DoD service contracts riddled with errors, report says

Defense Department contracts for services are filled with errors, from bad cost estimates to weak technical reviews to a lack of competition among bidders, an inspector general audit released this week found.

The audit found errors in every one of 105 contracts reviewed. Errors are widespread because DoD acquisition professionals are overworked and don't have enough training in good contracting practices, the report said.

"As a result, cost-type contracts that placed a higher risk on the government continued without question for the same services for inordinate lengths of time-39 years in one extreme case-and there were no performance measures in use to judge efficiency and effectiveness of the services rendered," the IG report said. The audit report, "Contracts for Professional, Administrative and Management Support Services" (D-2000-100), was dated March 10.

The report of weak contracting practices comes as the Pentagon is increasing its reliance on contractors and downsizing its acquisition workforce.

From 1992 through 1999, DoD's annual purchases of services-such as administrative support-increased from $39.9 billion to $51.8 billion, the IG said. Over the same time period, the department's procurement of goods-such as aircraft-decreased from $59.8 billion to $53.5 billion. In all, DoD contracting actions worth more than $100,000 increased by 28 percent from 1990 to 1999.

Meanwhile, the department cut in half its acquisition workforce, from 460,000 in 1990 to 230,000 in 1999, according to a separate IG audit released last month (D-2000-008). The IG predicted that another 55,000 experienced procurement professionals will leave the department through attrition over the next five years.

The auditors' report listed several examples of contract mismanagement, including the following:

• When a contracting office identified only $5.8 million in costs on a contract that was funded with $8 million, the program office instructed the contracting office to throw the additional $2.2 million into the contract anyway. "In this case, the contracting specialist admitted the time-and-materials service portion of the contract was a 'plug-in' figure," the audit report said.
• The Army contracted with Raytheon for 39 years for engineering services related to the HAWK missile system. Auditors expected that 39 years was enough time for the Army to determine a fixed price for the contract. Instead, the Army awarded Raytheon a cost-plus-fixed-fee deal, which allows the contract to go above the expected price.
• Cost estimates attached to contracts were often unsigned, undated and offered no explanation or justification for the estimates. One National Guard Bureau project had a cost estimate of $2.2 million, which mirrored the $2.1 million proposal from a contractor. But a Defense Contract Audit Agency review of the project found that actual costs were only $1.2 million.
• The contracting staff of one office gave a technical reviewer just one day to make a technical assessment of a $9 million contract.
• One contracting officer awarded 30 task orders to companies without seeking bids from other firms. The contracting officer placed the orders to companies based on the advice of a program official.
• Instead of conducting reviews of contractor performance, procurement officials used contractor-prepared status reports as evidence of how well the contractors were doing their work.

To correct the problems, Defense Department acquisition personnel need training in service contracting, the IG report said. The department also needs to stop shuffling contracting personnel around, reduce turnover and cut employees' workloads, the audit recommended. In one case, a technical monitor was responsible for keeping track of the performance of 43 contracts worth $621 million while also preparing for 13 new contract awards valued at $115 million.

In response to the IG report, the Pentagon has formed a "rapid improvement team," a DoD spokeswoman said. By mid-April, the department will issue a new policy on service contracting, she said.

"We, as well as the military services, recognize the need for improvement in contracting for services," the spokeswoman said.