The Employment and Training Administration Should Stop Using State Agencies To Pass Funds Through to Contractors

HRD-80-109: Published: Sep 18, 1980. Publicly Released: Sep 18, 1980.

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Offices in the Department of Labor's Employment and Training Administration (ETA) arranged with the State of Nevada for nine pass through agreements to obtain services for several Labor activities. A pass through agreement is a procurement initiated and principally carried out by ETA, but entered into by a state and a contractor using federal funds granted to the state. The work to be performed under the nine agreements varied, but it was to be utilized primarily at the regional or national level, rather than primarily benefiting Nevada's activities. Labor selected the contractors, negotiated the substantive aspects of the agreements, asked Nevada to enter into the agreements with the contractors, monitored work progress, and certified invoices submitted by the contractors.

For six of the agreements, Labor officials stated that they used the pass through arrangement because there were insufficient funds available, which they could obligate directly, to spend for the work. Instead, funds available under the Grants to States for Unemployment Insurance and Employment Services appropriation were used. According to Labor officials, under law these funds must be granted to states; Labor cannot obligate these funds directly to contractors. Therefore Labor used the funds by using the pass through arrangement. For two projects, Labor used the pass through arrangement because they lacked the staff and time to go through a formal procurement process. The remaining project used Comprehensive Employment and Training Act funds, which Labor could have used to contract directly for the work. Labor's view was that the pass through contracting method was justified because the work benefited the employment security system rather than merely affecting federal operations. Although GAO does not question the legal basis for these awards, Labor should procure these services, when needed, directly. Labor's use of pass through agreements for achieving ETA goals does not ensure that the federal government's interests are protected. These agreements effectively circumvent the procurement standards and safeguards set forth to ensure effective use of federal monies.

Recommendation for Executive Action

  1. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Secretary of Labor should: (1) discontinue using state agencies to enter into agreements that pass through funds to contractors for work having regional or nationwide application; and (2) where Labor has a continuing need to obtain the services for the kinds of activities discussed in this report, request sufficient funds from Congress to allow for procurement directly.

    Agency Affected:


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