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OPM Has Unlawfully Let the Same Contractor Manage Feds' Health Savings Accounts for 12 Years

The contract should be opened up to competition immediately, auditor says.

The Office of Personnel Management has illegally allowed the same company to manage federal employees’ health savings account benefit for 12 years without holding open competitions for the contract, according to a new audit report.

Federal regulations should have limited the contract to five years, according to the OPM’s inspector general, but it has continued for 12 years “without a single re-competition.” The IG issued a management alert to bring the “very serious concerns” to OPM acting Director Beth Cobert’s “immediate attention.” The lack of competition has been to the detriment of participants in the program, the IG said, as well as the taxpayers that pay for its administration.

ADP Benefits Services KY, Inc., formerly known as SHPS Human Resources Solutions, Inc., was initially awarded the contract to run the Federal Flexible Spending Account Program (FSAFEDS) in 2003. OPM has extended the contract on four occasions without opening up a bidding process. OPM awarded the extensions despite “substantial changes” to the program’s requirements, the IG said.

The process has repeatedly violated federal acquisition regulations, according to the audit. OPM’s own Centers for Internal Control and Risk Management proposed re-competition of the contract in 2009, but the agency ignored the recommendation.

FSAFEDS is a voluntary benefit in which federal workers can place pre-tax income into a savings account to pay for eligible out-of-pocket health care and dependent care expenses. More than 350,000 federal employees currently participate in the program, setting aside anywhere from $100 to $5,000 for health care costs each year.

The IG has previously brought the issue to the attention of OPM, which said it would have a new contract in place by December 2014. OPM missed that and subsequent deadlines, causing the IG to tell agency management the issue has reached a “critical stage” and to stress that “future extensions should not be considered.”

The most recent extension of the contract is scheduled to expire Dec. 23, 2015, though in response to the report, Cobert said OPM will not be able to award a new contract until “early 2016.”

The IG recommended OPM issue a new contract “without additional delays” and said more controls should be instituted to ensure future contracts comply with regulations. It also suggested OPM consolidate all contract administration functions into its Office of Procurement Operations rather than delegate them to specific program offices. The current delegation system, the IG said, creates a conflict of interest.

Cobert said she appreciates the work of the IG on the issue and that OPM has “undertaken a number of efforts to strengthen its procurement process.” She added that OPM takes the issue “very seriously” but that her agency would have to review the IG’s recommendations and reply later this fall. 

(Image via /Shutterstock.com)

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