Federal Subcontracting:

Further Actions Needed to Improve Oversight of Pass-through Contracts

GAO-15-200: Published: Dec 22, 2014. Publicly Released: Dec 22, 2014.

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Timothy J. DiNapoli
(202) 512-4841
DiNapoliT@gao.gov

 

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What GAO Found

Congress required the Department of Defense (DOD), the Department of State (State), and the United States Agency for International Development (USAID) to issue guidance and regulations as necessary to ensure that contracting officers complete additional analyses prior to awarding pass-through contracts—contracts meeting certain criteria and in which prime contractors plan to subcontract 70 percent or more of the total cost of work to be performed—by July 2013. (See figure.)

Notification, Review, and Determination Requirements for Pass-through Contracts at the Departments of Defense, State, and U.S. Agency for International Development

Notification, Review, and Determination Requirements for Pass-through Contracts at the Departments of Defense, State, and U.S. Agency for International Development

DOD, State, and USAID varied in their implementation of Section 802. Specifically, GAO's analysis of the agencies' policies and regulations found the following:

USAID issued a policy directive in June 2013 restating Section 802 requirements and is updating checklists used by contracting officers.

State issued a procurement bulletin in July 2014 that restated Section 802 requirements but has not taken further steps.

Neither USAID nor State has provided its contracting officers additional information to help them implement these new requirements, such as by identifying how to assess alternative contracting arrangements or how to document their decisions.

DOD has not taken any actions and is waiting for revisions to the Federal Acquisition Regulation—expected to be completed by March 2015—before deciding what, if any, changes to its guidance are needed.

As of November 2014, none of the agencies have updated their management review processes to reflect Section 802 requirements.

Federal government internal control standards state that control activities, such as policies and procedures, help to ensure that management directives are carried out and actions are taken to address risk. The lack of guidance and updated management review processes limits the agencies' ability to minimize the potential risk of paying excessive pass-through costs.

Why GAO Did This Study

DOD, State, and USAID collectively spent approximately $322 billion on goods and services in fiscal year 2013. Nearly two-thirds of this dollar amount was awarded to prime contractors reportedly having a plan for using subcontractors. Concerns remain that the government could overpay contractors that provide no, or little, added value for work performed by lower-tier subcontractors. Section 802 of the NDAA for fiscal year 2013, mandated DOD, State, and USAID to issue guidance and regulations as necessary to ensure that contracting officers take additional steps prior to awarding pass-through contracts.

The accompanying conference report mandated that GAO evaluate the implementation of these requirements. This report assesses the extent to which DOD, State, and USAID issued guidance and regulations consistent with Section 802. GAO reviewed policies, guidance, and regulations at the three agencies and interviewed acquisition officials.

What GAO Recommends

To help ensure contracting officers carry out Section 802 requirements, GAO recommends that DOD, State, and USAID take two actions: issue guidance to help contracting officers perform the additional steps required, and revise management review processes and guidance to verify implementation. DOD and State agreed with GAO's recommendations but USAID did not, stating that additional guidance might limit its contracting officers' discretion. GAO maintains that both recommended actions are still warranted for USAID.

For more information, contact Timothy J. DiNapoli at (202) 512-4841 or DiNapoliT@gao.gov.

Recommendations for Executive Action

  1. Status: Open

    Comments: DOD concurred with GAO's recommendation and has begun work to revise its formal Procedures, Guidance, Information (PGI) to assist contracting officers as they carry out requirements established by Section 802 of the National Defense Authorization Act for Fiscal Year 2013. Following the issuance of Federal Acquisition Regulation Case 2013-012 which incorporated the requirements of Section 802 into federal regulation, the Office of Defense Procurement and Acquisition Policy (DPAP) began drafting supplementary information to be considered by the Defense Acquisition Regulation Council for inclusion in the DOD PGI. Once approved, the information in the DOD PGI will assist contracting officers in documenting their decisions concerning pass-through contracts and will help ensure compliance with the final FAR rule. Also, once the PGI is updated, DPAP will request that the military departments include this item in their program management reviews.

    Recommendation: To help ensure contracting officers carry out the requirements of Section 802, the Secretary of Defense, Secretary of State, and Administrator of USAID should issue guidance to assist contracting officers by identifying approaches for or examples of how to assess alternative contracting approaches to include the feasibility of contracting directly with proposed subcontractors, and documenting a determination that the approach selected is in the best interests of the government.

    Agency Affected: Department of Defense

  2. Status: Closed - Implemented

    Comments: In response to our recommendation, the Department of State issued a Procurement Information Bulletin (PIB) in December 2014 that summarizes the updated pass-through contract requirements now included in the Federal Acquisition Regulation, describes the associated responsibilities for contracting officers, and provides guidance to contracting officers on how to determine the best procurement approach for the government. Further, the PIB includes an example of how contracting officers could document their assessment of alternate contracting approaches.

    Recommendation: To help ensure contracting officers carry out the requirements of Section 802, the Secretary of Defense, Secretary of State, and Administrator of USAID should issue guidance to assist contracting officers by identifying approaches for or examples of how to assess alternative contracting approaches to include the feasibility of contracting directly with proposed subcontractors, and documenting a determination that the approach selected is in the best interests of the government.

    Agency Affected: Department of State

  3. Status: Open

    Comments: USAID plans to issue guidance in response to our recommendation. USAID issued multiple announcements to its contracting officers notifying them of Section 802 requirements and more recently notified them of Federal Acquisition Regulation updates that reflect Section 802 requirements. However, USAID has not finalized its Procurement Executive Bulletin (PEB) which will provide contracting officers with additional guidance for evaluating proposals pursuant to pass-through contracting requirements including documenting their determinations in the contract file. The finalized PEB will also include a sample written determination.

    Recommendation: To help ensure contracting officers carry out the requirements of Section 802, the Secretary of Defense, Secretary of State, and Administrator of USAID should issue guidance to assist contracting officers by identifying approaches for or examples of how to assess alternative contracting approaches to include the feasibility of contracting directly with proposed subcontractors, and documenting a determination that the approach selected is in the best interests of the government.

    Agency Affected: United States Agency for International Development

  4. Status: Open

    Comments: DOD concurred with GAO's recommendation. Now that the Federal Acquisition Regulation has been updated to reflect the requirements of Section 802 of the National Defense Authorization Act for Fiscal Year 2013, the Office of Defense Procurement and Acquisition Policy is drafting supplementary information for the Defense Acquisition Regulation Council's consideration that would update the agency's Procedures, Guidance, and Information (PGI). This updated guidance will help ensure compliance with these new rules and DPAP will request that the military departments include compliance with Section 802 requirements in their program management reviews.

    Recommendation: To help ensure contracting officers carry out the requirements of Section 802, the Secretary of Defense, Secretary of State, and Administrator of USAID should revise the processes and guidance governing management reviews of procurements to ensure that such reviews assess whether contracting officers are complying with the provisions of Section 802.

    Agency Affected: Department of Defense

  5. Status: Closed - Implemented

    Comments: In response to our recommendation, the Department of State issued a Procurement Information Bulletin (PIB) in December 2014 that summarizes the updated pass-through contract requirements in the Federal Acquisition Regulation, describes the associated responsibilities for contracting officers, and provides guidance to contracting officers on how to determine the best procurement approach for the government. Further, the PIB states that Heads of Contracting Activities will review certain contract files for the inclusion of the required determinations as part of the contract approval process and that other contract management reviews will check for compliance with these requirements in sample contracts.

    Recommendation: To help ensure contracting officers carry out the requirements of Section 802, the Secretary of Defense, Secretary of State, and Administrator of USAID should revise the processes and guidance governing management reviews of procurements to ensure that such reviews assess whether contracting officers are complying with the provisions of Section 802.

    Agency Affected: Department of State

  6. Status: Closed - Implemented

    Comments: Effective October 2014, USAID acquisition evaluations have incorporated a more thorough analysis of subcontracting levels through their use of risk assessment score cards and negotiation memorandum reviews to ensure adequate documentation is completed that fully supports subcontracting pass-through levels and award decisions. In addition, USAID acquisition officials will also analyze random files during its reviews to see if contracting officers are taking appropriate steps in instances where an offeror proposes to award subcontracts for more than 70 percent of the total award. Documentation used during these contracting officer evaluations references the requirements put forth in Section 802 of the National Defense Authorization Act for Fiscal Year 2013.

    Recommendation: To help ensure contracting officers carry out the requirements of Section 802, the Secretary of Defense, Secretary of State, and Administrator of USAID should revise the processes and guidance governing management reviews of procurements to ensure that such reviews assess whether contracting officers are complying with the provisions of Section 802.

    Agency Affected: United States Agency for International Development

 

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