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This report discusses the Office of National Drug Control Policy's (ONDCP) advertising contract for Phase III of the National Youth Anti-Drug Media Campaign. The contractor for the advertising portion of the Phase III anti-drug media campaign did not properly charge the government for some of the labor costs incurred under the contract. Ogilvy & Mather's submission of time sheets claiming hours that some employees said they did not work on the anti-drug media campaign was clearly improper. Moreover, Ogilvy should not have been awarded a cost accounting standards (CAS)-covered cost-reimbursement government contract until the company had an adequate cost accounting system to support this type of contract. The government poorly managed aspects of the award and administration of the contract. The Department of Health and Human Services (HHS) should not have awarded this cost-reimbursement contract without determining whether the contractor had an adequate cost accounting system that met CAS standards. In addition, HHS should have reviewed the appropriateness of the large amount of money that the contracting officer's technical representative (COTR) recommended be disallowed from the contractor's invoices or arranged for an audit of the contract. The COTR appropriately brought allegations of improper billing to the attention of ONDCP management, but ONDCP management did not take prompt action to investigate the allegations. Moreover, contract administration was impeded because the COTR and contracting officer did not have an effective working relationship.

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Recommendations for Executive Action

Agency Affected Recommendation Status
Program Support Center 1. To improve HHS' compliance with contracting procedures and prevent the awarding of CAS-covered cost-reimbursement contracts to companies lacking adequate accounting systems to support that type of contract, the Director of HHS Program Support Center (PSC) should direct that PSC's controls over contracting procedures be assessed to ensure that they are adequate for awarding and administering CAS-covered cost-reimbursement contracts. These controls would include ensuring the adequacy of potential contractors' cost accounting systems (including auditor approval), obtaining the required disclosure statements, arranging for audits of contracts when significant billing problems arise, and resolving billing disputes involving substantial disallowances on a timely basis.
Closed - Implemented
On August 29, 2001, Health and Human Services/Program Support Center (PSC) provided information stating that after reexamining its contracting procedures, it instituted additional procedures. PSC provided a copy of procedures that were instituted to insure adequacy of offerors accounting systems. The additional procedures implemented the recommendation. PSC said that these procedures became effective June 26, 2001.
Office of National Drug Control Policy 2. The Director of ONDCP should direct ONDCP staff to work with the Navy to (1) review the appropriateness of the disallowed costs and temporary contract employee labor charges from Ogilvy's invoices and determine the amount of money that the government overpaid or should reimburse the contractor regarding these invoices, (2) ensure that Ogilvy has an adequate cost accounting system for continued performance under the contract, and (3) coordinate the roles and responsibilities of the contracting officer and COTR and ensure that these roles and responsibilities are effectively carried out.
Closed - Implemented
Based on reviews of Ogilvy's accounting practices by PricewaterhouseCoopers, the Defense Contract Audit Agency (DCAA), and negotiations between the Department of Justice and Ogilvy, the parties agreed that Ogilvy could not adequately support its labor invoices. Ogilvy agreed to reimburse ONDCP $689,744 for past labor expense, and also agreed that it would not invoice ONDCP the amount of $1,150,256 for labor charges that had not yet been billed. DCAA reviewed Ogilvy's cost accounting system, labor accounting system, and billing system, and certified that each system adequately ensures that ONDCP will pay only for those costs that are reasonable, allowable, and allocable to the contract. Furthermore, according to ONDCP, (1) ONDCP distributed the duties of the Contracting Officer's Technical Representative (COTR) so that three individuals have responsibility for oversight of Ogilvy, and each COTR completed a 40-hour training course, (2) the Navy provided detailed guidance regarding the COTR's roles and responsibilities, and (3) the Navy reviewed and assented to ONDCP's reorganization of COTR duties, and granted a specific letter of delegation to each and every COTR.
Office of National Drug Control Policy 3. ONDCP should request that the Navy not exercise the next option year of the contract with Ogilvy until the company has adequately restructured its accounting system to meet government requirements and ONDCP has considered the contractor's administrative as well as technical performance under the contract to date. In this regard, ONDCP and the Navy should immediately begin to plan contracting alternatives for the subsequent Phase III media campaign should they decide not to exercise the next contract option year with Ogilvy.
Closed - Implemented
ONDCP reported that it requested that the Navy not exercise the most current option year of the contract. Instead, ONDCP requested that the Navy issue a new contract through a full and open competition procedure. ONDCP anticipates that the Navy will issue a new contract during the summer of 2002.

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