Army Corps of Engineers
Recent Changes Have Reduced the Use of Continuing Contracts, but Management Processes Need to Be Improved Gao ID: GAO-09-552 June 22, 2009The U.S. Army Corps of Engineers (Corps) has had the authority to award multiyear contracts--continuing contracts--without having received appropriations to cover the full contract amount. In 2006, Congress limited the Corps' use of such contracts by prohibiting obligations made in advance of appropriations. In response, the Corps developed a new clause that stopped work once funding for a fiscal year was expended. GAO was mandated to examine (1) the accuracy of the Corps' fiscal years 2007 and 2008 quarterly reports to Congress about continuing contracts that included the new clause, (2) the extent to which the Corps' use of continuing contacts with the new clause may have affected its execution of the Civil Works program during this time, and (3) the extent to which the Corps followed legal procedures in implementing the new clause. To conduct this work, GAO reviewed Corps documents, such as its quarterly reports and bid protests, federal procurement laws, and interviewed officials.
The Corps' quarterly reports to Congress for fiscal years 2007 and 2008 about continuing contracts with the new clause were inaccurate. According to the reports, the Corps awarded 21 new continuing contracts during fiscal years 2007 to 2008: 9 for construction and 12 for operations and maintenance, ranging in value from $2.1 million to $341.5 million, for a total value of about $811 million. However, GAO found that some continuing contracts were double-counted, while others were missing from the reports. GAO also found other types of errors, such as a fully funded contract that was incorrectly included in the quarterly report as a continuing contract. These errors raise questions about the accuracy of the reports. GAO identified similar inaccuracies in the Corps' quarterly reports during its 2006 review and at that time recommended that the Corps develop a tracking system to monitor its use of these contracts. While the Corps believes its system of asking divisions to provide information on a quarterly basis is sufficient for tracking continuing contracts, GAO disagrees. Without a tracking system supported by sufficient internal controls to ensure accuracy, errors can persist in the information provided to Congress. The Corps' use of the new clause has generally not affected the agency's ability to execute its Civil Works program. The Corps decreased its use of continuing contracts beginning around the time that the new clause was initiated. However, while acknowledging that the transition to the new clause created some initial difficulties that have since been overcome, Corp officials did not provide any examples of work being stopped on a project because funds were not available. The Corps did not comply with a legal requirement in implementing the new clause, resulting in some districts' reluctance to use it. Section 22 of the Office of Federal Procurement Policy Act (OFPP Act) generally provides that no procurement regulation that has a significant effect beyond the internal operating procedures of the agency or a significant cost on contractors or offerors may take effect until 60 days after the procurement regulation is published for comment in the Federal Register. This requirement may be waived in urgent and compelling circumstances; however, the regulation must still be published in the Federal Register stating that it is temporary and providing for a public comment period of 30 days. Although the Corps has requested approval since 2006 from the Department of the Army and the Department of Defense, as it is required to, the clause has never been published and the Corps has continued to use it. GAO believes that the Corps' argument that its pursuit of publication satisfies the statute is unpersuasive. Moreover, GAO spoke with Corps officials from districts and divisions who expressed concern about using the clause prior to its publication. Specifically, they are concerned that using the clause could subject the Corps to legal challenges, such as bid protests, and that such potential challenges could delay projects and increase their costs.
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Director: Team: Phone:GAO-09-552, Army Corps of Engineers: Recent Changes Have Reduced the Use of Continuing Contracts, but Management Processes Need to Be Improved
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Report to Congressional Committees:
United States Government Accountability Office:
GAO:
June 2009:
Army Corps Of Engineers:
Recent Changes Have Reduced the Use of Continuing Contracts, but
Management Processes Need to Be Improved:
GAO-09-552:
GAO Highlights:
Highlights of GAO-09-552, a report to congressional committees.
Why GAO Did This Study:
The U.S. Army Corps of Engineers (Corps) has had the authority to award
multiyear contracts”continuing contracts”without having received
appropriations to cover the full contract amount. In 2006, Congress
limited the Corps‘ use of such contracts by prohibiting obligations
made in advance of appropriations. In response, the Corps developed a
new clause that stopped work once funding for a fiscal year was
expended. GAO was mandated to examine (1) the accuracy of the Corps‘
fiscal years 2007 and 2008 quarterly reports to Congress about
continuing contracts that included the new clause, (2) the extent to
which the Corps‘ use of continuing contacts with the new clause may
have affected its execution of the Civil Works program during this
time, and (3) the extent to which the Corps followed legal procedures
in implementing the new clause. To conduct this work, GAO reviewed
Corps documents, such as its quarterly reports and bid protests,
federal procurement laws, and interviewed officials.
What GAO Found:
The Corps‘ quarterly reports to Congress for fiscal years 2007 and 2008
about continuing contracts with the new clause were inaccurate.
According to the reports, the Corps awarded 21 new continuing contracts
during fiscal years 2007 to 2008: 9 for construction and 12 for
operations and maintenance, ranging in value from $2.1 million to
$341.5 million, for a total value of about $811 million. However, GAO
found that some continuing contracts were double-counted, while others
were missing from the reports. GAO also found other types of errors,
such as a fully funded contract that was incorrectly included in the
quarterly report as a continuing contract. These errors raise questions
about the accuracy of the reports. GAO identified similar inaccuracies
in the Corps‘ quarterly reports during its 2006 review and at that time
recommended that the Corps develop a tracking system to monitor its use
of these contracts. While the Corps believes its system of asking
divisions to provide information on a quarterly basis is sufficient for
tracking continuing contracts, GAO disagrees. Without a tracking system
supported by sufficient internal controls to ensure accuracy, errors
can persist in the information provided to Congress.
The Corps‘ use of the new clause has generally not affected the agency‘
s ability to execute its Civil Works program. The Corps decreased its
use of continuing contracts beginning around the time that the new
clause was initiated. However, while acknowledging that the transition
to the new clause created some initial difficulties that have since
been overcome, Corp officials did not provide any examples of work
being stopped on a project because funds were not available.
The Corps did not comply with a legal requirement in implementing the
new clause, resulting in some districts‘ reluctance to use it. Section
22 of the Office of Federal Procurement Policy Act (OFPP Act) generally
provides that no procurement regulation that has a significant effect
beyond the internal operating procedures of the agency or a significant
cost on contractors or offerors may take effect until 60 days after the
procurement regulation is published for comment in the Federal
Register. This requirement may be waived in urgent and compelling
circumstances; however, the regulation must still be published in the
Federal Register stating that it is temporary and providing for a
public comment period of 30 days. Although the Corps has requested
approval since 2006 from the Department of the Army and the Department
of Defense, as it is required to, the clause has never been published
and the Corps has continued to use it. GAO believes that the Corps‘
argument that its pursuit of publication satisfies the statute is
unpersuasive. Moreover, GAO spoke with Corps officials from districts
and divisions who expressed concern about using the clause prior to its
publication. Specifically, they are concerned that using the clause
could subject the Corps to legal challenges, such as bid protests, and
that such potential challenges could delay projects and increase their
costs.
What GAO Recommends:
GAO recommends that the Corps (1) establish adequate internal controls
to track continuing contracts and (2) suspend its use of the new clause
until it has been published in the Federal Register. The agency
disagreed with the latter recommendation because it anticipates
publication within 60 days. GAO continues to believe the recommendation
is appropriate because use of the clause would be in violation of the
OFPP Act.
View [hyperlink, http://www.gao.gov/products/GAO-09-552] or key
components. For more information, contact Anu K. Mittal at (202) 512-
3841 or mittala@gao.gov.
[End of section]
Contents:
Letter:
Background:
The Corps' Quarterly Reports to Congress Contained Inaccurate
Information on the Use of Continuing Contracts with the New Clause:
Overall, the Use of the New Continuing Contracts Clause Has Not
Affected Execution of the Civil Works Program:
The Corps Did Not Comply with a Legal Requirement in Implementing the
New Continuing Contracts Clause:
Conclusions:
Recommendations for Executive Action:
Agency Comments:
Appendix I: Scope and Methodology:
Appendix II: Summary of Bid Protests Regarding the New Clause for
Continuing Contracts:
Appendix III: Comments from the Department of Defense:
Appendix IV: GAO Contact and Staff Acknowledgments:
Table:
Table 1: Description of Projects Subject to Bid Protests because of the
New Clause:
Figure:
Figure 1: Locations of the Corps' Civil Works Divisions and Districts:
Abbreviations:
Corps: U.S. Army Corps of Engineers:
DOD: Department of Defense:
OFPP Act: Office of Federal Procurement Policy Act:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
June 22, 2009:
The Honorable Byron Dorgan:
Chairman:
The Honorable Robert Bennett:
Ranking Member:
Subcommittee on Energy and Water Development:
Committee on Appropriations:
United States Senate:
The Honorable Peter J. Visclosky:
Chairman:
The Honorable Rodney P. Frelinghuysen:
Ranking Member:
Subcommittee on Energy and Water Development:
Committee on Appropriations:
House of Representatives:
Congress provides the U.S. Army Corps of Engineers' (Corps) Civil Works
program with funding each year to plan, construct, operate, and
maintain a wide range of water resource projects.[Footnote 1] Congress
appropriated over $5 billion for such projects in fiscal year 2007 and
again in fiscal year 2008. The Corps relies on contractors to construct
many of these projects, which often take more than 1 fiscal year to
complete. Generally, federal agencies are required to obligate
appropriations for the full cost of a contract at the time of award
(i.e., they must fully fund the contract).[Footnote 2] However, from
1922 to 2005, an Army policy allowed the Corps to enter into, and
commit the federal government for the full amount of, contracts that
spanned more than 1 fiscal year (called "continuing contracts"), even
though the Corps may not have received appropriations to cover the full
contract amount at the time the contracts were awarded.[Footnote 3]
More specifically, since 1977, these continuing contracts contained a
clause that allowed contractors to continue working even when
appropriated funds were not available. In such cases, the Corps would
be committed to pay the contractor, with interest, when funding became
available--in effect, obligating Congress to fully fund a project even
though sufficient funds had not been appropriated for it. During fiscal
years 2003 through 2005, the Corps' routine practice was to use
continuing contracts for most of the contracts it awarded, in part,
because of the Corps' interpretation of a provision in the Water
Resources Development Act of 1999 that required the Corps to use
continuing contracts for certain projects if sufficient funding was not
available to complete the project. As a result, as we reported in 2006,
the Corps was frequently awarding continuing contracts for short-term,
low-dollar-value contracts that could have been fully funded.[Footnote
4] For example, we found in 2006 that 39 continuing contracts in fiscal
years 2003 through 2005 had been awarded for work that lasted 6 months
or less, and 34 continuing contracts had been awarded during this time
that had a value of less than $1 million.
In our 2006 report, we also reported that the Corps' quarterly reports
to Congress on the agency's use of continuing contracts frequently
contained inaccuracies and that the Corps lacked a system for tracking
these contracts. As a result, we recommended that the Corps develop a
tracking system to monitor the use of its continuing contracts. The
Corps agreed with our recommendation and told us that it would, among
other things, establish an automated tracking system and implement it
in fiscal year 2007. Also, at the time of our review, the Energy and
Water Development Appropriations Act of 2006 restricted the way the
Corps could use continuing contracts by prohibiting it from awarding or
modifying existing continuing contracts when doing so would commit an
amount in excess of the amount provided to a project. To ensure
compliance with this restriction, the Corps developed a new clause for
continuing contracts that specifically requires contractors to stop
work once they have expended the funding set aside for the fiscal year.
A joint explanatory statement accompanying the fiscal year 2008
Consolidated Appropriations Act directed us to review the continuing
contracts that the Corps has awarded using the new clause. In response,
this report examines (1) the accuracy of the information in the Corps'
fiscal years 2007 and 2008 quarterly reports to Congress about
continuing contracts that included the new clause, (2) the extent to
which the Corps' use of continuing contracts with the new clause may
have affected its execution of the Civil Works program during this
time, and (3) the extent to which the Corps followed legal procedures
in implementing the new clause.
To determine the accuracy of the information the Corps reported to
Congress, we reviewed the agency's quarterly reports to Congress for
fiscal years 2007 and 2008. We compared the information on the number,
type, and dollar value of continuing contracts in the reports with
information from a Corps database and the results of interviews with
officials from a nonprobability sample of 6 of the 38 districts and two
of the eight divisions. To obtain information about the extent to which
the Corps' use of continuing contracts that included the new clause may
have affected its Civil Works program, we interviewed district and
division officials at these same locations, as well as Corps
headquarters officials. To assess the Corps' process for implementing
the new continuing contracts clause, we reviewed federal procurement
laws related to the Corps' issuance and use of the new continuing
contract clause. In addition, we interviewed selected district and
division officials to understand the process that the Corps used to
develop and implement the new continuing contracts clause and obtain
their views on the issue. We also contacted the Corps' Office of the
Chief Counsel to obtain the Corps' legal position on the extent to
which the Corps has met the requirements of federal procurement law,
and reviewed its response and supporting documentation. Finally, we
examined three bid protests, and the Corps' responses to these
protests, concerning solicitations issued from fiscal years 2006
through 2008, that alleged, among other things, that the new clause was
not published in the Federal Register as required by law. Appendix I
contains a more detailed discussion of our scope and methodology. We
conducted this performance audit from September 2008 to June 2009 in
accordance with generally accepted government auditing standards. Those
standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe that
the evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives.
Background:
Under its Civil Works program, the Department of Defense's (DOD) U.S.
Army Corps of Engineers plans, constructs, operates, and maintains a
wide range of water resources projects. In addition to its headquarters
in Washington, D.C., the Corps has eight regional divisions and 38
districts that carry out its domestic civil works responsibilities (see
figure 1).
Figure 1: Locations of the Corps' Civil Works Divisions and Districts:
[Refer to PDF for image: map of the United States]
The map contains the boundary lines of Division, Districts, and states,
as well as the location of Division and District headquarters.
District: North Atlantic;
Division headquarters: New York City;
District headquarters: New England; Baltimore, MD; Philadelphia PA,
Norfolk, VA.
District: South Atlantic;
Division headquarters: Atlanta;
District headquarters: Wilmington, NC; Charleston, SC; Savannah GA;
Jacksonville; Mobile, AL.
District: Great Lakes and Ohio River;
Division headquarters: Cincinnati, OH;
District headquarters: Pittsburgh, PA; Huntington, WV; Nashville, YN;
Louisville, KY; Detroit, MI; Chicago; IL.
District: Mississippi Valley;
Division headquarters: Vicksburg, MS;
District headquarters: Vicksburg, MS; New Orleans, LA; Memphis, TN; St.
Louis, MO; Rock Island, IL; St. Paul, MN.
District: Southwestern;
Division headquarters: Dallas, TX;
District headquarters: Fort Worth, TX; Galveston, TX; Tulsa, OK; Little
Rock, AR.
District: Northwestern;
Division headquarters: Portland, OR;
District headquarters: Kansas City, MO; Omaha, NE; Walla Walla, WA;
Seattle, WA.
District: South Pacific;
Division headquarters: San Francisco, CA;
District headquarters: San Francisco, CA; Albuquerque, NM; Sacramento,
CA; Los Angeles, CA.
District: Pacific Ocean;
Division headquarters: Honolulu, HA;
District headquarters: Honolulu, HA; Alaska.
Source: GAO representation of U.S. Army Corps of Engineers data.
[End of figure]
Corps headquarters primarily develops policies and plans the future
direction of the organization; divisions coordinate the districts'
projects; and the districts plan and implement the projects, which are
approved by the divisions and headquarters. Water resource projects are
generally very large undertakings that often take more than a single
fiscal year to complete. Moreover, the timing of these projects is
often dictated by weather conditions or environmental concerns. For
example, many dredging projects take place during the winter months
because environmental concerns limit dredging operations during the
spring and summer (March through September) to protect various species,
such as threatened and endangered turtles.
Congress appropriates about $5 billion annually to the Corps to carry
out its Civil Works program. Federal agencies generally receive annual
appropriations (also called fiscal year or 1-year appropriations) that
are made for a specified fiscal year. These appropriations are
available for obligation--legal commitment by the government for the
payment of goods and services ordered or received--only for the bona
fide needs of the fiscal year for which they were appropriated. If an
agency fails to obligate its annual funds by the end of the fiscal year
for which they were appropriated, the funds cease to be available to
the agency for new obligations. They are referred to as "expired" and,
after 5 years, are returned to the U.S. Treasury. In contrast, the
Corps receives "no-year" appropriations through the Energy and Water
Development Appropriations Act--that is, there are no time limits on
when the funds may be obligated or expended, and the funds remain
available for their original purposes until expended. The majority of
the Corps' Civil Works appropriations are generally directed to two
types of activities: (1) operations and maintenance and (2)
construction.[Footnote 5] Operations and maintenance activities include
the preservation, operation, and maintenance of existing rivers and
harbors. Construction activities include construction and major
rehabilitation projects related to navigation, flood control, water
supply, hydroelectric power, and environmental restoration.
The Corps' Quarterly Reports to Congress Contained Inaccurate
Information on the Use of Continuing Contracts with the New Clause:
The Corps' fiscal years 2007 and 2008 quarterly reports to Congress on
continuing contracts awarded with the new clause contained inaccurate
information. According to these reports, the Corps awarded 21 new
continuing contracts during this time: 9 for construction and 12 for
operations and maintenance, ranging in value from $2.1 million to
$341.5 million, for a total of about $811 million. However, we found
that some continuing contracts were double-counted, while others were
omitted from the reports. For example, two contracts were first
reported to Congress as new continuing contracts at the end of fiscal
year 2007. The Corps then reported the same two contracts in the first
quarter of fiscal year 2008, marking them as "not reported" in the
prior fiscal year. In addition, we identified two continuing contracts
totaling approximately $48 million that should have been included as
new awards in the Corps' quarterly reports but were omitted. Corps
officials confirmed that these were indeed new continuing contracts
that should have been included in the reports. Both types of errors
impacted the total number and value of the continuing contracts with
the new clause that were reported to Congress as having been awarded
during this 2-year period. We also identified other types of errors
that did not affect the overall totals of new contracts or their value
but, nevertheless, raise questions about the accuracy of the
information that the Corps is providing to Congress. For example, when
we asked Corps officials in one district to verify information about
the continuing contracts they had awarded in fiscal years 2007 and
2008, they provided us with documentation that showed that one contract
that had been incorrectly included in the Corps' quarterly report to
Congress as a continuing contract was actually a fully funded contract.
In addition, four new continuing contracts were not initially reported
as new in the quarterly reports covering their award periods; instead,
three were reported in a later quarterly report and one was reported
earlier. Similarly, we found that two fully funded contracts were
incorrectly included in the 2007 quarterly reports as existing
continuing contracts.
The Corps' failure to accurately report to Congress the number of
continuing contracts it awards is a problem that we previously
identified in 2006, and at that time, we recommended that the Corps
develop an appropriate tracking system for these contracts. Although
the Corps concurred at the time, Corps officials told us that the
agency had not developed a tracking system as we had recommended
because it believed its system of asking divisions to provide
information on a quarterly basis was sufficient for tracking the use of
continuing contracts. These officials also told us that the agency had
issued a 2007 guidance document that provided instructions to the
districts for making submissions for the quarterly reports to Congress.
In light of the inaccuracies we identified in the quarterly reports to
Congress, we do not believe that the Corps quarterly data calls
constitute a systematic tracking system for continuing contracts that
we recommended in 2006; therefore, we believe that our 2006
recommendation has not yet been implemented by the agency. According to
our Standards for Internal Control in the Federal Government, managers
are to "complete, within established time frames, all actions that
correct or otherwise resolve the matters brought to management's
attention."[Footnote 6] We believe that the Corps' inaction on our
recommendation has led to a lack of internal controls that has
contributed to persistent errors on the part of the agency in reporting
to Congress on its use of continuing contracts.
Overall, the Use of the New Continuing Contracts Clause Has Not
Affected Execution of the Civil Works Program:
As a result of the limits that Congress has placed on the Corps' use of
continuing contracts in recent years, the Corps has issued guidance and
made several modifications to its policies that govern the Civil Works
program. While these changes, taken together, have resulted in a
decrease in the number of continuing contracts that the Corps has
awarded, they have not significantly affected the agency's ability to
execute its Civil Works program. Specifically, the committee report
accompanying the Corps' fiscal year 2005 appropriations expressed
concern about the Corps' use of continuing contracts and noted that the
purpose of continuing contracts was to enable the Corps, in awarding
contracts for the components of large construction projects, to take
advantage of economies of scale and efficiently manage these large
components over several years. In enacting the Energy and Water
Development Appropriations Act of 2006, Congress provided specific
direction to the Corps regarding its use of continuing contracts. The
law states, among other things, that with certain exceptions, none of
the funds made available in the act may be used to award any continuing
contract, or make modifications to any existing continuing contract,
that commits an amount for a project in excess of the amount provided
for the project.
To help ensure that it met these new congressional requirements, the
Corps issued guidance in fiscal year 2006 that, among other things:
[Footnote 7]
* directed that districts use fully funded contracts as their primary
contracting option and that continuing contracts be used only as the
contracting option of last resort;
* summarized new information that the districts are required to provide
in their requests to use continuing contracts, including an explanation
of why using a continuing contract is in the best interest of the
government; and:
* directed districts to take measures to ensure that contractor costs
do not exceed the amount provided for projects.
Also, in response to these new congressional requirements, that same
year, the Corps developed a new clause for continuing contracts that
specifically required contractors to stop work once they had expended
the funding set aside for the fiscal year. In addition, the Corps
established certain criteria for the use of continuing contracts for
operations and maintenance projects. The Assistant Secretary of the
Army for Civil Works preapproved certain requests for operations and
maintenance continuing contracts if the contracts met five conditions.
In response, the Corps issued guidance to the divisions reiterating
these conditions. These conditions included that (1) the contract was
financed from the Corps' operations and maintenance account and (2) the
work could not be broken down into smaller increments that could be
fully funded within the current fiscal year.[Footnote 8] The following
fiscal year, the Corps also established certain criteria for continuing
contracts for construction projects. Specifically, using continuing
contracts for construction activities was to be considered only if the
contract was for more than $10 million and the work could not be
completed in a single fiscal year. The Corps also required that
requests for using continuing contracts, other than continuing
contracts that had been preapproved, be approved at the Assistant
Secretary level.
While the Corps quarterly reports to Congress cannot be fully relied on
for accurate information on the number and value of continuing
contracts awarded with the new clause, they do provide a reasonable
sense of the overall direction of the use of such contracts. In 2006,
we reported that the Corps, on average, awarded about 500 continuing
contracts per year for fiscal years 2003 through 2005. The 2007 and
2008 quarterly reports to Congress indicate that the number of
continuing contracts with the new clause has reduced considerably and
may average only about 10 per year for fiscal years 2007 and 2008.
The decreased use of continuing contracts, and the use of the new
clause, does not appear to have significantly affected the Corps' Civil
Works program. While the Corps has not established metrics to evaluate
the impacts of this change, district officials we spoke with told us
that they believe that the new continuing contracts clause has had
little, if any, impact on their ability to accomplish the Civil Works
mission of the agency. For example, several Corps district officials we
interviewed said that while there were some temporary difficulties in
executing their projects when the new clause was first implemented,
their ability to conduct their work has not been adversely affected.
Specifically, these officials told us that the combined effect of the
requirement to fully fund contracts and the lack of sufficient funds in
2007, when the new clause was first implemented, led them to award
fewer contracts at that time, and some project starts were delayed
until the following fiscal year. These officials did not provide any
examples, however, of where work on a project was stopped because funds
were not available. Since that time, however, they have adjusted to the
changes and have resumed their normal level of contract activity.
Corps officials also told us that, in general, the recent changes,
including the new clause, have had some positive effects on contract
management, including the following:
* Contracts that are fully funded, as well as continuing contracts that
use the new clause, provide officials more certainty in managing their
funds. For example, the Corps no longer has to search for funds each
year to meet the obligations created when contractors would work after
the amount appropriated for a fiscal year was exhausted.
* Contract management has become easier for Corps officials, whether
they fully fund contracts or use continuing contracts with the new
clause, because fewer contract modifications are likely, and the
contractor is restricted to the work specified in the contract.
Notwithstanding these positive effects, some district officials also
told us that having the flexibility to use continuing contracts as they
were previously used, as opposed to fully funding contracts, would be
useful for some large, longer-term projects, such as lock and dam
projects, which require millions of dollars and multiple fiscal years
to complete. According to these officials, if such projects are fully
funded, large amounts of unexpended appropriations would be carried
over for several fiscal years. For example, a 5-year, $200 million
contract that required only $75 million in its first year would require
carrying over the remaining $125 million into subsequent fiscal years
until the funds were expended. Since the $125 million would already
have been obligated to the contract at award, it would not be available
to be used on other contracts. If such projects were funded using
continuing contracts as they were previously used, the Corps would
allocate the entire contract amount at the time of award, but would
obligate only the amount of funds that would be needed to cover the
first year of the contract. The remaining funds not needed during the
first year would be available to be used on other contracts. As a
result, these officials told us that the restrictions placed on the use
of continuing contracts in recent years may have made execution of some
projects somewhat less efficient and more costly, although they could
not provide us any specific examples of this having occurred. Corps
headquarters officials generally disagreed with this position.
According to these officials, over time, the Corps could complete the
same number of projects even if they were fully funded, as opposed to
using continuing contracts as they were previously used.
Corp headquarters officials did tell us, however, that there is some
value in having the ability to use continuing contracts as they were
previously used for a few projects. Specifically, as previously used,
continuing contracts obligated the Corps for the full amount of the
contract at the date of the award. According to these officials, in
practical terms, this means that the contractor does not have to wait
for the Corps to provide the money in order to make large investments,
such as ordering prefabricated materials and buying raw materials like
steel. This flexibility on timing realized under the previous use of
continuing contracts therefore provided contractors the ability to reap
the benefits of economies of scale when purchasing materials in bulk.
The Corps Did Not Comply with a Legal Requirement in Implementing the
New Continuing Contracts Clause:
In implementing the new continuing contracts clause, the Corps did not
comply with a legal requirement and, as a result, some districts are
reluctant to use it when awarding contracts. Specifically, the Corps
has been using the new continuing contracts clause prior to its
publication in the Federal Register for public comment, in violation of
section 22 of the Office of Federal Procurement Policy Act (OFPP Act),
41 U.S.C.§ 418b.[Footnote 9] This section of the act generally provides
that no procurement regulation relating to the expenditure of
appropriated funds that has a significant effect beyond the internal
operating procedures of the agency or a significant cost or
administrative impact on contractors or offerors may take effect until
60 days after the procurement regulation is published for public
comment in the Federal Register. This requirement for advance comment
may be waived if urgent and compelling circumstances make compliance
impracticable; in such cases, a procurement regulation shall be
effective on a temporary basis if a notice of the regulation is
published in the Federal Register stating that it is temporary and
providing for a public comment period of 30 days. After considering the
comments received, the agency may issue the final procurement
regulation. Courts have held that the failure to comply with section 22
renders the proposed procurement regulation without effect.[Footnote
10]
In spring 2006, the Corps waived the requirement to obtain advance
comments on the new clause based on urgent and compelling circumstances
and sent a request for publication of the clause to the Department of
the Army. The Corps is required to obtain approval from the Department
of the Army and DOD prior to publication of a change that has a
significant effect beyond the internal operating procedures of the
agency, such as the new continuing contracts clause.[Footnote 11] Over
the intervening months and years, the Corps has submitted multiple
iterations of the request for publication to the Army. These requests
have moved among the Army, DOD, and the Office of Management and
Budget, but the Corps has not yet received confirmation of approval
from DOD, and the clause has never been published in the Federal
Register. The Corps' use of the new clause for more than 3 years prior
to its having been published in the Federal Register for public comment
does not meet the requirements of section 22 of the OFPP Act. The
Corps' argument that its use of the new clause complies with the
statute because it has been pursuing publication through the Army and
DOD as required is, in our view, unpersuasive. The relevant provision
states that new procurement regulations may only take effect if a
Federal Register notice "is published," not while publication is being
pursued. The Corps' interpretation also ignores the requirement for a
minimum public comment period of 30 days after the notice is published--
to date, no public comment period whatsoever has been provided.
Corps officials from the districts and divisions with whom we spoke
expressed concern about the Corps' use of the new clause without its
having been published in the Federal Register. According to these
officials, because this legal requirement has not been met, they are
concerned that using the new clause could subject the Corps to legal
challenges such as bid protests.[Footnote 12] Such potential legal
challenges could prolong projects and increase their costs.
We identified three solicitations for continuing contracts with the new
clause issued from fiscal years 2006 through 2008 that did result in
bid protests. These protests alleged, among other things, that the
Corps' use of the new continuing contracts clause prior to providing an
opportunity for public notice and comment violated the OFPP Act. These
protests were withdrawn when the Corps reissued the solicitations
without the new clause, using instead such options as fully funding the
contracts and restructuring the work required by the contracts. (See
app. II for details about the three bid protests.) Some district
officials where the solicitations that were protested originated said
that they are concerned that such legal challenges could resurface in
the future--jeopardizing other contracts that use the new clause and
delaying the award of these contracts. Moreover, officials in one
district that has not used the new continuing contracts clause since it
became available told us that the fact that the new clause has never
been published for comment constituted their major reason for not using
it.
Conclusions:
Although Congress and GAO have raised a number of concerns in recent
years about the Corps' use of continuing contracts, of particular note
has been the agency's lack of accurate information on the number and
value of contracts that it has awarded. In 2006, we specifically
recommended that the Corps establish a system to track its use of
continuing contracts, and while the agency agreed with this
recommendation, it has failed to implement it. As a result, the process
and guidance it relies on to provide quarterly information to Congress
are ineffective and continue to generate information that is neither
complete nor accurate.
Moreover, the Corps developed and implemented its new continuing
contracts clause over 3 years ago, but its use of the clause does not
comply with the publication requirements of the OFPP Act. The Corps'
position that its use of the new continuing contracts clause while
"pursuing publication" of the clause in the Federal Register satisfies
the requirements of the act is unpersuasive. While we understand that
the Corps has been seeking approval to publish the clause since 2006,
and that it is unable to publish the clause without approval from the
Army and DOD, the statute's publication requirement and its waiver
provision clearly permit temporary use of such a clause only if it is
actually published in the Federal Register for public comment. The
Corps' use of the clause prior to publication does not comply with the
statute's requirements and may leave the Corps susceptible to further
legal challenges.
Recommendations for Executive Action:
To ensure that the Corps provides accurate and reliable reports to
Congress on its use of continuing contracts and complies with federal
procurement law, we recommend that the Secretary of Defense direct the
Chief of Engineers and Commanding General of the U.S. Army Corps of
Engineers to take the following three actions:
* Establish adequate internal controls to ensure accurate and complete
information is collected and reported to Congress on the use of
continuing contracts.
* Suspend the Corps' use of the new continuing contracts clause until
it has been published in the Federal Register, in accordance with 41
U.S.C. § 418b.
* Provide regular updates to Congress on the progress of these actions.
Agency Comments:
We provided a draft of this report to the Department of Defense for
official review and comment. The department concurred with two of our
recommendations and did not concur with one. Specifically, the
department concurred with our recommendations that the Corps establish
adequate internal controls to ensure accurate and complete information
is collected and reported to Congress on the use of continuing
contracts; and provide regular updates to Congress. The department did
not agree, however, with our recommendation that the Corps suspend use
of the new continuing contracts clause until it has been published in
the Federal Register in accordance with § 41 U.S.C. 418b. The
department did not disagree with our conclusion that its use of the new
clause prior to publication violates the law, and acknowledged that the
unforeseen delay in publishing the clause is undesirable. The
department also stated that it intends to publish the new clause in the
Federal Register as expeditiously as possible and anticipates approval
of the clause for publication within 60 days. While we agree with the
department's efforts to expedite the publication of the new clause in
the Federal Register, we continue to believe that suspending the use of
the clause in the interim would be the appropriate course of action.
This is because until the clause is published in the Federal Register
for a minimum public comment period of 30 days, the department's use of
the clause will violate section 22 of the OFPP Act.
We are sending copies of this report to the appropriate congressional
committees, the Secretary of Defense, and the Chief of Engineers and
Commanding General of the U.S. Army Corps of Engineers. In addition,
this report will be available at no charge on the GAO Web site at
[hyperlink, http://www.gao.gov].
If you or your staffs have any questions regarding this report, please
contact me at (202) 512-3841 or mittala@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.
Signed by:
Anu K. Mittal:
Director, Natural Resources and Environment:
[End of section]
Appendix I: Scope and Methodology:
A joint explanatory statement accompanying the fiscal year 2008
Consolidated Appropriations Act directed us to review the continuing
contracts that the U.S. Army Corps of Engineers (Corps) has awarded
using a new clause. More specifically, from 1922 to 2005, the Corps had
the authority to award multiyear contracts (called continuing
contracts) without having received appropriations to cover the full
contract amount. These continuing contracts allowed contractors to
continue working on a project after funds provided for that project had
been expended. In 2006, as part of its changes associated with
continuing contracts, the Corps created two new clauses--a "special"
clause and an "incrementally funded" clause that require contractors to
stop work on a project once they have expended the funding set aside
for the fiscal year. According to Corps counsel, however, the agency
considers only contracts with the special clause to be continuing
contracts because the incrementally funded clause does not involve a
future funding obligation. For the purpose of this review, we have
referred to the special clause as the "new clause."
To determine the accuracy of the information the Corps reported to
Congress in fiscal years 2007 and 2008, we compared information from
the Corps' quarterly reports on the number, type, and dollar value of
continuing contracts that used the new clause with information obtained
from a Corps database and results of interviews with Corps officials in
selected divisions and districts.[Footnote 13] We identified the
continuing contracts that the Corps listed as new awards on the basis
of the information the Corps presented in its summary letters to
Congress, as well as the information contained in the quarterly reports
themselves.[Footnote 14] We then identified continuing contracts with
the new clause that were awarded during the 2-year time frame but were
missing from the Corps' quarterly reports by querying the Corps'
Primavera database.[Footnote 15] We did not assess the reliability of
the Primavera database, but we verified information from that database
independently using both testimonial and documentary evidence provided
by the Corps. In addition, we interviewed Corps officials in selected
divisions and districts to corroborate the information on continuing
contracts that we obtained from the quarterly reports and Primavera
database. We selected a nonprobabilty sample of two of the eight
divisions and 6 of the 38 districts that carry out the Corps' domestic
civil works responsibilities. More specifically, we selected the one
division that had used continuing contracts with the new clause the
most and the other division that had used them the least. In addition,
of the six districts, two had used continuing contracts with the new
clause the most, two had used them the least, and the remaining two had
been involved with bid protests associated with the new clause. We also
ensured that those districts and divisions varied geographically and in
program size. Specifically, we selected the Mississippi Valley and
South Pacific Divisions, as well as the Los Angeles (South Pacific
Division), Nashville (Great Lakes and Ohio River Division),
Philadelphia and New York[Footnote 16] (North Atlantic Division),
Vicksburg (Mississippi Valley Division), and Walla Walla (Northwestern
Division) districts. We obtained pertinent supporting documentation
from the divisions and districts to support the testimonial information
obtained during the interviews.
To obtain information about the extent to which the Corps' use of
continuing contracts with the new clause may have affected its
execution of the Civil Works program and the extent of the Corps' use
of continuing contracts with the new clause, we interviewed Corps
division and district officials at the locations identified above, as
well as at Corps headquarters. In addition, we interviewed the Corps
manager at headquarters responsible for the quarterly reports to obtain
basic information for assessing the reliability of those data. Although
there were inaccuracies, we found that the data were sufficiently
reliable for the purposes of our report. During the interviews, we
discussed, among other things, Corps guidance on continuing contracts,
the process used to obtain approval to use continuing contracts, any
impacts and challenges related to the Corps' use of continuing
contracts, and monitoring the use of continuing contracts.
To assess the Corps' process for implementing the new continuing
contracts clause, we reviewed relevant federal procurement laws related
to the Corps' issuance and use of the new continuing contract clause.
[Footnote 17] In addition, we interviewed selected district and
division officials to obtain their views on the issue. We also
interviewed selected district and division officials to understand the
process that the Corps used to develop and implement the new continuing
contracts clause and obtain their views on the issue. We also contacted
the Corps' Office of the Chief Counsel to obtain the Corps' legal
position on the extent to which the Corps has met the requirements of
federal procurement law, and reviewed its response and supporting
documentation. Finally, we examined three bid protests, and the Corps'
responses to these protests, concerning solicitations issued from
fiscal years 2006 through 2008, that alleged, among other things, that
the new clause was not published in the Federal Register as required by
law.
We conducted this performance audit from September 2008 to June 2009 in
accordance with generally accepted government auditing standards. Those
standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe that
the evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives.
[End of section]
Appendix II: Summary of Bid Protests Regarding the New Clause for
Continuing Contracts:
From fiscal years 2006 to 2008, the U.S. Army Corps of Engineers
(Corps) received bid protests for three of its solicitations for
continuing contracts with the new clause. A bid protest may be filed
when a bidder or other interested party has reason to believe that a
contract has been or is about to be awarded improperly or illegally, or
that the bidder or interested party has been unfairly denied a contract
or an opportunity to compete for a contract. One firm protested three
solicitations that would have awarded contracts with the new clause. In
each case, the firm withdrew its protest after the Corps restructured
the statement of work, issued an amendment to remove the new clause
from the solicitation, and proceeded to award the contract as a
contract with a different funding mechanism, such as a fully funded
contract, rather than as a continuing contract.
Specifically, the firm filed initial protests with three districts that
issued solicitations with the new clause--San Francisco, New York, and
Philadelphia.[Footnote 18] The firm alleged several bases for its
protests; however, the overarching issue in the protests, which
generally used the same language, was the Corps' inclusion of the new
clause in the solicitations. The firm alleged the following:
* Inclusion of the new clause rendered the specifications defective
because it made the project schedule and duration so vague and
indefinite that potential bidders could not compete intelligently and
on an equal basis. The firm argued that bidders would make different
assumptions involving different contingencies and might not be bidding
to perform the same scope of work and that, as a result, the Corps
would be precluded from determining whether the lowest bid received
represented the lowest cost to the government of performing the work
required.
* The Corps' attempt to use the new clause violated 41 U.S.C. § 418b
and Federal Acquisition Regulation Subparts 1.3 and 1.5, which require
the clause to be published in the Federal Register for public comment.
When the Corps receives a bid protest, the respective division office
responds on behalf of the district whose solicitation is being
protested. Of the three districts that received bid protests, only the
division for the San Francisco District formally denied the protest.
The May 22, 2006, decision by the Assistant Chief Counsel/Division
Counsel for the South Pacific Division, among other things:
* denied the allegation that the clause rendered the specifications
defective and stated that any assumptions a contractor may choose to
make with regard to schedule, funding streams, delays, and so forth
would necessarily be reflected in the bid prices. As a result, the
Corps argued, as long as the bid was not unbalanced and was otherwise
the lowest price, it would also be the lowest cost to the government.
* asserted that the Corps used the new clause prior to publishing it in
the Federal Register for public comment due to "urgent and compelling
circumstances," and explained that the Corps was in the process of
submitting the clause to the Federal Register for public comment
through its internal procedures.
After the Corps' South Pacific Division denied the agency-level
protest, the protester filed a protest with GAO on May 31, 2006.
Subsequently, the Corps' San Francisco District decided to remove the
new clause from the solicitation, and the protester withdrew its
protest on June 15, 2006.
Similarly, the protests filed with the New York and Philadelphia
Districts resulted in the districts' removing the new clause from the
solicitations. The protester subsequently withdrew its protest in both
cases. In all three protests, the Corps districts then used a different
funding mechanism to complete the work. Table 1 describes the projects
and shows relevant dates and estimated amounts.
Table 1: Description of Projects Subject to Bid Protests because of the
New Clause:
Project name: Oakland Harbor; (San Francisco District);
Type of work: Operations and maintenance;
Protest date: March 27, 2006;
Protest withdrawn date: June 15, 2006;
New contract mechanism: Fully funded contract.
Project name: New York and New Jersey Harbor; (New York District);
Type of work: Operations and maintenance;
Protest date: April 14, 2006;
Protest withdrawn date: May 17, 2006;
New contract mechanism: Fully funded contract.
Project name: Inland Waterway Delaware River to Chesapeake Bay;
(Philadelphia District);
Type of work: Operations and maintenance;
Protest date: August 20, 2007;
Protest withdrawn date: August 30, 2007;
New contract mechanism: Incrementally funded contract.
Source: GAO analysis of Corps bid protests.
[End of table]
[End of section]
Appendix III: Comments from the Department of Defense:
Department Of The Army:
Office Of The Assistant Secretary:
Civil Works:
108 Army Pentagon:
Washington, DC 20310-0108:
June 12, 2009:
Ms. Anu Mittal:
Director, Natural Resources and Environment:
U.S. Government Accountability Office:
441 G Street, N.W.
Washington, DC 20548:
Dear Ms. Mittal:
This is the Department of Defense (DoD) response to the GAO Draft
Report, GAO-09552. "Army Corps Of Engineers: Recent Changes Have
Reduced the Use of Continuing Contracts, but Management Processes Need
to be Improved," dated May 15, 2009 (GAO Code 360999)
Thank you for the opportunity to review and comment on the draft
report. Responses to the GAO recommendations are enclosed.
We concur with recommendations one and three. We non-concur with
recommendation two whereby GAO recommends suspending the use of the new
continuing contracts clause until it has been published in the Federal
Register in accordance with 41 U.S.C. 418b. We do however agree that
the interim continuing contracts clause should be published in the
Federal Register. The Corps has been working with the Army and DoD
since 2006 in an effort to publish the clause. We anticipate DOD's
approval within 60 days.
Very truly yours,
Signed by:
Terrence C. Salt:
Acting Assistant Secretary of the Army (Civil Works):
Enclosure:
[End of letter]
GAO Draft Report - Dated May 15, 2009:
GAO Code 360999/GAO-09-552:
"Army Corps Of Engineers: Recent Changes Have Reduced The Use Of
Continuing Contracts, But Management Processes Need To Be Improved"
Department Of Defense Comments To The Recommendations:
Recommendation 1: The GAO recommends that the Secretary of Defense
direct the Commanding General and the Chief of Engineers of the U.S.
Army Corps of Engineers to establish adequate internal controls to
ensure accurate and complete information is collected and reported to
Congress on the use of continuing contracts.
DOD Response: Concur.
Recommendation 2: The GAO recommends that the Secretary of Defense
direct the Commanding General and the Chief of Engineers of the U S.
Army Corps of Engineers to suspend the Corps' use of the new continuing
contracts clause until it has been published in the Federal Register in
accordance with 41 U.S.C. 418b. (p. 16/GAO Draft Report)
DOD Response: Non-concur. Notwithstanding our non-concurrence. DOD
acknowledges the unforeseen delay in publishing the interim continuing
contract clause is undesirable. We intend to publish the interim clause
in the Federal Register as expeditiously as possible. We anticipate
approval of the clause for publication within 60 days.
Recommendation 3: The GAO recommends that the Secretary of Defense
direct the Commanding General and the Chief of Engineers of the U.S.
Army Corps of Engineers to provide regular updates to Congress on the
progress of these actions.
DOD Response: Concur.
[End of section]
Appendix IV: GAO Contact and Staff Acknowledgments:
GAO Contact:
Anu K. Mittal, (202) 512-3841 or mittala@gao.gov:
Staff Acknowledgments:
In addition to the individual named above, Vondalee R. Hunt (Assistant
Director), Tania L. Calhoun, Nancy L. Crothers, Diana C. Goody, Daniel
J. Semick, and Delia P. Zee, made key contributions to this report.
Also contributing to this report were Joel I. Grossman, Carol M. Henn,
and William T. Woods.
[End of section]
Footnotes:
[1] The Corps also has a military program that provides, among other
things, engineering and construction services to other U.S. government
agencies and foreign governments. This report discusses only the Civil
Works program.
[2] The Antideficiency Act prohibits agencies from entering into
contracts that exceed currently available appropriations or that
obligate appropriations not yet made.
[3] The River and Harbor Act of 1922 gave the Corps the permanent
authority it had sought to use continuing contracts to complete
projects even when the agency did not have appropriations to cover the
full contract amounts.
[4] GAO, Army Corps of Engineers: Improved Monitoring and Clear
Guidance Would Contribute to More Effective Use of Continuing
Contracts, [hyperlink, http://www.gao.gov/products/GAO-06-966]
(Washington, D.C.: Sept. 8, 2006).
[5] The Corps typically receives contributed funds, particularly for
construction projects, from nonfederal sponsors (state, tribal, county,
and local agencies) that provide, among other things, financial
contributions to complete the work.
[6] The Federal Managers' Financial Integrity Act of 1982 required that
GAO issue standards for "internal control" in government. The result
was GAO, Standards for Internal Control in the Federal Government,
[hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1]
(Washington, D.C.: November 1999). The term internal control is
synonymous with the term "management control" in OMB Circular A-123,
which covers all aspects of an agency's operations-- programmatic,
financial, and compliance.
[7] The Corps issued this guidance in its Engineering Circular 11-2-
189.
[8] The other three conditions follow: (1) the contract met all
requirements established by the Corps, including that it be the most
cost-effective acquisition mechanism; (2) no funds could be
reprogrammed to or from the project in fiscal year 2006; and (3) the
lowest amount specified in either the President's budget, the House
report or the Senate report for fiscal year 2007, or the conference
report for fiscal year 2007, if available, included funding for the
remaining portion of the contract, along with funding for any other
operation and maintenance of the affected project.
[9] The act established the Office of Federal Procurement Policy in the
Office of Management and Budget in 1974 to play a central role in
shaping the policies and practices federal agencies use to acquire the
goods and services they need to carry out their responsibilities. Among
other things, the act provides overall direction for governmentwide
procurement policies, regulations, and procedures to promote economy,
efficiency, and effectiveness in acquisition processes.
[10] Munitions Carriers Conference, Inc. v. United States, 932 F. Supp.
334, 341 (D.D.C. 1996), rev'd on other grounds, 147 Fed. Cl. 200 (2003)
("Because [the agency] did not comply with § 418b, either actually or
constructively, the [procurement regulation] is without effect.").
[11] See Defense Federal Acquisition Regulation Supplement (DFARS)
§ 201.304; Army Federal Acquisition Regulation Supplement (AFARS)
§ 5101.301.
[12] Bidders and offerors seeking federal government contracts who
believe that contracts have been, or are about to be, awarded in
violation of the laws and regulations that govern contracting with the
federal government may file bid protests with the contracting agency,
GAO, or the U.S. Court of Federal Claims.
[13] The quarterly reports list new continuing contracts awarded during
fiscal years 2007 and 2008, as well as contracts already under way
(that is, continuing contracts awarded prior to fiscal year 2007).
[14] In fiscal year 2007, the Corps bolded newly awarded continuing
contracts in the quarterly reports. In fiscal year 2008, the Corps
changed its method for identifying new continuing contracts and added a
"New" column in the quarterly report. The Corps placed an "X" in the
"New" column to indicate that a contract was newly awarded in that
quarter.
[15] Primavera is used by project managers to develop and manage
project schedules and resource requirements. Primavera has an optional
field to track continuing contracts that was added to the database in
early 2007.
[16] The Philadelphia and New York districts dealt with bid protests
related to their use of the new clause.
[17] The Corps created two new clauses--a special clause and an
incrementally funded clause--but according to Corps counsel, the agency
only considers contracts with the special clause to be continuing
contracts. Corps counsel stated that the incrementally funded clause
does not include a future funding obligation and is, therefore, not
considered a continuing contract. For the purposes of this review, we
are referring to the special clause when we mention the "new clause."
[18] A protest can be filed with the contracting agency, GAO, and the
U.S. Court of Federal Claims.
[End of section]
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