PENTAGON WASTED MILLIONS ON SKETCHY CONTRACTS

Interior, Pentagon Faulted In Audits – washingtonpost.com

Interior, Pentagon Faulted In Audits
Effort to Speed Defense Contracts Wasted Millions

By Robert O’Harrow Jr. and Scott Higham
Washington Post Staff Writers
Monday, December 25, 2006; A01

The
Defense Department paid two procurement operations at the Department of
the Interior to arrange for Pentagon purchases totaling $1.7 billion
that resulted in excessive fees and tens of millions of dollars in
waste, documents show.

Defense turned to Interior, which manages
federal lands and resources, in an effort to speed up its contracting.
Interior is one of several government agencies allowed to manage
contracts for other agencies in exchange for a fee.

But the
arrangement between Interior and Defense “routinely violated rules
designed to protect U.S. Government interests,” according to draft
audit documents obtained by The Washington Post.

More than half
of the contracts examined were awarded without competition or without
checks to determine that the prices were reasonable, according to the
audits by the inspectors general for Defense (DOD) and Interior (DOI).
Ninety-two percent of the work reviewed was awarded without verifying
that the contractors’ cost estimates were accurate; 96 percent was
inadequately monitored.

In one instance, Interior officials
bought armor to reinforce Army vehicles from a software maker. In
another, Interior bought furniture for Defense from a company that
apparently had not previously been in the furniture business. One
contract worth $100 million, to lease office space for a top-secret
intelligence unit in Northern Virginia, was awarded without
competition. Defense auditors said that deal cost taxpayers millions
more than necessary, and they have referred the matter for possible
criminal investigation.

“These poor contracting practices have
left DOD vulnerable to fraud, waste and abuse and DOI vulnerable to
sanctions and the loss of the public trust,” the Interior auditors
concluded in their report.

They examined 49 deals and concluded
that 61 percent had evidence of “illegal contracts, ill advised
contracts, and various failings of contract administration procedures.”

The
auditors’ findings underscore the difficulties that have come with
efforts over the past decade to streamline government by outsourcing
work, simplifying contracting procedures and cutting back on the
procurement workforce. Agencies such as Interior are allowed to handle
contracts for other agencies under the theory that they can perform
some services more efficiently. But in this case, auditors found that
Interior did not follow through on oversight and collected $22.8
million in fees for work the Pentagon could have done itself.

Officials at Defense and Interior said they have been working to fix contracting problems cited in the audits.

“We
are currently reviewing the findings of the DOD IG, and we have been
meeting with representatives of the DOI regarding the specifics of the
draft report,” said Shay Assad, director of defense procurement and
acquisition policy at the Pentagon. “It would be premature to comment
specifically except to say that we understand DOI is actively taking
actions to improve their contracting practices in response to a number
of the draft findings.”

Interior officials said they are adopting
many of the auditors’ recommendations and have made “giant strides.”
They said they are examining “specific contracts of concern” as well as
reviewing the qualifications of their contracting officers and
improving their training.

“We believe that many of your
recommendations can help us further improve our internal controls
related to the acquisition environment,” R. Thomas Weimer, Interior’s
assistant secretary for policy, management and budget, wrote in a Nov.
30 response to his department’s inspector general.

Unnamed contracting officials were quoted in the Defense audit as saying that they went to Interior to save time.

“We used DOI because they are able to expedite the contracting process,” one Defense official said.

Another said that the Defense office “did not have enough contracting people to handle the requirements.”

The
Interior procurement operations were allowed to charge fees for
managing contracts on behalf of other government agencies. One of the
operations, GovWorks, is located in Herndon. The other is the Southwest
Acquisition Branch of the National Business Center at Fort Huachuca,
Ariz., an Army base.

Defense paid Interior management fees of up
to 4 percent for everything from pistol holsters to intelligence
consultants to office leases. The Defense inspector general said the
Pentagon could have saved $22.8 million by using the U.S. General
Services Administration (GSA).

The Interior inspector general
said Defense “could have used these monies to purchase as many as
50,000 sets of body armor to protect our soldiers.”

At the
Southwest Acquisition Branch office in Arizona, the auditors concluded,
$411 million worth of deals were struck without a fundamental step in
government contracting: review and approval by properly trained and
certified contracting officers.

The Defense auditors found that
nearly half of the 49 contract files they reviewed failed to document
that the prices “were fair and reasonable.” Contracting officials
relied upon e-mailed statements and cursory reviews from the Pentagon,
rather than “documenting a detailed analysis of the contractor’s
proposal.”

At Interior, there was little supervision of the work.
The Defense inspector general “questioned the adequacy of government
surveillance for 23 of the 24 contracts” — or 96 percent of the total
reviewed in one analysis.

Key documents were missing from
contract files. “Lack of good documentation can create serious
problems,” the auditors noted. “If it is not documented, it never
happened.”

The findings prompted the inspector general’s office to demand that the Pentagon stop using Interior’s contracting shops.

The
auditors singled out two contracting arrangements for particularly
sharp criticism. In 2002, the Pentagon opened a new office called
Counterintelligence Field Activity, known as CIFA, which supervises
protection at Defense facilities against terror attacks.

When
CIFA needed office space in Northern Virginia, Defense officials turned
to Interior’s GovWorks program instead of the GSA, which manages office
space for the government, the audit said. GovWorks awarded a 10-year,
no-bid deal worth $100 million to a private company based in Anchorage
to acquire and manage the space, the auditors said.

The auditors said Defense officials violated regulations by not using the GSA for their office space.

“CIFA
and DOI circumvented numerous laws in contracting for leased space,”
the auditors said. “By not following the proper procedures, they
entered into a lease without the legal authority to do so.”

Auditors
found that the lease cost taxpayers up to $2.7 million more than it
should have. Auditors also found that the deal violated procedures
because it was not cleared by the House Permanent Select Committee on
Intelligence and the Senate Select Committee on Intelligence.

In
May, members of the Defense inspector general’s office told senior CIFA
staffers that they could be in violation of the law if they continued
to make payments on the lease.

“Subsequently, we learned that CIFA had continued to make lease payments, totaling $2.9 million,” the auditors wrote.

The auditors referred the matter for possible criminal investigation to the deputy inspector general for investigations.

Weimer,
Interior’s policy and budget chief, disputed the auditor’s findings on
the lease arrangement. In his written response, he argued that CIFA did
not have to go through the GSA to obtain the office space. Weimer also
said CIFA did not enter into an improper lease because the lease was
between CIFA’s contractor and the managers of the office building.
Moreover, he said, the chief counsel for the Justice Department’s
Foreign Terrorist Tracking Task Force advised CIFA that the arrangement
was appropriate.

The other arrangement that received sharp
criticism from the auditors involved the Open Market Corridor, an
online buying program billed as a way to save tax money.

Built by
a California company, the Open Market Corridor began as a research
project for the Naval Postgraduate School in Monterey, Calif. In 2002,
management of the contract was handed to officials at Interior’s Fort
Huachuca operation. The California company, the Naval school and
Interior all received a small percentage when the system was used to
order goods and services.

Auditors found that select companies
were favored, in violation of federal regulations. The contracting
officer responsible for overseeing the online purchases “was unable to
provide a list of either the customers or participating vendors who
were using the system,” the auditors said.

Sixteen vendors
“appeared to be Government employees or firms that appeared to be
affiliated with Government employees,” another apparent violation of
regulations and a possible violation of federal criminal statutes,
auditors said.

One official who processed 1,616 “contract
actions” worth nearly $135 million was a lecturer at the Naval school
who did not have the authority to award government work.

Senior
Interior officials were not even “aware that the system existed” or
that it was processing tens of millions of dollars in deals each year
without approval, the audit said.

In March, after auditors reported the abuses, officials at the Naval school took the system offline.

The
auditors concluded that Defense should not continue to manage or use
the Open Market Corridor “because of the serious legal and other
problems we found.”

They referred their findings to the deputy
inspector general and the Navy Acquisition Integrity Office for further
investigation.

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