SBA'S PROCUREMENT OF INFORMATION 


TECHNOLOGY HARDWARE AND SOFTWARE 


THROUGH ISIKA TECHNOLOGIES, INC. 


Report Number: 11-08 


Date Issued: February 25, 2011 

U.S. 

Office 

Small 

of Inspector 

Business 

General 

Administration Memorandum

To: 	 Jon I. Carver Date: February 25,2011 

Chief Financial Officer 

/s/ Original Signed 

From: Peter L. McClintock 


Deputy Inspector General 


Subject: 	 Audit on SBA's Procurement ofInformation Technology Hardware and Software through 

Isika Technologies, Inc., Project No. 10018 

This report presents the results of our audit of SBA' s procurement of information 

technology (IT) hardware and software through Isika Technologies, Inc. (iTechnologies). 

The objective of this audit was to determine whether SBA officials: (1) properly planned 

and awarded contracts to iTechnologies for the procurement of manufactured IT 

hardware and software; and (2) accurately reported contract data for these awards to the 

Federal Procurement Data System - Next Generation (FPDS-NG)l . 

To achieve the first audit objective, we reviewed pertinent Code of Federal Regulations 

(CFR), Federal Acquisition Regulations (FAR), SBA's Standard Operating Procedure 

(SOP) 00 11 IH, Annual Acquisition Strategy and Procurement Planning, and 

iTechnologies contract files. We also interviewed personnel from the Office of the Chief 

Information Officer (OCIO), the Office of Business Operations, and the contractor. To 

address the second audit objective, we compared data in the contract files to a limited 

number of data fields reported by SBA to FPDS-NG. We conducted our review between 

August 2010 and November 2010 in accordance with Government Auditing Standards 

prescribed by the Comptroller General of the United States. 

BACKGROUND 

During fiscal years (FY) 2009 and 2010, SBA awarded two IndefiniteDelivery/Indefinite-Quantity (IDIQ) contracts, a Blanket Purchase Agreement (BP A), 

and five purchase order contracts totaling nearly $7.6 million for IT hardware and 

software, as follows: 

• 	 On September 21,2009, SBA awarded a 5-year IDIQ contract to iTechnologies 

for $5 million to procure IT hardware and software. 

I 	FPDS-NG is a comprehensive, web-based tool used by Federal agencies to report contract actions that is available to Congress and 

the general public for informational purposes. 
2 

• 	 One week later, the contracting officer increased the contract value to 


$5.442 million via a contract modification. 


• 	 On December 9,2009, SBA awarded a 2-year IDIQ contract to iTechnologies for 

$2 million for the same IT hardware and software requirement. 

• 	 In January 2010, SBA de-scoped $1,372,260 from the initial IDIQ contract, and 

awarded a BPA to iTechnologies on February 16,2010, for the same value using 

Recovery Act funds. 

• 	 In March and April 2010, SBA awarded five purchase order contracts under the 

first IDIQ contract for nearly $150,000 to iTechnologies to procure IT hardware 

and software. 

All of these awards, listed in Table 1, were made for the same IT hardware and software 

requirement on a sole-source basis under the 8(a) Business Development Program. 2 At 

the time of these awards, SBA's Associate Administrator (AA) for Management and 

Administration (M&A) was responsible for the procurement function. 3 

Table 1 


Contracts Awarded to iTechnologies for the 


Procurement of IT Hardware and Software 


Date 

Contract 

Vehicle 

Contract 

Number 

Initial 

Contract 

Value 

Contract Value 

Including 

Modifications 

9121/2009 IDIQ SBAHQ-09-D-0009 $ 5,000,000 $ 4,070,480 

12/0912009 IDIQ SBAHQ-10-D-000I 2,000,000 2,000,000 

211012010 BPA SBAHQ-10-A-000I 1,372,260 1,372,260 

3111/2010 Purchase Order SBAHQ-10-M-0111 76,369 76,369 

311912010 Purchase Order SBAHQ-10-M-0118 16,198 16,198 

311912010 Purchase Order SBAHQ-10-M-0119 11,847 11,847 

4/0512010 Purchase Order SBAHQ-10-M-0130 40,067 40,067 

411012010 Purchase Order SBAHQ-10-M-0135 3,287 3,287 

$ 8,520,028 $ 7,590,508 

IDIQ contracts are appropriate for procuring supplies and services when the government 

anticipates recurring requirements but cannot determine the precise quantities that will be 

needed within a specific period. An IDIQ typically establishes a minimum quantity of 

supplies and services to be purchased and may establish a maximum as well. Contracting 

officers then issue task or delivery orders against the IDIQ to purchase supplies and 

2 The SBA 8(a) Business Development Program was created to assist eligible small disadvantaged business concerns compete in the 

American economy through business development. 

3 On October 1,2010, the SBA Administrator transferred the Agency's internal procurement responsibility from the AA for M&A 

to the Office of the Chief Financial Officer (OCFO). 
3 

services that fulfill the Government's needs. FAR Subpart 16.5, Indefinite-Delivery 

Contracts, establishes a preference for awarding IDIQ contracts to multiple contractors 

rather than to a single contractor. 

BPAs are similar to IDIQ contracts in that they allow the Government to order supplies 

and services when there is a variety of similar products required, but the exact items and 

quantities are unknown. However, BP As do not justify purchasing from a single source 

and the requirements of FAR Subpart 19.5, Set-Asidesfor Small Business, still apply. 

Several recent SBA Office ofInspector General (OIG) reports contain findings similar to 

those in this report. Report Number 10-08, SBA 's Efforts to Improve the Quality of 

Acquisition Data in FPDS, dated February 26,2010, disclosed that almost all contract 

actions reported in FPDS-NG for FYs 2008 and 2009 data contained at least one 

inaccurately reported FPDS-NG data element. As of December 17,2010, SBA had not 

implemented any corrective actions to satisfy the recommendations made in this report. 

SBA OIG Recovery Oversight Memorandum 10-16, SBA's Planning and Award ofthe 

Customer Relationship Management Contracts dated June 29, 2010, reported that SBA 

violated the Non-manufacturer Rule 4 by issuing an 8(a) contract for a requirement that 

did not qualifY for small business award. 

RESULTS 

SBA inadequately planned and inappropriately awarded two 8(a) sole-source IDIQ 

contracts and a BP A to iTechnologies for the procurement ofIT hardware and software. 

Specifically: 

• 	 The designated acquisition planner did not prepare, coordinate, or obtain approval 

for a comprehensive, written acquisition plan, as required by the FAR and internal 

SBA guidance. 

• 	 The contracting officer awarded the IDIQ contracts and BP A without first 

ensuring that an appropriate acquisition plan had been implemented and approved 

for this requirement. 

• 	 The contracting officer classified these contracts using incorrect North American 

Industry Classification System (NAICS) codes. 

• 	 The IDIQ contracts and BPA awarded to iTechnologies did not qualify as 8(a) 

sole-source procurements under the Non-manufacturer Rule. 

4 According to FAR 19.001, "Non-manufacturer Rule" means that a contractor under a small business set-aside or 8(a) contract shall 

be a small business under the applicable size standard and shall provide either its own product or that of another domestic small 

business manufacturing or processing concern. 
4 

• 	 SBA contracting personnel split the same requirement among the two IDIQ 

contracts and a BPA which circumvented 8(a) sole-source procedures established 

by the FAR. 

• 	 SBA inaccurately reported to FPDS-NG at least one data element relating to 100 

percent5 of the iTechnologies actions. 

As a result, SBA: 1) did not have reasonable assurance that it received the best value in 

these contracts; 2) violated the Competition in Contracting Act and federal regulations; 

and, 3) misled FPDS-NG users by providing inaccurate data. 

The Procurement of IT Hardware/Software was Inadequately Planned 

Acquisition planning is the most critical part of the acquisition process and establishes 

the direction for subsequent actions throughout the procurement. According to the FAR, 

the purpose of acquisition planning is to ensure that the Government meets its needs in 

the most effective, economical, and timely manner. FAR Part 7, Acquisition Plans, 

Subpart 1 02 (FAR 7.102) states that agencies shall perform acquisition planning and 

conduct market research for all acquisitions. To ensure that the acquisition process is 

consistent, the FAR states that acquisition planning should begin as soon as an agency 

need is identified and involve contracting, fiscal, legal, and technical personnel. 

The FAR requires a written acquisition plan that addresses all technical, business, 

management, and other significant considerations that will control the acquisition. 

SBA did not complete adequate acquisition planning for the procurement of IT hardware 

and software from iTechnologies. While SBA prepared a draft acquisition plan, 

significant sections of the plan were not in conformance with the FAR and the plan was 

not approved by required personnel. FAR 7.105 requires that acquisition plans include, 

among other things, a statement of need, reliable cost estimates, procurement risk, risk 

mitigation strategies, and an explanation of the business strategy. SBA's draft acquisition 

plan did not include or adequately address all of these elements. Specifically: 

• 	 The plan stated that SBA needed to procure IT hardware or software from an 8(a) 

company but did not provide the rationale for why the equipment was needed 

(i.e., whether the property would replace old or outdated equipment, be used to 

supplement existing equipment, or be acquired for a specific use). 

• 	 The plan included a cost estimate of $5 to $10 million for the initial IDIQ 


contract, based on the projected minimal annual purchase of hardware. 


However, no support was provided for the cost estimate. 


• 	 The acquisition plan did not identify an adequate mitigation strategy for 

performance risks. Rather, the acquisition plan states to mitigate cost risk, SBA 

5 Alll20 contract actions we reviewed had one or more data elements incorrectly reported by SBA to FPDS-NG. 
5 

would provide additional funds. Providing additional funding is not a sufficient 

strategy for mitigating cost risk. 

• 	 The business approach, including procurement methods, was not identified within 

the acquisition plan. 

According to the FAR, the contracting officer should meet early and often with the 

acquisition planner to ensure that the plan fully supports the proposed acquisition 

approach. Because the contracting officer was not involved with acquisition planning, 

the planner presented a deficient acquisition plan that did not address significant 

contracting procedures. Had contracting personnel been involved with acquisition 

planning, many of the issues and risks associated with the contract awards to 

iTechnologies may have been mitigated or eliminated by sound analysis and planning. 

In addition to the lack of contracting officer involvement in developing the acquisition 

plan, such plans are required to be approved by various SBA officials; this was not done 

for the draft acquisition plan. FAR Part 7, Acquisition Plans, Subpart 103 (FAR 7.103) 

states that Agency Heads shall prescribe procedures for reviewing and approving 

acquisition plans and revisions to those plans. According to SOP 00 11 IH, Annual 

Acquisition and Procurement Planning, no procurement action shall be taken prior to the 

approval of the planned acquisition by the Associate AA for M&A. Further, IT 

acquisitions exceeding $500,000 must be approved by nine additional SBA officials and 

receive concurrence from the competition advocate and the Office of General Counsel 

(OGC). Because the IT hardware and software acquisition plan was not appropriately 

reviewed or approved, the contracting officer should not have awarded the contracts to 

iTechnologies. 

It appeared that the first procurement was awarded in an expedited manner to use the 

unobligated FY 2009 funds. The Agency disregarded required acquisition planning and 

normal clearance procedures, including a legal review by OGC. A simple review of the 

acquisition plan would have revealed numerous deficiencies. 

This procurement created a risk to the Agency because the draft acquisition plan was 

inadequate and incomplete. SOP 00 11 IH acknowledges this potential risk by stating 

that "failure to plan acquisitions and to schedule the overall acquisition workload has 

resulted in an inordinate number of contract awards being made in the closing weeks, 

days and hours of the fiscal year, and has not always resulted in obtaining the best source 

of supply on the best terms for the Agency". 

SBA Used Incorrect NAICS Codes 

SBA used incorrect NAICS codes to determine the size standards for procuring IT 

hardware and software from iTechnologies. SBA uses NAICS codes to determine 

whether firms meet the size standards to qualify as small businesses in different 

industries. According to 13 CFR 121.402, What Size Standards are Applicable to 

Federal Government Contracting Programs, the contracting officer designates 
6 

the NAICS code that best describes the principal purpose of the product being acquired. 

The procurement is usually classified according to the component that makes up the 

greatest percentage of contract value. In addition, procurements for supplies must be 

classified under the appropriate manufacturing code, not under the wholesale trade 

NAICS code. 

Since IT hardware and software are supplies, SBA should have used NAICS 

code 334111, Electronic Computer Manufacturing, for the procurement ofIT hardware 

and software from iTechnologies. Instead, SBA incorrectly classified contract 

SBAHQ-09-D-0009, under NAICS code 541519, Other Computer Related Services. In 

addition, SBA did not identify the NAICS code for any of the five purchase order 

contracts, (SBAHQ-10-M-0111, SBAHQ-10-M-0118, SBAHQ-10-M-0119, 

SBAHQ-10-M-0130, or SBAHQ-10-M-0135); and it incorrectly reported NAICS 

code 423430, Computer and Computer Peripheral Equipment and Software Merchant 

Wholesalers, to FPDS-NG. Further, SBA incorrectly classified contract 

SBAHQ-10-D-000I and BPA SBAHQ-10-A-000I under NAICS code 423430. Had 

these procurements been properly classified as supply contracts, it would have been 

apparent that the Non-manufacturer Rule (described below) applied. 

The Requirement Did Not Qualify for an 8(a) Sole-Source Procurement 

SBA pursued an 8(a) contractor to procure IT hardware and software. Because hardware 

and software are tangible manufactured items, the procurement was subject to the Nonmanufacturer Rule. According to CFR, Title 13, Part 121, Subsection 406, Size 

Eligibility Requirementsfor Government Procurement (13 CFR 121.406), to qualify as a 

small business concern for an 8(a) contract, a small business must either be: (1) the 

manufacturer of the item being purchased, to include modification of an end item of 

which the small business increased the value by 50 percent or more; or (2) a nonmanufacturer, which normally sells the type of item being supplied and the end item must 

be the product of a small business, or the contracting officer must obtain a waiver from 

the SBA Administrator. iTechnologies did not qualify as a manufacturer because they do 

not produce hardware or software, nor did they add 50 percent or more value to the end 

products required by SBA. iTechnologies also did not qualify as a non-manufacturer 

because the end products were not those of small businesses, nor did SBA obtain the 

requisite waiver authorizing the sale of the end products oflarge businesses, such as Dell, 

Hewlett Packard, and Adobe. 

The acquisition team should have recognized that neither a small business nor an 8(a) set 

aside contract should be awarded because the procurement would result in a "pass 

through" to large businesses. According to iTechnologies personnel, iTechnologies is 

unable to purchase IT hardware and software directly from manufacturers such as 

Hewlett Packard and Adobe. Therefore, iTechnoiogies6 subcontracted through Ingram 

Micro, a Fortune 100 company, to obtain much of the IT hardware and software needed 

to meet SBA's requirement. In addition, some of the items SBA received through 

6 It appears that another non-8a small business, The Look Enterprises, was also involved in ordering items on behalfof 

iTechnologies. 
7 

iTechnologies were marked with Costco labels. Essentially, iTechnologies served as an 

"order taker," which in turn, ordered IT hardware and software items from large business 

suppliers or from the manufacturer. Although the procurement did not qualify for an 8(a) 

award, SBA reported 46 percent of contract actions for the procurement as 8(a) contract 

awards, which inappropriately resulted in SBA receiving credit for small business, 8(a) 

contracting in its annual small business procurement goaling report. We believe that 

misreporting damages the integrity of SBA and its programs. As the Federal 

government's small business advocate, SBA should discourage misuse of the 8(a) 

program and promote its integrity. Failure to follow program requirements, however, 

sends the opposite message. 

SBA Split the Requirement Which Circumvented 8(a) Sole-Source 

Limits 

In addition to not qualifying as an 8(a) procurement because the requirement did not meet 

the Non-manufacturer Rule, SBA split the requirement, which circumvented 8(a) solesource limits. A procurement offered and accepted for the 8(a) Business Development 

Program must be competed among eligible 8(a) firms ifthe anticipated award price will 

exceed $5.5 million 7 for manufactured products. SBA identified a minimum cost range 

of$5 to $10 million for this requirement. According to CFR 124.506, for IDIQ type 

contracts, the thresholds are applied to the maximum order amount authorized. 

Therefore, this procurement did not qualify for an 8(a) sole-source contract award. 

The Competition in Contracting Act of 1984 (CICA) established a preference for 

awarding contracts on the basis of competition. Instead of competing the procurement, 

SBA used 8(a) sole-source procurements, which is an authorized exception to the CICA. 

However, the procurement did not meet the 8(a) requirements because it did not comply 

with the Non-manufacturer Rule and because the overall requirement exceeded the 8(a) 

sole-source limits. According to FAR 19.805-1, Competitive 8(a), a proposed 8(a) 

requirement with an estimated value exceeding the applicable threshold shall not be 

divided into several requirements in order to use 8(a) sole-source procedures for award 

to a single firm. 

Despite the fact that FAR 19.805 explicitly prohibits the splitting of requirements, SBA 

chose to award multiple contracts to a single contractor using 8(a) sole-source 

procedures. SBA split the requirement to procure IT hardware and software among 

several contract vehicles, including two IDIQ contracts, a BPA, and five purchase order 

contracts. The first two IDIQ contracts, totaling $7.4 million 8

, were issued within 11 

weeks of each other. All eight contract vehicles were awarded in less than seven months. 

7 On October 1, 2010, a revision to FAR 19.805 increased the competitive threshold for manufacturing NAICS codes to $6.5 million 

and $4 million for all other acquisitions. 

8 IDIQ contracts SBAHQ-09-D-0009 and SBAHQ-lO-D-OOOl are valued at $5.0 million and $2.0 million respectively. 

On September 28,2009, SBA increased the value ofIDIQ contract SBAHQ-09-D-0009 to $5,442,740 via Modification 000l. 
8 

SBA Inaccurately Reported Contract Data to the FPDS-NG 

SBA inaccurately reported at least one data element to FPDS-NG relating to 100 percent 

of the 120 contract actions associated with the awards made to iTechnologies. 

The primary areas of inaccurate reporting included contract value, type of funding, 

competition characteristics, and contractor data. In addition, we identified several 

contract actions which were never reported to FPDS-NG. 

Contract Value 

On multiple occasions, SBA contracting personnel incorrectly reported contract values of 

iTechnologies contracts to FPDS-NG. For example: 

• 	 The initial value of contract SBAHQ-09-D-0009 was $5 million; however, the 

value was reported to FPDS-NG as $4.29 million, a difference of$710,000. 

• 	 SBA misreported the value of delivery orders SBA0031, SBA0032, and SBA0033 

under contract SBAHQ-09-D-0009, which were cancelled prior to award. 

These three delivery orders totaled approximately $222,000. 

• 	 SBA reported a $19,327 delivery order (SBA0016) under contract 


SBAHQ-10-D-0001, which was never awarded to iTechnologies. 


• 	 SBA did not report Modification numbers 5 and 6 and delivery orders SBA0020, 

SBA0053, and SBA0054 for contract number SBAHQ-09-D-0009. For contract 

SBAHQ-10-D-0001, SBA did not report delivery orders SBA0006 and SBA0008. 

• 	 SBA reported delivery order SBA010 to FPDS-NG but the delivery order number 

is inconsistent with SBA's delivery order numbering system and could not be 

identified in the contract file. 

Type ofFunding 

We identified several instances of inaccurate reporting related to Recovery Act funding: 

• 	 Modification 3 and delivery order SBA0002, issued under contract SBAHQ-09­

D-0009, were not reported to FPDS-NG as Recovery Act funded, despite contract 

documentation which clearly demonstrates that both contract actions were, in fact, 

funded by the Recovery Act. 

• 	 Delivery orders SBA0011 and SBA0012 under contract SBAHQ-10-D-0001 were 

inaccurately reported as Recovery Act funded within FPDS-NG. However, SBA 

did not use Recovery Act funds for either delivery order. 
9 

Competition Characteristics 

The FPDS-NG Data Dictionary includes the field Extent Competed, which represents the 

competitive nature of the contracts. Contract actions may be classified as one of nine 

codes, including but not limited to: full and open competition, not available for 

competition, competed under Simplified Acquisition Procedures (SAP), and noncompetitive delivery order (NCDO). SBA incorrectly reported numerous competition 

characteristics to FPDS-NG for the contracts and BPA awarded to iTechnologies. 

• 	 Seven contract actions were reported as "Competed" despite all of the contract 

actions being awarded on an 8(a) sole-source basis. 

• 	 In justifYing the use of sole-source contracting, 60 contract actions cited "No Set 

Aside Used," despite the actions being 8(a) set-asides. In addition, 2 contract 

actions cited "Only One Source," despite the availability of numerous potential 

sources. 

• 	 Nine contract actions had incomplete competition fields. 9 

• 	 SBA left multiple non-competition data fields incomplete. 

Contractor Data 

We noted that contract location could not be supported. 

• 	 According to contract documentation for SBA's IDIQ contracts 

SBAHQ-09-D-0009 and SBAHQ-IO-D-OOOI, contract work is to be performed at 

the contractor's location. As the prime contractor, iTechnologies is located in 

Tomball, Texas. However, the majority of the delivery orders issued under these 

IDIQ contracts were reported to FPDS-NG as having been performed in 

Washington, DC. 

• 	 BPA SBAHQ-IO-A-OOOI states that the place of performance will be determined 

on the delivery order level. After reviewing each delivery order, we found that no 

place of performance was identified, but delivery orders SBAOOO 1, SBA0002, 

SBA0003, and SBA0004 were reported in FPDS-NG as having been performed in 

Washington, DC and delivery order SBA0006 was reported as having been 

performed in Atlanta, Georgia. 

Additional details on the comparison of FPDS-NG data to SBA's iTechnologies contract 

files are contained in Appendix II. All of the above FPDS-NG reporting discrepancies 

occurred because SBA contracting personnel did not adequately review contract data 

before or after it was submitted to FPDS-NG. Had the contracting officer compared 

9 	The FPDS-NG Data Element Dictionary, Version 1.3, dated December 4,2009 defines competition fields as "Extent Competed," 

"Other Than Full and Open Competition," and "Type of Set Aside." 
10 

contract data to FPDS-NG reports, the contracting officer would have realized the FPDSNG reporting deficiencies and should have corrected the errors. 

SBA has a history of inaccurately reporting data to FPDS-NG. SBA OIG Report Number 

10-08, SEA's Efforts to Improve Acquisition Data in the Federal Procurement Data 

System, reported data inaccuracy rates of 92 percent in FY 2008 and 97 percent in 

FY 2009. Since most of the inaccurate reporting identified within this report involved 

contract actions during FY 2010, it is apparent that SBA has not implemented any 

corrective actions to satisfy recommendations made in SBA OIG Report Number 10-08. 

RECOMMENDATIONS 

We recommend that the CFO: 

1. 	 Instruct the contracting officer to immediately terminate contracts 

SBAHQ-09-D-0009, SBAHQ-10-D-0001, and BPA SBAHQ-10-A-000l and 

re-solicit the IT hardware and software requirement using full and open 

competition procedures. 

2. 	 Implement and provide annual training to contracting personnel on acquisition 

planning, the appropriate use ofNAICS codes and the Non-manufacturer Rule. 

3. 	 Exclude contracts SBAHQ-09-D-0009, SBAHQ-10-D-0001, BPA 

SBAHQ-10-A-000l and all associated delivery orders and BPA calls from SBA 

calculations used to determine the number of 8(a) program contracts and small 

business contracts for fiscal years 2009 and 2010. 

4. 	 Implement and provide training to contracting officers on reporting contract data 

to FPDS-NG on an as-needed basis. 

5. 	 Conduct a comprehensive review of data submitted to FPDS-NG for SBA 

contracts awarded to iTechnologies, reconcile all discrepancies identified, and 

correct any inaccurately reported data. 

6. 	 Hold contracting officers accountable for FPDS-NG data accuracy requirement by 

incorporating FPDS-NG data accuracy reporting requirements in each contracting 

officer's performance plan. 
1 1 


AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 

RESPONSE 

On January 11,2011, we provided a draft of this report to SBA's Office of the Chief 

Financial Officer (OCFO) for comment. On February 11,2011, SBA submitted its 

formal comments, which are contained in their entirety in Appendix II. Management 

agreed with recommendation six and partially agreed with recommendations one through 

five. The Agency's comments and our evaluation of them are summarized below. 

Management Comments 

Comment 1 

Management noted that the draft report was a review of contract actions that were 

executed prior to the Procurement Division's realignment under OCFO. Since this 

realignment, OCFO has taken the following steps to improve acquisition practices at 

SBA: 

• 	 Hiring ten new procurement staff members, 

• 	 Training procurement staff members on Small Business-Set Asides and the 

Non-manufacturer Rule, and 

• 	 Reinvigorating the Agency's advance acquisition strategy. 

Management further stated that the OCFO will use this audit report to continue to identifY 

priorities that must be addressed to improve Procurement Division performance. 

01G Response 

We agree with management's assertion that the contract actions reviewed for this audit 

were executed prior to the aforementioned realignment. We also agree that OCFO has 

taken several appropriate steps toward improving SBA's acquisition practices and the 

overall performance of the Procurement Division. 

Comment 2 

Management did not concur with the audit team's assertion that "BP As may not be 

awarded when there is an existing contract for the same supplies or service." According 

to OCFO, FAR 13.302-2(a)(4) states that BPAs cannot be used with requirements 

contracts. Management further stated that since the other vehicles we reviewed were 

IDIQ contracts rather than requirements contracts, the BP A award was appropriate. 

01G Response 

The audit team found that Management incorrectly cited the FAR. The correct citation is 

FAR 13.303-2(a)( 4), which states that "Contracting officers may establish a BPA ifthere 

is no existing requirements contract for the same supply or service that the contracting 
12 

activity is required to use." We agree with OCFO's interpretation of the FAR; since the 

additional contract vehicles were IDIQs rather than requirements, this section of the FAR 

did not bar SBA from issuing a BPA for the procurement of IT hardware and software. 

We revised the report accordingly. 

Comment 3 

Management also disagreed with the audit team's assertion that SBA split the same 

requirement among several procurement vehicles in order to circumvent the $3.5 million 

8(a) sole-source threshold. OCFO stated that based on a lack of coordination, training, 

and shortfalls in the skill set of the procurement workforce at the time these vehicles were 

issued; it is improbable that the threshold was purposefully and willfully circumvented. 

Management further added that, insofar as each requirement was viewed separately, no 

regulation or law required that they be bundled into one overarching requirement. 

DIG Response 

While the procurement workforce may not have purposefully circumvented the 

8(a) sole-source threshold, the requirement to procure IT hardware and software was split 

by OCIO among several procurement vehicles in order to circumvent the 8(a) sole-source 

threshold. OCIO estimated minimum costs at $5 - $10 million and realized that such 

costs would require the use of 8(a) competitive procedures. OCIO personnel stated they 

originally intended to procure IT hardware and software through an Alaska Native 

Corporation because of the unlimited sole-source threshold. In addition, OCIO used the 

same acquisition plan, the same statement of work, and the same CLIN list to award both 

IDIQ contracts and the BPA. Further, OCIO personnel informed the audit team that 

OCIO intended to expend the full value ofIDIQ contract SBAHQ-09-D-0009 in two 

years rather than five. At that time, OCIO planned to issue a new contract vehicle. This 

evidence points to SBA purposely splitting the contract requirements in order to 

circumvent the $3.5 million 8(a) sole-source threshold. 

Recommendation 1 

Management Comments 

Management partially agreed with the recommendation. Management stated that they 

will not place any more orders against the contract vehicles but stated that they believe 

termination is unnecessary and may incur additional costs for the Agency. In addition, 

management did not commit to using competitive procedures for future awards. 

DIG Response 

We consider management comments to be partially responsive to our recommendation. 

The audit team found that SBA met the minimum guaranteed amount for each of the 

three procurement vehicles reviewed, relieving the government of its liability to the 

contractor. This eliminates the risk that the Agency may incur additional costs for 
13 

terminating the contracts. In addition, SBA obligations exceeded the contract value for 

IDIQ contract SBAHQ-09-D-0009. Further, all three ofthe procurement vehicles were 

inappropriately awarded using 8(a) sole-source procedures, despite the fact that the 

requirement did not qualify for 8(a) award under the Non-manufacturer Rule and the fact 

that, based on estimated contract costs, the award should have been awarded using 

competitive procedures. At a minimum, the OIG believes that SBA should solicit a new 

contract award using competitive procedures. 

Recommendation 2 

Management Comments 

Management partially agreed with the recommendation. Management stated that since 

the Procurement Division has been realigned under OCFO, most ofthe procurement staff 

has been replaced and new staff members have received training on small business setasides, the FAR, acquisition best practices, and the Non-manufacturer Rule. Further, 

management stated that contracting officers receive on-going training concerning small 

business issues and acquisition planning. OCFO management does not believe that 

annual training on the specific issues identified by the audit team is an appropriate 

recommendation, as none ofthe issues reported was the product of new staff members. 

DIG Response 

We consider management comments to be responsive to our recommendation and deleted 

"annual" from our recommendation. 

Recommendation 3 

Management Comments 

Management partially agreed with the recommendation. Management stated that they are 

awaiting feedback from the Office ofManagement and Budget's (OMB's) Office of 

Federal Procurement Policy (OFPP) regarding prior year data in FPDS-NG. OCFO 

management added that the Procurement Division has discovered additional data integrity 

issues and that SBA is working with OFPP to develop an alternative data validation plan. 

Management stated that OCFO will review FPDS-NG in accordance with the new data 

validation plan and will make the necessary corrections. 

DIG Response 

We consider management comments to be responsive to our recommendation. 
14 

Recommendation 4 

Management Comments 

Management partially agreed with the recommendation. Management stated that the 

Procurement Division will provide FPDS-NG training for new staff members this fiscal 

year but stated that the data entry issues identified in our report were the result of actions 

prior to the realignment and re-staffing ofthe Procurement Division. OCFO management 

added that the Procurement Division will continue to provide FPDS-NG training on an 

as-needed basis. 

DIG Response 

We consider management comments to be responsive to our recommendation. We 

amended our recommendation to state, provide training on an as-needed basis. 

Recommendation 5 

Management Comments 

Management partially agreed with the recommendation. Management stated that SBA is 

engaged in an open dialogue with OMB's OFPP regarding FPDS-NG data validation and 

verification issues. Further, management stated that OMB has provided an alternative 

data validation plan and that OCFO will review all FPDS-NG data in accordance with 

this plan and will make the necessary corrections. 

DIG Response 

Management comments appear to be responsive to our recommendation; however, we 

will obtain more details on the corrective actions during the audit follow-up process. 

Recommendation 6 

Management Comments 

Management agreed with the recommendation. Management stated that FY 2011 

contracting officer performance plans will contain a sub-element regarding data integrity 

with a specific reference to FPDS-NG data integrity. 

DIG Response 

We consider management comments to be responsive to our recommendation. 
15 

ACTIONS REQUIRED 

Please provide your management decision for each recommendation on the attached SBA 

Forms 1824, Recommendation Action Sheet, within 30 days from the date ofthis report. 

Your decision should identify the specific action(s) taken or planned for each 

recommendation and the target date(s) for completion. 

We appreciate the courtesies and cooperation ofthe Small Business Administration 

during this review. If you have any questions concerning this report, please call me 

at (202) 205-[ex. 2] or Riccardo R. Buglisi, Director, Business Development Programs 

Group at (202) 205-[ex. 2] 
16 

APPENDIX I. COMPARISON OF FPDS-NG DATA TO SBA'S 

iTECHNOLOGIES CONTRACT FILES 

I = Inaccurate 

B = Blank 

Contract Actions 

SBAHQ09D0009 I I I 

SBAHQ09D0009 

Modification 1 I I I I 

SBAHQ09D0009 

Modification 2 I I I I 

SBAHQ09D0009 

Modification 3 I I 

SBAHQ09D0009 

Modification 4 I I I 

SBAHQ09D0009 

Modification 5 B B B B B B B B B B B 

SBAHQ09D0009 

Modification 6 B B B B B B B B B B B 

SBAHQ09D0009 

SBAOOOI I B I B I 

SBAHQ09D0009 

SBA0002 I I B I I I 

SBAHQ09D0009 

SBA0003 I B I 

SBAHQ09D0009 

SBA0004 I B I 

SBAHQ09D0009 

SBA0005 I I I B I 

SBAHQ09D0009 

SBA0006 I I B I 

SBAHQ09D0009 

SBA0007 I I B I 

SBAHQ09D0009 

SBA0008 I I I I I B I 

SBAHQ09D0009 

SBA0009 I I I B I 

SBAHQ09D0009 

SBAOOIO I I I B I 

SBAHQ09D0009 

SBAOOll I I B I 
17 

APPENDIX I. COMPARISON OF FPDS-NG DATA TO SBA'S 

iTECHNOLOGIES CONTRACT FILES (continued) 

I = Inaccurate 

B = Blank 

Contract Actions 

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SBAOO14 I I B I 

SBAHQ09DOOO9 

SBAOO15 I I I I I B I 

SBAHQ09DOOO9 

SBAOO16 I I I I 

SBAHQ09DOOO9 

SBAOO17 I I I I 

SBAHQ09DOOO9 

SBAOO18 I I I I 

SBAHQ09DOOO9 

SBAOO19 I I I I 

SBAHQ09DOOO9 

SBAOO20 B B B B B B B B B B B 

SBAHQ09DOOO9 

SBAOO21 I I I 

SBAHQ09DOOO9 

SBAOO22 I I I 

SBAHQ09DOOO9 

SBAOO23 I I I I 

SBAHQ09DOOO9 

SBAOO24 I I I I 

SBAHQ09DOOO9 

SBAOO25 I I I 

SBAHQ09DOOO9 

SBAOO26 I I I 

SBAHQ09DOOO9 

SBAOO28 I I I I 

SBAHQ09DOOO9 

SBAOO29 I I I I 

SBAHQ09DOOO9 

SBA0031 I I I I I I I I I I I 
18 

APPENDIX I. COMPARISON OF FPDS-NG DATA TO SBA'S 

iTECHNOLOGIES CONTRACT FILES (continued) 

I = Inaccurate 

B = Blank 

Contract Actions 

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SBAHQ09DOOO9 

SBAOO35 I I I I 

SBAHQ09DOOO9 

SBAOO36 I I I I 

SBAHQ09DOOO9 

SBAOO37 I I I I 

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SBAOO42 I I I 

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SBAOO43 I I I 

SBAHQ09DOOO9 

SBAOO44 I I I 

SBAHQ09DOOO9 

SBAOO45 I I I 

SBAHQ09DOOO9 

SBAOIO I I I I I I I I I I I 

SBAHQ09DOOO9 

SBAOO46 I I I 

SBAHQ09DOOO9 

SBAOO47 I I I 

SBAHQ09DOOO9 

SBAOO48 I I I 

SBAHQ09DOOO9 

SBAOO49 I I I 

SBAHQ09DOOO9 

SBAOO50 I I I 

SBAHQ09DOOO9 

SBAOO51 I I I 

SBAHQ09DOOO9 

SBAOO52 I I I 
19 

APPENDIX I. COMPARISON OF FPDS-NG DATA TO SBA'S 

iTECHNOLOGIES CONTRACT FILES (continued) 

I = Inaccurate >. QJ 

Cj 

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SBAHQ09DOOO9 

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SBAHQ09DOOO9 

SBAOO54 B B B B B B B B B B 

lOAOOOl I I I I I 

SBAHQIOAOOOI 

SBAOOOI I I I 

SBAHQIOAOOOI 

SBAOOO2 I I I I I 

SBAHQIOAOOOI 

SBAOOO3 I I I I I I 

SBAHQIOAOOOI 

SBAOOO4 I I I I I B I 

SBAHQIOAOOOI 

SBAOOO6 I I I I I 

lODOOOl I I 

SBAHQIODOOOI 

SBAOOOI I B 

SBAHQIODOOOI 

SBAOOO2 I B 

SBAHQIODOOOI 

SBAOOO3 I B 

SBAHQIODOOOI 

SBAOOO4 I B 

SBAHQIODOOOI 

SBAOOO5 I B 

SBAHQIODOOOI 

SBAOOO6 B B B B B B B B B B 

SBAHQIODOOOI 

SBAOOO7 I 

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20 

APPENDIX I. COMPARISON OF FPDS-NG DATA TO SBA'S 

iTECHNOLOGIES CONTRACT FILES (continued) 

I = Inaccurate 

B = Blank 

Contract Actions 

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SBAOO12 I I I 

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SBAOO13 I I 

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SBAOO14 I I I I 

SBAHQIODOOOI 

SBAOO15 I I I I 

SBAHQIODOOOI 

SBAOO16 I I I I I I I I I I I 

SBAHQIODOOOI 

SBAOO17 B I I I 

SBAHQIODOOOI 

SBA0017, Mod 1 B I I I 

SBAHQIODOOOI 

SBAOO18 B I I I 

SBAHQIODOOOI 

SBA0018, Mod 1 B I I I 

SBAHQIODOOOI 

SBAOO19 I I 

SBAHQIODOOOI 

SBAOO20 B I I I 

SBAHQIODOOOI 

SBA0020, Mod 1 B I I I 

SBAHQIODOOOI 

SBAOO21 I I I I 

SBAHQIODOOOI 

SBAOO22 I I I I 

SBAHQIODOOOI 

SBAOO23 I I I 
21 

APPENDIX I. COMPARISON OF FPDS-NG DATA TO SBA'S 

iTECHNOLOGIES CONTRACT FILES (continued) 

I = Inaccurate 

B = Blank 

Contract Actions 

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SBAOO24 I I I 

SBAHQIODOOOI 

SBAOO25 I I I 

SBAHQIODOOOI 

SBAOO26 I I I 

SBAHQIODOOOI 

SBAOO27 I I I 

SBAHQIODOOOI 

SBAOO28 I I I 

SBAHQIODOOOI 

SBAOO29 I I I I 

SBAHQIODOOOI 

SBAOO30 I I I I 

SBAHQIODOOOI 

SBAOO31 I I I I 

SBAHQIODOOOI 

SBAOO32 I I I I 

SBAHQIODOOOI 

SBAOO33 I I I I 

SBAHQIODOOOI 

SBAOO34 I I I 

SBAHQIODOOOI 

SBAOO35 I I I I 

SBAHQIODOOOI 

SBAOO36 I I I I 

SBAHQIODOOOI 

SBAOO37 I I I 

SBAHQIODOOOI 

SBAOO38 I I I I 

SBAHQIODOOOI 

SBAOO39 I I I 

SBAHQIODOOOI 

SBAOO40 I I I 

SBAHQIODOOOI 

SBAOO41 I I I 
22 

APPENDIX I. COMPARISON OF FPDS-NG DATA TO SBA'S 

iTECHNOLOGIES CONTRACT FILES (continued) 

I = Inaccurate 

B = Blank 

Contract Actions 

SBAHQIODOOOI 

SBAOO42 

SBAHQIODOOOI 

SBAOO43 

SBAHQIODOOOI 

SBAOO44 

SBAHQIODOOOI 

SBAOO45 

SBAHQIODOOOI 

SBAOO46 

SBAHQIODOOOI 

SBAOO47 

SBAHQIODOOOI 

SBAOO48 

SBAHQIODOOOI 

SBAOO49 

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23 

APPENDIX II. AGENCY COMMENTS 


To: 	 Peter L. McClintock 

Deputy Inspector General 

From: 	 10n I. CaTI'er [FOrA ex. 6] 

Chief i!JII!Im:lruOfficer 

Date: 	 FebrullTY 7, 2011 

Re: 	 Response to Draft Report, SBA's Procurement of Information Technology 

Hardware and Software through Isika Technologies, Inc. 

We appreciate the opportunity to review your draft audit entitled "SBA's Procurement of 

Information Technology Hardware and Software through Isika Technologies, Inc." The 

Office of the Chief Financial Officer (OCFO) has reviewed the findings and 

recommendations of Project 10018 and is providing a written response to your report. 

It is important to note this report reviews contracting actions taken prior to the 

realignment of the Procurement Division under the OCFO. Since this reorganization the 

OCFO has taken a number of steps to improve acquisition business practices at the SBA 

including: 

• 	 hiring 10 new procurement staff members, 

• 	 training procurement staff members on Small Business Set-Asides and 

Non-Manufacturers Rule, and 

• 	 reinvigorating the agency's advanced acquisition strategy. 

The OCFO will use this audit report to continue to identify priorities that need to be 

addressed to create a high performing Procurement Division. 

While the OCFO concurs in part with the recommendations, it does not concur with the 

assertion made on page 3 that "BPAs may not be awarded when there is an existing 

contract for the same supplies or service." Pursuant to Federal Acquisition Regulation 

(FAR) 13.302-2 (a) (4), BPAs cannot be used with requirements contracts. The contract 

discussed in this report is identified as an Indefinite Delivery Indefinite Quantity (LDIQ) 

contract. Pursuant to 48 FAR 16.501 -2 (a), a requirements contract is a type of Indefinite 

Delivery contract but is a distinct type of contract that is separate from an IDIQ contract. 

The OCFO also disagrees with the characterization of splitting the requirement addressed 

on page 7 ofthis report. The report consistently references and details the lack of Agency 

advance planning and coordination of acquisitions. Based on lack of coordination, 

training and potential skill set shortfalls of the workforce during this period, as identified 

by the Office of the Inspector General (OIG), it is improbable there was a willful, 
24 

APPENDIX II. AGENCY COMMENTS (continued) 

planned attempt to circumvent the threshold. Moreover, to the extent the Agency viewed 

each requirement as a separate requirement, no law or regulation compelled the Agency 

to bundle separate requirements into a larger requirement in order to meet the Sea) 

competitive threshold. 

Recommendations and Responses 

In addition to these general comments above the OCFO has prepared responses to the six 

recommendations made in the report. 

1. 	 Instruct the contracting officer to immediately terminate contracts 

SBAHQ-09-D-0009, SBAHQ-I0-D-0001, and BPA SBAHQ-I0-A-OOOI 

and re-solicit the IT hardware and software requirement using full and 

open competition pioceduies. 

Concur in Part-We will not place any more orders under these acquisitions. As 

these are task or deliver order contracts, or in some cases, blanket purchase 

agreements which are not contracts, termination is unnecessary and could result in 

the Agency incurring additional costs. To the extent we acquire information 

technology goods and services, we will do so in accordance with applicable laws 

and regulations. 

2. 	 Implement and provide annual training to contracting personnel on 

acquisition planning, the appropriate use ofNAICS codes and the nonmanufacturer rule. 

Concur in Part - Since this reorganization ofthe Procurement Division into the 

OCFO most of the staff has been replaced and there have been training sessions 

on small business set asides, the FAR, and acquisition best practices. Specific 

training on the Non-Manufacturer Rule was conducted by the Office of General 

Counsel on February 3, 2011. Contracting Officers receive on-going training, 

which includes training concerning small business issues and acquisition 

planning. A requirement of annual training on these specific issues is not an 

appropriate recommendation since none of the reported issues were the product of 

any ofthe new staff, which has been hired since October I, 2010. 

3. 	 Exciude contracts SBAHQ-09-D-0009, SBAHQ-IO-D-OOOl, BPA 

SBAHQ-I0-A-0001 and all associated delivery orders and BPA calls 

from SBA calculations used to determine the number of 8(a) program 

contracts and small business contracts for fiscal years 2009 and 2010. 

Concur in Part-Pending feedback from the Office of Management and Budget's 

(OMB's) Office ofFederal Procurement Policy (OFPP) regarding prior year data 

in Federal Procurement Data System (FPDS-NG). In addition to other DIG 
25 

APPENDIX II. AGENCY COMMENTS (continued) 

reports regarding data issues for FY08, FY09 and the referenced issues in this 

report for FY09 and FYI 0, the Procurement Division have discovered other data 

integrity issues. SBA is working with OFPP to develop an alternative data 

validation plan that meets OMB and FAR requirements, while taking into account 

SBA's resources and workload. The OCFO will review all FPDS data in 

accordance with this plan and will make the necessary corrections. 

4. 	 Implement and provide annual training to contracting officers on 

reporting contract data to FPDS-NG. 

Concur in Part- While the Procurement Division will provide FPDS-NG training 

for the new staff this fiscal year, the data entry issues identified in this report are a 

result of contracting actions made prior to the reorganization and staffing ofthe 

Procurement Division. The Procurement Division will continue to provide FPDS 

training on an as needed basis. 

5. 	 Conduct a comprehensive review of data submitted to FPDS-NG for 

SBA contracts awarded to iTechnologies, reconcile all discrepancies 

identified, and correct any inaccurately reported data. 

Concur in Part- SBA is engaged in open dialogue with OMB's OFPP regarding 

our plan to FPDS-NG verification and validation issues. After reviewing past 

SBA reports, the SBA's FY2011 data quality plan, and learning of our recent 

organizational change, OMB has provided SBA with an alternative data 

validation plan, which meets the OMB and FAR requirements, while taking 

SBA' s resources and workload into consideration. The OCFO will review all 

FPDS data in accordance with this plan and will make the necessary corrections. 

6. 	 Hold contracting officers accountable for FPDS-NG data accuracy 

requirement by incorporating FPDS-NG data accuracy reporting 

requirements in each contracting officer's performance plan. 

Concur with comment. FYII performance plans will contain a sub-element 

regarding data integrity with a specific reference to data integrity for FPDS-NG. 

Thank you for the opportunity to provide comments on this draft report. Our 

office looks forward to working with you as we complete the transition of the 

Procurement Division. If you have any question please contact Bill Cody at (303) 

844· [FOIA ex. 2] 

Sincerely, 

Jon I. Carver 


Chief Financial Officer