Army Corps of Engineers: Recent Changes Have Reduced the Use of Continuing Contracts, but Management Processes Need to Be Improved
Published: 2009-06-22T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The U.S. Army Corps of Engineers (Corps) has had the authority to award multiyear contracts--continuing contracts--without having received appropriations to cover the full contract amount. In 2006, Congress limited the Corps' use of such contracts by prohibiting obligations made in advance of appropriations. In response, the Corps developed a new clause that stopped work once funding for a fiscal year was expended. GAO was mandated to examine (1) the accuracy of the Corps' fiscal years 2007 and 2008 quarterly reports to Congress about continuing contracts that included the new clause, (2) the extent to which the Corps' use of continuing contacts with the new clause may have affected its execution of the Civil Works program during this time, and (3) the extent to which the Corps followed legal procedures in implementing the new clause. To conduct this work, GAO reviewed Corps documents, such as its quarterly reports and bid protests, federal procurement laws, and interviewed officials.
section_title: What GAO Found
paragraphs: The Corps' quarterly reports to Congress for fiscal years 2007 and 2008 about continuing contracts with the new clause were inaccurate. According to the reports, the Corps awarded 21 new continuing contracts during fiscal years 2007 to 2008: 9 for construction and 12 for operations and maintenance, ranging in value from $2.1 million to $341.5 million, for a total value of about $811 million. However, GAO found that some continuing contracts were double-counted, while others were missing from the reports. GAO also found other types of errors, such as a fully funded contract that was incorrectly included in the quarterly report as a continuing contract. These errors raise questions about the accuracy of the reports. GAO identified similar inaccuracies in the Corps' quarterly reports during its 2006 review and at that time recommended that the Corps develop a tracking system to monitor its use of these contracts. While the Corps believes its system of asking divisions to provide information on a quarterly basis is sufficient for tracking continuing contracts, GAO disagrees. Without a tracking system supported by sufficient internal controls to ensure accuracy, errors can persist in the information provided to Congress. The Corps' use of the new clause has generally not affected the agency's ability to execute its Civil Works program. The Corps decreased its use of continuing contracts beginning around the time that the new clause was initiated. However, while acknowledging that the transition to the new clause created some initial difficulties that have since been overcome, Corp officials did not provide any examples of work being stopped on a project because funds were not available. The Corps did not comply with a legal requirement in implementing the new clause, resulting in some districts' reluctance to use it. Section 22 of the Office of Federal Procurement Policy Act (OFPP Act) generally provides that no procurement regulation that has a significant effect beyond the internal operating procedures of the agency or a significant cost on contractors or offerors may take effect until 60 days after the procurement regulation is published for comment in the Federal Register. This requirement may be waived in urgent and compelling circumstances; however, the regulation must still be published in the Federal Register stating that it is temporary and providing for a public comment period of 30 days. Although the Corps has requested approval since 2006 from the Department of the Army and the Department of Defense, as it is required to, the clause has never been published and the Corps has continued to use it. GAO believes that the Corps' argument that its pursuit of publication satisfies the statute is unpersuasive. Moreover, GAO spoke with Corps officials from districts and divisions who expressed concern about using the clause prior to its publication. Specifically, they are concerned that using the clause could subject the Corps to legal challenges, such as bid protests, and that such potential challenges could delay projects and increase their costs.

section_title: Letter
paragraphs: Congress provides the U.S. Army Corps of Engineers’ (Corps) Civil Works  program with funding each year to plan, construct, operate, and maintain a  wide range of water resource projects. Congress appropriated over $5  billion for such projects in fiscal year 2007 and again in fiscal year 2008.  The Corps relies on contractors to construct many of these projects, which  often take more than 1 fiscal year to complete. Generally, federal agencies  are required to obligate appropriations for the full cost of a contract at the  time of award (i.e., they must fully fund the contract). However, from  1922 to 2005, an Army policy allowed the Corps to enter into, and commit  the federal government for the full amount of, contracts that spanned  more than 1 fiscal year (called “continuing contracts”), even though the  Corps may not have received appropriations to cover the full contract  amount at the time the contracts were awarded. More specifically, since  1977, these continuing contracts contained a clause that allowed  contractors to continue working even when appropriated funds were not  available. In such cases, the Corps would be committed to pay the  contractor, with interest, when funding became available—in effect,  obligating Congress to fully fund a project even though sufficient funds  had not been appropriated for it. During fiscal years 2003 through 2005,  the Corps’ routine practice was to use continuing contracts for most of the contracts it awarded, in part, because of the Corps’ interpretation of a  provision in the Water Resources Development Act of 1999 that required  the Corps to use continuing contracts for certain projects if sufficient  funding was not available to complete the project. As a result, as we  reported in 2006, the Corps was frequently awarding continuing contracts  for short-term, low-dollar-value contracts that could have been fully  funded. For example, we found in 2006 that 39 continuing contracts in  fiscal years 2003 through 2005 had been awarded for work that lasted 6  months or less, and 34 continuing contracts had been awarded during this  time that had a value of less than $1 million.
In our 2006 report, we also reported that the Corps’ quarterly reports to  Congress on the agency’s use of continuing contracts frequently contained  inaccuracies and that the Corps lacked a system for tracking these  contracts. As a result, we recommended that the Corps develop a tracking  system to monitor the use of its continuing contracts. The Corps agreed  with our recommendation and told us that it would, among other things,  establish an automated tracking system and implement it in fiscal year  2007. Also, at the time of our review, the Energy and Water Development  Appropriations Act of 2006 restricted the way the Corps could use  continuing contracts by prohibiting it from awarding or modifying existing  continuing contracts when doing so would commit an amount in excess of  the amount provided to a project. To ensure compliance with this  restriction, the Corps developed a new clause for continuing contracts that  specifically requires contractors to stop work once they have expended  the funding set aside for the fiscal year.
A joint explanatory statement accompanying the fiscal year 2008  Consolidated Appropriations Act directed us to review the continuing  contracts that the Corps has awarded using the new clause. In response,  this report examines (1) the accuracy of the information in the Corps’  fiscal years 2007 and 2008 quarterly reports to Congress about continuing  contracts that included the new clause, (2) the extent to which the Corps’  use of continuing contracts with the new clause may have affected its  execution of the Civil Works program during this time, and (3) the extent  to which the Corps followed legal procedures in implementing the new  clause.
To determine the accuracy of the information the Corps reported to  Congress, we reviewed the agency’s quarterly reports to Congress for  fiscal years 2007 and 2008. We compared the information on the number,  type, and dollar value of continuing contracts in the reports with  information from a Corps database and the results of interviews with  officials from a nonprobability sample of 6 of the 38 districts and two of  the eight divisions. To obtain information about the extent to which the  Corps’ use of continuing contracts that included the new clause may have  affected its Civil Works program, we interviewed district and division  officials at these same locations, as well as Corps headquarters officials.  To assess the Corps’ process for implementing the new continuing  contracts clause, we reviewed federal procurement laws related to the  Corps’ issuance and use of the new continuing contract clause. In addition,  we interviewed selected district and division officials to understand the  process that the Corps used to develop and implement the new continuing  contracts clause and obtain their views on the issue. We also contacted the  Corps’ Office of the Chief Counsel to obtain the Corps’ legal position on  the extent to which the Corps has met the requirements of federal  procurement law, and reviewed its response and supporting  documentation. Finally, we examined three bid protests, and the Corps’  responses to these protests, concerning solicitations issued from fiscal  years 2006 through 2008, that alleged, among other things, that the new  clause was not published in the Federal Register as required by law.  Appendix I contains a more detailed discussion of our scope and  methodology. We conducted this performance audit from September 2008  to June 2009 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: Under its Civil Works program, the Department of Defense’s (DOD) U.S.  Army Corps of Engineers plans, constructs, operates, and maintains a  wide range of water resources projects. In addition to its headquarters in  Washington, D.C., the Corps has eight regional divisions and 38 districts  that carry out its domestic civil works responsibilities (see fig. 1).
Corps headquarters primarily develops policies and plans the future  direction of the organization; divisions coordinate the districts’ projects;  and the districts plan and implement the projects, which are approved by  the divisions and headquarters. Water resource projects are generally very  large undertakings that often take more than a single fiscal year to  complete. Moreover, the timing of these projects is often dictated by  weather conditions or environmental concerns. For example, many  dredging projects take place during the winter months because  environmental concerns limit dredging operations during the spring and  summer (March through September) to protect various species, such as  threatened and endangered turtles.
Congress appropriates about $5 billion annually to the Corps to carry out  its Civil Works program. Federal agencies generally receive annual  appropriations (also called fiscal year or 1-year appropriations) that are  made for a specified fiscal year. These appropriations are available for  obligation—legal commitment by the government for the payment of  goods and services ordered or received—only for the bona fide needs of  the fiscal year for which they were appropriated. If an agency fails to  obligate its annual funds by the end of the fiscal year for which they were  appropriated, the funds cease to be available to the agency for new  obligations. They are referred to as “expired” and, after 5 years, are  returned to the U.S. Treasury. In contrast, the Corps receives “no-year”  appropriations through the Energy and Water Development  Appropriations Act—that is, there are no time limits on when the funds  may be obligated or expended, and the funds remain available for their  original purposes until expended. The majority of the Corps’ Civil Works  appropriations are generally directed to two types of activities: (1)  operations and maintenance and (2) construction. Operations and  maintenance activities include the preservation, operation, and  maintenance of existing rivers and harbors. Construction activities include  construction and major rehabilitation projects related to navigation, flood  control, water supply, hydroelectric power, and environmental restoration.
section_title: The Corps’ Quarterly Reports to Congress Contained Inaccurate Information on the Use of Continuing Contracts with the New Clause
paragraphs: The Corps’ fiscal years 2007 and 2008 quarterly reports to Congress on  continuing contracts awarded with the new clause contained inaccurate  information. According to these reports, the Corps awarded 21 new  continuing contracts during this time: 9 for construction and 12 for  operations and maintenance, ranging in value from $2.1 million to $341.5  million, for a total of about $811 million. However, we found that some  continuing contracts were double-counted, while others were omitted  from the reports. For example, two contracts were first reported to  Congress as new continuing contracts at the end of fiscal year 2007. The  Corps then reported the same two contracts in the first quarter of fiscal  year 2008, marking them as “not reported” in the prior fiscal year. In  addition, we identified two continuing contracts totaling approximately  $48 million that should have been included as new awards in the Corps’  quarterly reports but were omitted. Corps officials confirmed that these  were indeed new continuing contracts that should have been included in  the reports. Both types of errors impacted the total number and value of  the continuing contracts with the new clause that were reported to  Congress as having been awarded during this 2-year period. We also  identified other types of errors that did not affect the overall totals of new  contracts or their value but, nevertheless, raise questions about the  accuracy of the information that the Corps is providing to Congress. For  example, when we asked Corps officials in one district to verify  information about the continuing contracts they had awarded in fiscal  years 2007 and 2008, they provided us with documentation that showed  that one contract that had been incorrectly included in the Corps’  quarterly report to Congress as a continuing contract was actually a fully  funded contract. In addition, four new continuing contracts were not  initially reported as new in the quarterly reports covering their award  periods; instead, three were reported in a later quarterly report and one  was reported earlier. Similarly, we found that two fully funded contracts  were incorrectly included in the 2007 quarterly reports as existing  continuing contracts.
The Corps’ failure to accurately report to Congress the number of  continuing contracts it awards is a problem that we previously identified  in 2006, and at that time, we recommended that the Corps develop an  appropriate tracking system for these contracts. Although the Corps  concurred at the time, Corps officials told us that the agency had not  developed a tracking system as we had recommended because it believed  its system of asking divisions to provide information on a quarterly basis  was sufficient for tracking the use of continuing contracts. These officials  also told us that the agency had issued a 2007 guidance document that  provided instructions to the districts for making submissions for the  quarterly reports to Congress. In light of the inaccuracies we identified in  the quarterly reports to Congress, we do not believe that the Corps  quarterly data calls constitute a systematic tracking system for continuing  contracts that we recommended in 2006; therefore, we believe that our  2006 recommendation has not yet been implemented by the agency.  According to our Standards for Internal Control in the Federal  Government, managers are to “complete, within established time frames,  all actions that correct or otherwise resolve the matters brought to  management’s attention.” We believe that the Corps’ inaction on our  recommendation has led to a lack of internal controls that has contributed  to persistent errors on the part of the agency in reporting to Congress on  its use of continuing contracts.
section_title: Overall, the Use of the New Continuing Contracts Clause Has Not Affected Execution of the Civil Works Program
paragraphs: As a result of the limits that Congress has placed on the Corps’ use of  continuing contracts in recent years, the Corps has issued guidance and  made several modifications to its policies that govern the Civil Works  program. While these changes, taken together, have resulted in a decrease  in the number of continuing contracts that the Corps has awarded, they  have not significantly affected the agency’s ability to execute its Civil  Works program. Specifically, the committee report accompanying the  Corps’ fiscal year 2005 appropriations expressed concern about the Corps’  use of continuing contracts and noted that the purpose of continuing  contracts was to enable the Corps, in awarding contracts for the  components of large construction projects, to take advantage of  economies of scale and efficiently manage these large components over  several years. In enacting the Energy and Water Development  Appropriations Act of 2006, Congress provided specific direction to the  Corps regarding its use of continuing contracts. The law states, among  other things, that with certain exceptions, none of the funds made  available in the act may be used to award any continuing contract, or  make modifications to any existing continuing contract, that commits an  amount for a project in excess of the amount provided for the project.
To help ensure that it met these new congressional requirements, the  Corps issued guidance in fiscal year 2006 that, among other things,    directed that districts use fully funded contracts as their primary  contracting option and that continuing contracts be used only as the  contracting option of last resort;   summarized new information that the districts are required to provide in  their requests to use continuing contracts, including an explanation of why  using a continuing contract is in the best interest of the government; and    directed districts to take measures to ensure that contractor costs do not  exceed the amount provided for projects.
Also, in response to these new congressional requirements, that same  year, the Corps developed a new clause for continuing contracts that  specifically required contractors to stop work once they had expended the  funding set aside for the fiscal year. In addition, the Corps established  certain criteria for the use of continuing contracts for operations and  maintenance projects. The Assistant Secretary of the Army for Civil Works  preapproved certain requests for operations and maintenance continuing  contracts if the contracts met five conditions. In response, the Corps  issued guidance to the divisions reiterating these conditions. These  conditions included that (1) the contract was financed from the Corps’  operations and maintenance account and (2) the work could not be  broken down into smaller increments that could be fully funded within the  current fiscal year. The following fiscal year, the Corps also established  certain criteria for continuing contracts for construction projects.  Specifically, using continuing contracts for construction activities was to  be considered only if the contract was for more than $10 million and the  work could not be completed in a single fiscal year. The Corps also  required that requests for using continuing contracts, other than  continuing contracts that had been preapproved, be approved at the  Assistant Secretary level.
While the Corps quarterly reports to Congress cannot be fully relied on for  accurate information on the number and value of continuing contracts  awarded with the new clause, they do provide a reasonable sense of the  overall direction of the use of such contracts. In 2006, we reported that the  Corps, on average, awarded about 500 continuing contracts per year for  fiscal years 2003 through 2005. The 2007 and 2008 quarterly reports to  Congress indicate that the number of continuing contracts with the new  clause has reduced considerably and may average only about 10 per year  for fiscal years 2007 and 2008.
The decreased use of continuing contracts, and the use of the new clause,  does not appear to have significantly affected the Corps’ Civil Works  program. While the Corps has not established metrics to evaluate the  impacts of this change, district officials we spoke with told us that they  believe that the new continuing contracts clause has had little, if any,  impact on their ability to accomplish the Civil Works mission of the  agency. For example, several Corps district officials we interviewed said  that while there were some temporary difficulties in executing their  projects when the new clause was first implemented, their ability to  conduct their work has not been adversely affected. Specifically, these  officials told us that the combined effect of the requirement to fully fund  contracts and the lack of sufficient funds in 2007, when the new clause  was first implemented, led them to award fewer contracts at that time, and  some project starts were delayed until the following fiscal year. These  officials did not provide any examples, however, of where work on a  project was stopped because funds were not available. Since that time,  however, they have adjusted to the changes and have resumed their  normal level of contract activity.
Corps officials also told us that, in general, the recent changes, including  the new clause, have had some positive effects on contract management,  including the following:    Contracts that are fully funded, as well as continuing contracts that use  the new clause, provide officials more certainty in managing their funds.  For example, the Corps no longer has to search for funds each year to  meet the obligations created when contractors would work after the  amount appropriated for a fiscal year was exhausted.
Contract management has become easier for Corps officials, whether they  fully fund contracts or use continuing contracts with the new clause,  because fewer contract modifications are likely, and the contractor is  restricted to the work specified in the contract.
Notwithstanding these positive effects, some district officials also told us  that having the flexibility to use continuing contracts as they were  previously used, as opposed to fully funding contracts, would be useful for  some large, longer-term projects, such as lock and dam projects, which  require millions of dollars and multiple fiscal years to complete. According  to these officials, if such projects are fully funded, large amounts of  unexpended appropriations would be carried over for several fiscal years.  For example, a 5-year, $200 million contract that required only $75 million  in its first year would require carrying over the remaining $125 million into  subsequent fiscal years until the funds were expended. Since the $125  million would already have been obligated to the contract at award, it  would not be available to be used on other contracts. If such projects were  funded using continuing contracts as they were previously used, the Corps  would allocate the entire contract amount at the time of award, but would  obligate only the amount of funds that would be needed to cover the first  year of the contract. The remaining funds not needed during the first year  would be available to be used on other contracts. As a result, these  officials told us that the restrictions placed on the use of continuing  contracts in recent years may have made execution of some projects  somewhat less efficient and more costly, although they could not provide  us any specific examples of this having occurred. Corps headquarters  officials generally disagreed with this position. According to these  officials, over time, the Corps could complete the same number of projects  even if they were fully funded, as opposed to using continuing contracts as  they were previously used.
Corp headquarters officials did tell us, however, that there is some value in  having the ability to use continuing contracts as they were previously used  for a few projects. Specifically, as previously used, continuing contracts  obligated the Corps for the full amount of the contract at the date of the  award. According to these officials, in practical terms, this means that the  contractor does not have to wait for the Corps to provide the money in  order to make large investments, such as ordering prefabricated materials  and buying raw materials like steel. This flexibility on timing realized  under the previous use of continuing contracts therefore provided  contractors the ability to reap the benefits of economies of scale when  purchasing materials in bulk.
section_title: The Corps Did Not Comply with a Legal Requirement in Implementing the New Continuing Contracts Clause
paragraphs: In implementing the new continuing contracts clause, the Corps did not  comply with a legal requirement and, as a result, some districts are  reluctant to use it when awarding contracts. Specifically, the Corps has  been using the new continuing contracts clause prior to its publication in  the Federal Register for public comment, in violation of section 22 of the  Office of Federal Procurement Policy Act (OFPP Act), 41 U.S.C.§ 418b.  This section of the act generally provides that no procurement regulation  relating to the expenditure of appropriated funds that has a significant  effect beyond the internal operating procedures of the agency or a  significant cost or administrative impact on contractors or offerors may  take effect until 60 days after the procurement regulation is published for  public comment in the Federal Register. This requirement for advance  comment may be waived if urgent and compelling circumstances make  compliance impracticable; in such cases, a procurement regulation shall  be effective on a temporary basis if a notice of the regulation is published  in the Federal Register stating that it is temporary and providing for a  public comment period of 30 days. After considering the comments  received, the agency may issue the final procurement regulation. Courts  have held that the failure to comply with section 22 renders the proposed  procurement regulation without effect.
In spring 2006, the Corps waived the requirement to obtain advance  comments on the new clause based on urgent and compelling  circumstances and sent a request for publication of the clause to the  Department of the Army. The Corps is required to obtain approval from  the Department of the Army and DOD prior to publication of a change that  has a significant effect beyond the internal operating procedures of the  agency, such as the new continuing contracts clause. Over the  intervening months and years, the Corps has submitted multiple iterations  of the request for publication to the Army. These requests have moved  among the Army, DOD, and the Office of Management and Budget, but the  Corps has not yet received confirmation of approval from DOD, and the  clause has never been published in the Federal Register. The Corps’ use of  the new clause for more than 3 years prior to its having been published in  the Federal Register for public comment does not meet the requirements  of section 22 of the OFPP Act. The Corps’ argument that its use of the new  clause complies with the statute because it has been pursuing publication  through the Army and DOD as required is, in our view, unpersuasive. The  relevant provision states that new procurement regulations may only take  effect if a Federal Register notice “is published,” not while publication is  being pursued. The Corps’ interpretation also ignores the requirement for  a minimum public comment period of 30 days after the notice is  published—to date, no public comment period whatsoever has been  provided.
Corps officials from the districts and divisions with whom we spoke  expressed concern about the Corps’ use of the new clause without its  having been published in the Federal Register. According to these  officials, because this legal requirement has not been met, they are  concerned that using the new clause could subject the Corps to legal  challenges such as bid protests. Such potential legal challenges could  prolong projects and increase their costs.
We identified three solicitations for continuing contracts with the new  clause issued from fiscal years 2006 through 2008 that did result in bid  protests. These protests alleged, among other things, that the Corps’ use of  the new continuing contracts clause prior to providing an opportunity for  public notice and comment violated the OFPP Act. These protests were  withdrawn when the Corps reissued the solicitations without the new  clause, using instead such options as fully funding the contracts and  restructuring the work required by the contracts. (See app. II for details  about the three bid protests.) Some district officials where the  solicitations that were protested originated said that they are concerned  that such legal challenges could resurface in the future—jeopardizing  other contracts that use the new clause and delaying the award of these  contracts. Moreover, officials in one district that has not used the new  continuing contracts clause since it became available told us that the fact  that the new clause has never been published for comment constituted  their major reason for not using it.
section_title: Conclusions
paragraphs: Although Congress and GAO have raised a number of concerns in recent  years about the Corps’ use of continuing contracts, of particular note has  been the agency’s lack of accurate information on the number and value of  contracts that it has awarded. In 2006, we specifically recommended that  the Corps establish a system to track its use of continuing contracts, and  while the agency agreed with this recommendation, it has failed to  implement it. As a result, the process and guidance it relies on to provide  quarterly information to Congress are ineffective and continue to generate  information that is neither complete nor accurate.
Moreover, the Corps developed and implemented its new continuing  contracts clause over 3 years ago, but its use of the clause does not  comply with the publication requirements of the OFPP Act. The Corps’  position that its use of the new continuing contracts clause while  “pursuing publication” of the clause in the Federal Register satisfies the  requirements of the act is unpersuasive. While we understand that the  Corps has been seeking approval to publish the clause since 2006, and that  it is unable to publish the clause without approval from the Army and  DOD, the statute’s publication requirement and its waiver provision clearly  permit temporary use of such a clause only if it is actually published in the  Federal Register for public comment. The Corps’ use of the clause prior to  publication does not comply with the statute’s requirements and may leave  the Corps susceptible to further legal challenges.
section_title: Recommendations for Executive Action
paragraphs: To ensure that the Corps provides accurate and reliable reports to  Congress on its use of continuing contracts and complies with federal  procurement law, we recommend that the Secretary of Defense direct the  Chief of Engineers and Commanding General of the U.S. Army Corps of  Engineers to take the following three actions:    Establish adequate internal controls to ensure accurate and complete  information is collected and reported to Congress on the use of continuing  contracts.
Suspend the Corps’ use of the new continuing contracts clause until it has  been published in the Federal Register, in accordance with 41 U.S.C. §  418b.
Provide regular updates to Congress on the progress of these actions.
section_title: Agency Comments
paragraphs: We provided a draft of this report to the Department of Defense for official  review and comment. The department concurred with two of our  recommendations and did not concur with one. Specifically, the  department concurred with our recommendations that the Corps establish  adequate internal controls to ensure accurate and complete information is  collected and reported to Congress on the use of continuing contracts; and  provide regular updates to Congress. The department did not agree,  however, with our recommendation that the Corps suspend use of the new  continuing contracts clause until it has been published in the Federal  Register in accordance with § 41 U.S.C. 418b. The department did not  disagree with our conclusion that its use of the new clause prior to  publication violates the law, and acknowledged that the unforeseen delay  in publishing the clause is undesirable. The department also stated that it  intends to publish the new clause in the Federal Register as expeditiously  as possible and anticipates approval of the clause for publication within 60  days. While we agree with the department’s efforts to expedite the  publication of the new clause in the Federal Register, we continue to  believe that suspending the use of the clause in the interim would be the  appropriate course of action. This is because until the clause is published  in the Federal Register for a minimum public comment period of 30 days,  the department’s use of the clause will violate section 22 of the OFPP Act.
We are sending copies of this report to the appropriate congressional  committees, the Secretary of Defense, and the Chief of Engineers and  Commanding General of the U.S. Army Corps of Engineers. In addition,  this report will be available at no charge on the GAO Web site at  http://www.gao.gov.
If you or your staffs have any questions regarding this report, please  contact me at (202) 512-3841 or mittala@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on the  last page of this report. Key contributors to this report are listed in  appendix IV.
section_title: Appendix I: Scope and Methodology
paragraphs: A joint explanatory statement accompanying the fiscal year 2008  Consolidated Appropriations Act directed us to review the continuing  contracts that the U.S. Army Corps of Engineers (Corps) has awarded  using a new clause. More specifically, from 1922 to 2005, the Corps had the  authority to award multiyear contracts (called continuing contracts)  without having received appropriations to cover the full contract amount.  These continuing contracts allowed contractors to continue working on a  project after funds provided for that project had been expended. In 2006,  as part of its changes associated with continuing contracts, the Corps  created two new clauses—a “special” clause and an “incrementally  funded” clause that require contractors to stop work on a project once  they have expended the funding set aside for the fiscal year. According to  Corps counsel, however, the agency considers only contracts with the  special clause to be continuing contracts because the incrementally  funded clause does not involve a future funding obligation. For the  purpose of this review, we have referred to the special clause as the “new  clause.”
To determine the accuracy of the information the Corps reported to  Congress in fiscal years 2007 and 2008, we compared information from the  Corps’ quarterly reports on the number, type, and dollar value of  continuing contracts that used the new clause with information obtained  from a Corps database and results of interviews with Corps officials in  selected divisions and districts. We identified the continuing contracts  that the Corps listed as new awards on the basis of the information the  Corps presented in its summary letters to Congress, as well as the  information contained in the quarterly reports themselves. We then  identified continuing contracts with the new clause that were awarded  during the 2-year time frame but were missing from the Corps’ quarterly  reports by querying the Corps’ Primavera database. We did not assess the  reliability of the Primavera database, but we verified information from that  database independently using both testimonial and documentary evidence  provided by the Corps. In addition, we interviewed Corps officials in  selected divisions and districts to corroborate the information on  continuing contracts that we obtained from the quarterly reports and  Primavera database. We selected a nonprobabilty sample of two of the  eight divisions and 6 of the 38 districts that carry out the Corps’ domestic  civil works responsibilities. More specifically, we selected the one division  that had used continuing contracts with the new clause the most and the  other division that had used them the least. In addition, of the six districts,  two had used continuing contracts with the new clause the most, two had  used them the least, and the remaining two had been involved with bid  protests associated with the new clause. We also ensured that those  districts and divisions varied geographically and in program size.  Specifically, we selected the Mississippi Valley and South Pacific  Divisions, as well as the Los Angeles (South Pacific Division), Nashville  (Great Lakes and Ohio River Division), Philadelphia and New York (North  Atlantic Division), Vicksburg (Mississippi Valley Division), and Walla  Walla (Northwestern Division) districts. We obtained pertinent supporting  documentation from the divisions and districts to support the testimonial  information obtained during the interviews.
To obtain information about the extent to which the Corps’ use of  continuing contracts with the new clause may have affected its execution  of the Civil Works program and the extent of the Corps’ use of continuing  contracts with the new clause, we interviewed Corps division and district  officials at the locations identified above, as well as at Corps headquarters.  In addition, we interviewed the Corps manager at headquarters  responsible for the quarterly reports to obtain basic information for  assessing the reliability of those data. Although there were inaccuracies,  we found that the data were sufficiently reliable for the purposes of our  report. During the interviews, we discussed, among other things, Corps  guidance on continuing contracts, the process used to obtain approval to  use continuing contracts, any impacts and challenges related to the Corps’  use of continuing contracts, and monitoring the use of continuing  contracts.
To assess the Corps’ process for implementing the new continuing  contracts clause, we reviewed relevant federal procurement laws related  to the Corps’ issuance and use of the new continuing contract clause. In  addition, we interviewed selected district and division officials to obtain  their views on the issue. We also interviewed selected district and division  officials to understand the process that the Corps used to develop and  implement the new continuing contracts clause and obtain their views on  the issue. We also contacted the Corps’ Office of the Chief Counsel to  obtain the Corps’ legal position on the extent to which the Corps has met  the requirements of federal procurement law, and reviewed its response  and supporting documentation. Finally, we examined three bid protests,  and the Corps’ responses to these protests, concerning solicitations issued  from fiscal years 2006 through 2008, that alleged, among other things, that  the new clause was not published in the Federal Register as required by  law.
We conducted this performance audit from September 2008 to June 2009  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: Summary of Bid Protests Regarding the New Clause for Continuing Contracts
paragraphs: From fiscal years 2006 to 2008, the U.S. Army Corps of Engineers (Corps)  received bid protests for three of its solicitations for continuing contracts  with the new clause. A bid protest may be filed when a bidder or other  interested party has reason to believe that a contract has been or is about  to be awarded improperly or illegally, or that the bidder or interested party  has been unfairly denied a contract or an opportunity to compete for a  contract. One firm protested three solicitations that would have awarded  contracts with the new clause. In each case, the firm withdrew its protest  after the Corps restructured the statement of work, issued an amendment  to remove the new clause from the solicitation, and proceeded to award  the contract as a contract with a different funding mechanism, such as a  fully funded contract, rather than as a continuing contract.
Specifically, the firm filed initial protests with three districts that issued  solicitations with the new clause—San Francisco, New York, and  Philadelphia. The firm alleged several bases for its protests; however, the  overarching issue in the protests, which generally used the same language,  was the Corps’ inclusion of the new clause in the solicitations. The firm  alleged the following:  Inclusion of the new clause rendered the specifications defective because  it made the project schedule and duration so vague and indefinite that  potential bidders could not compete intelligently and on an equal basis.  The firm argued that bidders would make different assumptions involving  different contingencies and might not be bidding to perform the same  scope of work and that, as a result, the Corps would be precluded from  determining whether the lowest bid received represented the lowest cost  to the government of performing the work required.
The Corps’ attempt to use the new clause violated 41 U.S.C. § 418b and  Federal Acquisition Regulation Subparts 1.3 and 1.5, which require the  clause to be published in the Federal Register for public comment.
When the Corps receives a bid protest, the respective division office  responds on behalf of the district whose solicitation is being protested. Of  the three districts that received bid protests, only the division for the San  Francisco District formally denied the protest. The May 22, 2006, decision  by the Assistant Chief Counsel/Division Counsel for the South Pacific  Division, among other things,    denied the allegation that the clause rendered the specifications defective  and stated that any assumptions a contractor may choose to make with  regard to schedule, funding streams, delays, and so forth would  necessarily be reflected in the bid prices. As a result, the Corps argued, as  long as the bid was not unbalanced and was otherwise the lowest price, it  would also be the lowest cost to the government.    asserted that the Corps used the new clause prior to publishing it in the  Federal Register for public comment due to “urgent and compelling  circumstances,” and explained that the Corps was in the process of  submitting the clause to the Federal Register for public comment through  its internal procedures.
After the Corps’ South Pacific Division denied the agency-level protest, the  protester filed a protest with GAO on May 31, 2006. Subsequently, the  Corps’ San Francisco District decided to remove the new clause from the  solicitation, and the protester withdrew its protest on June 15, 2006.
Similarly, the protests filed with the New York and Philadelphia Districts  resulted in the districts’ removing the new clause from the solicitations.  The protester subsequently withdrew its protest in both cases. In all three  protests, the Corps districts then used a different funding mechanism to  complete the work. Table 1 describes the projects and shows relevant  dates and estimated amounts.
section_title: Appendix III: Comments from the Department of Defense
section_title: Appendix IV: GAO Contact and Staff Acknowledgments
subsections: section_title: Staff Acknowledgments
paragraphs: In addition to the individual named above, Vondalee R. Hunt (Assistant  Director), Tania L. Calhoun, Nancy L. Crothers, Diana C. Goody, Daniel J.  Semick, and Delia P. Zee, made key contributions to this report. Also  contributing to this report were Joel I. Grossman, Carol M. Henn, and  William T. Woods.