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ADMINISTRATION OF INFORMATION TECHNOLOGY CONTRACTS

Audit No. 350
December 16, 2002

EXECUTIVE SUMMARY

The Office of Inspector General conducted an audit of the administration of information technology (IT) contracts. We evaluated whether IT contracts were administered in accordance with Federal acquisition policy. We found that the Offices of Information Technology (OIT), Administrative and Personnel Management (OAPM), and Financial Management (OFM) generally implemented the Federal Acquisition Regulation's guiding principles governing the administration and management of IT contracts. However, the Commission needs to strengthen its IT contract administration processes and operating procedures to mitigate several potential acquisition risks. Specifically, the Commission needs to update and establish procurement and contract administration controls, processes, methods, and operating procedures to ensure that:

1. Contracting officers and contracting officer technical representatives (COTRs)

2. Services are obtained in the most cost-effective manner;

3. Contracts are awarded based on full and open competition;

4. Potential contracting "conflicts of interest" are identified and avoided;

5. Assets are appropriately capitalized;

6. Contract files are maintained as prescribed by the Federal

7. Official contract files are adequately protected should a disaster occur;

8. Contract close-outs are performed timely; and

9. Contracts are awarded within published procurement lead times.

• comply with their delegated authorities;

  Acquisition Regulation (FAR);

We are recommending several improvements, which include: updating and establishing Commission contract administration policies and procedures; implementing and complying with procurement and contract administration guidelines prescribed by the FAR; and improving the efficiency and organizational effectiveness of the Commission's procurement and contracting operations.

OIT's and OAPM's comments on the audit report are attached. We modified the report as appropriate to reflect their comments. OFM concurred with the audit report, and did not provide written comments.

TABLE OF ACRONYMS

BPA Blanket Purchase Agreement

COTR Contracting Officer's Technical Representative

FAR Federal Acquisition Regulation

FSS Federal Supply Schedule

GSA General Services Administration

GWAC Government-wide Acquisition Contract

IDIQ Indefinite Delivery Indefinite Quantity

IT Information Technology

OAPM Office of Administrative and Personnel Management

OFM Office of Financial Management

OFPP Office of Federal Procurement Policy

OIT Office of Information Technology

OMB Office of management and Budget

P&C Procurement and Contracting Branch

PMM Project Management Methodology

SDLC System Development Life Cycle

SECR Securities and Exchange Commission Regulation

SOW Statement of Work

SCOPE AND OBJECTIVES

Our audit objective was to evaluate whether IT contracts were administered in accordance with federal acquisition policy. Our evaluation focused on the contract management and contract administration policies, practices, procedures, and methods within the Office of Information Technology (OIT) and the Office of Administrative and Personnel Management's (OAPM) Procurement and Contracting Branch (P&C). We performed audit tests to determine whether:

• Contracts were awarded based on full and open competition;
• Services were obtained in the most cost-effective manner;
• Contractors performed according to contract terms and conditions;
• Conflicts of interest, either actual or potential, were identified and avoided; and
• Only government employees performed inherently governmental functions.

During the audit, among other procedures, we:

• Analyzed the Commission's FY 1999, FY 2000, and FY 2001 IT budgets, obligations, and expenditures;
• Reviewed the contract file content for 22 IT procurements valued at $36.9 million;
• Reviewed the receipt, approval, and payment of 137 vendor invoices totaling $13.9 million submitted for payment during FY 2001;
• Reviewed the training records of Commission staff with delegated procurement authority and assigned contract administration tasks and duties;
• Reviewed Office of Administrative and Personnel Management and Office of Information Technology contract administration regulations, policies, and procedures;
• Interviewed contracting officers, contract specialists, contracting officer technical representatives (COTRs), and other support staff having contract administration roles and responsibilities;
• Interviewed personnel within the Office of Financial Management responsible for processing vendor invoice payments;
• Evaluated to what extent OIT and P&C automated the IT contract management and administration processes;
• Evaluated the effectiveness of the Commission's contract closeout process;
• Performed a limited organizational evaluation and analysis of P&C's staffing levels and workload;
• Evaluated to what extent procurement and contract administration were integrated into OIT's Project Management Methodology (PMM) and System Development Life Cycle (SDLC) methodology; and
• Conducted a Control Self-Assessment to solicit input from the staff responsible for administering contracts to identify how contract administration processes and procedures could be improved.

We performed our audit between December 2001 and May 2002, in accordance with generally accepted government auditing standards. We applied the Office of Federal Procurement Policy's (OFPP's) best practices guidelines, and relevant parts of the Federal Acquisition Regulation (FAR) to evaluate the effectiveness of the Commission's IT contract administration policies, practices, and procedures. We limited the scope of our contract administration review to solely IT procurements, contracts, and interagency agreements initiated or managed by OIT. We did not evaluate the administration of credit card purchases for IT supplies and services, or IT purchases at or below the micro purchase threshold. Nor did we evaluate the contract administration activities conducted within the Commission's headquarters, regional, and district offices.

BACKGROUND

OIT OPERATIONAL ENVIRONMENT

In fiscal year 1998, OIT began outsourcing a significant portion of its systems development and IT operations and maintenance workload based on recommendations made from an independent organizational analysis and reengineering assessment. Under this new operational strategy, OIT retained inherently governmental functions such as strategic and tactical planning, management, and oversight, while contractors perform day-to-day IT support services, to include system design, development, testing, deployment, and operations and maintenance support. As a result, the administration of information technology contracts is a critical management control area that requires aggressive monitoring and management within the Office of Information Technology.

CONTRACT ADMINISTRATION

The FAR prescribes policies and procedures for managing and administering contracts within the federal government. In addition, OFPP establishes and disseminates government-wide policy to Executive departments and agencies to guide them on how to implement "best practices" in the administration and management of IT services contracting, such as those outlined in the President's Management Agenda for E-Government.

Contract administration:

• Includes all dealings between the government and the contractor from the time a contract is awarded until all work has been completed, or the contract has been terminated, payment has been made, and all disputes resolved; and
• Involves conducting administrative processes and tasks to ensure that both the contractor and government meet contract terms and requirements.

The extent of contract administration may vary from contract to contract. Factors influencing the degree of contract administration include the nature of work, the type of contract, and the expertise of personnel involved.

OIT ACQUISITION METHODS

OIT acquires IT products and services using a variety of contracting methods, which include:

• Governmentwide Agency Contracts (GWAC);
• Interagency Agreements;
• General Services Administration (GSA) Federal Supply Schedule (FSS) contracts;
• Blanket Purchase Agreements (BPA); and
• Purchase Method leases.

Appendix A describes in more detail each of the fundamental contracting and acquisition methods used by OIT to acquire IT products and services.

AUDIT RESULTS

OIT, OAPM, and OFM established policies, practices, and procedures to implement the guiding principles governing the administration and management of IT contracts within the Federal government. We concluded that for the contracts and task orders reviewed, adequate controls and processes were generally in place to ensure that:

• Statements of work did not include inherently governmental tasks;
• Contractor performance was effectively monitored;
• Contractor billings and invoices were effectively reviewed for accuracy prior to payment;
• Invoices were paid promptly, and interest payments were made when invoices were paid late; and
• Exchange authority, allowed by the Federal Property Management Regulation, was effectively used when acquiring similar IT equipment.

Although P&C and OIT initiated several procurement and contract administration improvement initiatives over the past 18 months, the Commission needs to strengthen its IT contract administration processes and operating procedures to ensure that:

• Contracting officers and contracting officer technical representatives (COTRs) comply with their delegated authorities;
• Services are obtained in the most cost-effective manner;
• Contracts are awarded based on full and open competition;
• Potential contracting "conflicts of interest" are identified and avoided;
• Assets are appropriately capitalized;
• Contract files are maintained as prescribed by the Federal

  Acquisition Regulation;

• Official contract files are adequately protected should a disaster occur;
• Contract close-outs are performed timely; and
• Contracts are awarded within published procurement lead times.

The Commission could improve its administration of IT contracts and mitigate the procurement and contract administration risk areas identified during the audit by:

• Updating, establishing, and implementing effective procurement and contract administration policies, practices, and procedures;
• Establishing controls to ensure compliance with FAR policies and guidelines; and
• Improving the organizational efficiency and effectiveness of procurement and contract administration processes and methods performed by OIT, P&C, and OFM.

We discuss in more detail the procurement and contracting areas that are operating effectively, procurement and contract administration processes and operating procedures that require strengthening, and management actions that are needed to improve the efficiency of the Commission's procurement and contracting operations below.

PROCUREMENT AND CONTRACT ADMINISTRATION CONTROLS THAT WERE OPERATING ADEQUATELY

OIT, P&C, and OFM established effective controls to monitor the performance of contractors, perform timely reviews and approvals of the accuracy of contractor billings, promptly pay invoices in accordance with the Prompt Payment Act, and minimize administrative burdens when replacing non-excess IT equipment.

Contractor Taskings and Performance Monitoring

Review of statements of work and task orders included in our audit showed that contracts were not used by OIT to perform inherently governmental functions as defined in Subpart 7.5 of the FAR. In addition, OIT established adequate controls to ensure that contractors performed according to requirements specified in statements of work and task orders.

Reviewing and Approving Vendor Invoices

OIT adequately reviewed the accuracy and validity of 137 vendor invoices before approving the invoices for payment. In addition, we concluded that OFM made manual distribution of the majority of vendor invoices to OIT for timely review and approval, and that OIT performed timely reviews and approvals of the majority of vendor invoices before they were manually delivered to OFM for payment. The chart below shows the number of days required by OFM to distribute, and for OIT to review and approve payment for the 137 vendor invoices that we evaluated.

Days taken to Process Vendor Invoices	Number of Invoices Processed by OFM	% of Total Invoices Processed by OFM	Number of Invoices Processed by OIT	% of Total Invoices Processed by OIT
0-5	73	53.3	93	67.9
6-10	53	38.7	26	19.0
11-15	8	5.8	11	8.0
16-20	2	1.5	4	2.9
21 +	1	0.7	5	2.2
TOTAL	137	100	137	100

The Commission's goal is for OFM to distribute a vendor invoice for review and approval within 5 days from receipt, and for OIT to review and approve an invoice for payment within 5 days of receiving an invoice from OFM.

Paying Vendor Invoices Promptly

We concluded that vendor invoices were paid promptly. Our review of 137 vendor invoice payments totaling $13.9 million showed that OFM paid 132 of the 137 invoices (96.4 percent) on time. Five invoices totaling $963,632 were paid between 1 to 30 days late. Interest payments of $3,681 were made in accordance with the Prompt Payment Act.

Using Exchange Authority to Dispose of Non-Excess Equipment

OIT effectively used the exchange method to dispose of non-excess IT equipment as prescribed by Part 102-39 of the Federal Management Regulation. Use of this method of disposal avoids administrative and storage costs associated with holding property and processing it through the normal disposition cycle. However, our review of SECR 9-2, Property Management Program, dated June 21, 1994 and SECM 9-1, Property Management Program Manual, dated July 8, 1994 showed that the regulation and manual do not address Commission policy and procedures when using this method of property disposal. OAPM should update the regulation and manual.

Recommendation A

OAPM should update SECR 9-2 and SECM 9-1 to include Commission policy and procedures on the use and limitations of exchange and sales methods of non-excess property disposal.

OAPM concurred with recommendation A and stated that it would update SECR 9-2 and SECM 9-1 to address exchange and sales methods of non-excess property disposal.

PROCUREMENT AND CONTRACT ADMINISTRATION CONTROLS THAT REQUIRE STRENGTHENING

OIT, OAPM, and OFM need to strengthen their procurement and contract administration controls in the areas of delegating procurement authority; performing market research; ensuring full and open competition; identifying conflicts of interest; capitalizing purchase method leases; maintaining, storing and closing out contract files; and performing acquisition planning.

Delegating Procurement Authority

Our audit showed that the Commission did not establish adequate controls to ensure that Commission staff who performed procurement and contracting duties received periodic training based on their delegated authorities, complexity, and dollar value of the contracts that they administered.

Subpart 1.6 of the FAR, Career Development, Contracting Authority, and Responsibilities and OFPP Policy Letter 97-01, Procurement System Education, Training and Experience Requirements for Acquisition Personnel prescribe policy and training requirements that must be satisfied before procurement and contract administration authority is delegated to contract specialists, contracting officers, and contracting officers technical representatives.

We reviewed training records covering the 7-year period October 1, 1995 through September 30, 2002 for Commission staff delegated procurement and contract administration authority to determine whether they received training as prescribed by the FAR and OFPP policy letter. The results of our review are shown in the charts below.

COTR Training Records Reviewed	No Evidence of COTR Training	Received COTR Training Prior to or in FY 97	Received COTR Training in FY 98	Received COTR Training in FY 99	Received COTR Training in FY 00	Received COTR Training in FY 01	COTR Training Planned for FY 02
48	7	5	4	18	4	10	0
100%	15%	10%	8%	38%	8%	21%	0%

OIT COTR TRAINING AS DOCUMENTED IN OFFICIAL TRAINING RECORDS

Limit of Delegated Procurement Authority	Program Office Personnel Having Delegated Procurement Authority	No Evidence of Training Commensurate with Delegated Procurement Authority	Evidence of Training
$50,000	25	21	5
$100,000	2	1	0
Unlimited	1	1	0
TOTAL	28	23	5
PERCENT	100%	82%	18%

TRAINING RECEIVED BY COMMISSION STAFF OUTSIDE OF OIT HAVING PROCUREMENT AUTHORITY AS DOCUMENTED IN OFFICIAL TRAINING RECORDS

(Does Not Include P&C Personnel)

Agency senior procurement executives are required to establish agency-wide policies and procedures to effectively manage the training of personnel delegated procurement and contract administration authorities. Our review of the Commission's procurement regulations showed that the Commission has not developed Commission-wide education, training, and experience requirements for personnel who are delegated procurement and contract administration tasks and duties. In addition, the regulations do not establish controls and guidelines for making sure Commission personnel are appropriately trained before, and after they are delegated procurement and COTR tasks and duties.

Recommendation B

OAPM should establish formal Commission-wide policies and procedures, as prescribed in OFPP Policy Letter 97-01 that establish the education, training, and experience requirements that Commission staff must satisfy and maintain to perform their delegated procurement authority.

Recommendation C

OAPM should establish Commission-wide COTR policies and procedures that prescribe the requirements that program offices must meet before and after contracting authority has been delegated to Commission staff.

OAPM concurred with Recommendations B and C and stated that it would issue a SEC Regulation to implement the training policies prescribed in OFPP Policy Letter 97-01. OAPM also stated that it is currently drafting a SEC Regulation addressing COTR training, policies, and procedures that program offices will be required to follow and enforce when contracting authority has been delegated.

Performing Market Research

Part 10 of the FAR, Market Research establishes Federal policies and procedures for conducting market research. Among other limitations, when conducting market research, agencies should not request, or solicit potential sources to submit more than the minimum information necessary to make a determination on the most suitable acquisition approach. Our review of the Commission's procurement regulations showed that the regulations do not specify the type of market research information that should be requested, the scope, and limitations that program offices should adhere to when conducting market research independently of P&C.

Recommendation D

OAPM should establish formal policies and procedures, as prescribed in Part 10 of the FAR, to define and limit the scope of market research program offices are allowed to conduct independently of P&C.

OAPM concurred with Recommendation D and stated that formal policies and procedures governing the scope and limitations of market research conducted by program offices will be established.

Ensuring Full and Open Competition

OIT's use of, and OAPM's monitoring and control over, a sole source contract resulted in P&C:

• Making contract modifications that increased the scope of the contract by $962,550;
• Approving modifications, and adding additional tasks that were not supported by the contract's initial determination and findings; and
• Making $300,000 in contract modifications that exceeded the procurement authority delegated to the contacting officer administering the contract.

In addition, annual reviews and evaluations required by Subpart 6.5, Competition Advocates and SECR 10-3, Justification for Procurements Involving Other Than Full and Open Competition were not performed and documented.

We believe that if OAPM performed annual reviews and evaluations of the Commission's compliance with the full and open competition requirements prescribed by the FAR, it would have identified and mitigated the control weaknesses in P&C's approval and administration of OIT's use of this sole source contracting vehicle.

Recommendation E

OAPM should ratify the $300,000 contract modification in accordance with Subpart 1.602-3, Ratification of Unauthorized Commitments of the FAR.

Recommendation F

OAPM should request the Commission's Competition Advocate to annually review the Branch's activities as prescribed by the FAR.

Recommendation G

OAPM should implement effective controls to evaluate sole source contract task orders and statements of work.

OAPM concurred with Recommendations E, F, and G and provided the OIG evidence that it ratified the contract modification during the course of the audit. In addition, on July 25, 2002, OAPM requested that the Commission's Competition Advocate annually review procurement and contracting activities as prescribed by the FAR. Also, OAPM developed, and now uses a new sole source justification form format that addresses needed controls identified during the audit.

Identifying Contracting "Conflicts of Interest" ¹

Review and evaluations of planned acquisitions and statements of work prescribed in SECR 10-8, Management Oversight of Service Contracting were not documented by OIT and P&C. As a result, contract files did not contain evidence to show that appropriate review and evaluations of planned acquisitions and statements of work were made to prevent and identify potential or actual organizational conflicts of interest.

OFPP Policy Letter 93-1, Management Oversight of Service Contracting and Subpart 9.5 of the FAR, Organizational and Consultant Conflicts of Interest prescribe responsibilities, general rules, and procedures for identifying, evaluating, and resolving actual, or potential conflicts of interest. Organizational conflicts of interest are more likely to occur in contracts involving management support services; consultant or other professional services; contractor assistance in technical evaluations; and systems engineering and technical direction work.

Since a significant portion of OIT's contracts involve contracting for services that are highly susceptible to organizational conflicts of interest, OIT and P&C should perform evaluations to identify potential conflicts of interest before they occur, and the results of their evaluations should be documented in the official contract files. This should include documented procedures to support that Commission task orders and statements of work issued against government-wide contracts administered by Federal agencies external to the Commission have undergone Commission evaluation in addition to those of the contracting activity that awarded the IDIQ contract.

Recommendation H

For contracts described above, OAPM and OIT should jointly complete the conflict of interest questionnaire contained in SECR 10-8, and P&C should include the completed questionnaires in the official contract files.

OAPM concurred with Recommendation H and stated that effective July 22, 2002, OAPM and OIT jointly complete the conflict of interest questionnaire contained in SECR 10-8, and that OAPM maintains the completed original in the official contract files.

Capitalizing Equipment Acquired Using Purchase Method Leases

IT assets, valued at $14.7 million, acquired using purchase method leases were not capitalized. OIT's acquisition strategy for acquiring IT equipment, in part, includes purchasing IT assets using purchase method leases. Title 2, Accounting Standards and Statements of Federal Accounting Standards 6, Accounting for Property, Plant, and Equipment establish criteria for determining whether property should be capitalized by Federal agencies. If, at inception, a lease transfers substantially all the benefits and risks of ownership to the lessee, such as a purchase method lease, the property is to be capitalized.

Our review of the Commission's property management regulations showed that the regulations do not contain policies and guidelines on how to account for property and equipment acquired using purchase method leases. OAPM should update the regulations to address purchase method leasing, and OFM should capitalize the $14.7 million of IT assets previously acquired by purchase method leases.

Recommendation I

OAPM should update the property management regulations to include policies and guidelines on how to account for property and equipment previously acquired using purchase method leasing.

OAPM concurred with Recommendation I and stated that it would update SECR 9-2 and SECM 9-1 to address accounting for property and equipment acquired using purchase method leasing.

Recommendation J

OFM should capitalize the $14.7 million of IT assets, and future assets acquired using purchase method leases should be capitalized.

OFM concurred with Recommendation J and did not provide any additional comments.

Storing and Maintaining Contract Files

Official contract files, records, and documents are highly susceptible to destruction should a disaster occur. Subpart 4.805 of the FAR, Storage, Handling, and Disposal of Contract Files prescribes standards for the storage and handling of official contract files, procurement records, and related documents. Agencies are to establish retrieval and storage procedures that preserve original contract documents until prescribed retention periods for maintaining the contract files have expired. Alternative processing and storage methods, such as microfilm and various electronic media, may be used if the alternate media preserves the original documents completely, accurately, and clearly, to include signatures and other written and graphic images.

The Commission's official contract files (active, pending closeout and closed) are maintained and stored at one location in paper media in non-fireproof file cabinets. In addition, the Commission's contracting and paying offices are physically housed in the same facility, and their office space is adjacent to one another. Should a fire or other disaster occur within this geographic location of the facility, the Commission's official contract files, supporting documents, and records could become unrecoverable.

In addition, official contract files were loosely organized, and in several instances the official files did not contain contract administration delegation letters, statements of work, fund status reports and other pertinent contract administration documents. For OIT procurement actions, OIT's Branch of Budgeting and Acquisition maintained duplicate working files.

Recommendation K

OAPM should safely store and maintain contract files so that official procurement documents and records are adequately protected and recoverable should a disaster occur.

Recommendation L

OAPM should establish and implement standardized contract file content controls that implement the standards prescribed by Subpart 4.8 of the FAR.

OAPM concurred with Recommendations K and L and stated that it plans to acquire fireproof safes to maintain and store the Commission's official contract files. In addition, on July 23, 2002, OAPM provided evidence that it established and began implementing standardized contract file content controls.

Closing out Contract Files

An inordinate number of purchase orders require closeout as shown in the chart below.

• • Fiscal Year	Number of Commission-wide Purchase Orders Requiring Closeout
    2001	750
    2000	750
    1999	860
    1998	850
    1997 2	1,200
    1996 2	950
    Total	5,360

Our evaluation of the Commission's process for closing out purchase orders showed that OIT and other Commission program offices did not comply with the closeout procedures prescribed by Subpart 4.804 of the FAR, Closeout of Contract Files and SECR 10-8, Management Oversight of Service Contracting. The contracting office is to initiate timely closeout of the contract files after being advised in writing by COTRs that final invoice for payment has been certified. Although OIT has made a concerted effort to provide P&C written notice of IT purchase orders that should be closed, we concluded that better Commission-wide controls are needed to effectively manage the contract closeout process.

Recommendation M

OAPM should establish a timely and effective contract closeout process, and the Commission's regulations related to closing out contracts should be revised accordingly.

OAPM concurred with Recommendation M and stated that it plans to update the Commission's closeout regulations to incorporate a timely and effective contract closeout process to include clearly defining contract closeout responsibilities of COTR's and personnel within OFM and OAPM's Procurement and Contracting Branch.

Performing Acquisition Planning

OIT has not effectively integrated procurement management and contract administration into its Project Management Methodology (PMM) and System Development Life Cycle (SDLC) models. Our review of OIT's approved and pending project management policies and procedures showed that procurement controls prescribed by the FAR and OFPP were not integrated into the planning, administration, and oversight of IT projects during the development life cycle. In addition, policies and procedures to effectively integrate the pre-award and post-award functions and responsibilities of OIT's Branch of Budgeting and Acquisition were not formally established and included in OIT's PMM. Also, the OIT Branch of Budgeting and Acquisition has not been officially delegated the pre-award and post-award procurement and contract administration authorities currently performed. Appendix C contains some examples of the controls that OIT should integrate into its PMM structure and control processes and SDLC stages.

Recommendation N

OIT establish project management and acquisition controls that map procurement and contract administration controls and policies prescribed by the FAR, such as market research and conflict of interest analyses, to OIT's PMM structure and control processes and SDLC stages.

OIT concurred with Recommendation N and stated that it was reviewing its Project Management methodology with the intent to re-validate and improve the existing processes. During this effort, OIT will address the requirements of this recommendation. OIT's intent is to complete work in this area within the next 12 months.

Recommendation O

OAPM and OIT should jointly review the scope and functions of OIT's Branch of Budgeting and Acquisition to determine whether additional controls are needed.

OAPM concurred with Recommendation O and stated that it planned to meet with OIT during 4^th quarter FY 02 to evaluate whether additional acquisition controls are needed for the procurement and acquisition functions performed by OIT's Branch of Budgeting and Acquisitions.

IMPROVING THE EFFICIENCY OF PROCUREMENT AND CONTRACTING OPERATIONS

We concluded that the procurement and contract administration weaknesses identified during the audit resulted from operational and organizational inefficiencies in the Commission's procurement and contract administration processes. As a result, Commission personnel performed procurement and contract administration tasks and duties that, at times, exceeded their delegated authorities. In addition, absence of an integrated procurement system, and P&C's reliance on inconsistent, and inefficient manual and elementary automated data processing methods to perform required procurement and administrative tasks, exasperates P&C's ability to service the Commission's procurement and contracting needs efficiently.

We performed a limited workload analysis of P&C's ability to service the Commission's procurement requirements during FY 2001. Our analysis showed that P&C required 18,861 more days to process 1,250 procurement requisitions than the cycle time published in SECR 10-1. The chart below shows the results of our analysis.

OFFICE OF ORIGIN	Number of Procurement Requisitions Processed by P&C	Number of Contract Modifications Processed by P&C	Published Processing Time in Days (SECR 10-1)	Days Taken to Process Requisitions by P&C	Additional Days Taken to Process Requisitions by P&C
OIT	244	695	4,536	8,342	+3,806
PROGRAM OFFICES	1,006	1,001	7,311	22,366	+15,055
COMMISSION-WIDE	1,250	1,696	11,847	30,708	+18,861

We also reviewed the monthly procurement workload demands placed on P&C by the Commission during FY 2001. Our review showed that during FY 2001, P&C had 3 non-peak months to perform quality assurance checks of its procurement and contract administration activities as illustrated in the graph below.

The Commission's procurement and contract administration processes primarily consist of outdated manual and paper oriented processing, storage, and retrieval methods. Over the past 18 months, OIT and P&C initiated several improvement initiatives to address the inefficiencies in procurement and contracting. Appendix B provides examples of OIT's and P&C's initiatives to improve procurement and contracting processes and procedures.

Although P&C and OIT have taken action to improve the operational efficiency and effectiveness of procurement and contracting processes, we concluded that additional actions are required to effectively remediate the risk areas identified during the audit. The President's Management Agenda for E-Government and OMB's E-Government Strategy identify procurement and contracting as a priority E-Government initiative. Agencies are to integrate and simplify their procurement operations, and make better use of modern technology to reduce costs and improve the quality of administering inter-agency and intra-agency procurement activities and services. We concluded that the Commission could improve the quality, efficiency, and effectiveness of its procurement and contracting operations by implementing an integrated acquisition system.

Recommendation P

OAPM, through the IT Capital Planning Committee, should implement an automated procurement and acquisition system that will improve the efficiency, effectiveness, and service delivery of the Commission's procurement and contracting support operations.

OAPM concurred with Recommendation P and stated that in FY 03 it would submit its request for a requirements analysis to support an automated procurement system through the Commission's IT Capital Planning Committee.

APPENDIX A

DESCRIPTION OF CONTRACTING METHODS ³

Indefinite-Delivery, Indefinite-Quantity Contract: This type of contract provides for an indefinite quantity, within stated limits, of goods or services during a fixed period of time. Agencies place separate task or delivery orders for individual requirements that specify the quantity and delivery terms associated with each order. The Federal Acquisition Regulation (FAR) expresses a preference for multiple awards of these contracts, which allows orders to be placed using a streamlined, commercial style selection process where consideration is limited to the contract awardees. The competition between the multiple awardees is designed to encourage better prices and responses than if the agency were negotiating with a single contractor. Contractors are to be afforded a fair opportunity to be considered for award of task and delivery orders but cannot generally protest the award of such orders. Indefinite-delivery, indefinite-quantity contracts include GWAC and GSA federal supply schedule contracts.

Federal Supply Schedules: Under the schedule program, GSA enters into indefinite-delivery, indefinite-quantity contracts with commercial firms to provide commercial goods and services government-wide at stated prices for given periods of time. Authorized buyers at agencies place separate orders for individual requirements that specify the quantity and delivery terms associated with each order, and the contractor delivers products or services directly to the agency. The program is designed to provide federal agencies with a simplified process for obtaining millions of commonly used commercial supplies and services at prices associated with volume buying. The program consists of single award schedules with one supplier and multiple award schedules, in which GSA awards contracts to multiple companies supplying comparable services and products, often at varying prices. When agency requirements are to be satisfied through the use of multiple award schedules, the small business provisions (such as the exclusive reservation for small businesses for contracts over $2,500 up to $100,000) of the FAR do not apply.

Blanket Purchase Agreement: A simplified method of filling anticipated repetitive needs for supplies or services by establishing "charge accounts" with qualified sources of supply, and may include federal supply schedule contractors. Under such an agreement, the contractor and the agency agree to contract clauses applying to future orders between the parties during its term. Future orders would incorporate, by reference or attachment, clauses covering purchase limitations, authorized individuals, itemized lists of supplies or services furnished, date of delivery or shipments, billing procedures, and discounts. Under the FAR, the existence of a blanket purchase agreement does not justify purchasing from only one source or avoiding small business preferences.

APPENDIX B

PROCUREMENT AND CONTRACTING IMPROVEMENTS INITIATED BY OIT AND P&C ⁴

Over the past 18 months, P&C and OIT have initiated several actions to improve procurement and contracting operations within and between their respective organizational elements. Some examples of their efforts to improve procurement and contracting within the SEC include:

• • Identifying the requirements to justify implementation of an automated procurement system (P&C).

  • Automating (use of spreadsheets, excel databases, and shared public folders) to log, monitor, and track various procurement actions (P&C).

  • Closing out the backlog of purchase orders and contracts (P&C and OIT).

  • Establishing informal procurement and acquisition improvement processes between P&C and the OIT Branch of Budgeting and Acquisition (P&C and OIT).

  • Establishing procedures to more effectively involve the P&C Branch in advanced acquisition planning (P&C and OIT).

  • Evaluating the skill mix of contracting officers and contract specialists within P&C (P&C).

  • Identifying training requirements for contracting officers and contract specialists and developing training plans (P&C).

  • Establishing policies and procedures to manage the selection, appointment, and termination of contracting officers and contracting officer technical representatives.

APPENDIX C

MAPPING PROCUREMENT AND CONTRACTING PROCESSES TO OIT'S PROJECT MANAGEMENT METHODOLOGY FRAMEWORK AND SYSTEM DEVELOPMENT LIFE CYCLE STAGES ⁵

TAB C: THE PROCUREMENT PROCESS

PRE-SOLICITATION PHASE

Determination of Need	Initiating the Procurement	Analysis of Requirement	Sourcing
Determining Needs 1. Forecasting Requirements 1. Acquisition Planning	Processing the PR 2. Purchase Requests 4. Funding Market Research 5. Market Research	Analyzing Requirements 6. Specifications 7. Statements of Work 8. Services	Extent of Competition 9. Sources 10. Set-Asides 11. 8(a) Procurements 12. Competition Requirements 13. Unsolicited Proposals Selection Factors 14. Lease vs. Purchase 15. Price Related Factors 16. Technical Evaluation Factors Method and Plan for the Procurement 17. Method of Procurement 18. Procurement Planning

TAB C: THE PROCUREMENT PROCESS

SOLICITATION-AWARD PHASE

Solicitation	Evaluation- Sealed Bidding	Evaluation- Negotiation	Award
Terms and Conditions 19. Contract Types 20. Letter Contracts 21. Contract Financing 22. Use of Government Property and Supply Sources 23. Need For Bonds 24. Solicitation Preparation Soliciting Offers 25. Publicizing Proposed Procurements 26. Preaward Inquiries 27. Prebid/Preproposal Conferences 28. Amending Solicitations 29. Cancelling Solicita-tions	Bid Evaluation 30. Processing Bids 31. Bid Acceptance Periods 32. Late Offers 33. Bid Prices 34. Responsiveness	Proposal Evaluation 35. Processing Proposals 36. Technical Evaluation 37. Price Objectives 38. Cost and Pricing Data 39. Audits 40. Cost Analysis 41. Evaluating Other Terms and Conditions 42. Competitive Range Discussions 43. Factfinding 44. Negotiation Strategy 45. Conducting Negotiations	Selection for Award 46. Mistakes in Offers 47. Responsibility 48. Subcontracting Requirements 49. Preparing Awards Executing Awards 50. Award 51. Debriefing Protests 52. Protests Fraud and Exclusion 53. Fraud and Exclusion

TAB C: THE PROCUREMENT PROCESS

POST-AWARD ADMINISTRATION PHASE

Start-Up	Quality Assurance	Payment and Accounting	Closeout, Modifications, Terminations, & Claims
Planning 54. Contract Administration Planning 55. Post-Award Orientations Ordering 56. Ordering Against Contracts and Agreements Subcontracting 57. Consent to Sub-contracts	Monitoring and Problem Solving 58. Monitoring, Inspection, and Acceptance 59. Delays 60. Stop Work 61. Remedies Property 62. Property Administration Reporting Performance Problems 63. Reporting Performance Problems	Payment 64. Limitation of Costs 65. Payment 66. Unallowable Costs 67. Assignment of Claims 68. Collecting Contractor Debts 69. Progress Payments 70. Price and Fee Adjustments Accounting 71. Accounting and Cost Estimating Systems 72. Cost Accounting Standards 73. Defective Pricing	Closeout 74. Closeout Contract Modification Modifications/Options 75. Contract Modifications Termination 76. Termination 77. Bonds Claims 78. Claims

¹ The term of contracting "conflicts of interest" does not refer to staff financial conflicts of interest, as commonly used within the Commission. As used in the OFPP Policy, organizational conflicts of interest involve using a single contractor to perform design, development, operations, and maintenance of a system.

² For fiscal years 1996 and 1997, the P&C Branch initiated contract closeout actions as prescribed by Subpart 4.804-5, Procedures for Closing Out Contract Files, of the FAR. See Appendix C for additional procurement and contract administration improvements initiated by the P&C Branch.

³ Source: GAO-01-119, Federal Procurement

⁴ The procurement and contracting management improvement initiatives contained in this appendix are examples of OIT's and P&C's efforts to improve the quality, efficiency, and effectiveness of the Commission's procurement and contracting processes. The listed examples are not all inclusive of the various planned and ongoing improvement initiatives identified by management.

⁵ The contents of this Appendix were copied from the General Services Administration's (GSA's) Training and Professional Development Web site. GSA's Contracting Officer's Representative (COR) Training Blueprints, formerly called the Contracting Officer's Representative (COR) Workbook illustrates some of the Federal Acquisition Regulation's prescribed policies and procedures as they relate to project management and system development life cycle stages of an information technology project. This Appendix may serve as a reference tool in implementing Recommendation N of this audit report.