Forest Service: Weak Contracting Practices Increase Vulnerability to
Fraud, Waste, and Abuse (Chapter Report, 05/06/98, GAO/RCED-98-88).
The Forest Service is highly vulnerable to fraud, waste, and abuse
because it lacks an effective system of internal controls for its
contracting activities. The agency's internal control system is lacking
in two key respects. First, the Forest Service is not complying with
many critical internal control standards. Second, the Forest Service's
primary internal control techniques--the system that sets limits on
contracting officers' authority, along with periodic field office
reviews--are not effectively implemented.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: RCED-98-88
TITLE: Forest Service: Weak Contracting Practices Increase
Vulnerability to Fraud, Waste, and Abuse
DATE: 05/06/98
SUBJECT: Internal controls
Management information systems
Accountability
Forest management
Contract administration
Financial management
Contracting officers
Federal procurement
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Cover
================================================================ COVER
Report to the Chairman, Committee on Agriculture, House of
Representatives
May 1998
FOREST SERVICE - WEAK CONTRACTING
PRACTICES INCREASE VULNERABILITY
TO FRAUD, WASTE, AND ABUSE
GAO/RCED-98-88
Weak Contracting Practices at the Forest Service
(150722)
Abbreviations
=============================================================== ABBREV
COR - contracting officer's representative
FAR - Federal Acquisition Regulation
FMFIA - Federal Managers' Financial Integrity Act
GAO - General Accounting Office
GPRA - Government Performance and Results Act
IDIQ - indefinite delivery, indefinite quantity
OFPP - Office of Federal Procurement Policy
OMB - Office of Management and Budget
PBSC - performance-based service contract
USDA - U.S. Department of Agriculture
Letter
=============================================================== LETTER
B-279214
May 6, 1998
The Honorable Robert F. (Bob) Smith
Chairman, Committee on Agriculture
House of Representatives
Dear Mr. Chairman:
This report responds to your request that we evaluate whether the
Forest Service manages its contracting activities to minimize fraud,
waste, and abuse and maximize effectiveness. The report contains
recommendations to the Secretary of Agriculture designed to
strengthen internal control and make greater use of contracting best
practices to improve the effectiveness of the Forest Service's
contracting.
As agreed with your office, we plan no further distribution of this
report for 30 days. At that time, we will send copies to the
Secretary of Agriculture; the Chief, Forest Service; the Director,
Office of Management and Budget; and interested congressional
committees. Copies will be made available to others on request.
Please call me on (202) 512-5138 if you or your staff have any
questions about this report. Major contributors to this report are
listed in appendix II.
Sincerely yours,
Robert A. Robinson
Director, Food and
Agriculture Issues
EXECUTIVE SUMMARY
============================================================ Chapter 0
PURPOSE
---------------------------------------------------------- Chapter 0:1
To help carry out its mission, the Forest Service awards contracts
for a wide variety of goods and services, such as building
construction, tree planting, research studies, and aircraft and
helicopters for suppressing fires. According to its records, the
Forest Service spent $443 million on 6,475 contract actions in fiscal
year 1996.
The Chairman, House Committee on Agriculture, asked GAO to evaluate
whether the Forest Service manages contracting activities in a manner
that minimizes fraud, waste, and abuse and maximizes effectiveness.
Specifically, GAO determined whether the Forest Service (1) maintains
an appropriate system of internal control over contracting activities
to minimize the agency's vulnerability to fraud, waste, and abuse and
(2) manages contracting effectively by preparing adequate acquisition
plans and by incorporating performance factors into the contracting
process. In addition, GAO identified obstacles to improving the
contracting system.
This report is based on work that GAO conducted at the Forest
Service's headquarters, the regional offices for three of the
agency's nine regions, and two national forest offices located in
those regions. GAO selected the Northern Region, the Pacific
Southwest Region, and the Pacific Northwest Region to test the
effectiveness of the Forest Service's internal control system and to
assess the agency's other efforts to maximize the effectiveness of
its contracting. These three regions accounted for about 47 percent
of the contracting dollars awarded by the Forest Service in fiscal
year 1996.\1
--------------------
\1 In making this calculation, GAO excluded the contracting done by
the National Interagency Fire Center, which is not part of the
regional and national forest office structure.
BACKGROUND
---------------------------------------------------------- Chapter 0:2
The Forest Service, an agency of the U.S. Department of Agriculture
(USDA), manages the National Forest System, which includes 155
national forests and 20 national grasslands and covers more than 191
million acres in 44 states, Puerto Rico, and the Virgin Islands.
Highly decentralized, the Forest Service includes a headquarters
office located in Washington, D.C., and nine geographic regions.
Each of these regions includes a regional office, national forest
offices, and ranger districts. Contracting activity is conducted by
about 250 contracting officers located in 149 offices spread across
the country. The agency spends about 43 percent of USDA's
contracting dollars (excluding commodity purchases); no other single
agency in USDA accounts for more than 15 percent.
The Federal Managers' Financial Integrity Act (FMFIA) of 1982
requires executive agencies to, among other things, establish and
maintain systems of internal control. Internal control systems are
intended to provide reasonable assurance that programs' goals and
objectives are met; resources are adequately safeguarded and
efficiently utilized; reliable data are obtained, maintained, and
fairly disclosed in reports; and laws and regulations are complied
with. To help program managers implement FMFIA, in 1983, GAO issued
Standards for Internal Controls in the Federal Government. These
standards define the minimum level of quality acceptable for internal
control and establish the criteria for evaluating internal control.
The Federal Acquisition Regulation, which contains the procedures for
federal government contracting, requires executive agencies to
prepare acquisition plans as a way of reducing hurried and
unnecessary procurements, enhancing competition, and reducing the
costs of contracting. An acquisition plan lists the contracts that
an office plans to award in the upcoming year and provides data on
the type of work needed and its cost, timing, and special
requirements. To improve the effectiveness and efficiency of federal
contracting, various policies and laws have been established on the
basis of the general principals of defining performance goals and
measuring results. In 1991, the Office of Federal Procurement Policy
established the policy that agencies use performance-based
contracting methods to the maximum extent possible when acquiring
services. This approach emphasizes objective, measurable performance
requirements and quality standards to help improve contractors'
performance and achieve cost savings. The Federal Acquisition
Streamlining Act of 1994 established that a contractor's past
performance should be considered when agencies evaluate whether that
contractor should receive future work. In addition, in 1996, the
Office of Management and Budget tasked federal agencies, including
USDA, with establishing performance measures to assess and improve
their procurement systems.
RESULTS IN BRIEF
---------------------------------------------------------- Chapter 0:3
The Forest Service is highly vulnerable to fraud, waste, and abuse
because it does not have an effective system of internal control for
its contracting activities. The agency's internal control system is
lacking in two key respects. First, the Forest Service is not
complying with many critical internal control standards. Namely, the
agency (1) has no written plan defining control objectives and
techniques, (2) lacks complete documentation in the contract files of
critical contract award and administration actions, (3) does not
routinely supervise contracting staff, (4) inconsistently monitors
contractors' progress, and (5) has significant errors and omissions
in its management information system for contract actions. Second,
the Forest Service's primary internal control techniques--the system
that sets limits on contracting officers' authority, along with
periodic field office reviews--are not effectively implemented. For
example, some contracting officers may be exceeding their authority
because of an unclear policy on how the dollar limits apply to
different types of contracts. Likewise, the reviews of field
offices, while useful, are too infrequent to be considered an
effective internal control in the absence of routine supervision.
The Forest Service is not preparing adequate acquisition plans or
incorporating performance factors into its contracting
process--techniques that could increase its effectiveness and achieve
cost savings. The Federal Acquisition Regulation requires agencies
to prepare acquisition plans to enhance contracting's effectiveness
and lower costs. The six Forest Service offices that GAO visited
either had no acquisition plans for fiscal year 1996 or could not
make effective use of the ones that they had because the plans were
incomplete or not completed on time. Also, the Forest Service's
contracts for services seldom require contractors to meet
preestablished performance goals, a technique that other federal
agencies have used to save costs. For example, using preestablished
goals, payments on a reforestation contract could be based on the
success, defined in measurable terms, of the tree planting and
maintenance effort. Furthermore, the Forest Service does not
routinely evaluate contractors' performance at the end of a contract
or effectively store past performance information so it can be used
in negotiating future contracts. Finally, although required by USDA,
the Forest Service has not implemented procurement performance
measures to evaluate and improve the procurement system.
Three primary obstacles stand in the way of improving the Forest
Service's procurement system. First, Forest Service officials have
not been aggressive in establishing an effective internal control
system or implementing management initiatives that could improve
their contracting's effectiveness. Second, when the Forest Service
tries to improve its contracting practices, the organizational
structure of the contracting function impedes these efforts by
limiting direct accountability. Finally, the Forest Service's
long-standing culture of local independence and autonomy appears to
make contracting managers hesitant to provide the close oversight of
contracting activities needed to hold staff accountable for
performance improvements.
PRINCIPAL FINDINGS
---------------------------------------------------------- Chapter 0:4
INTERNAL CONTROL WEAKNESSES
INCREASE VULNERABILITY TO
CONTRACTING ABUSES
-------------------------------------------------------- Chapter 0:4.1
Effective internal control is necessary to ensure, among other
things, that resources are adequately safeguarded and efficiently
expended and that reliable financial and program data are obtained
and disclosed in reports. The six Forest Service offices that GAO
visited are not complying with many of the internal control standards
that GAO and the Office of Management and Budget have established.
In addition, implementation problems have limited the effectiveness
of the agency's principal internal control techniques--the
contracting officer warrant system\2 and periodic management reviews.
Under these circumstances, contracting operations at the Forest
Service run a high risk of fraud, waste, and abuse.
The Forest Service is not complying with many critical internal
control standards. First, the agency lacks a written plan
identifying how it will reduce its vulnerability to possible
contracting abuses and communicate this strategy to its decentralized
staff. Second, at some of the offices that GAO visited, the agency's
contract files were missing key documents, such as a justification
for awarding a contract to a particular contractor. Third, the
agency's supervisors do not routinely review the work of contracting
officers, whose actions can obligate the government for millions of
dollars. Fourth, the Forest Service's contracting officers'
representatives do not consistently monitor contractors' performance
to ensure that the government receives a quality and timely product.
Finally, the agency's contracting managers lack accurate summary
information to track the flow of contracting dollars and help control
operations.
Although the warrant system was designed to establish dollar limits
beyond which contracting officers could not award contracts, the
Forest Service has not established a clear policy on how to apply
those dollar limits to various types of contracts. As a result, some
contracting officers may be exceeding their authority to award
contracts. In addition, 76 (about 66 percent) of 116 contracting
officers in the three regions GAO visited lost their authority to
award and administer contracts on November 17, 1997, because they did
not meet the deadline to qualify under a new USDA warrant system.
While some contracting officers may have been without authority only
briefly, as of December 30, 1997, in one region GAO visited, 15 (50
percent) of 30 contracting officers were still without warrant
authority.
Management reviews of field offices, designed to identify weaknesses
in contract award and administration activities, occurred about once
every 5 years in the three regions that GAO visited--too
infrequently, in GAO's view, to act as an effective internal control
in the absence of routine supervision. In addition, the Forest
Service lacks an effective mechanism for ensuring that review
recommendations are implemented. Because local contracting staff do
not report directly to regional or headquarters contracting managers,
these managers do not have a direct mechanism for holding local staff
accountable for implementing recommendations.
--------------------
\2 The warrant system requires contracting officers to meet certain
training and experience requirements before obtaining the authority
to award and administer contracts above specified dollar thresholds.
OPPORTUNITIES EXIST TO
ENHANCE CONTRACTING'S
EFFECTIVENESS AND SAVE COSTS
THROUGH MANAGEMENT BEST
PRACTICES
-------------------------------------------------------- Chapter 0:4.2
The Forest Service is not availing itself of established management
techniques that could improve contracting operations. Acquisition
plans are not consistently prepared or promptly completed, and the
planning process has not been effectively automated. In addition,
the Forest Service has not adopted three required management
practices that incorporate performance factors into the contracting
process.
Acquisition planning, which helps ensure that the government meets
its needs in the most effective, economical, and timely manner, has
not been consistently implemented in the offices that GAO visited.
Despite federal regulations requiring them, two of the six forest
offices that GAO visited did not have acquisition plans for fiscal
year 1996. In addition, the four offices that produced plans could
not use them effectively to manage contracting activities throughout
the year either because the acquisition plans omitted the contracting
needs of some of the program offices or were compiled well past the
beginning of the fiscal year deadline. The Forest Service's
acquisition regulations require that acquisition plans be completed
before the fiscal year begins.
USDA's automated system for advance acquisition planning was not
designed to be, and is not being used as, an effective planning tool
for the Forest Service. The automated system was established in 1994
to forecast USDA's use of small and disadvantaged contractors as well
as to inform minority and small businesses about procurement
opportunities with USDA. Forest Service staff told us they could not
use USDA's automated system as an effective planning tool because
they were unable to easily and quickly access the system to produce
reports or analyses.
The Forest Service has made limited progress in adopting three
federally mandated practices that incorporate performance factors
into the contracting process. These practices were designed to
improve the contracting system by focusing less on processes and more
on results. In the six offices that GAO visited, the Forest Service
made very limited use of performance-based service contracts, which
are designed to improve contractors' performance by requiring them to
meet preestablished performance goals. For example, using
preestablished goals, payments on a reforestation and maintenance
contract could be made dependent on whether a contractor met a goal
for the number of trees that are alive and healthy 1 year after
planting. Furthermore, GAO found no evidence that contractors'
performance is routinely evaluated at the end of service contracts
and that performance information is compiled where it can be used
effectively as part of the evaluation process for future negotiated
procurements. Finally, the Forest Service had not met
Department-wide requirements to establish performance measures to
evaluate and improve the procurement system.
AGGRESSIVE LEADERSHIP AND
ENHANCED ACCOUNTABILITY
NEEDED TO OVERCOME OBSTACLES
TO REFORM
-------------------------------------------------------- Chapter 0:4.3
Forest Service officials have not taken aggressive action to correct
internal control deficiencies or implement management initiatives
that could improve the effectiveness of the agency's contracting.
The Forest Service's leadership has not provided its contracting
staff with adequate direction and guidance on the concepts or
importance of internal control. Without such guidance, it is
difficult for contracting managers to design controls and provide an
environment conducive to their successful implementation. Similarly,
senior Forest Service officials have not provided the necessary
direction and training to ensure the successful implementation of the
performance-based service contracting and contractor evaluation
initiatives. As a result, in the offices we visited, staff were
making limited use of these tools.
When the Forest Service makes efforts to improve contracting
practices, the organizational structure of the contracting function
impedes these efforts by limiting direct accountability. For
example, Forest Service contracting managers have had difficulty
obtaining compliance with the requirements to (1) capture accurate
summary information on contract actions and (2) prepare advance
acquisition plans that are complete and on time. This lack of
success occurs partly because, within the agency's contracting
function, there are no direct lines of authority or clear reporting
relationships between headquarters, the regional offices, and the
forests.
Given this organizational structure, extra efforts are required to
hold staff accountable for implementing reforms. However, instead of
providing this support, the Forest Service's culture of local
independence and autonomy hinders accountability for implementing
reforms. The organizational culture appears to make contracting
managers at all levels of the organization hesitant to provide the
close oversight of contracting activities needed to hold staff
accountable for improvements in their performance. Previous reviews
by GAO and the Forest Service have also raised concerns about the
Forest Service's ability to hold managers and staff accountable for
their performance.\3
--------------------
\3 Forest Service Decision-Making: A Framework for Improving
Performance (GAO/RCED-97-71, Apr. 29, 1997) and Individual and
Organizational Accountability in the Forest Service: Successful
Management of Work Agreements, USDA, Forest Service (Feb. 1994).
RECOMMENDATIONS
---------------------------------------------------------- Chapter 0:5
To improve the Forest Service's compliance with the Federal Managers'
Financial Integrity Act of 1982 and GAO's standards for internal
control, GAO recommends that the Secretary of Agriculture direct the
Chief of the Forest Service to
-- prepare and implement a written internal control plan for
contracting, which should include, among other things, methods
for ensuring (1) the complete documentation of critical actions
in contract files, (2) the routine supervisory review of
contracting activities, (3) more consistent monitoring of
contractors' progress on service contracts through the
implementation of a training and certification program for
contracting officers' representatives, (4) improved summary
management information, and (5) clarification of how to
determine adequate warrant authority for various types of
contracts;
-- establish a system to periodically monitor and assess the
agency's compliance with internal control standards; and
-- ensure that the Forest Service's internal control system for
contracting is identified as a material weakness in the
Department's Federal Managers' Financial Integrity Act report.
GAO is also making additional recommendations to improve the
effectiveness and reduce the cost of contracting and to improve
acquisition planning. (See ch. 3.)
AGENCY COMMENTS AND GAO'S
EVALUATION
---------------------------------------------------------- Chapter 0:6
GAO provided USDA with a draft of this report for review and comment.
USDA generally agreed with the information and recommendations
contained in the draft report and identified actions that it is
taking or will take to improve internal control and implement
management reforms within the Forest Service. GAO believes that
effectively implementing these actions will reduce the Forest
Service's vulnerability to fraud, waste, and abuse; improve
contracting's effectiveness; and lower costs.
USDA also noted one area of disagreement with the draft report--the
characterization of the Forest Service's organizational structure for
contracting as an impediment to contracting reforms. While
acknowledging that GAO had not made a recommendation in this area,
USDA said it did not agree with the suggestion that the existing
organizational structure is somehow defective. USDA said that
additional management emphasis and accountability can improve the
acquisition process within the Forest Service's existing
organizational framework. GAO is not suggesting in this report that
the Forest Service change its organizational structure. Rather, GAO
believes that the organizational structure, by lacking clear lines of
authority or effective reporting relationships between contracting
staff and managers, impedes direct accountability. In this
organizational context, aggressive leadership and sustained oversight
will be especially important to establishing and maintaining
accountability for implementing contracting reforms.
The Department of Agriculture's comments on the report are presented
fully in appendix I. GAO revised the report as appropriate on the
basis of USDA's comments.
INTRODUCTION
============================================================ Chapter 1
The Forest Service, an agency of the U.S. Department of Agriculture
(USDA), is responsible for managing and maintaining the National
Forest System. This vast system covers 155 national forests and 20
national grasslands on more than 191 million acres. The Forest
Service manages this system through a program of sustained multiple
use for forage, fish and wildlife, water, wilderness, outdoor
recreation, and the production of minerals, range, and timber. To
support these diverse activities, the agency contracts for a wide
variety of goods and services, including road and building
construction, tree planting and other reforestation activities,
research studies, and aircraft and helicopters for suppressing fires.
In fiscal year 1996, the Forest Service obligated about $443 million
on contracts and contract modifications. The agency has by far the
largest contracting activity at USDA, accounting for about 43 percent
of the Department's contracting dollars (excluding commodity
purchases) in fiscal years 1994 through 1996. (See fig. 1.1.)
Figure 1.1: Distribution of
USDA's Contracting Activities
(See figure in printed
edition.)
Note: Contracting activities = dollar obligations.
Source: GAO's presentation of USDA's data.
CONTRACTING ORGANIZATION,
REPORTING RELATIONSHIPS, AND
AUTHORITY
---------------------------------------------------------- Chapter 1:1
The Forest Service's program and contracting operations are conducted
through a decentralized organizational structure. This structure
includes headquarters offices located in the Washington, D.C.,
metropolitan area, as well as nine geographic regions. Each region
contains a regional office, national forest offices, and ranger
districts. (See fig. 1.2.)
Figure 1.2: Forest Service
Lands and Regions
(See figure in printed
edition.)
Source: GAO's presentation of
the Forest Service's data.
(See figure in printed
edition.)
The national headquarters office for contracting by the Forest
Service, known as the Acquisition Management Staff, establishes and
interprets procurement policy for the Forest Service, reviews field
contracting activities, and awards and administers some contracts.\4
The regional offices provide policy guidance, review national forest
office activities, and award and administer contracts. The
contracting staff's responsibility in the national forest offices is
to award and administer contracts. Contracting is conducted by about
250 contracting officers located in 149 offices dispersed throughout
the United States.
In addition to being widely dispersed geographically, the Forest
Service's local contracting staff are not organizationally aligned
with the agency's regional and headquarters contracting staff in a
single organizational unit with hierarchical reporting relationships
and lines of authority. Although organizational arrangements vary,
contracting supervisors in the national forests generally report to
local administrative or program managers, not to the regional head of
contracting. Regional heads of contracting report to the official in
charge of regional operations, not to the head of contracting at
headquarters.
Contracting authority within USDA is delegated from the Secretary of
Agriculture through several organizational levels to the Director of
the Acquisition Management Staff at the Forest Service. The Director
delegates contracting authority to employees known as contracting
officers\5 in the regional offices, national forests, and ranger
districts. Authority is delegated to each contracting officer
through an official document known as a warrant. Contracting
officers are required, under the USDA warrant system, to meet certain
training and experience requirements before obtaining their
contracting authority. Warrant holders are authorized to obligate
the government for contract payments on the basis of the maximum
amount stated on the warrant.
--------------------
\4 The terms procurement and acquisition, as used in this report, are
interchangeable and refer to any purchase of goods or services made
with appropriated funds.
\5 The term contracting officer, as used in this report, includes
contract specialists who are authorized to handle high-dollar-value
contracts and excludes purchasing agents who handle purchases of
$25,000 or less.
APPLICABLE CONTRACTING
REGULATIONS AND INTERNAL
CONTROL STANDARDS
---------------------------------------------------------- Chapter 1:2
The Forest Service's contracting staff are required to comply with
federal regulations and policies on contracting. The Federal
Acquisition Regulation (FAR) contains the fundamental contracting
procedures for all federal executive agencies. At the Forest
Service, these regulations are supplemented by the Agriculture
Acquisition Regulation and the Forest Service Acquisition
Regulations. These regulations must conform to the FAR but can
include agency-specific requirements as well. In addition, the
Office of Federal Procurement Policy (OFPP), in the Office of
Management and Budget (OMB), establishes governmentwide procurement
policies and guidance to promote economy, efficiency, and
effectiveness in federal procurement.
In addition to the regulations governing specific contracting
procedures, the Forest Service must comply with the Federal Managers'
Financial Integrity Act (FMFIA) of 1982. This act requires executive
agencies, among other things, to (1) establish and maintain systems
of internal control, (2) periodically evaluate those systems, and (3)
report annually on their status. Internal control is intended to
provide reasonable assurance that a program's goals and objectives
are met; resources are adequately safeguarded and efficiently
utilized; reliable data are obtained, maintained, and fairly
disclosed in reports; and laws and regulations are complied with.
To help program managers implement FMFIA's provisions, we issued
Standards for Internal Controls in the Federal Government in 1983.
These standards define the minimum level of quality acceptable for
internal control and establish the criteria for evaluating internal
control. Executive agencies are required to report annually to the
President and the Congress on whether their systems of internal
control comply with FMFIA and GAO standards.
Our standards for internal control consist of five general standards,
six specific standards, and one audit resolution standard. The
general internal control standards require, among other things, the
establishment of control objectives and techniques. Internal control
objectives are the goals or targets for control that an agency wants
to achieve. Control techniques are the mechanisms that an agency
uses to achieve its control objectives. The specific internal
control standards require, among other things, (1) the complete and
accurate documentation of significant actions, (2) the proper
classification of actions in summary records, and (3) qualified and
continuous supervision. The audit resolution standard requires
managers to promptly resolve audit findings.
The Forest Service must also comply with the Government Performance
and Results Act (GPRA) of 1993. GPRA was intended to improve the
effectiveness and efficiency of federal programs by establishing a
system to set goals for performance and to measure results. To help
agencies implement aspects of GPRA, FMFIA, and other related laws,
OMB issued Circular No. A-123, which provides guidance on improving
accountability and effectiveness through management control. OMB
defines management control as the tools (organization, policies, and
procedures) that program and financial managers use to help achieve
results and safeguard the integrity of their programs. Circular No.
A-123 recognizes the importance of internal control as one of the
major elements of management control and incorporates our standards
for their implementation. According to OMB, management control
should be integrated into an agency's operations and should
"support the effectiveness and the integrity of every step of
the process and provide continual feedback to management . . .
. For instance, good management controls can assure that
performance measures are complete and accurate."
Contracting related management initiatives have been introduced by
OFPP and the Congress has enacted laws that are consistent with
GPRA's principles of establishing performance goals and measuring
results. In Policy Letter 91-2, effective May 9, 1991, OFPP
established the policy of using performance-based contracting methods
to the maximum extent possible when acquiring services. This
approach emphasizes objective, measurable performance requirements
and quality standards to help improve contractors' performance and
achieve cost savings. Also consistent with GPRA's principles, the
Federal Acquisition Streamlining Act of 1994 established that a
contractor's past performance should be considered in evaluating
whether that contractor should receive future work. The FAR requires
contracting officials to collect and maintain information on
contractors' performance for evaluating contractors for future
negotiated contract awards. Finally, in implementing GPRA, USDA
established five Department-wide performance measures for the
procurement system. These included OFPP's initiative to increase the
use of performance-based service contracting and the Acquisition
Streamlining Act's requirement to use past performance evaluations as
factors in future contract awards.
OBJECTIVES, SCOPE, AND
METHODOLOGY
---------------------------------------------------------- Chapter 1:3
At the request of the Chairman, House Committee on Agriculture, we
evaluated the Forest Service's internal control and management
practices aimed at minimizing fraud, waste, and abuse and maximizing
effectiveness in contracting activities. Specifically, we determined
whether the Forest Service (1) maintains an appropriate system of
internal control over contracting activities to minimize the agency's
vulnerability to fraud, waste, and abuse and (2) manages contracting
effectively by preparing adequate acquisition plans and by
incorporating performance factors into the contracting process. In
addition, we identified obstacles to improving the contracting
system.
We focused our review on contracting for goods and services within
the Forest Service's National Forest System. Our work was conducted
at the headquarters office for contracting in Rosslyn, Virginia;
three regional offices; and two national forest offices. We reviewed
contracts at the Northern Regional Office in Missoula, Montana; the
Pacific Southwest Regional Office in San Francisco, California; and
the Pacific Northwest Regional Office in Portland, Oregon. We also
reviewed contracts at the Lolo National Forest Office in Missoula,
Montana, and the Sierra National Forest Office in Clovis, California.
The three regions we visited accounted for 47 percent of the
contracting dollars awarded in fiscal year 1996.\6 In total, we
reviewed 52 contracts, whose contract actions exceeded $20 million in
fiscal year 1996.
We judgmentally selected the offices we visited and the contract
files we reviewed at each location. We selected contracts from the
Forest Service's records of actions reported during fiscal year 1996.
This approach provided us with a cross section of contracts at
different stages of the contracting cycle (e.g., recently awarded
contracts, multiyear contracts with numerous contract actions, and
completed contracts). We generally selected contracts with larger
dollar values and multiple actions to review. Our sample included
contracts for a variety of goods and services, including equipment
related to suppressing fires, construction, tree planting, and
environmental studies.
To determine whether the Forest Service maintained an appropriate
system of internal control for contracting, we interviewed OFPP's,
USDA's, and the Forest Service's procurement officials. We contacted
the Forest Service's contracting managers at each of the offices we
visited to discuss their policies and procedures for internal
control. We also reviewed contract files to assess the adequacy of
file documentation, the accuracy of management information being
summarized and reported, the level of supervisory review of
contracting officers, and the monitoring of contractors' performance.
To supplement our file review, at each office, we also interviewed
contracting officers, contracting officers' representatives,
procurement analysts, and others involved in the contracting process
to discuss internal control plans, supervision and contract
monitoring.
To assess whether the Forest Service manages contracting effectively,
we determined if offices prepared advance acquisition plans and
incorporated performance factors into the contracting process. We
also reviewed relevant regulations, reports, policy circulars, and
initiatives issued by OFPP, USDA, and the Forest Service. During our
field visits, we reviewed advance acquisition plans prepared for
fiscal year 1996 and interviewed contracting officials to determine
how the plans were prepared and used. With headquarters procurement
officials from USDA and the Forest Service, we discussed plans for
implementing performance-based contracting and gathering data on
contractor performance. We also reviewed completed contracts to
determine if contractors' performance evaluations had been completed.
To identify obstacles to improving the contracting system, we
reviewed information on the Forest Service's organizational structure
and the reporting relationships for the agency's contracting. We
also discussed organizational culture with headquarters and regional
Forest Service officials. For identified contracting problems, we
discussed efforts to make improvements and the potential obstacles to
doing so with headquarters procurement officials from USDA and the
Forest Service.
The Department of Agriculture provided us with written comments on a
draft of this report. These comments are presented and evaluated in
chapters 2, 3, and 4 and are reprinted in appendix I.
We conducted our work from March 1997 through February 1998 in
accordance with generally accepted government auditing standards.
--------------------
\6 In making this calculation, we excluded the contracting done by
the National Interagency Fire Center, which is not part of the
regional and national forest office structure.
INTERNAL CONTROL WEAKNESSES
INCREASE VULNERABILITY TO
CONTRACTING ABUSES
============================================================ Chapter 2
The lack of an effective internal control system for contracting
leaves the Forest Service highly vulnerable to fraud, waste, and
abuse. Internal control is intended to provide reasonable assurance
that resources are adequately safeguarded and efficiently used and
that reliable data are obtained and disclosed in reports, among
others things. The Forest Service is not complying with many
critical internal control standards. Moreover, the control
techniques employed by the Forest Service--the contracting officer
warrant system and periodic reviews by management--are not
effectively implemented. In addition, while Forest Service
procurement officials recognize some of these internal control
weaknesses, they did not include them in the USDA's most recent
Federal Managers' Financial Integrity Act (FMFIA) report. Forest
Service officials attribute internal control weaknesses to various
factors, such as a lack of staff, an organizational culture that
encourages autonomy, and a lack of direct authority over contracting
staff in field offices.
THE FOREST SERVICE IS NOT
COMPLYING WITH MANY CRITICAL
INTERNAL CONTROL STANDARDS
---------------------------------------------------------- Chapter 2:1
The Forest Service is not complying with many of the critical
internal control standards that we established. These standards
define the minimum level of quality acceptable for internal control
and establish the criteria for evaluating internal control. Namely,
the Forest Service (1) has no written plan defining the objectives of
and techniques for control, (2) lacks complete documentation in
contract files of critical contract award and administration actions,
(3) does not routinely supervise contracting staff, (4)
inconsistently monitors contractors' progress, and (5) has
significant errors and omissions in its management information
systems for contract actions.
THE FOREST SERVICE LACKS
INTERNAL CONTROL PLAN FOR
CONTRACTING
-------------------------------------------------------- Chapter 2:1.1
One critical element of internal control is a management plan that
defines the organization's internal control needs and explains how
those needs will be met. The standards for internal control require
written evidence of an agency's internal control objectives,
techniques, and accountability systems. However, neither the Forest
Service's headquarters nor regional offices that we visited had a
documented internal control plan for contracting. Contracting
officials told us they had not prepared a plan, in part, because
internal controls for contracting are incorporated into various
policy documents and federal regulations and they did not see the
importance of summarizing this guidance in a single plan. However,
with an internal control plan, Forest Service officials could more
(1) clearly define their control objectives and how they will be
achieved and (2) effectively communicate the agency's control
strategy to all contracting staff.
CONTRACT FILE DOCUMENTATION
IS INCOMPLETE
-------------------------------------------------------- Chapter 2:1.2
Internal control standards require that the documentation of
transactions or other significant events should be complete and
accurate and should facilitate tracing the transaction or event and
related information from before it occurs to after it is completed.
The Federal Acquisition Regulation requires that documentation in
contract files be sufficient to constitute a complete history of the
contract to provide (1) a basis for informed decisions, (2) support
for actions taken, (3) information for reviews, and (4) essential
facts in the event of litigation or congressional inquiries.\7 The
FAR, Forest Service regulations, and the Forest Service Contract
Administration Handbook set forth additional standards for the
organization and maintenance of the contract files.
In 31 of the 52 contract files we reviewed, we found inadequate
contract file documentation in one or more of three critical
areas--contract award, administration, and monitoring. With respect
to contract award actions, we found the following examples:
-- In one office, a file was missing that was supposed to contain
information on (1) which contractors submitted proposals and (2)
how the proposals were evaluated to determine the contract
award. Without this information, we could not determine whether
the four contracts awarded from this selection process, with
work orders of over $370,000, were awarded properly.
-- When a contract for work being done primarily in California was
modified to include a $95,000 task for work to be done in
Alaska, the contract file contained no cost comparison between
this approach and the award of a separate contract by the Forest
Service region covering work in Alaska. Without this
documentation, there was no assurance that the modified contract
was the most cost-effective way to acquire these services.
Important contract administration documentation was also lacking in
the files we reviewed, as shown in the following examples:
-- All 10 of the files we reviewed in one region were incomplete or
so poorly organized that they did not meet the region's own
standards. Many key contract administration documents were
missing entirely, and other documents were filed incorrectly.
For five closed contracts, two of which had been closed for more
than a year, contract documents maintained at separate locations
had not been consolidated into one official contract folder. As
a result, some key contract documents, such as modifications,
were missing from the official contract files.
-- Documentation was inadequate for nine "indefinite delivery,
indefinite quantity� (IDIQ) contracts we reviewed.\8 According
to the FAR, each segment of work ordered should be based on a
written statement defining the work needed, known as a scope of
work, prepared by the contracting officer. Four of the nine
IDIQ contracts also required a written cost proposal from the
contractor for that scope of work and a negotiation of the final
price. On all nine contracts, there was either no written scope
of work from the Forest Service or no documentation of
negotiation over costs for each segment of work. Without this
documentation, there is no assurance that the Forest Service
made a reasonable effort to obtain the lowest cost for that
segment of work.
Finally, contract monitoring by contracting officers' representatives
(CORs)\9 was also poorly documented for some types of contracts.
Although we found contract-monitoring documents for the construction
contracts that we reviewed, most of the service or supply contracts
did not contain contract file notes, records of telephone
discussions, or other such documentation, as shown in the following
examples:
-- A COR told us that although she had frequent phone conversations
to ensure that the contractor was on track in producing
environmental cleanup studies, she had never documented these
conversations because as a new COR, she was uncertain about the
requirements for documentation.
-- A COR for a computer systems support contract told us she had
maintained several years of monitoring reports electronically
but deleted them, without placing copies in the official
contract file, when the contract closed.
Poor documentation has practical consequences. Incomplete files make
it difficult to analyze key contract actions and put the Forest
Service at risk in the event of a legal challenge. For example, in
January 1997, the Forest Service lost a bid protest from a company
alleging that the award of the contract was improper because the
agency's evaluation of bids from competing companies was inconsistent
with the criteria it had established.\10 In the decision sustaining
this protest, the Comptroller General of the United States stated
that "Where . . . the agency has not adequately documented its
evaluation process . . . we have no basis to conclude that the
selection decision was reasonable." As a result, the Forest Service
was required to reevaluate proposals, document its reevaluation, and
make a new selection decision. In addition, the Comptroller General
recommended that the Forest Service pay the costs incurred by the
protesting company to pursue the bid protest.
Forest Service and USDA officials attributed poor contract file
documentation, in part, to decreasing staff resources. They
recognized the importance of complete file documentation but stated
that with reduced numbers of contracting staff, the documentation of
work has become a lower priority.
--------------------
\7 File documentation requirements contained in the FAR, subpart 4.8,
are optional for contracts awarded under simplified acquisition
procedures, which allow for greater flexibility and reduce procedural
requirements for contract awards under $100,000.
\8 IDIQ contracts provide for an indefinite quantity, within stated
limits, of supplies or services to be furnished during a fixed
period, and for deliveries or performance to be scheduled by placing
orders with the contractor. Each order represents an independent
segment of work.
\9 The COR is responsible for day-to-day contract administration
activities, such as monitoring the work as it progresses, informing
the contracting officer of work progress as well as problems, and
documenting these activities.
\10 JW Associates Inc., B-275209, Jan. 30, 1997, 97-1 CPD � 57. The
Comptroller General of the United States, head of the General
Accounting Office, is authorized by 31 U.S.C. � 3553 to resolve
disputes concerning the awards of federal contracts by determining
whether federal agencies have complied with statutes and regulations
controlling government procurements.
CONTRACTING STAFF ARE NOT
ROUTINELY SUPERVISED
-------------------------------------------------------- Chapter 2:1.3
Internal control standards require qualified and continuous
supervision to ensure that internal control objectives are achieved.
According to the standards, supervisors must (1) clearly communicate
the duties, responsibilities, and accountability assigned to each
staff member; (2) systematically review each member's work to the
extent necessary; and (3) approve work at critical points to ensure
that work flows as intended. The lack of routine supervision creates
an environment that can lead to mistakes in contracting procedures;
allows problems to go unidentified for a long time, if they are
identified at all; and leaves the agency extremely vulnerable to
fraud, waste, and abuse.
The routine supervisory review of Forest Service contracting officers
is nearly nonexistent, especially during contract administration,
according to our evaluation of contract files and our discussions
with contracting personnel, as shown in the following examples:
-- A senior contracting officer had committed procedural errors in
administering several of his contracts. Although some concerns
about his work surfaced while he was still in the region, a
Forest Service official told us that no one had been assigned to
routinely review his work because he was a senior officer. Only
after he left the region and others assumed responsibility for
his contracts, were problems with his administration of
contracts fully identified. For one of his contracts, his
successor discovered that procedures for ordering and tracking
work had not been completed appropriately. On the basis of the
contract file alone, the successor could not reconcile the
contractor's billings to the specific work ordered. The
eventual reconciliation of the billings required a significant
amount of time and could be done only with the assistance of the
contractor.
-- A supervisory contracting officer told us that (1) all contracts
must contain an "ordering clause" specifying how work will be
ordered and (2) an oral order on contracts must be followed by a
written order to obligate funds. However, our file review
revealed contracts that did not contain ordering clauses and
that used oral ordering without subsequent written orders to
obligate funds. The supervisory contracting officer agreed that
the ordering procedures used for these contracts were
inappropriate; however, she had been unaware of the problem.
-- A contracting officer made a sole-source award on two contracts
totaling $19 million. The market survey used to determine if
other entities were capable of delivering the same services at
similar or lower costs was deemed inadequate by USDA's
competition advocate,\11 who reviewed the contract. The
contract was approved by USDA with the stipulation that when
option years were exercised, a more comprehensive market survey
would be done. However, the Forest Service awarded the option
years without conducting the required market survey and without
supervisory review, despite the high-dollar value of the
contract and the special stipulation by USDA procurement
officials.
Despite the internal control standard for supervision, the Forest
Service has not established a policy requiring the routine review of
contacting officers' work by their direct supervisors. Moreover,
contracting officials at all levels of the Forest Service told us
that the routine supervision of experienced contracting officers was
unnecessary, because the officers had been assigned contracts on the
basis of their designated warrant authority and they could be trusted
to do their job appropriately. Several officials told us that once
assigned a contract, contracting officers are usually "on their own."
A headquarters contracting official told us that the Forest Service's
culture discourages routine supervision and that contracting officers
who have the required training and warrant authority would resent
supervisors "looking over their shoulders" to review their work.
Supervisory contracting officers in both regional offices and forests
viewed their supervisory responsibilities as primarily administrative
in nature; they did not believe that they were primarily responsible
for providing technical guidance or direction. These supervisors did
not see their role as being responsible for routinely reviewing
contracting staff's work or periodically checking key contract
actions. At two locations, we were told that supervisors learn of
contract awards through informal discussions and occasionally review
award documents. However, the only instances of supervisory review
that we found during our file review involved the review of a
trainee's work and a contract involving unique circumstances during
the award process.
Officials in USDA's Office of Inspector General and the Forest
Service's Law Enforcement Office told us that the lack of supervision
creates an environment that gives contracting officers or their
representatives the opportunity to make costly procedural errors or
commit illegal acts that go undetected. The Inspector General
identified a case in which an inexperienced, unsupervised contracting
officer's representative paid a contractor over $111,000 for work
that was not performed.
--------------------
\11 To help promote competition, USDA's competition advocate reviews
justifications for the use of other than full and open competition in
contract awards.
INCONSISTENT ATTENTION IS
PAID TO CONTRACT MONITORING
-------------------------------------------------------- Chapter 2:1.4
The Forest Service's Contract Administration Handbook states that
contract monitoring is primarily the responsibility of contracting
officers' representatives. Contract duties delegated to CORs include
day-to-day contract administration, such as inspecting the work as it
progresses, informing the contracting officer of work progress and
any problems, documenting the monitoring of the contractor, and
initiating payments. CORs may also designate inspectors to carry out
some of these same functions for some contracts. CORs and their
designated inspectors are not contracting staff. They work in
specific program areas and are assigned contracts to monitor on the
basis of their technical expertise. For example, an ecologist might
be assigned to administer a contract for ecological studies.
While all of the construction contracts that we reviewed appeared to
be monitored, we identified service contracts for the preparation of
environmental studies, tree planting, and the installation of
telephone systems, among others, that had little or no monitoring.
Inadequate monitoring contributed to work that cost more than
expected or was left incomplete, as shown in the following examples:
-- On one computer systems support contract, the contractor did not
submit progress reports as required by the contract and the COR
did not insist that they be done. The contracting officer said
that the COR's oversight of this contractor was not adequate.
As a result, work originally priced at $165,206 was completed
only after the contractor requested extra time and an additional
$88,163--a 53-percent increase in costs.
-- On another contract, the contractor provided faulty computer
software, and Forest Service personnel had to complete the work.
According to the COR, funds were wasted because work had to be
redone and the work was delayed by at least 8 months. The
contracting officer said that better monitoring and earlier
intervention by the COR could have prevented some of these
problems.
Some contracting officers said that because of staff shortages or a
lack of understanding by CORs, contract monitoring is sometimes
viewed as a low priority and therefore receives less attention from
CORs than other work duties. For several of the architect and
engineering contracts that we reviewed in one region, contracting
officials did not consider monitoring a high priority. For example,
the contracting officer had delegated monitoring responsibilities to
the COR; however, the COR told us he did not monitor the contracts
and had delegated that responsibility to inspectors. Both inspectors
said that they too did not monitor all the contracts. We found that
progress reports required by the contract provisions were not
submitted by the contractor and that, for one of the contracts, work
on some task orders was completed up to 2 years after the required
completion dates.
Headquarters officials and several contracting officers and CORs told
us that training is needed to emphasize the importance of monitoring
and to improve monitoring skills. CORs who administer construction
contracts are formally trained and certified and, according to Forest
Service officials, generally have a clear understanding of monitoring
and documentation requirements. On the other hand, CORs who
administer service contracts sometimes are not trained, do not have
to be certified, and are sometimes unclear about documentation and
monitoring requirements. The Forest Service is considering a
proposal to establish a structured training and certification program
for all CORs similar to the existing program for construction, but
this proposal has not yet been approved and implemented.
MANAGEMENT INFORMATION IS
INACCURATE AND INCONSISTENT
-------------------------------------------------------- Chapter 2:1.5
Internal control standards require that transactions and other
significant events be promptly recorded and properly classified.
Prompt and accurate records of transactions allow for the preparation
of summary reports, which can be used by management in controlling
operations. The only summary management information on the Forest
Service's contracting is captured in a data system based on
"Individual Contract Action Reports" (Standard Form 279) and commonly
referred to as "279 data." These data are reported to the Federal
Procurement Data System along with data from other government
agencies. The data are used for reports to the Congress and
executive branch agencies and
"to measure and assess the impact of federal procurement on the
nation's economy, the extent to which small business firms and
small disadvantaged business firms are sharing in federal
procurement, the impact of full and open competition in the
acquisition process, and other procurement policy purposes."\12
The Forest Service's database for contracting activities, used both
internally and externally, is so inaccurate that it is of little use
in controlling contracting operations or assessing procurement
policies. We identified errors in the Forest Service's 279 data on
most of the contracts we reviewed, as shown in the following
examples:
-- In one region, we found that the dollar amounts entered into the
279 data system were inaccurate for seven of the eight contracts
we reviewed. In one case, four contracts for hazardous waste
cleanup services were shown in the 279 data as obligations of $5
million each, for a total of $20 million. According to the
contracting officer for these contracts, the maximum obligation
for each of these IDIQ contracts was only $500,000. Therefore,
the $20 million reported overstated the actual obligations by at
least $18 million.
-- Several forests had awarded contracts but had not entered any
data on them into the 279 system. At one office we visited,
which was the organizational center for three national forests,
two of the forests had not reported any data and the third had
significantly underreported its data. According to a local
contracting official, the two forests that had not reported any
contract actions had a total of about $15 million to $20 million
in contracting activity in fiscal year 1996. During this
period, the third forest had about $15 million in contracting
activity but reported only about $3.2 million.
-- Data entry practices did not always capture individual contract
transactions as required by the Office of Federal Procurement
Policy. At two offices, rather than enter individual actions,
procurement assistants had been instructed to compile and enter
279 data on a quarterly basis for some contracts with numerous
task orders. In another region, we were told that the
procurement assistant was combining several modifications or
task orders into single entries to reduce her work backlog. In
addition, one contracting officer in another region said that he
had his own system of 279 data entry that involved periodically
entering "ballpark" summary information rather than entering
each transaction.
Forest Service officials at all the offices we visited acknowledged
that their 279 data were inaccurate. The senior contracting official
in one region said that they have been unable to correct the
situation, owing, in part, to a lack of direct authority over
contracting staff in the regional and field offices.
--------------------
\12 Federal Procurement Data System Reporting Manual, General
Services Administration (Oct. 1995), p. 3.
THE FOREST SERVICE RELIES ON
INEFFECTIVE INTERNAL CONTROL
TECHNIQUES
---------------------------------------------------------- Chapter 2:2
Problems in the implementation of the Forest Service's main internal
control techniques--the warrant system for contracting officers and
periodic reviews by management-- severely limit the effectiveness of
these techniques as internal control. The Forest Service lacks the
clear policy guidance needed to prevent warrant limits from being
exceeded and did not meet the deadline to place all of its
contracting officers under a new warrant system. In addition, the
current schedule of management reviews of contracting offices is not
frequent enough, in the absence of routine supervision, to act as an
effective internal control.
THE EFFECTIVENESS OF THE
WARRANT SYSTEM AS AN
INTERNAL CONTROL IS WEAKENED
BY IMPLEMENTATION PROBLEMS
-------------------------------------------------------- Chapter 2:2.1
Our review found problems with the implementation of the contracting
officer warrant system, which Forest Service officials consider one
of their primary internal controls. First, headquarters has not
established a clear, consistent policy on the level of authority
required to award and administer various types of contracts, and
confusion exists on this subject among field staff. Because of this
confusion, some contracting officers may be exceeding their warrant
authority. Second, as of November 1997, warrant authority expired
for a significant number of contracting officers who failed to meet
new requirements, leaving these officers without authority to perform
their duties. The primary purpose of the contracting officer warrant
system is to (1) document the appointment of contracting officers and
(2) set limits on their authority to award and administer contracts
above specified dollar thresholds. To obtain a warrant, USDA
requires contracting officers to meet specified education, training,
and experience requirements. To be in compliance with the warrant
system and to be an effective internal control, contracting managers
must assign work to contracting officers that falls within the limits
of their warrant authority.
CLEAR, CONSISTENT
POLICIES ON WARRANT
AUTHORITY HAVE NOT BEEN
ESTABLISHED
------------------------------------------------------ Chapter 2:2.1.1
The Forest Service has not established a clear policy regarding the
levels of authority needed to award and administer either fixed-price
or IDIQ contracts. As a result, for many of the contracts we
reviewed, we were unable to determine if the contracting officers had
adequate warrant authority. Given the lack of a clear Forest Service
policy, in some cases, contracting officers may be exceeding their
warrant authority.
For fixed-price contracts, the Forest Service has not clearly
established whether the total contract dollar amount, including the
amount for all option years, or just the first year's amount should
be used as the basis for determining if a contracting officer has
sufficient warrant authority. In addition, the agency does not have
a clear policy to help managers determine if a contracting officer
has adequate warrant authority to award and administer IDIQ
contracts, for which the total dollar value is unknown upon award.
For example, currently, a contracting officer with warrant authority
of only $100,000 can award and administer a highly complex contract
that may eventually cost more than $1 million. Headquarters
officials agree that they need to clarify whether contracting
officers must have authority to cover the total amount anticipated on
these contracts or may use the award amount as the basis for work
assignments.
In the absence of a clear policy, the Forest Service generally uses
the contract award amount as the basis for determining if a
contracting officer has adequate authority to award a contract, but
this term is unclear for certain types of contracts. Senior Forest
Service contracting officials acknowledged that the agency has no
standard practice for establishing the contract award amount, even
though this information is critical for correctly assigning contracts
to contracting officers. For example, for IDIQ contracts, we found
award amounts that were based on the (1) amount of only the first
order on the contract, (2) amount estimated for the first year, (3)
minimum amount allowed for a year, (4) maximum amount allowed for a
year, and (5) estimated amount for the entire contract. In some
cases, the award amount was described as "indefinite" or was not
specified.
Finally, the Forest Service's policy regarding adequate warrant
authority to take certain contract actions is not consistent with
USDA's policy. USDA's contracting officials told us that, for
fixed-price contracts, the dollar value of each individual contract
action, such as a contract modification, must be within a contracting
officer's authority. However, the Forest Service's policy is that
once a contracting officer makes a contract award that is within the
officer's authority, subsequent contract modifications can exceed the
officer's warrant authority. In one contract that we reviewed, a
contracting officer with warrant authority of up to $500,000 issued a
contract modification for $980,379. According to USDA, the officer's
warrant authority had been exceeded in this case.
MANY CONTRACTING STAFF
FAILED TO ESTABLISH NEW
WARRANT AUTHORITIES BY
DEADLINE
------------------------------------------------------ Chapter 2:2.1.2
In November 1997, warrant authority expired for 76 (about 66 percent)
of 116 contracting officers in the three regions that we visited
because the contracting officers failed to meet the deadline for
obtaining warrants under USDA's new system. In 1995, USDA
established its competency-based warrant system to comply with the
Office of Federal Procurement Policy's 1992 policy letter requiring
agencywide training standards and polices for performing contracting
duties. USDA's regulations require that all contracting officers
receive training and demonstrate competency in 78 basic contracting
duties. Warrants issued prior to the establishment of this system
expired on November 17, 1997, unless contracting officers could
demonstrate their proficiency at performing these duties through
education, training, or on-the-job experience.
Although USDA granted the Forest Service a 1-year extension to comply
with the new competency-based warrant system, as of the November 17,
1997, extended deadline, headquarters officials estimated that about
20 percent of the contracting officers agencywide had not completed
the process. A headquarters official said that, for the most part,
this would not have a serious impact on any one region. However, at
each of the three regions we visited, over 50 percent of the
contracting officers were without warrant authority as of November
17, 1997 according to regional officials. In one region, 56 percent
(14 of 25) of the contracting officers lost their warrant authority
in November; in the second region, 77 percent (23 of 30) lost their
authority; and in the third region, 64 percent (39 of 61) lost their
authority.
As a result of losing their warrant authority, for 2 months or more,
many contracting officers could not perform their essential
functions. For example, in one region, a contracting official told
us that 11 of 21 forests were without a warranted contracting officer
as of November 1997. This resulted in a highly disruptive process of
delegating responsibility for contract administration to other
contracting officers in a nearby forest or the regional office. In
addition, as of December 30, 1997, in one region we visited, 15 (50
percent) of 30 contracting officers were still without their new
authority. A headquarters official told us that as of January 1998,
about 10 to 15 percent of the contracting officers agencywide still
did not have their new authority.
INTERNAL REVIEWS ARE NOT
FREQUENT ENOUGH TO SERVE AS
AN ADEQUATE INTERNAL CONTROL
-------------------------------------------------------- Chapter 2:2.2
The Forest Service periodically reviews contracting activities at
both the regional and forest levels. These reviews assess the
effectiveness and efficiency of contracting operations by, among
other things, (1) evaluating the performance of contracting staff;
(2) examining the adequacy of staffing and skill levels, delegated
authority, and organizational configuration; and (3) checking
compliance with laws, regulations, and policies. However, these
reviews are too infrequent, in our view, to serve as an effective
internal control, given the absence of more routine supervision.
Headquarters conducts reviews of each region once every 5 years, on
average. Regional officials told us they conducted reviews of each
of their forests an average of about once every 4 to 5 years;
however, in one region, no reviews of forests had been done since
1991. In another region, officials told us that the number of
reviews they conduct has decreased in recent years because of
downsizing.
Furthermore, the Forest Service lacks an effective mechanism for
ensuring that offices implement operational improvements contained in
review recommendations. Headquarters officials told us that their
review recommendations are generally accepted and adopted but
acknowledged that if an office chooses not to adopt review
recommendations, they can do little. Because local contracting staff
do not report directly to regional or headquarters contracting
managers, these managers do not have a direct mechanism for holding
local staff accountable for implementing recommendations.
INTERNAL CONTROL WEAKNESSES ARE
NOT REPORTED IN FEDERAL
MANAGERS' FINANCIAL INTEGRITY
ACT REPORT
---------------------------------------------------------- Chapter 2:3
In addition to the standards for the operational components of
internal control, such as adequate documentation and routine
supervision, standards exist for evaluating and reporting on internal
control. The Federal Managers' Financial Integrity Act of 1982
requires agencies annually to evaluate their internal controls, using
guidance from OMB, and report to the President and the Congress on
how they comply with our internal control standards. OMB's guidance
states that continuous monitoring and other periodic evaluations are
needed to assess and improve internal control.
This ongoing monitoring of internal control is not occurring for
contracting at the Forest Service. While our review found serious
weaknesses in the Forest Service's internal control, these
deficiencies were not identified by Forest Service officials and
reported as a material weakness in USDA's fiscal year 1997 FMFIA
report. This report, the most recent available, identified six
uncorrected material internal control weaknesses at the Forest
Service, but none of these related to contracting. The lack of
internal control for contracting at the Forest Service constitutes a
reportable material weakness.
CONCLUSIONS
---------------------------------------------------------- Chapter 2:4
The lack of an adequate system of internal control for contracting at
the Forest Service makes the agency extremely vulnerable to fraud,
waste, and abuse, as shown in the following examples:
-- Without proper file documentation, the Forest Service (1) has no
assurance that contracts are awarded or administered in
accordance with applicable laws and regulations and (2) is at
risk in the event of a legal challenge, such as a bid protest.
-- Unless CORs are trained on the importance of contract
monitoring, it is likely that inconsistent monitoring practices
will continue and that the Forest Service will continue to have
no assurance that its contractors are providing the
highest-quality services at the lowest cost.
-- Until it improves its data reporting, the Forest Service will
continue to provide the Congress and other external users with
erroneous contracting information and to make management
decisions that are based on inaccurate information.
As such, the Forest Service must make a serious, concerted effort to
develop and implement a sound system of internal control and
periodically review its operations to ensure that controls are being
followed.
RECOMMENDATIONS
---------------------------------------------------------- Chapter 2:5
Effective internal control is essential to safeguarding government
assets and to conducting government business with full
accountability. To improve compliance with FMFIA and our standards
for internal control, we recommend that the Secretary of Agriculture
direct the Chief of the Forest Service to
-- prepare and implement a written internal control plan for
contracting that includes methods for ensuring (1) the complete
documentation of critical actions in contract files, (2) the
routine supervisory review of contracting activities, (3) more
consistent monitoring of contractors' progress on service
contracts through the implementation of a training and
certification program for contracting officers' representatives,
(4) improved summary management information, and (5)
clarification of how to determine adequate warrant authority for
various types of contracts;
-- establish a system to periodically monitor and assess compliance
with internal control standards; and
-- ensure that the Forest Service's internal control system for
contracting is identified as a material weakness in the
Department's FMFIA report.
AGENCY COMMENTS AND OUR
EVALUATION
---------------------------------------------------------- Chapter 2:6
In commenting on our draft report, USDA agreed with all of our
recommendations for improving internal control. USDA said the Forest
Service will develop an internal control plan that addresses the need
to improve contract file documentation, supervisory review of
contracting activities, and contract management information. USDA
also stated that the Forest Service will ensure COR training and
certification and issue guidance to the acquisition workforce,
clarifying the limits of contracting officer warrant authority. In
addition, USDA said that the Forest Service, in consultation with
USDA's Office of Procurement and Property Management, will develop a
system to periodically monitor and assess compliance with internal
control standards and will cite the internal control problems we
identified as material weaknesses in USDA's FMFIA report. We believe
that effectively implementing these actions will help reduce the
Forest Service's vulnerability to fraud, waste, and abuse.
OPPORTUNITIES EXIST TO ENHANCE
EFFECTIVENESS AND REDUCE
CONTRACTING COSTS THROUGH BEST
MANAGEMENT PRACTICES
============================================================ Chapter 3
The Forest Service has not effectively implemented four established
management practices that could increase the effectiveness and lower
the costs of contracting: acquisition planning, performance-based
service contracting, contractor evaluations, and performance measures
for the procurement system. In the offices we visited, acquisition
plans were not consistently prepared or promptly completed;
furthermore, the acquisition- planning process was not effectively
automated. Similarly, these offices made infrequent use of
performance-based service contracts and had no system for evaluating
and recording contractors' performance after service contracts were
completed. Finally, despite a USDA requirement, the Forest Service
has no means of assessing the effectiveness of its procurement
system.
ADVANCE ACQUISITION PLANNING
DOES NOT COMPLY WITH
REQUIREMENTS AND IS NOT
EFFECTIVELY AUTOMATED
---------------------------------------------------------- Chapter 3:1
The Federal Acquisition Regulation requires agencies to prepare plans
for conducting needed procurement activities as a way of enhancing
the effectiveness and lowering the costs of contracting. In the
Forest Service offices we visited, however, contracting staff either
did not prepare acquisition plans at all or prepared them in an
incomplete or untimely fashion. This occurred in part because
contracting managers are not held accountable for designing and
conducting an effective planning process. In addition, the
acquisition planning process has not been effectively automated.
THE FAR REQUIRES PLANNING TO
ENSURE EFFECTIVE CONTRACTING
-------------------------------------------------------- Chapter 3:1.1
An acquisition plan lists the contracts that an office plans to award
in the upcoming year and provides data on the type of work needed,
its cost, timing, and special requirements. An effective acquisition
planning process can help contracting staff to (1) promote and
provide for full and open competition, (2) reduce wasteful practices
resulting from hurried and unnecessary procurements, and (3) apply
innovative acquisition methods to meet a program's needs. A lack of
planning, on the other hand, can be costly, as noted in a 1994 report
by a USDA task force reviewing the Department's procurement
practices.\13
Workload imbalances at unexpected times during the year can lead to
poorly written contracts, which may, in turn, result in post-award
disputes. Contract prices may also be higher than would be the case
if contracting officers had a sufficient opportunity to thoroughly
analyze costs and conduct meaningful negotiations. For these
reasons, the FAR has, for many years, required acquisition planning
by federal agencies. USDA's and the Forest Service's acquisition
regulations prescribe specific procedures and requirements for
acquisition planning at the Forest Service.
--------------------
\13 USDA Procurement Review Task Force, USDA (Aug. 1994), pp.
107-108.
THE FOREST SERVICE'S OFFICES
ARE NOT COMPLYING WITH
ACQUISITION PLANNING
REQUIREMENTS
-------------------------------------------------------- Chapter 3:1.2
Two of the six offices we visited did not have acquisition plans for
fiscal year 1996. In another office, the plan that was prepared was
incomplete because not all program staff had provided contracting
personnel with information on their planned procurements. Forest
Service contracting officials told us that the program staff do not
understand the importance of acquisition planning and find the
reporting requirements burdensome. However, without comprehensive
contracting information, the plan has limited use as a management
tool. Given incomplete information, contracting staff are hindered
in (1) making informed decisions regarding their expected workload,
(2) identifying opportunities for consolidating procurement requests
that may lead to operational efficiencies and cost savings, or (3)
determining if innovative techniques, such as performance-based
contracting, can be used.
Even in the three offices that had complete plans, the plans'
usefulness was limited because they were not completed on time. The
Forest Service acquisition regulations require that acquisition plans
be completed before the fiscal year begins. In two of the offices,
plans were prepared during the first quarter of the fiscal year. In
the third office, the plan was completed in the second quarter; thus,
this plan could be used for only about half the year. Program staff
responsible for planning stated that the lag was primarily due to
delays in receiving final program budget figures from the Forest
Service's headquarters. However, contracting managers we spoke to
said that, even with these delays, preliminary planning could be done
much earlier and final budget figures included when they became
available.
MANAGERS ARE NOT HELD
ACCOUNTABLE FOR ACQUISITION
PLANNING
-------------------------------------------------------- Chapter 3:1.3
Planning is inconsistent and ineffective in part because managers are
not held accountable for preparing and using advance acquisition
plans. Whether the plans are prepared and used effectively is left
to each forest. One regional office we visited did not know whether
the national forests in the region produced acquisition plans.
Similarly, headquarters only knows whether the regions are planning
effectively if they cover this subject during their management
reviews, which occur about once every 5 years. To improve
acquisition planning, in 1994, the USDA procurement task force
recommended that, among other things, managers be held accountable
for effective planning to the maximum extent possible.\14 We found no
evidence that this recommendation has been implemented. In our view,
part of the explanation for this lack of success is that contracting
managers in headquarters and the regional offices lack direct
authority over contracting staff in the field offices.
--------------------
\14 USDA Procurement Review Task Force, USDA (Aug. 1994), p. 109.
ACQUISITION PLANNING HAS NOT
BEEN EFFECTIVELY AUTOMATED
-------------------------------------------------------- Chapter 3:1.4
Also contributing to the Forest Service's ineffective acquisition
planning effort is its lack of an effective automated system to
compile and manage planning information. Although, in the regions we
visited, the Forest Service's program staff have automated systems to
prepare their annual work plans, contracting staff generally have
been unable to generate acquisition plans from the program's existing
planning database. Instead, program staff must separately report
which planned work will require contracts to contracting staff. The
contracting staff must then compile this information manually or
enter it into their own local planning database, if they have one.
This process is inefficient and burdensome to staff.
Although USDA established an Automated Advance Acquisition Planning
System, it was not designed to be, and is not being used as, an
effective planning tool for the Forest Service. The automated system
was established in 1994 to forecast USDA's use of small and
disadvantaged contractors as well as to inform minority and small
businesses about procurement opportunities with USDA. Contracting
staff are required to separately enter data on planned procurements
into the automated system in addition to the data entry required to
create their local acquisition plans. In the offices we visited,
contracting staff found the additional data entry requirements
burdensome. Moreover, they could not use USDA's automated system as
an effective planning tool because they were unable to easily and
quickly access the system to produce reports or analyses.
Because USDA's automated system does not meet their needs, two of the
regional offices we visited are independently attempting to adopt an
automated process that was developed in another Forest Service
regional office. The process is designed to allow contracting staff
to develop acquisition plans from existing program-planning
databases, thereby avoiding burdensome reporting requirements and
duplicate data entry. However, neither region has been widely
successful in implementing the automated process in its forests.
To improve advance acquisition planning, the USDA task force
recommended in 1994 that the submission of advance acquisition plans
be automated. A standard, automated acquisition planning system,
linked to an automated program-planning system, would enhance
planning by (1) reducing burdensome reporting requirements, (2)
eliminating duplicate data entry, and (3) facilitating revisions and
the production of summary reports. USDA is currently in the midst of
an effort to modernize its procurement systems. A USDA official told
us that the Department plans to incorporate automated acquisition
planning into the new procurement system and is currently assessing
the availability of software for this and other procurement system
requirements. USDA expects the new system to be available in 1999,
at the earliest.
PERFORMANCE-BASED SERVICE
CONTRACTS ARE NOT WIDELY USED
---------------------------------------------------------- Chapter 3:2
Despite governmentwide efforts to lower costs and improve
contractors' performance through the greater use of performance-based
service contracting, the Forest Service has only recently taken the
first steps in this direction. Performance-based contracts make
payments contingent on whether the contractor meets the performance
goals. For example, under performance-based contracts, the payments
on a reforestation and maintenance contract could be based on whether
the contractor met a goal for the number of trees that are alive and
healthy 1 year after planting. The agency has made very limited
progress in adopting performance-based contracting, in part because
it has not provided its regional and national forest offices with
adequate training or direction to aid them in identifying contracts
that could be awarded using performance-based techniques. By failing
to aggressively implement performance-based service contracting, the
Forest Service is likely missing opportunities to lower costs and
improve contractors' performance.
In Policy Letter 91-2, effective May 9, 1991, the Office of Federal
Procurement Policy established the policy of using performance-based
contracting methods to the maximum extent possible when acquiring
services. To be a true performance-based service contract (PBSC),
the contract must include (1) a performance work statement, which
describes the work in objective, measurable, performance standards;
(2) a quality assurance plan, which measures the contractor's
performance in meeting the standards; and (3) positive or negative
performance incentives. According to OFPP, performance-based
contracting will help to correct problems commonly associated with
service contracts and identified in numerous audits, including cost
overruns, schedule delays, failure to achieve specified results, and
other performance problems.\15
OMB assessed federal agencies' implementation of the performance
contracting policy in 1996 and found only limited use of
performance-based service contracting at USDA. In early 1997, USDA
promised to OFPP that it would "embark on a stronger initiative than
in the past to capture the potential savings from the use of PBSC."
As of January 1998, the Forest Service's headquarters identified one
contract that it planned to award in fiscal year 1998 using
performance-based techniques. This contract--to operate the system
used to make recreation reservations in national forests--is expected
to be worth about $12.6 million over 5 years. In a January 1998
meeting with headquarters officials, the regional offices identified
11 contracts they planned to award as performance-based contracts in
fiscal year 1998, with an expected total value of about $2 million.
In our view, progress in adopting performance-based service
contracting has been hampered by a lack of adequate direction from
headquarters and of in-depth training on performance-based
techniques. According to OFPP, two keys to the success of PBSC are
(1) direction to staff from the highest agency levels and (2)
training for contracting and program staff that covers how to write
performance work statements, how to formulate quality assurance
plans, and other aspects of PBSC. The offices we visited were
generally familiar with the concept of a performance-based contract.
However, they had not received explicit direction from headquarters
stressing the significance of this initiative or in-depth training on
how to develop a performance-based contract. A senior Forest Service
contracting official told us that the type of services that the
Forest Service contracts for do not lend themselves easily to being
done as performance-based contracts and that the time and resources
required to develop performance-based contracts has further limited
their use.
--------------------
\15 A Guide to Best Practices for Performance-Based Service
Contracting, Office of Federal Procurement Policy (Apr. 1996), p.
6.
THE FOREST SERVICE LACKS A
SYSTEM FOR EVALUATING
CONTRACTORS' PERFORMANCE
---------------------------------------------------------- Chapter 3:3
The Forest Service does not have a system in place for routinely
evaluating contractors' performance at the end of service contracts
and compiling such evaluations in a central location. As a result,
contracting officials cannot easily consider contractors' past
performance in making award decisions for negotiated contracts.
The FAR required agencies to evaluate a contractor's performance and
establish manual or automated past performance reporting systems by
July 1, 1995, for service contracts in excess of $1 million. As of
January 1, 1998, the FAR requirement to evaluate past performance
applies to service contracts in excess of $100,000. The FAR, and the
USDA regulations that supplement them, require the Forest Service to
establish the content and format of performance evaluations.
According to OFPP, the essential objective of the FAR provisions is
to have a clear and concise evaluation of a contractor's past
performance that is readily available and can be shared with a
requesting contracting officer with a minimum of delay. Information
on a contractor's performance on every contract is critical to
negotiated contract awards because the award decision is based on
"best value" to the government. In this environment, factors such as
the ability to deliver quality work are being considered in addition
to price. If past performance data are not captured or are captured
but not readily available for review, they cannot be used effectively
in award decisions on negotiated contracts.
In the offices we visited, the Forest Service seldom awards service
contracts large enough to require an evaluation under the FAR
requirements that were in effect during our review--that is,
contracts exceeding $1 million in value. Our sample of contract
files included only two service contracts that exceeded this
threshold; the performance evaluations were not completed on either
of these contracts.
Since January 1, 1998, however, performance evaluations have been
required for service contracts exceeding $100,000, which are more
common at the Forest Service. For example, of the 25 service
contracts we examined, the award amounts of 7 exceeded $100,000.
Yet, the agency has not issued guidance for these evaluations nor
established a database for maintaining the results. As a result,
contracting staff do not know what aspects of past performance should
be evaluated for service contracts and do not have a form to use to
structure their evaluations. In addition, staff do not know where to
store evaluation data so they can easily be retrieved and used in
award decisions on future negotiated procurements. A regional
official told us that despite this limitation, some information on
contractors' performance is captured and shared informally, though
not systematically, among contracting officers.
Without direction from the Forest Service's headquarters on both the
format and content of past performance evaluations and the system for
capturing past performance data, contracting staff cannot
consistently gather this information. Without consistent data on
past performance, contracting officers find it difficult to
effectively consider quality factors in awarding negotiated
contracts, and consequently, contractors whose previous performance
has been unsatisfactory could win future contracts. In addition,
unless it begins to systematically gather data on contractors'
performance, the Forest Service may not be in a position to meet the
FAR requirement that past performance be considered in all negotiated
award decisions made on or after January 1, 1999, for acquisitions
expected to exceed $100,000.
PROCUREMENT SYSTEM'S
PERFORMANCE MEASURES ARE NOT
YET IMPLEMENTED
---------------------------------------------------------- Chapter 3:4
The Forest Service did not meet USDA's May 1997 deadline for
developing a plan for implementing performance measures for its
procurement system. Because the Forest Service did not complete its
plan on time or implement any performance measures, it was unable to
report on its progress in meeting procurement performance goals in
fiscal year 1997. Moreover, the plan that the agency eventually
submitted in February 1998 does not provide an adequate basis for
effectively implementing procurement performance measures. Without
performance measures and good data on actual performance, the agency
does not have an effective mechanism for improving its contracting
performance.
In May 1996, OMB issued a memorandum to the heads of executive
departments and agencies regarding the use of procurement performance
measures to help improve the federal acquisition system. OMB
required each agency to develop a plan for assessing the performance
of its procurement system by October 1996 and to implement the plan
during fiscal year 1997. Using procurement performance measures to
assess contracting activities constitutes one aspect of an agency's
implementation of the Government Performance and Results Act.
As part of its implementation of GPRA, USDA established five
procurement performance measures to be implemented Department-wide.
Two of these measures are (1) achieving cost savings through the
increased use of performance-based service contracting and (2)
increasing the use of past performance as an evaluation factor for
awards. USDA issued a departmental notice in March 1997 "to
establish the procurement performance measures which will be used
USDA-wide to measure progress in improving performance relating to
quality, timeliness, productivity and price." The notice required
that by May 1, 1997, the head of contracting at the Forest Service
submit to USDA the Forest Service's plan for implementing the
required measures, including the methodology for data collection and
the approach to analyzing data for establishing goals for future
years. In addition, the Forest Service was required to submit by
November 14, 1997, a report on the agency's progress in meeting the
performance goals. The Forest Service did not submit the
implementation plan or the progress report by the specified
deadlines.
On February 10, 1998, the agency submitted its procurement
performance measures implementation plan to USDA. The plan did not
contain (1) baseline data on current performance or (2) specific
performance goals for four of the five measures. According to a USDA
official, without, at a minimum, baseline data and specific
performance goals, the Forest Service does not yet have an adequate
plan to effectively implement procurement performance measures.
CONCLUSIONS
---------------------------------------------------------- Chapter 3:5
Without the effective implementation of acquisition planning,
performance-based service contracts, and contractor evaluations, as
well as periodic assessments of its procurement system's performance,
the Forest Service has little assurance that it is receiving the
highest-quality services at the lowest cost. If the Forest Service
is to improve its procurement planning, it must hold staff
accountable for preparing and using acquisition plans. Moreover, the
effective automation of the planning system would facilitate the
production of plans by reducing burdensome data entry requirements.
Although the need for accountability and automation for acquisition
planning was recognized in 1994 by USDA's procurement task force,
needed improvements have not yet been made. Furthermore, making
progress in implementing performance-related management initiatives
will require a much greater management commitment to providing staff
with policy direction and training. Finally, once staff are provided
with the necessary tools--such as appropriate policy direction,
training, and systems support--managers must provide sufficient
oversight to hold staff accountable for adopting the desired
procurement reforms. Without this management direction and
oversight, the likelihood that staff will increasingly use these
techniques--or that the overall system will improve--is limited.
RECOMMENDATIONS
---------------------------------------------------------- Chapter 3:6
To improve acquisition planning, we recommend that the Secretary of
Agriculture continue the Department's efforts to develop and
implement a more effective Department-wide automated advance
acquisition planning process.
To improve the effectiveness and reduce the cost of contracting, we
also recommend that the Secretary of Agriculture direct the Chief of
the Forest Service to
-- hold regional contracting managers responsible for ensuring that
regional and national forest offices prepare advance acquisition
plans that are on time and contain complete information on
contracting needs;
-- increase the use of performance-based service contracts by
providing all contracting staff with training and direction on
the mechanics of developing and awarding performance-based
contracts, establishing annual goals for their use, and
periodically monitoring actual usage;
-- develop a format for capturing data on contractors' past
performance for service contracts and a strategy for effectively
maintaining these data; and
-- implement the performance measures for the procurement system
established by USDA by, at a minimum, collecting baseline data
on current performance and defining annual, measurable goals for
improvement for each measure.
AGENCY COMMENTS AND OUR
EVALUATION
---------------------------------------------------------- Chapter 3:7
In commenting on our draft report, USDA said that it agreed with all
of our recommendations for improving the effectiveness and reducing
the cost of contracting. USDA said that it is working to improve its
advance acquisition planning process and that the Forest Service will
comply fully with acquisition planning requirements that are
forthcoming from USDA's Office of Small and Disadvantaged Business
Utilization. However, USDA did not specify the actions that the
Forest Service will take to hold contracting managers accountable for
preparing acquisition plans that are complete and on time. We
believe that establishing better accountability for planning is key
to improving the effectiveness of the planning process.
USDA said that Forest Service's regional offices have been holding
training in performance-based service contracting and that USDA will
continue to work with the Forest Service to increase the use of this
contracting tool. In addition, USDA said that during the third
quarter of fiscal year 1998, it will make available to the Forest
Service and USDA's other agencies an automated past performance
system currently in use at the National Institutes of Health--an
agency of the Department of Health and Human Services--as well as
four other agencies. USDA expects the Forest Service to implement
this past performance system in time to meet the FAR requirement that
by January 1, 1999, past performance information be considered in
negotiating service contracts valued in excess of $100,000. Finally,
USDA said that the Forest Service, in coordination with USDA's Office
of Procurement and Property Management, will develop an approach to
implementing procurement performance measures, including relevant
baseline data. We believe that effectively implementing these
actions will help improve the effectiveness and lower the costs of
contracting at the Forest Service.
AGGRESSIVE LEADERSHIP AND ENHANCED
ACCOUNTABILITY ARE NEEDED TO
OVERCOME OBSTACLES TO REFORM
============================================================ Chapter 4
Three fundamental obstacles stand in the way of correcting the
weaknesses in the Forest Service's procurement system: (1) the lack
of aggressive leadership to implement internal control and
contracting reforms, (2) an organizational structure that impedes
direct accountability within the contracting function, and (3) a
long-standing culture of local independence and autonomy. Overcoming
these obstacles to contracting reform will take aggressive
leadership, enhanced accountability, and sustained oversight at all
levels of the Forest Service.
MANAGERS HAVE NOT ACTED
AGGRESSIVELY TO IMPLEMENT
INTERNAL CONTROL AND
CONTRACTING REFORMS
---------------------------------------------------------- Chapter 4:1
The senior contracting officials whom we interviewed at the Forest
Service's headquarters recognized that a number of the problems we
discussed in chapters 2 and 3 needed correcting. Yet, they have not
aggressively taken corrective actions, such as providing the
necessary direction, training, and emphasis needed to ensure that
improvements are implemented.
The Forest Service's leadership has not provided its contracting
staff with adequate direction and guidance on the concepts or
importance of internal control. Without such guidance, it is
difficult for contracting managers to design controls and provide an
environment conducive to their successful implementation. For
example, many managers saw no need to routinely supervise contracting
officers who obligate the government to pay hundreds of thousands of
dollars to private contractors.
Similarly, senior Forest Service officials have not provided the
necessary direction and training to ensure that the performance-based
service contracting and contractor evaluation initiatives are
successfully implemented. As a result, in the offices we visited,
staff were making limited use of these tools. For example, senior
officials acknowledged that staff do not fully understand what a
performance-based contract is and thus may erroneously believe they
are already using these contracts. Yet, Forest Service leaders have
not taken steps to provide training or guidance in the requirements
of performance-based contracting.
ORGANIZATIONAL STRUCTURE
IMPEDES CONTRACTING REFORMS BY
LIMITING DIRECT ACCOUNTABILITY
---------------------------------------------------------- Chapter 4:2
Even if the Forest Service's leadership were to take aggressive
action to implement internal control or contract management reforms,
these efforts would be constrained by the organizational structure
for contracting. This structure provides no clear lines of authority
or effective reporting relationships, thereby impeding direct
accountability.
Contracting supervisors in forests generally report to local
administrative or program managers, not to the regional head of
contracting. Regional contracting managers report to the Regional
Forester, not to the national head of contracting. In effect,
regional and headquarters contracting managers have no direct
authority over contracting staff in the field. (See fig. 4.1.)
Thus, although contracting initiatives are communicated from
headquarters to field staff, it is essentially the responsibility of
local administrative or program managers, who have no technical
contracting expertise and may not fully understand the importance of
these initiatives, to hold local contracting staff accountable for
implementing them.
Figure 4.1: The Forest
Service's Reporting
Relationships
(See figure in printed
edition.)
Note: This chart has been condensed to illustrate reporting
relationships and does not include all of the organizational levels
between contracting officers and the Chief of the Forest Service.
Without clear lines of authority and responsibility and appropriate
reporting relationships, contracting managers have difficulty
ensuring the implementation of internal control and other management
initiatives. The lack of direct authority over field staff explains,
in part, why Forest Service officials have not been successful in
holding staff accountable for entering accurate data on contracting
activity into the Federal Procurement Data System, for example.
Several field offices in California failed to enter any data
regarding their contracting activities into this system for fiscal
year 1996. A regional official told us that she had requested these
offices' compliance with the data entry requirement. However,
because she did not have direct authority over them, the forest
offices could take no action on the request, and the regional office
could not enforce compliance.
ORGANIZATIONAL CULTURE
CONTRIBUTES TO DIFFICULTIES IN
IMPLEMENTING REFORMS
---------------------------------------------------------- Chapter 4:3
In the absence of clear lines of authority or effective reporting
relationships, extra attention and efforts are required to hold staff
accountable for implementing reforms. However, the Forest Service's
culture of local independence and autonomy, rather than providing
this extra support, hinders accountability and poses an additional
barrier to improving contracting practices. The Forest Service is a
decentralized organization. Decentralization has fostered an
independent organizational culture in which contracting staff have
become accustomed to operating autonomously. This organizational
culture appears to make contracting managers at all levels within the
organization hesitant to provide close oversight of contracting
activities--an attitude that impairs accountability for implementing
internal control and contracting reforms.
Forest Service officials said that the agency's culture puts a
premium on independence and discourages close supervision. In
response to our observations about the lack of routine supervision,
senior Forest Service officials told us that contracting officers
have limits on their spending authority that are based on education
and experience and that they are trusted to perform competently and
ethically. Furthermore, they believed that attempts to more closely
oversee staff or to change reporting relationships within the
organizational structure to give the regional or headquarters offices
more direct authority would likely be met with significant
resistance.
The high value placed on independence has led to a history of
problems in enforcing accountability. Reporting on agencywide
accountability issues in 1994, an internal Forest Service task force
found that the need for increased accountability was "compelling."\16
One of the task force's recommendations was to accelerate cultural
change. A 1994 USDA procurement review recognized the need to
strengthen acquisition planning and recommended that managers be held
accountable for producing and using acquisition plans to the maximum
extent possible.\17 In discussing this recommendation, the report
noted that implementing it would result in a major cultural change.
We found no evidence that the cultural change that these reports
identified as critical to improving accountability had occurred at
the Forest Service.
In another recent review, we raised serious concerns about the Forest
Service's ability to hold managers accountable for their
performance.\18 Our review of the decision-making process at the
Forest Service found an organizational culture of indifference toward
accountability. We cited problems with, among other things, the
Forest Service's accounting and financial management systems and its
performance measurement and concluded that the agency's historically
decentralized management and recently increased flexibility in fiscal
decision-making have not been accompanied by sufficient
accountability for expenditures and performance.
Also recently, the Forest Service itself recognized the need for
increased accountability. In a 1997 year-end address to headquarters
staff, the Chief of the Forest Service commented that there is "a
common concern that the Forest Service is not demanding enough in the
critical area of accountability. I am committed to improving
accountability . . . [which is] a big challenge for this agency."
In our 1992 report on the techniques that companies use to change
organizational culture,\19 we cited two keys to successful cultural
change: (1) top management must be totally committed to the change
in both words and actions and (2) organizations must provide training
that promotes and develops skills related to their desired values and
beliefs.
--------------------
\16 Individual and Organizational Accountability in the Forest
Service: Successful Management of Work Agreements, USDA, Forest
Service (Feb. 1994).
\17 USDA Procurement Review Task Force, USDA (Aug. 1994), p. 109.
\18 The Results Act: Observations on the Forest Service's May 1997
Draft Plan (GAO/T-RCED-97-223, July 31, 1997), p. 1, which was
testimony based on our report entitled Forest Service
Decision-Making: A Framework for Improving Performance
(GAO/RCED-97-71, Apr. 29, 1997).
\19 Organizational Culture: Techniques Companies Use to Perpetuate
or Change Beliefs and Values (GAO/NSIAD-92-105, Feb. 27, 1992).
CONCLUSIONS
---------------------------------------------------------- Chapter 4:4
Despite its knowledge of many of the shortcomings in the contracting
process discussed in this report, the Forest Service has not moved
aggressively to make improvements. It is critical that the Forest
Service establish effective internal control over contracting
activities to give the agency reasonable assurance that resources are
safeguarded and expended judiciously. In addition, procurement
reforms that hold the promise of lowering costs and improving
quality, such as performance-based service contracting, need to be
more effectively implemented. The current organizational structure
of the contracting function, which limits direct accountability, as
well as the culture of local autonomy, appear to have resulted in an
inertia that frustrates the implementation of effective internal
control and important procurement reforms. Given these obstacles and
the agency's history of problems with enforcing accountability,
committed, aggressive leadership and sustained oversight will be
required to effect significant improvements.
AGENCY COMMENTS AND OUR
EVALUATION
---------------------------------------------------------- Chapter 4:5
In commenting on our draft report, USDA disagreed with our
identification of the organizational structure for contracting as an
impediment to reform. While acknowledging that we had not made a
recommendation in this area, USDA said it did not agree with the
suggestion that the existing organizational structure is somehow
defective. USDA said that additional management emphasis and
accountability can improve the acquisition process within the
existing organizational framework.
We are not suggesting in this report that the organizational
structure should change. Rather, we believe that the organizational
structure for contracting at the Forest Service does not provide
clear lines of authority or effective reporting relationships between
contracting staff and managers and thus impedes direct
accountability. In this organizational context, aggressive
leadership and sustained oversight will be especially important to
establishing and maintaining accountability for implementing
contracting reforms.
(See figure in printed edition.)Appendix I
COMMENTS FROM THE DEPARTMENT OF
AGRICULTURE
============================================================ Chapter 4
(See figure in printed edition.)
(See figure in printed edition.)
(See figure in printed edition.)
(See figure in printed edition.)
(See figure in printed edition.)
GAO'S COMMENTS
The following are GAO's comments on the U.S. Department of
Agriculture's letter of March 30, 1998.
1. In this report, we do not suggest that the Forest Service's
organizational structure is defective. We continue to believe,
however, that the organizational structure, by lacking clear lines of
authority or effective reporting relationships between contracting
staff and managers, impedes direct accountability. In this
organizational context, aggressive leadership and sustained oversight
will be especially important to establishing and maintaining
accountability for implementing contracting reforms.
MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix II
Keith W. Oleson, Assistant Director
Stephen D. Secrist, Project Leader
Mary K. Colgrove-Stone
Deborah L. Justice
Jonathan M. Silverman
*** End of document. ***