Recovery Act: Contracting Approaches and Oversight Used by Selected Federal Agencies and States
Published: 2010-07-15T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The American Recovery and Reinvestment Act of 2009 (Recovery Act), estimated to cost $862 billion over 10 years, is intended to stimulate the economy and create jobs. The Recovery Act provides funds to federal agencies and states, which in turn may award contracts to private companies and other entities to carry out the purposes of the Recovery Act. Contracts using Recovery Act funds are required to be awarded competitively to the maximum extent practicable. GAO was asked to examine the use and oversight of noncompetitive Recovery Act contracts at the federal and state levels. GAO determined (1) the extent that federal contracts were awarded noncompetitively; (2) the reasons five selected federal agencies (the Departments of Defense, Energy, and Health and Human Services; the National Aeronautics and Space Administration; and the Small Business Administration (SBA)) awarded noncompetitive contracts; (3) the oversight these agencies and their inspectors general (IG) provide for Recovery Act contracts; and (4) the level of insight five selected states (California, Colorado, Florida, New York, and Texas) have into the use of noncompetitive Recovery Act contracts.
section_title: What GAO Found
paragraphs: More than two-thirds of the $26 billion obligated for Recovery Act federal contract actions through May 2010 were on contracts that were in place before the enactment of the Recovery Act. Most of these contracts had been awarded competitively. For new federal Recovery Act contract actions, 89 percent of the dollars were obligated on competed actions. Most of the Recovery Act dollars obligated noncompetitively on new contract actions went to socially and economically disadvantaged small businesses under SBA's 8(a) program. The goal of using Recovery Act funds quickly on high-priority projects drove the contracting approaches of the five federal agencies, particularly their use of existing contracts. Officials explained that whether an existing contract had been competed originally did not influence the decision to use a pre-existing contract because the level of competition had been established before Recovery Act funds were available. The selected federal agencies implemented additional review processes, internal reporting, and coordination efforts for the Recovery Act. Some IGs for these agencies focused initial Recovery Act oversight on areas the IGs considered to be higher risk than contracts, such as grant programs. The IG reviews to date have not focused specifically on contracting, including the use of noncompetitive awards to 8(a) program businesses. GAO's recent reviews of the 8(a) program, however, have found that safeguards for ensuring that only eligible firms receive 8(a) contracts may not be working as intended. The five states varied on the type and amount of data routinely collected on noncompetitive Recovery Act contracts. GAO could not determine the full extent to which such contracts are being used. The states generally rely on their pre-Recovery Act contracting policies and procedures, which generally require competition. The states do not routinely provide state-level oversight of contracts awarded at the local level, where a portion of Recovery Act contracting occurs. Officials from the selected states' audit organizations said that if they were to address Recovery Act contracting issues, it could be done through the annual Single Audit or other reviews of programs that involve Recovery Act funds.
section_title: What GAO Recommends
paragraphs: GAO recommends that the five IGs assess the need to allocate audit resources to noncompetitive 8(a) Recovery Act contracts. The IGs concurred or had no comment.

section_title: Letter
paragraphs: Congress enacted the American Recovery and Reinvestment Act of 2009  (Recovery Act) to help stimulate the United States economy by providing  an estimated $862 billion over 10 years through a variety of programs. A  portion of those funds is being provided directly to federal agencies, which  may award contracts and grants for their respective programs. Another  portion of Recovery Act funds is being provided directly to the states,  which in turn may award contracts or grants to businesses or local  governments. As of May 2010, $26 billion of Recovery Act funds had been  obligated on contracts awarded by federal agencies. The Recovery Act  provides that to the maximum extent practicable, federal agencies’  contracts should be awarded competitively with fixed prices. Federal  agencies and their inspectors general (IG) were provided funding under  the Recovery Act to audit the act’s programs and projects, including grant  and contract awards. States generally are expected to use competition to  the extent practicable when awarding contracts using federal funds. The  benefits of competition are well-established. It saves taxpayer money,  helps improve contractor performance, and promotes accountability for  results.
You asked us to examine the use and oversight of noncompetitive  contracts awarded under the Recovery Act at the federal and state levels.  In response, we determined (1) the extent of Recovery Act funding  obligated by federal agencies on contracts, and the extent to which these  contracts were awarded noncompetitively, (2) the reasons selected federal  agencies awarded noncompetitive Recovery Act contract actions, (3) the  extent of oversight of Recovery Act contracting at selected federal  agencies, and (4) state officials’ level of insight into and oversight of the  use of noncompetitive Recovery Act contracts within selected states. This  report first addresses each of these objectives, and then provides  additional data on federal Recovery Act contracting governmentwide in  appendix I and more detailed information about the approaches taken by  selected federal agencies in appendix II.
To determine the extent to which contracts using Recovery Act funds are  being awarded noncompetitively by federal agencies, we analyzed  governmentwide data from the Federal Procurement Data System—Next  Generation (FPDS-NG). We determined that the FPDS-NG data were  sufficiently reliable for the purposes of this review by comparing the  information for selected agencies with information from other sources,  including agency contract data and information in contract files at  selected locations. To determine the reasons that Recovery Act contracts  are at times not competed, we selected five agencies at which we  discussed the use of noncompetitive contracts and reviewed about 150  noncompetitive Recovery Act contract actions—new contracts as well as  orders on and modifications to previously awarded contracts. We selected  these agencies based on the number, value, and percentage of  noncompetitive Recovery Act actions and obligations. Four agencies—the  Departments of Defense (DOD), Energy (DOE), and Health and Human  Services (HHS), and the National Aeronautics and Space Administration  (NASA)—are the four agencies that obligated the most Recovery Act funds  using noncompetitive contracts. The fifth agency—the Small Business  Administration (SBA)—had a relatively low amount of noncompetitive  Recovery Act actions and obligations but provided an example of how a  smaller agency carried out Recovery Act contract awards. At each agency,  we reviewed all Recovery Act contract actions awarded noncompetitively  at a particular contracting office, generally the one with the largest volume  of noncompetitive actions, to identify the reason each action was not  competed and the extent to which the reason was explained in the  contract file. To determine the extent of Recovery Act contracting  oversight provided by the selected federal agencies and their respective  IGs, we interviewed agency officials, including IG staff, and reviewed their  oversight plans and resulting reports.
To determine the level of insight that state officials have into the use of  noncompetitive Recovery Act contracts, we selected five states— California, Colorado, Florida, New York, and Texas—based on the amount  of Recovery Act funds reported as being awarded via contracts on  www.Recovery.gov and our goal of providing information on a variety of  geographic locations. For each state, we discussed with the appropriate  state officials—including representatives from the governors’ offices, state  procurement offices, and audit organizations—the extent to which the  state has awarded noncompetitive Recovery Act contracts, the reasons  why the state did not use competition, and the level of oversight the state  provides for these contracts. Additionally, we discussed these issues with  representatives of the state agencies that manage the education and  weatherization programs, to obtain further understanding of how state  agencies award and oversee contracts. Because a large portion of the  Recovery Act funds received by the states is in the form of grants, which  are further distributed by the states to local governmental entities, we  discussed the extent of oversight the state provided over contracts  awarded by local governmental entities. We also attempted to identify a  statewide data source or database for sampling and evaluating state- awarded contracts with respect to competition, but were unable to  identify such a data source or database for any of the states in our review.  As a result, we relied primarily on testimonial evidence provided by state  officials. Details on our scope and methodology are contained in appendix  III.
We conducted this performance audit from February 2010 to July 2010, 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: The Recovery Act was enacted on February 17, 2009, to help stimulate the  United States economy by creating new jobs, as well as saving existing  ones, and investing in projects that will provide long-term economic  benefits. The Recovery Act requires that the President and heads of the  federal agencies manage and expend Recovery Act funds to achieve the  act’s purposes as quickly as possible and consistent with prudent  management. In addition, the Recovery Act requires contracts funded  under the act to be awarded as fixed-price contracts through the use of  competitive procedures to the maximum extent possible. The Office of  Management and Budget (OMB) issued guidance for implementing the  Recovery Act and meeting “crucial accountability objectives” of the act,  including, for example: timely awarding of Recovery Act funds; reporting  on the use and public benefit of those funds; and ensuring that those funds  are used for authorized purposes while mitigating the potential for fraud,  waste, error, and abuse.
In addition to these objectives, OMB supplemental guidance also provides  other goals that agencies are to consider when using Recovery Act funds.  Among those goals are investing in efforts that will provide jobs and have  long-term public benefits, promoting local hiring, providing maximum  practicable opportunities for small businesses, and supporting  disadvantaged businesses. The guidance also identifies activities agencies  should consider to mitigate risks, including determining what contract  award methods will allow recipients to commence expenditures and  activities as quickly as possible; providing oversight for non-fixed-price  contracts that may be riskier to the government; and reviewing internal  procurement rules to promote competition to the maximum extent  practicable.
Federal agencies using Recovery Act funds on contracts must take a  number of new steps related to the solicitation of offers and award of  contracts. For instance, to enhance the transparency to the public, the  Federal Acquisition Regulation (FAR) was amended to require federal  agencies to publicize on www.fedbizopps.gov contract actions that will be  funded by the Recovery Act. The description on the Web site of the  supplies and services should be clear and unambiguous to support public  understanding of the procurement. After awarding a contract using other  than fixed-price or competitive approaches, federal agencies are also  required to publicize the rationale for doing so on the Web site. In  addition, federal agencies should use specific codes when entering  Recovery Act contract actions into FPDS-NG to indicate that Recovery Act  funds are being used, in whole or in part. The FAR was also amended to  implement the Recovery Act requirements that: only American-produced  iron, steel, and manufactured goods be used in Recovery Act construction  projects; access be provided for Comptroller General and IG audits and  reviews of Recovery Act contracts and subcontracts; and whistleblower  protections be provided. The act also requires the payment of at least  locally prevailing wages to contractor employees working on Recovery Act  projects, in accordance with the Davis-Bacon Act.
Federal agencies are generally required to obtain full and open  competition through competitive procedures when awarding government  contracts, unless an exception to competition applies. Some authorized  exceptions include when  the supplies or services needed by the agency are available from only one  responsible source and no other supplies or services will satisfy the  agency’s needs;   the agency’s need for the supplies or services is of such an unusual and  compelling urgency that there would be serious injury if the agency were  not permitted to limit the number of sources; or    a statute expressly authorizes that the acquisition be made through  another agency or from a specified source, such as SBA’s 8(a) program.
In most cases, the use of noncompetitive contracting procedures must be  properly justified in writing and certified by the appropriate agency  official. The competition requirements that apply to federal agencies do  not apply to the states, each of which has its own contract competition  requirements.
Additionally, purchases of supplies or services that are under certain  dollar thresholds (usually from $3,000 to $100,000) may be acquired  through the use of simplified acquisition procedures. These procedures  provide a streamlined approach to procurements as a way to promote  efficiency and economy in contracting. While full and open competition  procedures do not apply to simplified acquisitions, federal agencies are  still required to promote competition to the maximum extent practicable.  When using simplified acquisition procedures, federal agencies can solicit  from one source if they determine that only one source is reasonably  available.
Section 8(a) of the Small Business Act authorizes SBA to create a business  development program to help small, socially and economically  disadvantaged businesses compete in the American economy, including  gaining access to the federal procurement market. This program, known as  the 8(a) program, authorizes contracting by using procedures other than  full and open competition, such as awarding sole-source contracts. Under  the 8(a) program, when the anticipated value of a contract is below the  “competitive threshold”—$5.5 million for acquisitions involving  manufacturing and $3.5 million for all other acquisitions—the contract  should be awarded on a sole-source basis to an eligible 8(a) business.   Contracts above the competitive thresholds can be awarded based on  competition limited only to 8(a) businesses when there is a reasonable  expectation that at least two 8(a) businesses will submit offers. Sole- source contracts of any value may be awarded to businesses owned by an  eligible Indian tribe or an Alaska Native Corporation. Federal agencies are  not required to provide written justification for sole-source contracts  awarded under the 8(a) program, but regulations specify percentages of  the work that must be performed by the 8(a) business with its own  resources. The OMB Recovery Act implementing guidance encourages  federal agencies to take advantage of authorized small business  contracting programs, which may include the use of noncompetitive  contracts, to create opportunities for small businesses.
The Recovery Act provided an unprecedented level of funding for  programs to be administered within the states at various levels. Recovery  Act funds are being distributed to states, local entities, and individuals  through a combination of formula and competitive grants and direct  assistance. Nearly half of the approximately $580 billion associated with  Recovery Act spending programs will flow to states and localities through  about 50 state formula and discretionary grant programs as well as about  15 entitlement and other programs. Some of the funds are passed from the  federal agencies through state governments to local governments, while  other funds are provided directly to local governments or individuals by  the federal agencies.
As we previously reported, states are taking various approaches to ensure  that internal controls are in place to manage risk up front, rather than after  problems develop and deficiencies are identified. States have different  capacities to manage and oversee the use of Recovery Act funds. Many of  these differences result from the underlying differences in approaches to  governance, organizational structures, and related systems and processes  that are unique to each jurisdiction. To provide state-level oversight of the  use of Recovery Act funds, many states appointed an individual or team,  often in the governor’s office, to provide overarching guidance and  monitoring for the state’s Recovery Act efforts. Since many of the  programs and the processes and procedures used to implement them  existed before the Recovery Act funds were provided, much of the focus  of the state-level oversight efforts has been on the new aspects of the  Recovery Act, such as the new recipient reporting requirements and state  fiscal stabilization funds.
section_title: Federal Agencies Largely Used Existing Contracts and Awarded Most New Recovery Act Contracts Competitively
paragraphs: More than two-thirds of the $26 billion that had been obligated on federal  contracts through May 2010 was obligated on contracts that were already  in place before the Recovery Act. Agencies used mechanisms such as task  orders for services, delivery orders for supplies, and contract  modifications to add work or funds to existing contracts. For these orders  and modifications on existing contracts, the decisions to compete or not  compete the underlying contracts predated the Recovery Act. About 89  percent of the Recovery Act funds obligated on pre-existing contracts  were coded in FPDS-NG as being competed.
Approximately one-third of Recovery Act federal contract obligations  through May 2010 was obligated on new contracts. For these contracts,  the decisions on whether to compete the contracts were made after the  Recovery Act was enacted. As shown in figure 1, most Recovery Act  dollars obligated on new federal contracts were on contracts that were  competed. The new contracts that were not competed consisted of  contracts awarded under the SBA’s 8(a) program, contracts awarded using  simplified acquisition procedures, and other contracts that were awarded  under authorized exceptions to competition, such as only one source was  available or the requirement was urgently needed. Almost 80 percent of  the approximately $875 million obligated to noncompetitive new contracts  went to businesses under SBA’s 8(a) program.
subsections: section_title: 32% New
paragraphs: Between both existing and new contracts, almost 90 percent of the $26  billion in Recovery Act contracting dollars through May 2010 were  obligated on competitive contract actions. See appendix I for detailed data  on the obligations placed on Recovery Act contract actions by all federal  agencies.
section_title: Selected Federal Agencies Focused On Expediency When Choosing Contracting Approaches for Recovery Act Programs
paragraphs: Officials at the five federal agencies we reviewed told us that they chose  their contracting approaches to meet their primary goals of obligating  Recovery Act funds quickly and to high-priority projects, which sometimes  led to using noncompetitive contract actions. The act and guidance from  OMB and agency officials directed agencies to obligate Recovery Act funds  quickly, creating a sense of urgency on the part of contracting staff. As a  result, program and contracting staff identified programs, projects, and  contract vehicles that would allow them to obligate funds within short  time frames. Contracting officials at some of the agencies we visited told  us that they considered both the relative risks of using noncompetitive  contracting approaches and the benefits of obligating funds faster than  had they awarded new contracts using full and open competition. For  example, the U.S. Army Corps of Engineers (USACE) chose construction  projects that could be executed quickly by issuing task orders under  previously awarded contracts with businesses under SBA’s 8(a) program.  Further, contracting officials at USACE also noted that new sole-source  contracts to 8(a) businesses typically take about 4 months to award,  while a new competitive contract could take 12 to 14 months using full and  open competition procedures. As shown in figure 2, most of the Recovery  Act funds were obligated within the first two full fiscal quarters in which  rs in which  the funds were available for obligation.  the funds were available for obligation.
Officials at several of the selected federal agencies explained that the use  of existing contracts allowed them to obligate funds quickly. Whether an  existing contract had been competed originally did not influence decisions  about which of these contracts to use since the level of competition had  already been established prior to the availability of Recovery Act funds.  According to agency officials, programmatic priorities and the availability  of contracts with the capacity to absorb and effectively use additional  funding were the predominant factors in choosing which existing  contracts received Recovery Act funds. Use of the 8(a) program to award  new contracts allowed agencies to quickly obligate funds without  competition as sole-source awards. For certain 8(a) contracts, such as  those below $3.5 million, sole-source is the default contracting approach  under federal regulations. Contracting officials at each of the federal  agencies told us that the 8(a) program allowed them to quickly obligate  funds on both new and existing contracts under $3.5 million and that the  noncompetitive nature of the contracts was viewed as a trade-off for  expediency and the ability to provide opportunities to small businesses.
While speed was the primary driver agencies cited for using  noncompetitive contracting approaches, noncompetitive awards were also  used in a small number of new contracts that we reviewed when there was  only one source available for specialized equipment or a specific service.  For example, several National Institutes of Health (NIH) contract actions  we reviewed were sole-source contracts for specialized medical  equipment. In these cases, there was only one manufacturer that could  meet the requirements of the contract according to the documentation in  the contract files.
At the five selected agencies, we found that all of the new noncompetitive  Recovery Act contracts that required documented justification and  approval for using other than full and open competition had such  documentation. For most new noncompetitive Recovery Act contracts,  specific documentation to justify the noncompetitive award was not  required. However, we found that 21 of the new contracts awarded as of  February 2010 at the five agencies we visited required documented  justifications. For these 21 contracts, the contract files included the  required justification and approval documentation for not using full and  open competition. Almost all of the justifications we reviewed authorized  a sole-source contract because there was only one responsible source and  no other type of supplies of services would satisfy the agency’s  requirements. Among these, about half were for purchases of proprietary  parts or technology, and most of the others were contracts for utility  services.
section_title: Federal Agencies Provided Varying Degrees of Additional Contract Oversight, While IGs Focused On Higher-Risk Areas
paragraphs: The selected agencies added additional review processes, internal  reporting, and coordination steps in response to the Recovery Act. While  the measures implemented vary at each of the selected agencies, all have  created additional processes to increase management oversight beyond  their normal practices. IGs used a risk-based approach to target their  initial oversight efforts, and did not specifically target noncompetitive  contract actions because IGs did not view them as high risk. At most of the  selected agencies, IGs chose to focus on areas and programs they judged  to be higher risk, such as grant programs, which accounted for the  majority of Recovery Act funding. Alongside IG’s individual efforts, the  Recovery Act also established the Recovery Accountability and  Transparency Board to coordinate among the IGs and provide additional  oversight.
subsections: section_title: Selected Federal Agencies Implemented Varying Degrees of Additional Oversight for Contracts Awarded under the Recovery Act
paragraphs: The selected agencies used existing processes to award and administer  Recovery Act contracts, but they also implemented a number of additional  measures intended to provide enhanced oversight. This added oversight  was in response to the specific requirements of the Recovery Act and  implementing guidance from OMB for greater transparency, speedy  execution of projects, maximizing competition in contracting, and other  priorities. According to agency officials, additional oversight measures  were put in place at the agencywide level, as well as within the agency  components that we reviewed.
All five of the selected agencies created working groups, committees, or  other internal entities with the mission of coordinating each of the  agency’s Recovery Act work. Most of these groups deal with a wide range  of Recovery Act-related implementation issues and included oversight of  contracting as one element of their work. Generally, officials said that they  meet on a regular basis—such as monthly or weekly—and provide a venue  for officials from across the agencies to provide management visibility into  Recovery Act programs, discuss problems that may have arisen, and  coordinate approaches by issuing formal or informal guidance. For  example, DOD created the Recovery Act Working Group to coordinate  implementation across the department. At weekly meetings,  representatives from the Office of the Secretary of Defense and the  military services provide updates on the status of Recovery Act  obligations, projects in progress, relevant IG findings, and other issues.  Further, similar Recovery Act coordinating groups are in place within each  of the military services.
In addition to their primary Recovery Act coordination groups, some  agencies also created additional subgroups to coordinate specific aspects  of implementation and oversight, such as contracting. For example, HHS  established an Office of Recovery Act Coordination to work across the  entire agency. As part of that function, HHS established a Recovery Act  Coordinators group to hold weekly meetings of key personnel from the  various agency operating divisions, allowing centralized collection and  distribution of management information.
Most agencies reported that they also identified a single individual to take  managerial responsibility for implementation and oversight of Recovery  Act programs. For example, NASA created the Recovery Act  Implementation Executive position responsible for coordinating activities  throughout the agency related to the administration of Recovery Act  programs. Likewise, at DOD, the Principal Deputy Under Secretary of  Defense in the Comptroller’s office leads the Recovery Act Working Group  and is responsible for ensuring that the military services are properly  administering their Recovery Act-funded programs.
Although the selected agencies reported that they awarded Recovery Act  contracts through their standard contracting processes, one agency  implemented additional pre-award reviews of contract actions. According  to NIH officials, NIH implemented an increased review of contracts  awarded noncompetitively, which allowed greater visibility into Recovery  Act contracts. Typically, NIH management reviews any noncompetitive  contract award over $550,000, but NIH procedures for the Recovery Act  require management review of all proposed noncompetitive contracts  prior to award. Across the five federal agencies, some provided additional  review in other ways, such as reviews of selected projects prior to the  contract award process. See appendix II for additional details on each  agency.
Agencies increased the amount of internal reporting of Recovery Act  activities, including contracting. In combination with the coordination  groups discussed above, this internal reporting was intended to create  greater visibility for Recovery Act programs. Agencies increased the  amount of data provided directly to agency leadership on contract awards,  as well as the frequency at which these data are updated. For example,  DOE expanded an existing data system to provide more frequent reporting  and performance information to a larger number of users as part of its  approach to Recovery Act oversight. The system includes regularly  updated financial, earned value management, performance, risk, and job  creation data on DOE projects, which are available to agency officials  directly and through daily summary reports. Within DOD, USACE  established a weekly report to agency leadership on Recovery Act  contracting activity, showing obligations, project status, and other  information.
The additional oversight processes and increased volume of funding under  the Recovery Act have put added demands on agency contracting staff,  which agency officials said was having some impact on their ability to  carry out their missions. The Recovery Accountability and Transparency  Board coordinated a survey administered by IGs of contracting and grant  officials at 29 agencies regarding the adequacy of contracting and grant  staffing levels. Some survey respondents said that staffing was  inadequate, while about half of respondents said that staffing was  adequate to meet Recovery Act needs but affected non-Recovery Act  work. Contracting officials at several agencies whom we met with in our  site reviews also reported that there had been an impact on their staff.  Officials said that staff had put in extra hours to meet Recovery Act  demands, and in one case said that attention to Recovery Act contracts  had led to delays on non-Recovery Act contract awards.
section_title: Most IGs for the Selected Agencies Did Not Focus on Contracts Because Other Areas Were Deemed Higher Risk
paragraphs: The Recovery Act provided supplemental funding to IGs to support their  oversight of their agencies’ spending under the act. Table 1 shows the  funding provided to the IGs for the five selected agencies.
IGs for the selected agencies reported that they used assessments of the  relative risks, specific to their agencies and programs, of different  Recovery Act activities to target their oversight efforts. At three of the five  IG offices, these assessments did not result in a focus on contracting. The  IGs for all five agencies reported that they used a risk-based approach to  structuring their Recovery Act oversight work, but each considered  different factors in assessing risk. They all said that the amount of  Recovery Act funding received by their agency was a main factor in their  focusing on program areas or projects receiving the greatest funding. Most  Recovery Act spending was through grants not contracts. Other risk  factors used by some of the IGs included problems identified in previous  audit work, the level of experience of grant recipients, and contract  characteristics such as the level of competition and whether the contract  was new or existing. At three of the IG offices, the assessment results  showed that Recovery Act contracting was an area of lower risk relative to  Recovery Act spending through grants and loans. These offices devoted  only a small portion of their Recovery Act audit work toward it. For  example, HHS IG officials said that they focused on the agency’s grant  programs, in large part because the amount of Recovery Act funding to be  spent by HHS through grants was much greater than the amount to be  spent through contracts. In addition, the HHS IG’s prior findings showed  grants to be a higher-risk area. The officials said that they also took into  account the risks posed by increased funding under the Recovery Act. For  example, an HHS IG official said that they anticipated that some grant  recipients would have little prior experience with federal funds. As a result  of this risk assessment, the HHS IG conducted only limited work on  contracts. This work involved two reviews that looked at administrative  approvals and funding for a selection of contracts at NIH, and concluded  that no further reviews were needed. The IGs review their Recovery Act  audit plans periodically, generally on a semiannual basis, and revise them  as warranted.
Contracting under the 8(a) program was not a focus for four of the five  IGs, who did not use the 8(a) status of a business as a factor in their  selection of contracts for review, and did not review 8(a) compliance  issues, such as 8(a) eligibility or limits on the amount of work that can be  subcontracted. The DOE IG and HHS IG did not review issues related to  8(a) contracts as a result of their risk assessments, because they did not  identify contracting as a high-risk area. DOD IG and NASA IG officials said  that they did not focus on issues related to 8(a) contracts beyond the 8(a)  contracts they encountered in performing their programmatic reviews, and  did not review 8(a) business compliance and eligibility. The eligibility  determination is an issue that is within the sole purview of SBA. The SBA  IG did review some 8(a) contracts and looked into the reasons specific  businesses were chosen. In one of the SBA IG reviews, the resulting report  did address the eligibility of two 8(a) businesses and determined that one  of the two businesses was not eligible for the contract award under the  8(a) program rules.
We recently reviewed the process SBA uses to ensure that 8(a) businesses  remain eligible to continue participating in the program, and found  inconsistencies and weaknesses in the required annual review  procedures. For example, we estimated that SBA staff at five district  offices failed to complete the required review for 55 percent of 8(a)  businesses. In a separate review, we recently found that $325 million in  set-aside and sole-source contracts were awarded to businesses that were  not eligible to participate in the program. We also have identified issues  with respect to the use of 8(a) businesses that qualify as Alaska Native  Corporations. Specifically, we have found that agencies have not always  complied with requirements to notify SBA when 8(a) contracts with  Alaska Native Corporations are modified, or to ensure that the businesses  comply with limits on subcontracting.
In contrast to the other three IGs, the DOD IG and NASA IG included  reviews of individual contracts as a central part of their oversight.  According to DOD IG officials, they chose their approach as a result of  their risk analysis. The majority of the department’s Recovery Act  spending is through contracts for building construction and renovation.  DOD IG officials analyzed data on the services’ planned projects and  decided which ones to review based primarily on the size, location, and  type of project. The DOD IG with the assistance of the military services’  audit agencies—the Army Audit Agency, the Air Force Audit Agency, and  the Naval Audit Service—conducted coordinated reviews of the projects  identified through the initial risk analysis. As part of those reviews,  auditors gathered additional information on contract actions for the  selected projects, including whether they were issued as orders or  modifications under existing contracts, whether the contracts were  competitively awarded, and whether a surveillance plan was in place. In  addition, the DOD IG and military services’ audit agencies collected  information on whether contracts for the projects they reviewed were  awarded to 8(a) businesses, but the officials said that they did not assess  business eligibility because this falls under the jurisdiction of the office  within SBA that administers the 8(a) program. However, DOD IG officials  told us that if they suspect that a business is not eligible for the 8(a)  program, they refer the matter to SBA for review. The only audit work that  directly focused on 8(a) businesses, other than the work of the SBA IG  noted above, is a review currently being conducted by the Air Force Audit  Agency, which is reviewing the eligibility of 8(a) contractors at 10 Air  Force installations. As of June 2010, the Air Force Audit Agency had not  yet issued its report.
As of June 2010, 141 reports had been posted on www.Recovery.gov by the  IGs for the five agencies we reviewed. In 43 of the reports, the IGs touched  on contracting issues. Of these, 27 were reviews of projects at individual  DOD facilities issued by the DOD IG or by the military services’ audit  agencies. Most of the IG reports that dealt with contracting did not identify  systematic shortcomings in agency processes or Recovery Act contracts.  Rather, contracting-related findings ranged from clauses omitted from  individual contracts to observations on the completeness of contracting  data reported by the agencies. For instance, the Air Force Audit Agency  reported in its audit of Elmendorf Air Force Base that while the base’s  Recovery Act contracts met several requirements, such as expediting the  award process and fostering competition, they had not fully met  transparency requirements because the contracting office did not provide  sufficient information on the work to be completed for one project on  www.fedbizopps.gov.  According to Office of the Secretary of Defense  and Air Force officials, Elmendorf Air Force Base subsequently reposted  the project on www.fedbizopps.gov to more accurately reflect the work  accomplished.
One IG report, however, noted significant shortcomings in agency  contracting workforce capacity. The SBA IG determined that staffing  levels in the agency’s contracting office were insufficient. The SBA IG  found that because of vacant positions, contracting office staff declined  from 13 to 7 personnel from June 2009 to February 2010, at a time when  the office’s workload increased as a result of Recovery Act  implementation. The report concluded that the current staffing of the  contracting office was insufficient to award, administer, and oversee  Recovery Act and other contracts, and that as a result, the risk of fraud,  waste, and abuse had increased. In our discussions with SBA on the  report’s findings, a senior procurement official stated that the agency has  experienced further attrition in its acquisition workforce since this report  was released. To address this, the agency awarded a contract to provide  acquisition services for four contracting positions and plans to contract  for services for six more.
For further information on how the IGs at each of the selected agencies  are conducting Recovery Act oversight, see appendix II.
section_title: Selected States Vary In Their Level of Insight into Noncompetitive Recovery Act Contracts
paragraphs: At the state level, we were not able to determine the full extent of the use  of noncompetitive contracting. The states we visited collect some  aggregate data on contracts awarded by state agencies, but did not  maintain data on contracting at the local level where a portion of the  contracting activity occurs. These states rely on their pre-Recovery Act  contracting policies and procedures, which generally require competition.  With respect to oversight, each state has supplemented its state-level  guidance with some additional Recovery Act-specific policies and  procedures. However, the states do not routinely provide state-level  oversight of contracts awarded at the local level, where a portion of the  Recovery Act contracting occurs. Representatives of the five state audit  organizations said they could address Recovery Act contracting issues  through the internal control work performed during the state’s annual  Single Audit or during other reviews of programs that involve Recovery  Act funds, if contracting is identified as an area of risk.
subsections: section_title: Selected States Vary on Information Identifying Noncompetitive Recovery Act Contracts
paragraphs: State-level information on the type and amount of data routinely collected  on noncompetitive Recovery Act contracts varied in the five states we  visited—California, Colorado, Florida, New York, and Texas. Officials in  some states said they are collecting or could collect data on  noncompetitive contracts awarded by the state agencies. Some of the  states we visited currently have some level of statewide information on  noncompetitive contracts awarded by their state agencies, but with  limitations. Specifically, officials in the states we visited told us the  following:    California’s statewide contract database does not include contracts  awarded by all of its state agencies.
Colorado’s statewide contract database does not identify which contracts  are funded under the Recovery Act, but noncompetitive Recovery Act  contracts are manually reported to the state level.
New York’s statewide contract database includes contracts awarded by  state agencies, but does not include data on contracts awarded by state  authorities, such as the New York State Energy Research and  Development Authority.
Florida has a statewide contract database, but it is voluntary and not  routinely used by all state agencies.
Texas’ statewide contract database does not identify which contracts are  funded under the Recovery Act.
Officials in California, Colorado, and Florida said that some of their state  agencies have awarded noncompetitive Recovery Act contracts, while  officials in New York said none have been awarded by their state agencies  and officials in Texas said they were not aware of any having been  awarded.
At the state agency level, we discussed the weatherization and education  programs with the respective agencies responsible for managing these  programs. In all five states, officials from these agencies said that they  have some data on Recovery Act contracts awarded by their agencies.  Moreover, state officials in all five states explained that they are not  required to provide direct oversight of contracts awarded below the state  agency level. As a result, they do not collect data on contracts awarded at  the local levels by local governments or agencies where a portion of the  Recovery Act contracting occurs. The limitations on available contract  data, therefore, precluded us from performing an analysis on  noncompetitive Recovery Act contracts awarded in the selected states.
section_title: Selected States Require Competitive Contracting but Their Oversight Practices Vary
paragraphs: According to procurement officials in the selected states, the use of  competition is generally required when awarding contracts, although  exemptions are permitted. Each of the selected states permits exemptions  to competition when contracts are awarded to another government entity,  and most also permit exemptions when responding to emergencies and  when only one provider is available. In the selected states in which state- level officials were aware of the award of noncompetitive Recovery Act  contracts, officials said those awards were made between government  agencies or to sole-source providers. For example, an agency in one state  contracted with a university to provide training, and an agency in another  state contracted with businesses that were the sole providers of  proprietary scientific equipment.
Each of the five states provides oversight of the award of Recovery Act  contracts to varying degrees. According to officials, each state uses a  combination of policies and procedures that existed prior to the Recovery  Act and some additional measures to oversee these awards. Each state  supplemented its existing contracting procedures with new guidance and  had state agencies that realigned or hired staff to implement Recovery Act  requirements. State officials explained that under existing state  procedures, agencies are required to prepare justification documentation  and obtain approval before they award noncompetitive contracts. In  addition, state officials told us that generally state agencies are  responsible for oversight of contracts their agencies award, while local  entities have oversight responsibilities for contracts awarded at the local  level. For example, Colorado officials approve local agencies’  procurement processes, but the local agencies acquire weatherization  materials on their own using a competitive bid process.
Most Recovery Act funds to local governments flow through existing  federal grant programs, while some of the funds are provided directly to  local governments by federal agencies and others are passed from the  federal agencies through state governments to local governments.  Therefore, state officials have limited insight into contracts awarded at the  local level. In California, for example, state education officials said the size  of the state and its more than 1,600 local education entities made it  impractical to track local contracts. Nonetheless, officials in the selected  states can perform postaward reviews related to contract competition on  an as-needed basis.
Officials in some of the states we visited said that they did not receive  additional resources to provide oversight of Recovery Act funds. To  provide additional oversight, they sometimes shifted resources to handle  Recovery Act work, which at times entailed shifting resources from non- Recovery Act to Recovery Act work.
section_title: State Audit Organizations Might Address Recovery Act Contracting through Annual Single Audits or Program Reviews
paragraphs: Representatives of the five states’ audit organizations said that their  organizations could provide additional oversight of the states’ use of  Recovery Act contracting funds through the internal control work  performed as part of the states’ Single Audits, and some explained that  this could also be done through separate programmatic reviews if  contracting is identified as an area of risk. Although contract competition  is not the singular focus of the Single Audit, it nevertheless may be  included as part of the internal control testing for a given program. For  example, funding for weatherization programs, which increased from the  pre-Recovery Act level in the selected states, falls under the Single Audit  requirements. According to Florida state officials, their weatherization  program funding increased from about $1.3 million before the Recovery  Act to an average of $58.7 million per year over a period of 3 years. With  respect to noncompetitive contracts, the audit organizations for some of  the states we visited had not identified noncompetitive contracts as a risk  area and did not plan any audits specifically targeted at this contracting  method. Audit organization representatives in each of the five states we  visited said that they were in the process of conducting reviews of some  Recovery Act programs but the focus of these audits is not on  noncompetitive contracts; however, they also noted that these audits  could address procurement and contracting issues should they surface  during the course of the audits.
At the state level—unlike the federal level—Recovery Act funds were not  specifically set aside for state audit organizations to provide oversight of  the use of Recovery Act funds. To focus their resources, some state audit  organizations have performed risk assessments of state agencies and are  planning additional programmatic reviews. These state audit organizations  used risk assessments to identify programs for potential review and, in  some states, to maximize the use of limited auditing resources. State audit  officials told us that the factors considered in their risk assessments  included dollar values of programs, previous audit findings, internal  control weaknesses identified as a result of the Single Audits, whether the  program was new, or whether a program received large increases in  funding. As we previously reported, recent budgeting challenges for state  governments have reduced staffing levels and audit organizations have not  been spared from budget reductions that could limit their capacity to  perform audits involving Recovery Act funds.
section_title: Conclusions
paragraphs: At the federal level, available data were sufficient for us to determine the  extent to which agencies used competition for Recovery Act contracting,  the reasons selected agencies chose not to use competition, and their  approaches to contract oversight. In general, congressional and  administration direction to obligate Recovery Act funds quickly led  agencies across the government to rely heavily on existing contract  vehicles to get work under contract. Most of these existing contracts, as  well as most new contract actions, were competitive. Federal agencies  have added additional oversight procedures, internal reporting, and  coordination in response to Recovery Act requirements.
Federal agency IGs focused their initial oversight efforts on areas they  determined to be higher risk and did not target spending under contracts,  including noncompetitive contracts. While this approach may have been  justified initially given competing priorities and the relatively small  percentage of obligations spent on noncompetitive contract actions, the  result is relatively little audit coverage of Recovery Act contract actions  under SBA’s 8(a) program. This is significant for two reasons. First, the  8(a) program accounts for the overwhelming majority of noncompetitive  contract obligations under the Recovery Act. Second, our prior work,  some of which is quite recent and was not available to the IGs when they  prepared their audit plans, has shown that safeguards designed to ensure  that the program operates as intended—requiring checks on participant  eligibility and limits on subcontracting—are not always implemented  effectively. While we recognize that the Recovery Act guidance encourages  contracting with small businesses, there is an opportunity for the IGs to  reassess whether they need to focus additional audit resources on  contracting under the 8(a) program, which accounts for nearly 80 percent  of the new noncompetitive contract actions under the Recovery Act.
At the state level, we were not able to determine the full extent of the use  of noncompetitive contracting. The five states we visited collected some  aggregate data on contracts awarded by state agencies, but did not  maintain data on contracting at the local level where a portion of the  contracting activity occurs. As a result, we could not analyze the extent of  noncompetitive Recovery Act contracting within these states. With respect  to oversight, each state has supplemented its state-level guidance with  some additional Recovery Act-specific policies and procedures but does  not routinely provide state-level oversight of contracts awarded at the  local level. State audit organizations for the selected states are focusing  their audit resources on programmatic reviews rather than focusing on the  use of noncompetitive Recovery Act contracts, consistent with their  assessments of relative risk.
section_title: Recommendation for Executive Action
paragraphs: As the IGs of the five agencies we reviewed periodically revisit and revise  their Recovery Act audit plans, they should assess the need for allocating  an appropriate level of audit resources, as determined using their risk- based analyses, to the noncompetitive contracts awarded under SBA’s 8(a)  program.
section_title: Agency and State Comments and Our Evaluation
paragraphs: We provided a draft of this report to DOD, DOE, HHS, NASA, SBA, and  their respective IGs for comment. We received e-mail comments from  DOD, HHS, and NASA, as well as the DOE IG and SBA IG, in which the  agencies all generally agreed with the report’s findings and  recommendation or had no comments. In some cases, the agencies  provided technical comments or clarifying information, which we  incorporated into the report as appropriate. We received written  comments from SBA as well as the DOD IG, DOE IG, and NASA IG. The  DOD IG provided the department’s official comments and agreed with the  draft report and its recommendation. The DOE IG noted that DOE is one  of the most contractor-dependent agencies in the government and that the  DOE IG routinely considers 8(a) program contracts in its audit work. We  consider the DOE IG’s audit approach to be consistent with the intent of  our recommendation. The NASA IG agreed with the draft report and its  recommendation and noted that it is planning work on a number of  Recovery Act contracts involving 8(a) program businesses.
In its written comments, SBA noted its concern about our findings and  recommendation regarding the 8(a) program. Specifically, SBA was  concerned about what it viewed as our draft report’s attempt to link the  legitimate use of the 8(a) program with the results of a previous GAO  report that found ineligible businesses receiving contracts under the  program. SBA was also concerned that our report might be suggesting that  use of the 8(a) program was either inappropriate or a risky procurement  choice. We did not intend to suggest that there was anything improper  with agencies deciding to use the 8(a) program in implementing the  Recovery Act. In fact, our report points out that OMB’s Recovery Act  guidance specifically lists providing opportunities for small businesses to  the maximum extent practicable and supporting disadvantaged businesses  as goals for agencies using Recovery Act funds. We mentioned our prior  findings regarding 8(a) eligibility only to illustrate that there may be issues  that merit consideration by agency IGs as part of their overall approach to  audits related to Recovery Act contracts that were not apparent when they  developed their Recovery Act audit plans.
We also provided a draft of this report to representatives within the states  of California, Colorado, Florida, New York, and Texas for comment. We  received e-mail comments from various officials within the states of  California, Colorado, Florida, and New York, including some of the state  audit organizations, in which they generally agreed with the report’s  findings or had no comments. Some state officials provided technical  comments or clarifying information in their e-mails, which we  incorporated into the report as appropriate. We received written  comments from the states of Florida and Texas. Florida generally agreed  with the report’s findings. Texas provided a proposed factual addition and  a technical comment, which we incorporated as appropriate. Texas also  made an observation that Congress had not provided funds for state  oversight of Recovery Act funds. Although the Recovery Act did not  provide such funds, as noted in footnote 28 there is guidance from OMB  that could permit reimbursement of such state expenses under specified  circumstances.
The written comments are reprinted in appendixes IV through IX.
We are sending copies of this report to interested congressional  committees, as well as the Secretaries of the Departments of Defense,  Energy, and Health and Human Services; the Administrators of the  National Aeronautics and Space Administration and the Small Business  Administration; and the Inspectors General of these five agencies. In  addition, we are sending the report to officials in the five states covered in  our review. The report also is 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, please contact me  at (202) 512-4841. 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 X.
section_title: Appendix I: Federal Agencies’ Obligations on Competitive and Noncompetitive Recovery Act Contract Actions as of May 2010
subsections: section_title: National Aeronautics and Space Administration
paragraphs: uisition Regulation (FAR),  including, for example, sole-source contracts awarded under SBA’s (a) program as well as contracts  awarded without competition under simplified acuisition procedures.
Totals exclude 456 Recovery Act contract actions for which the extent of competition was not  recorded in FPDS-NG. These actions represent a total of $324,304,140 in Recovery Act obligations.
section_title: Appendix II: Key Recovery Act Programs, Spending, Contract File Review Observations, and Oversight for Selected Agencies
subsections: section_title: Department of Defense
paragraphs: DOD’s mission is to provide the military forces needed to deter war and to  protect the security of our country. The mission of USACE, one of DOD’s  construction agents, is to provide vital public engineering services in  peace and war to strengthen our nation's security, energize the economy,  and reduce risks from disasters.
subsections: section_title: Key Recovery Act Programs
paragraphs: DOD received approximately $7.4 billion in defense-related appropriations  under the Recovery Act, with an additional $4.6 billion appropriated to  USACE for its Civil Works Program. According to DOD’s Recovery Act  plan, about 88 percent of its non-USACE Recovery Act funding is for  facilities infrastructure. This includes DOD’s Facilities Sustainment,  Restoration, and Modernization program, the Military Construction  program, and the Energy Conservation Investment Program. The  remaining funds are for the expansion of the Homeowners Assistance  Program providing assistance to military and civilian families and the Near  Term Energy-Efficient Technologies program. Recovery Act funds for  USACE are allocated to various business programs under the Civil Works  Program including emergency management, environment and  environmental stewardship, flood risk management, hydropower,  navigation, recreation, regulatory, and water storage for water supply.  DOD program areas receiving Recovery Act funding are listed in table 2.
section_title: Recovery Act Spending
paragraphs: As of May 2010, DOD (including USACE) obligated more than $7.5 billion  of Recovery Act funds on contracts. DOD obligated about two-thirds of its  Recovery Act funds in the last two quarters of fiscal year 2009, from April  through September 2009. Figure 3 shows DOD obligations of Recovery Act  funds through contracts by fiscal quarter.
Most of the funds that DOD obligated under Recovery Act contract actions  were on existing contracts, as shown in figure 4. Of those funds obligated  on new contracts, most were obligated to competitively awarded  contracts. Approximately 17 percent of obligations on new contracts were  obligated to noncompetitively awarded contracts, most of which were  awarded to 8(a) program small businesses.
subsections: section_title: 38% New
paragraphs: We selected 67 noncompetitive contracts, task orders, or modifications for  review at the USACE Sacramento District. Most of these actions were  placed under existing indefinite delivery/indefinite quantity (IDIQ)  contracts that had been awarded to 8(a) program businesses. Sacramento  District contracting officials told us that they typically award IDIQ  contracts to 8(a) program businesses for smaller-dollar projects as part of  their regular business processes. These contract vehicles can then be used  to quickly place orders for individual projects within the scope of the  contract until the total value of the contract approaches the $3.5 million  threshold for noncompetitive 8(a) program awards.
About half the dollars obligated under the Recovery Act by the  Sacramento District—over $53 million—were used to accelerate funding  of an existing project to relocate train tracks in Napa, California as part of  a flood control project. This action is considered noncompetitive because  the original contract was awarded sole-source to an Alaska Native  Corporation in 2008, prior to the enactment of the Recovery Act; the  contract was modified in 2009 to add Recovery Act funds. According to  USACE officials, the Recovery Act funding accelerated the completion of  the flood control project, which also decreased the total cost of the  project.
Some of the Recovery Act orders at Sacramento District were  administered by USACE on behalf of other DOD components, such as the  Army and Air Force. For instance, USACE placed an order on an existing  IDIQ contract with an 8(a) program business for work on ventilation  controls in buildings at Beale Air Force Base in Roseville, California.
Table 3 provides additional details on some noncompetitive contract  actions we reviewed at USACE Sacramento District. These examples  illustrate the variety of services and supplies being acquired, the amount of  Recovery Act funding used, and the reason a contract action was not  competed.
section_title: Agency Contracts Requiring Justifications for Noncompetitive Awards
paragraphs: Using FPDS-NG data as of February 19, 2010, we identified 16 DOD  contracts that required documented justification and approval for using  other than full and open competition. Our review of these justification  documents found that they included information to support the stated  reason for a noncompetitive award. The most common reason, cited in 15  of the contract files, was that only one source was able to provide the  product or service. Within this group, about half were contracts for  utilities such as water service, while most of the others within this group  were for proprietary equipment or technology that could only be provided  by one business. For instance, one contract was for the purchase of  replacement parts for a hydraulic system at a USACE dam. The  justification stated that the contract was awarded without competition  because the original manufacturer of the equipment is the only available  source of replacement parts.
Agency Contract Oversight  DOD efforts to provide oversight and transparency for Recovery Act  activities include internal coordination, increased reporting to  management, and recipient reporting.
Coordination: The Office of the Secretary of Defense (OSD) assigned the  Principal Deputy Under Secretary of Defense within its Comptroller’s  office responsibility for Recovery Act oversight and coordination at the  department level. OSD also established the Recovery Act Defense  Department Working Group, which holds a weekly meeting that includes  representatives from each of the services; the IG’s office; the small  business coordinator; the Acquisition, Technology and Logistics office;  and other entities within DOD. According to officials, the working group’s  discussions cover a variety of Recovery Act issues at a high level, some of  which are specifically contracting-related, such as contract obligations and  updates on specific programs.
Reporting: At the OSD level, information on Recovery Act activities,  including contracting, is gathered from the individual services and FPDS- NG and compiled in the Business Enterprise Information System, which  enables management to oversee DOD’s Recovery Act programs across all  three services. For instance, the system includes data on contract  obligations and estimated completion dates for DOD Recovery Act  projects, and is updated continually. Individual DOD components have  also implemented additional management reporting—for instance, USACE  generates a weekly report for its leadership on the progress of Recovery  Act projects.
Additional review: DOD did not create any additional levels of pre-award  approval at the department level; contracting is administered by the  individual services. USACE did not implement any additional levels of pre- award approval for Recovery Act contracts.
Issues: OSD officials said that no schedule or cost overrun issues have  come to their attention. The only contract-related problem that they have  had to address at the department level has been with recipient reporting  and ensuring that recipient reports are filed by the contractors and are  accurate.
section_title: IG Contract Oversight
paragraphs: Risk assessment: When designing its Recovery Act audit approach, DOD  IG used data on individual DOD projects to assess risk and focus its  efforts. The risk assessment ranked individual projects, incorporating the  dollar value of the contracts, project type, location, and contract  characteristics, such as the level of competition, as risk factors. DOD IG  initially selected the 83 highest-risk projects based on these criteria. Once  on-site reviews began, the information gathered was used to further refine  the risk assessment criteria and select some additional projects.
Audit Approach: The DOD IG established a three-phase review of  Recovery Act-related activities.
Phase 1, review of DOD and program-specific Recovery Act  implementation plans, has been completed. These reviews found that the  DOD and program plans met Office of Management and Budget (OMB)  standards, although the DOD IG called for additional detail regarding how  the agency arrived at its projections of the proportion of contracts that  would be awarded competitively.
Phase 2 is a review of the implementation of the Recovery Act programs,  focusing on the projects based on the results of the risk assessment. DOD  IG identified sites to visit for the Facilities Sustainment, Restoration, and  Modernization and Military Construction programs. The DOD IG’s reviews  within each military service are being conducted in cooperation with the  respective military service audit agencies. As part of this work, DOD IG  and audit agency staff review the extent of competition and the related  documentation for selected contracts. The Air Force Audit Agency is also  conducting some additional Recovery Act reviews beyond those it is  conducting on behalf of the DOD IG. This work is ongoing.  In Phase 3, which is not yet underway, the DOD IG will provide oversight  of the construction of the projects, ensure that all required reporting is  taking place, and review the results of the projects.
Findings: As of June 9, 2010, the DOD IG and military service audit  agencies had posted reports on about 27 individual site reviews on  www.Recovery.gov. These reports have found management of Recovery  Act contracting to be generally good, although they suggest areas for  improvement at some specific installations, such as ensuring that all  Recovery Act-related clauses are included in every contract, or developing  a plan to manage recipient reporting.
section_title: Department of Energy
paragraphs: DOE works to advance the national, economic, and energy security of the  United States; to promote scientific and technological innovation in  support of that mission; and to ensure the environmental cleanup of the  national nuclear weapons complex.
subsections: section_title: Key Recovery Act Programs
paragraphs: DOE received approximately $36.7 billion in funding under the Recovery  Act. Of this, $32.7 billion was for the award of grants and contracts.  However, many programs involved comparatively little contracting by  DOE—for instance, the Weatherization Assistance Program ($5 billion)  provided grants to states. By contrast, funding for cleanup of nuclear sites  ($6 billion) is spent primarily through contracts. DOE program areas  receiving Recovery Act funding are listed in table 4.
section_title: Recovery Act Spending
paragraphs: As of May 2010, DOE had obligated more than $7.1 billion of Recovery Act  funds through contracts. Most of the DOE Recovery Act contracting funds  to date were obligated within the last two quarters of fiscal year 2009, from  April through September 2009. Figure 5 shows DOE obligations of  Recovery Act funds through contracts by fiscal quarter.
Nearly all—almost 100 percent—of the funds that DOE obligated under  Recovery Act contract actions were on existing contracts, as shown in  figure 6. About 97 percent of all Recovery Act funds at DOE were on  contract actions coded in FPDS-NG as awarded competitively. However,  among the small amount of funds obligated through new contracts, 92  percent were obligated on noncompetitively awarded contracts.
section_title: Contract obligations
section_title: Observations from the Site Review at the Environmental Management Consolidated Business Center
paragraphs: Of the 16 contract actions we reviewed at DOE’s Environmental  Management Consolidated Business Center, all were orders or  modifications on existing noncompetitive contracts. Several added  funding to existing remediation projects for sites with radioactive  contamination. For example, $1.9 million in Recovery Act funds were  obligated on a contract for environmental remediation for the Uranium  Mill Tailings Remediation Action in Moab, Utah. Other contracts were for  administrative support and involved smaller amounts of Recovery Act  funds. For instance, DOE issued an order on an existing contract for  monitoring and reporting support.
Table 5 provides additional details on some noncompetitive contract  actions we reviewed at the Environmental Management Consolidated  Business Center. These examples illustrate the variety of services and  supplies being acquired, the amount of Recovery Act funding used, and the  reason a contract action was not competed.
section_title: Agency Contracts Requiring Justifications for Noncompetitive Awards
paragraphs: In a review of FPDS data as of February 19, 2010, we did not identify any  new noncompetitive DOE contracts requiring a documented justification  and approval for being awarded noncompetitively.
section_title: Agency Contract Oversight
paragraphs: DOE efforts to provide oversight and transparency for Recovery Act  activities include internal coordination, increased reporting to  management, and recipient reporting.
Coordination: DOE created the Senior Advisor position in the Office of  the Secretary of Energy charged with overseeing Recovery Act  implementation. This official leads the Office of the Recovery Act, which  holds regular meetings with key officials from each of the agency’s  program and functional divisions. These meetings were held daily in the  first months of Recovery Act implementation and are now held weekly.  According to agency officials, a primary goal of these coordination  meetings is to create strong links between the work of program offices and  that of the functional offices, such as contracting, that support the  programs. Topics of discussion at these meetings include the status of  ongoing projects, areas of Recovery Act implementation identified as  lagging, and other issues raised through review of agency data or by  meeting participants. Officials said that Recovery Act coordination teams  have also been established within individual DOE functional offices.
Reporting: DOE increased the amount of internal reporting as part of its  Recovery Act oversight. An internal system, iPortal, reports detailed  financial, earned value management, performance, risk, and job creation  data on DOE projects. This system had already been in place, but was  expanded for the Recovery Act to support more frequent reporting,  performance dashboard displays, and an increased number of users from  across the agency. The iPortal system generates automated daily and  weekly reports to agency officials on key aspects of Recovery Act  implementation; officials also use it to browse data on individual programs  and projects. In addition, officials said that each program participates in a  quarterly review of Recovery Act performance.
Additional review: According to DOE officials, all projects receiving  Recovery Act funding had to be approved by the program office, the Office  of the Recovery Act, the Under Secretary, and the Secretary. The projects  were also reviewed and approved by OMB before contract performance  could begin. After these projects completed this review process, DOE did  not impose any additional levels of pre-award contract review beyond its  normal processes, according to officials.
Issues: Agency officials said that they had not encountered any notable  problems in implementing Recovery Act contracts.
section_title: IG Contract Oversight
paragraphs: Risk assessment:  According to DOE IG officials, the DOE IG’s Office of  Audit Services conducts an annual risk assessment, and in response to the  Recovery Act, the office incorporated its programs into the existing  process. Officials said that this assessment includes collective judgment of  risks and vulnerabilities from the DOE IG’s previous audit work, and  combines these risks with other factors such as the level of funding. DOE  IG officials said that they were familiar with existing remediation  contracts through their prior work, and determined that adding additional  funding to them was not high risk.
Audit approach: DOE IG created a tiered approach to oversight of  Recovery Act funds. Because the areas identified in the risk assessment do  not emphasize contracting, only portions of the audit approach include  contracting.
Tier 1: Review the department’s internal control structure and  management of the most significant programs (those exceeding $500  million) under the Recovery Act.
Tier 2: Examine the efficiency and effectiveness of the department’s  distribution of funds to primary recipients such as state and local  governments.
Tier 3: Examine the use of funds by contract and grant recipients through  transaction testing. Because grants represent a larger share of DOE  Recovery Act funds, DOE IG officials said that grant programs have been  the focus of the majority of their reviews.
Findings: DOE IG has released seven Recovery Act-related reports that  address contracting issues. Most of these are not direct reviews of the  agency’s Recovery Act spending, but rather address previously identified  management issues that the DOE IG determined could have an impact on  the agency’s Recovery Act programs. For example, the DOE IG issued a  report on the agency’s management of contract fines, penalties and legal  costs, and noted the potential impact on Recovery Act implementation.
section_title: Department of Health and Human Services
paragraphs: HHS’s mission is to enhance the health and well-being of Americans by  providing for effective health and human services and by fostering strong,  sustained advances in the sciences, underlying medicine, public health,  and social services.
subsections: section_title: Key Recovery Act Programs
paragraphs: The Recovery Act provided over $145 billion to HHS of which the agency  has allocated over $90 billion (63 percent) to improving and preserving  health care. Over $25 billion or 18 percent will be used for health  information technology. Spending on children and family services and  scientific research and facilities make up most of the remaining funds. As  of June 30, 2010 HHS has obligated over $87 billion of its Recovery Act  funds, including nearly $1.3 billion in contracts and orders. HHS program  areas receiving Recovery Act funding are listed in table 6.
section_title: Recovery Act Spending
paragraphs: Recovery Act contract obligations peaked in the fourth quarter of fiscal  year 2009 at $752 million. These obligations have been below $300 million  in each subsequent quarter. Figure 7 shows HHS obligations of Recovery  Act funds through contracts by fiscal quarter.
Most of the funds that HHS obligated under Recovery Act contract actions,  about 83 percent, were obligated on existing contracts as shown in figure  8. Of the funds used for new contract actions, 76 percent were obligated  on contracts that were competed. Of the obligations on noncompetitive  new contract actions, 58 percent were on actions awarded  noncompetitively because of the urgency of the agency’s need, 22 percent  were on actions for which only one source was available, 9 percent were  on actions awarded noncompetitively under SBA’s 8(a) program, and 2  percent were on actions noncompetitively awarded under simplified  acquisition procedures.
section_title: Observations from the Site Review at NIH
paragraphs: We selected NIH for our contract file review as it had the largest amount  of noncompetitive Recovery Act actions in numbers and dollars.
The most common reason for not competing the award of a contract was  that there was only one source available. This occurred on contracts for  new medical and laboratory equipment for which only one business could  meet the requirements of the contract. Only one source available was  listed on contracts for equipment and software upgrades. In these cases,  the program and contracting offices decided that it was more practical to  upgrade the existing equipment than it was to purchase new equipment.  These upgrades were only available through the manufacturer of the  equipment and were therefore not competed. The contract files included  market research that did not identify alternative sources or comparable  price quotes for similar items.
Table 7 provides additional details on some noncompetitive contract  actions we reviewed at NIH. These examples illustrate the variety of  services and supplies being acquired, the amount of Recovery Act funding  used, and the reason a contract action was not competed.
section_title: Agency Contracts Requiring Justifications for Noncompetitive Awards
paragraphs: Using FPDS-NG data as of February 19, 2010, we identified four contracts  at HHS—three awarded at the Centers for Disease Control and Prevention   and one at NIH—that required a documented justification and approval for  using other than full and open competition. In each case, the contractor  was selected on a noncompetitive basis because there was only one  source available that could fully meet project requirements. For example,  on an NIH contract for the upgrade of a system that stores pictures  generated by medical imaging devices, it was determined that the  incumbent contractor was the only source capable of meeting the contract  requirements as it had important institutional knowledge and access to a  proprietary system, and no other sources could be found. While one other  source offered a competing proposal, it was to replace the system rather  than upgrading the existing system, a less-cost efficient and time- consuming alternative, according to agency officials.
Agency Contract Oversight  HHS efforts to provide oversight and transparency for Recovery Act  activities include internal coordination, increased reporting to  management, and recipient reporting.
Coordination:  HHS has established an Office of Recovery Act  Coordination (ORAC) which coordinates with relevant business  management functions, such as public affairs, grants and contract  management, financial management, budget, planning and evaluation,  information technology, and the Office of the General Counsel. It also  coordinates with the offices that manage appropriated funds and programs  authorized under the Recovery Act. In addition to acting as the central  repository for data, policies, and procedures related to the Recovery Act,  ORAC prepares executive-level reports that portray the overall status of  Recovery Act implementation based on individual project and activity  plans. ORAC also identifies the key tasks, milestones, and activities for  each project plan that require coordination with HHS program and  business functions.
Additional review: NIH has established a process early in the acquisition  planning stage for contracts using Recovery Act funds whereby a summary  of the requirement, including any justifications for noncompetitive  acquisitions, is reviewed and approved by various senior representatives  to ensure that the requirement meets the intent of the Recovery Act and  that the justification is supported. This document is called a Proposed  Recovery Act Contract Action Approval Form. NIH contracting staff use a  checklist in each contract to ensure that the files are complete and comply  with Recovery Act requirements. NIH also developed detailed guidance  that complements and expands guidance issued by OMB. All contract  actions at NIH funded in whole or in part by the Recovery Act are subject  to this guidance. Included in this guidance are additional oversight  mechanisms and measures related to use of noncompetitive acquisitions.
section_title: IG Contract Oversight
paragraphs: The Recovery Act provided the HHS IG with $17 million in funding for  oversight and review and an additional $31,250,000 for ensuring the proper  expenditure of funds under Medicaid. As of May 2010, the HHS IG has  used $4.8 million of these funds.
According to the HHS IG, internal risk assessments determined that the  areas of greatest risk were the grant awards of the Administration for  Children and Families (which is administering grant funds for expanded  Head Start programs, among other programs) and the Health Resources  and Services Administration, particularly those related to community  health center grants. Accordingly, HHS IG officials are focusing their  oversight efforts on these agencies.
By contrast, HHS IG officials determined that contracting activities, such  as those we reviewed at NIH, are of comparatively lower risk. Efforts are  presently focused on the identified high-risk departments and programs.  While the HHS IG plans to review Recovery Act spending at colleges and  universities in fiscal year 2011, these reviews will focus on compliance  with grant terms.
section_title: National Aeronautics and Space Administration
paragraphs: NASA’s mission is to pioneer the future in space exploration, scientific  discovery and aeronautics research.
subsections: section_title: Key Recovery Act Programs
paragraphs: NASA received approximately $1 billion in Recovery Act funds, 80 percent  of which were used for Science and Exploration programs, 15 percent for  Aeronautics programs, and 5 percent for cross-agency support programs  which include restoration of NASA-owned facilities damaged by  hurricanes and other natural disasters that occurred during calendar year  2008. NASA program areas receiving Recovery Act funding are listed in  table 8.
section_title: Recovery Act Spending
paragraphs: Nearly half of NASA’s Recovery Act contracting funds were obligated in  the fourth quarter of fiscal year 2009. Figure 9 shows NASA obligations of  Recovery Act funds through contracts by fiscal quarter.
Most of the funds that NASA obligated under Recovery Act contract  actions, about 89 percent, were obligated on existing contracts as shown  in figure 10. Of the funds obligated for new actions, over 79 percent were  obligated on contracts that were competed. For the noncompetitive new  contract obligations, 64 percent were on actions awarded  noncompetitively under SBA’s 8(a) program, 33 percent were on actions  awarded noncompetitively because there was only one source available,  and 3 percent were on actions noncompetitively awarded under simplified  acquisition procedures.
section_title: Observations from the Site Review at NASA Johnson Space Center
paragraphs: We reviewed 10 noncompetitive Recovery Act contract actions awarded  by the NASA Johnson Space Center (JSC). The largest single obligation of  Recovery Act funds that we reviewed at NASA was a $15 million  modification (change order) to an existing noncompetitive contract in  support of Common Docking Adapter development for the International  Space Station. Six contract actions in our sample were new contracts to  8(a) program businesses to provide a variety of construction services,  repair services, or both at JSC. NASA cited the Recovery Act guidance  directing agencies to take advantage of any authorized small business  contracting program as its reason for selecting these businesses. Prior to  selecting these businesses, the agency performed market research and  coordinated with SBA to identify a potential pool of 8(a) program  businesses. NASA then held capability briefings with those businesses  from which award selections were made. Finally, there were three orders  using an existing, originally noncompetitive contract to an 8(a) program  business for construction oversight administration services at JSC.
Table 9 provides additional details on some noncompetitive contract  actions we reviewed at JSC. These examples illustrate the variety of  services and supplies being acquired, the amount of Recovery Act funding  used, and the reason a contract action was not competed.
section_title: Agency Contracts Requiring Justifications for Noncompetitive Awards
paragraphs: In a review of FPDS data as of February 19, 2010, we identified one new  NASA contract that required a documented justification and approval for  use of a noncompetitive award. According to the justification for this  contract, only one source was available for specific electronic systems  because only one business had developed a spaceflight-appropriate  version of the technology.
Agency Contract Oversight  NASA efforts to provide oversight and transparency of Recovery Act- funded efforts include internal coordination, issuing guidance to the  procurement community on the implementation of the Recovery Act, a  prohibition on commingling of funds, greater reporting to senior  management, and recipient reporting. There are weekly meetings of NASA  oversight and contracting officials to coordinate Recovery Act efforts. In  addition, the agency developed an internal online file management system  that stores Recovery Act-related contract files and can be accessed by  agency officials.
NASA issued Procurement Information Circular 09-06E to provide  guidance to the procurement community on the implementation of the  Recovery Act. The guidance provides instruction on a range of Recovery  Act contracting topics including requisition requirements for initiating  procurement actions, pre-award considerations and contracting officer  responsibilities, posting and reporting requirements for contract actions,  inclusion of new FAR clauses, instructions specific to construction  contracts, and contractor invoicing procedures, among others. The  circular also includes NASA’s process for reviewing contactor reporting  under the Recovery Act.
section_title: IG Contract Oversight
paragraphs: According to officials, the NASA IG is reviewing Recovery Act contract  actions at selected NASA centers as appropriate; this will include two  types of audits, one of the administration and implementation of the  contract award and another of the performance of the contractor. Officials  reported that the initial administrative audits of Recovery Act contract  actions through November 2009 are complete at a number of the centers  including Johnson, Goddard, Langley, and Ames. As of June 2010, one  contractor performance audit had been conducted. On July 1, 2010, the  NASA IG issued a draft report on the combined administrative audits for  NASA management’s review and comment. The NASA IG is releasing  staggered performance reports and may issue a capping report, as  necessary.
The NASA IG conducted an initial review of the final NASA Agency-Wide  Recovery Act Plan and identified several compliance issues with respect to  fulfilling requirements of the OMB guidance. According to the NASA IG  memorandum, NASA’s Agency-Wide Recovery Act Plan provided  insufficient detail about the agency’s broad Recovery Act goals in terms of  outputs, outcomes, and expected efficiencies. In addition, the plan did not  include a projection of the expected rate of competition nor a rationale for  those numbers, as required by OMB guidance. Lastly, the plan did not  address the use of fixed-price contracts as a percentage of all dollars spent  or describe the steps planned to maximize the use of fixed-price contracts  where practicable for Recovery Act-funded contracts. The memorandum  was submitted to NASA on December 17, 2009. In NASA management’s  response, received January 5, 2010, the Recovery Act Implementation  Executive stated the agency concurred with the observations noted in this  memorandum. According to NASA management’s response, at the time  that the Agency-Wide Recovery Act Plan was due for submission to OMB,  Congress had not concurred with NASA’s proposed activities. NASA  indicated in its plan that it would provide this additional information with  plan updates.
section_title: Small Business Administration
paragraphs: SBA’s mission is to maintain and strengthen the nation’s economy by  aiding, counseling, assisting, and protecting the interests of small  businesses.
subsections: section_title: Key Recovery Act Programs
paragraphs: The Recovery Act provides $730 million to SBA that the agency is  using to expand its lending and investment programs so that they  can reach more small businesses that need help. While most of  SBA’s Recovery Act funds are used for loan programs, contracts are  being awarded for equipment and services to support these  programs. Specifically, SBA has allocated $20 million for improving  technology. Most of the contract dollars are being spent in this area.  SBA program areas receiving Recovery Act funding are listed in  table 10.
section_title: Recovery Act Spending
paragraphs: Through May 2010, SBA has obligated approximately $11 million of its  Recovery Act funds on contracts. SBA’s quarterly obligations have  fluctuated. According to an SBA procurement official, this was generally  because of the award of large, individual contracts. Figure 11 shows SBA  obligations of Recovery Act funds through contracts by fiscal quarter.
SBA’s use of existing and competed contracts was very different from the  other agencies we reviewed. Most of the funds that SBA obligated under  Recovery Act contract actions, about 76 percent, were obligated on new  contracts, as shown in figure 12 below. For the noncompetitive new  contract obligations, 76 percent were on actions awarded  noncompetitively under SBA’s 8(a) program, 3 percent were on actions  awarded noncompetitively under simplified acquisition procedures, and 3  percent were on actions awarded noncompetitively because there was  only one source available. Two percent of new contracts were awarded  competitively. $6.
section_title: Observations from the Site Review at SBA
paragraphs: SBA is primarily using Recovery Act contracts to train, supply, and equip  staff to support other Recovery Act-related activities. Most of SBA’s  Recovery Act contract dollars were obligated on contracts to 8(a) program  businesses.
Consistent with the fact that agencies are not required to justify in writing  the use of noncompetitive contracting procedures for 8(a) program  contracts, these contract files were not required to contain a justification  document related to awarding a noncompetitive contract. However, the  files contained documentation that described the use of the 8(a) program  and included competitors’ quotes to establish price reasonableness.
Table 11 provides additional details on some noncompetitive contract  actions we reviewed at the SBA. These examples illustrate the variety of  services and supplies being acquired, the amount of Recovery Act funding  used, and the reason a contract action was not competed.
section_title: Agency Contracts Requiring Justifications for Noncompetitive Awards
paragraphs: In a review of FPDS data as of February 19, 2010, we did not identify any  new, noncompetitive SBA contracts requiring a documented justification  and approval for being awarded noncompetitively.
Agency Contract Oversight  SBA efforts to provide oversight and transparency for Recovery Act  activities include increased legal review of contract awards and recipient  reporting.
SBA has experienced a significant decrease in its acquisition workforce  and has contracted out for contract specialists.
SBA includes a legal review for all Recovery Act contract awards. This  review is not required for every non-Recovery Act award.
section_title: Inspector General Contract Oversight
paragraphs: The SBA IG has received $10 million in Recovery Act funds for oversight.  The SBA IG’s Recovery Act Oversight Plan highlighted numerous efforts  related to SBA’s contract administration practices, and oversight of  Recovery Act loans and grants. In the contracting area, the SBA IG’s focus  was on examining the award and administration of $20 million in  information technology contracts, and evaluating the adequacy of SBA’s  acquisition workforce, expenditure controls, and reporting of contract  actions. In October 2009, the SBA IG added three staff members to its  contract audit group to provide additional audit coverage of the  procurement function.
The SBA IG has issued a memorandum to SBA’s acquisition office  regarding their dramatic shortages in acquisition staff noting that the staff  decreased from 13 to 5 staff members in a short period of time, straining  the acquisition office’s ability to issue and provide oversight of Recovery  Act contracts.
The SBA IG issued a report noting that there are numerous discrepancies  in the way that actions are being recorded in the FPDS-NG. The SBA IG  also issued another report that identified problems with acquisition  planning and eligibility for 8(a) program businesses associated with two  contracts for the Customer Relationship Management suite of applications  (see table 11).
section_title: Appendix III: Objectives, Scope, and Methodology
subsections: section_title: Objectives
paragraphs: GAO was asked to examine noncompetitive contract awards under the  American Recovery and Reinvestment Act of 2009 (Recovery Act). In  response, we conducted a review to determine:  the extent to which Recovery Act funding was spent using contracts, and  to what extent these contract actions were awarded noncompetitively;  the reasons selected federal agencies awarded noncompetitive Recovery  Act contracts;  the extent of oversight of Recovery Act contract actions at selected federal  agencies; and    state officials’ level of insight into the use of noncompetitive Recovery Act  contracts within selected states.
section_title: Scope and Methodology
paragraphs: We analyzed Federal Procurement Data System—Next Generation (FPDS- NG) data to determine the extent to which Recovery Act funding was  obligated through contract actions across the federal government. We  determined that the FPDS-NG data were sufficiently reliable for the  purposes of this review by comparing the information for selected  agencies with information from other sources, including agency contract  data and information in contract files at selected locations. As part of this  analysis, we determined the amount of Recovery Act obligations under  new and existing contract vehicles, as reported in FPDS-NG. Actions on  the same underlying contract were grouped together; orders and  modifications to contracts awarded after enactment of the Recovery Act  were counted as occurring under new contracts, while orders and  modifications to contracts that predated the Recovery Act were counted  as existing contracts.
For our second and third objectives, we used FPDS-NG data to select five  agencies for more extensive review:    Department of Defense (DOD)    Department of Energy (DOE)    Department of Health and Human Services (HHS)    National Aeronautics and Space Administration (NASA)    Small Business Administration (SBA)
These agencies were identified on the basis of the volume, dollar value,  and percentage of noncompetitive contract actions on which they  obligated Recovery Act funds, according to data drawn from FPDS-NG on  February 19, 2010. The size of the agencies was also considered.
Within each of the five agencies, we selected one contracting office at  which we reviewed contract files for noncompetitive Recovery Act  contract actions. As with the agencies, we chose these locations based on  the volume, dollar value, and percentage of noncompetitive Recovery Act  contract actions. The types of contract awards made at each location were  also considered. The five contracting offices selected were  the U.S. Army Corps of Engineers (USACE) Sacramento District at DOD,  the Office of Environmental Management Consolidated Business Center at  DOE,  the National Institutes of Health (NIH) at HHS,  the Johnson Space Center at NASA, and  the Office of Business Operations at SBA.
At each contracting office, we reviewed all noncompetitive contract  actions awarded or issued using Recovery Act funds, about 150 actions in  total. Because GAO and others have previously identified shortcomings in  FPDS-NG, we also asked agency officials to verify the accuracy and  completeness of our lists of noncompetitive contract actions before our  site visits. For each contract file, we reviewed basic information on the  contract award, such as the obligation amount, as well as information on  the award process, such as the reason the contract was awarded  noncompetitively. These reviews were conducted on-site, except for that  of NASA’s Johnson Space Center, for which we reviewed electronic  versions of the contract files. We also interviewed agency contracting  officials at each location regarding issues related to the contract files  included in our review as well as contracting under the Recovery Act as a  whole.
In addition, using FPDS-NG data, we identified all new Recovery Act  contracts at the selected agencies that required documented justifications  and approvals authorizing the use of a noncompetitive contracting  approach, as of February 19, 2010. We limited our search to new contracts  with an award type of “Definitive Contract” in FPDS-NG, and selected for  review all those where the amount obligated exceeded typical thresholds  for requiring a documented justification—$3.5 million for contracts with  8(a) program businesses, and $100,000 in most other cases. For each of the  contracts, we obtained and reviewed materials from the contract files  related to the justification for the noncompetitive award.
For each of the five selected federal agencies, we gathered information on  Recovery Act contracting oversight from interviews with relevant officials,  and reviews of relevant policies, reports, and other documents. We  obtained similar information from the agencies’ inspectors general (IG),  including their audit plans related to Recovery Act contracting. We also  reviewed and analyzed applicable findings the IGs have made regarding  management and oversight of Recovery Act contracting.
To determine the level of insight that state officials have into the use of  noncompetitive Recovery Act contracts, we selected five states— California, Colorado, Florida, New York, and Texas—based on the amount  of Recovery Act funds reported as being awarded via contracts on  www.Recovery.gov and our goal of providing information on a variety of  geographic locations. These states account for more than half of the  Recovery Act funds awarded by contract at the state level for the 16 states  that we are monitoring as part of our mandatory reporting on Recovery  Act issues. For each state, we discussed with the appropriate state  officials—including representatives from the governors offices, state  procurement offices, and audit organizations—the extent to which the  states have awarded noncompetitive Recovery Act contracts, the reasons  why they did not use competition, and the level of oversight the states  provide for these contracts. Additionally, we discussed these issues with  representatives of the state agencies that manage the education and  weatherization programs to obtain further understanding of how state  agencies award and oversee contracts. It is important to note that states  are not required to follow federal acquisition regulations, including those  covering the award of noncompetitive contracts.
We conducted this performance audit from February 2010 to July 2010, 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 V: Comments from the Department of Energy Inspector General
paragraphs: Appendix V: Comments from the Department of  Energy Inspector General  Mr. James Fuquay  Assistant Director  Government Accountability Office  Via email:  (fuquayj@gao.gov).
Subject: Comments on the Draft Government Accountability Office Report:   RECOVERY ACT: Contracting Approaches and Oversight at Selected   Federal Agencies and States (GAO-10-809)
The Office of Inspector General appreciates the opportunity to comment on the subject report.   As we explained during our meetings with GAO officials and as recognized in your draft report,  the Office of Inspector General employs a risk-based approach in determining how to best use  taxpayer furnished resources.  For the Recovery Act, as with all funds appropriated to the U.S.  Department of Energy, we consider a number of factors in determining where to apply our scarce  audit resources, not the least of which is the form and substance of the contracting vehicle  employed.
The U.S. Department of Energy is one of the most contractor dependent agencies in the  government.  As a result, we incorporate the examination of applicable contract instruments into  each of our audits.  Regarding our Recovery Act strategy, we considered the subject area during  the completion of our risk assessment.  However, as your report states, we did not identify  contracting as a Recovery Act high risk area.  One of the primary reasons was that the  Department used a significant portion of its Recovery Act funds to award grants, with virtually  all of the remainder dedicated to accelerating approved scopes of work on existing contracts.  As  GAO notes in the Appendix to its draft, less than one percent of funding was devoted to newly  awarded contracts, including those awarded to 8(a) firms.  By virtually every reasonable test,  such amount is immaterial to the more than $38 billion in Recovery Act funding received by the  Department.
With respect to use of Recovery Act funding, the GAO is correct in stating that OIG spending  has not reached anticipated levels.  However, the draft report fails to recognize that this was  directly tied to delays in the Department’s program start/scale-up.  As we have identified in  recently issued and several in-progress reviews, significant spending by the Department on a  number of major Recovery Act projects/activities had only recently begun.  As of June 30, 2010,  however, we had obligated about $6.2 million and expended over $1.7 million of the $15 million  we were provided in Recovery Act funds.  We anticipate that our spending rate will significantly  increase in the near term as the OIG is currently using contract independent public accountants  and Federal Recovery Act specific employees to provide support for a significant number of  audits at the state and local level.
Finally, the report recommends that as we revisit and revise our Recovery Act audit plans, that  we should assess the need for allocating an appropriate level of audit resources, as determined  using our risk-based analysis, to non-competitive contracts awarded under the 8(a) program.  We  do not disagree with the fundamental premise of the recommendation; however, we do not  believe that the facts in this case provide a basis for it.  As a matter of practice, we routinely  consider contracts of this nature and have completed a number of audits in this area in the past.   In fact, our Fiscal Year 2011 plan includes an audit start in this very area.
Should you have questions or desire to discuss the contents of our response, please contact me at  202-586-1949.
section_title: Appendix VII: Comments from the Small Business Administration
section_title: Appendix IX: Comments from the State of Texas
section_title: Appendix X: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Acknowledgments
paragraphs: In addition to the contact named above, William T. Woods, Director; James  Fuquay, Assistant Director; Shea Bader; Noah Bleicher; M. Greg Campbell;  MacKenzie Cooper; Alexandra Dew; R. Eli DeVan; Kevin Heinz; W. Keith  Hudson; Julia Kennon; Jean K. Lee; Teague Lyons; Jean McSween; Norm  Rabkin; Morgan Delaney Ramaker; and Russ Reiter all made contributions  to this report.