Army Corps of Engineers
Known Performance Issues with New Orleans Drainage Canal Pumps Have Been Addressed, but Guidance on Future Contracts Is Needed Gao ID: GAO-08-288 December 31, 2007Hurricane Katrina caused several breaches in the floodwalls along three drainage canals in New Orleans, contributing to catastrophic flooding. To restore the pre-Katrina level of hurricane-related flood protection, the Army Corps of Engineers (Corps) decided to acquire several large-capacity pumping systems. During the process of acquiring, testing, and installing the pumping systems, issues with the pump contract and operation of the pumping systems came to light, including several identified in a Corps Independent Team Report (ITR). GAO was asked to evaluate the Corps' efforts to (1) develop contract specifications and award the contract, (2) address pumping system performance issues, (3) document contract modifications, and (4) reconcile contract payments. GAO reviewed contract and testing documents, observed the operation of the pumping system, and interviewed officials from the Corps, its consultants and contractors, and the ITR team.
Schedule concerns drove the Corps' decisions in developing specifications for the pumping systems and awarding the contract, but the rush to award the contract resulted in deficiencies in key contract provisions. Specifically, the original factory test requirements were ambiguous, there were only limited provisions for on-site testing, and there were no criteria for acceptance of the pumping systems by the government. The Corps conducted an expedited competition to contract for the pumping systems and selected a supplier for contract award based largely on its ability to deliver the pumping systems by the June 1 start of the 2006 Atlantic hurricane season. The Corps and the contractors have addressed and corrected known performance issues with the pumping systems. Concerns included hydraulic motor vibrations, the design of the hydraulic intake line, suspect pipe welds, and lower than expected pumping capacity. The pumping systems were installed prior to correcting these issues because the Corps believed it was better to have some pumping capacity along the drainage canals during the 2006 hurricane season rather than none, despite uncertainty over how much of the pumping system capacity would be available, and for how long, if needed. Between November 2006 and September 2007, the Corps and the contractors completed all of the repairs and reinstalled the pumping systems. Documents that GAO reviewed indicate that, as of September 2007, each pumping system had been successfully tested on site for at least 2 hours, thus providing greater assurance that they will perform as designed. The contract files for the pumping systems contained the required documentation for the type and value of the contract and associated modifications, though, in a number of cases, documentation was inserted in the contract files several months after modifications were issued and only after the ITR reported its findings. While the ITR correctly noted the absence of some required documentation, GAO found that much of the specific documentation cited as missing was not required for the modifications in question because of the nature and value of these modifications. In addition, while the ITR found that it appeared as though the contractor developed the scope of work and pricing for some of the modifications without a subsequent analysis by the Corps, GAO found no instance of this occurring. As of October 31, 2007, the Corps had paid the contractor about $30.5 million of the $33 million contract amount. In a few instances, the Corps made duplicate payments to the contractor. GAO found that these payments were due to Corps mistakes, not inappropriate billing by the contractor. GAO found no other cases of duplicate payments. The Corps plans to adjust for the duplicate payments by deducting the balance from remaining funds, including any incentive payments, owed to the contractor. According to Corps officials, final payment and reconciliation of the contract is expected by early 2008; however, it is unknown to what extent contract or pump performance issues will affect the final amount paid for the contract during the close-out process.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-08-288, Army Corps of Engineers: Known Performance Issues with New Orleans Drainage Canal Pumps Have Been Addressed, but Guidance on Future Contracts Is Needed
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United States Government Accountability Office:
GAO:
December 2007:
Report to the Chairman, Ad Hoc Subcommittee on Disaster Recovery,
Committee on Homeland Security and Governmental Affairs, U.S. Senate:
Army Corps Of Engineers:
Known Performance Issues with New Orleans Drainage Canal Pumps Have
Been Addressed, but Guidance on Future Contracts Is Needed:
New Orleans Pumping Systems:
GAO-08-288:
GAO Highlights:
Highlights of GAO-08-288, a report to the Chairman, Ad Hoc Subcommittee
on Disaster Recovery, Committee on Homeland Security and Governmental
Affairs, U.S. Senate.
Why GAO Did This Study:
Hurricane Katrina caused several breaches in the floodwalls along three
drainage canals in New Orleans, contributing to catastrophic flooding.
To restore the pre-Katrina level of hurricane-related flood protection,
the Army Corps of Engineers (Corps) decided to acquire several large-
capacity pumping systems. During the process of acquiring, testing, and
installing the pumping systems, issues with the pump contract and
operation of the pumping systems came to light, including several
identified in a Corps Independent Team Report (ITR).
GAO was asked to evaluate the Corps‘ efforts to (1) develop contract
specifications and award the contract, (2) address pumping system
performance issues, (3) document contract modifications, and (4)
reconcile contract payments. GAO reviewed contract and testing
documents, observed the operation of the pumping system, and
interviewed officials from the Corps, its consultants and contractors,
and the ITR team.
What GAO Found:
Schedule concerns drove the Corps‘ decisions in developing
specifications for the pumping systems and awarding the contract, but
the rush to award the contract resulted in deficiencies in key contract
provisions. Specifically, the original factory test requirements were
ambiguous, there were only limited provisions for on-site testing, and
there were no criteria for acceptance of the pumping systems by the
government. The Corps conducted an expedited competition to contract
for the pumping systems and selected a supplier for contract award
based largely on its ability to deliver the pumping systems by the June
1 start of the 2006 Atlantic hurricane season.
The Corps and the contractors have addressed and corrected known
performance issues with the pumping systems. Concerns included
hydraulic motor vibrations, the design of the hydraulic intake line,
suspect pipe welds, and lower than expected pumping capacity. The
pumping systems were installed prior to correcting these issues because
the Corps believed it was better to have some pumping capacity along
the drainage canals during the 2006 hurricane season rather than none,
despite uncertainty over how much of the pumping system capacity would
be available, and for how long, if needed. Between November 2006 and
September 2007, the Corps and the contractors completed all of the
repairs and reinstalled the pumping systems. Documents that GAO
reviewed indicate that, as of September 2007, each pumping system had
been successfully tested on site for at least 2 hours, thus providing
greater assurance that they will perform as designed.
The contract files for the pumping systems contained the required
documentation for the type and value of the contract and associated
modifications, though, in a number of cases, documentation was inserted
in the contract files several months after modifications were issued
and only after the ITR reported its findings. While the ITR correctly
noted the absence of some required documentation, GAO found that much
of the specific documentation cited as missing was not required for the
modifications in question because of the nature and value of these
modifications. In addition, while the ITR found that it appeared as
though the contractor developed the scope of work and pricing for some
of the modifications without a subsequent analysis by the Corps, GAO
found no instance of this occurring.
As of October 31, 2007, the Corps had paid the contractor about $30.5
million of the $33 million contract amount. In a few instances, the
Corps made duplicate payments to the contractor. GAO found that these
payments were due to Corps mistakes, not inappropriate billing by the
contractor. GAO found no other cases of duplicate payments. The Corps
plans to adjust for the duplicate payments by deducting the balance
from remaining funds, including any incentive payments, owed to the
contractor. According to Corps officials, final payment and
reconciliation of the contract is expected by early 2008; however, it
is unknown to what extent contract or pump performance issues will
affect the final amount paid for the contract during the close-out
process.
What GAO Recommends:
GAO recommends actions to ensure that future contracts adhere to sound
acquisition practices, even for expedited procurements, and to ensure
that any required contract documentation is completed and filed in a
timely manner.
The Department of Defense agreed with GAO‘s recommendations.
To view the full product, including the scope and methodology, click on
GAO-08-288.
For more information, contact Anu Mittal at (202) 512-3841 or
mittala@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
Commitment to Meet Schedule Drove Specifications but Resulted in
Deficiencies in Some Key Contract Terms:
The Corps Used a Streamlined Solicitation Process and Awarded the
Pumping Systems Contract to the Highest-Rated Competitor:
The Corps and the Contractors Have Addressed Pumping System Testing and
Performance Issues:
Contract Files Remained Incomplete for Months, but Currently Contain
Required Documentation for the Type and Value of Procurement:
The Corps Has Not Overpaid the Contract and Has Plans to Reconcile
Payments Made in Error:
Conclusion:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Scope and Methodology:
Appendix II: Pumping Capacity for the Three Drainage Canals:
Appendix III: Comments from the Department of Defense:
Appendix IV: GAO Contacts and Staff Acknowledgments:
Tables:
Table 1: Total Number of Pumps and Pumping Capacity at the 17th Street,
London Avenue, and Orleans Avenue Outfall Canals, as of November 2007:
Table 2: GAO Analysis of the ITR Findings:
Figures:
Figure 1: Flood Protection Control Levees in and around New Orleans,
Louisiana:
Figure 2: Orleans East Bank in New Orleans, Louisiana, and Repair
Project Sites:
Figure 3: Graphic of Interim Gates and Temporary Pumps:
Figure 4: Hydraulic Pumping System:
Figure 5: Original Hydraulic Pump Design with Siphon:
Figure 6: Reinstalled Hydraulic Pump without Siphon:
Figure 7: Discharge Pipes at the London Avenue Canal:
Figure 8: Hydraulic Pumping Systems Performing at the 17th Street
Canal, September 27, 2007:
Figure 9: Pumping Capacity Trend for the 17th Street Canal, June 1,
2006 through November 30, 2007:
Figure 10: Pumping Capacity Trend for the London Avenue Canal, June 1,
2006 through November 30, 2007:
Figure 11: Pumping Capacity Trend for the Orleans Avenue Canal, June 1,
2006 through November 30, 2007:
Abbreviations:
cfs: cubic feet per second:
Corps: U.S. Army Corps of Engineers:
ERDC: Engineering Research and Development Center:
FAR: Federal Acquisition Regulation:
HI: Hydraulic Institute:
ITR: Independent Team Report:
MVD: Mississippi Valley Division:
MWI: Moving Water Industries:
RFP: Request for Proposals:
United States Government Accountability Office:
Washington, DC 20548:
December 31, 2007:
The Honorable Mary L. Landrieu:
Chairman:
Ad Hoc Subcommittee on Disaster Recovery:
Committee on Homeland Security and Governmental Affairs:
United States Senate:
Dear Madam Chairman:
The greater New Orleans metropolitan area sits in the tidal lowlands of
Lake Pontchartrain and is bordered generally on its southern side by
the Mississippi River and the Gulf of Mexico. Due to the city's
location and elevation, which averages six feet below sea level, the
area has historically experienced many floods. In an effort to reduce
such floods, a series of levees and other flood control structures have
been built over the years to reduce that threat. However, hurricane-
induced storm surges, waves, and rainfall continue to pose a threat to
New Orleans. To avoid flooding in New Orleans from a rain storm, the
city's Sewerage and Water Board pumps rainwater from the city into
three drainage canals located at 17th Street, London Avenue, and
Orleans Avenue, which then flows unrestricted into Lake Pontchartrain.
While critical to prevent flooding from rainfall, these canals are
vulnerable to storm surge from Lake Pontchartrain during hurricanes;
consequently, floodwalls have been erected along both sides of the
canals to protect against storm surge overtopping the canals and
flooding the city.
On August 29, 2005, storm surge from Hurricane Katrina caused several
breaches in the floodwalls along the 17th Street and London Avenue
canals, contributing to catastrophic flooding in New Orleans. In its
efforts to restore pre-Katrina levels of hurricane protection to New
Orleans by the June 1 start of the 2006 Atlantic hurricane season
(which generally runs from June 1 to November 30 each year), the U.S.
Army Corps of Engineers (Corps), in late 2005, considered strengthening
the drainage canal floodwalls but decided against this effort due to
cost and time constraints. Instead, the Corps decided to install three
interim closure structures or gates near the points where the canals
meet the lake. These gates would be closed during major hurricane
events to prevent storm surge from entering the canals and potentially
overtopping or breaching the canal floodwalls and flooding the city.
When the gates are closed, however, rainwater cannot drain from the
three canals into Lake Pontchartrain, and large-capacity pumping
systems are needed to pump water out of the canals and into the lake.
Due to space constraints along the canals and the limited amount of
time it had before the start of the 2006 hurricane season, the Corps
decided to procure 34 large-capacity hydraulically powered pumping
systems[Footnote 1] to provide the most pumping capacity possible by
June 1, 2006. In mid-2006, the Corps modified the contract to procure
six additional hydraulic pumping systems, bringing the total number of
hydraulic pumping systems to be installed along the three drainage
canals to 40.[Footnote 2]
During the process of acquiring, testing, and installing the hydraulic
pumping systems for the drainage canals, issues with the operation of
these pumping systems came to light. In response to your request, we
issued a report on May 23, 2007, on the procurement process and award
of the pumping system contract and the status of the efforts to address
issues related to the performance of the pumping systems.[Footnote 3]
In June 2007, the Corps' Mississippi Valley Division (MVD) released a
technical review report, known as the Independent Team Report (ITR).
This report identified testing and performance-related issues regarding
the hydraulic pumping systems similar to the issues we had identified
in our May report and, in addition, raised potential issues related to
the administration and documentation of contract modifications. The ITR
was conducted by a three-person technical review team, which consisted
of two Corps engineers from outside MVD and one engineer from MVD who
acted as the team coordinator. According to ITR members, the New
Orleans District was not offered the opportunity to provide official
comments on the draft ITR; rather, an advisory panel from MVD reviewed
the draft before its issuance in June 2007.
In this context, you asked us to update our May 2007 report and
consider the ITR findings in our analysis. Specifically, you asked us
to evaluate the Corps' efforts to (1) develop the specifications for
the pumping systems, (2) award the contract, (3) address pumping system
performance issues identified during factory and on-site testing, (4)
document modifications to the contract, and (5) reconcile payments made
and amounts still owed to the contractor.
To address these objectives, we reviewed the Corps' plans for the
interim gates and temporary pumping systems for the three New Orleans
drainage canals. (Unless otherwise noted, the pumping systems discussed
in this report are only the 40 60-inch hydraulic pumps installed at the
three canals.) We reviewed documentation, including e-mails,
correspondence, and other documents related to the solicitation
process, contract specifications and other provisions, factory and on-
site test results, performance requirements, contract modification
files, payments to the contractor, and the Corps' plans for increasing
pumping capacity through 2007. We visited the 17th Street, London
Avenue, and Orleans Avenue Canals and observed the operation of the
pumping systems. We interviewed officials from (1) Corps Headquarters,
New Orleans District, other Corps districts, and members of the MVD's
technical review team related to the contract and pump performance; (2)
Moving Water Industries (MWI) Corporation and two other pump suppliers
that bid on the solicitation; and (3) the architectural and engineering
consulting firms under contract with the Corps that researched
available pumping system alternatives, qualified pump manufacturers,
pump delivery timelines, and costs and that helped design the canal
gates and pumping stations. We conducted our work from September
through December 2007 in accordance with generally accepted government
auditing standards.
Results in Brief:
Schedule concerns drove the Corps' decisions in developing
specifications for the pumping systems, but the rush to award the
contract resulted in deficiencies in key contract provisions. The Corps
was committed to having as much pumping capacity as possible in place
at the drainage canals by June 1, 2006--the start of the Atlantic
hurricane season. Due to the compressed schedule and the limited space
available for installation, and based on the limited market research
conducted by the Corps' consultants, the Corps decided to use 60-inch
hydraulic pumping systems rather than alternatives that would have
involved longer delivery schedules or required more space. The Corps'
consultants drafted contract specifications that closely matched those
of one supplier, which, combined with the 60-inch pumping system
requirement, resulted in that supplier being in the strongest position
to compete for the contract. Further, the contract itself was not
written as precisely as it should have been. Specifically, the original
factory test requirements were ambiguous, there were limited provisions
for on-site testing, and there were no criteria for acceptance of the
pumping systems by the government.
Given the need to procure and install the temporary pumping systems
before the start of the hurricane season, the Corps conducted an
expedited competition to contract for the pumping systems. The Corps
issued a competitive solicitation and received three proposals. Using
established evaluation factors, the Corps rated MWI's proposal
significantly higher than the other two proposals. The Corps selected
MWI for contract award, in large part, because it determined that MWI
was the competitor most likely to enable the agency to meet its June 1
deadline.
The Corps and the contractors have addressed and corrected known
performance issues with the pumping systems. As identified in our May
2007 report and in the ITR, both factory and on-site testing revealed
several concerns with some components of the pumping systems. Specific
concerns identified during testing included undersized gear oil
circulation motors, hydraulic motor vibrations, the design of the
hydraulic intake line, suspect pipe welds, and lower than expected
pumping capacity. Nevertheless, the pumping systems were installed as
planned because the Corps believed it was better to have some pumping
capacity along the drainage canals during the 2006 hurricane season
rather than none. The Corps also believed that many of the issues
identified during factory testing could be resolved after installation.
Consequently, on June 1, 2006, the Corps had installed 11 pumping
systems, and by July 2006, it had installed 34. However, both our May
2007 report and the ITR concluded that it was uncertain how much of the
pumping systems' theoretical capacity would be available, and for how
long, if needed during the 2006 hurricane season. The Corps and its
contractors have since taken several steps to correct known performance
issues with the pumping systems. These issues were addressed by
replacing components that were undersized, such as motors and springs;
redesigning and replacing the hydraulic intake lines; rewelding
critical structural welds; and conducting additional pumping capacity
tests. Between November 2006 and September 2007, the Corps and its
contractors completed all of the repairs that were noted in the ITR and
reinstalled all 40 pumping systems. As of September 2007, each pumping
system has been successfully tested on site for at least 2 hours, thus
providing greater assurance that they will perform as designed.
According to Corps officials, all of the outstanding repairs have been
completed and on-site testing indicates that the system is now fully
operational.
Contract files for the pumping systems, although incomplete at the time
of the ITR review, now contain the required documentation for the type
of contract and value of the associated modifications. In a number of
cases, Corps officials inserted required documentation in the contract
files several months after modifications were issued and only after the
ITR reported its findings. The ITR correctly noted the absence of some
required documentation. However, we found much of the documentation
that the ITR specifically cited as missing--including requests for
proposals, independent government estimates, certified cost or pricing
data, technical analyses, and price negotiation memorandums--was not
required, either because documentation was not relevant to the contract
modifications in question, or the value of the modifications were below
specified regulatory thresholds. In addition, while the ITR found that
it appeared as though the contractor developed the scope of work and
pricing for some of the modifications without a subsequent analysis by
the Corps, we found no instance of this occurring. Rather, our review
found that, for most of the contract modifications, there was evidence
of some analysis by the Corps and extensive back and forth discussion,
usually by e-mail, between officials from the Corps and MWI.
As of October 31, 2007, the Corps had paid the contractor about $30.5
million of the $33 million contract for the 40 hydraulic pumping
systems and has since planned to reconcile mistaken payments it made.
The Corps made payments to the contractor after receiving invoices for
items delivered, such as drive units, pumps, and services. In most
instances, the Corps retained about 20 percent of each invoice to
ensure that the contractor was not overpaid. The ITR identified a few
instances where the Corps made duplicate payments to the contractor.
Our review found that these duplicate payments involved mistakes by the
Corps, not inappropriate billing actions on the part of the contractor.
We found no additional cases where the Corps made duplicate payments to
the contractor. According to the Corps contracting officer, the
duplicate payments will be corrected by deducting the balance from
retained funds or by not paying outstanding invoices. In addition, the
contract also has an incentive clause of up to $5 million for early
delivery, but the Corps has withheld any payment until the final
acceptance of the pumping systems occurs. The contract also has a
penalty for late delivery. The Corps will determine whether or not a
penalty will be assessed as part of the close-out process. According to
Corps officials, final payment and reconciliation of the contract,
including any incentive payments, will be completed after final
acceptance of the pumping systems.
While most of the issues identified to date related to testing, pump
system performance, and payments have been addressed by the parties,
there may still be issues that arise and need to be resolved during
contract closeout. The Corps expects contract closeout to take place
during the early part of calendar year 2008.
We are recommending that the Corps develop procedures to help ensure
that all future contracts, including those awarded for expedited
procurements, contain the terms and conditions needed to ensure that
items contracted for meet the government's needs, and that key contract
actions are adequately documented in a timely manner. In commenting on
a draft of this report, the Department of Defense concurred with our
recommendations.
Background:
Since its founding in 1718, the city of New Orleans and its surrounding
areas have been subject to numerous floods from the Mississippi River
and hurricanes. The greater New Orleans metropolitan area, composed of
Orleans, Jefferson, St. Charles, St. Bernard, and St. Tammany parishes,
sits in the tidal lowlands of Lake Pontchartrain and is bordered
generally on its southern side by the Mississippi River and the Gulf of
Mexico. Lake Pontchartrain is a tidal basin about 640 square miles in
area that connects with the Gulf of Mexico through Lake Borgne and the
Mississippi Sound.
Many hurricanes have struck the area over the years, including
Hurricane Betsy in 1965, Hurricane Camille in 1969, Hurricane Lili in
2002, and Hurricane Katrina in 2005. The hurricane surge that can
inundate coastal lowlands is the most destructive characteristic of
hurricanes and accounts for most of the lives lost from hurricanes.
Because of such threats, a series of flood control structures,
including concrete floodwalls and levees, have been constructed in and
around the New Orleans metropolitan area (see fig. 1).
Figure 1: Flood Protection Control Levees in and around New Orleans,
Louisiana:
This figure is map showing flood protection control levees in and
around New Orleans, Louisiana.
[See PDF for image]
Source: Staff graphic by Emmett Mayer III/emayer@timespicayune.com.
[End of figure]
On August 29, 2005, Hurricane Katrina came ashore near Buras,
Louisiana, about 60 miles southeast of New Orleans, with wind speeds of
up to 127 miles per hour and a storm driven wave surge of up to 30
feet. The size and strength of the storm and subsequent flooding
resulted in one of the largest natural disasters in U.S. history. Storm
waters overtopped floodwalls and levees in Louisiana's Orleans and
neighboring parishes, causing widespread flooding, many billions of
dollars of property damage, and more than 1,300 deaths. The Corps
estimates that more than one-half of the 269 miles of federally
constructed levees and floodwalls in these parishes were damaged by the
storm's winds and floodwaters.
Through a combination of permanent and temporary measures, the Corps
planned to restore the level of hurricane protection to the New Orleans
area that existed prior to Hurricane Katrina by June 1, 2006. To
restore the pre-Katrina level of protection in a period of about 9
months, the Corps had to work quickly and, in some instances, engineer
temporary solutions because not all of the repairs could be completed
in time. One such temporary solution was needed along the Orleans East
Bank, located south of Lake Pontchartrain, from the 17th Street Canal
to the Inner Harbor Navigation Canal, and along the western bank of the
Inner Harbor Navigation Canal to the Mississippi River. About 19 miles
of levees and floodwalls are located along the Orleans Lakefront, the
Inner Harbor Navigation Canal, and three drainage canals--17th Street,
London Avenue, and Orleans Avenue--which drain rainwater from New
Orleans into Lake Pontchartrain. A total of about 1 mile of levees and
floodwalls was damaged along the 17th Street Canal and two sides of the
London Avenue Canal, resulting in flooding of New Orleans (see fig. 2).
Figure 2: Orleans East Bank in New Orleans, Louisiana, and Repair
Project Sites:
This figure is a map showing Orleans East Bank in New Orleans,
Louisiana, and repair project sites.
[See PDF for image]
Source: U.S. Army Corps of Engineers.
[End of figure]
The city's three drainage canals are critical to avoid flooding in New
Orleans from a rain storm. During rain events, the city's Sewerage and
Water Board pumps rainwater from the city into three drainage canals at
17th Street, London Avenue, and Orleans Avenue, which then flows
unrestricted into Lake Pontchartrain. According to the Corps, the
maximum amount of water that the Sewerage and Water Board can pump into
these drainage canals is 10,500 cubic feet per second (cfs) at the 17th
Street Canal, 7,980 cfs at the London Avenue Canal, and 2,690 cfs at
the Orleans Avenue Canal. Because permanent structures and repairs
could not be completed on the three drainage canals by June 1, 2006,
the Corps decided to install temporary pumping systems to provide
protection to the area for 3 to 5 years until permanent structures can
be constructed (see fig. 3). The Corps chose to install three gates and
temporary pumping systems near the points where the 17th Street, London
Avenue, and Orleans Avenue drainage canals meet Lake Pontchartrain.
These gates are intended to stop hurricane-induced storm surge from
Lake Pontchartrain from entering the canals and possibly overtopping or
breaching the canal floodwalls, which would flood the city. However,
because the gates prevent the drainage canals from draining water from
the city into the lake when the gates are closed during a hurricane
event, temporary pumping systems are needed to pump water out of the
canals and into the lake.
Figure 3: Graphic of Interim Gates and Temporary Pumps:
This figure is a map showing interim gates and temporary pumps.
[See PDF for image]
Source: U.S. Army Corps of Engineers.
[End of figure]
Due to the hurricane damage sustained by the floodwalls bordering the
canals, the Corps established the following safe water levels for each
of the drainage canals--6 feet for the 17th Street Canal, 5 feet for
the London Avenue Canal, and 8 feet for the Orleans Avenue Canal. The
water level in each of these canals must be maintained at or below the
safe water level in order to ensure that the already weakened canal
floodwalls are not breached. Further, the total capacity of the
temporary pumping systems at the interim gated closure structures that
is necessary to accommodate a 10-year rainfall event[Footnote 4]
without exceeding the safe water levels is 7,700 cfs at the 17th Street
Canal, 5,000 cfs at the London Avenue Canal, and 1,900 cfs at the
Orleans Avenue Canal. The hydraulic pumping systems installed by the
Corps at the Orleans Avenue Canal were sufficient to maintain the safe
water levels during a 10-year rainfall event. However, the hydraulic
pumping systems installed at the 17th Street and London Avenue drainage
canals could provide about 4,000 cfs and 2,700 cfs, respectively. In
order to ensure that each pumping station had the needed capacity to
pump enough water during a 10-year rainfall event, the Corps used a
separate contract to acquire and install an additional 11 direct drive
pumps and 14 portable hydraulic pumps at the 17th Street Canal,
increasing the capacity from about 4,000 cfs to about 9,200 cfs. The
Corps also installed 8 additional direct drive pumps at the London
Avenue Canal, increasing the capacity from about 2,700 cfs to about
5,200 cfs. Table 1 provides the total number of pumps and pumping
capacity at the 17th Street, London Avenue, and Orleans Avenue Outfall
Canals.
Table 1: Total Number of Pumps and Pumping Capacity at the 17th Street,
London Avenue, and Orleans Avenue Outfall Canals, as of November 2007:
[See PDF for image]
Source: GAO analysis of Corps data.
[A] Pump capacity numbers are approximate and are based on rated pump
values.
[B] Cubic feet per second (cfs) is a unit of measure for flow. One cfs
is equivalent to about 449 gallons per minute or 646,000 gallons per
day.
[C] The upper limit on the total pumping capacity at the 17th Street
Canal has been set at 9,200 cfs because of the number of pumps at the
canal.
[End of table]
Although these additional pumps allow the total pumping capacity at the
three canals to maintain the capacity needed to pump water out of the
canals during a 10-year rainfall event, the capacity is still not
sufficient to match the maximum pumping capacity of the Sewerage and
Water Board's pumps. As a result, during a hurricane event, some
flooding might occur in some parts of the city from rainfall, although
it is likely that this flooding would be significantly less than that
which occurred from the overtopping and breaches of the canal walls
during Hurricane Katrina. Appendix II provides the pumping capacity
trends for the 17th Street, London Avenue, and Orleans Avenue drainage
canals from June 1, 2006, through November 30, 2007.
Commitment to Meet Schedule Drove Specifications but Resulted in
Deficiencies in Some Key Contract Terms:
The Corps' efforts to develop the specifications for the pumping
systems were driven by its commitment to have as much pumping capacity
as possible in place at the drainage canals by June 1, 2006--the start
of the first Atlantic hurricane season after Hurricane Katrina. Due to
the compressed schedule and the limited space available for
installation, and based on the limited market research conducted by the
Corps' consultants, the Corps decided to use 60-inch hydraulic pumping
systems rather than alternatives that would have involved longer
delivery schedules or required more space. The Corps' consultants
drafted contract specifications that closely matched those of one
supplier, which, along with the 60-inch pumping system requirement,
resulted in that supplier being in the strongest position to compete
for the contract. Further, the contract itself was not written as
precisely as it should have been. Specifically, the original factory
test requirements were ambiguous, there were limited provisions for on-
site testing, and there were no criteria for acceptance of the pumping
systems by the government.
Space and Schedule Requirements Were Key Considerations in Developing
Specifications:
The decisions made by the Corps during the procurement of pumping
systems at three New Orleans drainage canals were driven largely by
space and schedule considerations. The Corps began the acquisition
process by contracting with two architectural and engineering
consultant firms (consultants) to determine available technical options
that could meet the Corps' schedule, space, and pumping capacity needs;
conduct the associated market research; and survey pump equipment
suppliers. On the basis of their technical analysis, the consultants
concluded that the use of hydraulic-driven pumps was the best
alternative for the Corps because electric-driven direct drive pumps
would need auxiliary equipment that would require more space for
installation and would have a longer delivery time. They also
determined that using hydraulic pumps less than 60 inches in diameter
would require more pumps to be installed and require added space to
provide the same amount of pumping capacity.[Footnote 5]
Specifications Closely Matched Those of One Supplier, but Key Contract
Provisions Were Deficient:
Corps consultants drafted contract specifications that closely matched
those of one supplier. The consultants conducted limited market
research and found that at least two suppliers had specifications for a
60-inch hydraulic pump. One of those suppliers was MWI, a company that
the consultants had spoken with as they were developing the design for
the gates and pump stations along the drainage canals. The consultants
met with MWI and also contacted at least two other pump manufacturers
regarding their pumps. Of these suppliers, the consultants identified
MWI as the only supplier who had actually manufactured a 60-inch
hydraulic pump with a 60-inch impeller, the mechanism that drives water
through the system. Another pump manufacturer had a design for a 60-
inch pump, but it included only a 54-inch impeller. The consultants
believed that MWI could deliver the 34 60-inch pumping systems that the
Corps needed on schedule.
The Corps did not have an existing technical specification for a 60-
inch hydraulic pump. The consultants drafted a specification for the
Request for Proposals (RFP) based on technical specifications and
descriptions of the pumps contained in catalogs published by MWI and
another manufacturer. The consultants told us that they had provided
the Corps with a generic specification because any reference to a
specific supplier had been removed. However, our analysis of the RFP's
equipment specifications indicates that they more closely matched MWI's
than the other manufacturer's catalog descriptions. In fact, the
testing specifications used for the RFP were nearly identical to those
published by MWI, which included an open sump test requirement. After
the other manufacturer complained that the open sump test requirement
was restrictive because only MWI had an open sump, the Corps amended
the RFP to delete this requirement. This open sump test requirement was
incorporated into the contract at the time of award, however, because
it was offered by MWI as part of its proposal.
Other contractual testing and acceptance criteria were ambiguous,
inadequate, or missing altogether. Specifically, the contract did not
clearly state whether factory flow and head testing was required of
each pump, the on-site testing requirement merely stated that there
should be no leaks, and there were no final acceptance criteria in the
contract. Terms and conditions in contracts should be clear and
complete so that the parties fully understand their obligations and
that potential disputes can be avoided. To date, Corps and MWI have
been able to address identified deficiencies in the contract, which
were largely caused by the perceived need to move forward
expeditiously. However, the extent to which these or other contract
issues may lead to disputes between the parties will not be known until
the time of contract closeout, currently scheduled for early 2008.
The Corps Used a Streamlined Solicitation Process and Awarded the
Pumping Systems Contract to the Highest-Rated Competitor:
Given the need to procure and install the temporary pumping systems
before the June 1 start of the 2006 hurricane season, the Corps decided
to use a streamlined process to contract for the pumping systems. Like
most other federal agencies, the Corps has statutory authority to use
other than full and open competition procedures when the agency's needs
are of an unusual and compelling urgency. Using this authority, the
Corps streamlined parts of the acquisition process. The RFP was issued
on January 13, 2006, and required that the contractors' proposals be
submitted by January 18, just 5 days later. Normally the solicitation
would allow for a response period of at least 30 days.
The Corps received three proposals in response to its RFP. Suppliers
submitted pricing information and technical proposals and made oral
presentations to the Corps.[Footnote 6] The Source Selection Evaluation
Board, whose voting members consisted of three Corps officials,
evaluated offers using four technical evaluation factors identified in
the RFP in descending order of importance: (1) technical approach, (2)
project management, (3) past performance, and (4) small business or
small disadvantaged business participation. The solicitation also
provided that, when combined, these technical evaluation factors were
weighted approximately equal to price.
The Source Selection Evaluation Board rated MWI's proposal
significantly higher than the other two proposals. MWI's proposal
included commitments from suppliers and subcontractors to deliver the
pump components needed by MWI to assemble the pumps. The Corps believed
MWI represented the best chance of meeting the Corps' critical deadline
of June 1, 2006. MWI offered a price of $26.6 million, which was within
2.8 percent of the government estimate of $25.6 million. The
contracting officer determined that MWI's price was fair and reasonable
and awarded a firm, fixed-price contract to MWI on January 27, 2006.
The contract also contained an incentive of up to $5 million that MWI
could earn for early delivery. To date, the Corps has increased the
contract price by about $6 million for required pump modifications and
for six additional pumping systems, bringing the total number of
hydraulic pumping systems acquired to 40. Figure 4 shows a diagram of
the hydraulic pumping system.
Figure 4: Hydraulic Pumping System:
This figure is a diagram illustration of the hydraulic pumping system.
[See PDF for image]
Source: U.S. Army Corps of Engineers.
[End of figure]
The Corps and the Contractors Have Addressed Pumping System Testing and
Performance Issues:
The Corps and its contractors have addressed and corrected the pumping
system testing and performance issues identified by both our May 2007
report and the ITR. Factory testing, which occurred from March 2006
through May 2006, revealed several issues with some components of the
pumping systems, and concerns were raised that the pumping systems
would not perform as intended. On May 2, 2006, the Corps modified the
original contract, replacing the original testing requirements with new
procedures because of schedule and performance concerns. Beginning in
June 2006, however, even though all of the problems identified during
factory testing had not been resolved, the systems were installed as
planned because the Corps believed it was better to have some pumping
capacity along the drainage canals during the 2006 hurricane season
rather than none. The Corps also thought that most of the issues
identified during factory testing could be resolved after installation.
The Corps and the contractors took several steps to correct the known
performance issues after installation and, as of September 2007, all of
the pumping systems have been reinstalled and all of the outstanding
repairs have been completed. According to Corps officials, the results
of on-site testing now show that the 40 hydraulic pumping systems are
fully operational and final acceptance of the pumping systems is
scheduled for the beginning of calendar year 2008.
Factory Testing Requirements Were Modified to Focus on Deficiencies
Identified:
On May 2, 2006, the Corps issued modification No. 4, "revised test
procedures," to the contract. According to the contracting officer
responsible for oversight of the pumping system contract, these revised
testing procedures replaced the original factory testing requirements
with new testing requirements. The contract initially required each
pump and hydraulic power transmission system to be factory pressure
tested statically and dynamically.[Footnote 7] In addition, full-size
flow and head testing was to be witnessed by the government prior to
shipment of the pumping systems.[Footnote 8] The pump flow and head
testing was to be conducted in an open sump at the manufacturer's
testing facility in accordance with Hydraulic Institute (HI)
standards[Footnote 9] and in the presence of a registered professional
engineer. According to the contracting officer, modification No. 4
replaced these testing procedures. The modification required, among
other things, testing the hydraulic drive units for a minimum of 3
hours and utilizing previous model tests of the pump design to predict
the pump capacity. Further, the modification required all pumps to be
pressure tested for 90 minutes.
According to New Orleans District Corps officials responsible for
oversight of the contract, the original testing requirements were
interpreted by a Corps inspector and the ITR to include full-size flow
and head testing of each of the pumps. Furthermore, the ITR concluded
that modification No. 4 did not specifically delete the original
testing requirements and, therefore, assumed the testing that had been
conducted did not meet the contract requirements regarding full-size
flow and head testing for each pump in accordance with HI standards.
Based on this assumption, the ITR concluded that the contractor owed
the government a refund because it had not completed the testing
required in the contract. The ITR's reading of the modification may
have overlooked the modification's purpose, however, which was to
adjust the required testing to focus on those elements of the pumps in
need of further refinement, given the limited time available. We
believe the ITR may have reached this conclusion because it did not
discuss the intent of the "revised test procedures" modification to the
original testing requirements with either the contracting officer or
the Corps' technical officials. Officials from the New Orleans District
told us that it was never the intention of the Corps to interpret the
testing requirements as requiring every pump to be full-size flow and
head tested in accordance with HI standards-only static and dynamic
tests were originally required of each pump. Corps technical and
contracting officials said the revised testing procedures contained in
the modification were developed to focus on the mechanical issues that
had been identified and, therefore, replaced the original testing
requirements, which included allowing the use of model test results in
lieu of HI tests.[Footnote 10]
Pumping System Performance Issues Have Been Addressed by the Corps and
the Contractors:
The Corps and the contractors have addressed and corrected the concerns
raised about some components of the pumping systems during factory and
on-site testing. As noted in our May 2007 report and in the ITR, the
primary concerns identified during testing included undersized gear oil
circulation motors, hydraulic motor vibrations, the design of the
hydraulic intake line, suspect pipe welds, and lower than expected
pumping capacity. As a result of the concerns identified during
testing, the Corps had no assurance that the pumping systems would
operate to capacity if needed during the 2006 hurricane season.
Nevertheless, the pumping systems were installed as planned because the
Corps believed it was better to have some pumping capacity along the
drainage canals during the 2006 hurricane season rather than none. On
June 1, 2006, the Corps had installed 11 pumping systems, and by July
2006, it had installed 34, although it is uncertain how much of the
theoretical capacity of these pumping systems would have been
available, and for how long, if needed during the 2006 hurricane
season. The Corps also believed that many of the issues identified
during factory testing could be resolved after installation. After
installation, the Corps and its contractors took several steps to
correct known performance issues with the pumping systems. The main
performance issues, and the ways the Corps and the contractors
addressed each of them, are described in more detail below.
Undersized Motors:
During factory testing, the Corps observed that the gear oil
circulation pump motors were overheating, which resulted in the failure
of some of the motors. MWI determined that the pump motors were too
small. All of the motors were eventually replaced with larger gear oil
circulation motors, resolving the problem.
Hydraulic Motor Vibrations:
During on-site testing in August 2006, the hydraulic motors were
experiencing greater than normal vibrations. According to the ITR, this
condition could have led to the failure of the equipment. Initial
analysis of the problem indicated that there may have been a hydraulic
short in the Rineer hydraulic motor that drives the main pump
impellers. The motor manufacturer made modifications to the motor, and
preliminary testing of the motors in late August 2006 appeared to
confirm that these modifications eliminated the vibrations. However,
upon further testing, vibrations were still present to varying degrees.
Additional on-site testing was performed, and in late November 2006, it
was determined that the vibrations were due to undersized springs in
the Rineer hydraulic motors. The motor manufacturer replaced the
undersized springs with heavier springs. According to Corps officials,
on-site tests witnessed by the government after the installation of the
new springs and measurements conducted by a third-party contractor
document that the pumping systems now operate with no apparent
vibration issues.
Hydraulic Intake Line:
Because of concerns that the hydraulic intake lines could adversely
affect pumping performance, the Corps requested that MWI redesign and
reinstall the hydraulic intake lines on all of the pumping systems.
During factory testing, the Corps observed a high rate of failure of
the Denison hydraulic pumps on the drive units. The Denison motors pump
the hydraulic fluid from a reservoir to the Rineer motor which then
turns the pump impeller. A preliminary assessment revealed that the
majority of the issues identified in the factory were caused by air
entrainment (or dry run condition) in the hydraulic pumps. The dry run
condition was attributed to air getting into the hydraulic system upon
initial start-up of the drive unit. To eliminate the dry run issue, two
interim changes were made to the system until a more permanent fix
could be implemented: (1) a check valve was installed on all of the
hydraulic intake lines, and (2) the pump start-up procedure was
modified so that the system was started at a lower speed and gradually
increased to the normal operating speed.
The ITR concluded that the pumping systems would probably not have
performed as designed because the inclusion of a check valve would
require priming the pump prior to start-up and the original intent of
the design was to allow for unmanned operation of the equipment. Both
Corps and MWI officials stated that the ITR was incorrect in assuming
that the pumps would have to be primed using the check valve at every
start-up. Instead, these officials stated that the pumping systems
would have operated as intended because using this valve to prime the
Denison pumps is only necessary immediately after maintenance is
performed on the system. Additionally, according to a Lake Borgne Levee
District official, this pump design has been successfully used for
about 20 years without having to prime the pumps prior to start-up.
Nevertheless, in order to ensure that air would not be pulled into the
hydraulic pumps, causing failure of the system, the Corps requested
that MWI redesign the hydraulic intake system to provide for a flooded
suction without a siphon. Figure 5 shows a drawing of the original
hydraulic pump design with siphon.
Figure 5: Original Hydraulic Pump Design with Siphon:
This figure is an illustration of the original hydraulic pump design
with Siphon.
[See PDF for image]
Source: Moving Water Industries Corporation.
[End of figure]
Corps officials from the New Orleans District emphasized to us that the
redesign was requested to more adequately meet their needs, not because
of concerns about the pumping systems operating as intended. MWI
subsequently agreed to modify the design of the hydraulic intake line
at the request of the Corps. According to Corps officials, by the end
of July 2007 and at its own expense, MWI had redesigned and reinstalled
the new flooded suction design on all 40 pumping systems (see fig. 6).
Figure 6: Reinstalled Hydraulic Pump without Siphon:
This figure is a photograph labeling parts of a reinstalled hydraulic
pump without siphon.
[See PDF for image]
Source: GAO.
[End of figure]
Welding:
Because of questionable welds identified on the pump housing,[Footnote
11] the Corps decided to replace certain welds to ensure they would not
fail during pump operations. Upon inspection of the pump housing, the
Corps determined that some of the welds on the pump housing may not be
sufficient. While MWI provided the Corps with a "fit for service
letter" for all of the welds on the pump housing and an extended
warranty, the Corps decided that it was prudent to replace the welds on
the pump housing below the base plate (the segment of the pump that is
below the water level) in order to ensure that the welds would not fail
during pumping operations. All of the necessary welds have been
corrected, and the Corps plans to negotiate this additional cost during
contract closeout.
Additionally, issues were raised about the adequacy of the welds on the
hydraulic piping, which carries high pressure hydraulic fluid from the
Denison pump to the Rineer motor. The hydraulic piping was subsequently
visually inspected and pressure tested to 1.5 times its operating
pressure as part of the quality control process. The testing results
indicated that the piping was adequate for transmitting power from the
diesel engine to the water pump.
Pumping Capacity:
Initial pumping capacity testing indicated that the pumping systems may
not have been performing at the design capacity level. In April 2006,
MWI conducted full-size factory flow and head tests on the hydraulic
pumps. A representative from the Corps' Engineering Research and
Development Center (ERDC) reviewed these test results and concluded
that the test results showed that the pumps would operate at about 96
percent of the specified capacity. However, according to the ITR, these
tests were not conducted in accordance with HI standards and,
therefore, were invalid.
In August 2006, on-site flow and head testing was conducted at the
canals. In order to test the pumping systems, the interim gates were
closed and water was pumped into the canal by the city's Sewerage and
Water Board to raise the water level in the canal to the elevation
necessary for the pumping systems to be tested. However, because
adequate water levels in the canal could not be achieved to replicate
design conditions, the pumps could not reach a fully primed condition.
The Corps decided to invert the discharge pipes in order to enable the
pumps to reach a primed condition with less than design water
conditions in the lake. This facilitated testing of the pumping systems
and allowed measurements to be recorded and analyzed.
In September 2006, a representative from ERDC was consulted and
performed on-site flow and head tests of pumping systems at the London
Avenue canal. A month later the Corps and ERDC performed the same tests
at the 17th Street canal. Data collected from these on-site tests
revealed that the pumping systems were working near the appropriate
capacity. Based upon the on-site testing results and upon suggestion
from the ERDC representative, all of the discharge pipes at all of the
canals were inverted and cut at a 30 degree angle, which allows the
pumps to prime at lower canal water elevations and enhances the flow
rates (see fig. 7).
Figure 7: Discharge Pipes at the London Avenue Canal:
This figure is a labeled photograph of discharge pipes at the London
Avenue Canal.
[See PDF for image]
Source: GAO.
[End of figure]
In November 2006, another full-size factory flow and head test was
conducted by MWI and ERDC. However, due to constraints at the testing
facility, the full-size factory test, which was done in consultation
with the ERDC representative, was completed with deviations from the HI
standards. This test revealed that the pumping capacity ranged from
93.6 to 97.6 percent of the design specification and performed without
problems during the 2 days of testing. According to Corps officials,
MWI further agreed to construct a model test to confirm the pumping
systems would perform within HI standards. In September 2007, a Corps
ERDC official witnessed a model test conducted by MWI and prepared a
report, which concluded that the pumping systems would operate at 98.6
percent of the design capacity. According to Corps officials, these
results are within acceptable limits and any issues remaining with the
final pumping capacity will be negotiated at contract closeout.
Pumping System Acceptance Is Near Completion:
According to Corps officials, the Corps plans to make final acceptance
of the pumping systems during the beginning of calendar year 2008. The
original pumping system contract lacked clearly defined on-site testing
procedures, requiring only that the pumps and hydraulic equipment be
tested for leaks. In light of the various issues surrounding the
pumping systems, the Corps and MWI agreed that it was necessary to show
that all of the pumping systems could operate at a steady state after
installation. According to Corps and MWI officials, a major challenge
with on-site testing of the pumping systems is simulating the amount of
water that would be present in the canals and the lake during a storm
event. Under normal conditions, when there are low water levels in the
canals, it is not possible to test each pump system for an extended
period of time, and any tests conducted cannot approach the design
capacity of the pumping systems. Due to this limitation, the Corps
subsequently developed specific pumping system acceptance testing
procedures that, among other things, include running each pumping
system continuously for 2 hours. Corps officials told us that because
most of the issues associated with the pumping systems occurred within
the first 45 minutes of operation, the 2-hour testing period for each
pumping system was sufficient.
In its June 2007 report, the ITR team concluded that at the time of
their review in September 2006, the pumping systems would not perform
as intended because of issues encountered in factory testing in early
2006. Since September 2006, there have been a number of analyses,
changes, and additional testing of the pumping systems to address these
earlier concerns. For example, between November 2006 and September
2007, the Corps had completed all of the repairs that were outstanding
at the end of the 2006 hurricane season and which were noted in the
ITR, and reinstalled all 40 pumping systems. In addition, as of
September 2007, each pumping system had been successfully tested on
site for at least 2 hours, providing greater assurance that they will
perform as designed during future hurricane seasons. On September 27,
2007, GAO officials witnessed the pumping systems performing at both
the 17th Street and London Avenue Canals (see fig. 8). According to
Corps officials, because all of the outstanding repairs have been
completed and on-site testing indicates that the system is now fully
operational, final acceptance of the pumping systems and the contract
closeout is expected to be completed early in calendar year 2008.
Figure 8: Hydraulic Pumping Systems Performing at the 17th Street
Canal, September 27, 2007:
This figure is a labeled photograph of a hydraulic pumping systems
performing at the 17th Street Canal, on September 27, 2007.
[See PDF for image]
Source: GAO.
[End of figure]
Contract Files Remained Incomplete for Months, but Currently Contain
Required Documentation for the Type and Value of Procurement:
Contract files for the pumping systems, although incomplete at the time
of the ITR review, now contain the required documentation for the type
of contract and the value of the associated modifications. In a number
of cases, however, Corps officials inserted required documentation in
the contract files several months after modifications were issued and
only after the ITR reported its findings. While the ITR correctly noted
the absence of some forms of required documentation, we found that much
of the documentation specifically cited--including requests for
proposals, independent government estimates, certified cost or pricing
data, technical analyses, and price negotiation memorandums--was not
required for the modifications in question. In addition, while the ITR
found that it appeared as though the contractor developed the scope of
work and pricing for some of the modifications without a subsequent
analysis by the Corps, we found no instance of this occurring. Rather,
our review found that, for most of the contract modifications there was
extensive back and forth discussion, usually by e-mail, between
officials from the Corps and MWI.
Significant Documentation Added to the Contract Files Only after the
ITR Review:
The ITR team reviewed 18 of the first 30 contract modification files
and reported that many lacked significant documentation. Specifically,
the ITR identified 13 modification files with deficiencies--most
pertaining to documentation of the Corps' determination of fair and
reasonable pricing. Our review confirmed that significant documentation
was added to the files only after the ITR team issued its report. We
reviewed the files for the 32 post-award modifications, focusing in
depth on the files related to the 13 modifications found by the ITR
team to contain deficiencies, as well as 2 additional modifications
that were issued after our May 2007 report and the ITR review. Of the
modifications we reviewed in depth, 10 contained internal memorandums,
prepared by the contracting officer after the fact, to document price
reasonableness or the events supporting the modification. Another 2
modifications contained undated memorandums of price reasonableness
signed by the contracting officer. Finally, of the eight purchase
request and commitment forms on file, five were prepared on the same
date to retroactively document the availability of funds for
modifications that were issued 9 to 17 months earlier. Documentation in
some of the files, however, suggests that the availability of funds was
determined through other means at the time the modifications were
signed.
In response to the ITR, the Corps' contracting officer acknowledged
that the contract files could have been better managed but stated the
Corps felt it was more important to get the pumps installed in a timely
manner. In order to do this, the Corps issued the modifications with
the intention of settling all outstanding issues with the contractor
before closing out the contract. The Corps agreed with the ITR,
however, that certain documentation was missing and took corrective
actions to complete the files. The contracting officer, whom the ITR
team did not meet with for their review, noted that because many of the
people working on the pumping systems procurement were rotating through
the District Office, they may not have completed or submitted all of
the necessary paperwork before leaving. Even though it is currently
complete, preparing documentation months after an event occurs
increases the likelihood that the documentation may contain
inaccuracies or ambiguities, which make it difficult to resolve any
disputes that may arise.
Many Specific Documents Cited by the ITR as Missing Were Not Required:
As of October 2007, the contract modification files appeared up to date
and consistent with Federal Acquisition Regulation (FAR) requirements.
While the ITR correctly noted the absence of some forms of required
documentation, much of the documentation specifically cited by the ITR-
-including requests for proposals, independent government estimates,
certified cost or pricing data, technical analyses, and price
negotiation memorandums--was not required for the modifications in
question.[Footnote 12] In some respects, it appears the ITR treated the
pumping systems contract as if it were for construction rather than
supplies. Different documentation requirements apply to these types of
contracts.
Ten of the modifications we reviewed in-depth increased contract costs
and, therefore, required documentation of fair and reasonable
pricing.[Footnote 13] While independent government estimates are one
technique that can be used to analyze price and are required for
construction contracts, they are not specifically required for supply
contracts, such as the contract for the pumping systems. Nonetheless,
the Corps obtained--and included in the files after the ITR review--
independent government estimates for six of the modifications.
None of the 10 modifications with additional costs that we reviewed in-
depth required the contractor to provide certified cost or pricing
data. Specifically, we found that 7 of the modifications fell under the
threshold requiring cost or pricing data.[Footnote 14] The contracting
officer determined that cost or pricing data was not required for
another modification because it combined separately priced changes from
2 previous modifications that were each below the threshold. Finally,
for 2 modifications related to the purchase of six additional pumps,
the contracting officer concluded that adequate price competition
existed from the base contract and, therefore, additional pricing data
was not required. At least some information on pricing provided by the
contractor was included in the files for all 10 of the modifications
that involved additional costs.
According to the FAR, when contractor certified cost and pricing data
are not required, price analysis shall be used to determine a fair and
reasonable price. While the FAR provides numerous analysis techniques,
including the use of independent government estimates, it does not
require the use of any one method. For 8 of the modifications we
reviewed, the Corps' contracting officer documented price analysis and
negotiations with the contractor through signed internal memorandums
for the files, and for 2 modifications, used price negotiation
memorandums.[Footnote 15] In addition, while not required, the Corps
obtained internal technical analyses for 3 of the modifications we
reviewed in depth to determine the reasonableness of MWI's proposals.
Table 2 summarizes GAO's analysis of the ITR's findings regarding
missing documentation in the contract files.
Table 2: GAO Analysis of the ITR Findings:
Documentation cited as missing by ITR: Request for proposal;
GAO analysis and applicable FAR references: Not always required for
contract modifications. Under the FAR, the Standard Form (SF) 30,
Amendment of Solicitation/Modification of Contract may be used at the
discretion of the contracting officer. FAR section 15.210(b).
Documentation cited as missing by ITR: Independent government estimate;
GAO analysis and applicable FAR references: A comparison of contractor-
proposed prices with an independent government estimate is one of many
examples of price analysis techniques, but is not specifically required
for contract modifications. FAR section 15.404-1(b).
Documentation cited as missing by ITR: Contractor certified cost or
pricing data;
GAO analysis and applicable FAR references: Certified cost or pricing
data is required for modifications of any negotiated contract expected
to exceed the current threshold of $650,000 except when adequate price
competition exists or when commercial items are being acquired. In
addition, this requirement does not apply when unrelated and separately
priced changes below the threshold are included for administrative
convenience in the same modification. FAR sections 15.403-1, 15.403-4.
Documentation cited as missing by ITR: Price, cost, or technical
analysis;
GAO analysis and applicable FAR references: Price analysis shall be
used when contractor cost or pricing data are not required. Various
price and cost analysis techniques are listed in the FAR, including the
use of independent government estimates. However, none of the listed
techniques are specifically required. In addition, the contracting
officer may, but is not specifically required to, request that
personnel with specialized knowledge, skills, experience, or
capabilities perform technical analyses of contractor proposals to
determine reasonableness. FAR section 15.404-1.
Documentation cited as missing by ITR: Price negotiation memorandum;
GAO analysis and applicable FAR references: While price negotiation
memorandums can be used to document price analysis findings, such as
fair and reasonable pricing, they are not specifically required for
documenting the agreement negotiated between the contractor and agency.
These memorandums document the principal elements of the negotiated
agreement. FAR section 15.406-3.
Source: GAO.
[End of table]
File Documentation Establishes Independence of Corps Decision Making:
In addition to contract documentation issues, the ITR also reported
that it appeared, in some circumstances, as though the contractor
developed the scope of work and pricing for the modifications without a
subsequent analysis by the Corps. We found no instance of this
occurring. Rather, our review of the files indicate that, for most of
the contract modifications, there was extensive back and forth
discussion, usually by e-mail, between personnel from the Corps and
MWI. These discussions focused on the causes of and solutions to
technical issues, as well as the costs of corrective actions.
While each of the modifications was unique, modification No. 2 is
illustrative of many of the contract modifications we reviewed.
Specifically, shortly after award of the contract, the Corps determined
that it needed the capability to control the pumps from a remote
location, since in the event of a hurricane the operator would be
required to seek shelter in a control booth. The Chief of Engineering
from the Corps prepared a request to modify the contract to require
master pump control panels. The request contained detailed
specifications of what was required and estimated that the additional
cost would be $150,000. The contracting officer sent the request to MWI
and asked for a cost proposal. MWI replied through an e-mail that
repeated the specifications provided to it by the Corps and offered a
price of $188,699. The Corps requested additional support for the
price, and MWI responded with a copy of the quote it had received from
its supplier, pricing for MWI's markup, and the additional work MWI
would perform. A Corps engineer reviewed this information and informed
the contracting office that MWI's proposed price was reasonable. The
Corps issued a contract modification with the specifications it
developed at the price quoted by MWI. As was the case for a number of
modifications, there was no contemporaneous price reasonableness
document signed by the contracting officer; rather, an undated "after
the fact" memorandum concluding that MWI's price for the modification
was reasonable was added to the file.
The Corps Has Not Overpaid the Contract and Has Plans to Reconcile
Payments Made in Error:
As of October 31, 2007, the Corps had paid the contractor about $30.5
million of the $33 million contract for the 40 hydraulic pumping
systems and has plans for reconciling mistaken payments it made. The
Corps made payments to the contractor only after receiving invoices
from the contractor for delivered items and services. In most cases,
the Corps only paid 80 percent of each invoice and held the other 20
percent as retained funds in order to ensure the contractor was not
overpaid and that any performance issues were addressed.
The ITR identified a few instances where the contractor had received
payment more than once for the same item. Our review confirmed that
this did occur. We found, however, that these payments were made in
error by the Corps and did not indicate any improper behavior on the
contractor's part. Specifically, on December 6, 2006, the Corps
received one invoice requesting payment for three drive units and three
pumps valued at about $2.2 million because they were complete, and MWI
believed that they could be delivered if the Corps wanted them at that
time. On the same day, the Corps notified MWI that it could not pay for
the pumps and drive units until they were actually delivered. MWI then
e-mailed the Corps, requesting that they ignore the original invoice
and stating that they would send new invoices for the drive units and
pumps upon shipment. The Corps subsequently received three separate
invoices, each requesting payment for one drive unit and one pump.
However, the Corps paid all of the invoices, including the invoice that
the contractor told them to ignore. As a result, the Corps paid twice
for the same three pumps and three drive units. According to the Corps'
contracting officer, the duplicate payments will be corrected by
deducting the balance from withheld funds and not paying some
outstanding invoices. Our review found no other instances where
duplicate payments were made to the contractor. We also found 14
instances where the contractor sent invoices to the Corps for work
completed, which have not been paid. The net effect is that the
contractor has not been overpaid under the contract.
On June 8, 2007, the Corps sent a letter to MWI providing an
explanation as to why the Corps had not paid these outstanding
invoices, and describing how the Corps planned to reconcile the
duplicate payments made in January and February 2007 by subtracting the
amount of the outstanding invoices from any additional invoices it
received. From July through October 2007, the Corps made four
additional payments to the contractor from the payments it had
withheld, totaling about $1.8 million. The Corps has still not made
final payment for the outstanding amount remaining on the contract. In
addition, the Corps has withheld payments related to an early delivery
incentive of approximately $5 million until the final acceptance of the
pumping systems.[Footnote 16] According to Corps officials, the final
payment and reconciliation of the contract, including any incentive
payments or penalties, will be settled with the contractor after final
acceptance of the pumping systems. The Corps expects this to take place
in the early part of calendar year 2008.
Conclusion:
The Corps' actions in awarding and administering the pumping system
contract were generally in accordance with federal requirements.
However, in its haste to award the contract and acquire and install the
pumps, the Corps did not develop a contract that was clear and precise
with respect to testing and acceptance criteria and did not always
promptly prepare required contract related documents. In some cases,
this has led to uncertainties about exactly what was required of the
contractor to comply with the contract's terms and conditions. This
also creates the potential for contract disputes, which can be
difficult, expensive, and time-consuming to resolve. In addition, in
those cases where required documents were prepared "after the fact,"
there is an increased likelihood that documents prepared months after
events have occurred may contain inaccuracies as memories have faded
and key personnel may have moved on to other positions.
Recommendations for Executive Action:
While we recognize that this procurement was conducted under exigent
circumstances, we believe that the procedures used by the Corps could
be improved for future procurements. For this reason we recommend that
the Secretary of Defense direct the Commanding General and Chief of
Engineers of the U.S. Army Corps of Engineers to:
* take steps, through additional guidance or otherwise, to reinforce
the importance of adherence to sound acquisition practices, even during
expedited procurements, including ensuring that important contract
provisions, such as any required testing, are clear so that the
contractor and the government understand what conditions or criteria
must be met for successful completion of the contract; and:
* develop procedures to ensure that any required contract-related
documentation, including that related to contract pricing, is completed
and filed within a reasonable period of time.
Agency Comments and Our Evaluation:
The Department of Defense provided written comments on a draft of this
report, which are reprinted in appendix III. The Department of Defense
concurred with our recommendations and provided information on what
actions it would take to address them. Concerning our recommendation to
adhere to sound acquisition practices, the Department of Defense said
the Secretary of Defense will direct the Corps to send guidance to all
Corps offices emphasizing the need for clearer technical specifications
so that the contractor and government understand what conditions or
criteria must be met for successful contract completion. To address our
recommendation to ensure more timely completion of required contract
file documentation, the Department of Defense said the Secretary of
Defense will direct the Corps to review and revise as necessary current
policies and regulations. The Department of Defense also provided us
with technical comments, which we have incorporated throughout the
report, as appropriate.
As agreed with your office, unless you publicly announce the contents
of this report earlier, we plan no further distribution until 30 days
from the report date. At that time, we will send copies to interested
congressional committees; the Secretary of Defense; and the Commanding
General and Chief of Engineers of the U.S. Army Corps of Engineers. We
will also make copies available to others on request. In addition, the
report will be available at no charge on the GAO Web site at
[hyperlink, http://www.gao.gov].
If you or any of your staff have any questions about this report,
please contact one of us at (202) 512-3841 or mittala@gao.gov, (202)
512-4841 or woodsw@gao.gov, or (202) 512-6923 or dornt@gao.gov. Contact
points for our Offices of Congressional Relations and Public Affairs
may be found on the last page of this report. Key contributors to this
report are listed in appendix IV.
Sincerely yours,
Signed by:
Anu K. Mittal:
Director, Natural Resources and Environment:
Signed by:
William T. Woods:
Director, Acquisition and Sourcing Management:
Signed by:
Terrell G. Dorn:
Director, Physical Infrastructure:
[End of section]
Appendix I: Scope and Methodology:
To evaluate efforts by the U.S. Army Corps of Engineers (Corps) to
solicit, award, and administer the pumping system contract, we reviewed
the Corps' plans for the interim gates and temporary pumping systems
consisting of the 40 hydraulic pumps installed at the three New Orleans
drainage canals. We also reviewed applicable Federal Acquisition
Regulation criteria, especially pertaining to contract pricing; the
contract and specifications; e-mails, correspondence, and other
supporting documentation related to the solicitation and award of the
contract; factory and on-site test results; performance requirements;
the 32 contract modifications and supporting documentation; the
Mississippi Valley Division (MVD) Independent Team Report (ITR); the
Corps project delivery team's response to the ITR; contractor invoices
and payment records; and the Corps' plans for increasing pumping
capacity through 2007.
We also visited the 17th Street, London Avenue, and Orleans Avenue
Canals and observed the operation of the pumping systems. We
interviewed contracting and program officials from (1) Corps
Headquarters, New Orleans District, other Corps districts, and members
of the MVD's technical review team related to the contract and pump
performance; (2) Moving Water Industries Corporation and two other pump
suppliers that bid on the solicitation; and (3) the architectural and
engineering consulting firms under contract with the Corps that
researched available pumping system alternatives, including qualified
pump manufactures, pump delivery timelines, and costs, and that helped
design the canal gates and pumping stations. We conducted our work from
September through December 2007 in accordance with generally accepted
government auditing standards.
[End of section]
Appendix II: Pumping Capacity for the Three Drainage Canals:
Figure 9: Pumping Capacity Trend for the 17th Street Canal, June 1,
2006 through November 30, 2007:
This figure is a graph showing pumping capacity trend for the 17th
Street Canal, between June 1, 2006, and November 30, 2007. The X axis
represents pump capacity timeline, while the Y axis represents cubic
feet per second.
[See PDF for image]
Source: GAO analysis of U.S. Army Corps of Engineers' data.
[End of figure]
Figure 10: Pumping Capacity Trend for the London Avenue Canal, June 1,
2006 through November 30, 2007:
This figure is a graph showing pumping capacity trend for London Avenue
Canal, between June 1, 2006, and November 30, 2007. The X axis
represents pump capacity timeline, while the Y axis represents cubic
feet per second.
[See PDF for image]
Source: GAO analysis of U.S. Army Corps of Engineers' data.
[End of figure]
Figure 11: Pumping Capacity Trend for the Orleans Avenue Canal, June 1,
2006 through November 30, 2007:
This figure is a graph showing pumping capacity trend for the Orleans
Avenue Canal, between June 1, 2006, and November 30, 2007. The X axis
represents pump capacity timeline, while the Y axis represents cubic
feet per second.
[See PDF for image]
Source: GAO analysis of U.S. Army Corps of Engineers' data.
[End of figure]
[End of section]
Appendix III: Comments from the Department of Defense:
Department Of The Army:
U.S. Army Corps Of Engineers:
441 G ST. NW:
Washington, D.C. 20314-1000:
December 18, 2007:
Internal Review Office:
Ms. Anu K. Mittal:
Director, Natural Resources And Environment:
Government Accountability Office 441 G Street, N.W.:
Washington, D.C. 20548:
Dear Ms. Mittal:
This is the Department of Defense (DOD) response to the GAO draft
report 08-288, 'Army Corps Of Engineers: Known Performance Issues with
New Orleans Drainage Canal Pumps Have Been Addressed, but Guidance on
Future Contracts Is Needed,' dated December 4, 2007, (GAO Code 360879).
We appreciate the opportunity for reviewing the draft report. Command
comments to the report recommendations are contained in the attachment.
If you have any questions or require additional information, please
contact Ms. Alicia Matias, 202-761-4573,
alicia.s.matias@usace.army.mil.
Signed by:
Donna F. Johnson:
Acting Chief Audit Executive:
HQ Internal Review Office:
Enclosure:
As stated:
GAO Draft Report 08-288, 'Army Corps Of Engineers: Known Performance
Issues With New Orleans Drainage Canal Pumps Have Been Addressed, But
Guidance On Future Contracts Is Needed,' Dated December 4, 2007, (Gao
Code 360879):
Department Of Defense Response To The Recommendations:
Recommendation: We recommend that the Secretary of Defense require the
Chief of Engineers to:
Take steps, through additional guidance or otherwise, to reinforce the
importance of adherence to sound acquisition practices even during
expedited procurements, including ensuring that important contract
provisions, such as any required testing, are clear and that the
contractor and the government understand what conditions or criteria
must be met for successful completion of the contract.
DOD Response: Concur: The Secretary of Defense will direct the U.S.
Army Corps of Engineers to send a memo to all Corps offices reinforcing
the importance of adherence to sound engineering practices even during
expedited procurements. The memo will relate lessons learned and
emphasize the need for technical specifications, such as those required
for equipment testing, to be clear so that the contractor and the
government understand what conditions or criteria must be met for
successful completion of the contract. The anticipated date to transmit
the memo is 11 January. 2008. Develop procedures to ensure that any
contract related documentation, including that related to contract
pricing, is completed and filed within a reasonable period of time.
DOD Response: Concur: The Secretary of Defense will direct the U.S.
Army Corps of Engineers to review and revise, as necessary, current
policies and regulations to ensure that a reasonable period of time is
identified for completing and filing contract documents. Estimated
completion date is 30 May, 2008.
[End of section]
Appendix IV: GAO Contacts and Staff Acknowledgments:
GAO Contacts:
Anu K. Mittal, (202) 512-3841 or mittala@gao.gov William T. Woods,
(202) 512-4841 or woodsw@gao.gov Terrell G. Dorn, (202) 512-6923 or
dornt@gao.gov:
Staff Acknowledgments:
In addition to the contacts named above, Ed Zadjura, Assistant
Director; Matthew Reinhart; Katherine Trimble; Christine Frye; James
Dishmon; Rich Johnson; Marie P. Ahearn; and Kenneth E. Patton made
significant contributions to this report.
[End of section]
Footnotes:
[1] Unlike a more typical direct drive water pumping system where the
motor or engine is directly coupled by a shaft to the pump it is
turning, a hydraulic pumping system is one where pressurized hydraulic
oil is used to transmit power from an engine to a pump impeller. This
allows for greater flexibility in the placement and possible isolation
of the engine from the pumping system because they are connected by
hydraulic lines.
[2] During the 2007 hurricane season, the Corps also installed 14
portable hydraulic pumps along the 17th Street Canal and 19 additional
direct drive pumps from another pump manufacturer along the 17th Street
and London Avenue Canals.
[3] GAO, U.S. Army Corps of Engineers' Procurement of Pumping Systems
for the New Orleans Drainage Canals, GAO-07-908R (Washington, D.C.: May
23, 2007).
[4] A 10-year rainfall event is a storm that has a probability of
occurring once in 10 years, also described as having a 10 percent
chance of happening in any year.
[5] The 60 inches refers to the diameter of the pumps' impeller, which
moves the water. Simplistically, pumping capacity is proportional to
the square of the pump diameter. For example, using 42-inch hydraulic
pumps would require nearly twice the number of pumping systems to
achieve the same capacity as 60-inch hydraulic pumps.
[6] Corps officials informed us that videotapes were made of the oral
presentations, but due to technical difficulties the sound did not
record.
[7] According to Corps officials, static testing involves checking for
external leaks around the seals of the pump units. Dynamic testing
involves setting the pumps in water and spinning the impeller, while
using a dynamometer to determine the load of the impeller.
[8] According to Corps officials, flow and head testing are conducted
to determine the predicted capacity of water a pump can discharge over
time. Flow measures how much water can be pumped. Head measures how
high the water can be pumped.
[9] HI is the largest association of pump industry manufacturers in
North America. The institute provides industry standards for the
effective application, testing, installation, operation, and
maintenance of pumps and pumping systems.
[10] The Corps later became concerned that it might not be able to
determine whether the pumping system met specifications because none of
the pumping systems had been operated at design conditions. The Corps,
therefore, issued modification No. 17, which required the contractor to
revert to full performance and mechanical testing as required under the
original contract for one pumping system. The rest of the pumping
systems would be tested only for mechanical integrity.
[11] The pump housing consists of 60-inch piping, which carries the
water pumped out of the canal and discharges it into Lake Ponchartrain.
[12] The documentation cited by the ITR would not have impacted the
weaknesses we identified earlier in this report.
[13] Fourteen of the 32 modifications resulted in increased contracting
costs.
[14] The threshold for certified cost and pricing data was increased
from $550,000 to $650,000 on September 28, 2006.
[15] While price negotiation memorandums can be used to document price
analysis findings, such as fair and reasonable pricing, they are not
specifically required for documenting the agreement negotiated between
the contractor and agency.
[16] The incentive clause also has a penalty for late delivery of
$1,700 per pump, per day. The Corps will determine whether or not a
penalty will be assessed as part of the close-out process.
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