U.S. DEPARTMENT OF COMMERCE 

Office of Inspector General 

Census Bureau 

Contract Modifications and 

Award-Fee Actions 

on the Decennial Response 

Integration System 

Demonstrate Need for 

Improved Contracting Practices 

Final Report No. OIG-11-020-A 

February 15, 2011 

Office of Audit and Evaluation 
UNITED STATES DEPARTMENT OF COMMERCE 

Office of Inspector General 

Washington, D.C. 20230 February 15,2011 

MEMORANDUM FOR: Dr. Robert Groves 

Director, U.S, ceJnsus Bureau 

FROM: Anne C. Eilers' !HAA 

Ot 1=J 

Principal Assistant Inspector General for Audit and Evaluation 

SUBJECT: Contract Modifications and Award-Fee Actions on the Decennial 

Response Integration System Demonstrate Needfor Improved 

Contracting Practices 

Final Report No. OIG-ll-020-A 

This memorandum transmits our final report on the Decennial Response Integration System 

(ORIS) contract modification and award-fee practices. 

In October 2005, the Census Bureau awarded a $483 million cost-plus-award-fee contract to 

Lockheed Martin Corporation to develop and implement ORIS, an information system that 

would assist in 2010 Census data collection and analysis. Two years later, Census awarded a 

contract modification, at a value of about $264,6 million, to Lockheed Martin. The modification 

was primarily for increasing outbound telephone coverage follow-up (in which households were 

contacted by telephone to verify the information provided in mailed-back Census forms). The 

purpose of our audit was to detennine whether the bureau's contracting officer appropriately 

awarded this modi fication and used the appropriate contract type for the initial ORIS contract 

award. 

In brief, we found that the bureau did not have adequate pre-award practices in place to ensure 

that the modification was properly awarded, that the bureau committed to this contract type 

without sufficiently justifying its use as required by the Federal Acquisition Regulation, and that 

it used an award-fee payment structure that provided little incentive for the contractor to achieve 

specific performance objectives, We recommended actions the bureau should take to address 

these deficiencies. 

Census's January 26, 2011, response to our draft report provides detailed comments on our 

findings, The response concurs with, and commits to addressing, our recommendations, We have 

summarized the response in our final audit report and have included it in its entirety as appendix 

B, We note that Census has already begun to improve its award-fee practices. 

In accordance with Department Administrative Order 213-5, please provide us with an audit 

action plan within 60 days of the date of this memorandum. We extend our appreciation to 

Census and the ORIS contractor's staff for the courtesies shown us during our fieldwork, If you 

have any questions, please contact me at (202) 482-2754 or Mark Zabarsky at (202) 482-3884. 

cc:	 Michael Palensky, Chief Acquisition Division, Census 

Pamela White, External Liaison Branch Chief, Census 

Adam Miller, Audit Liaison, Management Services Branch 

Attachment 
 

 

Report In Brief Report In Brief 

U.S. Department of Commerce Office of Inspector General 

February 15, 2011 

Background 

Why We Did This Review 

In October 2005, the Census 

Bureau awarded a $483 million 

cost-plus-award-fee contract to 

Lockheed Martin Corporation to 

develop and implement DRIS, 

an information system that 

would assist in 2010 Census data 

collection and analysis. 

The contract has a 6-year performance period, which includes 

designing and developing the 

system, conducting the census 

dress rehearsal that occurred in 

2008, conducting 2010 census 

operations, and archiving data 

and disposing of equipment after 

the census is completed. These 

final activities are scheduled for 

completion in September 2011. 

In September 2007, Census 

awarded Lockheed Martin an 

approximately $264.6 million modification to the DRIS 

contract. Most of the cost for the 

modification was for increasing 

outbound telephone coverage 

follow-up (in which households 

were contacted by telephone to 

verify the information provided 

in mailed-back Census forms). 

As part of our oversight of 

the 2010 census, the Office 

of Inspector General (OIG) 

performed an audit to determine 

whether Census’s contracting officer appropriately awarded the 

contract modification number 

and used the appropriate contract 

type for the initial DRIS award. 

Census Bureau 

2010 Census: Contract Modifi cations and Award-Fee 

Actions on the Decennial Response Integration System 

(DRIS) Demonstrate Need for Improved Contracting 

Practices (OIG-11-020-A) 

What We Found 

The Census Bureau did not have adequate contract pre-award practices in place to ensure that a 

modification to the DRIS contract ( modification number 21, in the amount of $264.6 million) 

was properly awarded. Specifically, Census did not 

• perform the required review for legal sufficiency before issuing the solicitation; 

• retain essential documentation as part of the contract file to support the contracting officer’s 

price reasonableness decision; and 

• have the acquisition plan—which reflected significant changes resulting from modification 

number 21 that affected the DRIS program—approved by the Department of Commerce’s 

Senior Procurement Executive before issuing the solicitation. 

The lack of well-defined pre-award processes may have resulted in the bureau’s inability to 

promote and provide for full and open competition and ensure a fair and reasonable price in 

awarding this modification. 

We also found that the bureau’s justification for the contract type and payment structure it chose 

for DRIS did not conform to federal guidance: 

• Census did not adequately justify the contract type for the initial award; and 

• the contract’s payment structure could have allowed the contractor to receive substantial 

payments for less-than-satisfactory performance, leaving little in the award-fee pool to 

encourage the contractor to meet or exceed desired outcomes. 

What We Recommended 

We recommend that the Census Bureau’s Chief, Acquisition Division 

1. develop and implement internal controls to ensure that, going forward, pre-award policies 

and processes are adhered to; 

2. direct the DRIS contracting officer to obtain the proper reviews, support, and approval 

before issuing contract solicitations; 

3. ensure determination and findings on future contracts contain supporting details; 

4. conduct and document a cost-benefit analysis when deciding whether to use this contract 

type in the future; and 

5. require the contracting officer to revise the award-fee payment structures of the final phase 

of the DRIS contract to provide incentives for excellent contractor performance, and prohibit the contractor from receiving award fees for less-than-satisfactory performance. 
U.S. Department of Commerce Final Report No. OIG-11-020-A
 

Office of Inspector General February 15, 2011 

Contents 

Introduction..................................................................................................................................... 1 

Findings and Recommendations ..................................................................................................... 3 

I. DRIS Contract Modification’s Pre-Award Process Needed Improvement ......................... 3 

A. A Review for Legal Sufficiency Was Not Performed ...................................................... 3 

B. Modification Awarded Without Documenting Price Reasonableness ............................. 4 

C. Revised Acquisition Plan Was Not Approved Timely by Procurement Executive ......... 5 

II. Census Bureau’s Practices for Justifying an Award-Fee Contract and Establishing the 

Payment Structure Are Not Consistent with Federal Acquisition Guidance .............................. 5 

A. Census Bureau Has No Assurance That the Contract Type Is Appropriate for the Initial 

Contract Award........................................................................................................................ 6 

B. Payment Structure Rewards Minimal Contractor Performance....................................... 7 

Summary of Agency and OIG Comments ...................................................................................... 9 

Appendix A: Scope and Methodology.......................................................................................... 12
 

Appendix B: Bureau Response ..................................................................................................... 13 
U.S. Department of Commerce Final Report No. OIG-11-020-A
 

Office of Inspector General February 15, 2011 

Introduction 

In October 2005, the Census Bureau awarded a $483 million cost-plus-award-fee contract to 

Lockheed Martin Corporation to develop and implement the Decennial Response Integration 

System (DRIS), an information system that would assist in 2010 Census data collection and 

analysis. The contract has a 6-year performance period, which includes designing and developing 

the system, conducting the census dress rehearsal that occurred in 2008, conducting 2010 Census 

operations, and archiving data and disposing of equipment after the census is completed. Census 

divided DRIS contract performance into three phases, as shown below in table 1. 

Table 1. DRIS Contract Performance Phases 

Phase Start Date End Date Tasks 

Phase I October 2005 September 2008 Design, develop, implement, and 

support the 2008 census rehearsal 

Phase II September 2007 December 2010 

Open data center sites, complete 

operational testing, conduct 2010 

decennial operations, and close down 

DRIS 2010 operations facilities once the 

census is complete 

Phase III October 2010 September 2011 

Archive DRIS data and images in 

accordance with National Archives and 

Records Administration guidelines and 

dispose of DRIS equipment once it is no 

longer needed 

Source: DRIS Contract No YA1323-05-CN-0029. 

In September 2007, Census awarded contract modification number 21, at a value of about 

$264.6 million, to Lockheed Martin. Most of the cost for the modification—$ million—was 

for increasing the scope of the bureau’s outbound telephone coverage follow-up operation (in 

which households were contacted by telephone to verify the information provided in mailed-back 

Census forms) from 2.6 million to 6.81 million cases. The remaining $ million was for the 

re-instatement of development and planning tasks that had been removed as a result of an earlier 

contract re-planning effort, and the increase of the available award-fee pool. 

The objectives of our audit were to determine whether the contracting officer appropriately 

awarded contract modification number 21 and used the appropriate contract type for the initial 

DRIS contract award. Appendix A outlines the scope and methodology we used in this audit. 

We found that the bureau did not have adequate contract pre-award practices in place to ensure 

that modification number 21 was properly awarded. Specifically, Census did not 

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Office of Inspector General February 15, 2011 

•	 perform the required review for legal sufficiency before issuing the solicitation; 

•	 retain essential documentation as part of the contract file to support the contracting 

officers’ price reasonableness decision; and 

•	 have the acquisition plan—which reflected significant changes resulting from 

modification number 21 that affected the DRIS program—approved by the Department 

of Commerce’s Senior Procurement Executive before issuing the solicitation. 

The lack of well-defined pre-award processes could have resulted in an inability for the bureau to 

promote and provide for full and open competition and ensure a fair and reasonable price in 

awarding this modification. 

Our audit highlights some ways Census can improve its contracting practices. Sound 

procurement practices should be in place to ensure federal funds are appropriately spent and that 

Census maintains integrity in its day-to-day procurement operations. The internal control 

weaknesses in the DRIS contract occurred because acquisition and contracting officials did not 

adhere to federal and Commerce acquisition regulations and policies, leaving Census without 

assurance that the contract modification price was fair and reasonable, competition was 

maximized, or that the government’s interests were protected. 

Furthermore, it is unknown whether the bureau’s use of an award-fee contract type for the initial 

DRIS contract was appropriate. This is largely because Census committed to this contract 

without sufficiently justifying its use as required by the Federal Acquisition Regulation. Awardfee contracts can motivate contractor performance when certain performance standards are 

applied. Census’s award-fee practice of offering contractors opportunities to earn large fees for 

less-than-satisfactory performance establishes a culture in which the bureau expects to pay—and 

contractors expect to receive—most of the available award fee regardless of outcome. These 

practices provide little incentive for contractors to meet minimum contract requirements, much 

less exceed them, and could compromise the integrity of the fee process. 

Until Census improves the internal controls on its acquisition function and ensures contracting 

officials effectively design and implement contracts, it will continue to risk wasting taxpayer 

dollars by using poor contracting practices and potentially paying sizable awards for subpar 

contractor performance. 

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Office of Inspector General February 15, 2011 

Findings and Recommendations 

I. DRIS Contract Modification’s Pre-Award Process Needed Improvement 

The Census Bureau has internal control weaknesses associated with executing key pre-award 

processes for awarding contract modification number 21. For instance, Census did not ensure 

that the modification was reviewed for legal sufficiency before the solicitation was issued, 

leaving the bureau at risk for disputes. Further, contract files do not include documentation that 

price and/or cost analyses were performed for determining fair and reasonable price. Also, 

Census did not have the acquisition plan approved by the Department of Commerce’s Senior 

Procurement Executive until over 5 months after issuing the solicitation1—failing to ensure that 

this major program change had the appropriate level of oversight. 

Acquisition and contracting officials stated that these control weaknesses occurred because the 

officials found the pre-award process confusing. Therefore, they did not adhere to federal and 

Commerce acquisition regulations and policies. The lack of well-defined pre-award processes 

may have resulted in the bureau’s inability to promote and provide for full and open competition 

and ensure a fair and reasonable price in awarding this modification. 

A. A Review for Legal Sufficiency Was Not Performed 

Legal reviews are conducted to determine if the procurement package is legally sufficient— 

meets all legal requirements—and ensure that the government’s interests are protected. The 

Commerce Acquisition Manual requires all modifications expected to exceed $100,000 be 

reviewed for legal sufficiency. Also, Department Administrative Order 208-5 states that all 

noncompetitive awards involving $50,000 or more, including modifications to existing contracts 

involving the procurement of new or additional requirements, shall be subject to legal review by 

the Assistant General Counsel for Administration, or designee, prior to execution.2  

We found that the contracting officer did not obtain the required review for legal sufficiency 

before issuing the solicitation, leaving Census vulnerable to protests.3

 Instead, the acquisition 

office—through its own interpretation—determined that the modification was within the scope 

of the contract and did not require a legal review. However, the acquisition office could not 

provide documentation demonstrating that the modification was within scope and did not need to 

be re-competed. Our review indicates that the contracting officer may have issued the contract 

modification for work that was outside the scope of the original DRIS contract. Specifically, the 

modification represents a significant change in the amount of work and overall cost of the 

contract. The increase from 2.6 to 6.81 million outbound telephone coverage follow-up cases is 

an increase of 150 percent, and the additional $ million attributed to these additional services 

is over percent of the original contract price. Therefore, absent a legal review finding the 

                                                            

1

 The solicitation was issued on March 1, 2007. 2

 “Contracting (Procurement) Review and Approval Requirements,” dated September 10, 1984. Note that the 

Assistant General Counsel for Finance and Litigation, through the Contract Law Division, now performs these 

reviews. Procurement memorandum 2010-04, dated January 15, 2010, amends Department Administrative Order
 

208-5, raising the threshold for all noncompetitive awards to $100,000 or more. 3

 A protest is a written objection by an interested party to an award or proposed award of a contract. 

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Office of Inspector General February 15, 2011 

modification within scope, the potentially out-of-scope work should have been awarded using 

competitive procedures or supported with a justification and approval4

 for other than full and 

open competition, in accordance with legal requirements. 

Contract actions, such as modifications, are deemed by law to satisfy competition requirements if 

they are within the scope, period of performance, and maximum value of a properly awarded 

underlying contract. However, decisions concerning the scope of a contract involve subjective 

analysis and judgment. In making this determination, the contracting officer must decide whether 

the new work is encompassed by the existing contract’s statement of work and the original 

competition for that contract. Guiding principles for scope of contract determinations are 

established in case law, such as bid protest decisions of the Comptroller General. These decisions 

establish that the key factor is whether there is a material difference between the new work and 

the contract that was originally awarded. Under the Competition in Contracting Act of 1984,5 

modifications of awarded contracts are exempted from the competitive process unless the change 

is beyond the scope of the original contract. In this case, a legal review might have revealed that 

the modification was out of scope due to the significant changes to the work and cost called for 

by the original contract, in which case the contracting officer did not properly compete the 

additional requirements and possibly did not receive a fair and reasonable price. 

B. Modification Awarded Without Documenting Price Reasonableness 

The Federal Acquisition Regulation6

 requires that contracting officials determine price 

reasonableness before awarding a contract, and that documentation supporting these 

determinations is in the contract file. The Federal Acquisition Regulation7

 provides examples of 

the records normally kept in the contract files, such as the contractor’s proposal, cost or price 

analysis, and audit reports. Also, the Commerce Acquisition Manual 8 requires that the decision 

that a price is fair and reasonable must be based upon some form of analysis, either price analysis 

or a combination of price and cost analysis. 

The contracting officer did not comply with the Federal Acquisition Regulation when 

documenting fair and reasonable price determinations. The contracting officer stated in the price 

negotiation memorandum that the contractor’s proposed price of $264.6 million for the 

modification was well supported and reasonable based on the cost negotiation team’s detailed 

review of all aspects of the contractor’s cost proposal, including evaluating various rates such as 

indirect, direct, and general and administrative. The contracting officer awarded the 

modification, valued at the contractor’s proposed price; however, the contracting officer did not 

retain documentation in the contract file, such as a price and/or cost analysis, to support the 

determination. Without such documentation, there is no assurance that the decision was 

appropriate. 

4

 A justification and approval is a written authorization, from the appropriate level, to proceed with a contract 

without obtaining full and open competition.

5 Pub. L. No. 98-369. 

6 Subpart 15.4, “Contract Pricing.”
 7 Subpart 4.803, “Contents of Contract Files.” 

8

 Part 15. 

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Office of Inspector General February 15, 2011 

C. Revised Acquisition Plan Was Not Approved Timely by Procurement Executive 

The first, and maybe the best, opportunity to reduce risk in any acquisition is in the planning 

phase, when critical decisions are made that have significant implications for the acquisition’s 

overall success. Achieving the right knowledge at the right time enables leadership to make 

informed decisions about when and how best to move into succeeding phases. The acquisition 

plan provides the framework for planning, directing, contracting for, and managing a program. 

The Commerce Acquisition Manual 9

 requires that significant changes in the acquisition plan be 

approved by the Department of Commerce’s Senior Procurement Executive before they are 

implemented—meaning before issuing the solicitation. The manual also states that the 

requirement for approving an acquisition plan may be waived by the Senior Procurement 

Executive on the basis of urgency or for some other justifiable reason; however, the request for 

waiver must be in writing and submitted for approval prior to the release of the solicitation. 

Census did not have the acquisition plan approved by the Senior Procurement Executive or 

request a waiver for doing so before issuing the solicitation. Although the plan was approved by 

the Senior Procurement Executive in August 2007, it was over 5 months after the solicitation was 

issued. As a result, there was no assurance that Census employed sound investment 

methodologies. 

Recommendations 

We recommend that the Census Bureau’s Chief, Acquisition Division 

1.	 develop and implement internal controls to ensure that, going forward, pre-award policies 

and processes for the deficiencies identified in this audit report are adhered to; and 

2.	 direct the DRIS contracting officer to 

a.	 obtain reviews for legal sufficiency to ensure that any future modifications under 

the DRIS contract are within the scope of that contract, 

b.	 retain as part of the contract file the supporting documentation used to make the 

price reasonableness determinations, and 

c.	 have all acquisition plans with significant revisions that would affect the DRIS 

program be approved by the Senior Procurement Executive before issuing the 

solicitation. 

II.	 Census Bureau’s Practices for Justifying an Award-Fee Contract and Establishing 

the Payment Structure Are Not Consistent with Federal Acquisition Guidance 

Cost-reimbursable contracts involve high risk for the federal government because of the potential 

for cost escalation and because the government pays a contractor’s costs of performance 

regardless of whether the work is completed. Award-fee contracts, a type of cost-reimbursable 

contract, are used throughout the government to encourage contractors to perform efficiently and 

9

 Subpart 7.1. 

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Office of Inspector General February 15, 2011 

effectively, and to motivate excellent contractor performance. Award-fee contracts are 

appropriate when contracting and program officials cannot establish in advance cost, schedule, or 

technical performance objectives. Under current regulations, contracting officers are required to 

prepare a determination and findings document to justify a cost-reimbursement contract (as is the 

case for using award-fee contracts), and are generally required to include in the contract file 

documentation showing why a particular contract type was selected. In this case, Census chose to 

prepare a determination and findings document to meet this requirement. 

We found that the contracting officer did not properly complete the determination and finding 

justifying the selection of an award-fee contract type for the initial DRIS contract. While an 

award-fee contract may have been appropriate, for the most part the documentation used 

boilerplate language and did not sufficiently show why this type of contract was selected. For 

instance, the contracting officer should be able to demonstrate whether an award-fee contract’s 

benefits (e.g., dollars saved by tighter cost control or enhanced technical capability) would 

outweigh the additional oversight and administrative costs; however, the contracting officer did 

not justify the contract’s cost-effectiveness. Without such an evaluation, Census had no 

assurance that an award-fee contract was appropriate. 

Further, the award-fee payment structure provided little incentive for the contractor to excel in 

carrying out the terms of its award-fee contract performance objectives. For instance, the 

contractor could receive up to 74 percent of the award-fee pool—approximately $48 million of 

the total $65 million in the available pool over Phases I and II of the contact—for performance 

below the acceptable standards. 

A. Census Bureau Has No Assurance That the Contract Type Is Appropriate for the Initial 

Contract Award 

On February 15, 2005, the contracting officer chose to prepare a determination and findings 

document to justify the use of a cost-plus-award-fee contract. The Federal Acquisition 

Regulation states that the determination and findings must include enough facts, circumstances, 

or reasoning to clearly and convincingly support the contract type selected. However, the 

contracting officer did not properly prepare the determination and findings. The language 

contained in the determination and findings virtually repeated verbatim the Federal Acquisition 

Regulation requirement for using an award-fee contract without providing further explanation or 

supporting documentation. For example, the determination and findings cited that 

•	 the administrative costs of conducting award-fee evaluations are not expected to exceed 

the expected benefits, and 

•	 appropriate government surveillance during performance will provide reasonable 

assurance that efficient methods and effective cost controls are used. 

However, the determination and findings did not contain details of the particular circumstances 

or facts essential to support the determination, such as an analysis supporting the costeffectiveness of using an award-fee contract. 

While award-fee contracts can provide incentives to spur innovation and reduce costs, they 

require greater effort and more resources than other contract types to monitor and document 

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Office of Inspector General February 15, 2011 

contractor performance. Subsequent to the DRIS contract award, the Office of Management and 

Budget has directed contracting officers to conduct and document risk and cost-benefit analyses 

when determining whether to use award-fee contracts.10 Risk and cost analyses related to the use 

of award-fee contracts should be prepared in writing and approved at a level above the 

contracting officer or as determined by the agency. In October 2009, the Federal Acquisition 

Regulation reinforced this requirement by adding a specific requirement for agencies to complete 

a determination and findings document to justify the cost-effectiveness of an award-fee contract 

before committing to this contract type.11 

B. Payment Structure Rewards Minimal Contractor Performance 

Census rates contractor performance on a point scale, from 0 to 100. While the award-fee scores 

on the DRIS contract indicate satisfaction with the results of the contract, the payment structure 

(scale) used when calculating the award fees under this contract did not provide strong incentives 

for the contractor to attain better-than-average 

results. For example, the payment structure 

awarded no fee for a score of 49 or less, but did 

award a fee for a score of 50 or above. Table 2 

shows the rating scale and potential award 

payouts. Thus, if the contractor receives a score 

of 50–74, meaning the contractor partially 

achieved the contract performance objectives, 

Census would bestow on the contractor between 

50 to 74 percent of the award-fee pool. In the 

DRIS contract, the contractor could earn award 

fees of up to $48 million of the available 

$65 million over Phases I and II for only 

partially achieving performance objectives. 

Thus, only about $17 million remained to 

further motivate the contractor to fully meet or 

exceed performance objectives. This type of 

payment structure does not only allow 

contractors to receive substantial payments for 

less-than-satisfactory performance; it also 

leaves little in the award-fee pool to encourage 

Table 2. Performance Rating 

Scale and Potential Maximum 

Award Fees 

Performance rating of: 

•	 Full Achievement earns 93-100% of 

available award-fee pool 

•	 Substantial Achievement earns 

85-92% of available award-fee pool 

•	 Acceptable Achievement earns 

75-84% of available award-fee pool 

•	 Partial Achievement earns 50-74% of 

available award-fee pool 

•	 (No award fee if rated below 50%) 

Source: DRIS Contract Award Fee Plan for Period 

No. 7 

contractors to meet or exceed expectations and achieve desired outcomes. 

To encourage contractor excellence, the December 2007 Office of Management and Budget 

guidance states that there should be clear distinctions in possible award earnings between 

satisfactory and excellent performance. Office of Management and Budget guidance further 

states that no award fee should be paid for performance that is judged to be below satisfactory or 

does not meet basic contract requirements. 

10 Office of Mgmt. & Budget, Executive Office of the President, December 4, 2007. Appropriate Use of Incentive 

Contracts. 11 Subpart 16.4. 

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Although Phase II is almost complete, Census has an opportunity to revise its payment structure 

for Phase III, which the bureau awarded on September 24, 2010. Under the DRIS contract, the 

award-fee approach permits unilateral modification of the performance evaluation plan12 to 

reflect changes in management emphasis. The bureau included a clause in the contract allowing 

unilateral change to the plan if the contracting officer provides written notice to the contractor no 

later than 15 days before the start of an evaluation period. 

Recommendations 

We recommend that the Census Bureau’s Chief, Acquisition Division 

1.	 ensure determination and findings on future contracts contain sufficient details of the 

particular circumstances or facts essential to supporting the use of an award-fee contract 

type; 

2.	 conduct a cost-benefit analysis when choosing future award-fee contracts, and document 

how the benefits will offset the additional costs associated with administering such a 

contract; and 

3.	 require the contracting officer to revise the award-fee payment structures of the DRIS 

contract for Phase III to create a structure that 

a.	 provides greater incentive for excellent contractor performance, and 

b.	 prohibits the contractor from receiving award fees for performance judged to be 

less than satisfactory. 

12 The performance evaluation plan is the basis for determining the amount of award fee and includes the award-fee 

criteria to be considered under each area evaluated; the percentage of award fee, if any, available for each area; and 

the frequency of evaluation periods. 

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Office of Inspector General February 15, 2011 

Summary of Agency and OIG Comments 

In responding to our draft report, Census concurred with all of our recommendations. We are 

encouraged that steps have already been initiated to address our recommendations, and we look 

forward to the bureau’s action plan that will provide details on the corrective actions to be taken. 

See appendix B for the complete response. In it, Census also provided technical comments and 

suggested revisions to the introduction section of our report, which have been addressed in the 

report as appropriate. 

Despite concurring with our recommendations, Census raised several concerns about our 

findings: 

1.	 Census asserted that it did justify the use of an award-fee contract. As noted in our report, 

Census chose to prepare a determination and findings document to justify this type of 

contract. We found that the language in the determination and findings virtually repeated 

verbatim the Federal Acquisition Regulation requirement for using an award-fee contract, 

without providing further explanation or supporting documentation. For example, an 

award-fee contract is suitable when its expected benefits outweigh the additional 

administrative effort and cost required to monitor and evaluate contractor performance. 

However, rather than conduct a cost-benefit analysis, Census merely repeated in its 

determination and findings document the regulation’s language that “the administrative 

costs of conducting award-fee evaluations are not expected to exceed the expected 

benefits.” 

Federal Acquisition Regulation part 1.7 requires that each determination and findings 

document include specific facts to support the determination being made—it is not 

enough to simply restate the regulation. In any case, in its response to our draft report, 

Census agreed to conduct a risk and cost-benefit analysis for all future award-fee type 

contracts to be included in a determination and findings document. 

2.	 Census agrees that offering contractors large fees for less-than-satisfactory performance 

provides little incentive for them to meet minimum contract requirements. Yet, in 

response to our draft report, Census stated that it provided ample incentive for excellent 

contractor performance based on the fact that the contractor has earned an average of 

 percent of the available award-fee pool. While our audit did not assess the validity 

of award-fee payments made by Census based on documentation used to support them, 

we disagree with Census that ample incentive for contractor performance was provided 

simply because the contractor received almost all of the available award fees. 

The Federal Acquisition Regulation states that award fees should be used to motivate 

excellent contractor performance. To encourage contractor excellence, OMB guidance 

states that there should be clear distinctions in possible award earnings between 

“satisfactory” and “excellent” performance levels. As noted in our report, the award-fee 

rating scale offered the contractor opportunities to earn award fees for what the DRIS 

award-fee plan describes as less-than-satisfactory performance. In this case, Census’s 

scale could pay the contractor up to $48 million, or 74 percent of the available award-fee 

pool, for less-than-satisfactory performance. Engaging in such a practice is inconsistent 

with the intent of award fees and could reduce the effectiveness of these fees as 

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Office of Inspector General February 15, 2011 

motivators of performance. Census revised the award-fee rating scale in response to our 

recommendation in this report. 

Census also disagreed that the planning process for modification number 21 was inadequate. 

However, we found that Census had internal control weaknesses associated with executing key 

pre-award processes for awarding the modification. Overall, Census did not follow federal 

acquisition and department contracting procedures and processes, such as appropriately 

documenting important decisions in the contract files. Circumventing the acquisition planning 

process does not provide assurance that sound investment methodologies were employed, or that 

the highest return on the investment or a determination of acceptable project risk was provided. 

In its response, Census raised the following concerns about our findings with regard to 

modification number 21: 

1.	 Census noted that it is the contracting officer’s responsibility to make determinations 

regarding whether or not the proposed work is within scope. Census also stated that the 

dollar amount associated with the work is only one factor in determining scope. We 

acknowledge that these statements are true; however, as stated in our report, Census did 

not adhere to the Commerce policy that requires modifications to existing contracts be 

reviewed for legal sufficiency. Such reviews are critical because they ensure that all legal 

requirements are met and that the government’s interests are protected. The contracting 

officer did prepare a determination statement that modification 21 was within scope of 

the original DRIS contract. However, the justification document was prepared in October 

2009—2 years after the modification had been awarded—in response to our audit of the 

contract. 

In its response to our draft report, Census acknowledged that it did prepare the withinscope determination documentation late, but pointed out that the Department’s legal staff 

was part of the planning process and had been made aware of all changes as they 

occurred. Nevertheless, Federal Acquisition Regulation subpart 4.8 states that sufficient 

documentation must be maintained in order to keep a complete record of management 

officials’ deliberations and key decisions. Documenting decisions provides support for 

actions taken, provides essential facts in the event of litigation, and serves as proof of 

management’s due diligence as stewards of taxpayers’ money. 

2.	 Census believed that the price negotiation memorandum clearly demonstrated that price 

and cost analyses were conducted. The memorandum states that the contractor’s proposed 

price was fair and reasonable based on reviews performed by various teams. However, 

the contract files did not contain any supporting documentation, such as a cost or price 

analysis, nor was Census able to provide us with any other evidence to adequately 

explain the basis for the determination. 

Federal Acquisition Regulation subpart 4.8 cites cost and price analyses as examples of 

the types of record that should be retained in the contract file. In its response to our draft 

report, Census did agree to ensure that future price negotiation memorandums are well 

documented to reflect the process and actions that actually occurred. 

3.	 Census contended that the Senior Procurement Executive, as a member of the Commerce 

Information Technology Review Board, approved the modified acquisition plan. 

Although the modified plan was approved, it was done contrary to departmental policy. 

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As noted in our report, Census did not adhere to the Commerce Acquisition Manual 

requirement that the Department’s Senior Procurement Executive approve modified 

acquisition plans before issuance of the solicitation. In this case, the Senior Procurement 

Executive did not approve the modified plan until 5 months after the solicitation was 

issued and 2 months after the contractor’s proposal evaluation process was completed, 

thus giving the appearance of “rubber stamping” the modified plan. 

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Appendix A: Scope and Methodology 

We conducted this audit in accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain sufficient, appropriate 

evidence to provide a reasonable basis for our findings and conclusions based on our audit 

objectives. We believe that the evidence obtained provides a reasonable basis for our findings 

and conclusions based on our audit objectives. To accomplish our objectives, we 

•	 Reviewed Census’s procurement practices used to support the bureau’s decision to award 

modification number 21 and selection of the contract type for the DRIS contract. We 

assessed those procurement practices against criteria contained in the Federal Acquisition 

Regulation, the Commerce Acquisition Manual, Office of Management and Budget, and 

other applicable departmental and federal regulations and guidance. 

•	 Interviewed a range of Census staff involved in the DRIS program, including the chief of 

contracting, contracting officer, and program management office representatives to 

determine the bureau’s policies and business practices for contract awards and 

modifications. We also met with project management staff at Lockheed Martin. 

•	 Analyzed documentation used to support Census’s decision to award modification 

number 21 and selection of the contract type for the DRIS contract. The documentation in 

the contract file we reviewed included the contracting officer’s acquisition plan, price 

negotiation memorandum, and determination and finding. We also reviewed briefing 

documents from Census requesting approval of the acquisition change and the 

procurement executive decision letter approving it. We also examined the bureau’s 

program decision memorandums and decision documents related to telephone coverage 

follow-up. In addition, we reviewed the adequacy of the rating scale of the award-fee 

plan. 

•	 Received assistance from our Office of Counsel to determine if modification number 21 

was within the scope of the contract. To do so, we reviewed case decisions from the 

Comptroller General, the United States Court of Appeals for the Federal Circuit, and the 

Court of Federal Claims and the Competition in Contracting Act of 1984, and other 

relevant laws and regulations. 

We conducted this audit between March 2009 and October 2010. We performed our work at the 

U.S. Census Bureau in Suitland, Maryland. We obtained an understanding of the internal 

controls of the processes used to award and administer DRIS contract modifications by 

reviewing the Commerce Standard Acquisition Reporting System (CSTARS). The Department 

relies on this system to allow managers to review and approve purchase requests, issue 

modifications, and obligate funds. We also interviewed Census staff about the CSTARS work 

flow. Furthermore, we met with Census acquisition staff to gain an understanding of the reasons 

for and timing of the modification award. While we identify and report on internal control 

deficiencies no incidents of fraud, illegal acts, violations, or abuse were detected within our 

audit. We identified weaknesses in the controls related to the bureau’s pre-award process for 

awarding modification number 21 and award-fee processes. We did not rely on computerprocessed data to perform this audit. We performed our work under authority of the IG Act of 

1978, as amended, and Department Organizational Order 10-13, dated August 31, 2006. 

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Appendix B: Bureau Response 

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