Department of Homeland Security
Department of Homeland Security Compliance
with the Federal Acquisition Regulation
Revisions on Proper Use and Management of
Cost-Reimbursement Contracts
OIG-12-133
September 2012
SEP 28 2012
MEMORANDUMFOR
: NickNayak
ChiefProcurementOfficer
DepartmentofHomelandSecurity
FROM:
AnneL.Richards
SUBJECT: DepartmentofHomelandSecurityCompliancewiththe
FederalAcquisitionRegulationRevisionsonProperUseand
ManagementofCostReimbursementContracts
AssistantInspectorGeneralforAudits
OFFICE OF INSPECTOR GENERAL
Department of Homeland Security
Washington, DC 20528 / www.oig.dhs.gov
Attachedforyouractionisourfinalreport,DepartmentofHomelandSecurity
CompliancewiththeFederalAcquisitionRegulationRevisionsonProperUseand
ManagementofCostReimbursementContracts.Weincorporatedtheformalcomments
fromtheOfficeoftheChiefProcurementOfficeinthefinalreport.
ThereportcontainstworecommendationsaimedatimprovingtheDepartment’suse
andmanagementofotherthanfirmfixedpricecontracts. Yourofficeconcurredwith
therecommendations. Basedoninformationprovidedinyourresponsetothedraft
report,weconsidertherecommendationsresolved.Onceyourofficehasfully
implementedtherecommendations,pleasesubmitaformalcloseoutlettertouswithin
30dayssothatwemayclosetherecommendations.Thememorandumshouldbe
accompaniedbyevidenceofcompletionofagreeduponcorrectiveactions.
ConsistentwithourresponsibilityundertheInspectorGeneralAct,weareproviding
copiesofourreporttoappropriatecongressionalcommitteeswithoversightand
appropriationresponsibilityovertheDepartmentofHomelandSecurity.Wewillpost
thereportonourwebsiteforpublicdissemination.
Pleasecallmewithanyquestions,oryourstaffmaycontactJohnE.McCoyII,Deputy
AssistantInspectorGeneralforAudits,at(202)2544100.
Attachment
OFFICE OF INSPECTOR GENERAL
Department of Homeland Security
Table of Contents
Executive Summary............................................................................................................. 1
Background ........................................................................................................................ 2
Results of Audit ................................................................................................................... 4
Contract-Type Selection Requirements .................................................................. 4
Assignment of Acquisition Workforce Resources................................................... 8
Recommendations ............................................................................................... 13
Management Comments and OIG Analysis ......................................................... 14
Appendixes
Appendix A: Objectives, Scope, and Methodology ............................................ 16
Appendix B: Management Comments to the Draft Report ............................... 19
Appendix C: Major Contributors to This Report ................................................ 22
Appendix D: Report Distribution ........................................................................ 23
Abbreviations
COR Contracting Officer Representative
COTR Contracting Officer Technical Representative
DCMA Defense Contract Management Agency
DHS Department of Homeland Security
FAC-COR Federal Acquisition Certification for Contracting Officer
Representative
FAC-COTR Federal Acquisition Certification for Contracting Officer Technical
Representative
FAR Federal Acquisition Regulation
FY fiscal year
OIG Office of Inspector General
OMB Office of Management and Budget
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OFFICE OF INSPECTOR GENERAL
Department of Homeland Security
Executive Summary
Cost-reimbursement contracts and other non-firm-fixed price contracts provide limited
incentive for contractors to control costs. In the past, these types of contracts have
been used without appropriate justification or sufficient management and oversight.
As a result, these contract vehicles pose a high risk for wasting or misusing taxpayer
funds.
Federal Acquisition Regulation Case 2008-030, Proper Use and Management of Cost
Reimbursement Contracts, responded to Congressional and Presidential requirements to
revise the Federal Acquisition Regulation to include guidance over the use and
management of other than firm-fixed-price contracts, to include cost-reimbursement,
time-and-material, and labor-hour. This case amended the Federal Acquisition
Regulation to require documentation justifying the selection of contract type, and the
assignment of acquisition workforce resources to support other-than-firm-fixed-price
contracts. We reviewed the Department’s compliance with the Federal Acquisition
Regulation Case 2008-030, to address a Congressional mandate in the Duncan Hunter
National Defense Authorization Act for fiscal year 2009.
The Department of Homeland Security (DHS) did not always comply with the revisions in
the Federal Acquisition Regulation Case 2008-030, Proper Use and Management of Cost
Reimbursement Contracts. DHS did not always document required information to justify
the selection of other than firm-fixed-price contract-types and did not always assign
acquisition workforce resources to manage other-than-firm-fixed-price contracts in
accordance with the revisions. These conditions existed because DHS policies do not
completely align with the Federal Acquisition Regulation Case requirements, or in some
instances, because acquisition personnel did not comply with existing policies. As a
result, DHS may not award or manage these contracts properly, increasing the risk
associated with the procurement of goods and services.
We made two recommendations intended to improve the Department’s use of other
than firm-fixed-price contracts. DHS concurred with our recommendations and is taking
steps to implement them.
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Background
In fiscal year (FY) 2010, Federal agencies collectively spent more than $535 billion
through contracts to acquire goods and services in support of their missions. Agencies
obligated more than 35 percent of this total using other than firm-fixed-price contracts.
Due to their nature, other-than-firm-fixed-price contracts increase the risks of
inefficiency and waste. With the United States facing increasing fiscal pressures, there is
a growing need to ensure that Federal agencies make the most efficient and effective
use of their resources. To address these concerns, both Congress and the
Administration recently strengthened controls over the use and management of other
than firm-fixed-price contracts.
Contract-Type Selection
The Federal Acquisition Regulation (FAR) identifies a wide selection of contract types
available to the Government, including firm-fixed price, cost-reimbursement, and time-
and-materials contracts. The objective is to select a contract-type that results in
reasonable contractor risk and provides the contractor with the greatest incentive for
economical performance.
The FAR states that the firm-fixed-price contract provides for a price that is not subject
to any adjustment on the basis of the contractor’s cost experience in performing the
contract. Usually, the firm-fixed-price contract is the contract-type best suited for
minimizing risk and maximizing value for the Government because it provides the
contractor with the greatest incentive for economical performance. It also imposes the
minimal administrative burden upon the contracting parties.
While the firm-fixed-price contract is preferred, the Government may award an other
than firm-fixed-price contract-type when uncertainties cannot be managed by the
contractor within economically reasonable bounds. For example, the FAR allows the
government to award:
• Cost-reimbursement contracts when circumstances do not allow the agency to
define its requirements sufficiently or when uncertainties involved in contract
performance do not permit costs to be estimated with sufficient accuracy; and
• Time-and-materials and labor-hours contracts only when it is impossible, at the
time of placing the contract, to estimate accurately the extent or duration of the
work or to anticipate costs with any reasonable degree of confidence.
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These other than firm-fixed-price contract-types require the Government to absorb a
greater portion of the risk up front, but they can help avoid costly contingencies that
contractors would pass on to taxpayers if forced to offer their services on a fixed-price
basis. Under cost-reimbursement contracts, the Government pays the contractor based
on allowable incurred costs rather than the delivery of a completed product or service.
Under time-and-materials contracts, the Government pays the contractor fixed hourly
rates that include wages, overhead, general and administrative expenses, and profit;
based on the number of labor hours billed by the contractor. These terms provide
contractors with limited incentive to control costs. In the past, these types of contracts
have been used without appropriate justification or sufficient management and
oversight. Furthermore, these contract types increase the Government’s administration
costs. Excessive reliance on other than firm-fixed-price contracts increases the risk that
funds will not be properly safeguarded.
In FY 2009, DHS obligated $2.53 billion (17.7 percent of all contracts) for cost-
reimbursement contracts and $2.54 billion (17.8 percent of all contracts) for time-and-
materials and labor-hour contracts. In FY 2010, DHS obligated $2.62 billion (19.3
percent of all contracts) for cost-reimbursement contracts and $2.54 billion (18.7
percent of all contracts) for time-and-materials and labor-hour contracts.
Use and Management of Other Than Firm-Fixed-Price Contracts
Recently, the Government has increased efforts to regulate the use and management of
other than firm-fixed price contracts. Congress addressed cost-reimbursement
contracts in section 864 of the Duncan Hunter National Defense Authorization Act for
Fiscal Year 2009. Specifically, the Act required the FAR be revised to include guidance
regarding 1) when and under what circumstances cost-reimbursement contracts are
appropriate; 2) the acquisition plan
1
findings necessary to support a decision to use
cost-reimbursement contracts; and 3) the acquisition workforce resources necessary to
award and administer cost-reimbursement contracts. The Act also required each
agency’s Inspector General to determine the agency’s compliance with the new
requirements. Addressing similar themes, President Obama issued a Presidential
Memorandum on Government Contracting on March 4, 2009, directing agencies to
become more fiscally responsible in their contract actions and cut contract costs.
Additionally, in July 2009, the Office of Management and Budget (OMB) directed
agencies to reduce the use of high-risk contracts (i.e. cost-reimbursement, time-and-
material, and labor-hour).
1
As defined by the Defense Acquisition University, an acquisition plan is a written document that
addresses all technical, business, management, and other significant considerations that will control an
acquisition.
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To implement the Act and the Presidential Memorandum, the Department of Defense,
the General Services Administration, and the National Aeronautics and Space
Administration jointly issued FAR Case 2008-030 interim rule (Proper Use and
Management of Cost-Reimbursement Contracts) on March 16, 2011 with immediate
implementation. FAR Case 2008-030 broadened the Act’s scope to include all other
than firm-fixed-price contracts including time-and-material and labor-hour contracts,
which share similar risks as cost-reimbursement contracts. It introduced requirements
that fall into two broad categories: 1) acquisition planning and contract-type selection,
and 2) assignment of acquisition workforce resources.
On March 2, 2012, the regulators adopted the interim rule as final with a few minor
revisions that did not change the substance of the interim rule’s requirements. The final
rule became effective on April 2, 2012
.
Results of Audit
DHS did not always comply with the revisions in FAR Case 2008-030 (FAR Case), Proper
Use and Management of Cost Reimbursement Contracts. DHS did not always document
required information to justify the selection of other than firm-fixed-price contract
types, and did not always assign acquisition workforce resources to manage other than
firm-fixed-price contracts in accordance with the revisions. This occurred because DHS
policies do not completely align with the FAR Case requirements, or in some instances,
because acquisition personnel did not comply with existing policies. As a result, DHS
may not award or manage these contracts properly, increasing the risk associated with
the procurement of goods and services.
Contract-Type Selection Requirements
DHS’ written acquisition plans did not always contain required contract-type
selection information and contracting officers did not always ensure the
adequacy of contractors’ accounting systems. This occurred because DHS policy
does not completely align with the FAR or acquisition personnel (i.e. preparers
and reviewers/approvers of the required documentation) did not comply with
existing policies. As a result, DHS may not award or manage these contracts
properly, increasing the risk associated with the procurement of goods and
services.
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DHS’ Acquisition Plans
FAR Case 2008-030 requires agencies to develop written acquisition plans for
other than firm-fixed-price contracts. These plans shall include specific
information on why the particular contract-type was selected and be approved
at least one level above the contracting officer. We reviewed a judgmental
sample of 59 DHS other than firm-fixed price contracts with a total value of
about $1.5 billion to evaluate DHS’ compliance with requirements.
2
All 59 DHS
other than firm-fixed-price contracts did not comply with these requirements as
follows:
• The written acquisition plans for 29 of the 59 contracts in our sample did
not contain contract-type selection information.
The Homeland Security Acquisition Manual establishes different types of
written acquisition plans depending on the acquisition dollar thresholds.
The acquisition planner must develop a Formal Written Acquisition Plan
for acquisitions of $10 million or more. For acquisitions of less than $10
million, acquisition personnel must develop an Advance Acquisition Plan
or an Abbreviated Acquisition Plan if the acquisition contains sensitive
information. Both the Formal Written Acquisition Plan and the
Abbreviated Acquisition Plan require contract-type selection information
in accordance with FAR Case 2008-030. However, DHS policy does not
require such information to be included in the Advanced Acquisition Plan.
These 29 contracts required Advance Acquisition Plans and therefore did
not contain all the required contract-type discussions in FAR Case 2008-
030. For 15 of the 29 contracts, some information regarding contract-
type selection was included in the Determination and Findings document,
which have been required prior to the FAR Case to justify the selection of
time-and-materials and labor-hour contract-types. However,
Determinations and Findings are not required for all other than firm-
fixed-price contracts and they do not require FAR Case 2008-030’s
specific, targeted discussions and analyses. For example, Determinations
and Findings do not require discussions of:
o Government’s additional risk and the burden to manage the
contract-type selected;
2
Details about the selection methodology and sampled contracts are presented in Appendix A.
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o Government resources necessary to plan for, award, and
administer the contract-type selected; and
o Actions planned to minimize the use of other than firm-fixed-price
contracts on future acquisitions for the same requirement and to
transition to firm-fixed price contracts to the maximum extent
possible for non-commercial time-and-materials and labor-hour
contracts.
• Twelve written acquisition plans, covering 27 of the 59 contracts in our
sample, contain some, but not all of the required contract-type selection
information as shown in table 1.
Table 1: FAR Case 2008-030 Requirements of which Formal Written Acquisition
Plans were Not Compliant (More than $10 million)
FAR Case 2008-030 Requirement FAR Reference
Acquisition
Plans Not
Compliant
% Not
Compliant
Explain how additional risks of
the contract-type were identified
16.103(d)(1)(ii)(A) 10 of 12 83%
Discuss plans to transition to
firm-fixed-price contracting for
future acquisitions of the same
requirement
16.103(d)(1)(iv)(D) 9 of 12 75%
Discuss the additional risk of
contract type and how the risks
would be mitigated
16.103(d)(1)(ii)(B),(C) 9 of 12 75%
Analyze facts and reasoning
supporting the selection of the
contract-type
16.103(d)(1)(iv)(A),(B) 5 of 12 42%
Explain fee provision, if
applicable
16.103(d)(1)(v) 4 of 4 100%
Approval one level above the
contracting officer
7.103(j) 3 of 12 25%
Assess the government
resources needed to plan, award,
and administer the contract-type
selected
16.103(d)(1)(iv)(C) 3 of 12 25%
Source: DHS OIG.
The plans we reviewed were formal written acquisition plans covering
acquisitions of $10 million or more. The Homeland Security Acquisition
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Manual issued by DHS Office of the Chief Procurement Officer required
contract-type selection information in the formal acquisition plan prior to
the FAR Case. For the most part, this information met the FAR Case
requirements. DHS expanded its existing policy in June 2011 to include
FAR Case provisions not previously covered.
Nine of the twelve plans were approved one level above the contracting
officer. However, the documented contract-type selection information
did not include all required FAR Case requirements. We concluded that
approving officials did not ensure these required elements were included
prior to approving the plans.
• 3 of the 59 contracts did not have a written plan.
The contracting officer assigned to these 3 contracts said there was no
formal written acquisition plan for these contracts because they were
“bridge” contracts to continue the performance of the existing contracts
until the follow-on contracts were awarded.
Adequacy of Contractor’s Accounting System
FAR Case requires that prior to agreeing on an other than firm-fixed-price
contract type, the contracting officer shall ensure that the contractor’s
accounting system will permit timely development of all necessary cost data in
the form required by the proposed contract type. We reviewed 13 or 100
percent of the cost-reimbursement contracts in our sample of 59 contracts, and
for 6 (46.2 percent) of these the contracting officer did not properly ensure the
adequacy of the contractors’ accounting system.
For one contract, the contracting officer used a Defense Contract Management
Agency (DCMA) letter as evidence of the contractor’s accounting system
validation. The letter stated that DCMA’s approval of the contractor’s
accounting system was contingent on verification of the effectiveness of
corrective actions implemented for deficiencies noted. The contracting officer
did not demonstrate adequate consideration of the issue by documenting the
accounting system deficiencies as an additional risk of selecting a cost-
reimbursement contract and identifying contract monitoring activities to
mitigate the risk, as required by the FAR.
The evidence supporting the validation of the accounting system for another
cost-reimbursement contract was based on a checklist completed by the
contractor as opposed to a third party. The contracting officer relied on the
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contractor’s self-assessment and did not seek any additional information on the
adequacy of the accounting system before awarding the contract.
Furthermore, the contracting officers for three additional contracts confirmed
they did not ensure the adequacy of the contractors’ accounting systems. For
one of these contracts, the contracting officer said he erroneously omitted the
evaluation. Another contracting officer, responsible for two of these contracts,
said he did not ensure the adequacy of the contractor’s accounting system
because of extreme time pressure. For the last of the seven contracts, we found
no evidence of the validation of the contractor’s accounting system in the file
and the contracting officers provided no explanation for this lapse.
The adequacy of the contractor’s accounting system affects the quality and
validity of the contractor data upon which the Government must rely for its
oversight of the contractor and contract performance. By not ensuring the
adequacy of contractors’ accounting systems, DHS may reimburse contractors
for unallowable costs.
Assignment of Acquisition Workforce Resources
DHS did not always designate Contracting Officer Representatives (COR) prior to
contract awards. DHS’ CORs were not always properly certified or qualified by
training and experience, and were not always nominated by the requirements
officials. Also, DHS’ COR designation letters did not always include all the
elements required by FAR Case. For example, some designation letters did not
specify the period covered by the designation, or that the COR may be personally
liable for unauthorized acts. This occurred because DHS’ acquisition workforce
policies are inconsistent—both internally and with FAR Case — and DHS’
acquisition personnel did not always comply with existing policies. Not properly
designating resources to oversee and support other than firm-fixed-price
contracts increases the risk that funds will not be properly safeguarded. DHS
needs to improve controls to ensure timely assignment of adequate and proper
resources to support the award and administration of other than firm-fixed-price
contracts.
COR Nomination by Requirements Officials
FAR Case requires the acquisition planner to ensure that the requirements
official, responsible for identifying, developing and/or managing the acquisition
requirement, nominates a COR as early as practicable in the acquisition process.
Current DHS procedures require a COR nomination package to be included with
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the procurement request, but does not explain what shall be included in the
nomination package. Some components have created forms and procedures
specifying what will be included with the nominations, while others have not yet
developed or updated their procedures.
Twenty-three (40 percent)
3
of 59 contracts in our sample, did not have COR
nomination packages and/or evidence of the CORs’ nomination by the
requirements official. CORs should be selected based on nomination packages
by the requirements official demonstrating the COR’s certification level, training,
and experience. This process facilitates the timely appointment of a properly
certified COR with the training and experience commensurate with the
responsibilities and helps ensure that the COR will have the tools needed to
perform his assigned duties.
COR Designation Prior to Contract Award
CORs are qualified individuals designated and authorized by the contracting
officer to assist in the technical monitoring and administration of the contract.
For other than firm-fixed-price contracts, FAR Case requires agencies to
designate and authorize in writing a properly trained COR prior to contract
award. Additionally, the FAR Case states involvement of the program office at
the early stages of the acquisition facilitates proper contract management and
oversight, especially for other than firm-fixed-price contracts.
Twenty-four (41 percent)
3
of 59 contracts in our sample, did not have CORs
designated in writing prior to contract award. DHS designated a COR after
contract award for 23 of these 24 contracts. Sixty-eight was the average number
of days between contract award and COR designation. In two cases, DHS
designated the COR after our review identified that a COR was not assigned.
Additionally, one contract did not have a COR designated before the contract
was cancelled.
DHS Acquisition Workforce Policy, which existed prior to the FAR changes, stated
that appointing a COR early in the definition phase of the requirement was
“desirable.” DHS issued new procedures on the required timing of COR
designations in its COR Essential Elements Guidebook in September 2011, 6
months after the FAR changes. The COR Guidebook, which is still in place,
3
Percentage is based on our review of 58 contracts. The contracting officer for one of the 59 contracts in
our review retained contracting officer representative’s duties, as allowed by the FAR Case. Therefore,
this contract was not reviewed for this provision.
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requires DHS’ contracting officers to designate CORs “upon” contract award. In
addition, on January 30, 2012, DHS revised its Acquisition Workforce Policy,
stating that the contracting officer “should” appoint a COR early in the contract
definition phase of the requirement for all contracts. However, the policy did
not provide a specific mandate requiring the appointment of a COR prior to
contract award for other than firm-fixed-price contracts.
COR Certification, Training, and Experience
FAR Case requires the contracting officer to designate and authorize a COR who:
(a) is certified and maintains certification in accordance with the Office of
Management and Budget (OMB) memorandum titled “The Federal Acquisition
Certification for Contracting Officer Technical Representative” (FAC-COTR) dated
November 26, 2007; and (b) is qualified by training and experience
commensurate with the responsibilities to be delegated in accordance with
department/agency guidelines. Subsequent to the FAR Case, the FAC-COTR
memorandum was superseded by a new OMB memorandum “The Federal
Acquisition Certification for Contracting Officer Representative” (FAC-COR)
issued on September 6, 2011 with an implementation date of January 1, 2012.
4
• Federal Acquisition Certification for Contracting Officer Technical
Representative
The FAC-COTR required 40 hours of training before an individual is
certified as a COR. To maintain certification, the COR needed to earn 40
continuous learning points every 2 years. Thirty-seven of the 59
contracts in our sample had a COR assigned prior to January 1, 2012; and
of these, all were certified in accordance with OMB FAC-COTR
memorandum.
• The Federal Acquisition Certification for Contracting Officer
Representative
OMB’s revised memorandum, effective January 1, 2012, established a
three-tiered certification, with each tier requiring a different level of
training and experience. The memorandum included a COR Appointment
Criteria Matrix to help contracting officers select a COR with the
appropriate level of training and experience. It stated that one risk factor
to consider when selecting a COR is contract-type and listed other than
4
The term “COTR” changed to “COR” to align with the FAR.
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firm-fixed-price contract types as a significant or high risk. The
memorandum invited agencies to add criteria to the matrix as
appropriate for their situations and gave agencies the option to
“grandfather” COTRs in as Level II CORs. The policy required agencies to
develop guidance to ensure their CORs were FAC-COR certified.
On January 30, 2012, DHS developed its risk-based COR certification level
program in its Acquisition Workforce Policy. This policy provided the
minimum mandatory training for FAC-COR certification at DHS. The policy
requires the appointed COR to have a Level III FAC-COR for high-risk
contracts. This rule applies to existing and new contracts. For existing
contracts, contracting officers were required to reappoint the CORs after
ensuring they were certified at a Level III. Appointment letters for both
reappointments and new appointments need to indicate the required
and current level of COR certification. Additionally, the revised
Acquisition Workforce Policy requires the appointed COR to have
appropriate and current certification at the time of appointment.
We reviewed the certification and appointment letters for CORs
appointed before and after January 1, 2012.
5
The CORs appointed to
these contracts were not in compliance with the DHS policy established
to meet the OMB FAC-COR certification requirements as follows:
o The appointment letters for all contracts did not indicate the
required and/or current COR certification level. DHS requires
acquisition personnel to use an appointment letter template
included in DHS’ Homeland Security Acquisition Manual when
designating a COR; however, this template has not yet been
updated to include the COR certification level requirement.
o Only the CORs appointed to six contracts were certified at a Level
III. We talked to selected contract acquisition personnel for these
contracts and they said that they were not aware of the
requirement for Level III.
o At the time of our review, none of the CORs appointed prior to
January 2012 had been reappointed (37 contracts in our sample).
o The certification for 2 of the 18 CORs appointed after January 1,
2012, had expired prior to their appointment. For the first
contract that did not have a properly certified COR, we identified
5
At the time of our review, a COR had not been appointed to four contracts in our sample. Therefore,
these four contracts were not reviewed and this reduced our sample size for this section to 55.
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that the certification had expired 4½ months before appointment.
Based on our conversation with the COR’s supervisor 6 months
after appointment, the COR was still trying to complete required
hours to maintain certification. As a result of our review, a new
properly certified COR was appointed to the contract.
The certification for the COR appointed to the second contract
had expired 7 months prior to appointment. Based on our
conversation with the COR and the component’s acquisition
specialist, they believed that the training requirement was for
every 4 years instead of every 2 years. This COR was assigned to
the contract for 4 months without proper certification. As a result
of our inquiry, this COR obtained the required hours.
As stated in the OMB FAC-COR memorandum, strengthening the acquisition
workforce is critical to ensuring that the Government gets the best value for the
goods and services it procures annually. Appointing a properly trained and
experienced COR will help ensure that payment is only made to contractors who
perform in accordance with contract terms and conditions, and that contract
performance will address program needs.
COR Designation Letters
For all other than firm-fixed-price contracts, FAR Case requires the contracting
officer to designate a COR in writing with copies furnished to the contractor and
the contract administration office. The written designation shall:
• Specify the extent of the COR’s authority to act on behalf of the
contracting officer;
• Identify the limitations of the COR’s authority;
• Specify the period covered by the designation;
• State that the authority is not re-delegable; and
• State that the COR may be personally liable for unauthorized acts.
On April 6, 2011, DHS issued a COR designation letter template that addresses
each of the required elements in its Homeland Security Acquisition Manual. DHS
requires acquisition personnel to use this template when preparing COR
appointment letters to ensure format consistency across DHS.
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In most instances, DHS ensured that its COR designation letters complied with
FAR Case. Of the 55 COR designation letters reviewed, 6 (10.9 percent) did not
contain all the required elements in the FAR Case. Of these 6 letters, one did not
state that the COR’s authority is not re-delegable, while another did not state
that the COR may be personally liable for unauthorized acts. Three more letters
did not include either of these two requirements. One designation letter only
included the period covered by the designation. Contracting Officers did not
prepare these letters using the COR designation letter template in the Homeland
Security Acquisition Manual.
A designation letter that complies with the FAR requirements is important for
ensuring that the COR understands the responsibilities and limitations of the
COR designation. Not understanding the COR authority could lead to
unauthorized commitments and contractual and legal disputes with the
contractor.
Conclusion
DHS did not always comply with the requirements in the FAR Case for the proper
use and management of other-than-firm-fixed-price contracts. DHS written
acquisition plans did not always contain all required information justifying the
selection of other-than firm-fixed-price contracts, and contracting officers did not
always ensure the adequacy of the contractors’ accounting systems. Also, DHS did
not always nominate and designate properly certified and trained CORs to manage
and oversee other than firm-fixed-price contracts.
As a result, DHS risks awarding
contracts that are wasteful or otherwise not well designed to serve the Federal
Government's needs, paying for unallowable costs, and not being able to
manage the risk associated with the goods and services being procured.
Recommendations
We recommend that the Chief Procurement Officer:
Recommendation #1:
Updates Department of Homeland Security acquisition policies to comply with all
Federal Acquisition Regulation Case 2008-030 requirements for proper use and
management of other-than-firm-fixed-price contracts, ensuring Department of
Homeland Security policy:
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• Requires that acquisition plans for all other than firm-fixed-price
contracts contain all required information to support the selection of
contract type;
• Describes the type of documentation to be included as part of the
Contracting Officer Representative nomination package and requires that
it is included in the contract file to demonstrate nomination by the
requirements official; and
• Requires that Contracting Officer Representatives are designated and
authorized in writing prior to contract award for all other-than-firm-fixed-
price contracts and orders.
Recommendation #2:
Reaffirm guidance (e.g. Homeland Security Acquisition Manual and Acquisition
Workforce Policies) to ensure acquisition personnel understand how the Federal
Acquisition Regulation Case 2008-030 requirements affect existing and future
contracts and orders. In doing so, ensure to communicate the following:
• Other than firm-fixed-price acquisition plans shall be approved and
signed at least one level above the contracting officer, and before
approval, these plans shall contain required information supporting the
selection of contract type;
• Contracting officers shall ensure that the contractor’s accounting system
will permit timely development of all necessary cost data in the form
required by the proposed contract type;
• Contracting officers shall appoint properly certified, trained, and
experienced Contracting Officer Representatives to support other than
firm-fixed-price contracts and remove those who fail to meet these
requirements; and
• Contracting officers shall use the Contracting Officer Representative
designation letter template in Appendix W of the Homeland Security
Acquisition Manual to ensure compliance with the FAR Case
requirements.
Management Comments and OIG Analysis
DHS provided formal comments to our report. DHS also provided technical
comments which were incorporated in the final report where appropriate. DHS
concurred with both of our recommendations. Appendix B includes a copy of
the management comments in their entirety. Our evaluation of DHS’ response to
the draft report follows.
www.oig.dhs.gov
14 OIG-12-133
OFFICE OF INSPECTOR GENERAL
Department of Homeland Security
Management Response to Recommendation #1: The CPO concurs with this
recommendation and is developing updated policy and guidance to require that
acquisition plans for other than firm-fixed-price contracts properly address
contract type selection. Additionally, DHS will issue Homeland Security
Acquisition Manual and Contracting Officer Representative Guidebook revisions
to clarify DHS implementation of FAR Case 2008-03, Proper Use and
Management of Cost Reimbursement Contracts, changes to reinforce statutory,
regulatory, and policy requirements.
OIG Analysis: We consider this recommendation resolved because steps are
being taken to implement it. However, it will remain open until DHS provides
documentation to support that the planned corrective actions are completed.
Management Response to Recommendation #2: The CPO concurs with this
recommendation and states that it: 1) updated Acquisition Workforce policy, 2)
will update the Homeland Security Acquisition Manual and Contracting Officer
Representative Guidebook policy, and 3) has issued policy reminders and e-mail
notices to DHS acquisition personnel reaffirming guidance to ensure that
acquisition personnel understand how the FAR Case 2008-030 requirements
affect existing and future contract orders.
OIG Analysis: We consider this recommendation resolved because steps are
being taken to implement it. However, it will remain open until DHS provides
documentation to support that the planned corrective actions are completed.
www.oig.dhs.gov
15 OIG-12-133
OFFICE OF INSPECTOR GENERAL
Department of Homeland Security
Appendix A
Objectives, Scope, and Methodology
The Department of Homeland Security (DHS) Office of Inspector General (OIG) was
established by the Homeland Security Act of 2002 (Public Law 107-296) by amendment
to the Inspector General Act of 1978. This is one of a series of audit, inspection, and
special reports prepared as part of our oversight responsibilities to promote economy,
efficiency, and effectiveness within the Department.
This report provides the results of our work to determine whether DHS complied with
revisions to the FAR on the use of cost-reimbursement contracts, as prescribed in the
FAR Case 2008-030. To accomplish our objective, we reviewed applicable Federal laws,
regulations, and sections of the FAR revised by FAR Case 2008-030, to identify
requirements for the use and management of other-than-firm-fixed-price contracts.
To gain an understanding of internal controls significant within the context of the audit
objective and to determine compliance with the FAR Case 2008-030, we evaluated
Department and component-specific procurement policies and procedures. We also
interviewed representatives from the Department’s Office of the Chief Procurement
Officer and Components (i.e. Federal Emergency Management Agency, U.S. Coast
Guard, Office of Procurement Operations, Immigration and Customs Enforcement, U.S.
Customs and Border Protection, Citizenship and Immigration Services, and the
Transportation Security Administration) to obtain an understanding of their processes
and internal controls to ensure compliance with the new FAR changes.
We judgmentally selected a sample of 59 DHS contracts solicited and awarded between
the dates of March 17, 2011 to March 16, 2012, to determine whether contract-type
and Contracting Officer Representative documentation complied with requirements
promulgated by FAR Case 2008-030. The sampled contracts were of the following types:
• Cost-Reimbursement - used only when circumstances do not allow the agency to
define its requirements sufficiently to allow for a fixed-price type contract or
uncertainties involved in contract performance do not permit costs to be
estimated with sufficient accuracy to use any type of fixed-price contract. In this
type of contract, the Government assumes the inherent risks, which are
uncertain and speculative labor hours, labor mix, and/or material requirements.
• Time-and-Materials - provide for acquiring supplies or services on the basis of (1)
direct labor hours at specified fixed hourly rates that include wages, overhead,
general and administrative expenses, and profit; and (2) actual cost for materials.
www.oig.dhs.gov
16 OIG-12-133
OFFICE OF INSPECTOR GENERAL
Department of Homeland Security
• Labor-Hours - are a variation of the time-and-materials contract, differing only in
that materials are not supplied by the contractor.
•
Indefinite-delivery - used to acquire supplies and/or services when the exact
times and/or exact quantities of future deliveries are not known at the time of
contract award. There are three types of indefinite-delivery contracts: definite-
quantity, requirements, and indefinite-quantity.
Our sample covered six procurement offices within DHS: Federal Emergency
Management Agency, U.S. Coast Guard, Office of Procurement Operations, Immigration
and Customs Enforcement, U.S. Customs and Border Protection, and the Transportation
Security Administration; we did not review classified contracts. We selected contracts
with a total base and all options dollar value equal to or greater than $750,000, with the
exception of Office of Procurement Operations’ contracts whose dollar value was equal
to or greater than $1 million. The 59 contracts totaled approximately $1.5 billion in
total base and all options value. We determined whether contract documentation
complied with the following guidance promulgated under the FAR Case 2008-030:
FAR
Reference
Requirement
1.602-2(d) and Written evidence the contracting officer has designated and authorized a
7.104(e) contracting officer’s representative (COR) on all contracts and orders that are
other than firm-fixed-price. The contracting officer shall verify the COR or COTR is
a Government employee, qualified by training and experience in accordance with
department/agency guidelines, and certified in accordance with the Office of
Management and Budget memorandum. Additionally, the contracting officer will
ensure the COR or COTR has been delegated the appropriate responsibility and will
identify any limitations on the authority of the COR/COTR;
1.604*
1.602-2(d)(4)*
COR needs to maintain a file for each assigned contract. A COR may not be
delegated functions that have been delegated to a contract administration office.
7.103(d), (e), Review of policy prescribed by the agency head or its designee to ensure
(f) and (j) compliance with 7.103(d), (e), (f), and (j). Evidence that acquisition planners
7.105(b)(3) documented the files to support the selection of the contract type in accordance
with the following paragraph from Subpart 16.1: the statement of work is closely
aligned with the performance outcomes and cost estimates; a written plan was
prepared for other than firm-fixed-price contracts; established criteria and
thresholds on the level of detail for written acquisition plans; acquisition plans
comply with FAR 7.104 and Part 16; and acquisition plans for other-than-firm-
fixed-price contracts are reviewed and approved at least one level above the
contracting officer.
7.105(b)(5)(iv) Documentation of the strategy to transition from other-than-firm-fixed-price
contracts to firm-fixed-price contracts.
16.103(d) Additional documentation when other than a firm-fixed-price contract type is
selected.
www.oig.dhs.gov
17 OIG-12-133
OFFICE OF INSPECTOR GENERAL
Department of Homeland Security
16.104 Contracting Officer’s consideration of combining contract types if the entire
contract cannot be firm-fixed-price.
16.301-2 Circumstances in which to use cost-reimbursement and the documented rationale
for selecting an other than firm-fixed-price contract type.
16.301-3
16.104 (i)
42.302(a)(12)
When a cost-reimbursement contract may be used, documentation that the
contracting officer considered all factors per FAR 16.104, including the adequacy of
the contractor’s accounting system; and documentation that the contracting
officer has ensured that adequate Government resources are available to award
and manage other than firm-fixed-price contract awards.
Source: FAR *We did not verify compliance with FAR 1.604 and 1.602-2(d)(4) during this review.
We conducted this performance audit between April and July 2012, pursuant to the
Inspector General Act of 1978, as amended, and according to generally accepted
government auditing standards. Those standards require that we plan and perform the
audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based upon our audit objectives. We believe that the evidence
obtained provides a reasonable basis for our findings and conclusions based upon our
audit objectives.
www.oig.dhs.gov
18 OIG-12-133
OFFICE OF INSPECTOR GENERAL
Department of Homeland Security
Appendix B
Management Comments to the Draft Report
u.s.
Dql.rt
mc
nl
of
1I
0mt lu
ci
S«lIrl
ly
Wl5hin&1On,
DC
20S28
Homeland
Security
September 26,
20
12
MEMORANDUM
FOR:
Anne
L.
Richards
Assistant Inspect
or
General for
Audits
FROM:
~;~;~;;;;~~:~~
I~~
SUBJECT:
Draft 0 10 Repo
rt
: "Department of'Homcland Security
Compliance with the
FedcraJ
Acqu
i
si
ti
on
Regulation Revisions
on
Proper Use
of
Cost-Reimbursement Contracts" (Pro
joct
No. 12-
13
5-AUD-DHS)
Thank
yo
u
for
the
opportunity to revi
ew
and
comment
on
this draft report. The
U.S.
Department
of
Homeland Secu
ri
ty
(DH
S) appreciates the Office
of
Inspector
GenCl"R
I's
(OIO'
s) work in
co
nducti
ng
its review and issuing this rcpa
rt
.
'
I11e
draft report
co
ntained two recommendations with which the Departm
en
t concurs.
Specifica
ll
y.
the
010
recommended t
hat
th
e DHS Ch
ierProc
urement
OffiCl.-,(
(CPO):
Rccommcndlltion
1: Update Department
ofHomcian
d Security acq
ui
s
iti
on policies to
comp
ly
with
all
Federal
Acqu
isition Regulation Case
2OQ
8
..()30
requifl
...
'I1lt
!nts for
proper
usc
a
nd
mana
gement
ofothe
r-than-liml-fixed-price contracts,
en
suring Department
of
Homeland
Secu
ri
ty policy:
• Requires that acquisition plans
ror
uU
othcr-than-finn-fixoo-price contracts cont
ain
a
ll
req
uired
infonnation
to support
thc
selection of contract type;
• Describes the
type
of
documentati
on
to
be
included as
pa
rt
of
the
Contmcti
ng
Officer
Represe
ntati
ve
nomination package and requires that it is
in
cl
uded
in
the
co
ntract file
to
de
monstrate nomination
by
the requirements official; and
• Requires that
Co
ntracti
ng
Officer Reprcsenlativcs arc
des
i
gna
ted and authorized
in
writing prior to
con
tract
award
for
all
ot
her-than-finn·fixed·pricc cont
ra
cts
lind
o
rde
rs.
Re
spo
nse: Concur. The
CPO
agrees that updrued po
li
cy
and guidance arc necessary to
en
sure
co
mp
liance with Federal A
cqu
isition Regulati
on
(FAR) requirements for proper use
of
a
nd
man
agement of
othc
r-than-firm-fixcd-pricc
co
ntra
cts.
On August 15,
20
12, the C
PO
www.oig.dhs.gov
19 OIG-12-133
OFFICE OF INSPECTOR GENERAL
Department of Homeland Security
Acquisition, Policy
and
Legis
l
ation
(APL)
Di
vision
issued
updated
pol
i
cy
and
guidance
to
require
tha
t acquisition
plans
for
othcr
~
than-finn~fixed-
p
rice
contracts
properly
address
contract
type
select
i
on.
Additionally,
APL
will
issue
Homeland
Security
Acquisition
Manual
(HSAM)
and
Contraf..ii
ng
Officer
Represent
ative
(COR)
Guidebook
revisions
to
clarify
DHS
imp
l
eml.'l1tation
of
FAR
Case
2008-03,
Proper
Use
and
Management
of
Cost
Reimbursement
Contracts,
changes
to
reinforce
statutory,
regu
l
atory,
and
po
l
icy
requirements.
Changes
will
include:
• Clarifying
the
procurement
request
requirements
in
HSAM
3004
to i
nclude
the
COR
nomination
package,
and
describing the
contents
of
the
package;
• Changing
the
requ
i
rement
in
HSAM
3007
and
associated
Acquisition
Planning
Guide
to
require
FAR
compliant
Acquisition
Plans
for
all
non
-firm-fixed-price
contracL~
above
thc
simplified acquisition
threshold;
• Removing
all
references
in
the
HSAl\1
and
other
policy
documents
to
the
Acquisition
Pl
anning
Forecast
Sys
t
em
as
a complete substitute
for
a
FAR
compliant Acquisition
Plan
for
all
non-firm-fixed-price contracts
above
the
si
mplified
acquisition t
hreshold;
and
•
Adding
additional information in
HSAM
4042
and
Ap
pendix
W
to
ensure
that
CORs
are
appo
i
nted
prior
to
contract
award,
thot
the
Contrac
ting
Officer
rece
i
ve
a
fu
ll
COR
nomination
package
and
the
Contract
i
ng
Officer's
appointment
of
the
COR
includes
the
certification
level
and
an
explanation
of
why
t
hat
certification
level
is
necessary tor t
he
tasks
to
be
performed
during
contract
adm
inistration.
Estimated
Completio
n
Date
(EeD): October
31,
2012.
Reco
mm
e
nd
ation
2:
Reaffinn
guidance
(e.g.,
Home
l
and
Security
Acquisition
MlUlual
and
Acqu
isition
Workforce
Policies) to
ensure
acquis
iti
on
pl.'TSonncl
understand
how
the
Federal
Acquisition
RcguJa
t
ion
Case
2008~030
req
u
iremcnts
affect
ex
isting
and
future
contracts
and
ordcrs. In doing so, ensure
to
communicate
the
follow
i
ng:
•
Ot
h
er~than
-
firm
-
fixcd
-
pr
i
cc
contract
acquisition
plans
shall
be
approved
and
signed
at
least
one
level
above
the
Contract
ing
Officer
and
before
approval,
these
plans
shall
contain
required
i
nformation
supporting
the
selection of contract
type;
Contracting Officers
sha
ll
ensure
that
the
contractor's
accounting
system
w
ill
permit
timc
ly development
of
a
ll
noccssary
cost
data
in
the
form
requ
i
red
by
thc
proposed
contract type;
• Contracting Officers
sha
ll
appoint
properly
cl.Ttificd,
trained,
and
experienced
Contracting Officer
Representatives
to
support
other-than~firrn-fixed-price
contracts
and
remove
those who
fail
to
meet
these
requirements;
and
• Contracting Officers
shall
use
the
Contracting
Officer Representative designation letter
temp
late in
Appendix
W
of
the
Homeland
Security
Acquisition
Manual
to
ensure
compliance
with
the
FAR
Case
requirements.
2
www.oig.dhs.gov
20 OIG-12-133
OFFICE OF INSPECTOR GENERAL
Department of Homeland Security
Response: Concur.
The
CPO
agrees
th
at
DBS
needs
to
reaffirm guidancc
to
cnsure
thaI
acqui
sition personnel undersland
how
the
FAR
Casc
2008-03
requirements affect
ex.isti
ng
and
future
contract orders.
APL
issued Regulatory R
emi
nder
12-02
''Planning
and
Approving Non-Fixed Priced Actions"
on
August
15,
2012.
This reminder
listed
each
important
FAR
change incorporated
by
FAR
Case 2008-030
and
gave instructions
on
what
was
necessary
for
Contracting Officers
to
comply
with
each
of
these
new
policies.
Thi
s regulatory reminder
was
designed
to
make
required
FAR
compliance easier
and
simplify
the
means
of
compliance,
all
with
a
goal
of
ensuring
that
Contracting Officers
and
Components comply
with
th
e statutory, regulatory,
and
policy
requirements
of
the
new
FAR
policies.
CPO's Acquisition Workforce divis
ion
issued
an
e-mail
notice, entitled \le
OR
Appointment
Requirements
and
Revised
Policy"
on
August 10,2012, reminding contract
spec
iali
sts
and
Contracting Officer
to
adhere
to
the
COR
certification requirements outlined
in
September
2011
Office
of
Federal Procurement Policy
guidance.
Concurrent
with
the
rt.1l1indcr
e-mail, Acquisiti
on
Workforce also updated
and
published
the
revised
COR
certification policy,
(:ntitled
"DHS
Fedeml
Acquisition Certification
for
Contracting Officer's Representatives Policy." The revised policy clarifies
that
for
othcr-than-
firm-fIxed-price contracts, Contracting Officers
mu
st appoint a
Level
III
certified
COR
.
Additiona
ll
y,
as
stated under R
eco
mmendation 1,
APL
will
issue
HSAM
and
COR Guidebook
revisions
to
clarify
DHS
implement
ation
of
FAR
Case 2008-03, Proper
Use
and
Management
of
Cost Reimburscln
l;:
ut
Cuutrnct:s
ciHUlges
to
reinforce statutory, regulatory,
and
policy
requirements. One
of
the changes
to
the
Guidebook
will
be
an
update
to
Appendix W
to
ensure
compliance
with
the
FAR
case
requirements.
ECO:
October 31,2012.
Again
,
thank
you
for
the
opporrunity
to
review
and
comment
on
this
draft report. Technical
comments
were
submitted previous
ly
under separate
cover.
Please
feci
free
to
contact me
if
you
ha
ve
any questions.
We
look
forwurd
to
workin
g
with
you
in
tbe
future.
3
www.oig.dhs.gov
21 OIG-12-133
OFFICE OF INSPECTOR GENERAL
Department of Homeland Security
Appendix C
Major Contributors to This Report
Donald Bumgardner, Director
Yeseira Diaz, Audit Manager
Gloria Medina-Ortiz, Auditor
Apostolos Exarchos, Program Analyst
Victor Leung, Program Analyst
Enrique Leal, Auditor
Kevin Dolloson, Communications Analyst
Ignacio Yanes, Independent Referencer
www.oig.dhs.gov
22 OIG-12-133
OFFICE OF INSPECTOR GENERAL
Department of Homeland Security
Appendix D
Report Distribution
Department of Homeland Security
Secretary
Deputy Secretary
Chief of Staff
Deputy Chief of Staff
General Counsel
Executive Secretary
Director, GAO/OIG Liaison Office
Assistant Secretary for Office of Policy
Assistant Secretary for Office of Public Affairs
Assistant Secretary for Office of Legislative Affairs
Acting Chief Privacy Officer
Undersecretary for Management
Chief Procurement Officer
DHS Component Liaison, U.S. Coast Guard
DHS Component Liaison, Federal Emergency Management
DHS Component Liaison, Immigration and Customs Enforcement
DHS Component Liaison, Transportation Security Administration
DHS Component Liaison, Customs and Border Protection
DHS Component Liaison, Office of Procurement Operations
DHS Component Liaison, Citizen and Immigration Services
Office of Management and Budget
Chief, Homeland Security Branch
DHS OIG Budget Examiner
Congress
Congressional Oversight and Appropriations Committees, as appropriate
www.oig.dhs.gov
23 OIG-12-133
ADDITIONAL INFORMATION AND COPIES
To obtain additional copies of this document, please call us at (202) 254-4100, fax your
request to (202) 254-4305, or e-mail your request to our Office of Inspector General
(OIG) Office of Public Affairs at: [email protected].
For additional information, visit our website at: www.oig.dhs.gov, or follow us on Twitter
at: @dhsoig.
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To expedite the reporting of alleged fraud, waste, abuse or mismanagement, or any
other kinds of criminal or noncriminal misconduct relative to Department of Homeland
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Should you be unable to access our website, you may submit your complaint in writing
to: DHS Office of Inspector General, Attention: Office of Investigations Hotline, 245
Murray Drive, SW, Building 410/Mail Stop 2600, Washington, DC, 20528; or you may
call 1 (800) 323-8603; or fax it directly to us at (202) 254-4297.
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