Hurricane Katrina
Army Corps of Engineers Contract for Mississippi Classrooms Gao ID: GAO-06-454 May 1, 2006In the wake of Hurricane Katrina, the Federal Emergency Management Agency (FEMA) tasked the Army Corps of Engineers (the Corps) to purchase temporary classrooms for Mississippi schools. To accomplish its task, the Corps placed a $39.5 million order with Akima Site Operations for the purchase and delivery of 450 such classrooms. GAO received an allegation on its Fraud Hotline that the Corps paid inflated prices for the classrooms, and in response, we reviewed the facts and circumstances related to the Corps' issuance of the order.
Corps contracting officials did not expect to be buying classrooms and, in fact, were not assigned the task until after Hurricane Katrina had struck. With no prior experience, no advance notice, and the need to buy the classrooms as quickly as possible, Corps contracting officials lacked knowledge of the industry and information about classroom suppliers, inventories, and prices that would have been useful in negotiating a good deal. Faced with these circumstances, they chose to purchase the classrooms by placing an order, noncompetitively, on an existing agreement with Akima Site Operations, LLC. Because of Akima's special status as a subsidiary of an Alaska Native corporation certified under the Small Business Administration's 8(a) business development program, the Corps could make the award without competition. The Corps accepted Akima's proposed price of $39.5 million although it had information that the cost for the classrooms was significantly less than what Akima was charging. Based on our analysis of a quote obtained by Akima from a local Mississippi business, the price that Akima actually paid for the classrooms, and prices for similar units from GSA schedule contracts, we believe the Corps could have, but failed to, negotiate a lower price.
GAO-06-454, Hurricane Katrina: Army Corps of Engineers Contract for Mississippi Classrooms
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United States Government Accountability Office:
GAO:
Report to Congressional Committees:
May 2006:
Hurricane Katrina:
Army Corps of Engineers Contract for Mississippi Classrooms:
GAO-06-454:
GAO Highlights:
Highlights of GAO-06-454, a report to congressional committees.
Why GAO Did This Study:
In the wake of Hurricane Katrina, the Federal Emergency Management
Agency (FEMA) tasked the Army Corps of Engineers (the Corps) to
purchase temporary classrooms for Mississippi schools. To accomplish
its task, the Corps placed a $39.5 million order with Akima Site
Operations for the purchase and delivery of 450 such classrooms. GAO
received an allegation on its Fraud Hotline that the Corps paid
inflated prices for the classrooms, and in response, we reviewed the
facts and circumstances related to the Corps‘ issuance of the order.
What GAO Found:
Corps contracting officials did not expect to be buying classrooms and,
in fact, were not assigned the task until after Hurricane Katrina had
struck. With no prior experience, no advance notice, and the need to
buy the classrooms as quickly as possible, Corps contracting officials
lacked knowledge of the industry and information about classroom
suppliers, inventories, and prices that would have been useful in
negotiating a good deal. Faced with these circumstances, they chose to
purchase the classrooms by placing an order, noncompetitively, on an
existing agreement with Akima Site Operations, LLC. Because of Akima‘s
special status as a subsidiary of an Alaska Native corporation
certified under the Small Business Administration‘s 8(a) business
development program, the Corps could make the award without competition.
The Corps accepted Akima‘s proposed price of $39.5 million although it
had information that the cost for the classrooms was significantly less
than what Akima was charging. Based on our analysis of a quote obtained
by Akima from a local Mississippi business, the price that Akima
actually paid for the classrooms, and prices for similar units from GSA
schedule contracts, we believe the Corps could have, but failed to,
negotiate a lower price.
Image: Classroom units being transported.
[See PDF for Image]
Source: Akima.
[End of Image]
What GAO Recommends:
GAO is making no recommendations in this report. In written comments,
the Department of Army recognized that under trying conditions mistakes
are possible and plans to include the temporary classroom procurement
in its remedial action program review. In its comments, Akima believes
that the report does not provide a complete picture of the
circumstances related to the contract to obtain, transport, and set up
the classrooms. Our findings are based on information relevant to the
review objective.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-454].
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Katherine Schinasi at
(202) 512-4841 or schinasik@gao.gov.
[End of Section]
Contents:
Letter:
Results in Brief:
Background:
Circumstances Surrounding the Purchase of the Classrooms Resulted in
the Corps Paying High Prices:
Conclusion:
Agency Comments and Our Evaluation:
Appendix I: Scope and Methodology:
Appendix II: Comments from the Army Corps of Engineers:
Appendix III: Comments from Akima:
Appendix IV: GAO Contact and Staff Acknowledgments:
Table:
Table 1: Classroom Price Increases:
Figures:
Figure 1: Classroom Units at Staging Area and Units Being Transported:
Figure 2: Timeline for Corps' acquisition of classrooms:
Abbreviations:
ANC: Alaska Native corporation:
BOA: basic ordering agreement:
FEMA: Federal Emergency Management Agency:
GSA: General Services Administration:
MEMA: Mississippi Emergency Management Agency:
SBA: Small Business Administration:
United States Government Accountability Office:
Washington, DC 20548:
May 1, 2006:
Congressional Committees:
In the wake of Hurricane Katrina, the Federal Emergency Management
Agency (FEMA) tasked the Army Corps of Engineers (the Corps) to
purchase temporary classrooms for Mississippi schools.[Footnote 1] To
accomplish its mission, the Corps awarded a $39.5 million order to
Akima Site Operations, LLC (Akima) for the purchase and delivery of 450
temporary classrooms. GAO received a tip on its Fraud Hotline alleging
that the Corps paid inflated prices for the classrooms.[Footnote 2]
In response to the allegation, we reviewed the facts and circumstances
surrounding the Corps' acquisition of the classrooms to determine how
the Corps selected Akima and negotiated the price of the classrooms. We
reviewed government contract files and obtained pricing information on
the classrooms from several sources, including the Corps, Akima,
suppliers involved in the transaction, and the General Services
Administration (GSA). The results of our review follow. Further details
on the scope and methodology of our review are in appendix I. We
conducted our review from September 2005 to March 2006 in accordance
with generally accepted government auditing standards.
Results in Brief:
Faced with a compressed time frame for acquiring classrooms and no
prior knowledge about the classroom mission they were assigned by FEMA
after Hurricane Katrina struck the Gulf Coast, Corps contracting
officials chose to use an existing agreement and placed an order with
Akima. Because of Akima's special status as a subsidiary of an Alaska
Native corporation under the Small Business Administration's 8(a)
Business Development Program, the Corps was able to make the award
without competition even though the dollar amount of the award would
have normally required competition under the program.[Footnote 3]
The Corps accepted Akima's proposed price of $39.5 million although it
had information that the cost for the classrooms was significantly less
than what Akima was charging. Based on our analysis of a quote obtained
by Akima from a local Mississippi business, the price that Akima
actually paid for the classrooms, and prices for similar units from GSA
schedule contracts, we believe the Corps could have, but failed to,
negotiate a lower price.
We are not making recommendations in this report. In written comments
on a draft of this report, the Department of the Army recognized that
under trying conditions mistakes are possible and plans to include the
temporary classroom procurement in its remedial action program review.
The Army did not endorse our findings, but did not provide any specific
concerns. In written comments, Akima believes that the report does not
provide a complete picture of the circumstances related to the contract
for the classrooms. Our findings are based on information relevant to
the review objective. The comments from DOD and Akima, and our
responses to them are discussed beginning on page 8 and are reproduced
in their entirety in appendices II and III, respectively.
Background:
On August 29, 2005, Hurricane Katrina made landfall along the Gulf
Coast, causing severe damage and destruction. In addition to damaging
areas in Louisiana and Alabama, the hurricane wreaked havoc along the
entire Mississippi Gulf Coast. In response, the Mississippi Emergency
Management Agency, on September 8, 2005, asked for federal assistance
in providing temporary classrooms. On September 10, FEMA delegated the
mission for buying the classrooms to the Corps.
Figure 1: Classroom Units at Staging Area and Units Being Transported.
[See PDF for image]
Source: Akima.
[End of figure]
Upon accepting the mission, the Corps proceeded to acquire the
classrooms. A chronology of key events surrounding the Corps efforts is
shown in the following timeline.
Figure 2: Timeline for Corps' acquisition of classrooms:
[See PDF for image]
Source: GAO analysis.
[End of figure]
Circumstances Surrounding the Purchase of the Classrooms Resulted in
the Corps Paying High Prices:
Corps contracting officials did not expect to be buying classrooms and,
in fact, were not assigned the task until after Hurricane Katrina had
struck. With no prior experience, no advance notice, and the need to
buy the classrooms as quickly as possible, Corps contracting officials
lacked knowledge of the industry and information about classroom
suppliers, inventories, and prices that would have been useful in
negotiating a good deal. Faced with the urgent need for classrooms,
they chose to purchase them by placing an order, noncompetitively, on
an existing agreement with Akima.
Based on our analysis of a price quote obtained by Akima from a local
Mississippi classroom supplier, the price that Akima actually paid for
the classrooms, and prices for similar units from GSA Schedule
contracts, we believe the Corps could have, but failed to, negotiate
lower prices.
Late Assignment of Classroom Mission Hampered the Corps' Ability to Get
a Good Price:
Once Hurricane Katrina had struck, the Mississippi Emergency Management
Agency, on September 8, 2005, identified a need for temporary
classrooms. FEMA accepted the requirement. On September 10, FEMA
assigned the Corps the mission of acquiring the classrooms and two days
later set November 1, 2005, as the deadline for completing the Corps'
mission. According to Corps officials, the short completion date drove
their decisions about how to acquire the classrooms and did not allow
them to follow normal contracting procedures.
To accomplish this task, the Corps awarded an order to Akima through an
existing basic ordering agreement established by the Army Contracting
Agency intended for acquiring and installing modular
buildings.[Footnote 4] According to Corps officials, the agreement was
selected because it could be used to quickly procure the classrooms.
Akima is a subsidiary of an Alaskan Native corporation certified under
the Small Business Administration's 8(a) Business Development
Program.[Footnote 5] Due to its status as an Alaska Native corporation
under the 8(a) program, the company could be awarded contracts--without
competition--for any dollar value.[Footnote 6] While the agreement used
by the Corps was already in place, it contained no prices,
specifications, or other information the Corps could have used in
negotiating the order.
Corps Did Not Use Available Information to Negotiate a Lower Price:
According to Akima officials, they were contacted by the Corps on
September 14 to see if they could provide 450 classrooms. In response,
Akima provided the Corps several estimates over the next few days,
including an "order of magnitude" estimate on September 16, 2005, and a
formal proposal for $39.5 million on September 17 (which became the
contract price). The estimates included classroom prices, freight
costs, project management charges, general and administrative expenses,
and profit. The price proposal of September 17 was significantly higher
than the "order of magnitude" from the day before. While we believe the
increase in Akima's price should have raised questions among Corps
contracting officials, we found no evidence they conducted any analysis
to determine why the prices had increased. Instead, the Corps'
contracting files attribute the increase to the need to expedite
delivery of the classrooms to meet FEMA's requirements. On the basis of
a comparison of Akima's September 16 and 17 estimates, though, we found
the increase could not be attributed to expedited delivery--since we
found freight costs remained roughly the same in both estimates. The
increase was in the price of the classrooms, as shown in the following
table.
Table 1: Classroom Price Increases:
Classroom type: Single w/ bathroom;
September 16, 2005, estimate: Quantity: 100;
September 16, 2005, estimate: Unit price: $59,750[B];
September 16, 2005, estimate: Total: $5,975,000;
September 17, 2005, proposal: Quantity: 148;
September 17, 2005, proposal: Unit price: $84,395;
September 17, 2005, proposal: Total: $12,490,450.
Classroom type: Single w/o bathroom;
September 16, 2005, estimate: Quantity: 100;
September 16, 2005, estimate: Unit price: $55,750[B];
September 16, 2005, estimate: Total: $5,575,000;
September 17, 2005, proposal: Quantity: 52;
September 17, 2005, proposal: Unit price: $89,956;
September 17, 2005, proposal: Total: $4,677,734.
Subtotal:
September 16, 2005, estimate: Quantity: 200;
September 16, 2005, estimate: Total: $11,550,000;
September 17, 2005, proposal: Quantity: 200;
September 17, 2005, proposal: Total: $17,168,184;
Percent change: 49%.
Classroom type: Double w/ bathroom;
September 16, 2005, estimate: Quantity: 125[A];
September 16, 2005, estimate: Unit price: $91,288;
September 16, 2005, estimate: Total: $11,411,000;
September 17, 2005, proposal: Quantity: 125[A];
September 17, 2005, proposal: Unit price: $108,371;
September 17, 2005, proposal: Total: $13,546,336;
Percent change: 19%.
Total:
September 16, 2005, estimate: Quantity: 450;
September 16, 2005, estimate: Total: $22,961,000;
September 17, 2005, proposal: Quantity: 450;
September 17, 2005, proposal: Total: $30,714,520;
Percent change: 34%.
Source: GAO analysis.
Note: Numbers may not add due to rounding.
NOTE[A] 125 double classrooms are the equivalent of 250 single
classrooms.
Note[B]: As discussed below, these unit prices reflect a quote Akima
received from a local Mississippi classroom supplier.
[End of table]
The increase in classroom estimates between September 16 and 17 was
very substantial and should have triggered further questions on the
part of the Corps as to the reason. For example, the increase in the
price of single classrooms was particularly significant, increasing
about $5.6 million dollars, or nearly 49 percent.
Akima's September 17 proposal reflected classroom prices substantially
higher than the quote Akima had received from a local Mississippi
classroom supplier for existing single classrooms that were available
to be transported from a supplier in Florida. On September 14, the
local Mississippi business received quotes for single classrooms with
and without bathrooms for $49,750 and $45,750, respectively. On the
following day, the local business provided a written quote to Akima
reflecting the quotes and its markup. Akima used the local Mississippi
business' quote as a basis for its September 16 "order of magnitude"
estimate and provided the Corps a copy of the quote. However, there is
no evidence that Corps contracting officials used the information to
seek reductions during negotiations.
Given that Akima's September 16 estimate was based on a quote for
existing single classrooms in Florida, we question why the Corps
accepted the higher classroom prices proposed by Akima on September 17
without price negotiation. In addition, Akima purchased the classrooms
in Florida directly from the supplier identified by the local
Mississippi business at prices lower than the quote.
In addition, we found GSA Schedule contract prices for double
classrooms ranged from $30,000 to $54,000 each, or amounts considerably
less than proposed by Akima and included in the price accepted by the
Corps. Clearly, conditions post-Hurricane Katrina were anything but
normal and thus may not have allowed the classrooms to have been
ordered from the Schedule in the quantities and time frame required.
Nevertheless, this information could have been useful to Corps
contracting officials in analyzing Akima's prices and in negotiating a
lower price.
Conclusion:
Acquiring goods and services in any emergency situation can be
difficult--particularly in a situation where there is confusion about
missions, roles and responsibilities--but those difficulties should not
provide an excuse for poor pricing outcomes. By neither using
information that was available nor seeking out additional information
which would have provided a sound basis to negotiate price, we believe
the Corps could have, but failed to, negotiate lower prices.
Agency Comments and Our Evaluation:
We provided a draft of this report to the Department of the Army and
Akima for review and comment. Their written comments are included as
appendices II and III, respectively.
In its comments, the Army recognized that under trying conditions
mistakes are possible and stated that it plans to include the temporary
classroom procurement in its remedial action program review. The Corps
plans to take steps to address deficiencies, if any, identified in
after action reports so that future operations can be improved. The
Army did not endorse our findings, but did not provide any specific
concerns. In its comments, the Army also stated that the Corps was
tasked with providing 450 temporary buildings, with approximately 350
of them to be used for classrooms. This statement is not correct. The
task order issued on September 20, 2005, clearly states that the
contract was for 450 classrooms. In fact Akima's response to our report
indicates that this was a fixed price contract to deliver 450
classrooms.
Generally, Akima expressed concern that our report did not use
appropriate comparative data pertaining to pricing of the contract, did
not recognize the risks faced by Akima, did not recognize that
requirements were changing during the negotiations, and did not
adequately recognize its contract performance. We are not responding to
every aspect of Akima's comments, because our report focuses on the
prices the Corp paid for the classrooms and the Corp's actions in
awarding the classroom contract to Akima.
Our report recognizes other elements of cost under the contract, but
focuses on classroom costs because they comprise over three-quarters of
the price negotiated. The difference between Akima's "order of
magnitude estimate" and the proposal ultimately accepted by the Corps
was significant. We believe that the about $8 million difference should
have prompted an inquiry and price negotiation by the contracting
officer. We found no evidence that the contracting officer attempted to
negotiate for a better price.
In its comments to our report, Akima has stated that its proposal
reflects the unknowns it faced at the time of contract award. We
recognize, by entering into a fixed price contract, a contractor
assumes the risk of contract performance. Furthermore, the report
acknowledged that conditions post-Hurricane Katrina were anything but
normal. However, our review found that in spite of these difficult
conditions the Corps had available information at the time of the
contract award that quoted lower costs for classrooms, but did not use
the information to negotiate a lower price.
Finally, we recognize again, as we did in the report that the Corps and
Akima told us that Akima performed in accordance with the terms of the
contract by delivering the required quantities of classrooms within the
timeframes agreed to by the Corps.
We will make copies of this report available on request. In addition,
the report will be available at no charge on GAO's Web site at
[Hyperlink, http:// www.gao.gov].
If you have any questions concerning this report, please contact me at
(202) 512-4841 or by e-mail at schinasik@gao.gov. Contact points for
our Offices of Congressional Relations and Public Affairs may be found
on the last page of this report.
Signed By:
Katherine V. Schinasi:
Managing Director:
Acquisition and Sourcing Management:
List of Committees:
The Honorable John Warner:
Chairman:
The Honorable Carl Levin:
Ranking Minority Member:
Committee on Armed Services:
United States Senate:
The Honorable Susan M. Collins:
Chairman:
The Honorable Joseph I. Lieberman:
Ranking Minority Member:
Committee on Homeland Security & Governmental Affairs:
United States Senate:
The Honorable Olympia J. Snowe:
Chair:
The Honorable John F. Kerry:
Ranking Minority Member:
Committee on Small Business and Entrepreneurship:
United States Senate:
The Honorable Robert C. Byrd:
Ranking Minority Member:
Subcommittee on Homeland Security:
Committee on Appropriations:
United States Senate:
The Honorable Duncan L. Hunter:
Chairman:
The Honorable Ike Skelton:
Ranking Minority Member:
Committee on Armed Services:
House of Representatives:
The Honorable Peter T. King:
Chairman:
The Honorable Bennie G. Thompson:
Ranking Minority Member:
Committee on Homeland Security:
House of Representatives:
The Honorable Donald Manzullo:
Chairman:
The Honorable Nydia M. Velazquez:
Ranking Minority Member:
Committee on Small Business:
House of Representatives:
The Honorable Tom Davis:
Chairman:
The Honorable Henry A. Waxman:
Ranking Minority Member:
Committee on Government Reform:
The Honorable Martin Olav Sabo:
Ranking Minority Member:
Subcommittee on Homeland Security:
Committee on Appropriations:
House of Representatives:
[End of section]
Appendix I: Scope and Methodology:
GAO received a Fraud Hotline allegation that the Corps of Engineers
(the Corps) had paid an inflated price for temporary classrooms for
Mississippi in the aftermath of Hurricane Katrina. In response to the
allegation, we examined the facts and circumstances surrounding the
acquisition to determine how the Corps selected Akima and negotiated
the price of the classrooms.
To learn how the Corps selected Akima, we obtained information about
the Army Contracting Agency's basic ordering agreement and its intended
uses. We contacted the contracting officer who had established the
agreement at the Northern Region Contracting Center, Fort Eustis,
Virginia. The Army Contracting Agency official provided the agreement
and modifications, and described why and how the agreement was
established.
We also obtained information about the steps taken by the Corps to meet
the requirements for acquisition of the classrooms. We obtained
contract and related documents from the Corps of Engineers, Vicksburg
District, in Vicksburg, Mississippi. We reviewed these documents to
find out what information the Corps had available to acquire the
classrooms. We interviewed Corps officials to discuss the available
information and ascertain how classroom acquisition-related decisions
were made. We also reviewed cost and price information included in the
contract file.
We met with representatives of Akima Management Services, Inc., the
holding company for Akima Site Operations, LLC--the titular entity
awarded the classroom order. Akima representatives provided pertinent
documentation, including actual performance cost information. In
addition, we held discussions with and collected information from local
Mississippi businesses and some of the suppliers that eventually
provided the classrooms to Akima. Also, we identified pricing
information available on the General Service Administration's Schedule
contracts for similar classrooms and modular buildings.
We conducted our review from September 2005 to March 2006 in accordance
with generally accepted government auditing standards.
[End of section]
Appendix II: Comments from the Army Corps of Engineers:
Department Of The Army:
Office Of The Assistant Secretary:
Civil Works:
108 Army Pentagon:
Washington, DC 20310-0108:
Mr. David E. Cooper:
Director:
Acquisition and Sourcing Management:
United States General Accounting Office:
441 G Street, N.W.:
Washington, D.C. 20548:
Dear Mr. Cooper:
This is the Department of Defense (DoD) response to the GAO draft
report, GAO-06-454 "HURRICANE KATRINA: Army Corps of Engineers Contract
for Mississippi Classrooms" dated March 31, 2006 (GAO Code 120500). We
appreciate the opportunity to comment on the draft report.
On September 10, 2005, the Federal Emergency Management Agency tasked
the Army Corps of Engineers to provide 450 temporary buildings, with
approximately 350 of them to be used as classrooms and the remainder to
be used for local government offices. On September 20 an order was
awarded under an existing Army Basic Ordering Agreement. Temporary
buildings started arriving on the Mississippi Gulf Coast on September
23. The first 200 units were on site within 18 days and all 450 units
were on site within 45 days. The successful completion of this mission
allowed children to return to school and local government offices to
reopen, all in an attempt to attain some degree of normalcy.
The goal in an emergency situation such as this is to provide immediate
relief services to the impacted populations. Without endorsing the
findings in your draft report, I surely agree that under trying
conditions mistakes are possible. For each emergency event, after
action reports are prepared to address issues identified from all
sources. The Corps will include this particular procurement action in
its remedial action program review and seriously consider the report
that your office has prepared. The Corps will take steps to address
deficiencies, if any, that are identified so that future operations can
be improved.
Very truly yours,
Signed By:
John Paul Woodley, Jr.:
Assistant Secretary of the Army (Civil Works):
[End of section]
Appendix III: Comments from Akima:
GAO DRAFT REPORT GAO-06-454:
APRIL 2006:
"HURRICANE KATRINA - ARMY CORPS OF ENGINEERS CONTRACT FOR MISSISSIPPI
CLASSROOMS":
APPENDIX II: RESPONSE OF AKIMA SITE OPERATIONS, LLC:
Akima Site Operations, LLC ("Akima") is pleased to have this
opportunity to add our comments to the GAO report "Hurricane Katrina -
Army Corps of Engineers Contract for Mississippi Classrooms (GAO-06-
454)". The report (i) cites pricing information that is not an
appropriate comparison, (ii) understates the nature and extent of the
risks and logistical challenges faced by Akima in pricing and
performing this fixed price contract, and (iii) does not fully
recognize what occurred between the submittal of rough estimates and
the final estimate on September 17, 2005. Finally, the report does not
adequately acknowledge the success of the company in exceeding the
primary requirement of the contract (the schedule) and ignores the fact
that despite extremely abnormal disaster conditions, Mississippi
children were back in school far earlier than expected and well ahead
of schedule, thus salvaging the 2005 - 2006 school year.
Appropriateness of Comparative Data: Akima does not believe that the
USACE could have attained a lower price, one that included all aspects
of the task, at the time the contract was negotiated. First, while
Akima used the preliminary and nonbinding quote of a local Mississippi
business as a partial basis for its bid to the Corps, Akima adjusted
its bid for the risks associated with dealing with this unproven vendor
and aspects of the work that were not included in this vendor's bid. In
fact, the cited trailers were not available, not under contract, and
the referenced pricing was not inclusive of the costs required to
actually get the classrooms in place by the date the government
required. Akima ultimately determined that the Mississippi contractor
in question was simply not a responsible contractor capable of
delivering the requirements of the contract in the time required.
Second, the GSA prices noted in the report were not based on post-
hurricane emergency conditions or a 45-day delivery schedule. Also, the
GSA catalogue units are inferior to those delivered - -the government
required higher level specifications. The references to the GSA
Schedule also assume that the classrooms existed at the time of the
order, which was not the case. In fact, Akima has recently contacted
the vendors discussed in the report and confirmed that such vendors
would not be able to deliver the specified units for the GSA Schedule
price within a 45-day delivery window, even in today's environment.
Pricing risk and scope: This was a fixed price contract to deliver 450
classrooms (900) trailers) within 45 days and under extremely demanding
transportation, logistical, and set up challenges. Uncertainties during
the time of contract negotiation included: Availability and cost of a
portion of classrooms; the logistics of reaching delivery location(s);
availability of drivers and trucks; and availability of a qualified
local labor force for classroom set up. Also, Akima assumed
responsibility for units damaged in transit, pre-financing, and
warranty. As often occurs on a fixed price contract, Akima was able to
procure some of the classrooms for less than expected, while other
costs exceeded our expectations. The GAO report focuses primarily on
the cost of the first 200 classrooms, but minimizes the full risks and
logistics costs faced by Akima. The key is whether the overall price
for the total project is fair and reasonable, and Akima's price was.
Price Negotiation: The GAO report suggests that Akima's price offerings
were arbitrarily fluctuating without reporting that requirements of the
contract were simultaneously being finalized by the Government. For
example, Akima's first offering was for used trailers; but not until
later was it confirmed that only new trailers were acceptable.
Moreover, the September 16 "order of magnitude" estimate described in
Table 1 of the report reflected delivery of the final classrooms by the
end of January, 2006. In addition, the extent of the workload involved
in forward transportation to and from the staging area was not
finalized until later in the process, and issues surrounding set-up
expectations were also in flux. Throughout this ongoing negotiation,
Akima continued to obtain new information about market conditions and
resource availability, and, to the extent practicable, shared this
information with the USACE as the final contract scope and price were
being developed.
Finally, while the report relegates discussion of Akima's performance
to a footnote, it is important to highlight that Akima met all project
milestones and delivered quality units on an expedited basis, fully
satisfying the USACE requirements five days ahead of schedule and for a
fair and reasonable price.
[End of section]
Appendix IV: GAO Contact and Staff Acknowledgments:
GAO Contact:
Katherine Schinasi, (202) 512-4841or schinasik@gao.gov:
Staff Acknowledgments:
In addition to the contact named above, Dave Cooper, Director, Penny
Berrier Augustine, Assistant Director, Ralph Roffo, Bob Swierczek, and
Adam Vodraska made key contributions to this report.
(12050000):
[End of section]
FOOTNOTES:
[1] We are using the term "temporary classrooms" in this report. The
classrooms were also referred to as relocatable, modular, and portable.
[2] The purpose of GAO's FraudNET is to facilitate reporting of
allegations of fraud, waste, abuse, or mismanagement of federal funds.
Allegations are received via e-mail at fraudnet@gao.gov. The allegation
we reviewed concerned the price paid by the government, not the
contractor's performance under the contract. Accordingly, we did not
review contract performance. Both the Corps and Akima represent that
Akima performed in accordance with the terms of the contract by
delivering the required quantities of classrooms within the time frames
agreed to by the Corps.
[3] Alaska Native corporations (ANCs), created under the Alaska Native
Claims Settlement Act to help settle Alaska Native land claims and to
foster economic development for Alaska Natives, have been accorded
special advantages under SBA's 8(a) Business Development Program. ANC
8(a) firms are considered small disadvantaged businesses, and as long
as they meet relevant size standards for the procurement and other
eligibility requirements, they can be awarded contracts
noncompetitively for any dollar amount (see 13 C.F.R. § 124.506(b)).
Generally, acquisitions offered to other 8(a) businesses where the
contract value is more than $3 million or $5 million (for
manufacturing) must be competitively awarded.
[4] A basic ordering agreement is a written instrument of understanding
between the government and a contractor that contains (1) terms and
clauses for future contracts (orders) between the parties during its
term; (2) a description, as specific as possible, of supplies or
services to be provided; and (3) methods for pricing, issuing, and
delivering future orders under the agreement. A basic ordering
agreement is not a contract but is used to expedite contracting for
supplies or services when specific items, quantities, and prices are
not known but a substantial number of requirements are anticipated.
[5] This program, established by section 8(a) of the Small Business
Act, 15 U.S.C. § 637(a), authorizes the Small Business Administration
to enter into contracts with procuring agencies and award subcontracts
for performing those contracts to eligible firms. These subcontractors,
known as 8(a) contractors, must be small disadvantaged business
concerns. SBA has delegated to DOD its authority to enter into 8(a)
prime contracts and to award the performance of those contracts to
eligible 8(a) program participants.
[6] SBA may accept, on a sole-source basis, a requirement into the 8(a)
program on behalf of an Alaska Native corporation even if the value of
the acquisition exceeds the normal threshold for competitive 8(a)
awards.
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