Interagency Contracting: Need for Improved Information and Policy Implementation at the Department of State
Published: 2008-05-08T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Interagency contracting--using another agency's contracts or contracting services--can provide agencies with opportunities to streamline the procurement process and achieve savings. However, GAO designated the management of interagency contracting a high-risk area in 2005 due, in part, to a lack of reliable data on its use and of clarity regarding contract management responsibilities. In 2002, the Department of State (State) issued the State First policy, requiring domestic bureaus to obtain approval from State acquisition officials before paying other agencies for contract support services. Under the Comptroller General's authority to conduct evaluations on his own initiative, GAO evaluated State's 1) insight into its use of interagency contracts, 2) policies on deciding when to use assisted interagency contracts, and 3) ability to ensure oversight. GAO's work included reviewing regulations, analyzing interagency contracting data, and conducting 10 case studies of direct and assisted interagency contracts that represented a range of State bureaus and servicing agencies.
section_title: What GAO Found
paragraphs: State officials have limited insight into the extent to which the department has used both methods of interagency contracting--direct by placing their own orders on another agency's contract and assisted by obtaining contract support services from another agency. State officials cannot rely on the federal government's primary data system for tracking procurements to readily identify instances when State has used interagency contracts. Further, State's central procurement and accounting systems do not reliably and comprehensively identify when interagency contracts have been used. While State officials told GAO the most reliable way to identify interagency contract actions would be to request data on these actions from bureaus and overseas posts, several bureaus and posts had difficulty responding to such a request. State reported to GAO over $800 million in interagency contract actions in fiscal year 2006, but these data were incomplete. For example, State did not report $144 million in assisted contracting performed on its behalf by the Department of Defense. GAO has previously reported that the lack of reliable information on interagency contracts inhibits agencies from making sound contracting decisions and engaging in good management practices. Due to the way the State First policy has been implemented, State cannot ensure that decisions to use assisted interagency contracting are made by the appropriate acquisition officials. These officials often lack awareness of or involvement in decisions to use assisted interagency contracts. First, State acquisition officials have created exemptions limiting the assisted contract actions subject to their review under the policy. For example, State's guidance exempts funds transfers under the Foreign Assistance Act, under which bureaus conducting large amounts of interagency contracting operate. Second, bureaus have varying interpretations of when approvals are needed under the policy. Some bureaus seek approvals for individual contract actions related to specific requirements. Another bureau interprets the policy as only requiring approval for a new overarching interagency acquisition agreement, which can encompass multiple contract actions and fiscal years. Third, State acquisition officials do not monitor State First compliance, so they are not positioned to know whether the five approval requests received in fiscal year 2006 fully reflected the extent of that year's assisted interagency contracting. State's policies do not ensure that responsibilities for overseeing contractor performance on assisted interagency contracts are assigned to appropriately trained individuals. State acquisition regulations do not require trained oversight personnel to be assigned when using assisted interagency contracting. As a result, effective oversight depends on factors outside of State's control, such as the rigor of servicing agencies' oversight requirements, which vary. GAO identified cases where State personnel were given responsibility for overseeing contractor performance but had not received related training. GAO and others have reported that agencies' interests are put at risk when the individuals responsible for overseeing contractor performance are not clearly designated and have not been properly trained.

section_title: Letter
paragraphs: Interagency contracting, when used correctly, can provide agencies with  opportunities to streamline the procurement process and achieve savings.  Agencies can use interagency contracting in two ways—direct by placing  their own orders on another agency’s contract or assisted by obtaining  contract support services from another agency. However, we and several  federal inspectors general have identified pervasive problems associated  with the management of interagency contracting. These include a lack of  reliable data and transparency regarding when and how these contracts  are used as well as a lack of clarity in the definition of roles and  responsibilities for managing contracts when multiple agencies are  involved. As a result of these and related issues, we designated the  management of interagency contracting as a governmentwide high-risk  area in 2005.
In 2002, before the risks associated with interagency contracting were  widely reported, the Department of State (State) implemented in its  acquisition regulations the State First policy for acquisition that directs  State’s domestic bureaus and offices to use State contracting offices, as  opposed to paying another agency for contracting support services, unless  the appropriate State acquisition officials grant a waiver. Our prior work  on interagency contracting has included larger procuring agencies—the  departments of Defense and Homeland Security—and agencies that  provide contracting services like the General Services Administration,  Department of the Treasury, and Department of the Interior. We had not  examined whether State’s policy has enabled it to minimize the  management risks associated with interagency contracting. While State is  a smaller procuring agency than some of those we have previously focused  on, reporting total contract obligations of over $5 billion in fiscal year  2006, it is increasingly reliant on contractors to help carry out its mission.
To better understand State’s management of interagency contracting, we  evaluated 1) the extent to which State has insight into its use of  interagency contracting, 2) State’s policies and procedures for deciding  when to use assisted interagency contracting, and 3) State’s ability to  ensure oversight of assisted interagency contracting. We prepared this  report under the Comptroller General’s authority to conduct evaluations  on his own initiative and are providing it to you because of your interest in  this high-risk issue.
To address these objectives, we reviewed State acquisition regulations,  policies, and guidance and interviewed agency officials to understand their  implementation. In addition, we requested data from 35 bureaus, as well as  18 of State’s 277 overseas posts with authority to conduct contracting  activities, on fiscal year 2006 purchases of at least $25,000 made through  both direct and assisted interagency contracts. We compared the data  reported by State with similar data from the federal government’s primary  procurement data system as well as data from five agencies that provided  contract support services to State. After conducting extensive work to  ensure the consistency of the data, we determined our final data set to be  sufficient for our purposes. To address the objectives regarding State’s  policies and ability to ensure oversight, we conducted 10 case studies that  represented direct and assisted actions as well as a range of State bureaus  and servicing agencies (see table 1 in app. I for details on the selected  cases). For each case study, we reviewed contract documentation from  State, the servicing agency, or both and interviewed relevant officials such  as contracting officers, individuals performing contract oversight, and  program officials. A detailed description of our scope and methodology is  included in appendix I of this report. We conducted this performance audit  from June 2007 through May 2008 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.
subsections: section_title: Background
paragraphs: Interagency contracting is designed to leverage the government’s  aggregate buying power and simplify procurement of commonly used  goods and services. This contracting method has allowed agencies to meet  the demands for goods and services at a time when they face growing  workloads, declines in the acquisition workforce, and the need for new  skill sets. Interagency contracts are awarded under various authorities and  can take many forms. They typically are used to provide agencies with  common goods and services, such as office supplies or information  technology services. In other cases, they may be used to fill specialized  requirements, particularly if the other agency providing the contract  support services has unique expertise in a particular type of procurement.  Agencies that award and administer interagency contracts usually charge a  fee to support their operations.
There are two main methods of interagency contracting: direct and  assisted. For direct acquisitions, rather than going through the process to  award a new contract—soliciting offers, evaluating proposals, and  awarding the contract—contracting officers at agencies can place orders  directly on contracts already established by other agencies. With assisted  acquisitions, customer agencies can obtain contracting services from other  agencies, whose contracting officers place and administer orders on the  customer agencies’ behalf. Assisted acquisitions can use interagency  acquisition agreements (IAA) to document and establish general terms and  conditions governing relationships between the customer agencies, which  need the goods or services, and the servicing agencies, which provide the  contracting services.
Responsibility for acquisition policy and management at State is shared by  two offices within the Bureau of Administration—the Office of the  Procurement Executive (OPE) and the Office of Acquisitions Management  (AQM), as shown in figure 1. OPE is responsible for establishing  acquisition policy at State. This responsibility includes prescribing and  implementing acquisition policies, regulations, and procedures; managing  State’s procurement reporting system; appointing contracting officers; and  establishing a system for measuring the performance of State contracting  offices. AQM is responsible for providing a full range of contracting  services to support activities across State, including acquisition planning,  contract negotiations, cost and price analysis, and contract administration.  Acquisition officials in OPE and AQM stated that they work closely on  many acquisition activities, but there is no direct reporting relationship  between the two.
While AQM is by far the largest contracting office within State, other  domestic bureaus and offices have varying degrees of contracting  authority. Additionally, 277 of State’s overseas posts have limited  authority to conduct contracting activities in support of the bureaus and  program office activities carried out at each location. Finally, two  additional contracting offices, known as Regional Procurement Support  Offices, report to AQM and provide contracting services to the overseas  posts. These offices operate as working capital funds, charging a fee to the  overseas posts and other organizations in exchange for providing  contracting services. In addition to AQM and its regional support offices,  only those bureaus and posts with contracting authority can conduct  direct interagency contracting. However, all bureaus and posts can use  assisted interagency contracting, relying on contracting officers at other  agencies to conduct procurements.
In response to an increase in the amount of acquisition dollars going to  contract servicing agencies, the Under Secretary of State for Management  issued a memorandum in May 2002 describing the State First policy. The  policy was incorporated into the Department of State Acquisition  Regulations (DOSAR) and clarified later by implementing guidance. This  policy directs domestic bureaus and offices to first use the services of  AQM or another appropriate State contracting activity before transferring  funds to another agency to conduct an acquisition. The policy states  further that domestic bureaus or offices may only transfer funds to  another agency for contracting services after obtaining a waiver from  AQM. Application of this policy is limited to assisted interagency  contracting actions. Instances in which a State contracting officer directly  places an order on another agency’s contract are not subject to the policy.  Additionally, the State First policy does not apply to assisted interagency  contracting activities conducted by overseas posts.
The State First policy instructs requesting bureaus to provide information  about the proposed interagency contract action, including a description of  the requirement and contracting services to be provided by the other  agency, the estimated dollar value, the number of option years, the reason  for using the other agency, and the amount of any surcharge or fee to be  charged by the other agency for its contracting services. AQM, in  consultation with OPE, is to review a bureau’s request and either issue a  waiver allowing it to proceed with the proposed interagency contracting  activity or decline the request and direct the bureau to the appropriate  State contracting office for assistance, as described in figure 2. The State  First policy also provides AQM with the authority to grant blanket waivers  for future acquisitions involving the same item so that bureaus do not need  to request an individual waiver each time they need to procure that item.  For instance, the policy cites the acquisition of ammunition through DOD  as an example of this type of recurring need that could be covered by a  blanket waiver.
section_title: State Has Limited Insight into Its Use of Interagency Contracting
paragraphs: The Department of State has limited insight into the extent to which it  uses interagency contracting. A key governmentwide data system does not  fully capture information on interagency contracting, and State’s internal  systems do not comprehensively track its use of these contracts. While  State reported to us over $800 million in direct and assisted interagency  contract actions in fiscal year 2006, these data were incomplete, and  reported data were missing basic information in many cases. We have  previously reported that the lack of reliable information on interagency  contracts inhibits agencies from making sound contracting decisions and  engaging in good management practices.
subsections: section_title: State Cannot Rely on Governmentwide or Internal Agency Data for a Comprehensive View of Its Use of Interagency Contracts
paragraphs: The Federal Procurement Data System-Next Generation (FPDS-NG), the  federal government’s primary database for procurement actions, is not a  reliable source of information on interagency contracts. We have reported  in the past on difficulties in obtaining data and generating reports on  interagency contracting using FPDS-NG. Similarly, the State Procurement  Executive explained to us that it is difficult to extract interagency  contracting data from FPDS-NG and that there is no single report that  comprehensively identifies uses of interagency contracting. For assisted  interagency actions, the servicing agency is responsible for entering data  into FPDS-NG, but such entries do not always indicate that actions involve  interagency contracts. If a contracting officer at another agency placed an  order for State, that agency—not State—would be responsible for  recording the order in FPDS-NG, and the fact that the order was done for  State would not necessarily be recorded. While the servicing agency can  enter a funding agency in FPDS-NG, it may identify itself as the funding  agency instead. For example, we identified records in FPDS-NG for certain  contract actions entered into by DOD for State that listed DOD as the  funding agency. A DOD official told us that once funds are transferred to  DOD, they lose their association with the funding agency. For direct  contract actions, in which State contracting officers placed the orders and  recorded the transactions in FPDS-NG, there is no data field that reliably  indicates that these actions involved an interagency contract.
In addition, State cannot rely on the data systems used by its central  procurement and financial offices to provide complete information on its  use of interagency contracting. AQM maintains a procurement data  system; however, bureau officials told us that not all bureaus with  contracting authority use this system and that assisted acquisitions where  the contracting officer is at another agency are not recorded in this  system. For example, a State official noted that a bureau that reported to  us significant use of assisted interagency contracting does not use this  system. The State Procurement Executive acknowledged the limitations of  this system, noting it would be difficult to use it to identify interagency  contracts. Further, State’s accounting system cannot be used to identify  many interagency contracting actions. State officials explained that for  direct actions, the accounting system does not record whether an  interagency contract was used. Similarly, the officials said that for assisted  actions, a “miscellaneous” data field that captures a variety of information  may, but does not always, indicate that the transfer of funds to another  agency is for a contract.
While State officials told us that the most reliable way to identify  interagency contract actions would be to request a list of these actions  from each bureau and overseas post, several bureaus and posts had  difficulty responding to our request for such information. For example,  one bureau, which has used assisted interagency contracts, noted that the  bureau had no reasonable means of obtaining information on its assisted  interagency contract actions. In some cases, bureaus did not have a  central point of contact responsible for tracking interagency contracts and  many bureaus reported reviewing paper files to assemble the requested  information on their assisted actions. Additionally, a procurement official  expressed concern about another bureau’s lack of information on  interagency contracts, noting that when she needed basic information,  such as the amounts obligated by the bureau on these contracts, she was  directed to the servicing agencies. Similar challenges were experienced in  2005 when State’s Office of Inspector General conducted a related review  and sought to identify bureaus’ use of interagency contracts. The official  who led that review told us he found that it was generally difficult for  bureaus to compile data on interagency contracts and that a number of  bureaus continually identified new contract actions throughout the course  of the review.
section_title: State-Reported Data on Interagency Contract Actions Were Incomplete, and Reported Actions Were Missing Information in Many Cases
paragraphs: In the absence of a data system that reliably identifies State’s interagency  contracts, we requested information on all interagency contract actions of  at least $25,000 conducted in fiscal year 2006 from 53 State bureaus and  overseas posts. Fifty-two of these bureaus and posts reported a total of  over $800 million in interagency actions—$577.2 million for direct actions  and $234.3 million for assisted actions (see app. II for more details on the  data reported to us by State). However, we found that at least 13 of these  bureaus provided incomplete data. In these cases, data from a servicing  agency or FPDS-NG indicated that a particular servicing agency assisted a  State bureau with interagency contracting in fiscal year 2006, but that  bureau did not report any actions with that servicing agency. Based on our  comparison of data State reported with data obtained from five servicing  agencies and FPDS-NG, we identified at least $186 million in assisted  interagency contracting that State did not report. Most notably, DOD  reported assisting State’s Bureau of Near Eastern Affairs in performing  nearly $144 million in contracting for logistics support in Iraq that was not  included in State’s data.
Furthermore, in many cases the interagency actions that were reported by  State were missing basic information that would be needed for managing  contracts and achieving good acquisition outcomes. For example, bureaus  were not always able to identify the contractor for particular actions, and  one bureau that reported over $26 million in assisted interagency  contracting was not able to provide us with the contract or order numbers  for many of the actions. Also, in some cases, obligation amounts reported  by bureaus differed widely from those reported by servicing agencies or in  FPDS-NG. For example, in one case, a State bureau reported placing over  $15 million on an assisted action, while the servicing agency reported  actions totaling $9.8 million on the same contract and order number. In  another case, a State bureau reported a lower dollar value than the  servicing agency, with State reporting a single action of $25,000 and the  servicing agency reporting multiple actions totaling $471,000 for the same  order. Because of such discrepancies, we were unable to verify the  accuracy of a significant portion of State’s reported data, particularly for  assisted actions.
section_title: A Lack of Comprehensive and Reliable Information Inhibits Agencies from Making Sound Contracting Decisions and Engaging in Good Management Practices
paragraphs: We have previously reported that agencies may not be able to make sound  contracting decisions or engage in good management practices without  comprehensive and reliable data on interagency contracting and the  related costs and fees. Without such data, agencies cannot conduct  analyses to determine if the use of such contracts is in their best interests  or if there are opportunities for savings. For example, we reported in 2005  that DOD had difficulty making informed decisions about the use of other  agencies’ contracting services because its financial systems did not collect  data on interagency contracting. In 2006, we also found that the  Department of Homeland Security (DHS) did not systematically monitor  its spending on interagency contracts. As a result, it did not know what  fees it was paying to other agencies to award contracts on its behalf and  whether it could achieve savings through alternative contracting  methods. Similarly, without access to complete and reliable data on its  use of interagency contracting, State does not have the information  needed to manage its use of interagency contracts to achieve good  outcomes and ensure that it is receiving value for fees it pays to other  agencies.
section_title: State Cannot Ensure That Decisions to Use Assisted Interagency Contracting Are Being Made by the Appropriate Acquisition Officials
paragraphs: Due to the way the State First policy has been implemented, State cannot  ensure that decisions to use assisted interagency contracts are being made  by OPE and AQM officials as called for by the policy. These acquisition  officials often lack awareness of or involvement in decisions to use  assisted interagency contracts for three main reasons. First, these officials  have broadly exempted a number of assisted interagency contracting  actions from the requirement to seek a State First waiver. Second, State’s  bureaus have varying interpretations of when they need to obtain waivers  for proposed assisted interagency contracting activities. Third, State  acquisition officials have no mechanism to ensure that bureaus comply  with the State First policy, relying primarily on the bureaus to voluntarily  submit requests for State First waivers.
subsections: section_title: Broad Exemptions Limit Ability to Evaluate the Use of Assisted Interagency Contracts
paragraphs: State acquisition officials have broadly exempted a number of assisted  interagency contracting actions from the State First waiver process. By  creating these broad exemptions, acquisition officials are not fully aware  of bureaus’ use of assisted interagency contracting. The exemptions apply  to bureaus that are among the largest users of assisted interagency  contracting.
OPE issued guidance in 2005 stating that the State First policy does not  apply to proposed funds transfers conducted under the Foreign Assistance  Act. The Procurement Executive explained to us that this exemption from  needing a waiver was intended to apply only to transfers of funds under  the Foreign Assistance Act where another agency was responsible for  carrying out the program. He said that bureaus should still seek State  First waivers when transferring funds under the Foreign Assistance Act if  the transfer is so the other agency can purchase goods or services for  State. However, AQM and some bureau officials have interpreted and  applied the guidance in a different way. The Director of AQM told us that  the exemption from needing a waiver applies to all actions—including  assisted interagency contracting—funded under the Foreign Assistance  Act. Officials in the bureaus of Diplomatic Security (DS) and International  Narcotics and Law Enforcement Affairs (INL) informed us that because  of this exemption they do not seek State First waivers for assisted contract  actions conducted under this Act. For example, officials in INL did not  seek a waiver for an order for aviation support, issued in 2006 by DOD on  their behalf and valued at approximately $51 million. Both DS and INL  reported using assisted interagency contracting extensively compared to  other bureaus, and DS and INL officials stated that the Foreign Assistance  Act is one of the chief authorities under which they transfer funds to  another agency for contracting services.
As a result of a series of decisions, acquisition officials have also  exempted a potentially large amount of DS’s assisted interagency  contracting activity from review under the State First policy. Following the  initial establishment of the State First policy, AQM exempted much of DS’s  assisted interagency contracting activity from the policy. Then in January  2006, acquisition officials met with bureau officials to clarify application of  the State First policy. Acquisition officials agreed to exempt assisted  interagency contracting activities carried out under existing interagency  acquisition agreements from review under the State First policy but  stipulated that new IAAs would need to be reviewed. A bureau official told  us that, at this meeting, she informed the acquisition officials that many of  the bureau’s IAAs with servicing agencies did not have expiration dates.  As a result, new requirements could continue to be fulfilled under existing  IAAs without State First review. For example, DS placed a new task order  in 2006 through another agency under an IAA signed in 2001—this order  was not reviewed under State First. While aware of DS’s exemption,  State’s Procurement Executive noted that the State First policy was  designed to review such task orders to ensure that using another agency’s  contracting services was in State’s best interest.
section_title: Bureaus Differ in When They Seek a State First Waiver
paragraphs: Bureaus within State have different interpretations of when they should  seek the approval of the appropriate acquisition officials to initiate  assisted interagency contracting activities. Some bureaus request State  First waivers for individual contract actions related to specific  requirements, such as issuing a new task order. In one case study we  reviewed involving the Bureau of Population, Refugees and Migration, a  program official sought a waiver under the State First policy to have  another agency issue a new contract action to continue fulfilling the  program’s requirements. Similarly, an INL program official sought a State  First waiver to use DOD’s contracting services to fulfill a new requirement,  prior to the 2005 exemption for Foreign Assistance Act activities.
DS, however, does not typically seek waivers under the State First policy  for individual task orders or requirements initiated under IAAs. Instead, it  is DS officials’ understanding that the overarching IAA with the servicing  agency, rather than the individual requirement, requires approval under  the State First policy. DS has used IAAs broadly to establish relationships  with other agencies and these IAAs can encompass many requirements,  multiple contract actions, and several fiscal years. This practice,  compounded by the exemption for DS’s IAAs entered into prior to 2006,  has precluded much of DS’s interagency contracting activity from review  under State First. Neither bureau officials nor acquisition officials  identified a process to review long-standing agreements over time to  determine whether changes have occurred or whether it is still  appropriate for State to continue paying another agency for contracting  support. For example, an IAA with one servicing agency was signed in  2001, and the servicing agency reported that it issued 128 new task orders  under this IAA between December 2001 and February 2008, none of which  was reviewed under State First. Because this IAA was never reassessed,  DS officials thought they were paying a 2.3 percent fee for all actions  under this agreement, but the actual fee charged had been raised since  2001. Based on our analysis of servicing agency data, since October 2004,  the average fee paid across all contract actions under this IAA was  3.3 percent—meaning State paid almost $160,000 more in fees than DS  officials thought they were paying.
section_title: Acquisition Officials Lack Mechanisms to Monitor Compliance with the State First Policy
paragraphs: State acquisition officials do not have mechanisms in place to ensure that  bureaus are complying with the State First policy. According to the  acquisition officials, they do not monitor compliance and are reliant on  bureaus to voluntarily request waivers before using assisted interagency  contracts. In the absence of such requests, they have no other way to  obtain reliable information about bureaus’ use of assisted interagency  contracts. For instance, because State does not comprehensively track its  use of interagency contracting, acquisition officials cannot conduct  queries to identify actions that should have been reviewed under State  First. Further, they have no way to determine the extent to which bureaus  have conducted procurements under various exemptions or whether  bureaus have applied the exemptions appropriately. As a result,  acquisition officials cannot independently determine whether the  five waivers requested in fiscal year 2006 were an accurate reflection of  assisted interagency contracting for that year.
Problems with State First compliance have previously been reported. In  2005, the State Inspector General found that 16 of the 19 domestic bureaus  and offices included in its review did not comply with the policy. The  State Inspector General also reported that budget and financial officers in  9 of the 19 bureaus and offices indicated that they had no knowledge of  the State First policy or its requirements. The State Inspector General  noted that better compliance with State First could result in lower  contract costs and the more economical utilization of administrative costs  associated with the contracts. The Procurement Executive issued  additional guidance on the State First policy as a result of the Inspector  General’s findings but informed us that acquisition officials have not  reviewed compliance since then to determine if compliance has improved.  Officials in AQM said they believe the State Inspector General reviews  compliance with the policy as part of its regular bureau inspections.  However, an official from the State Inspector General’s office said that this  is not part of the office’s routine monitoring activities.
section_title: State’s Policies Do Not Ensure Contract Oversight for Assisted Interagency Contracts
paragraphs: State’s policies do not ensure that responsibilities for overseeing  contractor performance on its assisted interagency contracts are assigned  to appropriately trained individuals. Contracting officers’ representatives  (COR) play a key role at State in overseeing contractor performance,  although the decision of whether to appoint a COR is at the contracting  officer’s discretion. When CORs are appointed by State contracting  officers, State acquisition regulations require contracting officers to  outline the scope of the COR’s authority in an appointment memorandum  to be maintained in the contract file. These regulations further specify  that only State employees with adequate training and experience may  serve as CORs on contract actions awarded by State contracting officers, a  stipulation that would include actions under direct interagency  contracting. According to State guidance, a COR is responsible for several  functions related to oversight of contractor performance, including    monitoring technical progress and the expenditures of resources related to  the contract;  informing the contracting officer, in writing, of any performance or  schedule failure by the contractor or of any needed changes to the  performance work statement or specifications; and    performing inspection and accepting work on behalf of the U.S.  government and reviewing and approving the contractor’s vouchers or  invoices.
State acquisition regulations, however, do not contain requirements or  guidance regarding the assignment or training of CORs when using  assisted interagency contracting. For assisted contracting actions, State’s  acquisition officials view it as solely the servicing agency’s duty to ensure  contractor oversight, rather than a responsibility that all involved parties  share. Because State does not have requirements in place to ensure the  assignment of appropriately trained oversight personnel, effective  oversight depends on factors outside of State’s direct control. These  factors include the rigor of a particular servicing agency’s policies and  procedures and the involvement of State personnel who happen to be  experienced and knowledgeable.
In most of the seven cases of assisted interagency contracting we  reviewed, the State personnel who performed oversight duties had  programmatic knowledge and experience related to the requirements  being fulfilled. However, servicing agency practices differed regarding  COR designation and training. The State personnel assigned by the  servicing agencies to oversee contractor performance had not always  received training related to contract oversight or had their roles clearly  designated. In three cases we reviewed, the servicing agencies took steps  to ensure that oversight personnel were aware of their roles and  responsibilities and had obtained the requisite training. In two other cases,  the servicing agencies did not designate CORs, although State program  officials were assigned some oversight responsibilities. In the first of these  instances, the State program official told us she had already taken  contract-related training. In the other instance, however, the State official  had not received training related to contract oversight and explained to us  that she often did not understand the documents the servicing agency  asked her to sign, particularly with regard to the contracting terminology.  Finally, in the last two cases, the servicing agencies designated State  personnel as CORs but did not ensure that they received required training  associated with these oversight responsibilities.
In one of the cases we reviewed where the designated COR had not  received required training, the servicing agency also did not keep COR  designations up to date. The contracting officer at the servicing agency  was not aware that the COR and other oversight personnel were no longer  employed at State. In addition, the COR stated that he did not play a role in  monitoring the time sheets or attendance of contract personnel, or  providing performance feedback to the contracting officer. The official  explained that, while he worked with the contractor to address any  deficiencies related to performance, another official, who told us she had  received COR training but who was not designated as the COR for the  order, verified the accuracy of invoices. Ensuring the designation of  appropriately trained CORs was particularly important for this order  because it was a time-and-materials type contract, as were five of the six  other assisted actions we reviewed. Time-and-materials contracts are  considered high risk for the government because they offer no profit  incentive to the contractor for cost control or labor efficiency. Therefore,  it is important for the government to monitor contractor performance to  ensure that the contractor is efficiently performing the work and  effectively controlling costs.
We and others have previously reported on problems with oversight of  interagency contracting, including the risks of not clearly designating  individuals responsible for providing oversight of contractor performance  and of not ensuring that these individuals are properly trained to perform  their duties. For instance, we reported that when the Army purchased  interrogation support services through the Department of the Interior  (Interior), Army personnel in Iraq responsible for overseeing contractor  performance were not adequately trained to exercise their responsibilities.  In this case, an Army investigative report concluded that the lack of  training for the CORs assigned to monitor contractor performance at Abu  Ghraib prison, as well as an inadequate number of assigned CORs, put the  Army at risk of being unable to control poor performance or become  aware of possible misconduct by contractor personnel. In 2007, the DOD  Inspector General reported that DOD organizations were deficient in  contract administration, including the surveillance of contractor  performance and assignment of CORs when they made purchases through  the Department of Veterans Affairs. The DOD Inspector General noted that  interagency contracting requires strong internal controls, clear definition  of roles and responsibilities, and sufficient training of both servicing and  requesting activities personnel. In 2005, the State Inspector General  identified problems associated with the oversight of assisted interagency  contracts, noting the lack of documentation of activities to determine  whether the contractor provided the specified deliverables.
section_title: Conclusions
paragraphs: Lacking information about the extent to which it uses interagency  contracts, State is not positioned to make informed decisions about  whether and when additional scrutiny, oversight, or other actions are  necessary to ensure State’s interests are protected. The State First policy,  put in place before other agencies widely reported the risks of interagency  contracting, provided State with an opportunity to gain increased insight  and control over when and how the department uses and pays for other  agencies’ contracts and contracting support. However, subsequent  exemptions, varying interpretations, and a lack of compliance monitoring  of the State First policy have significantly limited that opportunity and  restricted the ability of acquisition officials to manage State’s use of  interagency contracts and the associated risks. Properly trained personnel  are best positioned to oversee the delivery of goods and services,  regardless of what agency placed the order. Yet State has not taken steps  to ensure that such personnel are in place, which has exposed State to the  same risks faced by other agencies. Due to the critical nature of State’s  mission and the importance of contract support to fulfilling this mission,  State cannot afford to abdicate responsibility for ensuring good acquisition  outcomes, even when the contracting officer is at another agency.
section_title: Recommendations for Executive Action
paragraphs: To enable State to improve its management of interagency contracting, we  recommend that the Secretary of State direct the Office of the  Procurement Executive to take the following three actions:    Develop, in consultation with the bureaus, a reliable means for tracking  the use of interagency contracts so that the bureaus and acquisition  officials can readily and reliably access data, such as the costs and  associated fees. Analysis of such data could also be used to assess  whether the State First process provides an accurate reflection of bureaus’  use of assisted interagency contracting.
Work with the Office of Acquisitions Management, in coordination with  the bureaus that make the most use of assisted interagency contracts, to  clarify and refine the State First policy, including existing exemptions, and  provide additional guidance as needed regarding which actions need  review under the policy.
Require bureaus seeking a State First waiver to identify in their request  individual(s) who will be responsible for contract oversight and ensure  they are trained to perform this key role.
section_title: Agency Comments
paragraphs: We provided a draft of this report to State for review and comment. In its  written comments, State noted that the report captures the challenges  posed by interagency contracting and agreed to implement the three  recommendations. State’s comments are reprinted in their entirety in  appendix III. State officials also provided technical comments that were  incorporated where appropriate.
We are sending copies of this report to interested congressional  committees as well as the Secretary of State and the Director, Office of  Management and Budget. In addition, this report will be made available at  no charge on the GAO Web site at http://www.gao.gov.
If you or your staff have any questions about this report or need additional  information, please contact me at (202) 512-4841 or huttonj@gao.gov.  Contact points for our Offices of Congressional Relations and Public  Affairs may be found on the last page of this report. GAO staff who made  major contributions to this report are listed in appendix IV.
section_title: Appendix I: Scope and Methodology
paragraphs: Our objectives were to evaluate (1) the extent to which State has insight  into its use of interagency contracting; (2) State’s policies and procedures  for deciding when to use assisted interagency contracting; and (3) State’s  ability to ensure oversight of assisted interagency contracting. For the  purposes of this review, we defined interagency contracting as including  both direct actions (orders placed by one agency’s contracting officers on  another agency’s contracts) and assisted actions (obtaining contract  support services from other agencies).
To evaluate the extent to which State has insight into its use of  interagency contracting, we initially attempted to identify data systems  that would provide reliable information on State’s use of interagency  contracting. In consultation with senior acquisition officials at State, we  determined that such information could not be obtained from existing data  systems. We then requested data from 35 bureaus, as well as 18 of State’s  277 overseas posts with authority to conduct contracting activities, on  fiscal year 2006 purchases of at least $25,000 made through both types of  interagency contracts. We received responses from 34 of the 35 bureaus  and all 18 posts. Because data submitted by State bureaus and posts were  compiled by staff in various positions, we requested that the executive  directors of the bureaus and the general services officers (GSO) of the  overseas posts confirm that the data submitted on behalf of their bureaus  or posts were complete and accurate. We received confirmations from  46 executive directors and GSOs; the remaining 6 did not respond to our  request for confirmation. To assess the reliability of the assisted actions  reported to us by State, we compared State’s data with similar data we  requested and received from five servicing agencies—the General Services  Administration (GSA), Interior, the Department of the Treasury  (Treasury), the National Institutes of Health (NIH), and two Army  commands. These five servicing agencies represented 86 percent of the  dollar value of assisted actions reported to us by State. In addition, we  compared both direct and assisted actions reported by State with data  maintained in FPDS-NG. We considered a State reported action to be  verified if an action with the same contract and order number, and a dollar  value difference within 7 percent, could be found in either FPDS-NG or in  data reported by a servicing agency. In addition, actions that were  reported by State, but not within the scope of our work, were removed  from the final data. Duplicate actions—such as those reported by both the  Office of Acquisitions Management and the requiring bureau—were also  deleted from the final data. After conducting extensive work to ensure the  consistency of the data, we determined our final data set to be sufficient  for our purposes. Because this was not an audit of the servicing agencies  or FPDS-NG, we used data from these sources only as a point of  comparison with State-reported data and did not attempt to verify these  data.
To evaluate State’s policies and procedures for deciding when to use  assisted interagency contracting and State’s ability to ensure oversight of  assisted interagency contracting, we conducted 10 case studies of  interagency contracting at State. Using the fiscal year 2006 data reported  to us by State and the servicing agencies, as well as our preliminary  research, we selected 10 cases to represent a range of characteristics, as  shown in table 1. Three of the 10 cases were direct interagency actions,  where contracting officers at State’s Office of Acquisitions Management  placed orders off of other agencies’ contracts on behalf of State bureaus.  The other seven consisted of assisted interagency actions, where State  utilized contracting officers at the servicing agencies to place and  administer orders on State’s behalf. In addition, cases were selected to  examine a variety of bureaus within State as well as a variety of servicing  agencies. Our 10 cases represented 8 State bureaus and 5 servicing  agencies. We did not include interagency contracting at overseas posts  because the State First policy does not apply to overseas posts. For each  case, we reviewed contract documentation from State, the servicing  agency, or both. We also interviewed relevant officials including  contracting officers, individuals performing contract oversight, and other  program officials as necessary. Finally, we reviewed State acquisition  regulations, policies, and guidance and interviewed agency officials to  understand their implementation. We also reviewed relevant GAO and  Inspectors General reports.
We conducted this performance audit from June 2007 to May 2008 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.
section_title: Appendix II: State’s Use of Interagency Contracting in Fiscal Year 2006
paragraphs: We requested data on direct and assisted interagency contract actions of  at least $25,000 in fiscal year 2006 from 35 State bureaus and 18 overseas  posts. All but one bureau and all 18 posts responded to our data request.  According to data these State bureaus and posts reported to us, State  conducted over $800 million in interagency contracting in fiscal year  2006—$577.2 million for direct actions and $234.3 million for assisted  actions.
For direct actions, State reported the following:    94 percent of the dollar value of these actions was conducted by the Office  of Acquisitions Management on behalf of 35 bureaus and several overseas  posts.    98 percent of the reported dollars for direct actions in fiscal year 2006  were placed on GSA contracts, including schedule contracts.
Other actions included orders placed through NIH, National Aeronautics  and Space Administration, and DOD contracts, among others.
For assisted actions, State reported the following:    Assisted actions were concentrated in less than a third of the bureaus and  overseas posts that responded to our data request—of the 52 bureaus and  posts that submitted data, only 16 reported assisted actions in fiscal year  2006.
The most extensive users of assisted interagency contracting in fiscal year  2006 included the bureaus of  International Narcotics and Law Enforcement Affairs, which reported  $95.3 million;  Information Resource Management, which reported $72.6 million;    Diplomatic Security, which reported $26.5 million; and    Consular Affairs, which reported $12 million.
The 16 bureaus that made use of assisted interagency contracting  conducted these actions through several different servicing agencies,  including GSA, DHS, Interior, Treasury, NIH, and others. Approximately  47 percent of the dollar value of assisted actions reported by these bureaus  was placed by DOD on State’s behalf (see fig. 3).
section_title: Appendix III: Comments from the Department of State
section_title: Appendix IV: GAO Contacts and Staff Acknowledgments
subsections: section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Johana R. Ayers, Assistant  Director; Noah Bleicher; Greg Campbell; Theresa Chen; Alexandra Dew;  Timothy DiNapoli; Kathryn Edelman; Arthur James, Jr.; Julia Kennon; and  Winnie Tsen made key contributions to this report.