requirements must be balanced against the possible

restriction of competition.

Although PBGC did receive five proposals in response to the combined

solicitation, it did not provide a sound business rationale as to why the

consolidation of the Miami, Atlanta, and Wheeling requirements was

necessary to meet PBGC’s needs. PBGC did not establish that the

combination supported any program plan or goal of PBGC. In fact, PBGC’s

explanation for combining the three requirements and its explanation for

excluding the fourth are inconsistent. PBGC’s conduct of these

procurements showed weaknesses in its procurement planning practices.

Consequently, competition may have been limited and PBGC risks paying

too much for contracted services and receiving inferior performance.

Competition for Sole-Source

Benefit Administration

Services Contracts Could Be

Improved

Although PBGC competed four field office services requirements in 1997, it

continued its practice of making sole-source awards for the seven

remaining field office contracts. Our review showed that PBGC should

have done more to stimulate competition for these procurements.

PBGC’s rationale for continuing to make sole-source awards was that the

incumbent contractors, as former pension plan administrators of

companies from which their primary plans emanated, were uniquely

qualified to perform the work because of their knowledge of the primary

plans.23 Even though PBGC published a notice of these awards in the

Commerce Business Daily (CBD), we found no indication that PBGC ever

acted to stimulate competition by conducting outreach or market research

activities to identify other offerors capable of performing the required

services. In prior work, we have reported that such activities have been

effective in stimulating competition.24

Our review of the contract files for the Pueblo, Sarasota, and Cleveland

offices confirmed that the principals/owners were former benefit

administrators for the primary plans under administration and were still

23 The primary plan is defined by PBGC as the original plan for which the contract was

initiated. For example, the initial contract for the Pueblo, Colorado, office was let in the

early 1990s to service CF&I Steel. The principal/owner was a former pension benefit

administrator at CF&I Steel.

24 Contract Management: Few Competing Proposals for Large DOD Information Technology

Orders (GAO/NSIAD-00-56, Mar. 20, 2000).
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servicing their primary pension plans. However, at the time of these

procurements, these contractors had 6 years of service with PBGC and had

made considerable progress toward completing the work on their primary

plans. They also had assumed benefit administration responsibility for

numerous additional pension plans not associated with the plans they

originally administered. For example, one sole-source office contractor

listed a total of 15 additional trusteed plans from various companies and

thousands of new participants under its administration.

PBGC’s procurement director told us that the decision to continue

awarding sole-source contracts for these seven offices was based primarily

on his knowledge of the marketplace and a belief that few companies other

than the incumbents possessed the expertise to service pension workloads

at these locations. However, PBGC acknowledged that it conducted no

outreach or market research activities to identify other potential offerors.

When a contracting entity uses noncompetitive procedures, it must execute

a written justification that includes sufficient facts and rationale to justify

its use of those procedures. The justification must also include a

description of any market survey conducted—or an explanation of why a

market survey was not conducted—and a statement of actions the agency

may take to remove barriers to competition in the future. For those

contract files we reviewed, PBGC’s justification for the procurement states

that it received no statements of interest from other potential offerors in

response to its CBD notice. Concerning its actions to overcome barriers to

competition, the justification states:

The PBGC is presently unaware of any specific barriers to competition that could be

overcome with respect to this requirement. Further, PBGC will continue to form and

disseminate its requirements in a manner which will reach the widest range of potential

sources.

Even though, procedurally, the CBD notice may serve the purpose of a

market survey, PBGC should do more to stimulate competition. PBGC’s

justification, along with its actions in continuing to award these contracts

noncompetitively for almost a decade, indicates an absence of intent to do

otherwise. Given the amount of time this practice has continued, PBGC

should make greater efforts in the future to stimulate competition for these

requirements.

PBGC’s procurement director acknowledged that PBGC should reassess its

sole-source field office contracts as more offices close out their primary

plans and continue to take on additional work beyond their original area of
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expertise. This reassessment could result in additional competitive field

office procurements in the future. However, he noted that this

reassessment would be unlikely prior to fiscal year 2001, when the current

field office contracts are due to expire.

Additional Observations on

PBGC Contractor Selection

Practices

In addition to the above findings, our review of PBGC’s contracting

practices identified other management and operational weaknesses

associated with contracts let by the chief financial officer (CFO)

component, the second largest user of contractors’ staff at PBGC (see app.

II). These weaknesses pertain to the need for PBGC to better document the

results of technical evaluations of proposals, and its use of fixed-price

rather than labor-hour payment arrangements for some contracts.

For Some Contracts, PBGC’s

Basis For Contractor Selection Is

Not Fully Documented

Our review of two CFO component contracts found that PBGC should have

more fully documented its basis for awarding an $18 million information

resources management (IRM) contract for systems engineering and a $1.5

million investment management contract. PBGC’s internal guidance at the

time of the procurements provided for the establishment of a Technical

Evaluation Panel to assess contractor proposals and make selection

recommendations to the procurement director. This guidance required

that, in evaluating proposals, the panel chairperson and each member

identify and record the strengths and weaknesses of each proposal under

review. While it was not specifically required, panel members could also

prepare individual score sheets for each offeror’s proposal.

The procurement files we reviewed included the technical scores for the

offerors under consideration as well as a selection recommendation from

the panel chairperson. However, they did not include a complete set of

individual panel members’ scoresheets documenting their review and

rationale for arriving at a particular score. For the investment management

contract, we found that only two of seven panel members submitted

individual scoresheets and some analysis of the specific strengths and

weaknesses of competing proposals. With only the final numeric scores to

go by, the record lacked information concerning the panels’ bases for

determining contractor qualifications and issuing its final selection

recommendations. Thus, it was not possible to determine whether final

award decisions were based on a thorough assessment of each offeror’s

proposal by all panel members.
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Opportunities Identified for

Alternative Contract Payment

Arrangements

We reviewed five additional CFO component contracts for premium

compliance audit services and found that PBGC should give stronger

consideration to using fixed-price contracts rather than labor-hour

contracts for these services.25 For these contracts, audit firms perform

reviews of companies that pay insurance premiums to PBGC. The reviews

primarily involve examining, testing, and validating required asset and

liability information related to the calculation of premium levels and

ensuring that premiums paid by covered pension plans are correct. The

collection of pension plan premiums is a major source of income to

PBGC.26

As of June 2000, about 60 percent of PBGC’s active contracts involved

labor-hour pricing, under which contractors are paid at an established

hourly rate for performing agreed-upon tasks. In general, labor-hour

contracts require detailed reviews of the hours charged by contract staff

and close monitoring by the contracting entity to ensure that quality and

timeliness requirements are met. Otherwise, the contracting entity risks

paying a higher price than it would under a fixed-price arrangement, as well

as receiving poor performance. Accordingly, in its best practices guide for

performance-based service contracting, the Office of Federal Procurement

Policy encourages the increased use of fixed-price contracts and incentives

to promote optimal performance.27

25 Fixed-price type contracts generally provide for a firm price or, in appropriate cases, an

adjustable price for performing a particular service, regardless of how long it takes to

complete the service. These contracts generally have some type of target or ceiling price

that can be revised only in limited circumstances. Labor-hour contracts provide for payment

of contractors at hourly rates for performing agreed-upon tasks.

26 Total premium collection income was $925 million in fiscal year 1999.

27 The Office of Federal Procurement Policy’s primary responsibilities include prescribing

governmentwide procurement policies that must be followed by the executive agencies and

ensuring agency action in maintaining the FAR.
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When acquiring services that previously have been provided by contract,

agencies should rely on the experience gained to facilitate the use of fixedprice contracts for such services. Prior to entering into the current

contracts in 1997, the incumbents performed similar work for PBGC under

purchase order agreements. Thus, PBGC had actual experience in pricing

similar services that could have served as a basis for estimating future

contract costs. Based on this information, the contracting officer’s

technical representative (COTR) responsible for oversight of the firms

calculated a potential fixed price of between $3,400 and $8,000 to be paid to

the contractors for each audit completed.28 A fixed-price contract for these

audits was originally proposed by PBGC and the five firms submitted

offers. However, following a meeting between PBGC component

management and the contractors, PBGC made a determination that a laborhour payment arrangement would be more effective to accommodate the

variable level of effort needed to complete the audits.

The procurement files showed that, after the contracts were awarded,

PBGC experienced performance problems with several of the contractors.

Within the last 2 years, PBGC also opted not to continue its 15-month

relationship with two of the firms. Documents we examined showed that

PBGC paid one of these contractors $210,000 to complete three audits—

about $70,000 per audit—which resulted in $2,000 in additional collections.

In contrast, PBGC’s highest-producing contractor performing similar

services completed 27 audits with $1.3 million in additional collections at

an average cost of $6,600 per plan. This indicates that PBGC could have

paid much less than $210,000 to the above contractor under the fixed-price

arrangement originally proposed, in which firms were paid on a per-audit

basis.29 In addition, a second contractor has been referred to PBGC’s OIG

by the former COTR for investigation of potential contract billing

irregularities. In light of the performance issues surrounding these

contracts, and the fact that PBGC has some basis to award them as fixedprice contracts, PBGC should give stronger consideration to using fixed

prices in similar situations.

28 The COTR is appointed by PBGC management to provide assistance with awarding and

administering contracts to ensure that work progresses satisfactorily.

29 Based on COTR’s proposal of about $4,000 per plan audit.
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PBGC’s Contract

Oversight Practices

Need Improvement

Contract oversight primarily involves monitoring performance. In recent

years, PBGC has taken actions to improve its contract oversight role and

better support its contractors who perform field benefit administration

services. However, we identified several key management weaknesses that

could affect PBGC’s ability to monitor and hold contractors accountable

for performance. These include a lack of FBA-specific data necessary for

monitoring performance, deficiencies in PBGC’s field office quality

reviews, insufficient policy guidance for PBGC staff responsible for

managing contractors, and current organizational alignments that could

affect the independence and objectivity of PBGC’s contracts review

component. In addition to these broader contract management issues, our

review of the contract files identified specific operational deficiencies

pertaining to PBGC’s oversight of its premium compliance audit and IRM

contracts.

PBGC Has Taken Steps to

Better Manage Contractor

Workloads and Performance

Our analysis showed that PBGC uses various tools to monitor contractor

performance. For example, all of the FBA offices we visited received a

performance review by PBGC in the last year. As required by its contract’s

statement of work, each office also used PBGC workplans to guide its daily

activities and submitted monthly status reports to PBGC to document

progress made. Field office managers also reported regular communication

with their assigned COTR at PBGC.

We also found that PBGC has taken steps to improve benefit processing

and administration and to better support field office contractors in

servicing their workloads. For example, in 1993, PBGC reorganized its

benefit administration operations to implement team case processing so

that auditors, actuaries, and benefit administrators in both headquarters

and the field are arranged in teams to process benefits. This replaced

sequential processing, in which cases were handed off between various

components as discrete tasks were completed. Over the last several years,

PBGC also made significant investments in automation and centralized

several functions previously handled by the field offices to allow staff to

focus primarily on processing benefit determinations. For example, field

offices now have the capacity to automatically generate mass letters and

notices to recipients, rather than use manual processes. In addition,

responsibilities for addressing participant telephone inquiries and for

processing mailed documents into PBGC’s databases are now centralized

in PBGC headquarters.
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Our interviews with field office managers showed a general agreement that

the reorganization was effective in terms of expediting pension plan

processing and improving organizational communications. Most of the

managers and staff also noted that PBGC’s automation investments have

improved office productivity and overall customer service.

PBGC Does Not Centrally

Compile and Monitor

Automated Data on FBA

Office Performance

Our analysis and field visits showed that PBGC does not compile and

centrally monitor FBA-specific performance data that are essential to

overseeing and managing performance. In the absence of such data, PBGC

may lack critical information to ensure that work is progressing as required

and quality goals are met.

In order to undertake a comparative analysis of field office productivity, we

requested data from PBGC to document the range of activities and volume

of work processed by these offices. We found that field office data are not

centrally compiled and monitored by PBGC. Instead, PBGC generally

compiles data on work processed by each office—such as final benefit

determinations—on a plan-specific basis. This information is then included

in the productivity data for PBGC’s eight TPDs in Washington. These

divisions have primary responsibility for pension plan administration and

oversee the activities of field offices assigned to their plans. Under the

current organization, a field office with 30 pension plans could report to

several processing divisions and its workload outputs would be included

within the productivity totals of each of those divisions. As a result, PBGC

lacks centralized field office performance data and reports necessary for

quickly providing top management with a “snapshot” of office productivity

as pension plans move through the various stages. Due to the commingling

of data, along with the fact that field office productivity is reported on a

plan-specific basis, it may be difficult for PBGC to ensure that its contract

field offices are performing efficiently and effectively.

Individual offices do, however, maintain internal productivity information

to assist in managing their workloads. Such information includes the

number of benefit determinations processed, death notices recorded,

address changes completed, pension databases built, documents scanned,

and pension plans closed out. Some offices also compiled manual data on

backlogged workloads. However, the extent and detail of these data varied

among the offices. The offices we visited also reported their activities to

PBGC via monthly status reports to their assigned COTR, as required by

their contracts. However, the content of these reports also varied. Thus, the

monthly status reports are not an adequate substitute for automated and
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centrally monitored field office performance data. We believe that—if

uniformly compiled and monitored—additional automated data would

provide PBGC with information needed to compare office productivity and

performance over time, monitor a specific office’s performance against

prior months and years, more quickly determine work progress, and

identify and track workload backlogs.

FBA-specific data may also allow PBGC to evaluate the impacts of special

management initiatives on other workloads, such as a recent PBGC

mandate to complete all pre-1994 pending benefit determinations by the

end of fiscal year 1999. For example, PBGC’s OIG reported that PBGC’s

emphasis on processing benefit determinations may have caused final plan

closings to receive less priority. The OIG also concluded that completing

this step was important because it allowed PBGC to ensure that all final

benefit determinations for a plan were issued. Because PBGC does not

centrally compile and monitor FBA-specific data on plan closures, it lacks

valuable information for top management to assess the effect of this recent

directive on other workloads.

PBGC officials responsible for overseeing the field offices acknowledged

that FBA-specific data were not centrally compiled or used by management

to assess and monitor individual office performance. They generally agreed

that compiling such information would better support upper management’s

need to quickly assess PBGC’s progress in meeting processing targets. One

high-level official also told us that, in prior years, the lack of

comprehensive field office performance data impeded PBGC’s efforts to

obtain OMB approval for additional resources. Some managers cautioned

that using such data for comparison purposes was difficult because offices

are not always in the same stage of operations. For example, one office

may be processing more benefit determinations in a given month, while

another may be processing recipient death notices. Thus, their outputs

would be different. However, these officials also acknowledged the value of

using such data for intraoffice comparisons—that is, comparing an office’s

performance against its prior months or years to evaluate trends in office

productivity and identify any emerging performance issues. We believe that

such data may also provide PBGC with better management information to

establish more meaningful future FBA office performance goals.
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Performance Review

Process for FBA Offices

May Not Adequately Ensure

Work Quality

PBGC requires its FBA offices to undergo regular performance reviews to

ensure that proper internal controls are in place and that workloads are

processed in a complete, accurate, and timely manner. The reviews include

steps to assess the management of field office operations and verify

participant information files to ensure that information is accurately

documented and benefit computations are accurate. However, our analysis

identified continuing weaknesses in the review process, which may affect

PBGC’s ability to manage contractor performance. In 1995, PBGC’s OIG

reported that its performance reviews were not in accordance with

generally accepted government audit standards as had been claimed by

management. The OIG also concluded that the reviews often resulted in

flawed recommendations, seemed to excuse poor field office performance,

and posed a risk to PBGC decision-making. In response to these findings,

PBGC agreed to reassess its audit standards, to improve documentation

and followup on prior recommendations, and to hold its field office

contractors accountable for identified problems.

Our review identified continuing problems with PBGC’s performance

review process. PBGC’s procedural manual for these reviews states that

they are based on government auditing standards. As such, review team

members are required to meet general standards for independence,

qualifications, due professional care, and quality control. Despite these

requirements, key headquarters staff and managers told us that the reviews

had a limited impact on improving field office performance, because

management often did not support efforts to identify weaknesses and hold

the offices accountable for negative findings. Others noted that team

leaders and members often lacked sufficient training and expertise to

perform the reviews. We also obtained an internal management report

prepared by PBGC last year assessing the effectiveness of the review

process. This document noted that the reviews continued to show

weaknesses in meeting auditing standards which could facilitate internal

control weaknesses and poor product quality. The report especially

highlighted deficiencies in the area of personnel qualifications and due

professional care.30 For example, the report noted that it was the practice

of some components to rotate experienced personnel out of the review

function each year, and assign lead roles to individuals who had never

completed such reviews or received training in applying the standards and

30 Under generally accepted government auditing standards, due professional care means

using sound judgment in establishing the scope, selecting the methodology, choosing tests

and procedures for the audit, and evaluating and reporting audit results.
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Page 31 GAO/HEHS-00-130 PBGC Contract Management

procedures. In fact, of 22 field office reviews completed by PBGC, nearly

one-third were led by individuals who had never before participated in a

review.

In regard to the issue of due professional care, the management study also

cited frequent instances of poor quality control and of reports and work

papers being returned for significant additional development, even though

they had been reviewed and approved by team supervisors. Finally, the

study noted that resources devoted to the reviews may be insufficient to

ensure that a quality review is conducted. Citing feedback from various

review teams, the report pointed out that “corners would be cut” when

PBGC’s work priorities dictated.

A PBGC official responsible for field office quality assurance

acknowledged that training and qualifications for review team members

remain a concern. However, this individual stated that PBGC now places a

greater emphasis on reviewer training and on ensuring adherence to

accepted auditing standards. Our review showed that PBGC does provide

and encourage field office reviewer training. However, PBGC still does not

require team leaders or members to meet minimum professional education

credit requirements. At the time of our review, PBGC also had not reached

any conclusions as to whether a system of permanent review team leaders

would be more efficient than the current process of rotating lessexperienced staff into that role.

PBGC should act quickly to address the weaknesses in its performance

reviews of field office contractors. An effective quality control system is

particularly important, considering that PBGC recently completed its

initiative to issue final benefit determinations for plans trusteed prior to

1994. During our field visits, contractor management commonly referred to

this directive as a major undertaking with tight time frames. Individuals

from several offices also noted that pressure to process this workload may

have negatively affected the accuracy of benefit calculations and quality of

notices sent to participants. Thus, it is important that PBGC have an

adequate review process in place to detect errors resulting from this effort.

Individuals Responsible for

Contractor Oversight Lack

Sufficient Guidance

Primary responsibility for oversight of PBGC’s contracts lies with more

than 69 COTRs located throughout PBGC and five contract specialists

within the Procurement Department. In its best practices guide for contract

administration, the Office of Federal Procurement Policy states that

problems often arise when contracting officials allocate more time to
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awarding contracts than to administering them. In addition, unclear roles

and responsibilities of individuals responsible for contract administration

are also cited as sources of problems. Contracting entities should pay

attention to adequately supporting the individuals responsible for

monitoring and ensuring contractor performance.

Despite the importance of effective contract oversight, we found that

PBGC has not developed a comprehensive set of policies and procedures to

guide COTRs and contract specialists in their day-to-day activities. The

Procurement Department maintains a limited policy and procedure

manual, which serves as the primary guide to contractor selection and

oversight. However, the director often supplements this document with ad

hoc directives, e-mails, and other standalone memorandums to address

contracting issues and problems as they arise. Because PBGC has never

compiled these informal policy clarifications and directives into its

departmental manual, PBGC lacks a comprehensive set of standard

operating procedures to guide staff in addressing common contract

oversight problems.

During our review, staff involved in contract oversight management

expressed a common need for additional policy and procedural guidance

and training beyond what is currently provided by PBGC. In the absence of

more specific procedures, some COTRs and contract specialists have

chosen to rely on their own judgment or on advice from coworkers for

policy and procedural interpretations. Due to the decentralized nature of

PBGC’s directives, staff may also spend significant time seeking guidance

for issues such as when contracts should receive legal review or what to do

with pension files after plans are closed. Furthermore, staff and managers

may receive conflicting directions, which could ultimately lead to

inconsistent administration practices and contractor performance

problems. During our review, we identified two separate internal guidance

documents used by PBGC to clarify COTR responsibilities. These

documents included disparate information regarding the COTRs’

responsibility to provide monthly status reports to management on the

progress of work. In reviewing the contract files for 6 of the 11 FBAs, we

found that the COTRs were regularly completing these reports while

COTRs for several other non-FBA contracts were not.
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Organizational Placement of

CCRD Could Have Contract

Management Implications

Our analysis shows that the independence and objectivity of PBGC’s CCRD

could be negatively affected by its position in PBGC’s organizational

structure.

Established by PBGC’s Deputy Executive Director and CFO in 1994, CCRD

performs contract cost audits and internal control reviews of PBGC’s

departments and programs. Auditing standards require that the audit

organization and individual auditors should be organizationally

independent in all matters relating to audit work. However, because the

director of CCRD reports directly to the CFO, any internal reviews of

departments and programs located under this component cannot be

considered independent. CCRD management told us that any reports or

reviews of departments under the CFO must disclose the fact that CCRD is

not considered independent under generally accepted government auditing

standards. While we agree that such a disclosure is necessary, we are

concerned that the objectivity of this department’s reviews could still be in

question due to the current reporting relationship. More importantly, we

are concerned that the potential exists for management to influence the

scope of audits or affect CCRD’s ability to make independent judgments as

to which CFO departments and programs should be reviewed. The former

Director of CCRD told us that the department’s current location within

PBGC was not ideal. He also suggested that stronger organizational

independence could facilitate more effective internal reviews of all of

PBGC’s departments and programs.

Management and Oversight

Issues Identified in Several

Contracts Reviewed

In addition to the broader contract management issues noted above, we

identified specific weaknesses in PBGC’s oversight of five premium

compliance audit contracts and one IRM systems engineering contract.

We found that none of the premium compliance audit contractors

submitted the required monthly COTR status reports, which are essential

to documenting work status and identifying performance problems early in

the process. In addition, despite the fact that the compliance audit

contractors were performing similar services for PBGC, their reports on

the progress of audits differed in terms of format, data provided, and

comprehensiveness. The contractors also used various means, other than

written reports, to document the final results of their reviews. In fact, it

was common for no signed reports to be issued. Instead, contractors’ work

papers often served as their final report product.
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As noted earlier, PBGC has experienced performance problems with some

of the firms working under these contracts. Weaknesses in PBGC’s

oversight and management of these contracts may have affected its ability

to monitor work progress and ensure the quality of the reviews. The total

value of the five contracts we reviewed was about $7.5 million; however,

their importance is much more significant because annual insurance

premiums paid by covered plans are a primary source of PBGC’s income.

Thus, ensuring proper payment of premiums is crucial. Current data show

that additional collections resulting from these reviews are down from

more than $2 million in FY 1999 to about $7,000 as of May 2000. It is

important that PBGC maintain adequate contractor oversight practices to

ensure the performance of the firms responsible for auditing pension plan

premiums.

Our review of the IRM systems engineering contract also identified

oversight problems. Over the course of several years, this $18 million

contract has involved 73 contract modifications and 70 task orders for

related work beyond the original contract agreement. PBGC’s contract

specifically requires the contractor to develop a project workplan for each

additional task order, specifying the work to be completed, how it will be

done, and the timeframes for completion. Our review showed that this

document was prepared for only 1 of the 70 task orders. We identified

contractor-provided reports specifying the work to be completed under

some task orders, but these reports were infrequent and appeared to be

written after the work had started, rather than prior to starting as required

by PBGC. Finally, the contract files also showed evidence of insufficient

monitoring by the COTR. In fact, for a 6-year period, we found only three

COTR monthly status reports. These reports were completed by the

previous COTR in the first 2 years of the contract. The file included no

status reports from the current COTR, who has administered the contract

for the last 3 years. We provided PBGC’s Procurement Department with an

opportunity to present additional documentation on PBGC’s monitoring

activities; however, the department did not provide us with any additional

information.

Conclusions PBGC has historically relied heavily on contracting to address increasing

workloads. Accordingly, contractors have played a significant role in

PBGC’s ability to serve plan participants and reduce the backlog of pending

benefit determinations from a high of about 300,000 in fiscal year 1994 to

about 190,000 in fiscal year 1999. However, we have identified underlying

management weaknesses in regard to PBGC’s overall approach to selecting
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and managing contractors, as well as its day-to-day administration of

specific contract requirements.

First, despite a reduction in the backlog of pending benefit determinations

and projected changes in future workloads, PBGC still has not taken steps

to reassess its contracting and organizational structure needs. All

organizations should regularly engage in analyses to ensure they have an

appropriate level of skilled staff and to position them to meet workload

challenges. Current trends show that PBGC should act soon to respond to a

potentially different work environment in the future. During our review,

management acknowledged the need to better link its decisions to contract

to future workload and staffing assessments. However, no significant

initiatives are under way. We believe that PBGC should undertake analyses

of its staffing needs, skill levels, and organizational structure relative to

current and future workloads. This type of contingency planning is

consistent with the strategic planning requirements of GPRA and should

allow PBGC to make systematic and orderly changes to its workforce as

needed in the future while still meeting the needs of plan participants.

Second, PBGC can do more to encourage competition in the procurement

of services. Without consistent efforts to monitor the marketplace and to

stimulate competition, it is difficult to ensure that PBGC obtains the best

value for services it procures. Moreover, without effective contract

oversight, PBGC cannot be sure that its contractors are held accountable

for meeting performance requirements.

We also believe that PBGC should refocus its management and contract

oversight processes and better compile and use contractor data to ensure

performance. PBGC should also enhance its quality assurance tools and

provide more comprehensive policy guidance for individuals responsible

for overseeing contractors. Finally, PBGC should ensure that the

organizational alignment and reporting relationships of the CCRD provide

for independent reviews.

As noted earlier, PBGC’s budget structure provides it with substantial

flexibility to address workload pressures by utilizing nonlimitation funds

that are not directly subject to review and approval by the Congress. Over

time, the nonlimitation budget has grown significantly and now supports

nearly all of PBGC’s operations and procurement activities. This absence of

traditional checks and balances over PBGC’s budget represents a potential

weakness in regard to the Congress’ ability to oversee and ensure that

PBGC conducts its operations in a manner that sufficiently administers
B-282936

Page 36 GAO/HEHS-00-130 PBGC Contract Management

trust fund assets while still meeting the needs of pension plan participants.

Because PBGC’s budget lacks the structure of shared OMB and

congressional review and approval common to most other government

entities, it is essential that PBGC act prudently in managing its budget

resources and procurement activities to ensure that competition and

contractor oversight are strengthened. Inaction on PBGC’s part to address

the issues identified in this report could result in PBGC’s paying too much

for required services, in contractor performance problems, and in

deterioration of service to plan participants. Continued inaction may also

call for the Congress to strengthen its oversight role by reassessing and

redefining the range of activities and functions treated as nonlimitation

expenses.

Recommendations to

the Executive Director

of the Pension Benefit

Guaranty Corporation

To improve PBGC’s management of its contract responsibilities, we

recommend that PBGC’s executive director take the following actions:

• Conduct a comprehensive review of PBGC’s future human capital needs,

including the size of the workforce; its deployment across the

organization; and the knowledge, skills, and abilities needed by PBGC.

The results of this review should be used to better link staffing and

contracting decisions to PBGC’s long-term strategic planning process,

consistent with GPRA.

• Address weaknesses in PBGC’s procurement process to ensure that

contract award decisions best serve the needs of the government and

plan participants, while fostering competition. This would include

conducting market research as appropriate to determine whether other

potential offerors exist and seeking opportunities for increasing

competition for PBGC contracts that are now awarded on a sole-source

basis.

• Where appropriate, utilize more fixed-price contracts and fewer laborhour payment arrangements consistent with best practices in

performance-based contracting.

• Strengthen polices and procedures for evaluating proposals by ensuring

that review panels adequately document their contract award

recommendations in accordance with PBGC’s internal guidelines.

• Strengthen PBGC’s contract oversight role by developing the capacity to

centrally compile and monitor essential field office performance data.

Such a system should provide the longitudinal data necessary to quickly

measure and compare field office performance in regard to outputs,

product quality, backlogs, and timeliness.
B-282936

Page 37 GAO/HEHS-00-130 PBGC Contract Management

• Address weaknesses in PBGC’s field office performance review process

to better ensure that benefit administration services contractors meet

quality and accuracy requirements.

• Develop a comprehensive set of procedural guidance for staff

responsible for awarding contracts and monitoring contractor

performance.

• Revise the current organizational placement and reporting relationship

of CCRD to promote objectivity and independence.

PBGC’S Comments

and Our Evaluation

In providing comments on this report, PBGC generally agreed with all eight

of our recommendations. If fully implemented, the corrective actions cited

by PBGC have the potential to substantially improve the management of its

contracting responsibilities.

PBGC agreed with our recommendation that a strategic workforce

planning study is necessary, and said that it intends to engage an

independent outside organization to conduct such a review. Second, PBGC

agreed to strengthen its procurement processes by opening additional

contracts to competition and expanding its market research efforts to

identify potential offerors. PBGC said it plans to separately compete 10

FBA office contracts over the next year. The corporation also agreed with

our recommendation that, where appropriate, it should use more fixedprice contracts and other non-labor-hour payment arrangements. PBGC

also intends to strengthen its policies and procedures for evaluating

contractor proposals, as we recommended. In particular, PBGC said that it

would ensure that individual reviewer scores and additional

documentation are retained in the procurement files.

In regard to our recommendations for strengthening PBGC's contract

oversight role, PBGC stated that it would continue to develop additional

centralized field office performance data essential to managing its

contractors, and that changes were being made to its field office

performance review process to ensure that trained and experienced staff

are assigned to the reviews. PBGC also agreed that providing procurement

policies and program guidance in a central location is needed. Accordingly,

PBGC plans to identify gaps in procedural guidance and develop needed

policies. Finally, PBGC told us it plans to address CCRD organizational

placement and independence issues as part of its larger workforce planning

study.
B-282936

Page 38 GAO/HEHS-00-130 PBGC Contract Management

However, in some instances PBGC took issue with our findings regarding

its past contract actions and procedures. For example, PBGC believed our

assumption that future workloads would likely level off, were too

optimistic. We agree that it is difficult to predict PBGC's future workloads

with absolute accuracy. However, a steady downward trend in the data that

could affect PBGC's future work environment requires PBGC to have a

strategy or contingency plan in place to ensure that its staffing, contracting,

and organizational structure meet the needs of current and future pension

plan participants.

PBGC also disagreed that its 1997 procurements for FBA services may have

limited competition. PBGC noted that its procurement actions met the

competition requirements of the FAR and the prices obtained could be

assumed to be reasonable. Consolidated procurements have the potential

to restrict competition. As noted in this report, PBGC did not provide a

sound business rationale to support its consolidated procurement

approach. While in this case multiple bids were received, PBGC's actions

showed weaknesses in the management of its procurement planning and

execution practices. Consequently, PBGC risked paying too much for

contracted services and receiving inferior performance.

In discussing its use of labor-hour, rather than fixed-price payment

arrangements for its premium compliance audit contracts, PBGC noted

that its decision was based on consideration of numerous workload

factors. PBGC also questioned whether these types of contracts should be

fixed-price, based on its interpretation of performance-based contracting

guidelines. The guidelines state that fixed-price contracts are appropriate

for services that can be objectively defined. PBGC's prior experience with

these contracts allowed its managers to define the work to be completed

and develop detailed fixed prices. Prior experience also allowed the

incumbent contractors to initially respond with fixed-price offers. The

guidelines do not explicitly exclude audit contracts from being designated

as fixed-price. These factors led us to conclude that there was a reasonable

basis to contract as fixed-price.

PBGC also disagreed with our conclusion that one former contractor

received $210,000 to complete only three plan audits. PBGC said that the

figure was misleading in that it did not account for work completed by the

contractor on more than 37 additional audits. Our conclusion was based on

an internal PBGC document noting that the former contractor's remaining

premium plan audits were transferred to another contractor, but this

contractor could not use any of the work performed. Thus, the audits had
B-282936

Page 39 GAO/HEHS-00-130 PBGC Contract Management

to be started from “scratch.” Therefore, the dollar figure cited represents an

accurate assessment of how much PBGC paid for actual work completed.

Finally, regarding PBGC's need to ensure that its review panels document

their award recommendations, PBGC explained that the contracts we

reviewed predated a September 1999 revision to its internal guidance that

required technical panel members to complete individual scoresheets for

each offeror. PBGC explained that, while individual scoresheets were used

prior to the guidance change, only summary scoresheets were required to

be in the files. In response to PBGC's comments, we revised the report to

note that individual panel member scoresheets were not required for the

procurements reviewed.

As agreed with your office, unless you publicly announce its contents

earlier, we plan no further distribution of this report until 30 days from the

date of this letter. At that point, we will send copies to the Honorable David

M. Strauss, Executive Director of the Pension Benefit Guaranty

Corporation. Copies will be made available to others upon request.

If you have any questions concerning this report, please contact me at (202)

512-7215, or Daniel Bertoni at (202) 512-5988. Other major contributors are

listed in app. IV.

Barbara D. Bovbjerg, Associate Director

Education, Workforce, and Income Security Issues
Page 40 GAO/HEHS-00-130 PBGC Contract Management

Appendix I

Scope and Methodology ApApenednxidexiIs

This appendix describes our approach for collecting and analyzing data and

for interviewing officials to document the growth and management of

contract staff at the Pension Benefit Guaranty Corporation (PBGC). The

objectives of our review were (1) to determine the basis for PBGC’s

decisions regarding the use of contractors versus government personnel to

address its workloads, (2) to assess PBGC’s processes and procedures for

selecting contractors, and (3) to determine how effective PBGC has been in

monitoring the performance of its contractors.

Our review was conducted at PBGC headquarters in Washington, D.C., and

six field benefit administration (FBA) offices: Wilmington, Delaware;

Miami, Florida; Atlanta, Georgia; Pueblo, Colorado; Sarasota, Florida; and

Cleveland, Ohio. We selected the field offices based on the dollar amounts

of the contracts, volume of work processed, geographic area, and whether

the procurements were selected on a competitive or sole-source basis. Our

selections included three large offices, two medium-sized offices, and one

small office. Three of these offices’ contracts were competed and three

operated under sole-source contracts. We conducted our review from June

1999 to May 2000 in accordance with generally accepted government

auditing standards.

Interviews With PBGC

Managers and Staff

To determine the range of factors that have influenced PBGC contracting

decisions over the last decade, as well as PBGC’s approach to selecting and

managing contract staff, we conducted in-depth interviews of more than 70

PBGC personnel. These included PBGC headquarters senior executives,

middle managers, and line staff, as well as contract personnel in

headquarters and the field offices. We captured this information using

structured interview guides which included general questions applicable to

all personnel regarding corporation procedures and policies, as well as

specific questions tailored to each individual’s particular position or area of

expertise. We also administered a short survey to PBGC’s 69 contracting

officer’s technical representatives (COTR) to obtain their views on how the

contractor selection and management process could be improved.

Analysis of PBGC’s

Structure and Basis for

Contracting Decisions

To assess PBGC’s procurement practices, we obtained federal staff and

contractor trend data that documented the extent to which PBGC has used

contract personnel over the last decade. We also obtained and reviewed

budget information to determine how PBGC is financed and its authority

for using contractors. We identified and obtained internal policies and

procedures with respect to contracting practices and documented PBGC
Appendix I

Scope and Methodology

Page 41 GAO/HEHS-00-130 PBGC Contract Management

decisions with respect to the use of contractors to address workload

backlogs of prior years. Finally, we compared PBGC’s activities against the

strategic planning requirements of the Government Performance and

Results Act of 1993 and prior GAO work outlining steps agencies should

take to address resource, human capital, and other strategic planning

challenges.

Analysis of Contractor

Selection and Oversight

Practices

To evaluate the effectiveness of PBGC’s contractor source selection and

oversight practices, we reviewed 15 contracts of the two largest users of

contracting at PBGC. We assessed PBGC’s activities against the

requirements of the Federal Acquisition Regulation and PBGC’s own

internal policies and procedures. Where appropriate, we also compared

PBGC’s activities against “best practices” in contract selection and

administration as defined by the Office of Federal Procurement Policy.

Finally, we reviewed reports from PBGC’s Office of Inspector General that

identified past deficiencies in the selection, management, and oversight of

contractors. Table 1 presents additional information related to the

contracts we reviewed

Table 1: Summary of Contracts Reviewed

Contractor/

contract

number

Award

date

Effective

date

Option

years

(after

base

year)

Contract

action Type Purpose

Estimated

maximum

value

(base +

option

years)

Cumulative

total amount

obligated

(06/12/00)

Contract

status (as of

06/12/00)

D.L. Skully &

Associates Inc.

PBGC01-CT98-0540

12/23/97 10/01/97 3 SolesourceLabor

hour

Pension

benefit

administration

services at

Richmond

Heights, Oh.,

FBAa office

$13,949,308 $2,350,319 In progress

(option year

2)

General

Employee

Management

Services, Inc.

PBGC01-CT98-0536

03/20/98 10/01/97 3 SolesourceLabor

hour

Pension

benefit

administration

services at

Sarasota, Fla.,

FBA office

$13,941,500 $1,763,725 In progress

(option year

2)
Appendix I

Scope and Methodology

Page 42 GAO/HEHS-00-130 PBGC Contract Management

Benefits

Services

Unlimited

PBGC01-CT98-0538

11/05/97 10/01/97 3 CompetitiveLabor

hour

Pension

benefit

administration

services at

Wilmington,

Del., FBA

office

$24,093,636 $4,373,842 In progress

(option year

2)

Disciplined

Benefit

Services, Inc

PBGC01-CT98-0537

03/02/98 10/01/97 3 SolesourceLabor

hour

Pension

benefit

administration

services at

Pueblo, Colo.,

FBA office

$8,385,816 $1,340,315 In progress

(option year

2)

Office

Specialists

PBGC01-CT98-0543

11/17/97 11/01/97 3 Competitive

Labor

hour

Pension

benefit

administration

services at

Miami, Fla.,

FBA office

$13,173,656 $4,702,529 In progress

(option year

2)

Integrated

Management

Resources

Group, Inc.

PBGC01-CT98-0573

10/14/98 10/01/98 4 CompetitiveLabor

hour

Pension

benefit

administration

services at

Atlanta,Ga.,

FBA office

$25,261,453 $3,814,090 In progress

(option year

1)

Office

Specialists

PBGC01-CT98-0545

11/10/97 11/01/97 4 CompetitiveLabor

hour

Pension

benefit

administration

services and

telephone

center at

PBGC

headquarters

$64,289,740 $14,811,787 In progress

(option year

2)

Integrated

Management

Resources

Group, Inc.

PBGC01-CT98-0546

11/05/97 11/03/97 4 CompetitiveLabor

hour

Audit services $13,878,025 $6,010,475 In progress

(option year

2)

(Continued From Previous Page)

Contractor/

contract

number

Award

date

Effective

date

Option

years

(after

base

year)

Contract

action Type Purpose

Estimated

maximum

value

(base +

option

years)

Cumulative

total amount

obligated

(06/12/00)

Contract

status (as of

06/12/00)
Appendix I

Scope and Methodology

Page 43 GAO/HEHS-00-130 PBGC Contract Management

a

Field benefit administration.

b

Increase to contract due to additional task orders.

Booz, Allen &

Hamilton, Inc.

PBGC-J-8-

0418

10/20/93 09/30/93 4 CompetitiveLabor

hour,

Task

order

Systems

engineering

services to

redesign Case

Administration

System

$12,851,241 $18,017,067b Inactive

(ended

09/30/99)

Paradigm

Asset

Management

PBGC01-CT96-0509

01/31/97 10/01/96 5 CompetitiveFixed

price

Investment

management

services

Percentage of

investment

earnings

$1,074,699 In progress

(option year

3)

Coleman &

Williams

PBGCJ-9-0527

09/03/97 07/29/97 3 8(a)

(noncompetitive)

Labor

hour

Premium

compliance

review

services

$1,597,600 $305,000 Inactive

(terminated

08/27/99)

Owusu &

Company

PBGC-J-7-

0528

10/02/97 07/25/97 3 8(a)

(noncompetitive)

Labor

hour

Premium

compliance

review

services

$1,570,256 $200,000 Inactive

(ended

09/30/98

no options

taken)

Emma S.

Walker

PBGC01-CT97-0529

09/03/97 07/25/97 3 8(a)

(noncompetitive)

Labor

hour

Premium

compliance

review

services

$1,425,800 $505,000 In progress

(option year

3)

Frye, Williams

& Company

PBGC01-CT97-0530

09/03/97 07/25/97 3 8(a)

(noncompetitive)

Labor

hour

Premium

compliance

review

services

$1,379,047 $480,000 In progress

(option year

3)

Carter &

Associates

PBGC01-CT97-0531

10/23/97 07/25/97 3 8(a)

(noncompetitive)

Labor

hour

Premium

compliance

review

services

$1,527,164 $674,342 In progress

(option year

3)

(Continued From Previous Page)

Contractor/

contract

number

Award

date

Effective

date

Option

years

(after

base

year)

Contract

action Type Purpose

Estimated

maximum

value

(base +

option

years)

Cumulative

total amount

obligated

(06/12/00)

Contract

status (as of

06/12/00)
Page 44 GAO/HEHS-00-130 PBGC Contract Management

Appendix II

PBGC Organization Chart ApendxiI
Page 45 GAO/HEHS-00-130 PBGC Contract Management

Appendix III

Comments From the Pension Benefit

Guaranty Corporation ApendxiI
Appendix III

Comments From the Pension Benefit

Guaranty Corporation

Page 46 GAO/HEHS-00-130 PBGC Contract Management
Appendix III

Comments From the Pension Benefit

Guaranty Corporation

Page 47 GAO/HEHS-00-130 PBGC Contract Management
Appendix III

Comments From the Pension Benefit

Guaranty Corporation

Page 48 GAO/HEHS-00-130 PBGC Contract Management
Appendix III

Comments From the Pension Benefit

Guaranty Corporation

Page 49 GAO/HEHS-00-130 PBGC Contract Management
Appendix III

Comments From the Pension Benefit

Guaranty Corporation

Page 50 GAO/HEHS-00-130 PBGC Contract Management
Appendix III

Comments From the Pension Benefit

Guaranty Corporation

Page 51 GAO/HEHS-00-130 PBGC Contract Management
Appendix III

Comments From the Pension Benefit

Guaranty Corporation

Page 52 GAO/HEHS-00-130 PBGC Contract Management
Appendix III

Comments From the Pension Benefit

Guaranty Corporation

Page 53 GAO/HEHS-00-130 PBGC Contract Management
Appendix III

Comments From the Pension Benefit

Guaranty Corporation

Page 54 GAO/HEHS-00-130 PBGC Contract Management
Appendix III

Comments From the Pension Benefit

Guaranty Corporation

Page 55 GAO/HEHS-00-130 PBGC Contract Management
Appendix III

Comments From the Pension Benefit

Guaranty Corporation

Page 56 GAO/HEHS-00-130 PBGC Contract Management
Appendix III

Comments From the Pension Benefit

Guaranty Corporation

Page 57 GAO/HEHS-00-130 PBGC Contract Management
Page 58 GAO/HEHS-00-130 PBGC Contract Management

Appendix IV

GAO Contacts and Staff Acknowledgments ApendxiIV

GAO Contacts Barbara Bovbjerg, (202) 512-7215

Daniel Bertoni, (202) 512-5988

Staff

Acknowledgments

In addition to those named above, Barry Bedrick, Jeff Bernstein, Deborah

Moberly, Elizabeth O’Toole, Sylvia Shanks, and Craig Winslow made key

contributions to this report.

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