Interagency Contracting: Problems with DOD's and Interior's Orders to Support Military Operations
Released: 2005-04-29T00:00:00

Letter

Background

In recent years, agencies have increasingly placed orders against existing contracts that have been awarded by another agency to save time and administrative effort. Rather than going through the often lengthy process involved in awarding a new contract for services—soliciting offers, evaluating proposals, and awarding the contract—agencies can place task orders against established indefinite quantity contracts that meet their needs. When placing orders against multiple-award task order contracts, agencies are generally required to ensure that contractors have a fair opportunity to be considered for each order with certain exceptions (such as urgency or logical follow-on). For GSA Schedule contracts, agencies are required to follow ordering procedures such as reviewing prices from at least three contractors, evaluating prices for services requiring a statement of work, and seeking price reductions for large orders.

Interagency contracting is often handled by entrepreneurial, fee-for- service organizations, where agency contracting units operate like a business and provide contracting assistance to other agencies for a fee. The Interior contracting office that placed the orders for interrogation and other services—the Southwest Branch of Interior’s National Business Center, located in Fort Huachuca, Arizona—is one such organization. This office’s contracting activity, primarily on behalf of other agencies, has increased substantially over the past 3 years, with reported obligations increasing from $609 million in fiscal year 2002 to $1.02 billion in fiscal year 2004.

The fee-for-service procurement process generally involves three parties: the agency requiring a good or service; the agency placing the order or awarding the contract; and contractors providing the goods and services the government needs. The requiring agency officials determine the goods or services needed and, if applicable, prepare a statement of work, sometimes with the assistance of the ordering organization. The contracting officer at the ordering office ensures that the contract or order is properly awarded or issued (including any required competition), and administered under applicable regulations and agency requirements. If contract performance will be ongoing, a contracting officer’s representative—generally an official at the requiring agency with relevant technical expertise—is normally designated by the contracting officer to monitor the contractor’s performance and serve as the liaison between the contracting officer and the contractor.

At the same time as use of interagency contracting has increased, DOD has also increased its use of contractors in military operations. Particularly since the 1991 Gulf War, contractors have taken over support positions that were traditionally filled by government personnel. For example, a company that CACI later acquired began providing intelligence support to the Army in Germany in 1999. When the Army in Europe deployed intelligence personnel to the Iraq theater in 2003, CACI employees went with them. Following the announcement of the end of major combat in May 2003, the Army, as part of the Coalition Joint Task Force Seven (CJTF-7), was expecting a non-hostile situation and did not plan for an insurgency. It was unprepared for the volume of Iraqi detainees and the need for interrogation and other intelligence and logistics services. An Army investigative report from August 2004 noted that the CJTF-7 headquarters in Iraq lacked adequate personnel and equipment and that the military intelligence units at Abu Ghraib were severely under- resourced.

The out-of-scope orders for interrogation and other services issued by Interior have been terminated. However, the Army has continued contracting for intelligence functions and logistics services through bridge contracts awarded on a sole source basis to CACI. The original term of the contracts was 4 months, and the Army subsequently exercised options for an additional 2 months, through early 2005. According to an Army official, the contract terms were recently extended further to allow the Army adequate time to competitively award contracts for these services.

Recently, in the Ronald W. Reagan National Defense Authorization Act for Fiscal Year 2005, Congress took steps to ensure the proper use of interagency contracts by DOD, the largest customer for these types of contract arrangements. The act prohibits DOD from procuring goods and services above the simplified acquisition threshold (generally $100,000) through a contract entered into by an agency outside DOD, unless the procurement is done in accordance with procedures prescribed by DOD for reviewing and approving the use of such contracts. The conference report accompanying the legislation established expectations that DOD’s procedures will ensure that any fees paid by DOD to the contracting agency are reasonable in relation to work actually performed; the supplies or services are consistent with the appropriated funds being used; the goods and services procured are within the scope of the non-DOD contract vehicle; and such orders are in compliance with all applicable DOD-unique statutes, regulations, directives, and other requirements prior to approval.

Further, the act required reviews of certain non-DOD contracting offices to determine if they are compliant with Defense procurement requirements. If an office is deemed non-compliant, DOD could be prohibited from ordering, purchasing or otherwise procuring property or services in excess of $100,000 through that contracting office. In addition, a recent change to the Federal Acquisition Regulation (FAR), effective July 2004, added language to make it clear that a contracting officer placing an order against a GSA Schedule on another agency’s behalf is responsible for applying that agency’s regulatory and statutory requirements.

Breakdowns Occurred When Interior Procured Interrogation and Other Services for DOD

The process of procuring interrogation and other services for DOD broke down at numerous points. In general, breakdowns in the procurement process, such as not following competition requirements and not properly justifying the decision to use interagency contracting, occurred when the orders were issued. The process also broke down during the administration of the contract, as the contractor’s performance was not adequately monitored. Because the officials at Interior and the Army responsible for the orders did not fully carry out their roles and responsibilities, the contractor was allowed to play a role in the procurement process normally performed by the government. This situation increased the risk that the government would not get the services it needed at reasonable prices and in compliance with competition and other contracting requirements.

Task Orders Were Out of Scope of Underlying Contract

Orders issued outside the scope of the underlying contract do not satisfy legal requirements under the Competition in Contracting Act for competing the award of government contracts. In such cases, the out-of- scope work should have been awarded using competitive procedures or supported with a justification and approval for other than full and open competition. The Interior IG and GSA have determined that 10 of the 11 task orders issued by Interior to CACI for interrogation and other services in Iraq were outside the scope of the underlying GSA information technology contract. The Army has also determined that interrogation services were outside the scope of the contract.

The labor category descriptions in the GSA contract were, in most cases, significantly different from the descriptions on DOD’s statements of work and do not accurately represent the work that the contractor performed. Table 1 demonstrates some of the disparities between the labor categories in DOD’s statements of work and the information technology contract.

CACI representatives stated that they determined the salary and benefits the company would pay interrogators and screeners and then selected the GSA information technology contract labor categories that would sufficiently cover the company’s employee salary and benefits expenses, overhead, and profit. In other words, CACI selected the labor categories in the contract for cost and pricing purposes, rather than as a reflection of the work to be performed. Army representatives in Iraq told us that the services on the orders for interrogators, screeners, and logistics support were not information technology services. The Interior contracting officer also had concerns about whether the orders were within scope, asking the contractor for a verbal and, later, written explanation as to how the labor categories in the contract were related to the services the company was to provide in Iraq.

The contracting officer neglected to follow a requirement for legal review that could have raised questions about whether the orders were within scope. A July 2001 Interior policy requires legal review for all proposed solicitations in excess of $500,000 for non-commercial items and $2 million for commercial items. Interior contracting officials stated that they did not believe this requirement extended to orders placed on GSA contracts. Representatives from Interior’s offices of general counsel and acquisition policy, however, told us that orders placed on GSA contracts are subject to legal review and that the orders for interrogation and other services should have been reviewed.

Further, the Interior contracting officer did not perform the required evaluation of the contractor’s proposed approach for addressing DOD’s requirements. Normally, when ordering services from GSA Schedules that require a statement of work, the ordering office is responsible for evaluating the contractor’s level of effort and mix of labor proposed to perform the specific tasks being ordered and for making a determination that the price is reasonable. In this situation, however, the Interior contracting officer did not evaluate the mix of labor categories or establish that the level of effort was reasonable. Although documents in Interior’s contract files provided that “technical review does not take exception to the proposal,” no documentation exists to support the statement that an evaluation was performed and, in fact, Interior contracting officials told us that no such review was done.

DOD Task Order Competition Requirements Were Not Followed

In addition to violating competition rules by placing orders that were not in the scope of the underlying contract, Interior contracting officials also did not comply with requirements contained in section 803 of the National Defense Authorization Act for Fiscal Year 2002 relating to DOD’s purchase of services from GSA Schedule contracts. Specifically, for DOD orders for services over $100,000 placed on GSA contracts, notice must be provided to all GSA Schedule contractors offering the required services or to as many contractors as practicable to ensure that offers will be received from at least three contractors. If three offers are not received, a written determination must be made that no additional contractors could be identified despite reasonable attempts to do so. The requirements that DOD orders be placed on a competitive basis can be waived in writing for certain circumstances such as urgency. Section 803 requirements applied to the Iraq orders, even though Interior was the contracting agency, because DOD regulations require application of section 803 provisions to orders placed by non-DOD agencies on behalf of DOD. The Interior contracting office, however, placed the orders directly with CACI without notifying other prospective contractors. Interior did not make any written determination that no additional contractors could be identified or that the competition requirement should be waived in this case.

Decision to Use Interagency Contracting Was Not Properly Justified

In contracting through Interior, the Army did not follow requirements to justify use of interagency contracts. According to procurement regulations, an Economy Act determination and findings should have been approved by an Army contracting officer or another designated official to justify the use of Interior to acquire the services for the Army. The Economy Act authorizes agencies to enter into mutual agreements to obtain supplies or services by interagency acquisition. The FAR mandates that the requiring activity document that an Economy Act order is in the agency’s best interest and that it cannot obtain the goods and services as conveniently or economically by contracting directly with a private source. However, Army personnel did not prepare the determination and findings, as required.

Ordering Procedures Meant to Ensure Best Value Were Not Followed

Interior placed the orders with CACI by using a blanket purchase agreement (BPA) established under the GSA Information Technology Schedule contract in 1998. BPAs, a simplified method of filling anticipated repetitive needs for supplies and services, allow agencies to establish “charge accounts” with qualified vendors. The BPA in this case was improperly established and improperly used. Interior’s contracting office did not comply with required BPA procedures meant to ensure the government receives the best value for its dollars and that competition is encouraged. Under procedures referred to in the Schedule contract, ordering offices that establish a single BPA are required to select a contractor that represents the best value and results in lowest overall cost, and to inform other contractors of the basis for the selection. We found no evidence, either in the BPA files or in our discussions with Interior contracting staff, that these requirements were followed, even though documents in the contract files state that the BPA is “best value.” In essence, the BPA was used to direct business to the company on a sole source basis.

Contracting officials also failed to seek discounts from CACI’s established GSA contract prices, as required. Applicable procedures in the contract stipulate, for example, that discounts are to be sought when orders exceed $500,000. We found that no discounts were sought, even though the value of the orders for work in Iraq ranged from $953,000 to $21.8 million. In addition, the procedures in the GSA contract require that BPAs are reviewed annually to ensure the government continues to receive best value. These annual reviews were never conducted. Further, the BPA was improper because it did not contain defined requirements, as stipulated in the GSA contract. Rather, the BPA states that “the categories of service provided by this BPA may include but are not limited to” various classes of information technology services. Finally, in 2001, Interior added several items and services to the BPA. This action improperly expanded the scope of services contained in the underlying GSA contract. According to GSA guidance, such scope expansions are a potential violation of the Competition in Contracting Act. When we asked Interior’s contracting officials—including the contracting officer who signed the BPA—about these additions, they were unable to explain how or why the additions had been made.

Contractor’s Performance Was Not Adequately Monitored

One of the contracting officer’s key responsibilities is ensuring that the government monitors the contractor’s performance. The contracting officer may assign this responsibility to a contracting officer’s representative (COR). At Interior, the contracting officer is required to verify that the COR has the appropriate training and to issue a designation letter to the COR outlining the duties to be performed. These duties can include verifying that the contractor performs the technical requirements of the contract in accordance with the contract terms, conditions, and specifications; monitoring the contractor’s performance, notifying the contractor of deficiencies observed during surveillance, and directing appropriate action to effect correction; and reporting to the contracting officer in a monthly report the performance of services rendered under the contract.

We found that Interior’s contracting officials never verified that the Army personnel serving as CORs had the appropriate training and, with one exception, sent the COR designation letter either months after the fact or not at all. Interior officials, including the contracting officer who placed the orders for DOD, had no explanation for why contractor surveillance policies were not followed. Moreover, the contracting officer had little to no communication with the CORs in Iraq and did not follow up to obtain monthly reports from them on the contractor’s performance.

Proper surveillance of the contractor’s performance under the orders was especially critical because the work was done on a time and materials basis, where services are billed on the basis of direct labor hours at specified fixed hourly rates (which includes wages, overhead, general and administrative expenses, and profit). According to the FAR, time and materials contracts require appropriate government oversight because there is no incentive for the contractor to control costs or be efficient. This requirement was recently reiterated in a September 2004 memo from DOD’s Director, Defense Procurement and Acquisition Policy, which states that, because labor hour and time and materials contracts usually require significant surveillance to ensure the government receives good value, CORs should be appointed to verify the appropriateness of labor categories and the reasonableness of the number of hours worked.

In Iraq, the Army CORs responsible for the orders for interrogation and other services performed limited surveillance of the contractor’s performance. Contractor employees were stationed in various locations around Iraq, with no COR or assigned representative on site to monitor their work. One contractor interrogator who had been located at the Abu Ghraib prison told us that, although he interacted with military personnel at the prison, he had no interaction with the COR. Further, although the COR in Baghdad stated that he relied on other military personnel on site to report back to him, a recent Army investigative report showed that the military personnel on site were not given guidance on how to oversee the contractors. In fact, one of the military interrogators at Abu Ghraib prison indicated that the primary point of contact for the contractors was the contractor’s on-site manager, with no mention of the COR. The Army investigative report pointed to this lack of contractor surveillance at the Abu Ghraib prison as a contributing factor to the environment in which the prisoner abuse occurred. The report noted that it is very difficult, if not impossible, to effectively administer a contract when the COR is not on site and that the Army needs to improve its oversight of contractors’ performance to ensure that the Army’s interests are protected.

Contractor Played a Role in the Procurement Process Normally Performed by Government Personnel

In procuring the interrogation and other services in Iraq, Interior and Army officials abdicated their contracting responsibilities to a large degree. In this void, the contractor played a significant role in developing, issuing, and administering the orders, including identifying the contractor’s BPA with Interior as the contract vehicle to provide the services; drafting statements of work; suggesting that Army officials use the company’s rough order of magnitude price as the government cost estimate; acting as a conduit for information from the Army in Iraq to the Interior providing the Interior contracting office with a draft justification and approval to award additional work to the company on a sole source basis; sending invoices directly for payment; and requesting that construction work be performed under the BPA, which would have also been out of scope from the GSA Schedule contract, although subsequent discussions between CACI and Interior contracting officials resulted in the work being awarded separately on a sole source basis due to urgency.

By acting in this manner, the contractor effectively replaced government decision-makers in several aspects of the procurement process. For example, a contractor employee proposed the initial requirements package for human intelligence, which included interrogators, and provided information to the Army personnel regarding skill sets needed for positions. Contractor employees also identified the company’s BPA with Interior as the contract vehicle to provide the services. Contractor officials acknowledge they helped to draft statements of work, with contractor employees in Iraq sending the statements of work to company headquarters in the United States for suggestions. In fact, one of the statements of work we found in official contract files was on the contractor’s letterhead. We also found that contractor employees wrote a draft justification and approval for Interior to award additional work noncompetitively to the company. Such a level of participation by the contractor creates a conflict of interest and undermines the integrity of the competitive contracting process.

Contractor officials explained that they marketed their services directly to Army intelligence and logistics officials in Iraq because of relationships they had developed over time. According to contractor officials, Army officials told them to work directly with the Interior contracting office because the DOD contingency contracting office in Iraq was focused on obtaining other necessary services. They also told us that, because military communication channels were not adequate, they communicated directly with the Interior contracting office. Interior contracting officials went along with this arrangement, citing problems in reaching Army officials in Iraq. The contract files contain emails between the contractor and Interior contracting officials on matters such as funding requests, statements of work, and COR assignments. Further, a COR responsible for the logistics orders told us that contractor officials informed him that Interior had merged two task orders; he was unaware that this had occurred. According to contractor officials, because Army and Interior officials allowed contractor personnel to act as the go-between, the contractor sent its invoices directly to Interior for payment after the COR signed them, as opposed to the normal practice of having government personnel perform this task.

Need for Strong Management Controls

Although use of streamlined contracting vehicles can be beneficial, they must be effectively managed to ensure compliance with the FAR and to protect the government’s interests. When a requiring agency’s contracting needs are being handled by an outside agency, effective management controls become even more critical due to the more complex environment involved. Management controls, synonymous with internal controls, are an integral component of an organization’s management that provide reasonable assurance that operations are effective and efficient and that employees comply with applicable laws and regulations. Two controls include management oversight and training. When these controls are not in place, particularly in a fee-for-service environment, more emphasis can be placed on customer satisfaction and revenue generation than on compliance with sound contracting policy and required procedures. We found an absence of these management controls for the 11 orders that were issued and administered for interrogation and other services.

Lack of Management Oversight

Significant problems in the way Interior’s contracting office carried out its responsibilities in issuing these orders were not detected or addressed by management. Further, managers at this office told us that they intentionally created an office culture of providing inexperienced staff with the opportunity to learn contracting by taking on significant responsibilities. More experienced contracting officers were responsible for overseeing and reviewing less experienced and trained purchasing agents and contract specialists. However, some staff told us that the contracting officers’ reviews were not always thorough and appeared to be a “rubber stamp.” Further, some staff indicated discomfort at the level of responsibility given to less experienced personnel and believed oversight of the activities of these employees was inadequate.

Moreover, Interior’s headquarters did not exercise thorough oversight of the contracting activity that placed the orders. An April 2003 Interior Acquisition Management Review concluded that the contracting office was highly effective, despite the fact that the review identified a number of problems where contracting personnel did not comply with sound contracting practices. Nonetheless, an Interior headquarters official told us that the contracting office did not require extensive oversight, based in part on the determination that the office was highly effective. The review cited the following: A conscious decision was made not to comply with Interior’s requirements for legal review because the office believed the reviews took too long.

A general weakness in cost support was noted. For instance, “best value” analysis was cited in sole source awards. Also, the contracting office accepted contractors’ proposed prices without analyzing the cost and pricing data in depth to ensure that the prices were fair and reasonable. Further, the contractor’s proposed cost and the government’s cost estimate were identical without any explanation.

Labor rates included in contracts and orders were not adequately justified.

Competition requirements were not followed when placing orders using BPAs.

The review’s conclusion that the office was highly effective was based in part on the office’s peer review process, where contracting actions were reviewed by a second person as a management control. However, the review found no consistent methodology or format for the peer reviews and little or no information on results. Rather, the process for conducting and reporting the results of the reviews varied from individual to individual. Based on our interviews with Interior employees, we found that the peer reviews were often conducted by personnel with little contracting experience and training.

Adequate management oversight is particularly critical to ensuring that interagency fee-for-service contracting organizations, such as the Interior contracting office, comply with procurement regulations. The fee-for- service arrangement creates an incentive to increase sales volume in order to support other programs of the agency that awards and administers an interagency contract. This may lead to an inordinate focus on meeting customer demands at the expense of complying with required ordering procedures. The managers at Interior’s contracting office promote a business-like entrepreneurial philosophy modeled after the private sector and empower employees to market services, interact with contractors, and make decisions in support of acquisitions. We found examples where the Interior contracting office marketed its BPA with CACI to federal agencies as a way to obtain services quickly without competition. Further, the performance measures for individual employees at Interior’s contracting office, which measure quality, teamwork, and customer service, specifically state that customer satisfaction is a high priority in achieving good customer service. In fact, Interior’s Acquisition Management Review of the contracting office focused heavily on customer satisfaction as a performance metric. Several of the office’s customers were interviewed, and their compliments were summarized in detail as a key section of the review.

The Army also lacked management oversight of the contracting activity for interrogation and other services. This lack of oversight is evidenced by some questions that were raised by the Army’s Chief of Contracts in Iraq in February 2004, about 6 months after the initial orders were placed. The Chief of Contracts asked the Interior contracting office whether the orders were against a GSA contract and what the contract what labor rates were included in the contract, whether there was a performance description for contractor personnel whether all contractor employees in Iraq were in accordance with the who had been keeping track of the labor hours the contractor billed to whether Interior had received monthly status reports on the contractor’s performance, and whether an Economy Act determination and findings had been prepared.

Further, DOD is required to have a management structure in place for the procurement of services that provides for a designated official in each military department and defense agency to exercise responsibility for the management of the procurement of services by that department or agency. This management structure is to include a means by which employees of the departments and defense agencies are accountable to the designated officials for carrying out certain requirements. These requirements include ensuring that services are procured by means of contracts or task orders that are in the best interest of DOD and are entered into or issued and managed in compliance with applicable statutes, regulations, directives, and other requirements, regardless of whether the services are procured by DOD directly or through a non-DOD contract or task order. These requirements also include approving, in advance, any procurement of services above certain thresholds that is to be made through the use of a contract entered into, or a task order issued, by a government official outside DOD. Notwithstanding the requirement for this management structure, it is clear that DOD’s implementation did not ensure that these requirements were met in procuring the interrogation and other services through Interior.

Lack of Adequate Training

Interior’s contracting office personnel and Army personnel in Iraq that were responsible for the orders for interrogation and other services lacked adequate training on their contracting responsibilities. While a warranted contracting officer at Interior signed the orders, certain requirements were not understood or followed, such as the need for legal review and competition. Further, an inexperienced purchasing agent administered the BPA on a day-to-day basis, including preparing various contracting documents. The employee had taken only one basic contracting course, even though the contracting office’s training requirements require purchasing agents to take three contracting courses. Moreover, one staff member who had not taken the required training for a purchasing agent position was promoted to a contract specialist position. Several contracting employees we spoke with were concerned about the frequency and consistency of training they had received. We found that employees took training on their own initiative and that the training was not monitored or enforced by managers.

Army personnel in Iraq responsible for overseeing CACI employees’ performance in Iraq were not adequately trained to properly exercise their responsibilities. An Army investigative report concluded that the lack of training for the CORs assigned to monitor contractor performance at Abu Ghraib prison, as well as an inadequate number of assigned CORs, put the Army at risk of being unable to control poor performance or become aware of possible misconduct by contractor personnel. We found that the personnel acting as CORs did not, for the most part, have the requisite training and were unaware of the scope of their duties and responsibilities. For example, they did not know that they were required to monitor and verify the hours worked by the contractor and instead just signed off on the invoices provided by the contractor. During the course of our work, we found confusion about whether the CORs were required to meet Interior’s or DOD’s training requirements. DOD and Interior officials told us that no policy or guidance exists on this matter when interagency contracting is used.

One COR for the logistics orders in Iraq, who had prior contracting experience, observed problems with two orders as soon as he was designated COR in February 2004. The concerns included: (1) a “clear mismatch” between the underlying contract and the statement of work, (2) the fact that no invoices had been submitted for work that began several months earlier, (3) Army personnel not overseeing and verifying time cards, (4) significant delays and issues in communicating with Interior’s contracting office, and (5) significant problems with the administration of the orders by both the government and the contractor.

Too Early to Tell If Actions to Increase Oversight and Improve Training Will Be Effective

The discovery of the problems with the Iraq orders encouraged Interior and DOD to take corrective actions aimed at improving management oversight and training, particularly as they pertain to interagency contracting. However, due to the recent nature of these efforts, it is too soon to tell how effective they will be.

In June 2004, Interior issued a policy memorandum prohibiting its contracting officers from acquiring interrogation or human intelligence services “regardless of the dollar value” for internal or external customers. Further, to focus attention on proper use of GSA contracts, Interior plans to evaluate its use of GSA contracts in its fiscal year 2006 agencywide targeted performance review, an annual self-reported review by each of its contracting activities focusing on issues that are deemed important by top executives.

Also in June 2004, Interior’s National Business Center, which has direct oversight responsibility for the contracting office that placed the orders for DOD in Iraq, clarified for its contracting activities the requirements for competition when ordering on behalf of DOD. At the same time, it updated its policy outlining COR requirements, emphasizing the need for written designation letters; issued new guidance for using BPAs and GSA contracts; and clarified its legal review policy. Moreover, the National Business Center intends to hire an additional manager whose responsibilities will include overseeing the contracting activities under the Center’s purview. Officials at Interior agree that management controls are critical in fee-for-service contracting offices with a focus on customer service, and, in comments on this report, Interior stated that the National Business Center has established a new performance rating system that provides incentives to contracting officials to exercise due diligence.

Officials at the Interior contracting office that ordered the services for the Army told us that they are no longer placing orders against the CACI BPA.

Once all orders expire, the BPA will be terminated. In addition, in December 2004, the contracting office released a revised independent quality review process to include specific checks for GSA contract actions, including whether the maximum order threshold is exceeded, section 803 competition compliance, and scope determination with a labor category verification. Officials also plan to review the amount of activity on all existing BPAs to determine if these BPAs are still needed and to assess whether prices are competitive. Interior, in commenting on this report, stated that the contracting office has also established a policy to ensure that BPAs are reviewed annually.

In addition, Interior has taken steps to improve training for its contracting officers. For fiscal year 2005, Interior has required each of its contracting activities to certify that all warranted contracting officers have taken two training courses on GSA contract use. Further, the contracting office that placed the orders for the Army has re-instituted regular, formal training seminars for newer contracting staff. It has also implemented a new mentoring program to augment training standards and assist new employees in learning on the job. However, a mechanism is not yet in place to track or monitor the training.

DOD, for its part, issued a policy in October 2004, signed by high-level officials from the Office of the Comptroller and the Office of Acquisition, Technology, and Logistics, requiring that military departments and defense agencies establish procedures for reviewing and approving the use of other agencies’ contracts. The procedures are to ensure that the use of another agency’s contract is in the best interest of DOD; tasks are within the scope of the contract being used; funding is being used in accordance with appropriation limitations; unique terms and conditions are provided to the ordering activity; and data are collected on the use of outside ordering activities. The procedures took effect in January 2005. Most military services have outlined procedures where the requiring activity is responsible for coordinating with the contracting office, and in some cases the legal and financial offices, when planning to use interagency contracting and for documenting compliance with the policy’s guidelines. While the policy does not include a mechanism for monitoring the departments’ implementation plans, ensuring ongoing compliance with the policy, or sharing information across DOD, agency officials stated that these functions are being performed informally.

Recommendations for Executive Action

While the actions Interior and DOD have recently put in place or plan to initiate are positive steps, additional actions are needed to further refine these efforts. Accordingly, we recommend that: The Secretary of the Interior take the following four actions: Ensure that management reviews of Interior contracting offices emphasize and assess whether contracting officials are trained adequately and BPAs are used appropriately.

Ensure that performance measures for contracting officials provide incentives to exercise due diligence and comply with applicable contracting rules and regulations.

Ensure that CORs are properly designated when contracts are awarded or orders are issued for other agencies and that they have met appropriate training requirements.

Direct the National Business Center at Fort Huachuca to take the Establish a consistent methodology for conducting peer reviews of contracting actions and ensure that experienced and trained contracting officials perform the reviews.

Ensure that reviews of BPAs are done annually, as required by the FAR, to determine whether they still represent best value.

Ensure that the contracting staff are properly trained and effective mechanisms are in place to track the training.

The Secretary of Defense take the following action: Develop a mechanism to track implementation of the new policy that establishes procedures for reviewing and approving the use of non- DOD contracts and to ensure that the military services and defense agencies have the opportunity to share information on how they are implementing it.

Agency Comments and Our Evaluation

We provided a draft of this report to DOD, Interior, and CACI for review and comment. Their written comments are included as appendices II, III, and IV, respectively.

DOD agreed with our recommendation to develop a mechanism to track implementation of the new policy that establishes procedures for reviewing and approving the use of non-DOD contracts. DOD plans to post implementation policies on its web site and is considering establishing a community of practice on this issue. Our draft report contained a second recommendation to ensure that CORs are properly assigned, as appropriate, for all orders that DOD places on interagency contracts and that they are provided requisite training. Because DOD recently concurred with a similar recommendation in another GAO report, we have deleted this recommendation.

Interior agreed with all of our recommendations and outlined actions and plans to address the issues that we identified in our report. In general, Interior is taking actions to improve oversight and training for its contracting staff, in particular for the National Business Center offices. In some cases, officials initiated corrective actions during the course of our review, as we brought issues to their attention.

While acknowledging that our report identified a number of areas where the government can improve its contracting processes, CACI took issue with several aspects of the report:

CACI suggested that our report does not adequately take into account the impact of the wartime environment in Iraq. We believe that our report adequately references the wartime situation. As CACI pointed out, the wartime circumstances may have justified the government’s use of non-competitive contracting procedures. However, such authorized flexibilities were not employed by the agencies involved. Instead, as described in the report, Interior improperly used CACI’s GSA contract in servicing its DOD customer.

CACI offered a number of detailed comments to support its position that the orders fell within the scope of the GSA contract. We did not find these arguments convincing. Every government agency involved determined that most of the work performed on the orders was out of scope. Contrary to CACI’s assertion, our finding was not based merely on a comparison of the labor categories in CACI’s GSA contract and those in the orders’ statements of work, but on the material differences between the services authorized by the GSA contract and the services actually ordered by Interior and provided by CACI. While some of the services involved information technology, that, by itself, does not mean that those services (such as interrogation of detainees) can be ordered from CACI’s GSA contract. The GSA contract is for the performance of certain commercial-type information technology services, not for any service that happens to involve the use of information technology. As noted in our report, the Army officials we spoke with stated that the services were not information technology services. In addition, while CACI’s earlier orders from GSA’s Federal Technology Service may help explain how the services in Iraq came to be ordered by Interior, it is not determinative of the proper use of that contract in this situation.

On the issue of the contractor playing an unusually large role in actions normally performed by government officials, CACI defends its actions as being appropriate in the wartime environment. The intent of that section of our report is not to suggest that the contractor acted with malfeasance; rather, we highlight the fact that, because the government officials did not exercise due diligence in carrying out their duties, the contractor was either allowed or encouraged to step in to fill the void. Further, CACI refers to our description of out-of-scope construction work and the drafting of the sole source justification as “incomplete and out of context.” Based on our audit work with Interior and CACI officials, we found that CACI intended to include the construction work on the order for intelligence services under the BPA. However, because subsequent decisions by CACI contracting personnel and Interior’s contracting office led to a separate, sole source award, we revised the wording in our report to reflect this outcome. The contractor did—as CACI’s response confirms—draft a sole source justification for additional construction work. As stated above, we included this in our report to demonstrate how the contractor was encouraged to perform duties normally fulfilled by government personnel.

CACI questioned whether our findings on the lack of adequate contractor surveillance were well-founded. Our findings are not based solely on our discussion with the contractor interrogator who had been located at Abu Ghraib prison; rather, they are based on our file reviews and a number of discussions with DOD officials.

We are sending copies of this report to the Director, Office of Management and Budget, the Secretaries of Defense and the Interior, and CACI. We will make copies available to others on request. In addition, this report will be available at no charge on GAO’s Web site at http://www.gao.gov.

If you have any questions about this report, please contact me on (202) 512-4841 or Michele Mackin on (202) 512-4309. Other major contributors to this report were Alexandra Dew, James Kim, Adam Vodraska, and Tatiana Winger.

Appendix I: Scope and Methodology

We conducted our work at the Department of the Interior, including its National Business Center headquarters and office at Fort Huachuca, Arizona; and the Department of Defense (DOD), including the Defense Procurement and Acquisition Policy office and the Department of the Army. We also met with representatives of CACI, International, Inc. (CACI) and the General Services Administration (GSA).

To determine what breakdowns occurred in the process of procuring interrogation and other services and the contributing factors to the breakdowns, we reviewed contract files on the 11 orders issued to CACI to understand the facts about how the orders were issued. We also reviewed internal controls and guidance to assess what safeguards were in place to ensure compliance with regulations, including training requirements and performance evaluation factors at the National Business Center’s office in Fort Huachuca. We reviewed the two orders for interrogators, placed in August and December 2003, to corroborate GSA’s and Interior’s determination that the orders were out of the scope of the GSA contract. We also identified and analyzed pertinent policies and regulatory requirements governing the contracting process to assess whether Interior, Army, and contractor officials operated in compliance with those requirements. We interviewed Army representatives who were responsible for overseeing the contractor’s performance in Iraq. We spoke with officials at the Interior’s Offices of Acquisition and Property Management, National Business Center, and employees of the Fort Huachuca office who were involved with the orders for interrogation and other services. Additionally, we interviewed several CACI employees, including a contractor interrogator, and attorneys representing CACI. We used GAO’s Standards for Internal Control in the Federal Government (GAO/AIMD-00-21.3.1, November 1999) as criteria to demonstrate the importance of management controls such as oversight and training.

To evaluate the extent to which actions taken by Interior and DOD address contributing factors to breakdowns in the procurement process, we identified and reviewed steps taken by these agencies, such as newly released policies and guidance. In particular, we reviewed recently issued policies from Interior’s headquarters, National Business Center, and the contracting office at Fort Huachuca, as well as DOD.

We conducted our review from July 2004 to January 2005 in accordance with generally accepted government auditing standards.

Appendix II: Comments from the Department of Defense

Appendix III: Comments from the Department of the Interior

Appendix IV: Comments from CACI International Inc.

Appendix IV: Comments from CACI International Inc.

Appendix V: Summary of Task Orders Issued to CACI for Work in Iraq

order value Description of order

Selected labor categories from the CACI contract $19,915,407 Provide interrogation support.

Provide screening cell management and support.

Provide support to man, organize, and execute as members of the Open Source Intelligence Team.

Provide special security and security support to the intelligence function.

Provide and maintain an operational property book team.

Provide technical and functional knowledge of the total property book system.

Provide technical and training support services for a military information technology system.

Assist in performance of human intelligence and counterintelligence missions.

Assist in intelligence support staff and analytical functions.

Establish and staff a Command Automation Logistics Assistance/Instructional Team.

Provide technical and functional knowledge of the total property book system.

Program/Project Manager, Subject Matter Expert I Maximum order values include order modifications made subsequent to the order date.